Federal authorities seized Newport Beach-based Downey Savings and Loan as the thrift fell below capital requirements to stay in business, authorities said late Friday.
The Federal Deposit Insurance Corp. announced it was turning over management of the 51-year-old thrift to Minneapolis-based U.S. Bank. As part of the same action, the FDIC also turned over Pomona-based PFF Bank & Trust to U.S. Bank.
The combined 213 branches of the two failed banks will operate under normal hours Saturday.
“Depositors will automatically become depositors of U.S. Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the announcement said.
Under the takeover deal, U.S. Bank will be responsible for the first $1.6 billion in losses. Customers with mortgages will be eligible for loan modifications similar to plans offered to clients of IndyMac Bank, which the FDIC seized in July.
Downey Financial Corp., which opened its first branch in Downey in 1957, grew into a regional bank with $13.9 billion in assets, 170 branches in California and Arizona and more than 1,800 employees.
Downey is the largest Orange County-based federally-insured bank to face a takeover in the current crisis. Also Friday, the FDIC seized the Community Bank in Loganville, Ga., which had total assets of $681 million.
Downey’s demise had long been anticipated. The stock closed Friday at 18 cents, down from $40.93 on Nov. 30, 2007.
The takeover came as a surprise to Downey employees. Calls placed to four Orange County branches around 6 p.m. closing time were answered by denials of a takeover.
In an earnings report released Nov. 10, Downey warned of “a significant risk that the bank will not be able to raise sufficient additional capital” to remain in compliance with regulators.
Downey reported a loss of $548 million in the first nine months of 2008 compared to a net income of $52 million for the same period in 2007. The bank reported its non-performing assets soared to $2 billion as of Sept. 30, or 15.7 percent of total assets. In September 2007, just 2.94 percent of Downey’s total assets were non-performing.
More than half of Downey’s adjustable rate mortgages were so-called “negative amortization” loans, which allowed borrowers to make small payments while the loan balance grew. Negative amortization loans had high default rates as borrowers were unable to refinance because of tightening credit and falling property values. About 90 percent of the real estate securing Downey’s loans was in California, where values plunged over the past two years.
On Friday, before the FDIC action, Standard & Poor’s downgraded the bank’s debt rating two levels to CCC-, two grades above bankruptcy and nine levels below investment grade.
“Quarterly losses have eroded capital to the point where we believe it will be very difficult for Downey to maintain adequate capital in the current economic environment,” S&P said.
For a map of Downey’s Orange County branches, click HERE.
You can read the full text of the FDIC announcement HERE.
Previous Downey stories …
- Downey Savings raises doubts about its survival
- Downey eyes government bailout
- Downey Financial to cut staff, stop using mortgage brokers
- Downey Financial taps retired S&L chief as CEO
- Downey downgraded
- Regulators order Downey Financial to raise capital
- Downey halts deposit exodus
- Downey president leaves, company mum on cause
- Downey, WaMu, Indymac plummet in thrift industry rankings
- Downey reports $248 million loss, says reduced pay-option loans
another group of slick Orange County ‘financial experts’! are there any intelligent and honest bankers in Orange County?
i’m sure the executives are all still driving their cheesy AMG’s even after the taxpayers are mopping up their sleezy business practices!
Orange County needs to rot for about 10 - 15 years in order to learn a lesson about ethical business dealings! Clean out the slime and get back to reality.
This is really scary now ~ How is LaJolla Bank doing?
wowee, this is getting crazzyy. what’s next? Wells Fargo? Disneyland?
15% nonperforming assets! Give me a bank to run. You’ll never see the bank ever have 15% nonperforming assets.
Most bank tellers I talked to (IndyMac, WaMu, and Downey) were completely in the dark about the high probability of FDIC take over. They were either completely ignorant, or they were told by their management never to admit it.
Doo Doo Doo…Another One Bites the Dust! And another one gone, and another one gone, Another One Bites the Dust. Hey, they’ll get La Jolla too, Another One Bites the Dust!
Will any of the excecutives ever be prosecuted for this? Do they get to keep their retirements? Disgusting.
Steve, Downey had branches in OC, but it was not based here. You must have missed that part of the story.
Actually being a teller at downey myself we were well aware of the possibility of a take over and worried every day for the sake of our jobs, how we were going to be able to make our house payments, continue school, take care of our kids. Why dont you think of that before you start making ridiculous comments. Management never asked us to not admit it. In fact its always been told that there was the possibility.
although it was expected, the closing of Downey Savings is still very sad. My heart goes out to the people who are going to lose their jobs. It’s pretty scary to see so many financial institutions falling.
Just yesterday alone the FDIC took over 3 banks, 2 in Southern California.
http://www.fdic.gov/
I moved all my liquid assets to the bank of Simmons pillowtop. Now I sleep great.
It’s always sad when “good” workers loose their jobs, but as an ex employee of 8 years I couldn’t be happier. The executives and the former CEO are all slimy, greedy bastards especially the women execs.
WE ARE SEEING THE DECLINE OF THE AMERICAN EMPIRE.
Right, anytime i want some inside info on whats going on at a bank I am going to talk to a teller, those part time csr’s always got the inside scoop, please…..
Your going to have another empty office building in OC and right across the street there will be tumbleweeds in the Fletcher Jones parking lot.
SAME ACTIVITY AS 1989-2000…….1500 BANKS CLOSED….GREEDY BANKERS…WHEN GREED TAKES THE LEAD….PIGS GET SLAUGHTERED.. FDIC BANK SUPERVISION MUST HAVE BEEN ASLEEP..HOW CAN YOU ALLOW THIS TYPE OF MANAGEMENT….
This is another really scary part of the of the capital market meltdown.
Downey was a conservative and well-run bank. It was not flashy, not fast and loose, and certainly not irresponsible. The economic and market conditions that caused the FDIC to take over Downey because of increasing loan defaults are exactly the same ones that are going to hurt ALL of us eventually.
Copy this link into your browser to see the market risk section of Downey’s 11-10-08 10- Q report (quarterly statement) filed with the SEC):. http://ccbn.tenkwizard.com/filing.php?param=&ipage=5968964&DSEQ=1&SEQ=79&SQDESC=SECTION_PAGE&exp=&TK=DSL&CK=0000935063&FG=0&CK2=935063&FC=000000&BK=FFFFFF&SC=ON&TC1=FFFFFF&TC2=FFFFFF&LK=0000FF&AL=FF0000&VL=800080
The words in Downey’s SEC filing tell it all. The real cause of the takeover is the fallout from the credit market “freeze-up”.
Many readers of the Register make flip and truly ignorant comments about: the lenders that have or are going under, and about: how irresponsible they have been; how dumb and irresponsible the borrowers are for taking out the “toxic loans”; and, how they, the commenters, that is, would never allow such things to occur.
Wise up, people. The complete and sudden failure of the securitized lending system (derivatives included) and the resulting credit market “freeze-up” is what is affecting the financial well being of the USA, and each one of us. This credit market “freeze-up” will continue to affect all of us for years to come, no matter what we do to fix it.
The capital provided to fund all of the securitized loan programs during the past 10 or 15 years, however good or bad the programs were (I am NOT trying to defend any of them, either), gave all of us significant borrowing liquidity that was simply NOT available elsewhere. This capital raising system replaced the nonexistent savings capital provided by our by investor savings accounts and bank deposits in times past, and by similar investors and depositors in other economies where people actually have savings accounts. By the way, this system includes capital provided to fund home loans through most any lender (including FNMA, GNMA and Freddie Mac), SBA loans to small businesses, auto loans, credit card loans, student loans, and commercial real estate loans, and more.
When the securitized capital raising system died, our collective capital liquidity disappeared. It must be replaced.
The question to all readers, and specifically to the flip commenters, is: “What are you doing to help this capital market “freeze-up” get fixed?”
Stop with the flip comments and make some positive suggestions and comments, if you can or even care to, about how to fix this problem. This capital market “freeze-up” will not go away unless we, the public, do something to fix it. And yes, it is very complicated. But it can and must get fixed. Our children’s future well being depends on what we do.
Does anyone remember the movie “Network” where the news commentator character got the public to lean out of their windows and pound pots and pans and yell “…I’m mad as hell and I am not going take it anymore…”? I feel we are at the same point of frustration and anger, except this time its not a movie!
For people who are worried about other banks. Bankrates.com has a way to check out other banks if you want to put money in CD’s or savings accounts. It rates them for security of investment.
I really feel bad for those people that are loosing their homes due to those negative loans and for the people that have lost their jobs. But I honestly think the reason why Downey went down was due to poor management. If Downey had a strong management I think it would still remain open…..
Fixit -
Much of what you say is true, but many would argue that too much liquidity has been available thanks to the investors — foreign and otherwise — who bought ABS. All that liquidity allowed lenders to relax their standards too much, resulting in high-limit credit cards for all, 84-month car loans with the balance from the previous loan rolled into the new, and stated income mortgages on overpriced houses.
Lenders just don’t have the incentive to vet their borrowers as thoroughly when they can sell the mortgage to some sucker after passing it through Wall St. Many lenders began to discover in 2005 that they could not sell some of the loans they were making. But, their business model depended on making those loans, and they thought that they would figure something out sooner or later. So, they kept making those bad loans but held on to them as assets. Then, when those loans started to go bad, they got burned by their own poison at the same time or a little after the investors in previous mortgages had been burned.
The solution is “simple”. People save more, and banks can lend to each other, like they did for decades before, rather than depending so much on foreign capital. The global banking system isn’t going anywhere, but the liquidity bubble will not re-inflate. Of course, many people will not have access to credit, so consumer spending will decline and house prices will decline, and that will make us rethink our economy.
This is the end of the middle class. Our Congressmen are okay with the FDIC and the Fed taking over banks, so that the banks aren’t allowed to make loans to people.
I bet the repo man is busy in Orange County,
while these Congressmen and the SEC continue to let Wall Street get pardoned.
Oh, yes, those guys will get pardoned……and you can’t do anything about it.
California will be the barter capital of the world, and will keep sending Ebay business. Pawn shops will thrive as well.
“Ava” obviously did not know her place of business or her executives because they were the farthest from greedy!!! Hence! The CEO did not take his retirement!!! and like most employees of Downey loved working for the bank and had stayed there for a number of years remaining loyal to their company and to Mac McAlister because of the comradity and family like environment of the company! I being an ex-employee for 17 years!
You all should know what you are talking about first before writing and each of you look foolish and immature.
Also, “This is not an exit!” Downey was based here! It’s headquarters was/is in Newport Beach!
guarantee the FDIC would not have gotten in there if the former CEO and Mr. McAlister was still there! They are good honest hardworking men who like the rest of us got caught up this bad economy and its sad for us all!
YOU GO KEN!!!
Negative people needs to let go of whatever anger they have towards Downey’s management.. Get over it!! Let Go & Let God!!!
My sister works for Downey, she has always been happy with Downey, I wish all their employees the best, and hope they all get to keep their jobs.
I am also a former Downey Savings employee who worked at several branches in San Diego County for 9 years until August 2006 when I moved to Tucson, AZ…
If I decided to stay in California with my wife, I would still be proudly working at Downey Savings. The employer and the people made it the best job I had up to that point in my life. Downey was also customer-service oriented and focused on building relationships. I will miss them and wish and pray the best for those who I know that still work there.
Daniel H.