Bailout May Be 3rd Largest Commercial Bank Salvage Operation
WASHINGTON (AP) _ Federal regulators said Wednesday they had seized control of most of MCorp, an $18 billion, Dallas-based bank holding company, pumping in $300 million in what will likely become the third largest commercial bank rescue ever.
The Federal Deposit Insurance Corp. packaged 20 MCorp subsidiary banks into a new, government-owned institution with $15.4 billion in assets and $11.6 billion in deposits. Left alone were five still-solvent subsidiary banks and a trust company.
L. William Seidman, chairman of the FDIC, which insures commercial bank deposits up to $100,000, said the agency will seek buyers for the new institution.
He declined to estimate how much government aid will ultimately be required, saying he did not want to reveal the figure to potential bidders.
Private analysts have said they expect the failure will cost the FDIC, already depleted by a post-Depression record of 221 bank failures last year, $1 billion to $2 billion.
That would make the transaction the third most costly commercial bank rescue, after Continental Illinois of Chicago in 1984 and First RepublicBank of Dallas in 1988, which required initial government pledges of $4.5 billion and $4 billion, respectively. Both, like MCorp, were holding companies.
The FDIC insurance fund suffered its first loss ever in 1988, declining from $18.3 billion to $14 billion. Seidman said the fund should break even this year, even with spending for MCorp.
As part of legislation to bail out the savings and loan industry, President Bush is proposing to build up the commercial bank insurance fund by nearly doubling the deposit insurance premium paid by banks.
Earlier this year, when the FDIC was trying to sell MCorp in its entirety, the agency had set an April 3 deadline for offers, but Seidman said that may be extended.
″We are going to proceed with the sale as promptly as possible,″ he said.
In Dallas, MCorp said the five remaining banks and the trust subsidiary ″form the nucleus of a new beginning for MCorp,″ which intends to file for Chapter 11 bankruptcy protection.
″While the nature of MCorp has been altered dramatically, a solid, healthy core remains,″ Chairman Gene H. Bishop said.
Seidman said the failed banks opened for business today and ″as far as the customers are concerned it will be business as usual.″
MCorp, which has 86 offices, lost $903 million from its banking operations last year. It is the last of the large Texas banks needing to be recapitalized, either through federal rescue or private merger. The bulk of the assets were in the subsidiaries in Dallas, $6.4 billion, and Houston, $3.2 billion.
Until last year, many analysts had thought MCorp, which had not invested as heavily in energy projects as other Texas banks, might survive. But heavy losses on real estate loans evenutally dragged it under.
Comptroller of the Currency Robert Clarke, the chief regulator of nationally chartered banks, said the failures were triggered by demands beginning Monday on the lead bank in Dallas, both from depositors and from the other banks in the holding company.
On Tuesday, ″it became clear as the day wore on that the (Dallas) bank was not going to be able to meet the demands of depositors,″ Clarke said. Five of the banks had been insolvent on their; 15 more failed after the Dallas bank could not meet their demands for deposits. The demands of all outside customers were met, he said.
Federal action was complicated by the fact that regulators legally could not take control of the five MCorp subsidiary banks that remain solvent. A legal battle is developing between private creditors and the FDIC over assets held by the holding company.
Regulators claim holding company assests should be used to defer federal costs in rescuing the insolvent subsidiary banks, but MCorp has resisted.
Seidman declined to say how large the claim against the holding company is except that it is ″substantial.″ The insurance fund last year had been trying to force the holding company to inject $400 million into 18 of its banks.
For future cases, the FDIC is seeking legislation from Congress that would permit it to force solvent subsidiary banks to back up sister institutions that fail.
The FDIC’s move came a week after creditors of MCorp forced it to seek protection under Chapter 11 of the Federal Bankruptcy Code. The holding company had halted payments on $466 million in debt last October but had asked creditors to refrain from pressing their claims while it attempted to work out an assistance agreement with the FDIC.
The FDIC appointed James Gardner, chairman of MBank Dallas, as president of its new government-owned institution. The agency said it will seek a new chairman from outside the MCorp system.
Reportedly among those interested in buying MCorp is A. Robert Abboud, chairman of Houston’s First City Bancorporation, which was itself rescued by the FDIC in 1987 with $1 billion.
Other likely bidders are Kohlberg Kravis Roberts & Co., the Pritzker family of Chicago and a group led by Harry Gray, former chairman of United Technologies Corp.
The 20 MCorp banks seized are MBank Abilene, MBank Alamo, MBank Austin, MBank Brenham, MBank Corsicana, MBank Dallas, MBank Denton County, MBank Fort Worth, MBank Greenville, MBank Houston, MBank Jefferson, MBank Longview, MBank Marshall, MBank Midcities, MBank Odessa, MBank Orange, MBank Round Rock, MBank Sherman, MBank Wichita Falls and MBank The Woodlands.
The five banks remaining solvent are MBank Brownsville, MBank Corpus Christi, MBank Waco, MBank El Paso and MBank New Braunfels. A sixth subsidiary, MTrust Corp., also remains solvent.