US shuts down two more banks

US shuts down two more banks
27 July, 2008

THE US Treasury has shut down two affiliated western banks as the impact of the US real estate crash rolls through the country's financial institutions.

Late on Friday, the Treasury's Office of the Comptroller of the Currency took over First Heritage Bank of Newport Beach, California, and First National Bank of Nevada, based in Reno, Nevada, declaring both under-capitalised and facing losses that would wipe out their capital.

'The 28 offices of the two banks will re-open on Monday as branches of Mutual of Omaha Bank,' the Federal Deposit Insurance Corporation said in a statement.

'All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits.'

In addition to taking over the deposits, Mutual of Omaha Bank will pay US$200 million (S$700 million) for assets of the two closed banks, which are now in receivership under FDIC control.

The closures took to 10 the number of banks closed in the country in the past 18 months, as the collapse of real estate prices, the spread of mortgage defaults and the crumbling of the markets for billions of dollars worth of securities tied to mortgages.

Earlier in July, the FDIC seized control of the large IndyMac Bank, which was weakened by heavy exposure to risky subprime mortgages and collapsed after a run by depositors.

The closures also came as the US Congress approved a package of measures to shore up Fannie Mae and Freddie Mac, the two huge publicly-owned, government-chartered home finance banks that touch some 50 per cent of all mortgages in the country.

Both the newly closed banks were owned by First National Bank Holding Co of Scottsdale, Arizona.

With 25 branches, the 20 year old First National Bank of Nevada had US$3.4 billion of assets on its books, the OCC said.

It said the bank was weakened by 'unsafe and unsound practices,' it said.

First Heritage Bank had three branches and about US$250 million in assets.

According to the Los Angeles Times, the two sister banks focused their lending on the real estate markets in Nevada and Arizona.

Both regions experienced huge booms in building between 2002 and 2006, and have since been the sites of some of the sharpest plunges in home prices across the country, and the highest rates of home loan defaults. -- AFP