Hopes that just perhaps we might be getting over the worse of the current financial crisis took a blow in recent days with news that Corus Bankshares Inc., is tottering on the edge of failure. Corus Bankshares Inc is the parent company of the Chicago based Corus Bank. Incorporated over fifty years ago Corus Bank had $7.7 billion in total assets as of March 31, 2009. Corus is part of the NASDAQ Financial-100 Index and the KBW Regional Banking Index and if it fails it will become one of the largest American lenders to fail this year.
Corus gained a high profile as a leading financier of condominium construction, especially in the South Florida area. The collapse of the property market has played a major role in bringing them to their current dire straits where it looks very likely that regulators will take over Corus before August is out. Corus has also warned its own investors that it is standing on the edge.
The anatomy of a bank collapse
Corus Bank concentration on funding condominium development in the Sun Belt states left it particularly exposed to the decline in this sector. For example, the Streamline Tower project near Las Vegas was financed by Corus Bankshares Inc.; over the last five years only 27 of the 275 residential units were sold and Streamline Tower filed for bankruptcy. Bad condominium loans were the main cause of Corus’s lost of $301 in the first quarter of 2009. Corus Bank has now reached a critical situation where it has $2 billion in non-performing loans and another $1.3 billion in potentially problematic loans and these represent a major proportion of their total assets.
Failed negotiations with the OCC
Concerns about the quality of Corus’s loans were already evident in February 2009. The US Office of the Comptroller of the Currency (OCC) instructed Corus to raise capital and take over steps to stabilize their business. In subsequent months the OCC rejected a succession of capital restoration plans proposed by Corus.
Tier 1 capital falls to a critical low level
During the second quarter of 2009 Corus Bankshares Inc., reported a preliminary loss of $487.3 million and acknowledged that they were seriously undercapitalized and could not raise additional capital without the assistance of the FDIC. Tier 1 capital is considered a yardstick of a bank’s protection against bad loans and Corus’s Tier 1 capital fell to a negative $157 million in June. Usually seizure of a bank is not far away when Tier 1 falls to such a low level.
The days ahead
Corus and its financial adviser, Bank of America® Corp., have been trying to find a buyer for Corus but nobody is interested in taking on this challenge without the financial support of the US government.
Some financial experts suspect that the FDIC may face serious challenges finding another bank willing to purchase Corus. Corus’ heavy involvement in commercial property development, and its small number of branches have made it closer in form to a real estate investment rather than a traditional bank. Maybe real estate firms or private-equity funds will be willing to take a gamble on an upturn in the property market and make a bid for Corus’s assets.
Another scenario has the FDIC selling off Corus Bank with a regular bank taking over its branches and deposits while its assets are taken over by an equity fund or real estate business.
Regular depositors with whose deposits fall below the FDIC insurance limits need not be overly concerned, but for those with larger investments and bank employers are facing a period of great uncertainty. It looks like the coming days are going to be crucial. FDIC seizure of Corus is expected by the end of the first week of August.