Two bank closures late last week brought the 2008 running total to nineteen, so far. The Federal Deposit Insurance Corp. announced Friday that it had taken over Los Angeles-based Security Pacific Bank and Houston-based state-chartered thrift Franklin Bank Corp., the assets of which have been transferred respectively to Pacific Western Bank and Prosperity Bank. Security Pacific, which held $561.1 million in assets and $450.1 million in deposits as of mid-October, will cost the FDIC’s insurance fund an estimated $210 million. The acquisition of all deposits by Pacific Western was the “least costly” resolution, according to a statement from the FDIC.  The closure marked the third bank failure in California so far in 2008. Security Pacific’s four branches reopened Monday as branches of Pacific Western Bank, which assumed all the deposits for a 2 percent premium and purchased $51.8 million in assets from the failed bank. Franklin Bank represented the larger and the costlier of the two closings, with a total of $5.1 billion in assets and $3.7 billion in total deposits as of late September. The thrift’s failure will cost between $1.4 billion and $1.6 billion to the insurance fund, according to a statement by the FDIC. Franklin’s closure marked the first bank failure in Texas since 2002, according to the FDIC. Franklin Bank’s 46 offices reopened as branches of Prosperity Bank, which assumed its deposits — including all brokered deposits — for a 1.7 percent premium and purchased $850 million in assets from the failed thrift. Franklin co-founder Lewis Ranieri helped create the first mortgage-backed security when he was vice chairman of Salomon Brothers in the 1980s. He formed Franklin Bank Corp. in 2002. In an odd twist of fate, Ranieri suggested that he saw a market collapse coming, even before Franklin posted a net loss of $66.1 million for the fourth quarter in 2007. At a late 2006 industry conference, Ranieri said investors in mortgage-backed bonds had no idea of the risks they were taking. “The subprime crisis has spread to other sectors of the housing market [and is] having a significant effect on housing and builders,” Ranieri said in a conference call a year ago, according to a report by Bloomberg. Which makes the failure of the bank he chaired somewhat vexing, even if it is in some way evidence of a credit crisis come full-circle. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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