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BankUnited loses $261M, but cash position increases

BankUnited lost nearly a quarter of its capital in the last quarter, weighed down by mortgages that permitted payments below the amount of interest accrued each month.South Florida Business Journal - by Brian Bandell

A public filing with the Federal Financial Institutions Examination Council shows the BankUnited savings and loan subsidiary suffered a $261.6 million net loss for the fourth fiscal quarter ended Sept. 30, putting the largest Florida-based bank in even more dire financial straits. The results show capital ratios at the Coral Gables-based bank fell far short of what federal regulators asked it to achieve in a September cease & desist agreement.

If the bank can’t raise more money or shrink its risk-based assets by a Dec. 31 federally imposed deadline, it could face additional action from federal regulators.

It's unlikely that BankUnited could raise enough capital or reduce its assets enough to meet the federal capital ratio deadline, said Philip van Doorn, senior banking analyst with The Street.com Ratings. He noted that there's too much competition among banks for cash, and most assets would sell at a loss, which would further erode the bank's capital.

Van Doorn said the U.S. Department of the Treasury has been granting federal dollars to healthy banks, and BankUnited doesn't appear to be a candidate for that.

The parent of the S&L, holding company BankUnited Financial Corp. (NASDAQ: BKUNA), has yet to publicly release its earnings, and spokeswoman Melissa Gracey said the results reported to the Federal Deposit Insurance Corp, were not audited by BankUnited’s accounting firm.

BankUnited will release results for the quarter and year-end when numbers are finalized, she said.

The $261.6 million loss, which was even deeper than the $110.4 million loss it took in the third quarter ended June 30, raises more questions about BankUnited’s ability to survive. The bank has lost $445.1 million during the 12-month period ended Sept. 30.

That left it with $816.9 million in equity capital, down from $1.08 billion on June 30. Its level of loan loss reserves only covered 21.4 percent of its nearly $1.08 billion in loans that were non-accrual – those that were late and not paying interest.

The bank's cash position improved from $578 million to $1.32 billion, partially due to growing deposits.

For most of the year, BankUnited Financial has been unsuccessfully trying to raise $400 million. In October, founding Chairman and CEO Alfred Camner stepped down, handing over the CEO post to Ramiro Ortiz.

The sixth-largest holder of South Florida deposits as of June, BankUnited is a pillar of the financial community. Sixty-two of its 86 branches as of June were in South Florida. It employed 1,207 employees as of Sept. 30, down by 76 during the quarter. Its name adorns the University of Miami’s on-campus arena.

Its payment option adjustable-rate mortgage lending practice has led to a mountain in potential future liabilities. As of the June 30 quarter, the bank said more than $3.3 billion of these loans would reset with sharply higher monthly payments through Sept. 30, 2010.

That wave has just begun to swell toward its crest.

BankUnited took a $275.7 million expense in its fiscal fourth quarter to boost its loan loss reserves, but $199 million in charge-offs due to bad loans wiped much of that out. In the previous quarter, it added $155.1 million to the reserve and charged off $79.9 million.

The bank held $145.8 million in repossessed property as of Sept. 30, and spent $10.8 million on sales and operations. It filed for foreclosure against $84.5 million in loans – mostly residential properties – during the quarter.

An additional $543.6 million in loans were between 30 and 89 days late, but not classified as non-accrual. With nearly 13.9 percent of its loans missing payments, BankUnited’s net interest income fell to $49.9 million, down nearly 27 percent from the previous quarter.

As if the losses from its loan portfolio weren’t bad enough, BankUnited took a $34 million unrealized loss on securities in which it had invested.

BankUnited did manage to raise deposits during the quarter. It held $8.27 billion in deposits as of Sept. 30, up 5.9 percent from the previous quarter. The bank advertised long-term CDs with above-average rates during the quarter.

Likely increasing its lead as Florida’s largest bank, it had asset growth of about $290 million during that time – to total $14.49 billion in assets.

Yet, growth isn’t necessarily a positive thing when a bank is losing capital. A strong capital ratio factors in having cash to cover certain assets. That ratio is where BankUnited fell behind what regulators required of them.

In the cease & desist agreement the bank signed with the Office of Thrift Supervision in September, it was required to have a core capital ratio of 7 percent and a total risk-based capital ratio of 14 percent by Dec. 31.

In the quarter ended June 30, those ratios were 7.6 percent and 13.8 percent, respectively. But, they fell to 5.7 percent and 10.8 percent, respectively, in the quarter ended Sept. 30.

The cease & desist order does not state what federal regulators would do if BankUnited can’t reach those ratios in time. They already downgraded the bank’s status from well capitalized to adequately capitalized. Unless it can get a major capital infusion, the chances of meeting the regulatory goals appear slim.

BankUnited Financial shares were up 2 cents to 37 cents in afternoon trading. The 52-week high was $9.58 on Dec. 10. The 52-week low was 35 cents on Monday.

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