Why is Emigrant Bank Still in Business?

Looking for a story about government malfeasance, greed, lack of banking control and the shafting of the American taxpayer, meet Howard Milstein, billionaire and TARP recipient:

Bank deposits are really loans from the public to a bank.

Assets are the loans that the bank makes to the public.

From the late 2006-2007 and through today, Emigrant Bank has raised billions of dollars on the Internet, all of it insured by you know who, the FDIC, through a program called Emigrant Direct Through this program Emigrant bank borrowed billions of dollars from the American public.

Emigrant is a private bank owned by a billionaire family of real estate speculators.

With all those billions Emigrant still found it necessary to take $269 million from the TARP even though it's owners have an estimated wealth in excess of $3 billion. To date Emigrant has not repaid them yet the FDIC is still allowing Emigrant to take in more and more deposits. All of these deposits are FDIC insured.

Emigrant took the money and used it in its various subsidiaries including Emigrant Realty Finance, LLC and amongst other things speculated on California commercial real estate through its different affiliates. Emigrant made risky commercial loans and continuous legal loan sharking. Several mortgage brokers openly refer to Emigrant Bank as a predatory lender. Scroll down through this thread. Emigrant pays depositors 1.1%, then loans it out at 9% on mortgages to consumers with weak credit. According to the referenced thread, the loans typically have a default rate of 18%.

With that how could Emigrant be losing money?

Most banks, when they have troubled loans, do there best to sell the bad assets and convert them to cash. Banks enjoy tremendous leverage in their operations, as high as 20:1. That means $1 million in cash capital can support up to $20 million in loans. Great when the $20 million is generating 9% or 18% interest.

But what happens when the loans go bad?

A million dollar bad loan means the bank needs to reduce its lending by its leverage. 20:1 leverage means reducing loans by $20 million, increasing reserves or injecting new capital. That is standard enforcement procedure practiced by bank examiners. That is not what is being done by Emigrant Bank.

Emigrant Bank, owned by real estate speculators, believes that their foreclosed properties will go up in value.

How do we know that? Howard Milstein is also part owner of the New York Times and wrote an oped piece in the New York Times on his philosophy of what the government should do about mortgages and banks.

Emigrant transfers bad assets to an affiliated company called RETAINED REALTY INC, 5 E 42ND ST, NEW YORK, New York , the same address as Emigrant Bank They can get away with this because the FDIC is not doing their job. The FDIC and TARP enables Emigrant to risk tax payer money on real estate speculation and running a very bad bank.

The financial statements of Emigrant Bank scream for it to be taken over. Emigrant has taken $269 million in government funds. Why was Emigrant given this money? Bad loans of course, mostly residential and gobs and gobs of commercial real estate.

What is Emigrant Bank doing to improve its financial situation and bad loans?

How many mortgages do you think have been modified by Emigrant?

None, not one.

Emigrant has an affiliated company called Retained Realty that takes over the foreclosed properties and uses TARP money and FDIC insured deposits so that a related company can inventory distressed real estate, betting on the future value. If real estate value goes up, Emigrant and the Milsteins win. If it goes down the US taxpayers lose.

Where is the FDIC? MIA.
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Largest privately held bank in the U.S. still hasn't paid back Uncle Sam's TARP loan

Every major financial institution in New York has settled its debt with the Treasury -- except Emigrant Savings Bank.

Investment news

By Aaron Elstein
February 22, 2010, 8:13 AM EST

A year after taxpayers bailed out the nation's financial system, every major bank in New York has settled its debt with Uncle Sam except one: Emigrant Savings Bank.
The 160-year-old institution, the nation's largest bank in private hands, has yet to repay its $267 million in rescue money. The unprofitable bank is so riddled with dud loans and poor investments, it might need another infusion of bailout cash unless the Milsteins, the real estate family that has owned the bank since 1986, inject millions more into the enterprise.

Data filed with the Federal Reserve Board by Emigrant's parent, New York Private Bank & Trust Corp., spell out the difficulties at the institution, which has $16 billion in assets. Delinquent loans and other nonperforming assets tripled, to $1 billion, over the 12 months that ended last Sept. 30. As a percentage of loans, they are three times higher than at comparable banks. Despite the elevated number of troubled loans, the bank's loan-loss reserves and capital levels are substantially lower than peers'. Emigrant posted a $229 million net loss through the first nine months of 2009; early last year, the bank told Crain's its distressed loans would not result in losses unless real estate values declined another 40%.

Perhaps most alarming, the bank flunks a crucial measure of financial health: Its capital is exceeded by its nonperforming assets and loan-loss reserves. This measurement is known as the “Texas ratio,” and a reading above 100% indicates that a bank is in danger of failing. IndyMac Bancorp, for example, had a Texas ratio of 140% before it collapsed in 2008. The Texas ratio at Emigrant's parent is 113%.

“It means your sandbags to protect against the flood are getting deluged,” says Gerard Cassidy, a banking analyst at RBC Capital Markets.

Mr. Cassidy finds it startling that Emigrant is in such a situation. The bank has more than $11 billion in customer deposits at 34 branches in the city and suburbs and through an online operation. The Milsteins built their fortune—estimated by Forbes to be $3.8 billion—on savvy real estate investing, and Chief Executive Howard Milstein has in years past deftly steered the bank clear of the mortgage problems that sank rivals.

“Emigrant has never shown a Texas ratio anything close to what it is today,” Mr. Cassidy says.

Mr. Milstein was traveling and unavailable for comment, according to a spokesman. In response to e-mailed questions, the spokesman writes that operating results remain “strong,” and he attributes the bank's reported losses to accounting rules.

“Many of the accounting losses on Emigrant's financial statements are not the result of actual losses but are required to be reflected,” he emphasizes. “Emigrant expects that asset values for a significant portion of these assets will improve.”

The bank, the spokesman adds, has “very substantial reserves for potential actual loan losses and believes they far exceed what will actually be experienced.”

Like many big banks, Emigrant has been tripped up by souring residential mortgages, bad business loans and subpar private equity investments. But Emigrant, with roots as a savings and loan writing home mortgages, seems to have made the classic mistake of joining the party just as the punchbowl was running dry.

The institution's commercial and industrial loan portfolio jumped by 60% in 2007, to nearly $1 billion. Mr. Cassidy wonders if Emigrant started buying more loans originated by other banks. Whatever the case, the recession soon hit, and the bank now isn't collecting interest payments on fully one-third of C&I loans.

Emigrant seems to have upped its bet on the Milstein family favorite—real estate—at the wrong time. Fully 60% of its investment portfolio is in mortgage-backed securities, triple the level in 2006. It isn't clear if these securities contain government-guaranteed mortgages, but analysts say even if they do, they've probably lost value.

Its $150 million private equity arm, Emigrant Capital Corp., is also suffering from unfortunate timing, with four investments in 2006 as the M&A whirl hit overdrive. Two companies, representing 20% of the division's investment portfolio, filed for bankruptcy last year: Forward Foods, the maker of Detour protein bars, and Jolt Cola, the super-caffeinated soft drink. Jolt's founder has since sued Emigrant for allegedly driving his company into the ground and seeks $31 million in damages. Emigrant wouldn't comment.

All of this has left Emigrant with a thin capital base, even with the bailout millions. Using a strict definition of capital that analysts often turn to in hard times, Emigrant's tangible capital ratio is only 2.6%, compared with 5.5% for its peers. (Emigrant prefers to cite another form of capital, known as Tier 1; under this definition, the spokesman says, the bank's capital ratio is more than 12.5%, about twice the regulatory requirement.)

“They need as much capital as they can get their hands on,” says Fitch Ratings analyst Eric Newell, who last summer cut the bank's credit ratings from investment grade to junk. His outlook is “negative.”

As the bank's fortunes have declined, the Milsteins have stepped in to shore up its coffers. In 2008, they injected $110 million into Emigrant, and in 2007 they put in $60 million, according to Fitch.

Might family members dig into their pockets again to help their bank? Mr. Newell says Fitch can't count on such a scenario.

“Our ratings don't take their support into account,” he explains, “because we don't have the ability to assess their desire to provide it in the future.”

[This story first appeared in Crain's New York Business, a sister publication of InvestmentNews.]