FDIC describes bad loans in case against American Marine Bank

2006WDSponsor-AMBank.103210632In a recent lawsuit against American Marine Bank, the FDIC detailed the risky loans that eventually led to the 2010 closure of the bank and an estimated $61 million in losses to the Federal Deposit Insurance Fund.

The FDIC is suing the former directors and officers of the Bainbridge Island bank, including CEO Rex Townsend, Chief Credit Officers Barbara Kaye and Gary Winter, CFO Renzo Lucioni and six board members. The regulator is seeking $18 million in damages resulting from the risky loans, The Seattle Times reports.

The FDIC said in describing 11 example loans made between 2005 and 2007, some of which were made to insiders, that many carried excessive loan-to-value ratios, lacked important and accurate information about the borrower’s financial status and were made to fund projects far outside of the bank’s lending territory, according to Kitsap Sun.

The loans were made to fund residential ventures, including one involving financier Michael Mastro, and speculative investments across the country, many of which were never made.

The FDIC said that the loans, some of which went bad, should never have been made. Beginning in 2005, bank examiners warned the bank to slow down on its loan issuing. In 2007, examiners again warned the bank to slow its loan issuing, pointing to a weakening real estate market and the vulnerability of the bank. By 2009, American Marine’s commercial lending had grown by 370 percent from 2007, and its construction and development lending had increased by 255 percent, Kitsap Sun reports.

After the bank went under in January 2010, the FDIC was appointed as its receiver, leading the deposit insurance fund to take losses. The FDIC has filed suit against 102 banks that failed during the recession, including American Marine. The FDIC’s insurance fund has dropped to $25.2 billion from $52.4 billion.

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