Bank Failure Friday

These days, you can check your calendar by the FDIC. If it’s Friday, there must be bank failures. Last week was no exception.

This time the closed banks were in the Midwest, Georgia, and California. The biggest fish was United Commercial Bank of San Francisco. That $11 billion bank had over $7 billion in deposits. Its failure will cost the FDIC almost $1.5 billion.

But United Commercial is a special case. In addition to receiving $300 million in TARP money a year ago, it’s had problems with material misstatements in its financials. In September the bank announced that its own reports couldn’t be trusted. The Chief Executive and COO resigned. Apparently they wanted to downplay the effects of the latest downturn.

United Commercial had put a special emphasis on growing its ties with China and cultivating relationships with Chinese-American developers. But as things went south, it looks like China’s shame-culture lowered its gaze. By trying to save face, these executives may have made things worse. Now the bank will be absorbed by a competitor.

The fourth–largest bank failure of the year cost the TARP fund big-time and was worsened by cultural issues. While every insolvent bank is a failure in its own way, let’s hope the combination of overbuilt real-estate and hidden losses doesn’t look come back for a repeat.

Douglas R. Tengdin, CFA
Chief Investment Officer
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