Interest Rate Roundup

Friday, March 28, 2008

Fremont facing more FDIC pressure

You remember Fremont General, right? The firm was a big subprime lender (and commercial real estate lender) during the boom days, and now, it has fallen on hard times. The company just announced that the Federal Deposit Insurance Corp. has warned Fremont about being undercapitalized and ordered it to take "prompt corrective action." A number of curbs have been imposed on its business as well. Here are some more details from Fremont's latest release:

"The Directive requires the Bank, the Company and FGCC to take one or more of the following actions to recapitalize the Bank within 60 days, or by May 26, 2008. The Directive provides:

-- The Bank shall sell enough voting shares or obligations of the Bank so that the Bank will be "adequately capitalized," as defined under the Federal Deposit Insurance Act and the related FDIC regulations, after the sale; and/or

-- The Bank shall accept an offer to be acquired by a depository institution holding company or combine with another insured depository institution; and

-- Fremont General and FGCC shall divest themselves of the Bank.

In the Directive, the FDIC has categorized the Bank as being an "undercapitalized" depository institution, as defined under the Federal Deposit Insurance Act and FDIC rules and regulations.
The Directive also sets forth certain limitations and restrictions on the Bank and its business. The Directive restricts the interest rates that the Bank may pay on deposits to prevailing rates paid on deposits of comparable amounts and maturities paid by other FDIC insured depository institutions in the State of California. In addition, the Bank is not permitted to make any capital distributions to the Company, FGCC or any affiliate of the Bank, or to pay bonuses or increase the compensation of any director or officer of the Bank. The Directive further restricts transactions between the Bank and its affiliates. This Directive provides that it will remain in effect until the Bank is "adequately" capitalized on average for four consecutive calendar quarters, unless the Directive is otherwise modified, terminated, suspended or set aside by the FDIC. The Bank is and continues to be subject to the requirements and obligations set forth in the FDIC Cease and Desist Order dated March 7, 2007 and the DFI Final Order dated April 13, 2007."

Fremont General is no mega-institution. But it did have $8.8 billion in total assets of September 2007. And it's not alone as a troubled institution, a fact the FDIC itself has discussed recently.


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