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BankUnited Plummets on Capital Worries

The troubled Florida bank's 'prospects for viability' are 'increasingly fraying,' an analyst wrote.

BankUnited Financial


shares slumped more than 16% Wednesday after at least one analyst downgraded the troubled bank on concerns about liquidity and capital adequacy.

David Bishop, an analyst at Stifel Nicolaus, cut his rating to sell from hold on the Coral Gables, Fla.-based company. The downgrade comes just two days after BankUnited disclosed in its quarterly filing with the

Securities and Exchange Commission

that it is under regulatory agreement with the Office of Thrift Supervision.

Regulators are telling the bank, which holds $14 billion in assets, to raise at least $400 million in capital or submit an alternative capital plan.

Analysts, such as Bishop, are concerned BankUnited may not be able to raise the required capital amounts.

"Given the new disclosure regarding the potential regulatory capital downgrade coupled with the continued strain on liquidity and, thus far, the inability to raise equity capital, we are downgrading the shares to sell as we see the prospects for viability increasingly fraying," Bishop wrote in a note on Wednesday. "While the bank may yet be successful in finding private equity capital to forestall additional regulatory sanctions, we believe there is a good enough chance will not come to pass and therefore see the potential for further price degradation."


We believe some sort of capital raise is necessary to protect the solvency of the company and management is continuing to seek ways to raise this capital, including private equity. While any raise will be dilutive to tangible capital, at this point, we view this as a secondary concern behind the ability of the company to continue as a going concern," Bishop writes.

BankUnited has seen its shares tumble more than 90% since its 52-week-high of $19.69 last September, as the housing crisis took a toll on the once hot Florida real estate market. BankUnited has large exposure to troubling residential mortgages, such as option adjustable-rate mortgages, in which borrowers are given a choice in the payment they make. The firm's 85 branches are located throughout the Sunshine State.

The stock, at this point, is trading under $2 a share. Shares were most recently down 24 cents, or 16.7%, to $1.19.

"BankUnited has been advised by the OTS of certain concerns that BankUnited has agreed to address," the filing said.

"The company is continuing its efforts to raise capital," the filing said. "Management believes that the bank will maintain its well-capitalized status if the company's capital raising efforts are successful. There can be no guarantee that any of the measures already taken or in progress by BankUnited will be successful or satisfy the concerns of the OTS, and additional restrictions may be imposed on BankUnited's activities in the future which could have a material adverse effect on BankUnited's financial position and operations."

Besides an aggressive pursuit to raise capital, the company has been in capital preservation mode. Among other things, it suspended its dividend and transferred $80 million from its holding company to bank subsidiary, it said earlier this month. At June 30, BankUnited's Tier-1 leverage capital ratio was 7.6% and its total-risk based capital ratio was 13.8%.

Bishop notes that BankUnited's nonperforming assets have reached a startling 7.73% of total assets, yet net loans charged off total just 74 basis points. That said, Bishop wrote that he "fully expect

s this level to increase going forward given the build of the loan loss reserve to 2.52% of loans." The company's commercial and commercial real estate portfolio "continues to perform relatively well," he adds.

"If the company is unable to raise 'significant' capital, the OTS would reclassify the bank as adequately capitalized from well-capitalized," Bishop wrote. "This potentially calls into question the ability of the bank to renew or raise additional brokered deposits (which it has been using as of late for funding) and ultimately could impact overall liquidity as well."