Southern Pacific will reopen under a new owner. Bad telecom loans may have

played a role.

      By Martin Romjue

           The Daily Breeze

One day after state regulators closed the failed Southern Pacific Bank of

Torrance, federal officials assured depositors that the bank will reopen

Monday morning under a new owner with full access to accounts insured by the

Federal Deposit Insurance Corp.

Southern Pacific Bank customers will become depositors of Plano, Texas-based

Beal Bank, which bought Southern Pacific under FDIC supervision.

Southern Pacific Bank, which had assets of $1 billion, is the first failure

nationwide of an FDIC-insured institution this year, and the first in

California since Monument National Bank of Ridgecrest was closed in June

2000.

The bank has branches at 23530 Hawthorne Blvd. and 3701 Skypark Drive, both

in Torrance, and one in Irvine.

Most customers will not notice any changes to their accounts or the

branches, said Alana Golden Nabong, spokeswoman for the California

Department of Financial Institutions, which closed the branches Friday and

named the FDIC as receiver.

The exact number of customers was unavailable Saturday, but Southern Pacific

Bank holds 17,200 accounts, said David Barr, a spokesman for the FDIC. Of

those, 938 accounts exceed the $100,000 FDIC insured limit and are

considered at risk.

Beal Bank has assumed about $834 million of insured deposits of the failed

bank. At the time of closure, Southern Pacific had about $30.7 million in

deposits in the at-risk accounts.

"Those customers become creditors to receivership," Barr said. "It is like a

Chapter 7 liquidation. They become top-tier creditors."

As the FDIC sells Southern Pacific assets, that money flows down to the

receivership and is disbursed to creditors, he said.

"Chances are they won't receive 100 cents on the dollar," Barr said.

"Historically, over the past 10 years, uninsured depositors have recovered

on average of 73 cents on the dollar."

Barr said it is too soon to calculate how much Southern Pacific's at-risk

depositors will receive.

"Those tend to be more commercial deposits, but there could be some large

individual depositors," said Barr, who added that the FDIC cannot disclose

the names of depositors because of financial privacy laws.

"We have to work with these customers to finalize their claims," Barr said.

Some customers who have more than $100,000 in assets may be able to get them

to fall under insurance protection, he said. The FDIC will try to determine

what assets in excess of $100,000 could qualify for insurance protection.

"There are ways to have more than $100,000 insured in one institution," he

said.

The FDIC estimates Southern Pacific losses will be $134.5 million, meaning

that even when all assets are sold, the FDIC won't recoup $134.5 million, or

13.5 percent, of total bank assets.

Southern Pacific Bank was a subsidiary of Imperial Credit Industries Inc. of

Torrance, a diversified financial services holding company that did most of

its business through Southern Pacific Bank. The banking firm offered

financial services to small- and middle-market companies, such as commercial

loan and lease products for borrowers, and certificates of deposit, money

market, passbook and IRA accounts to its depositors. As of Sept. 30,

Imperial Credit had $2.1 billion in assets.

Southern Pacific Bank offered loans through several core lending divisions,

including Coast Business Credit, specializing in asset-based commercial

lending; Imperial Warehouse Finance, offering residential mortgage

repurchase facilities; the Lewis Horwitz Organization, the premier lender to

independent film and television production companies; the Income Property

Lending Division, lending to multifamily and commercial property owners; and

Southern Pacific BanCapital, offering equipment leasing to middle-market

businesses.

Imperial Credit Industries Inc. executives could not be reached for comment

Saturday. The office phone for Brad Plantiko, executive vice president and

chief financial officer of ICII, was being answered by an FDIC official.

FDIC officials were working on the transition to Beal Bank ownership

Saturday inside the ICII/Southern Pacific Bank office buildings on Skypark

Drive.

Few details on why Southern Pacific Bank failed were immediately available

Saturday but one key reason was its extensive loans to telecommunications

companies that went bankrupt because of the economic downturn and burst of

the technology investment bubble, Nabong said.

The Department of Financial Institutions determined that Pacific Southern

was operating in "an unsafe manner," and the Commissioner of Financial

Institutions gave it a deadline to raise enough capital, Nabong said. They

were unable to come up with any plan for additional capital, she said.

The Department of Financial Institutions regulates the safety and soundness

of California's state chartered financial institutions by encouraging the

use of sound banking and business practices and by examining the finances of

licensees.

Barr said the closing of Southern Pacific was not a surprise, since the FDIC

had been working with them. The owners had the opportunity to recapitalize

the bank, but were unable to do so, he said.

In such cases, the FDIC puts a troubled bank out to competitive bid, looking

for a potential buyer, Barr said. By Friday, the FDIC had lined up Beal

Bank, which is a state chartered savings bank in Texas.

With offices in Dallas, Houston and San Antonio, Beal Bank is one of Texas'

largest privately owned financial institutions with more than $5.5 billion

in assets and more than $942.5 million in equity capital. It operates as a

wholesale bank, serving mostly secondary markets where loans and debt

securities are bought and sold.

Beal Bank's tier-one capital, or net worth, is about 16 percent of assets,

or about three times the FDIC standard of 5 percent for a well-capitalized

bank.

The bank will pay the FDIC a premium of $500,000 to assume the insured

deposits and buy about $201.5 million of the failed bank's assets. The rest

of the assets will be sold and distributed to creditors, Barr said.

Beal Bank is still evaluating the "situation with the FDIC," and will open

the branches under its name Monday, said Jim Chambless, documentation and

communications manager with Beal. Customers will receive a letter explaining

the purchase in the coming week, he said.

The sale gives Beal a foothold in the California financial market and

enables it to widen its depositor base while funding asset purchases and

loans that match the core of its business activities, the company said in a

statement.

Barr said it is too early to determine if any criminal activity or financial

mismanagement was involved in the failure. Any such activity would be

referred to the Department of Justice.

However, most bank closures result from bad business decisions, he said.

Find out more

Customers with more than $100,000 on deposit at the failed Southern Pacific

Bank should contact the FDIC toll free at 866-308-4470. The toll-free number

will be available from 8 a.m. to 8 p.m. today. On weekdays, customers can

reach the FDIC from 8 a.m. to 6 p.m.

 ( sent to us by the writer of the article.editor )