California National Bank, which had struggled with insufficient capital levels for more than a year, is being taken over by U.S. Bank after being closed by regulators at the end of October.
With assets of $7.8 billion, Cal National was the fourth largest bank headquartered in Los Angeles.
U.S. Bank, owned by Minneapolis-based U.S. Bancorp, reached an agreement with the Federal Deposit Insurance Corp. to assume all $6.2 billion of Cal National’s deposits and essentially all of its assets, including nearly 70 branches across Southern California—about 20 in Orange County.
The banks reopened as branches of U.S. Bank within one day.
In November 2008, U.S. Bank took over failed Newport Beach lender Downey Savings & Loan and assumed the first $1.6 billion in losses from Downey Savings, with the FDIC assuming an estimated $2.1 billion in additional losses.
Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion at the time of takeover. It had 170 branches in California—34 in OC—and five in Arizona.
The buy was intended to give the company a foothold in the Western U.S. For the 12 months through June, U.S. Bank said it saw a 25% increase in local deposits above and beyond what it gained by absorbing Downey. U.S. Bancorp has an estimated $4 billion in local deposits, not including those from its latest acquisition of Cal National.
Cal National was the largest bank owned by FBOP Corp., a holding company in Oak Park, Ill. with nine subsidiary banks, including Cal National, in four states. Regulators also closed FBOP’s eight other banks, which U.S. Bank also has acquired from the FDIC.
The nine banks had combined assets of $19.4 billion and include San Diego National Bank.
Regulators said the closures will cost the FDIC’s deposit-insurance fund an estimated $2.5 billion. The failures bring the 2009 total to 115 across the country.
FBOP, owned by Chicago businessman Michael Kelly, was not closed, regulators said.
The failure of Cal National, which had nearly 1,000 employees, was not entirely unexpected.
The bank has been undercapitalized for more than a year after it was forced to write down half a billion dollars in losses in 2008 on investments in mortgage giants Fannie Mae and Freddie Mac. As of June 30, the most recent date for which data was available, the bank had a total risk-based capital ratio of just 2%, well below the 10% level needed to be considered “well-capitalized” under regulatory guidelines.
During the past year, FBOP has tried unsuccessfully to raise capital through measures such as applying to the government’s Troubled Asset Relief Program.
Regulators gave Cal National a deadline of Sept. 30 to raise its capital levels, but the bank was unable to find investors.
Despite Cal National’s size, the bank has a relatively brief history. FBOP, which began buying small banks across the country in the early 1990s, entered the Southern California market in 1996 with the purchase of Torrance Bank, a single-branch institution.
In 1998, Cal National was officially born out of the acquisitions of Topa Savings Bank and Topa Thrift and Loan, a pair of troubled institutions in Los Angeles. In the following decade, Cal National expanded rapidly through a combination of organic and acquisitive growth, boosting its branches to nearly 70.
The buying spree continued during the economic decline. In June 2008, FBOP announced plans to acquire PFF Bank & Trust in Pomona and combine its operations with Cal National. But the deal fell apart as Cal National incurred substantial losses on investments in Fannie and Freddie. PFF was shuttered by regulators several months later and also acquired by U.S. Bank.
Cal National is the fourth local federally insured institution to fail in 2009, following Alliance Bank in February, First Bank of Beverly Hills in April and Mirae Bank in June.
Clough is a staff writer for the Los Angeles Business Journal.
