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Bank United - Another Us Bank About To Fail?

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CORAL GABLES, Fla. — A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into “Mortgage-ade.” Another promises a “59 Minute Mortgage.”

But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank.

By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its chief executive, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market.

Analysts and a corporate governance group are monitoring the bank’s asset quality and asking why Mr. Camner was allowed, with board approval, to amass a pool of volatile loans that at one point represented 75 percent of the bank’s mortgage portfolio, despite what has since proved to be great risk.

In many ways, Bank United symbolizes the excesses exhibited by the nation’s banks as home prices soared in recent years — and the pain that is afflicting them now that home prices are falling. Florida has been hit especially hard by the housing slump, and so has Bank United.

Since last September, the bank’s share price has plunged 93 percent, twice as much as the Standard & Poor’s 500 Regional Banks index. A year ago, the stock was $15.49 a share but closed on Wednesday at $1.50 a share, after gaining 19 cents.

In an interview, Mr. Camner, who is also the bank’s controlling shareholder, testily defended the bank’s strategy. “We did it for over 10 years,” he said, referring to the bank’s use of a risky but highly attractive product known as an option adjustable-rate mortgage.

“For a very long time, it was an excellent performing package.” he said. “It gave the borrower a chance to manage his money. If they qualified, it was an excellent loan.”

He also dismissed as “completely absurd” and “idiotic” concerns that the bank’s practices have eroded the strength of the bank’s assets, despite a recent revision by one brokerage firm of its shares to underperform.

Around 2003, as the Florida housing market took off, the bank, led by Mr. Camner and Ramiro Ortiz, its president, began promoting option adjustable-rate mortgages. Such loans enable borrowers to defer payments on interest as well as principal. Many banks found a bonanza in these loans, whose full interest expense can be counted as interest income by the bank whether or not the bank actually receives the money, making the loans all but irresistible to promote.

The strategy proved lucrative: Bank United’s assets more than doubled to $15 billion from $7.1 billion in 2003, while its total loans rose to $12.5 billion from $3.9 billion. By last October, the end of the bank’s fiscal year, Mr. Camner had allowed option adjustable-rate mortgages to dwarf overall mortgages three to one.

Whilst there was profit no one cared as it would be only the miserable grumpy f***er in the corner saying yes but what happens when housing turns bad? No one wants to talk to party poopers as they ruin the atmosphere and give everyone smaller bonuses far better to ignore and enjoy the party.

Unfortunately theirs always the morning after when the miserable f***er is there saying I told you so as the redundancy notices are given out.

So will the Fed be quickly nationalising this bank in the not too distant future?

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  • 399 Brexit, House prices and Summer 2020

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