Federal regulators on Friday said they seized Corus Bancshares Inc., a major Chicago-based lender to condominium, office and hotel projects, adding it to the long list of banks that have succumbed this year to the recession and waves of loan defaults.
The Federal Deposit Insurance Corp. took over Corus Bank, which had $7 billion in total assets, and its deposits. The deposits will be assumed by MB Financial Inc., which is also based in Chicago.
Corus Bank's 11 branches will open on their next normally scheduled business day as branches of MB Financial Bank. Regular deposit accounts are insured up to $250,000.
The closure of Corus Bank, one of the largest banks to fail this year, will cost the FDIC $1.7 billion.
Corus made construction loans nationwide, specializing in condominium, office and hotel projects. The bank has staggered for weeks under the weight of bad real estate loans and its collapse had been anticipated.
Already in February, the bank said losses on condo construction loans in a gutted housing market had forced it to hunt for new sources of capital.
The bank had cited "a rapid and precipitous decline" in the value of collateral securing its condo loans, mainly in Arizona, southern California, southern Florida and Nevada. It acknowledged that its capital was critically eroded.
Earlier this year, the Federal Reserve Bank of Chicago and the office of the Comptroller of the Currency, a Treasury Department agency, put Corus under special monitoring. Regulators rejected the bank's proposed plans for restructuring and shoring up its capital.
The Treasury Department rejected Corus' application for aid under the $700 billion financial bailout program.
Besides assuming the deposits of Corus Bank, MB Financial agreed to buy about $3 billion of its assets. The FDIC will retain the rest for eventual sale.
The FDIC, an independent agency that seeks to maintain stability and public confidence in the financial system, said Friday it also shut down Brickwell Community Bank in Woodbury, Minn., with $72 million in assets and about $63 million in deposits.
With the two closures announced Friday, the number of banks that have failed this year stands at 91.
Brickwell's deposits will be assumed by CorTrust Bank, based in Mitchell, S.D. Its branches will reopen Saturday as offices of CorTrust Bank.
Besides assuming the deposits of the failed bank, CorTrust agreed to buy all of its assets. The FDIC also entered into an agreement with CorTrust under which the bank will share in any losses on around $65 million of Brickwell's assets.
The FDIC estimates that the cost to the deposit insurance fund from the closing of Brickwell will be $22 million.
Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate. The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the highest number since June 1994, during the savings-and-loan crisis.
Last month, Guaranty Bank became the second-largest U.S. bank to fail this year after the big Texas lender was shut down and most of its operations sold at a loss of billions of dollars for the government to a major Spanish bank. The failure, the 10th-largest in U.S. history, is expected to cost the insurance fund an estimated $3 billion.
The insurance fund has been so depleted by the epidemic of collapsing financial institutions that some analysts have warned it could sink into the red by the end of this year. The fund fell 20 per cent to $10.4 billion at the end of June, the FDIC reported last week.
That's its lowest point since 1992, at the height of the S&L crisis. The agency estimates bank failures will cost the fund around $70 billion through 2013.