Setbacks disclosed in regulatory filings this week raised questions about BankAtlantic Bancorp's (BBX) chances to raise capital from the Treasury and Downey Financial's (DSL) ability to survive to the weekend.
BankAtlantic Bancorp didn't specifically say it had applied to raise capital by issuing preferred shares to the Treasury through the Troubled Assets Relief Program, or TARP. But the Fort Lauderdale, Fla., thrift holding company's disclosure in a recent regulatory filing of a subpoena -- on top of a possibly problematic holding company structure -- could hurt its chances of having an application approved. Downey, in a third-quarter regulatory filing, expressed "substantial doubt" about its ability to survive the year, and the subsequent drubbing its shares took in the market could result in swift action by regulators.
BankAtlantic disclosed in its 10-Q filing Monday that it had received a subpoena and notice of investigation from the Miami Regional Office of the Securities and Exchange Commission. The SEC requested "a broad range of documents" relating to pending litigation, problem loans and insider purchases of the company's common stock.The SEC is also looking at the holding company's asset workout subsidiary, which was formed in the first quarter. At that time, the holding company used proceeds from its sale of Stifel Financial (SF - Get Report) shares provide $95 million to main subsidiary BankAtlantic in exchange for $101.5 million in nonperforming loans, which were placed, along with $6.4 million in specific reserves, in the new subsidiary. Thus the holding company used cash to remove bad assets from the thrift. The SEC investigation may have been driven in part by a shareholder lawsuit against the holding company and executives, alleging that the company engaged in lending activities that "contravene the company's lending policies and applicable lending agency regulations," and that BankAtlantic Bancorp failed to "disclose and properly account for" its loan losses. The holding company went on to say it had received a total of $180.7 million from the sale of securities during the first three quarters of 2008, and in addition to setting up the asset workout subsidiary, it provided $65 million in additional capital to BankAtlantic. BankAtlantic Bancorp discussed the Treasury's Capital Purchase Program (CPP) in the 10-Q report, and pointed out that an application to participate in the program might have to come from BFC Financial Corp. (BFF), a separate company that "controls roughly 58% of the BBX vote, although it owns just 27% of the company's aggregate outstanding stock," according to a Sandler O'Neill report. TheStreet.com previously discussed the unusual holding company structure of BankAtlantic Bancorp and BFC Financial back in July, when BankAtlantic sued analyst Richard Bove. Alan Levan is chairman and CEO of BFC Financial, BankAtlantic Bancorp and BankAtlantic. While the holding company didn't say whether it or BFC had applied to participate in the Capital Purchase Program, the deadline for applications is this Friday. Sandler O'Neill said in its report that the holding company structure could "complicate" participation in the CPP. The holding company reported a net loss of $6.1 million for the third quarter, which compared to net losses of $19.4 in the second quarter and $29.6 million in the third quarter of 2007. The reduced loss primarily reflected lower provisions for loan losses, made possible by the transfer of loans from the thrift subsidiary to the asset workout subsidiary, along with expense reductions. Although regulatory data is not available for thrift subsidiary BankAtlantic, the holding company provided capital ratios for the institution. The leverage ratio was 6.89% and the risk-based capital ratio was 11.75% as of Sept. 30, compared to 6.82% and 11.77% last quarter, and well above the 5% and 10% minimums for an institution to be well capitalized under regulatory guidelines. In a recent investor presentation, the holding company said that BankAtlantic's ratio of nonperforming assets to loans and other assets was 2.36%. The ratio of loan loss reserves to total loans was 2.40%, keeping well ahead of the annualized ratio of net charge-offs to average loans, which was 1.34% for the third quarter.