Loan hark: FDIC officially axes Landmark lender
A month after it took over the operations of failed Atlanta-based lender Silverton Bank, the Federal Deposit Insurance Corporation will instead dissolve the bank as of Wednesday, July 29 and sell off Silverton's assets in a fire sale–- including the construction loan on the unfinished Landmark Hotel.
This means that now Silverton's interest in the Landmark won't be sold as part of a one-off package deal for all of Silverton's assets, but will now instead be likely be bundled with a few of the other Silverton holdings in a smaller sale.
Among those assets is Specialty Finance Group, the wholly-owned subsidiary of Silverton Bank that actually holds the $23.5 million Landmark loan. In a letter obtained by the Hook, SFG assured its borrowers that it remains unaffected by the FDIC's actions on its parent company.
"Silverton Bridge Bank [Silverton's new name under the FDIC] is separate and apart from SFG," the letter reads, "and this announcement will not affect the SFG loan portfolio."
While that's technically true, the FDIC took over all of Silverton's operations as of May 1–- including those of Specialty Finance Group. As such, FDIC spokesperson David Barr says that the government will likely attempt to sell SFG lock, stock, and barrel to another bank in the near future.
"I would imagine that with a subsidiary like SFG, we'll attempt to sell the whole thing," says Barr, "but if we have yet to sell it by the 29th, we'll continue to operate it."
Should the FDIC fail to sell SFG as a whole, the next step for the Landmark Hotel loan would be for it to be sold as part of a bundle of Silverton loans to either another bank or a private investor. Just who would want to buy a loan on which the owner has [allegedly] defaulted, particularly one presently tied up in litigation in two different states? According to former commercial banker and financial pundit Hugh Hennessy, plenty of well-funded individuals.
"Usually the buyers are what you'd call 'vulture funds,'" says Hennessy. "They're usually backed by wealthy private investors like Warren Buffett or they're subsidiaries of a big financial institution like Fidelity Investments."
And while the FDIC hasn't historically had any trouble selling off a failed bank's holdings, the proliferation of so-called "toxic assets" has been so widespread throughout America's financial institutions the Treasury Department announced in March that they will be using taxpayer dollars to sweeten the deal in order to sell off bad loans.
"The Treasury will be putting up about 85 percent of the financing," says Hennessy. "Which means these vulture funds will put up about 15 percent and then reap most of the profits, and that's if the thing works out."
How this will affect Halsey Minor's ownership of the Landmark Hotel remains to be seen, but tells the Hook that he remains undaunted.
"I always finish what I start," says Minor, "even when I don't enjoy one single minute of it."
–updated June 9 at 3:12pm
–last updated June 10 at 4:40pm: "Just who would want to buy a loan on which the owner has [allegedly] defaulted, particularly one presently tied up in litigation in two different states?" (We just added the word "allegedly" to this sentence because of concerns that default may not be a unilateral process. In other words, the bank says Halsey Minor committed various acts of default, but Minor may not agree with those allegations.)–editor