Finally, Bank Officers Held Personally Responsible For Gross Lending Practices, Sued By FDIC

Just the right bank for...gross lending practices!

Just the right bank for…gross lending practices!

The bank is local to the Puget Sound area: American Marine Bank, based on Bainbridge Island and with 11 branches in the Puget Sound area. It was founded in 1948. All branches were closed by the FDIC in 2010 and assumed by Columbia State Bank of Tacoma. Now, the officers of the bank are being sued for $18 million by the FDIC for gross negligence in lending practices.

The complaint, filed in district court in Tacoma, holds 10 of the bank’s officers personally responsible for $18 million of the $61 million that the FDIC had to pay out when the bank was closed. The claim is that the officers did not use diligence when granting loans, violating their own policies in the process.

“Defendants, 10 of AMB’s former directors and/or officers, caused damages by failing to approve loans in the manner required under the applicable loan policies and by approving loans that did not warrant approval,” the complaint states. “Collectively, the defendants were charged with, among other responsibilities, the responsibility of operating and managing the lending function of AMB. But, rather than manage AMB’s lending function in a safe, sound and reasonable manner, the defendants took unreasonable risks with the bank’s loan portfolio; allowed irresponsible and unsustainable rapid asset growth concentrated in high-risk and speculative acquisition, development and construction (‘ADC’), and commercial real estate (‘CRE’) loans, disregarding regulator advice and criticisms regarding lending activities; and violated AMB ‘s loan policies and reasonable industry standards.”

The main defendants are the former president of the bank, Rex Townsend, chief credit officer Barbara Kaye, executive vice president and CFO Renzo Lucioni, and executive vice president and chief credit officer Gary Winter. The remaining defendants are lesser officers and/or on the Board of Directors for the bank.

Several specific loans are cited, including one to Colorado and one to Utah, both of which are outside the normal lending area for the bank. Just these two loans, for residential developments in those states, added up to $8 million. According to the FDIC, the bank did not perform due diligence in researching the project, including neglecting to get appraisals. I don’t know about you but when I went through real estate transactions I had to have every “i” dotted and every “t” crossed. I can’t imagine lending such a huge amount of money without such attention to detail.

But it gets worse… Townsend, the CEO of the bank, approved a risky loan without even clearing it through the loan committee. The amount was $3 million and was lent to a Senior Living Partnership in Pennsylvania. Way, way out of the lending area. To be specific:

“The Western Pennsylvania Senior Living Limited Partnership (‘Western PA’) loan was a $4.5-million participation loan. AMB was to be the lead lender of the Western PA loan in the amount of $3 million, and the remaining $1.5 million was to be participated to another bank. The purpose of the loan was to allow borrowers to purchase three mortgages at a 22 percent discount on the face amount, secured by two assisted-living facilities and raw land in New Stanton, Pennsylvania. Despite the deficiencies discussed below, Townsend ‘crammed down’ this loan and personally wired the funds on or about December 28, 2006, without obtaining loan committee approval.”

That is far too nonchalant of an attitude to have when dealing with such big amounts of money. There are 11 total loans – between May of 2005 and December of 2007 – cited in the complaint which, under the Financial Institutions Reform, Recovery and Enforcement Act (FIRRA), allows the FDIC to hold individual bank officers responsible for damages caused by their negligence.

It’s about damn time that bankers were finally made to pay for their arrogance and stupidity. It is certainly satisfying to see these bankers – even if just a handful at a small bank – made to pay for their actions. Let’s hope it’s a trend.

Photobucket      T. Steelman is a life-long Liberal. She has been writing online about politics since 2007. She lives in Western Washington with her husband, daughter, 2 cats and a small herd of alpacas. How can anybody be enlightened? Truth is, after all, so poorly lit…