FDIC team works weekend to shut down TierOne

A team of three or four people from the Federal Deposit Insurance Corp. went into TierOne Bank in downtown Lincoln at 6 p.m. Friday to close it down after more than 100 years of operation.

They were joined by as many as 60 or 70 people for the weekend's work by FDIC as the appointed receiver, said David Barr, FDIC spokesman.

"This has a lot of branches," Barr said. In fact, 69, including 59 in Nebraska, nine in Iowa and one in Kansas. "We probably won't be in all of them but the larger branches. They'll be there all weekend; Monday and Tuesday they'll be going back to their day jobs."

FDIC doesn't just walk away, though.

It has entered loss-sharing agreements with the bank that's taking over the assets, Great Western Bank of Sioux Falls, S.D.

Those agreements are an inducement for the acquiring bank to take over loans of failed banks.

The agreement insulates the acquiring bank from unlimited losses from bad loans.

"If they purchased TierOne on their own, they'd be responsible for 100 percent of those losses," Barr explained. In this case, Great Western will be responsible for only 20 percent of the losses. FDIC takes the rest of the 80 percent, and now estimates its loss to the Deposit Insurance Fund at $297.8 million.

FDIC likes the loss-sharing arrangement because it keeps loans in a banking relationship, as opposed to being left behind with FDIC liquidation.

"Any asset we do not sell, we hold onto those with the thought of trying to sell them," Barr said. "That's not the best place for a borrower to be, particularly if you have a construction loan. Keeping those assets in the local community is the best for those loan customers.

"It's a winning proposition for everybody," Barr said. "That's going to motivate (Great Western) to work those loans. Every dollar they save is 20 cents in their pocket.

"We sell more assets at the time of failure and have to hold fewer assets," Barr said. "We get a better price for them because they're not in a liquidation fire sale."

FDIC will periodically update the progression of losses in TierOne loans, or any other institution, on its website.

The estimated loss of $297.8 million didn't faze Barr.

"For an institution that's $2.8 billion (in assets), you're looking at about 10 percent are considered a loss," Barr said. "For this type of environment we're in, and the type of failures we've had, 10 percent of the assets is a very low amount. I've seen it 30 or 40 percent in the past two and a half years, and that's not unusual."