This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

BankUnited Ordered to Sell by Regulator

BankUnited FSB appeared on the verge of being shut down this week, after its federal regulator rejected the bank's plan to raise capital and ordered it to sell itself or most of its assets within 20 days.

The Office of Thrift Supervision's prompt corrective action, which comes after months of trouble for the subsidiary of BankUnited Financial Corp. (BKUNA), requires management to make strong efforts to sell itself and to cooperate in OTS efforts to "market" the institution. The OTS also said that its directive was issued in order to "resolve the institution's problems at the least long term cost to the deposit insurance fund," referring to the costs that would be incurred by the Federal Deposit Insurance Corp. if BankUnited were to fail.

The Coral Gables, Fla.-based thrift was included in's list of undercapitalized banks and thrifts published last week. It was considered critically undercapitalized by regulatory standards, with a Tier 1 leverage ratio of just 1.37% and a total risk-based capital ratio of 3.60%. These ratios need to be at least 5% and 10% for a bank or S&L to be considered well capitalized under ordinary regulatory guidelines.

The institution's nonperforming assets, including loans past due 90 days or in nonaccrual status and repossessed real estate comprised 9.95% of total assets as of Dec. 31, and it's net charge-offs (actual loan losses) for 2008 totaled $438 million, or 6.12% of average loans. Net losses for the year totaled $1.1 billion.

BankUnited's problems sprang from its concentration in option-payment adjustable-rate mortgages, one of the worst mortgage products to proliferate during the housing boom. These loans -- known as option-ARMs -- gave the customer several monthly payment options early in the life of the loan. While options varied, they generally included a high option to make an ordinary amortized payment of principal and interest, a middle "interest only" option to pay just the last month's accrued interest, and a low option to pay an amount less than the last month's accrued interest. It was this last option that caused all the problems, since if a customer pays less than the accrued interest, the unpaid interest gets tacked on to the loan principal balance. This is known as negative amortization.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%
TSLA $206.79 0.00%
YHOO $44.45 0.00%


DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs