BankUnited Warning Prompts Downgrade

TheStreet.com Ratings lowered its financial strength rating on BankUnited Financial ( BKUNA) to E- (very weak), in response to the company's warning in a regulatory filing that it could be shut down by regulators.

BankUnited said in a Securities and Exchange Commission filing Tuesday that the company had not been able to comply with a regulatory order to raise capital, and faced "enforcement action," which could include placing the bank into receivership."

The company also said it didn't expect to file its annual 10-K report for its fiscal year ended Sept. 30, 2008 until the end of February.

In the filing, the Coral Gables, Florida, holding company also increased its estimate of its net loss for the quarter ended Sept. 30 to $607 million, from a previous estimate of $327 million. The company said that when it made the previous estimate, its allowance for loan and lease losses "analysis was not yet completed."

TheStreet.com Ratings had downgraded BankUnited to D- (weak), based on the original Sept. 30 Thrift Financial Report. The E- rating will be published soon on the Banks and Thrifts Screener.

BankUnited had approximately $14.5 billion in total assets as of Sept. 30. It said that, based on the revised "preliminary loss" for the quarter, main subsidiary BankUnited FSB's tier-1 and risk-based capital ratios were 3.4% and 7.1% as of Sept. 30. The company didn't provide a revised leverage ratio.

In order to be considered well-capitalized under regulatory guidelines, a bank or thrift needs to maintain leverage, tier-1 and risk-based capital ratios of at least 5%, 6% and 10%. BankUnited's revised figures for Sept. 30 would leave it undercapitalized according to the guidelines.

The holding company made clear it was unable to raise capital during the fourth quarter of 2008 and meet the requirement of a regulatory order from the Office of Thrift Supervision to increase its tier-1 ratio to a minimum of 7% and risk-based capital ratio to 14%.

While BankUnited didn't provide a full set of revised numbers, the filing listed nonaccrual loans totaling $1.2 billion as of Sept. 30, with total nonperforming assets, including all nonperforming loans and repossessed real estate of $1.4 billion, or 9.55% of the previously reported total assets of BankUnited, FSB.

In a story published on Jan. 15, the American Banker, citing unnamed sources, said Vanquish Capital Group of Delray Beach, Fla. had agreed to "invest $500 million," to gain majority control of the company. Of course, with the material change in BankUnited's numbers since then, it would appear that a $500 million investment wouldn't be sufficient to bring the company into compliance with the OTS order.

Vanquish Capital declined to comment for this article. BankUnited didn't respond immediately to a request for comment.

There may still be hope for BankUnited to complete a deal, since the OTS could have already shut down the thrift, knowing it hadn't been able to comply with the order to raise capital, but hasn't.

Uninsured Deposits

According to BankUnited FSB's Sept. 30 Thrift Financial Report, the institution had $2.2 billion in uninsured deposits. Of course, that was before the FDIC's move on Oct. 3, to temporarily increase the basic individual deposit insurance limit to $250,000 from $100,000 and waive the limit on non-interest-bearing business checking accounts, until the end of 2009.

So while we don't know the true level of BankUnited's uninsured deposits, it would be a very good idea for customers of the thrift to make sure their deposits are under the limits. Check this summary of the temporarily increased FDIC insurance limits. The agency also provides a calculator for determining whether deposits are insured.

Ratings

TheStreet.com Ratings publishes financial strength ratings each for the nation's approximately 8,500 banks and thrifts. You can look up your institution's rating, free of charge, using the Banks and Thrifts Screener.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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