Will BankUnited’s Financial Trouble Impact The Fort Lauderdale Real Estate Market?

BankUnited in trouble

BankUnited, a Coral Gables, Florida based bank has been told by Federal regulators to raise additional reserves or face the loss of borrowing power. Federal regulators say they will downgrade BankUnited’s capitalization rating unless the bank raises $400 million. This mandate, if not followed, could restrict the borrowing capabilities of Florida’s largest bank.

As bad loans have been rising at BankUnited, required reserve ratios are being raised above the normal ratio seen by banks considered to be well capitalized.

If BankUnited doesn’t raise the $400 million its credit rating will be downgraded to “adequately capitalized”and may have what the bank described as a “material adverse effect on BankUnited’s finance position and operations”.

If it is downgraded to a position of “adequately capitalized”, BankUnited may face limits from the Federal Deposit Insurance Corp. Should that happen, the bank would be dependent on attracting consumer deposits to meet its growing liquidity needs among all the troubled loans.

Miami-based banking analyst Kenneth H. Thomas said BankUnited is in a better position than most banks to raise capital because it has a strong branch network in South Florida, which he believes remains one of the nation’s most desirable banking markets. But, if the bank can’t raise that capital, the Feds would have them on a “short leash,” he said.

BankUnited also is undergoing a review of its borrowing capacity from the Federal Home Loan Bank, which is one of its main sources of funding, besides raising consumer deposits.

The Federal Home Loan Bank said $736 million of pledged collateral from BankUnited’s real estate investments still might not not be enough to fully cover the money it borrowed.

Obviously needing a capital infusion badly, It needs a capital infusion, BankUnited’s task of raising that $400 million might have just become more difficult. On Aug. 22, Fitch Ratings downgraded BankUnited’s long-term and senior debt to BB- from BB and its individual rating to D from C/D. It lowered the bank’s long-term deposits to BB from BB+. Fitch also placed BankUnited on Rating Watch Negative.

The bank acknowledged in a filing with Federal regulators that the Fitch downgrade could make it more difficult to access the capital markets going forward and increase its cost to borrow or raise capital.

“We believe we are making considerable progress toward raising additional capital,” BankUnited stated in its filings.

In an effort to get back the bank back on its feet, BankUnited is making some moves to ensure that they can become more attractive financially by:

Terminating its payment option adjustable-rate mortgage program, These loans have been the source of much of the non-accrual problem at BankUnited.
Notifying the Federal regulators before it opens or moves any branches.
Stopping reduced- and no-documentation loan programs.
Reducing its portfolio of negative amortization loans, which are option ARMs where borrowers have paid less than the monthly interest.
Enhancing monitoring, internal reporting and its policies for the reserve allowance to cover loan losses.
Notifying Federal regulators prior to adding directors or senior executive officers, making certain kinds of severance payments, making compensatory of benefit arrangements with directors or officers, issuing any dividends or other capital distribution.

BankUnited (BKUNA)Â shares were down 7 cents to $1.52 in morning trading. The 52-week high was $19.69 on Sept. 19. The 52-week low was 35 cents on July 15.