PFF Bank & Trust was back in the news yesterday. The bank's planned merger with Illinois-based FBOP Corp., is being carefully watched by federal officials, according to an article by Matt Wrye in yesterday's Daily Bulletin.
PFF stock has fallen off a cliff this past year, tumbling from a high of nearly $40 a share to under $2. Here's what Wrye had to say:
More than $1.1 billion has been drained from PFF Bancorp and its bank branches since March 2007, most in customer withdrawals from its banks.
Walter Hackett, a former PFF executive, isn't sure the merger will be halted, but he thinks FBOP may be getting nervous about the deal.
PFF's losses and mounting shareholder lawsuits "may be part of the reason that FBOP is blinking now," said Hackett, who during the housing market boom was a vice president and commercial loan department manager for PFF.
Hackett is also a witness for a group of shareholders who recently filed a lawsuit against PFF - one of several suits claiming PFF executives foresaw financial losses and dumped their stock while telling shareholders everything was OK.
At the same time, FBOP is suffering major losses due to its exposure to Freddie Mac and Fannie Mae stock meltdown, according to a September article published by Crain's Chicago Business newspaper.
FBOP, owned by billionaire Michael Kelly, is trying to "extend the Federal Reserve approval of the merger, and to obtain other regulatory approvals," and intends to complete the merger on or before Dec. 31, documents show.
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The Los Angeles County Metropolitan Transit Authority, whose board is chaired by Los Angeles Mayor Antonio Villaraigosa, is in some potential trouble over lease-back arrangements it and other public transit agencies made over the past decade.The Daily Bulletin has an article that explains how the failure of insurer AIG figures into the MTA's problems, which started when the MTA sold off assets like buses and trains to private investors over the past decade. The MTA then turned around and leased the assets back from the investors. The deals generated about $65 million in cash for the MTA's operating costs.
The MTA's lease-back deals were insured by AIG, and the insurance included a provision that requires the MTA to find a new insurer within 60 days if AIG's credit rating ever fell below a AAA rating, something that is a given as a result of AIG's current problems. If the MTA cannot find another insurer, the investors can take possession of the assets. Now, MTA officials are lobbying Washington to step in to guarantee the lease-back arrangments, the Bulletin article reported:
"Because the federal government now owns over 80 percent of AIG shares, they would be the logical candidate to guarantee those deals," said MTA spokesman Marc Littman.
The MTA is one of dozens of transit agencies nationwide that are in Washington this week seeking help because of troubles with similar deals.
The MTA's deals originated in the late 1990s and early 2000s, when it sold off a huge number of buses and trains to corporate investors, including Phillip Morris and Comerica.
It then entered into long-term leases to use the equipment. The sales netted about $65 million to put toward operating costs, said Littman.
"Essentially, they were tax shelters," said Joseph Henchman of the Washington-based Tax Foundation, a taxpayer rights organization that opposes guaranteeing the leases. "They were a way to get short-term revenue that was never appropriated."
These sorts of things don't exactly inspire confidence in the MTA or Villaraigosa, who pushed the half-cent county sales tax increase passed by LA-area voters this past election. The Bulletin article mentioned a concern that some of the revenue from the sales tax increase might have to be used as collateral against money the MTA would have to borrow if they don't get a bailout. Move to the back of the funding queue, Gold Line folks.
A FOOTNOTE: This same sort of arrangement was suggested by former Claremont City Manager Glenn Southard in 2005. Shortly after he left Claremont, Southard recommended this to some of his Claremont 400 friends as a way of financing projects like Padua Park, saying that city property - City Hall or the Hughes Center, for example - could be used as collateral and leased back from private investors in exchange for project funds.
Luckily for Claremont, Southard's scheme never gained traction.
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