Last Updated Sep 14, 2009 2:44 PM EDT
Privately held FBOP is owned by real estate mogul Michael Kelly. The company has eight subsidiaries and a combined $18.3 billion in assets, making it one of the 50 largest bank holding companies in the U.S.
FBOP has been badly damaged by the real estate bust and also lost a bundle on investments in Fannie Mae and Freddie Mac. As a result, the company is now "critically undercapitalized." As of June 30, the company had a Tier 1 leverage ratio of 0.34 percent, down from 9.1 percent in the year-ago period and far below the level to be considered adequately capitalized.
Three of the company's four largest branches are in hard-hit California -- Los Angeles-based California National Bank, with $7 billion in assets; San Diego National Bank ($3.3 billion); and San Francisco's Pacific National Bank ($2.1 billion) -- where loan defaults and delinquencies are rising. FBOP also owns banks in Texas and Arizona, where loans related to real estate have also deteriorated.
The OCC in May ordered California National to increase its capital ratios. In its last call report, which commercial banks are required to file quarterly, FBOP said in June that California National "maintains strong liquidity and solid core earnings" and that it expected the bank to "exceed" regulatory capital standards by Sept. 30.
Loan problems have also been building at San Diego National, which reported a net loss of $40.6 million for the first half of 2009. In August, for example, two luxury hotels to which the bank, along with another lender, had made loans -- the InterContinental Chicago O'Hare and the Radisson hotel at Los Angeles International Airport -- went bankrupt.
FBOP desperately needs capital. Fast. The company applied for, but has yet to receive, TARP funding. One option would be to sell its Madisonville State Bank and North Houston Bank branches in Texas. The institutions are small, which wouldn't net their parent company much dough. But the state is still regarded as a desirable place for banks to do business, and other institutions have been snapping up assets in Texas, which might help FBOP move quickly.
Still, this situation looks like a death spiral.