Regulators Seize Corus Bank
By NICK TIMIRAOS and JESSICA HOLZER
Federal regulators seized Chicago-based Corus Bank on Friday, marking the first major bank to be undone by deteriorating construction and commercial real-estate loans during the current downturn.
The branches and deposits of Corus will be assumed by MB Financial Inc., which has more than $8 billion in assets and over 70 branches in Chicago and its suburbs. MB Financial earlier this month took over the assets, branches and assets of InBank, a small bank based in Oak Forest, Ill.
But the status of Corus' prize assets is still unclear. The company's delinquent condo and commercial real estate loans backed by 111 developments will likely be sold by the FDIC in upcoming weeks. A number of real estate companies and private equity firms have been vying to take those assets over in recent months.
Among those in competition for the condo assets is a venture of Related Cos., Lubert-Adler Partners LP and other investors; a venture of Miami-based developer Crescent Heights and Dallas-based investor Lone Star Funds; Colony Capital LLC and iStar Financial Inc. and Starwood Capital Group.
With total assets of $7 billion, Corus is the third-biggest bank to go bust this year. The FDIC estimates the failed bank will cost its insurance fund $1.7 billion.
The FDIC this year has brokered sales to private investors, including at IndyMac Bancorp and BankUnited. As more private buyers bid on bank assets, regulators have wrestled in recent months over how much control private equity firms should have over banks.
Corus's failure is the latest sign that banks, particularly small and midsize regional lenders, face a new round of pain beyond deteriorating home mortgages. Construction loans accounted for 88% of its outstanding loans at the end of the first quarter, the largest share among any U.S. bank with more than $100 million in loans, according to Foresight Analytics.
Corus, which was owned by holding company Corus Bankshares Inc., concentrated heavily on condo construction lending in South Florida and other overheated housing markets. More than half of the bank's $3.9 billion in condo construction loans were in nonaccrual or foreclosure in April.
Other commercial real estate sectors are also beginning to get clobbered by the recession as evidenced by the recent bankruptcy filings including General Growth Properties Inc. and the Extended Stay Hotels chain. Commercial real-estate loans could trigger another $100 billion in losses at more than 900 small and midsize banks if the economy deteriorates further, according to an analysis conducted earlier this year by The Wall Street Journal.
The bank's failure doesn't come as a big surprise. Federal regulators imposed higher reserve requirements in February, giving the condo lender until mid-June to raise cash or find a buyer. But the bank's sale dragged out as bidders worked over how to value its sprawling and troubled condo assets.
Most of the company's top managers have departed over the past year, including Robert Glickman, the company's longtime chief executive whose father bought the small Minnesota lender in 1966. Mr. Glickman and his father, who last year held about half of the company's stock, have steadily dumped most of their shares for pennies on the dollar since leaving the company in April.
Corus shifted from a student loan and mortgage lender 10 years ago, aggressively ramping up its commercial real-estate lending, first on hotels and office buildings, and later on condos. Even as other lenders pulled back in 2006 and 2007 amid worries about a bubble, Corus plunged ahead.
Many investors questioned that strategy and made bets that a condo bubble would burst by shorting Corus's stock.
Minnesota regulators also shut Brickwell Community Bank, of Woodbury, Minnesota on Friday. CorTrust Bank, N.A., of Mitchell, South Dakota, agreed to assume all of the bank's deposits. The FDIC was appointed receiver.
Write to Nick Timiraos at firstname.lastname@example.org and Jessica Holzer at email@example.com
The silver COT was similar with the large specs piling into the metal and the commercials supplying the stuff.