Guaranty Bank Shuttered, Assets Sold to BBVA

WASHINGTON (Reuters) – U.S. regulators on Friday closed Texas lender Guaranty Bank and sold its assets to Banco Bilbao Vizcaya Argentaria (BBVA.MC), allowing Spain’s second-largest bank to expand its reach in the U.S. market.

Guaranty, a unit of Guaranty Financial Group Inc (GFG.N), is the 81st U.S. bank failure this year and represents another sizable hit to the Federal Deposit Insurance Corp’s fund used to protect customer accounts.

Guaranty had assets of about $13 billion and deposits of $12 billion, and will cost the FDIC’s insurance fund about $3 billion, the agency said.

It is about half the size of Colonial Bank, which last week became the largest failure of 2009, with assets of $25 billion, the most dramatic among a recent surge in bank failures, especially among larger regional banks.

BBVA bought the assets of Guaranty through Alabama-based bank BBVA Compass, which BBVA bought in 2007 and resulted in the Spanish bank more than tripling its U.S. branch base.

Guaranty was the largest of four bank failures on Friday. Regulators also closed three small banks: Atlanta, Georgia-based ebank; Newman, Georgia-based First Coweta; and Birmingham, Alabama-based CapitalSouth Bank.

In total, the four banks are expected to cost the FDIC’s insurance fund $3.3 billion.

The agency entered into a loss-share agreement with BBVA Compass in which the FDIC agreed to share the risk that a pool of $11 billion of Guaranty’s assets could further deteriorate.

Guaranty is considered a desirable buy for BBVA as it tries to extend its reach into the Spanish-speaking market of the United States, which complements its operations in Mexico where BBVA owns the country’s biggest bank, Bancomer.

At the time of closing, Guaranty operated 162 branches in Texas and California with a focus on real estate construction lending and financing to middle-market businesses.

“It makes both strategic and financial sense for BBVA to add more assets in the U.S., particularly in Texas,” analysts at a Spanish brokerage said in a recent note to clients, adding that recent similar transactions had given good value for buyers.

Spanish banks have been viewed as a relatively stable force, having avoided most of the subprime crisis due to strict regulation by the Bank of Spain.

BBVA’s larger rival Banco Santander (SAN.MC) in January acquired Sovereign Bancorp, at the time the largest U.S. savings and loan in a deal valued at around $1.9 billion.

Only one small Spanish savings bank has had to be bailed out during the financial crisis, although banks are now facing rising defaults due to the implosion of a housing bubble.

RISING FAILURES

The failure of Guaranty will put additional pressure on the FDIC’s insurance fund, which stood at $13 billion at the end of the first quarter, compared with $53 billion a year earlier.

The pace of bank failures increased rapidly this year as lenders continue to grapple with bad mortgage loans and deteriorating conditions in the commercial real estate market. In 2008, 25 banks failed while only three banks failed in 2007.

The agency will provide an update on the condition of the fund next week during its quarterly bank briefing. A special levy has been imposed on banks to shore up the insurance fund.

The FDIC has also been looking to minimize the draw on the fund by widening the pool of potential bidders for distressed banks’ assets, especially to private equity groups.

Other bidders for Guaranty included a consortium led by financial services executive Gerald Ford that includes several private equity firms, sources previously told Reuters. Media reports also cited US Bancorp (USB.N) as a bidder.

The Ford-led group included Blackstone Group (BX.N), Carlyle Group [CYL.UL], Oak Hill Capital and TPG [TPG.UL], according to the sources.

The bid by the private equity consortium came despite the uncertainty around proposed FDIC guidelines for investments by such groups in failing institutions.

The FDIC provoked a backlash when it proposed tough guidelines in July, but is expected to soften the policy when it meets Aug. 26.

(Reporting by Karey Wutkowski with additional reporting by Megan Davies and Paritosh Bansal in New York; Editing by Marguerita Choy)