Volcker Rule's Victims
January 23, 2014 7:30 AM
Regulators acted last week to try to ease the pain for community banks that hold complex securities covered by the Volcker Rule. But for some institutions, the fix either came too late or didn't help at all. Following are banks that were expected to take a loss as a result of the Volcker Rule. (Image: Bloomberg News)
BankUnited
BankUnited in Miami Lakes, Fla., sold two batches of securities to get in compliance with the Volcker Rule. The $14.3 billion-asset company sold its entire portfolio of collateralized loan obligations, with a cost basis of $431 million, at a loss of $1.4 million last month. It also sold $119 million of private-label re-securitized real estate mortgage investment conduits, or Re-REMICS, for a $3.8 million gain. (Image: Bloomberg News)
Hardin County Bank
Regulators exempted from Volcker collateralized debt obligations made up of trust-preferred securities issued by certain banks. That was no help for the $415 million-asset Hardin County Bank, which expects to take a $125,000 loss on a $500,000 investment because the Trups backing its CDO were issued by insurance companies. The hit is equal to roughly 11% of the bank's fourth quarter earnings, according to Ashley Dennis, its chief financial officer.
Webster Financial
Webster recorded a nearly $5 million charge in the fourth quarter tied to the Volcker Rule, accounting for four CDOs backed by insurance company debt. The $20.8 billion-asset company, led by CEO James Smith, sold the securities for a $4.3 million gain in the first quarter.
First Defiance
First Defiance Financial in Defiance, Ohio, recorded a $337,000 other-than-temporary loss tied to $1.9 million in CDOs backed by insurance Trups. The move reduced the $2.1 billion-asset company's quarterly profit by 4%, to $5.1 million. "Unfortunately the speed at which regulation is happening, it appears to me to have more unintended consequences," said President and CEO Don Hileman. (Image: Thinkstock)
Cortland Bancorp
Cortland Bancorp, a $537 million-asset Ohio company, disclosed last week that it holds positions in nine trust-preferred CDOs issued by insurers that have, on average, contributed more than $200,000 of annual interest income. Cortland said it will have to record a $1.3 million after-tax charge to 2013 earnings because of the Volcker Rule. (Image: Thinkstock)
Community Bank System
The $7.3 billion-asset Community Bank System in DeWitt, N.Y., said it lost $15.5 million on the sale of trust-preferred CDOs during the fourth quarter due to fears of whether they would be covered by the Volcker Rule. (Image: Thinkstock)
WashingtonFirst
The $1.1 billion-asset WashingtonFirst Bankshares in Reston, Va., led by CEO Shaza L. Andersen, said it sold a $2.7 million Trups-backed security for about $700,000 in the fourth quarter due to fears about the Volcker Rule.
Cape May Bancorp
The $1.1 billion-asset Cape Bancorp in Cape May Courthouse, N.J., said it sold bank and insurance trust-preferred CDOs that cost about $8.3 million for an $850,000 loss. (Image: Thinkstock)
Zions
Many banks that had expected a dramatic loss were subsequently helped by last week's regulatory fix. Harris Simmons' Zions Bancorp, which had previously warned of an after-tax charge of $387 million, said Tuesday that, as a result of the regulators' action, "Zions will not be required to change its accounting treatment and take impairment charges in the fourth quarter with respect to the CDOs that are primarily invested in" Trups. The bank instead expects a "moderate accounting charge" for CDOs not covered by the fix.
