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Puerto Rico Banks In Trouble, Potential Cost To The FDIC: $10 Billion

From Wall Street Journal:

"The Federal Deposit Insurance Corp. faces a daunting task in finding a solution for the broken banks in Puerto Rico that doesn't damage the surviving banks or the island's economy.

The FDIC is trying to minimize its potential loss from three weak Puerto Rican banks by drumming up interest among banks and private-equity investors in buying W Holding Co Inc.'s Westernbank, R&G Financial Corp.'s R-G Premier Bank, and EuroBancshares Inc.'s EuroBank, according to several people familiar with the matter. All three banks are in dire financial condition; closing them could cost the FDIC insurance fund as much as $10 billion, based on worst-case losses from recent bank failures"

Geez, $10 BILLION!!!

Why weren't they closed earlier when they first became insolvent?

Who was the incompetent primary federal regulator that allowed their assets to depreciate so drastically?

"Bank Charter Class
A classification code assigned by the FDIC based on the institution's charter type (commercial bank or savings institution), charter agent (state or federal), Federal Reserve membership status (Fed member, Fed nonmember)and its primary federal regulator (state chartered institutions are subject to both federal and state supervision).
  • N = commercial bank, national (federal) charter and Fed member, supervised by the Office of the Comptroller of the Currency (NASDAQ:OCC)
  • SM = commercial bank, state charter and Fed member, supervised by the Federal Reserve (NYSE:FRB)
  • NM = commercial bank, state charter and Fed nonmember, supervised by the FDIC
  • SB = savings banks, state charter, supervised by the FDIC
  • SA = savings associations, state or federal charter, supervised by the Office of Thrift Supervision (OTS)
  • OI = insured U.S. branch of a foreign chartered institution (NYSE:IBA)"

Let us find out!

"Cert Institution Name City State Class Total Assets($000) 12/31/2009
Call/TFR Report?
34968 Banco Popular de Puerto Rico Hato Rey PR SM 23,271,000 Yes
30387 Firstbank of Puerto Rico Santurce PR NM 19,616,388 Yes
31027 Westernbank Puerto Rico Mayaguez PR NM 11,938,184 Yes
32102 Doral Bank San Juan PR NM 9,288,322 Yes
20828 Banco Santander Puerto Rico San Juan PR NM 6,591,027 Yes
31469 Oriental Bank and Trust San Juan PR NM 6,412,164 Yes
32185 R-G Premier Bank of Puerto Rico Hato Rey PR NM 6,061,232 Yes
19919 Banco Bilbao Vizcaya Argentaria Puerto Rico San Juan PR NM 5,519,043 Yes
27150 Eurobank San Juan PR NM 2,561,343 Yes
22946 Scotiabank de Puerto Rico San Juan PR NM 1,775,127 Yes"

What, the FDIC?

Westerbank, Class NM, check.

R-G Premier Bank, Class NM, check.

Eurobank, Class NM, check.

All three banks had the FDIC as their primary federal regulator?

How could that be?

I thought the FDIC was mandated to find the least costly solutions!!!

Oh, wait, but that mandate only applies after the banks fail.

Apparently these banks have not failed yet, as determined by the FDIC, even though total costs now already amount to $10 billion!

Here is what I predict.

The FDIC will soon close these banks. 

It will sell all the deposits and good assets to private investors like those at OneWest and share billions in losses. 

It will keep all the junk and sell them to Public Pension Funds with guarantees.

Private investors will then post record profits, like OneWest.

"OneWest Bank profit: $1.6 billion",0,880625.story

Pension Funds will lose all their money, like the Maiden Lanes, and since the FDIC is in the red, the retirees/taxpayers will suffer double the pain.

"Exposing Bear Stearns Assets... The portfolio, which has a notional value of $74.8 billion but which is valued on the Fed's balance sheet at just $27 billion, offers a picture of how structured finance led investment banks away from their standard intermediary role to one in which they held large long-term positions on their balance sheets."

But most importantly, all the power players involved will all be gone by then and nobody will be held accountable.