HW readers may or may not know that a not-so-small-ish bank in Arkansas, known as ANB, failed last week -- the latest in what the FDIC and other industry experts expect to be a string of bank failures in 2008 and 2009. What you may not know is what brought the bank to its knees. Via the WSJ:
"If you had a tool belt and a pickup truck, you could get a construction loan," says Robert W. Abercrombie, owner of Betty's Homes Inc., which built some of the houses in Quail Ridge but filed for bankruptcy protection in 2006 after sales stalled. Mr. Abercrombie's company defaulted on more than $2.5 million in loans from ANB Financial, a local bank known for its enthusiastic lending. So did another Quail Ridge home builder that borrowed from ANB. By Friday, an epidemic of bad real-estate loans had overwhelmed the bank, which was seized by federal regulators in the second-biggest federally insured bank failure since 2001.
ANB had roughly $1.3 billion in so-called construction loans on its books, and when the builders petered out, so did the bank. Regulators and bank officials have warned about CRE loans at smaller, community banks in recent months. The question is whether ANB is a harbinger of what lies ahead, or if it's an outlier of risk management gone awry. Only time will tell.