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At risk of becoming the largest bank failure of the year so far, Guaranty Financial Group Inc. says its best chance for survival lies in a rare form of support from federal regulators.
But the outlook for Guaranty and its subsidiary Guaranty Bank is cloudy at best, outside bankers and analysts say.
"It looks like it's going to be very difficult for them to make it much longer," said Jim Gardner, chairman of Commerce Street Capital LLC, a Dallas-based investment bank.
Guaranty recently said it was discussing an "open bank assistance" plan with the Federal Deposit Insurance Corp. and the Office of Thrift Supervision. Under that arrangement, Guaranty would raise additional capital from investors while the FDIC would absorb a portion of the company's losses.
Such assistance plans have been rare since the early 1990s. An FDIC spokesman said the regulatory agency has only authorized two of them over the last year, and both cases involved huge banks that were thought to have threatened the overall financial system if they went down.
All of Guaranty's customer deposits remain fully insured up to FDIC limits, the bank and banking regulators say. The FDIC's standard insurance amount is $250,000 per depositor.
Guaranty, which is officially based in Austin but has its key executives in Dallas, recently said that it had not yet formally submitted an open assistance plan to the FDIC.
But without such help, "there would be substantial doubt that the company would be able to continue as a going concern," Guaranty said in a regulatory filing June 29.
Billionaire backing
A year ago, Guaranty picked up a $600 million investment from a pair of billionaires: New York's Carl Icahn and Robert Rowling of Dallas. But it has continued to weaken. Of particular concern is its portfolio of mortgage-backed securities, many of them based on risky mortgages in California.
Icahn and Rowling, who remain the company's largest shareholders, were unavailable for comment. Analysts say their apparent reluctance to inject more money into Guaranty speaks volumes.
"You'd think they would have done something before," said Dan Bass, managing director in Houston with Carson Medlin Co., an investment banking firm. "The old adage of you don't throw good money after bad may be in play here."
Guaranty Bank had assets of $14.4 billion as of March 31 and about 160 branches in Texas and California.
The largest bank failure so far this year was that of a Florida bank, BankUnited FSB, which had assets of $12.8 billion when it went down in May. An investor group acquired nearly all its assets.
At Icahn's urging, Guaranty was spun off in late 2007 from Temple-Inland Inc., an Austin-based company with interests in packaging, building products, forest products and real estate.
Amid a string of losses, Guaranty's stock price has gone from $16 a share after its spinoff to 28 cents now (shares rose 56 percent from their Tuesday close of 18 cents).
Long-delayed results
Guaranty has yet to file official financial results for the last three months of 2008 and the first three months of 2009.
In April, Guaranty announced that federal banking regulators had given it until May 21 to boost its capital ratios.
That deadline came and went. The bank recently said its finances may be even weaker than they seemed.
Without an open assistance plan from the FDIC, Guaranty says it would need to write down the value of its mortgage-backed securities portfolio by about $1.4 billion and take additional write-downs of $350 million.
After those adjustments, its estimated annual loss for 2008 would be $2.2 billion, or $39.92 per share, instead of an estimated $444 million, or $8.84 a share.
Its loss for the first three months of this year would be about $308 million instead of an estimated $256 million. Moreover, the write-downs would leave the bank "critically undercapitalized," Guaranty said.
Guaranty said last month it continued to cooperate with federal regulators "as they pursue potential alternatives, which could include a plan for open assistance, sale of assets or liquidation."
Earlier this month, Guaranty named its president, Kevin Hanigan, chairman and chief executive as well. John Stuart, who had served as interim chairman and CEO since November, remained on the board. Longtime CEO Ken Dubuque resigned in November.
