Sunday, January 24, 2010
By Winthrop Quigley
Copyright © 2010 Albuquerque Journal
Journal Staff Writer
Charter Bank management and Office of Thrift Supervision examiners argued for months over the quality of Charter's loans.
The argument ended about 4:30 p.m. Friday when OTS officials arrived at the bank's headquarters in a small shopping mall at Eubank and Spain NE to declare Charter "unsafe and unsound" and appoint the Federal Deposit Insurance Corp. as the bank's receiver.
The FDIC in turn handed Charter over to a Texas company, Beal Financial Corp., which will keep the Charter name and open for business as usual Monday.
Charter's management, led since 2001 by bank President Glenn Wertheim, insisted that loans, mostly commercial real estate loans — which OTS said were troubled — were, in fact, being paid on time. OTS disagreed and ordered tens of millions of dollars of those loans to be classified as toxic.
That classification, recorded as an entry on the bank's balance sheet, on paper lowered Charter's capital (money regulators require banks to make sure their deposits are safe) to levels well below those regulators regard as sound, even though virtually all of Charter's commercial real estate borrowers continued to pay their bills on time.
"They had one judgment; we had another," Wertheim said in a Journal interview Saturday.
Wertheim says politics played a role in Charter's death.
When the world's financial system went haywire in September 2008, much of the blame was placed on the Office of Thrift Supervision. The Treasury Department and Federal Reserve learned that the linchpin in the mess was a tiny financial trading operation owned by AIG, an insurance company. If AIG could not honor the commitments its traders had made, the global economy would fall into an abyss. OTS regulated that trading operation.
OTS found itself fighting for its life as politicians called for its abolition or merger into other regulatory bodies.
"The evolution of the Office of Thrift Supervision and the criticism they received early in this cycle, then their reaction to that criticism, affected us," Wertheim said. "They had a shift in examination standards. We got caught in that shift. It was not personal. We were sort of at the wrong place at the wrong time."
On top of that, commercial real estate values collapsed nationally, and Wertheim acknowledges that a lot of bankers are too optimistic about the ability of some borrowers to repay.
However, he said, regulators have a tendency to extrapolate the truly horrible conditions in places like Phoenix and Las Vegas to places like New Mexico, where conditions are better. Regulators seem to be looking skeptically at any bank, no matter where it is, that seems to match the profile of troubled banks in cities suffering through serious real estate depressions, he said.
Charter searched for a buyer who could get the bank's capital up to OTS-required levels, but, once a bank starts heading toward regulator-ordered closure, potential buyers have little incentive to step up. They can get a bank for less from the FDIC than they would have to pay for a bank that's still in business. The FDIC process not only wipes out the owner's stake in the bank, the FDIC also agrees to share with the bank's new owners the risk that loans won't be repaid.
Wertheim said he doesn't know Beal Financial and hasn't been told officially what his status is with the bank, though he doesn't plan to report to work Monday.
An April 2009 Forbes magazine profile said that Beal, a privately owned company, specializes in acquiring loans from failed banks and described its CEO, Andy Beal, as "a one-man toxic-asset eater."
Forbes reported, "He is buying bonds backed by commercial planes, IOUs to power plants in the South, a mortgage on an office building in Ohio, debt backed by a Houston refinery and home loans from Alaska to Florida."
The Wertheim family has been in the mortgage business in New Mexico for 33 years and bought the savings and loan that became Charter Bank in 1986. The bank became a major supporter of state Mortgage Finance Authority efforts to build low-income housing and of charities like Habitat for Humanity and Accion New Mexico.
In a 2006 Journal story about winning the Samaritan Ethics in Business Award, the company's founder and Glenn's father, Robert Wertheim, said Charter would have made more money selling more expensive conventional loans but instead specialized in FHA-backed loans designed to help first-time homebuyers get an affordable mortgage.
"I've always been proud of the fact that we do that," he said. "I think it's a wonderful investment, and our people do it right."
Robert Wertheim was active in several philanthropies, including Albuquerque Economic Development, Samaritan Counseling Center and Presbyterian Healthcare Foundation's efforts to provide care for indigent patients. Glenn Wertheim has been active in Habitat for Humanity and economic development efforts, including a stint as chairman of the Downtown Action Team.
Glenn Wertheim said he wants to focus on the company's legacy and not its demise. He offered a list of the bank's achievements he's especially proud of:
• Charter and its predecessor company, Southwest Mortgage, provided more than 150,000 mortgages over the past 33 years.
• It has paid more than $300 million in salary and benefits to 3,000 employees over that same period.
• It paid $75 million in state and federal taxes and $250 million in interest to depositors.
Wertheim hasn't thought about his own future yet.
"I haven't taken any time off in two years, and I haven't worked out in four months," he said.
Wertheim plans to get some rest, then he might re-enter the banking world, and he might start working on the public policy questions raised by the financial crisis that killed Charter.
"I'm looking forward to looking out at the world," he said. "I have a lot of interests."