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I-Team: Anatomy of a Bank Job | Business

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I-Team: Anatomy of a Bank Job
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LAS VEGAS -- American banks have fallen like dominos over the past two years, leading to billions in bailouts and economic turmoil, even though bankers themselves have fared pretty well.

Seven Nevada banks are among the casualties, victims not only of a troubled economy, but also of their own excesses.

A year ago, the I-Team went to see the people in charge of community Bank of Nevada after hearing the bank was in trouble. The bank president said that while all banks were being battered, we should be careful about jumping to conclusion. Five months later, government regulators seized Community Bank because it was in danger of going under. 

Other local bankers said, off the record, that Community Bank took big risks and got away with them while the economy boomed. But competitors describe Community Bank as a "bunch of cowboys" who took way too many chances.

Read the Community Bank Closing Order

Homeowners at Stallion mountain Golf Community can barely recognize what once a world-class course in their backyards. Essentially, it's been scalped. Wide swaths of turf were peeled off in a pattern that has no pattern.

"You can see where they removed turf and it just looks like someone decided to stick a bunch of granite there for no reason," said golf course superintendent Erik Ostlund. "I think they had someone who just went through with a can of paint and said, 'From this line here, remove it.'"

Like the residents, Ostlund remembers what was here before, and is sick about it. Today the putting greens are dead, the driving range a patchy jumble of dirt and scrub, weeds line the walkways, current maintenance is what you might call modest, and the manager wasn't happy to see an I-Team camera.

"You need to leave immediately," he said.

Stallion Mountain is an example of how the collapse of a bank can continue to haunt a community. 

Read the Community Bank Final Report

Community Bank of Nevada was a rock star. For seven straight years, its assets grew 27-percent per year -- two and a half times faster than other Las Vegas banks. Bank president Ed Jamison and his board of directors adopted what they saw as an aggressive strategy, but which federal regulators would later characterize as "inherently risky" like other banks. 

Community rode the growth wave as Las Vegas exploded, but its managers rolled the dice, concentrating on highly speculative real estate and construction deals. 

They began accepting so called "hot money," also known as brokered deposits, funds deposited by outside investment groups which expected a high return. As long as the growth kept churning, it worked. Community's earnings were nearly twice those of other banks. 

But when the economy turned, the bank imploded. According to an FDIC analysis, the banks non-performing assets, loans that went south, jumped 531-percent from the end of 2007 to the middle of 2008. 

A profit of $26 million in 2007 became a loss of $189 million in 2008. But the public never knew because, when the trouble began, the bank simply stopped filing SEC reports.

"It's a very large red flag," said George Burns with the Nevada Financial Institutions Division.

Nevada regulators were watching closely, and so was the FDIC and the Federal Reserve. Examiners repeatedly gave tacit approval to what Community Bank was doing, until the bottom fell out of the housing market. That's when regulators became alarmed, because the recession exacerbated what FDIC called "bank management's failure to identify the magnitude of risk." 

By the end, 53-percent of the money in the bank came from brokered deposits. State regulators say anything over 20-percent is reason for concern. 

Ed Jamison repeatedly assured regulators he could turn it around. He made rosy pronouncements to the public. Even in the spring of last year, Jamison told the I-Team and others that he felt pretty good about where the bank was going, that he was confident they would weather the storm. Regulators later called this "A lethal sense of optimism." 

A report from the FDIC reveals that risky loans weren't the only problem. FDIC cites the poor judgement of management, deficiencies in loan reviews, appraisals, and credit policies.

What happened at the Stallion Golf Course has already been the subject of lawsuits and counter-suits. Around the valley, other shuttered projects are monuments to the collapse. 

There are always two sides to such failures, but when a bank collapses, projects get canceled, jobs eliminated, contractors squeezed. After the government finally swooped in and took control of the bank last August, FDIC was looking at $781 million in losses it would have to cover. The agency solicited 160 banks to buy Community but didn't get a single offer because the assets were viewed as toxic.

"Out of 140 failures in 2009, only six the FDIC could not find an acquiring institution. It was a rare event," said FDIC spokesperson Greg Hernandez.

While his bank was headed for trouble, we know that Ed Jamison earned about $1 million a year in salary and bonuses and that his managers earned above the industry average.

In February, the FDIC informed 43 managers and board members that it intends to make them pay the $780 million in pending losses and will go to court to make it happen. So far, no such suits have been filed. 

Mr. Jamison is prevented from commenting right now, but others familiar with the bank say that FDIC report is boilerplate, that Community Bank's problems are entirely linked to the economy.

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