Downey Savings & Loan acquired by U.S. Bank; Downey Financial to file Chapter 7 bankruptcy by Wednesday

By Caroline Salls

Pittsburgh, Nov. 24 - Downey Savings and Loan Association, FA's banking operations were acquired by U.S. Bank, NA after Downey was closed on Friday by the Office of Thrift Supervision and the Federal Deposit Insurance Corp. was appointed as the bank's receiver, according to an 8-K filed with the Securities and Exchange Commission.

Downey Savings & Loan is the principal operating subsidiary of Downey Financial Corp.

As the result of the closure and institution of the FDIC receivership, Downey said it intends to file for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware no later than Wednesday.

Downey said it expects the bankruptcy court to promptly appoint a Chapter 7 trustee to oversee the case.

On Monday, NYSE Regulation, Inc. suspended Downey's common stock, effective immediately. NYSE Regulation has also applied to the SEC to delist the company's common stock, and Downey said it does not intend to contest the suspension or delisting.

According to an FDIC news release, U.S. Bank has also acquired the banking operations of PFF Bank & Trust.

The FDIC said these were the 21st and 22nd banks to fail in the United States this year and the fourth and fifth banks to close in California.

The combined 213 branches of the two organizations will reopen as branches of U.S. Bank, the FDIC release said. Depositors will automatically become depositors of U.S. Bank, and deposits will continue to be insured by the FDIC.

As of Sept. 30, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion, while PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion.

Besides assuming all the deposits from the two California banks, the FDIC said U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition.

In addition, the FDIC and U.S. Bank entered into a loss share transaction, according to the release.

Specifically, U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss share agreement, equal to the net asset position at close. The FDIC will then share in any further losses.

Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC implemented in connection with the failure of IndyMac Bank, FSB.

The FDIC said the loss-sharing arrangement is expected to maximize returns on the assets covered by keeping them in the private sector and to minimize disruptions for loan customers as they will maintain a banking relationship.

The agency said it estimates that the cost to the Deposit Insurance Fund will be $1.4 billion for Downey Savings and $700 million for PFF Bank.

U.S. Bank's acquisition of all the deposits of the two institutions was the least-costly option for the FDIC's Deposit Insurance Fund compared to alternatives, the release said.

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