by Tanta on 5/26/2007 08:43:00 AM
Saturday, May 26, 2007
In a fairly anti-climactic development Friday, Coast Bank of Florida managed finally to get slapped with a Cease and Desist Order by the FDIC. The share price plummeted 5.7% late in the day, which would have been more dramatic if that didn't equal 17 cents. The CEO, whom everybody but Coast, the FDIC and the CEO had pretty much already decided back in January lacked the ability to run a Christmas Club account, let alone a state-chartered bank, was given a cardboard box to collect the mementos of his 20-year career in banking, which apparently never at the relevant point accrued enough "experience" to enable him to distinguish between a "construction loan" and "speculating with deposits."
Now, to be fair, this wasn't "anti-climactic" to everybody. Apparently Tramm Hudson, the local Florida éminence grise to whom Coast has been paying $25,000 a month in consulting fees since that day in February when the Chairman of the Board was hospitalized for chest pains, was still convinced back on May 12 that a C&D wasn't inevitable:
Jim Schutz, a bank analyst with Birmingham, Ala.-based investment services firm Sterne Agee, said he thought it possible the FDIC will issue a "cease and desist" order to the bank, which may prohibit certain activities including hiring, branch expansion, making certain investments, making acquisitions, or raising certain types of funds, including broker deposits.
Hudson said the expected regulatory action could also be an "MOU," or a "memorandum of understanding," between the bank and regulators which would stipulate "certain agreed-upon actions."
Of course you want to put these things into perspective. According to James K. Toomey, Chairman of the Board of Coast Financial Holdings, Inc.:
“While a C&D order is a directive for the bank to take certain actions, in many respects it may also enhance our plans to resolve recent issues which have impacted the performance of the bank.”
I myself often view a C&D as an "enhancement of the plan." Actually, so does the FDIC:
IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from the following unsafe and unsound banking practices and violations of laws and/or regulation:
(a) operating with a board of directors that has failed to provide adequate supervision over and direction to the active management of the Bank;
(b) operating with inadequate management;
(c) operating with inadequate equity capital in relation to the volume and quality of assets held;
(d) operating with an inadequate allowance for loan and lease losses (“ALLL”);
(e) operating with ineffective audit programs;
(f) operating with inadequate oversight of the loan portfolio and concentrations of credit;
(g) operating with an excessive volume of poor quality loans;
(h) following hazardous lending practices and operating with an inadequate loan policy;
(i) operating with inadequate liquidity and funds management;
(j) operating with inadequate strategic planning;
(k) operating in such a manner as to produce low earnings;
(l) operating with excessive exposure to interest rate risk;
(m) operating in violation of laws and regulations and in contravention of Statements of Policy as more fully described on pages 21 through 30 of the Report of Examination dated January 29, 2007 (“Report”); and
(n) operating with an information security program, risk assessment of the Information Technology (“IT”) area, IT audit, and a Disaster Recovery Plan that are inadequate.
Not only did they have an inadequate Plan B, they apparently didn't back it up on a disk, either. But fear not, the consultant is on the case:
"We believe this order provides a good road map for the bank for working through these problems, " spokesman Tramm Hudson said.
There's nothing like a good road map.