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After Major Florida Bank Fails, Carlyle Swoops In as a Buyer

By Zachary A. Goldfarb and Thomas Heath
Washington Post Staff Writers
Friday, May 22, 2009

Florida-based BankUnited collapsed yesterday, the largest bank failure so far this year, as a new federal investigation revealed that the bank's regulator, the Office of Thrift Supervision, allowed the firm to cover up its financial weakness.

A consortium of investors, including District-based private-equity giant Carlyle Group, agreed to buy and recapitalize BankUnited, the fourth-largest bank to fail since the onset of the financial crisis. The Federal Deposit Insurance Corp. said it expects to absorb $4.9 billion in losses.

It is the second major bank failure involving allegations that OTS, the primary regulator of banks that concentrate in mortgage lending, allowed a bank to obscure its problems from investors.

OTS has previously acknowledged allowing IndyMac, which failed last summer, to conceal its problems in a financial filing. A report yesterday by the Treasury Department's inspector general accused OTS of permitting three more banks to file misleading reports about their financial condition.

In the case of Coral Gables-based BankUnited, OTS had ordered the company to raise additional capital and it had been unable to meet a deadline to do so, the report said.

OTS's senior deputy director allowed the company to raise the money after the deadline and then to issue a financial report stating that the money had been raised before the deadline, the report said.

The inspector general's report describes BankUnited's case but does not name the senior deputy director. The inspector general's office confirmed the bank was

BankUnited. Scott Polakoff was the only senior deputy director at OTS during the period.

Polakoff stepped down this year from his position as acting director of the agency after the inspector general brought his actions to the attention of Treasury officials.

"We consider these matters very serious and find it alarming," the inspector general wrote in the report.

In the case of California-based IndyMac, a top OTS official authorized the bank to backdate capital last year, according to the report. The senior OTS official in the Western United States, Darryl Dochow, resigned after the incident was disclosed.

A second bank in the Southeast was told it could not backdate capital last year, did not comply and faced no consequences. OTS discovered that a third bank in the Northeast had backdated capital last year, but no action was taken.

In a fifth and sixth example, banks backdated capital, but OTS did not commit any wrongdoing, the inspector general's report said.

OTS spokesman William Ruberry called the report "old news."

"We began addressing these issues in December, and we have taken the necessary actions to remedy the situation," he said. "Providing capital to banks and thrifts that need it is a good thing. That's a huge point that has been lost in all of this. These post-period capital contributions had nothing but a positive impact on the health of the institutions involved."

BankUnited is the nation's second-costliest bank failure since the onset of the financial crisis and the 34th bank to fail this year.

The bank's new management team will be led by former North Fork Bancorp chief executive John Kanas, and will include Carlyle Group and other investors.

The new team will invest $900 million in the bank.

Staff writer Binyamin Appelbaum contributed to this report.

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