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Saturday, November 08, 2008
Two Banks - One in Houston, One in Los Angeles - Fail
Joanna Ossinger
FOXBusiness
Correction: An earlier version of this article had misstated the names of the failed banks.
Two banks -- Franklin Bank of Houston, Texas, and Security Bank of Los Angeles -- were seized by state regulators on Friday and the Federal Deposit Insurance Corp. transferred their deposits transferred to other institutions.
For Franklin Bank in Houston, the FDIC entered into a purchase and assumption agreement with Prosperity Bank, El Campo, Texas, to assume all of the deposits of Franklin Bank -- including those that exceeded the deposit-insurance limit.
Franklin Bank had 46 offices, all of which will reopen as branches of Prosperity Bank.
In its press release, the FDIC said that Franklin Bank had total assets of $5.1 billion and total deposits of $3.7 billion as of Sept. 30. It said that Prosperity Bank agreed to assume all the deposits, including the brokered deposits, for a premium of 1.7%, and that Prosperity Bank will purchase approximately $850 million of assets. The FDIC said it will retain the remaining assets for later disposition.
The FDIC estimates that the cost of the transaction to its Deposit Insurance Fund to resolve the failure of Franklin Bank will be between $1.4 billion and $1.6 billion.
For Security Bank in Los Angeles, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, also of Los Angeles.
Security Bank has four branches, all of which will reopen as branches of Pacific Western Bank.
In its press release, the FDIC said that Security Pacific had total assets of $561.1 million and total deposits of $450.1 million as of Oct. 17. Pacific Western agreed to assume all the deposits for a 2% premium. In addition to assuming all of the failed bank's deposits, Pacific Western will purchase approximately $51.8 million of assets. The FDIC will retain the remaining assets for later disposition.
The FDIC estimates that the cost to the Deposit Insurance Fund to resolve the failure of Security Pacific will be $210 million.
The FDIC noted that customers who have questions about these transactions can call it toll free at 800-591-2845 to discuss Prosperity Bank, or 866-934-8944 to discuss Security Bank. People can also visit http://www.fdic.gov/bank/individual/failed/ for more information.
These are the 18th and 19th banks to fail in the nation this year.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
