BankUnited has plunged 93 percent since last year
By GERALDINE FABRIKANT
Published: August 6, 2008
CORAL GABLES, Fla. — A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into “Mortgage-ade.” Another promises a “59 Minute Mortgage.”
But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank.
By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its chief executive, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market.
Analysts and a corporate governance group are monitoring the bank’s asset quality and asking why Mr. Camner was allowed, with board approval, to amass a pool of volatile loans that at one point represented 75 percent of the bank’s mortgage portfolio, despite what has since proved to be great risk.
In many ways, Bank United symbolizes the excesses exhibited by the nation’s banks as home prices soared in recent years — and the pain that is afflicting them now that home prices are falling. Florida has been hit especially hard by the housing slump, and so has Bank United.
Since last September, the bank’s share price has plunged 93 percent, twice as much as the Standard & Poor’s 500 Regional Banks index. A year ago, the stock was $15.49 a share but closed on Wednesday at $1.50 a share, after gaining 19 cents.
In an interview, Mr. Camner, who is also the bank’s controlling shareholder, testily defended the bank’s strategy. “We did it for over 10 years,” he said, referring to the bank’s use of a risky but highly attractive product known as an option adjustable-rate mortgage.
“For a very long time, it was an excellent performing package.” he said. “It gave the borrower a chance to manage his money. If they qualified, it was an excellent loan.”
He also dismissed as “completely absurd” and “idiotic” concerns that the bank’s practices have eroded the strength of the bank’s assets, despite a recent revision by one brokerage firm of its shares to underperform.
Around 2003, as the Florida housing market took off, the bank, led by Mr. Camner and Ramiro Ortiz, its president, began promoting option adjustable-rate mortgages. Such loans enable borrowers to defer payments on interest as well as principal. Many banks found a bonanza in these loans, whose full interest expense can be counted as interest income by the bank whether or not the bank actually receives the money, making the loans all but irresistible to promote.
The strategy proved lucrative: Bank United’s assets more than doubled to $15 billion from $7.1 billion in 2003, while its total loans rose to $12.5 billion from $3.9 billion. By last October, the end of the bank’s fiscal year, Mr. Camner had allowed option adjustable-rate mortgages to dwarf overall mortgages three to one.
When the national housing market began to slide, Florida’s imploded. And while the broader banking industry struggled with mounting bad loans, falling home values and a weak economy, Bank United found itself on a particularly slippery slope as its newfound base of risky regional borrowers eroded. From mid-2006 to early 2008, the percentage of its assets designated as nonperforming soared more than fivefold to 4.75 percent.
“The bank clearly did not understand the risks,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We believed that they pursued that business because it drove revenue and earnings growth.”
Indeed, the bank kept expanding. By the end of March, 48 percent of its $9.8 billion residential loan portfolio was outside Florida.
“By opening up offices across the country,” Mr. Ortiz said in an interview, “we were diversifying risk.” But, he added, “we never anticipated a national downturn.”
Now, some analysts fear that continued weakness in the housing market could cause an accumulation of nonperforming loans. Although losses as of May 31, were small, Mr. Cassidy said the ratio of nonperforming loans was high relative to other banks. For example, at the National City Corporation, an Ohio bank that expanded into Florida in recent years, the ratio is about 2 percent, less than half that of Bank United.
“The bank is currently well capitalized,” Douglas Rainwater, a banking analyst at Janney Montgomery Scott, said of Bank United. “But given the amount of nonperforming loans and the trend in their growth, losses would most likely increase substantially at some point.”
For the Corporate Library, an independent governance group based in Portland, Me., that is tracking the bank, the bank’s board also appears not to have fully understood the risks the company was taking. Mr. Camner’s compensation, which ballooned to $5.64 million, including a salary of $475,000, had grown “way out of whack” compared with other institutions its size, the group said.
“Outrageous compensation often signals a failure of oversight and backbone, so it often correlates to poor performance for shareholders in other categories,” said Nell Minow, the editor of the Corporate Library. “A board that can’t say no to outrageous pay requests can’t say no to poor strategy.”
In the interview, Mr. Camner repeatedly bristled at the criticisms and grew angry when a reporter asked questions about his compensation package, saying everything was fully disclosed.
It was apparently not the first time the bank had reacted strongly to questions it felt were critical.
When John Pandtle, then an analyst for the financial services company Raymond James, rated Bank United’s stock as underperform in February, the bank declined to allow Raymond James to participate in a meeting with investors and analysts.
In a note, Mr. Pandtle told clients the bank’s executive management had repeatedly refused to take phone calls and e-mails “seeking information about several areas where we have fundamental concerns, including rapidly deteriorating asset quality.” Mr. Pandtle declined to comment for this article.
Mr. Camner’s family ties have also been questioned by the Corporate Library. One daughter, Danielle, was previously at the bank but has left. Another daughter, Lauren, is a senior vice president and still serves on the board.
Meanwhile, Mr. Camner remains senior managing partner of Camner Lipsitz and Poller, a law firm that reaped $12 million in fees from the bank over the last three years, and where a third daughter, Errin, is the managing director.
Both Ms. Minow and Mr. Rainwater wondered whether these relationships were in the interest of shareholders. “If you bid the business out to other law firms,” said Mr. Rainwater, “perhaps you could save some money for shareholders.”
Today, Bank United is sufficiently eager to raise money that Mr. Camner has agreed to give up the supervoting shares that have given him control of the bank he founded 24 years ago, if the bank is able to raise $400 million from investors.
“There is a reality,” he said. “We need to conform to corporate governance, meaning that almost every company has one class of stock; there is only so long that you can have two classes.”
Still, he defended his income and other benefits, saying that everything the company has done was fully disclosed. “There is an independent committee that passes on everything,” he said.
http://www.nytimes.com/2008/08/07/business/07florida.html
By GERALDINE FABRIKANT
Published: August 6, 2008
CORAL GABLES, Fla. — A cheerful sign outside the glistening offices of Bank United beckons consumers to tap into “Mortgage-ade.” Another promises a “59 Minute Mortgage.”
But easy money, it turns out, has created enormous problems at Bank United, Florida’s biggest regional bank.
By aggressively peddling a popular type of high-interest loan to risky borrowers, the bank tripled its profits in 2006 as real estate on Florida’s Gold Coast peaked, only to lose nearly $100 million in late 2007 and early 2008 as the market cratered. Now, its chief executive, Alfred R. Camner, is scrambling to raise $400 million in capital, an amount nearly eight times the bank’s shriveled value on the stock market.
Analysts and a corporate governance group are monitoring the bank’s asset quality and asking why Mr. Camner was allowed, with board approval, to amass a pool of volatile loans that at one point represented 75 percent of the bank’s mortgage portfolio, despite what has since proved to be great risk.
In many ways, Bank United symbolizes the excesses exhibited by the nation’s banks as home prices soared in recent years — and the pain that is afflicting them now that home prices are falling. Florida has been hit especially hard by the housing slump, and so has Bank United.
Since last September, the bank’s share price has plunged 93 percent, twice as much as the Standard & Poor’s 500 Regional Banks index. A year ago, the stock was $15.49 a share but closed on Wednesday at $1.50 a share, after gaining 19 cents.
In an interview, Mr. Camner, who is also the bank’s controlling shareholder, testily defended the bank’s strategy. “We did it for over 10 years,” he said, referring to the bank’s use of a risky but highly attractive product known as an option adjustable-rate mortgage.
“For a very long time, it was an excellent performing package.” he said. “It gave the borrower a chance to manage his money. If they qualified, it was an excellent loan.”
He also dismissed as “completely absurd” and “idiotic” concerns that the bank’s practices have eroded the strength of the bank’s assets, despite a recent revision by one brokerage firm of its shares to underperform.
Around 2003, as the Florida housing market took off, the bank, led by Mr. Camner and Ramiro Ortiz, its president, began promoting option adjustable-rate mortgages. Such loans enable borrowers to defer payments on interest as well as principal. Many banks found a bonanza in these loans, whose full interest expense can be counted as interest income by the bank whether or not the bank actually receives the money, making the loans all but irresistible to promote.
The strategy proved lucrative: Bank United’s assets more than doubled to $15 billion from $7.1 billion in 2003, while its total loans rose to $12.5 billion from $3.9 billion. By last October, the end of the bank’s fiscal year, Mr. Camner had allowed option adjustable-rate mortgages to dwarf overall mortgages three to one.
When the national housing market began to slide, Florida’s imploded. And while the broader banking industry struggled with mounting bad loans, falling home values and a weak economy, Bank United found itself on a particularly slippery slope as its newfound base of risky regional borrowers eroded. From mid-2006 to early 2008, the percentage of its assets designated as nonperforming soared more than fivefold to 4.75 percent.
“The bank clearly did not understand the risks,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We believed that they pursued that business because it drove revenue and earnings growth.”
Indeed, the bank kept expanding. By the end of March, 48 percent of its $9.8 billion residential loan portfolio was outside Florida.
“By opening up offices across the country,” Mr. Ortiz said in an interview, “we were diversifying risk.” But, he added, “we never anticipated a national downturn.”
Now, some analysts fear that continued weakness in the housing market could cause an accumulation of nonperforming loans. Although losses as of May 31, were small, Mr. Cassidy said the ratio of nonperforming loans was high relative to other banks. For example, at the National City Corporation, an Ohio bank that expanded into Florida in recent years, the ratio is about 2 percent, less than half that of Bank United.
“The bank is currently well capitalized,” Douglas Rainwater, a banking analyst at Janney Montgomery Scott, said of Bank United. “But given the amount of nonperforming loans and the trend in their growth, losses would most likely increase substantially at some point.”
For the Corporate Library, an independent governance group based in Portland, Me., that is tracking the bank, the bank’s board also appears not to have fully understood the risks the company was taking. Mr. Camner’s compensation, which ballooned to $5.64 million, including a salary of $475,000, had grown “way out of whack” compared with other institutions its size, the group said.
“Outrageous compensation often signals a failure of oversight and backbone, so it often correlates to poor performance for shareholders in other categories,” said Nell Minow, the editor of the Corporate Library. “A board that can’t say no to outrageous pay requests can’t say no to poor strategy.”
In the interview, Mr. Camner repeatedly bristled at the criticisms and grew angry when a reporter asked questions about his compensation package, saying everything was fully disclosed.
It was apparently not the first time the bank had reacted strongly to questions it felt were critical.
When John Pandtle, then an analyst for the financial services company Raymond James, rated Bank United’s stock as underperform in February, the bank declined to allow Raymond James to participate in a meeting with investors and analysts.
In a note, Mr. Pandtle told clients the bank’s executive management had repeatedly refused to take phone calls and e-mails “seeking information about several areas where we have fundamental concerns, including rapidly deteriorating asset quality.” Mr. Pandtle declined to comment for this article.
Mr. Camner’s family ties have also been questioned by the Corporate Library. One daughter, Danielle, was previously at the bank but has left. Another daughter, Lauren, is a senior vice president and still serves on the board.
Meanwhile, Mr. Camner remains senior managing partner of Camner Lipsitz and Poller, a law firm that reaped $12 million in fees from the bank over the last three years, and where a third daughter, Errin, is the managing director.
Both Ms. Minow and Mr. Rainwater wondered whether these relationships were in the interest of shareholders. “If you bid the business out to other law firms,” said Mr. Rainwater, “perhaps you could save some money for shareholders.”
Today, Bank United is sufficiently eager to raise money that Mr. Camner has agreed to give up the supervoting shares that have given him control of the bank he founded 24 years ago, if the bank is able to raise $400 million from investors.
“There is a reality,” he said. “We need to conform to corporate governance, meaning that almost every company has one class of stock; there is only so long that you can have two classes.”
Still, he defended his income and other benefits, saying that everything the company has done was fully disclosed. “There is an independent committee that passes on everything,” he said.
http://www.nytimes.com/2008/08/07/business/07florida.html
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