Regulation And Legislation

Audit: Regulators saw red flags at First National

Federal banking regulators knew as far back as 2002 about problems at First National Bank Holding Co.’s banks in Arizona, California and Nevada but failed to act until shortly before their demise last year, auditors said today.

Federal banking regulators knew as far back as 2002 about problems at First National Bank Holding Co.’s banks in Arizona, California and Nevada but failed to act until shortly before their demise last year, auditors said today.
The criticism of the U.S. Office of the Comptroller of the Currency by the Department of the Treasury’s inspector general echoed its blast last week of the U.S. Office of Thrift Supervision for lax oversight of IndyMac Bancorp. Inc.
The two reports are likely to fuel moves in Congress for a toughening of federal banking oversight.
First National Bank of Scottsdale, Arizona, which described itself as the Southwest’s largest privately held family-owned banking institution, incurred significant losses from its commercial and residential real estate loans, today’s report said.
Auditors traced these losses in part to weak management by the banks, which were owned by Raymond A. Lamb. He created a corporate culture that regulators “considered to be high-risk and one that emphasized growth and profits over appropriate risk management,” the report said.
The banks’ management failed to address repeated regulatory concerns about their underwriting, loan concentrations and accounting. Regulators said the executives “directly caused” the banks’ problems, according to the report.
Yet the OCC failed to act for six years, auditors said.
“We believe that OCC should have taken formal enforcement action much sooner and was not aggressive enough in the supervision of the banks when problems first arose,” the inspector general report said.
The Federal Deposit Insurance Corp.’s insurance fund had recorded a $739 million loss as of Dec. 31 from the collapse of First National Bank of Nevada, First Heritage Bank of Newport Beach, Calif., and First National Bank of Arizona, today’s audit said.
Pasadena, Calif.-based IndyMac’s failure is likely to cost the FDIC insurance fund $8.5 billion to $9.4 billion, the agency said in January.
Comptroller of the Currency John Dugan said: “It is appropriate to take additional measures to reinforce certain expectations and requirements to our examining staff.”
The agency’s senior management plans to reiterate for bank examiners “the importance of ensuring that banks take timely actions to address examination findings,” he said in a Feb. 25 letter attached to the report.
Mr. Lamb could not be reached for comment. He is identified on the LinkedIn networking website as being “El Presidente” of Bankers Consulting Co. in Phoenix. However, the company is not listed in directory assistance and does not appear to have a website.
In 2002, Mr. Lamb erupted in anger at an OCC examiner, The Wall Street Journal reported last October, citing two people in the room. The agency later raised its quality rating on bank assets from a 3 to a 2 on a scale of 1 to 5. It also reassigned the examiner, according to the newspaper.