Guaranty Stock Slumps on Failure Report

AUSTIN, Texas (TheStreet) -- Guaranty Financial Group (GFG Quote) shares were slumping 5 cents to 34 cents after a published report that the lender is set to be shut down by regulators on Friday.

The Wall Street Journal cited sources "familiar with the matter," saying that Banco Bilbao Vizcaya Argentaria SA (BBV Quote) was the likely winner of a government auction of the troubled thrift holding company's branches and deposits.

When a troubled bank or savings and loan association's main regulator determines that an institution is going to fail, the regulator notifies the Federal Deposit Insurance Corp., which seeks bids from other banks or investors to acquire the deposits of the failed institution. The FDIC usually lines up a buyer, before the regulator of the failing bank or thrift shuts it down, nearly always on a Friday.

Last Friday, there was a similar leak of the auction process, with published reports saying that BB&T Corp. (BBT Quote) would acquire the failing Colonial BancGroup, which was indeed shut down that evening.

FDIC spokesman David Barr told TheStreet.com that the leaks were "unfortunate," since a very confusing situation could develop if a published report of a pending bank failure proves inaccurate.

Guaranty Financial's main subsidiary is Guaranty Bank of Austin, Texas. As of June 30, the thrift had a Tier 1 leverage ratio of negative 7.11%, which was quite a drop from a positive 7.30% just the previous quarter. This ratio needs to be at least 5% for most banks and thrifts to be considered well-capitalized.

Guaranty Financial announced on July 17 that its capital had been wiped out because the Office of Thrift Supervision had required a restatement of Guaranty Bank's financial report for March 31, reflecting "substantial asset writedowns." At that time, Guaranty said it was probably the company could not "continue as a going concern."