Guaranty Bank
Encyclopedia
Guaranty Bank was a major bank based in Austin
, which collapsed in 2009.
Formed in 1988 and part of Temple-Inland
until 2007 when it was spun off as a standalone company, Guaranty was the second largest bank in Texas, with 162 branches across Texas and California, and at the time of its failure had $13 billion in assets and held $12 billion in deposits. Major shareholders included billionaire investor Carl Icahn
and hotel tycoon Robert Rowling
, who jointly invested $600 million in the bank in 2008.
As a thrift
bank, its charter required it to keep 70% of its assets in housing-related investments, leaving it exposed to the 2007 US housing crash
In April 2009, the Office of Thrift Supervision
ordered the bank to take a $1.5 billion writedown on the value of the mortgage-backed securities it held. This in turn left the bank with an inadequate Tier 1 capital
ratio, with the bank issuing a statement saying that it was likely to be too undercapitalized
to continue as a going concern. The bank's share price collapsed from $18.50 to less than 15 cents.
On August 21, 2009, the bank failed
and was taken over by the Federal Deposit Insurance Corporation
. This was the 10th largest bank failure in US history, and the second largest of the 140 bank collapses of 2009 (behind Colonial Bank
).
The assets of the bank were immediately sold by the FDIC to BBVA Compass, the US-based subsidiary of Banco Bilbao Vizcaya Argentaria
(BBVA), the second biggest bank in Spain. This was the first deal between the FDIC and an institution bank tied to a foreign bank for almost 20 years. Under the agreement, the FDIC and BBVA Compass shared the losses of the bank, with the costs to the FDIC's Deposit Insurance Fund
estimated to be $3 billion. Guaranty Bank was absorbed into its new parent company, with its branches being rebranded
as BBVA Compass outlets.
Austin, Texas
Austin is the capital city of the U.S. state of :Texas and the seat of Travis County. Located in Central Texas on the eastern edge of the American Southwest, it is the fourth-largest city in Texas and the 14th most populous city in the United States. It was the third-fastest-growing large city in...
, which collapsed in 2009.
Formed in 1988 and part of Temple-Inland
Temple-Inland
Temple-Inland, Inc. is an American corrugated packaging and building products company based in Austin, Texas.-History:-Early Years:In 1893, when Thomas Louis Latane Temple, Sr., founded Southern Pine Lumber Company on of East Texas, Angelina County, timberland...
until 2007 when it was spun off as a standalone company, Guaranty was the second largest bank in Texas, with 162 branches across Texas and California, and at the time of its failure had $13 billion in assets and held $12 billion in deposits. Major shareholders included billionaire investor Carl Icahn
Carl Icahn
Carl Celian Icahn is an American business magnate and investor.-Biography:Icahn was raised in Far Rockaway, Queens, New York City, where he attended Far Rockaway High School. His father was a cantor, his mother was a schoolteacher...
and hotel tycoon Robert Rowling
Robert Rowling
Robert B. Rowling is the founder of TRT Holdings, the holding company of Omni Hotels and Gold's Gym.-Biography:A native of Corpus Christi, Texas, Rowling has an undergraduate degree from the University of Texas at Austin and a law degree from Southern Methodist University.In 1972, Rowling began...
, who jointly invested $600 million in the bank in 2008.
Collapse
Not to be confused with Guaranty Bank WI, which is a healthy bank since 1923, and is still in business. Not to be confused with Guaranty Bank (MO) or Guaranty Bank (MS), or Guaranty Bank (LA). Guaranty Bank (TX) is the only bank this article concerns.As a thrift
Savings and loan association
A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
bank, its charter required it to keep 70% of its assets in housing-related investments, leaving it exposed to the 2007 US housing crash
United States housing market correction
A United States housing market correction is a market correction or "bubble bursting" of a United States housing bubble; the most recent began following a national home price peak first identified in July 2006. Because realty trades in illiquid markets relative to financial assets such as common...
In April 2009, the Office of Thrift Supervision
Office of Thrift Supervision
The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...
ordered the bank to take a $1.5 billion writedown on the value of the mortgage-backed securities it held. This in turn left the bank with an inadequate Tier 1 capital
Tier 1 capital
Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves , but may also include non-redeemable non-cumulative preferred stock...
ratio, with the bank issuing a statement saying that it was likely to be too undercapitalized
Undercapitalization
Under-capitalization refers to any situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy, may be one that is over-exposed to risk, or may be one...
to continue as a going concern. The bank's share price collapsed from $18.50 to less than 15 cents.
On August 21, 2009, the bank failed
Bank failure
A bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. More specifically, a bank usually fails economically when the market value of its assets declines to a value that is...
and was taken over by the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
. This was the 10th largest bank failure in US history, and the second largest of the 140 bank collapses of 2009 (behind Colonial Bank
Colonial Bank
Colonial Bank, formerly a subsidiary of Colonial Bancgroup Inc., was headquartered in Montgomery, Alabama. Colonial Bank had 346 branches in the states of Alabama, Georgia, Florida, Nevada and Texas. Colonial's assets had grown from $166 million in 1981 to $26 billion. This growth can be attributed...
).
The assets of the bank were immediately sold by the FDIC to BBVA Compass, the US-based subsidiary of Banco Bilbao Vizcaya Argentaria
Banco Bilbao Vizcaya Argentaria
Banco Bilbao Vizcaya Argentaria, S.A. is a multinational Spanish banking group. It was formed in 1999 from the merger of Banco Bilbao Vizcaya and Argentaria, both of which in turn had previously amalgamated three important banks in Spain, namely Banco de Bilbao, Banco de Vizcaya, Banco Exterior de...
(BBVA), the second biggest bank in Spain. This was the first deal between the FDIC and an institution bank tied to a foreign bank for almost 20 years. Under the agreement, the FDIC and BBVA Compass shared the losses of the bank, with the costs to the FDIC's Deposit Insurance Fund
Deposit Insurance Fund
The Massachusetts Depositors Insurance Fund was created by the state government of Massachusetts in response to the large number of Massachusetts bank failures during the Great Depression of the 1930s. This fund was the inspiration for the formation of the Federal Deposit Insurance Corporation...
estimated to be $3 billion. Guaranty Bank was absorbed into its new parent company, with its branches being rebranded
Rebranding
Rebranding is the creation of a new name, term, symbol, design, or a combination of them for an established brand with the intention of developing a differentiated position in the mind of stakeholders and competitors....
as BBVA Compass outlets.