Sabadell United Taking Calculated Risk In Failed Bank
By Scott Blake
With its recent purchase of a Florida bank, Miami-based Sabadell United Bank has delved into murky finances in the aftermath of the nation’s housing price bubble.
Top executives at Sabadell United told Miami Today that it’s a calculated risk they believe will eventually pay off.
A US subsidiary of Spanish banking giant Banco Sabadell, Sabadell United in August acquired the failed Palm Beach-based Lydian Private Bank.
Sabadell United acquired the troubled bank through a loss-share agreement with the Federal Deposit Insurance Corp. The agreement covers $907.1 million of Lydian’s assets, of which the FDIC will cover 80% of losses on certain loans acquired by Sabadell United.
The agreement, however, requires Sabadell United to participate in a federal mortgage modification program designed to minimize foreclosures.
"There’s no free lunch," Sabadell United CEO and President Mario Trueba said, referring to the bank’s commitment under the FDIC agreement.
The troubled mortgages that Sabadell United inherited from Lydian are spread around Florida and beyond, said Sabadell United Executive Vice President Dwight Hill.
"Our mission is to keep people in their homes," Mr. Hill added.
Sometimes loss-share agreements can have the effect of encouraging the banks involved to push for foreclosures since the FDIC is covering most of the losses, said Ken Thomas, an independent Miami-based banking consulting and economist.
However, if Sabadell United avoids that path as Mr. Trueba and Mr. Hill have stated, "I will applaud them for it," Mr. Thomas said. "It would reflect their commitment to our community here in South Florida."
When there is a foreclosure, banks and other mortgage holders run the risk to having the property vandalized or falling into disrepair, which depresses housing prices and takes a toll on the surrounding community, Mr. Thomas said.
"If there is a foreclosure, the people living there [sometimes] will trash the place," he added. "We have to try to avoid foreclosures."
According to Mr. Hill, foreclosures also present headaches for banks.
Mr. Hill said Sabadell United has done "very few" foreclosures. However, in one case, the occupants of a foreclosed $1 million home in Boca Raton "completely stripped" the property of useful items, he said.
The foreclosure process, Mr. Hill said, can take up to 600 days due to rules and regulations, as well as the "overcrowded court system, and legislative difficulties."
In addition, he added, municipalities are increasing pressure on banks and other mortgage holders to maintain homes in various stages of foreclosure when they aren’t being kept up by the occupants.
Sabadell United’s Spanish parent bank has provided $200 million in capital to support the Lydian acquisition and to add to Sabadell United’s war chest for possible future strategic acquisitions. The bank plans to sort through the Lydian acquisition before considering other moves.
"Next year we’ll look at possible strategic deals," Mr. Trueba said. "We think there’s going to be [more] consolidation in the industry."
What appealed most to Sadabell United about Lydian was acquiring that bank’s private banking and wealth management services. That was a line of business the bank hadn’t had since Banco Sabadell acquired it in January 2010 from Bank of New York Mellon Corp.
"Now we’re back in it," Mr. Trueba said about wealth management.
Sabadell United currently employs about 500 people. The Lydian transaction adds to the bank’s workforce, but some jobs eventually will be eliminated, mainly due to duplication of services.
"Naturally, there is some overlap," Mr. Trueba said. "There will be some job losses, but we don’t envision it to be large."
The Lydian transaction expands Sabadell United’s Florida footprint to 25 branches in six Florida counties, adding branches in Coral Gables, Naples, Palm Beach, Palm Beach Gardens, Sarasota and Tampa.
Sabadell is seeking to expand in Florida as a bank for professionals, small- and mid-sized enterprises, and high net-worth individuals. By absorbing the $1.7 billion Lydian, Sabadell United now is a roughly $4 billion institution.
This transaction was "part of our strategy to seek acquisitions and become a significant statewide bank," Mr. Trueba said.
Mr. Thomas said banks can make the mistake of trying to expand too much, resulting "in spreading themselves too thin."
Mr. Thomas said he thinks small and mid-sized banks based in Greater Miami would do well to focus along the Interstate 95 corridor in South Florida, without devoting too many resources in other areas of the state where larger banks already dominate.
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