By Ernest Bey
Two more loss-battered Southern California banks were shut down by regulators Friday and immediately sold to two of the largest financial institutions based in the region.
Stung by defaults on tricky adjustable mortgages, 80-year-old First Federal Bank of California was closed by federal savings and loan regulators, with its 39 branches to reopen today as part of OneWest Bank.
Pasadena-based OneWest, created early this year from the ashes of collapsed home lender IndyMac Bank, agreed to assume all of First Federal's deposits, so no customers will lose money, the Federal Deposit Insurance Corp. said.
In Friday's other California failure, Imperial Capital Bank of La Jolla, rocked by troubled loans for apartments and commercial mortgages, was dealt off by the FDIC to City National Bank of Los Angeles, which is emerging as one of the survivors of the banking industry's near-meltdown.
Like OneWest, City National agreed to assume all of the acquired bank's deposits, even amounts that exceeded the FDIC's caps on insurance coverage.
Imperial Capital's nine branches -- six in California, one in Maryland and two in Nevada -- are to reopen Monday as City National offices.
City National was the largest commercial bank with headquarters in Southern California until Pasadena's East West Bank agreed last month to take over a failed rival in the Chinese American niche, San Francisco's United Commercial Bank. That deal beefed up East West, giving it $19 billion in assets to City National's $18 billion.
The latest combinations gives City National more than $21 billion in assets and OneWest about $24 billion, although such comparisons matter little given the fact that the acquirers will have to spend much of their time downsizing by working through portfolios of distressed loans. Indeed, OneWest's balance sheet is still stuffed with IndyMac loans that had been targeted for sale before the private market for mortgages dried up, although the FDIC is sharing losses on those loans.
The failures bring to 140 the number of U.S. banks that have gone under this year as many loans made during the housing boom earlier this decade have soured.
Of California's 16 bank failures this year, First Federal and Imperial Capital rank No. 3 and No. 4, respectively, based on total assets.
OneWest is owned by a group of private equity investors that teamed up this year to buy IndyMac Bank from the FDIC months after the Pasadena thrift failed under the weight of defaults on lightly documented loans. The investors had said they hoped to buy nearby banks that also had run into problems with residential mortgages.
First Federal, a savings and loan originally based in Santa Monica, fit that description, having booked $547 million in losses over the last seven quarters on so-called pay-option adjustable-rate mortgages. Such loans, also known as option ARMs, allowed borrowers to pay so little each month that their loan balances could increase.
Babette Heimbuch, chief executive of First Federal and its parent company, FirstFed Financial Corp., tendered her resignation last week. The S&L had $6.1 billion in total assets and $4.5 billion in deposits as of Sept. 30.
In addition to assuming all of the deposits of the failed bank, OneWest agreed to purchase essentially all of the assets, with the FDIC absorbing some of the losses on them.
OneWest also announced that it would join in what is becoming an industry-wide moratorium on home foreclosures during the holiday season.
City National, which recently moved its headquarters from Beverly Hills to Los Angeles, serves mostly wealthy individuals and small businesses. It has remained well-capitalized despite recent losses on construction and commercial lending.
Imperial Capital, with $4 billion in assets and $2.2 billion in deposits, failed to meet a Dec. 14 deadline set by state regulators to raise $200 million in capital. It had lost $112 million in the first three quarters of this year.
City National is taking on about $3.4 billion of Imperial Capital's assets. The FDIC agreed to assume a portion of future losses on those assets. The agency said it would keep the remainder of Imperial Capital's portfolio for now.
"Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve," Russell Goldsmith, chief executive of the bank and its parent company, City National Corp., said in a statement.
Because some of Imperial Capital's branches are close to City National locations, Goldsmith said he expected that some branches would be closed. But others, such as Imperial's San Francisco site, will be added to City National's existing 64-branch network, he said.
"We haven't made any final determinations yet," he said.
Neither acquiring bank released details about layoffs, which normally follow bank mergers because they tend to create overlap not only in the branches but also in back-office operations.
City National said it would keep Imperial Capital's 140 employees on the payroll, with health benefits, through the holidays while studying the issue.
The failure of First Federal is expected to cost the deposit insurance fund $146.3 million. Losses on Imperial Capital's failure were estimated at $619.2 million.
Earlier Friday, regulators closed five banks in other states: RockBridge Commercial Bank in Atlanta; New South Federal Savings Bank of Irondale, Ala.; People's First Community Bank of Panama City, Fla.; Independent Bankers' Bank of Springfield, Ill.; and Citizens State Bank, New Baltimore, Mich.