BankUnited Sees Regulatory Capital Status Downgraded
The Office of Thrift Supervision has certainly been busy recently -- after pushing out an MOU to Washington Mutual (WM) over its risk management practices, Florida-based BankUnited Financial Corp. (BKUNA) said Friday that it received notification that the OTS had reclassified the bank's regulatory capital status from well-capitalized to adequately capitalized. The change means that the bank is now subject to restrictions on accepting brokered deposits, the company said in a press statement; an existing order with the OTS already limits other activities at the troubled bank. BankUnited began the use of brokered deposits during Q2 as a way to build capital base; federal regulators frown on the practice if a bank is deemed to have insufficient capital. The bank had $268 million of brokered deposits on its books at the end of June, and $774 million by the middle of August. On Aug. 25, BankUnited said in a filing the Securities and Exchange Commission that the OTS had "certain concerns" about the bank, including capital adequacy. BankUnited said it had "agreed to maintain capital ratios substantially in excess of the minimum required ratios to be deemed well-capitalized upon raising the agreed upon amount of capital," a nod to likely OTS expectations that such excess capital will be needed — and given that more than 68 percent of the bank’s entire $10.4 billion residential mortgage portfolio was in the form of pay-option ARMs at the end of Q2, such concerns would seem to be warranted. Fitch Ratings dropped its ratings on BankUnited at the end of August, citing both reduced financial flexibility and asset quality deterioration, said that managing the bank’s financial position will be “difficult” going forward given “limited other sources of cashflow.” BankUnited reported a Q2 loss of $117.7 million, mainly driven by $130 million in additional loss provisions; non-performing assets increased 61 percent between Q1 and Q2, reaching $1.1 billion at the end of June. Disclosure: The author held no positions in BKUNA 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.