Money woes mount for BankUnited

As at least three bidders mull the acquisition of Florida???s largest local bank, BankUnited disclosed it paid out more in deposits than it collected in interest during the first quarter.

Bank United???s first quarter net interest income ??? widely equated to revenue in the banking world ??? was minus $2.3 million, according to its preliminary filing with the Federal Financial Institutions Examination Council on Friday. The figure does not include the results of the parent company, Coral Gables-based BankUnited Financial Corp. (NASDAQ: BKUNA).

Meanwhile, federal regulators have moved the deadline for bids to acquire BankUnited from Thursday to next Tuesday, according to a source.

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Much of the maneuvering deals with whether former Chairman and CEO Alfred Camner ??? the largest shareholder in the parent company ??? would be involved in the company???s future or receive anything of value for his shares, a source said. If the bank is put into receivership, shareholders may not receive a return.

Attorney Kendall Coffey, who represents the Camner family, declined to comment on the future of BankUnited.

BankUnited shares have shown volatility and heavy trading this week. On Thursday, 21.98 million shares traded, following 14.6 million on Wednesday and 15.85 million on Tuesday. The stock only has 30.63 million shares as a public float, so many shares may be trading multiple times in a day.

Prices this month have bounced from a low of 28 cents on May 1 to a high of $1.74 on Tuesday. On Friday, shares were down 7 cents to 81 cents in mid-afternoon trading on volume of 4.9 million shares.

Meanwhile, bidders must evaluate the value of a potential purchase. The negative net interest margin is rare among banks.

Having high net interest income as a percentage of the assets of the bank is a core measure of a bank???s strength. Losses from bad loans are subtracted from the income margin most banks get from collecting more from loan interest than they pay out in deposits.

However, those fundamentals were upside down at BankUnited.

In the first quarter, the bank collected $126.4 million in interest on mortgages and investments in mortgage-backed securities while paying out $128.7 million in interest to customers on deposits and to the Federal Home Loan Bank (FHLB) on a loan to BankUnited. The FHLB loans money to banks, which, in turn, are expected to lend out at higher interest rates than they are paying the FHLB.

BankUnited???s net interest income has nosedived during the past year as it offered high-rate certificates of deposits while loan interest rates fell.

The bank generated $82.1 million in net interest income in the first quarter of 2008. Its net interest income dropped to $15.1 million in the fourth quarter, before turning negative in the first quarter of 2009.

It did not help that BankUnited had $478 million more in liabilities ??? which includes deposits and loans that cost it money ??? than it had in assets, which should earn the bank interest income.

BankUnited???s $13.14 billion in assets included about $2.64 billion not earning interest, such as repossessed real estate, late and unpaid loans and the reserve for future loan losses.

On the other side of the equation, BankUnited???s $8.78 billion in deposits included only $328 million that were not paying interest to depositors. That means many of its deposits were costly.

Having so many high-rate deposits diminishes the franchise value of the bank, Miami-based banking analyst and economist Kenneth H. Thomas said. However, he believes BankUnited still has good franchise value because its 86 branches in the attractive Florida market hold a higher average of deposits per branch than most other banks.

The bank???s other main source of potential revenue ??? noninterest income ??? was negative $27 million in the first quarter. That included spending $13 million on the operations and sale of repossessed assets.

Despite the urgent pressure on BankUnited to preserve capital as it seeks an investment, the bank???s noninterest expenses ??? the operational expenses of the business ??? increased to $77.2 million from $63.1 million in the fourth quarter.

The bank cut 15 employees during the quarter to end at 1,083, but its personnel and compensation expenses increased by $1.5 million to $20.7 million.

Thomas said he was not surprised at the higher expenses because BankUnited probably is spending a lot of money to find an investor to keep the company alive.

The call report also shed light on the amount of capital it would have taken as of March 31 to put BankUnited back into good standing.

It had a negative $408.4 million in total risk-based capital for a ratio of negative 5.49 percent. The regulatory requirement for a well-capitalized bank is 10 percent, which would have required an additional $1.15 billion in total risk-based capital for BankUnited as of March 31.

Those bidding for BankUnited could weigh whether to recapitalize the bank, possibly with government assistance, or purchase some of its assets and deposits while letting the Federal Deposit Insurance Corp. place the rest into receivership.

Three bidders are reportedly in talks with BankUnited and regulators about a deal for the bank: TD Bank, with the assistance of Goldman Sachs; the combination of W.L. Ross, Carlyle Group and Blackstone Group; and the J.C. Flowers & Co. hedge fund.

Thomas said government dollars almost certainly would be needed in a deal for BankUnited because no private investors wants to absorb the losses on its problem loans.

That doesn???t necessarily mean it???s headed for receivership. Thomas noted that both Bank of America and Citibank signed loss-sharing agreements with the federal government as they accepted taxpayer investments.

BankUnited???s call report also stated:

• The BankUnited subsidiary lost an estimated $403 million in the first quarter. The parent company estimated a consolidated loss of $443 million in an announcement on Tuesday.
• bank foreclosed on nearly $73 million in mortgages during the first quarter.
• BankUnited had $1.48 billion in nonaccrual loans, which were not paying interest, and $553 million in loans 30 to 89 days past due. Together, those account for 19.4 percent of the bank???s total loans.
• The bank had $154 million in repossessed property.
• BankUnited restructured $331 million in troubled debt during the first quarter.
• During the first quarter, the bank granted credit extensions to five executive shareholders, principal shareholders and/or directors for a total of $1.68 million.
• The bank had $2.38 billion in deposits that exceeded the $250,000 FDIC insurance limit.
• BankUnited valued its offices and equipment at $45.8 million.

A BankUnited spokeswoman did not return a request for comment.