The Federal Deposit Insurance Corp. office that is ramping up in the Irvine Spectrum,tasked with managing and selling assets of failed banks and thrifts along the West Coast,can’t start operations soon enough.
Through mid-February, 13 banks have failed across the country so far this year.
That’s more than half the number of failures seen all last year, which included locals such as Downey Financial Corp. of Newport Beach.
Only three banks failed nationwide in 2007.
More failures are expected. About 2,900 federally insured banks and thrifts failed from 1980 to 1994 during the savings and loan crisis. The most active year was 1989, when more than 500 failed.
4,000-Plus Failures?
“Today, there are 8,451 federally insured institutions, and we can easily see that number declining to 4,000 by the time this crisis is over,” said Irvine-based real estate consultant John Burns, in a newsletter to customers last week.
Many of the assets and loans from those failures will be dealt with in Irvine. The FDIC said in November it was opening a temporary satellite office in Irvine, for its division of resolutions and receiverships.
The FDIC’s 200,000-square-foot lease at Irvine Company’s new 40 Pacifica tower in the Spectrum holds room for about 600 employees. Currently, there’s plans to bring on about 450 workers to the office, which still is being built out.
The FDIC employed less than 5,000 people across the country last year, before efforts to ramp up began. That’s a third
of what the government corporation em-ployed at the peak of the savings and loan crises.
With the new hiring plans, “We are trying to be ready for the inevitable,” Mitchell Glassman, director of the FDIC’s division of resolutions and receiverships, told the New York Times last week.
The Irvine office’s first hires came on board just a couple of weeks ago, ac-cording to FDIC spokes-man David Barr.
About 30 employees have been brought on board each of the past few weeks. They are going through orientation, Barr said.
Hiring is ongoing at the Irvine office. Numerous jobs advertise yearly salaries of more than $100,000.
Active employment listings at the agency’s Irvine office have varied from more than a 100 to fewer than 10 on some weeks, with jobs varying from law-yers, loan specialists, technology employees and a variety of other back-office operations.
Last week, the agency listed about 20 jobs, including a posting for what appears to be the second-highest position available at the local office, assistant director.
The position is tasked with directing “the resolution process and strategic planning for failing financial institutions.”
The job comes with an annual salary as high as $221,100.
In addition to the hires in Irvine, the FDIC is planning to pay hundreds of millions of dollars for a “small army of contractors” to augment its staff, the New York Times noted.
Figuring out how to do business with the FDIC,let alone finding the right people to contact,has proven tricky, according to real estate brokers and property managers.
Finding the right “in” will prove to be lucrative, market watchers say.
“The real opportunity to make money over the next few years will be through the FDIC,” Burns told clients last week.
The FDIC is holding a seminar next month in Irvine to give potential contractors an overview on how to do business with it. The seminar is targeting minority- and women-owned businesses.
How the local office plans to operate still is a bit of a mystery. Reports at other FDIC offices give examples of it hiring third parties to auction off loans at a fraction of their cost, as well as selling other pools of mortgage loans in the half-billion dollar range to vulture investors for less than 40 cents on the dollar.
Burns, who worked as a consultant to the Resolution Trust Corp., solvent banks and loan acquirers during the S & L; crisis, said the FDIC is likely to adapt four main strategies when dealing with troubled banks.
The preferred method of operation has been to conduct purchase and assumption transactions, where the FDIC aggres-
sively finds acquirers of troubled banks. Those types of deals made up 74% of transactions in the last cycle, according to Burns.
Paying Depositors
Other options include deposit payoff transactions for banks full of toxic loans, open bank assistance plans for institutions “too big to fail” and bridge bank transactions where the FDIC takes over an institution and runs it until its problems can be resolved.
More bridge bank deals could occur this time around, especially if the concept of bank nationalization gains more clout in economic circles.
The government may have to nationalize some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, told the Financial Times last week.
The FDIC currently is managing about $15 billion of property and loans from failed banks. That number rises closer to $40 billion if the assets of Pasadena-based IndyMac Bancorp are included. IndyMac, the largest savings and loan operating in Orange County, is expected to sell its assets shortly to an investor group.
