Well, if you want to see an example of how incompetent management can take a perfectly sound, 140-year-old community bank and bring it to the brink of insolvency in a matter of a few short years, you need only look to Columbus-based Irwin Financial Corp. Federal and state regulators
closed the two banking divisions of Irwin late this afternoon according to the IBJ:
State and federal regulators late this afternoon shut down the two banking subsidiaries of ailing Irwin Financial Corp. of Columbus.
The action makes Irwin Union Bank and Irwin Union Bank FSB the first financial institution failures in Indiana since steep losses hit the industry last year. Irwin Union Bank, founded in 1871, was one of the state’s oldest banks.
The Federal Deposit Insurance Corp. has brokered the sale of Irwin’s banking operations to First Financial Corp. of Cincinnati, First Financial said in a statement late this afternoon.
“Since all deposits are being assumed by First Financial Bank, there will be no losses to any depositor,” First Financial CEO Claude Davis said in the statement.
Irwin Financial operated about two dozen bank branches, many of them in central Indiana.
Earlier this week, Irwin Financial disclosed in a Securities and Exchange Commission filing that regulators ordered it to bolster its capital by the end of the month to levels it had “no realistic prospect of achieving.”
Irwin has been under special regulatory oversight since last fall, in part because of steep losses on home equity loans. It has lost $450 million over the last six quarters.
The company has tried for months to raise additional capital, to no avail. Last fall, it announced plans for a $50 million stock offering, with Cummins Inc. committing to buy up to $25 million of the shares.
But Irwin canceled that offering Aug. 31. In a filing with the SEC, the company said it had been unable to move forward “due to adverse market conditions for almost all financial institutions and its inability to date to participate” in any of the government programs aiding the ailing industry.
Irwin traces its roots the Civil War era. It help fund the launch of Cummins and the auto parts company that became Arvin Industries. Arvin was acquired by a Michigan competitor in 2000, but not before growing to become a Columbus powerhouse in its own right.
This outcome was so easily avoided. Bank managers left the Indiana market it had done so well in for greener pastures in Nevada and California, where it foolishly invested about a billion dollars in the risky home equity loan market. Not surprisingly, the default rate on those loans turned out to be pretty high after the housing market collapsed. Why would a bank that had so many years of success as a community bank in Indiana do something so stupid? The bank managed to survive several panics and the Great Depression following the Civil War but falls victim to high risk mortgage loans. Unbelievable. It becomes the first Indiana bank to fail during this latest banking crisis. First Financial is assuming control of Irwin's branches.
This is what happens when people only interested in their own financial gain enter the picture.
ReplyDeleteThey only cared about making a quick killing and to hell with everyeone else.
You'll notice the story makes no mention of these white collar thugs. Why? The ones who engineered the demise ought to be given plenty of press so everyone know who is to blame.
And I imagine they are sitting on fat bank accounts in fine homes and not feeling one bit of remorse or pain regarding this collapse.
One of the VPs lives down the street from me in Reggie Miller's former condo. He drives a late model two-seater Mercedes.
ReplyDeleteHubris, nothing more, nothing less.
ReplyDeleteI'm going to counter some of the vitriol, just for purposes of keeping an open mind whether warranted or otherwise, with the thought that nearly all business hope to grow and expand and it sometimes very risky to do so.
ReplyDeleteCould a more conservative approach been undertaken to expand and grow, sounds like it but to suggest that a bank or any other business just be content with the business on their street corner or in their own area without desiring more ... well, I'm sure my point is clear.
BUT, let us not forget that the easy credit policies of the Federal Reserve, which manipulates and controls interest rates as opposed to letting the free market supply/demand/risk components of such dictate terms had a lot to do with inflating market bubbles - which always pop at some point.
Exactly my point - bubbles do pop and they should recognize one and act accordingly. There is no reason to make excuses for the too-smart by half crowd who think they can deal themselves a winning hand despite all evidence to the contrary. The west coast has always operated on a housing ponzi scheme; it has just exported to the nation by the Fed's manipulation of the free-market. And it hasn't stopped as nearly every building project going on now is being induced by perverse government incentives and the persuasive influence of cheap money.
ReplyDeleteI will guarantee that there were many employees of the bank against these get-rich quick policies, which invariably only boosted the short-term bonuses of the executives and which now have put the jobs of their employees at risk. If anyone investigates, the truth will come out and it won't be pretty.
Anyone with any common sense would know that west coast real estate was nothing but dynamite waiting for the fuse to be lit. It's a wonder that they did not also invest in Miami condos or Dubai.
Of course, business is risky in a free-market. It is even more risky in an phony economy. Despite what many people claim, severe booms and busts are not a natural phenomena. Booms and busts are almost always caused by some unnatural event, of which government is the primary unnatural factor encouraging mal-investment.
I think, CK, is that part of the natural business cycle is a "boom and bust" pattern; however, what happens is when an kind of indicator on the economy flashes red, politicians and bureaucrats jump in to try and make adjustments and pump the numbers back up.
ReplyDeleteUsually, those indicators are a sign that there is an imbalance and the economy needs to adjust; however, they then intervene to prevent it. The bubble or imbalance swells ever larger and eventually gets to a point where there really isn't anything (not totally insane) that can be done.
Unfortunately, the current crop of nimrods in DC think "too much debt and spending" can be fixed by "more debt and more spending" and continuing to subsidize asset purchases with either CASH or artificially low interest rates and a phony credit economy with little savings.
Actually Indiana banks (what's left of them) are in pretty good shape. The only other Indiana banks in trouble was the Lafayette Community Bank that went under and Integra Bank National Association in Evansville that had a written agreement and they could still go under. The sortable list for all banks is located at: http://www.calculatedriskblog.com/2009/09/problem-bank-list-unofficial-sept-18.html
ReplyDeleteI played golf with a friend of mine this summer that works for Star Financial in Anderson. He stated that Star Bank had not made any of those silly no down payment, no verification loan home loans. He said that 2008 was their best year and 2009 through 2010 will be difficult because of the economy. At least it's good to know there are still small intelligent banks out there that didn't get caught up giving out bad loans.