Big L.A. bank is latest to fail

Regulators seized Los Angeles-based California National Bank on Friday night in the country’s fourth-largest bank failure this year.

The 68-branch bank, a unit of FBOP Corp., was immediately acquired by the U.S. Bank unit of Minneapolis-based U.S. Bancorp, with no losses to be incurred by depositors, the Federal Deposit Insurance Corp. said.

The branches, mostly in Los Angeles and Orange counties, were set to reopen as usual Saturday or Monday as branches of U.S. Bank, which has been expanding rapidly in Southern California.

Eight smaller banks owned by FBOP, a privately held Oak Park, Ill., company, were also taken over by regulators and acquired by U.S. Bank. They include San Diego National Bank, with 28 offices, and San Francisco’s Pacific National Bank, which has 17.

The collapse of FBOP’s banks, attributed to losses on securities issued by the giant mortgage companies Fannie Mae and Freddie Mac, was the latest in a rash of financial failures that began last year with government takeovers of 25 banks. Before Friday, 106 U.S. banks had failed this year.

California National Bank, with $7.8 billion in assets and $6.2 billion in deposits, is the fourth-largest commercial bank based in Los Angeles County. Only City National Corp., East West Bancorp and Cathay General Bancorp are larger.

FBOP’s owner, billionaire Michael Kelly, didn’t return a call seeking comment.

But in a letter to employees, obtained by KTLA-TV Channel 5, Kelly said the holding company and its banks had owned $855 million in preferred shares of Fannie Mae and Freddie Mac, which became worthless when the government placed the firms into conservatorship in September 2008.

FBOP had hoped last fall that it could get money from the Treasury Department’s $700-billion financial bailout fund, Kelly said. But in the end, he said, changes in the program “meant that we were no longer eligible.” A Treasury spokesman couldn’t be reached Friday for comment.

Kelly said FBOP had been working to obtain $750 million from private investors but was unable to present an acceptable proposal to the regulators when a deadline for raising capital expired Friday.

“I am so proud of organizations that you helped grow, and I will always be grateful for the work that you have done,” Kelly said in his letter to employees. “I apologize that this is the end result.”

California National has had its share of lending problems. As of June 30, the last time it reported its financial results publicly, the bank had five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier. But the bank’s main problem was its loss on the Fannie Mae and Freddie Mac preferred shares.

U.S. Bancorp has been a major acquirer in the West, buying the remains of Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those struggling thrifts failed last fall. It also has acquired branches in Arizona, and just this month, it bought 20 Nevada branches from BB&T; Corp., which had acquired them as part of a deal to buy Colonial BancGroup Inc. At about $25 billion in assets, Montgomery, Ala.-based Colonial was the largest bank to fail so far this year.

The nine FBOP banks had combined loans and other assets totaling $19.4 billion as of Sept. 30, the FDIC said.

U.S. Bank is acquiring most of those assets under a loss-sharing plan with the FDIC, which is to absorb 80% of the first $3.5 billion in losses and 95% of any additional losses.

Taking such losses into account, the FDIC estimated that Friday’s nine bank failures would cost the federal deposit insurance fund $2.5 billion.

Customers with loans from California National and the other FBOP banks were advised to continue making payments.

The FDIC had allowed prospective buyers to make offers for individual FBOP banks as well as for the whole company. U.S. Bancorp Vice Chairman Joseph Otting said U.S. Bank was able to work out an offer for all the banks because it already was committed to growing in Southern and Northern California and in Chicago, where FBOP owned Park National Bank.

Before the Downey and PFF deals, U.S. Bank had 79 branches in the Los Angeles-Orange County area, a spokeswoman said. The FBOP acquisitions will bring its total in the area to 241.

That would create “opportunity for selective branch consolidations,” the bank said in an online presentation on the FBOP deal.

There was no immediate word on layoffs, but U.S. Bank sought to allay fears at California National.

Otting said representatives of his bank met Friday evening with California National employees at all the branches, telling employees who work face to face with customers that they could keep their jobs and back-office workers that they would be allowed to apply for other jobs at U.S. Bank.

The bank plans meetings Sunday to further brief California National workers, he said.

California National Bank is unrelated to L.A.-based National Bank of California, which has five branches.

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