Shape Up or Else: The feds are closing in and getting tough on the Santa Barbara Bank & Trust.
Despite glowing words of optimism at the bank’s April 29 directors’ meeting, on Tuesday, May 11, the bank quietly signed consent orders requiring it to either boost its capital levels soon or be closed or sold.
Consent agreements required by federal regulators order the parent company, Pacific Capital Bancorp, to come up with a plan to solve its weak capital position within 90 days. And, according to the bank’s 10-Q report issued Tuesday, it must drastically boost its capital ratio to acceptable levels by September 8 or the feds can ask for a plan to either sell the 50-year-old Santa Barbara financial icon or liquidate it.
The regulators want the tier one capital ratio raised to nine percent from the current 4.6, and the risk-based capital ratio raised to 12 percent from the current 10.1.
It’s not clear whether Dallas billionaire Gerald Ford’s pending agreement to invest $500 million to gain control of the shaky bank will be sufficient, along with other possible measures, to meet the regulators’ demands.
“If we fail to consummate the investment and recapitalization or otherwise fail to raise sufficient capital, our ability to continue as a going concern would be in doubt and we may file for bankruptcy and/or the bank may be closed by the OCC (Office of the Comptroller of the Currency) and placed into FDIC receivership,” Pacific Capital said in the 10-Q filing.
Provisions of the Ford deal call for it to be completed by October 26, depending on approval by numerous parties, including an OK by the U.S. Treasury. The Treasury must agree to accept a major loss of around $145 million on its $180 million TARP (Troubled Assets Relief Program) rescue loan two years ago. Feds would then hold seven percent of the stock, with Ford getting 91 percent and current stockholders diluted down to two percent.
So far, the SBB&T has not issued a statement on the development, other than Tuesday’s voluminous 10-Q filing with regulators, a federal requirement. Pacific Capital posted an $83 million loss in the first quarter of 2010 (a $3 million increase from what it reported earlier, due to an accounting error) and lost $421 million last year. A burden of toxic loans is largely to blame for the bank’s plight.
Barney Brantingham can be reached at barney@independent.com or (805) 965-5205. He writes online columns and a print column on Thursdays