The Federal Deposit Insurance Corp. (FDIC) has facilitated a deal in which U.S. Bank, headquartered in Minneapolis, will acquire California financial institutions Downey Savings and Loan Association FA and PFF Bank & Trust. Downey Savings and Loan is located in Newport Beach, while PFF Bank & Trust is based in Pomona.
The combined 213 branches of the two organizations will reopen as branches of U.S. Bank. Depositors will automatically become depositors of U.S. Bank, and deposits will continue to be insured by the FDIC.
The FDIC says that as of Sept. 30, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion, and PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. Besides assuming all the deposits from the two California banks, U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition.
The FDIC and U.S. Bank has entered into a loss-share transaction in which U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss-share agreement, equal to the net asset position at close. The FDIC will then share in any further losses. Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC announced in August stemming from the failure of IndyMac Bank FSB.
The loss-sharing arrangement is expected to maximize returns on the assets covered by keeping them in the private sector.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Downey Savings will be $1.4 billion and $700 million for PFF Bank. U.S. Bank's acquisition of all the deposits of the two institutions was the ‘least costly’ option for the FDIC's DIF compared to alternatives, the FDIC says. These were the 21st and 22nd banks to fail in the nation this year, and the fourth and fifth banks to close in California.