As has now become a familiar routine, this past Friday
night the FDIC took
control of several more commercial banks. The seven additional banks seized
on Friday bring the year to date total number of failed banks to 139, and the
total since January 1, 2008 to 304. At the same time, lawsuits involving failed
and troubled banks are also accumulating, and on Friday, investors filed two
more banking-related securities class action lawsuits. And as noted below, the
jury trial in another banking related-securities class action lawsuit continues
to go forward in federal court in Florida.
Recent Banking-Related Securities Suits
The first of the new lawsuits was filed on October 22,
2010 in the Northern District of Illinois against PrivateBancorp and certain of
its directors and officers. As reflected in the plaintiffs' lawyers' October 22
press release (here), the Complaint alleges material misrepresentations in
connection with the company's June 4, 2008 and May 11, 2009 securities
offerings. The complaint (which can be found here)
alleges that the company's share price fell over 37% in October 2009 after it
announced that it held nearly $400 million in nonperforming loans.
The other recently filed banking-related suit was filed
on October 22, 2010 in the Northern District of Iowa against Meta Financial Group
and certain of its directors and offices. According to their October 22, 2010
press release (here), the Complaint (which can be found here)
relates to the company's October 12, 2010 announcement that the Office of
Thrift Supervision was investigating the company in connection with its
iAdvance credit origination program. The complaint alleges that the company's
shares declined over 40% on the news.
Statistical Review of Recent Banking-Related
Securities class action activity involving commercial
banks represents a significant part of 2010 securities class action lawsuit
filings. By my count, there have been at least ten securities class action
lawsuits so far this year involving banking institutions, representing about
seven percent of the approximately 143 securities suits filed year to date.
As noted in NERA's August 2010 report on failed bank litigation,
investor lawsuits involving failed and troubled banks have been a significant
accompaniment of the current round of banking problems. According to the NERA
report, private investor litigation "was not a notable feature of the
S&L crisis litigation," but this time around "private litigation
against D&Os has been widespread."
Among other statistics, the NERA report notes that of the
240 securities class action lawsuits filed against financial sector firms in
2008 and 2009, there were 45 against depositary firms. The report further notes
that of the 20 largest failed banks prior to 2010, 13 involved publicly traded
institutions, and eight were involved in securities class action litigation
through the end of 2009.
Updated Overview of Bank Failures
Meanwhile the number of failed banks continues to mount.
The 139 banks closed in 2010 through October 22 is nearly equal to the 140
banks closed in all of 2009. The seven banks closed this past Friday night
includes two more failed banks in Georgia and Florida, respectively, as well as
one more in Illinois. There three states - Georgia, Florida and Illinois - are
the states with the highest numbers of failed banks, both this year and since
January 1, 2008.
So far this year, Florida has the highest number of
failed banks, with 27, followed by Georgia (16), Illinois (16) and California
(10). These four states alone have combined for 69 bank failures this year, or
just under 50% of all 2010 bank failures.
Though 39 states and Puerto Rico have each had at least
on bank failure since January 1, 2010, the bank failures have predominately
been concentrated in just a handful of states, again led by the same four
states - with Georgia leading the way with 46 failed banks, followed by Florida
(43), Illinois (38) and California (32). These four states together have had
159 bank failures, or about 52% of all failed banks since January 1, 2008.
Other states with high numbers of failed banks during that period include
Minnesota (14), Washington (13), Missouri (11) and Nevada (10).
The 2010 bank failures have largely been concentrated
among smaller banks. 116 of the 139 bank failures, or about 83%, have involved
institutions with less than $1 billion in assets. 32 (or about 29%) of the 2010
bank failures have involved banks with less than $100 million in assets. Of course,
given that there are many more smaller banking institutions in the U.S. than
there are larger banks, it may be unsurprising that there are so many bank
closures involving smaller banks.
While the bank closure statistics are striking, it is
worth noting that the lawsuits described above, as well as much of the
banking-related securities litigation, involves banks that remain in operation.
In other words, the current level of banking-related securities litigation
represents more than just the direct fallout from the high level of bank
failures. Rather the litigation reflects the pressures and stresses more widely
distributed throughout the entire U.S. banking industry in the wake of the
Even though we are well past the depths of the financial
crisis (at least temporally), many banks remain under pressure, as reflected in
the FDIC's most recent quarterly banking profile (about which refer here). In many instances, this pressure has, among other
things, led to litigation.
So while we continue to wait and see the extent to which the FDIC will, as a result of
the current round of bank failures, become an active claimant against
former directors and officers of failed bank, investors have pressed ahead with
their own claims. Many of these investor claims have come in the form of
securities class action lawsuits, the targets of which include a range of
banking-related defendants, beyond just the failed institutions. The most
recent filings suggest that we may continue to see more commercial
banking-related securities litigation in the months ahead.
Meanwhile, BankAtlantic Securities Trial
Continues: Among the banking-related securities cases filed in
recent years is the securities class action lawsuit filed against BankAtlantic
Bancorp and certain of its directors and officers, which recently became
one of the very rare securities class action lawsuits to actually go to trial
(about which refer here). The jury trial in the case is going forward in
federal court in Miami, and as reflected in the October 22, 2010 post in the Southern
Florida Business Journal Blog (here), the trial has among other things involved the
plaintiffs' introduction of inflammatory internal emails highly critical of the
bank's lending practices and processes.
According to informed sources, the plaintiffs are likely
to conclude the presentation of their case some time during the upcoming week,
and it will then be the defendants' turn to present evidence and to introduce
Plaintiffs in the case are represented by Matthew
Mustokoff and Andrew Zivitz of the Barroway Topaz firm and Mark Arisohn of
Labaton Sucharow. The defendants are represented by Eugene Stearns of the
Stearns Weaver Miller law firm.
Anatomy of a Failure:
Those readers wondering how in the world we got into this current banking mess
may want to take a look at the article entitled "Death of a Small Town
Bank" in November 1, 2010 issue of Time Magazine (link currently
unavailable) The article tells the story of Community Bank & Trust (CBT) of
Cornelia, Georgia, which the FDIC closed on January 29, 2010.
Though CBT is just one of the 139 banks that have failed
this year, its tale encompasses so many of the problems underlying the current
crisis. All of the usual details are present, as a small town institution got
caught up in the speculative fever caused by rapidly escalating real estate
prices, compounded by administrative and procedural shortcomings (and possibly
worse) that led to faulty and some improper loans. The sudden collapse of
prices that accompanied the financial crisis left lenders unable to repay and
the bank saddled with a portfolio of bad loans that ultimately caused the
bank's failure and left the town with a challenging future. The article makes
for interesting, if sobering, reading.
For Those Looking for Something to Feel Good
About: Those readers who have had just about enough of
depressing stories about failed banks may want to take a look at the cover article from the October 24, 2010 issue of The
New York Times Magazine entitled "The D.I.Y. Foreign-Aid
Revolution." The article reports the stories of several individuals who
have made it their personal responsibility to try to make the world a better
place, and who actually have each found a way to actually do things that can
make a difference. A really inspirational article about some really interesting
and impressive people.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.