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Capmark It Zero!

Submitted by Marla Singer on 10/26/2009 01:45 -0400

Back in September, Capmark Financial Group, Inc., (100% owner of Capmark Bank) spiked Capmark Bank's capital with a $600 million dollar transfer of $490 some million in cash and $100 some million in "servicing advances." Just to keep everyone up to speed, in June of this year, Capmark Bank reported total assets of $11.12 billion and outstanding deposits of $8.39 billion. No small fish, Capmark. Just a few days after the hot cash injection, on October 2 to be precise, Capmark Financial consented to the entry of "Cease and Desist" orders effective immediately and imposing an 8% Tier 1 leverage ratio requirement on Capmark Bank along with a "Total Risk Based Capital" ratio of 10%. The firm was also required to issue capital plans to the FDIC and Utah authorities within 45 days. At the time, Capmark Financial Group, Inc. stated:

The Company does not expect the Orders to have a material impact on its existing lending commitments and deposits or its ability to conduct trust services and intends to continue to serve its customers.

Capmark had apparently been fighting for its life for some time:

In December 2008, CFGI applied to the Board of Governors of the Federal Reserve System to become a bank holding company and financial holding company. After communications with the staff of the Federal Reserve regarding qualification requirements and in light of operating results and other priorities, CFGI withdrew its application on February 26, 2009.

Obviously, things turned south quickly:

Following months of discussions and negotiations with these creditor constituencies and their advisors, the Debtors could not come to an agreement for an out-of-court, pre-packaged or pre-arranged restructuring prior to the Commencement Date that would be amenable to all parties.

Damn creditors. Always money, money, money with those bloodsuckers. If only there were some way we could stick it to those leaches once and for all. Oh, wait! What about:

I am advised by counsel that, as of the Commencement Date, pursuant to section 365(o) of the Bankruptcy Code, CFGI is deemed to have assumed its commitments to the FDIC to maintain the capital of Capmark Bank and any damages that may arise from any subsequent breach of such obligations are entitled to priority under section 507 of the Bankruptcy Code.

Questions:

Given that Capmark Financial Group, Inc. has now filed for bankruptcy (perhaps after 24 days of trying writing "capital plans" it just didn't seem worth it anymore) how is this inter-company transfer not a fraudulent conveyance?
Is it normal for entities to move funds in this way days before the issuance of an FDIC "Cease and Desist"? (We are honestly asking here. We really have no idea).
Are Capmark Financial Group's creditors likely to be amused?
Could it be that Capmark Financial is to continue to fund Capmark Bank through bankruptcy? How typical is this? (We, again, really have no idea- surely Zero Hedge readers have seen this before somewhere?) Given this, will Capmark Financial's creditors be coming to Sheila Bair's book signing party?
Did we miss a floor vote somewhere that transformed "prompt, corrective action" to "delayed, injurious procrastination"?

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Mon, 10/26/2009 - 02:27 |

Comrade de Chaos

Thank you, I ve been asking myself Q # 1 since I saw the related article @ Blmbrg.

An insolvent company that transfers funds to its subsidiary sounds extremely fishy. Besides don't the creditors usually have provisions against similar moves? Something just does not add up.

My theory, the management got high and attempted to create a variation of a bad bank / good bank.

LEH couldn't pull the bad / good bank out, but those guys.. nothing is impossible.

http://www.youtube.com/watch?v=31U54cgf_OQ&feature=player_embedded

Thu, 09/09/2010 - 03:11 |

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Mon, 10/26/2009 - 02:52 |

Rogue Economist

If they didn't transfer the assets, the FDIC would be on the hook to payoff the Capmark Bank depositors, right? Sounds like an "extend and pretend" delaying tactic, using the BK court to keep a few billion floating another week.

Mon, 10/26/2009 - 03:04 |

Anonymous

See, if you keep kicking the can down the road, eventually it deteriorates and you don't have a can any more. Problem solved!

Mon, 10/26/2009 - 05:40 |

Fritz

The real backstory here will be exactly how did Goldman insulate themselves from loss in this deal, and how much taxpayer wealth did they confiscate in the process?

Mon, 10/26/2009 - 07:47 |

Anonymous

I am just a feline but I would think that the issue in a fraudulent conveyance is the value the insolvent company receives for assets, not the identity of the receiver.

The fact that the assets were transferred to a related party does smell fishy, though.

Fish?!?

Mon, 10/26/2009 - 08:08 |

SWRichmond

Another example of fine reporting.

Bankruptcy proceedings, securities laws, and other pedestrian matters of jurisprudence cannot be relied upon in a banana republic. Your expectations are unrealistic. It's every man for himself, grab what you can while you can, petit bourgeois notions of right and wrong are a tool for controlling...labor and the petit bourgeoisie.

Anyone who wants to genuinely break the back of the banking oligarchy in this country, as a prerequisite to the restoration of Constitutional government, needs to take the following simple actions: go to your bank, take out your money in cash, buy gold and silver, and take delivery of them. Stash them in the Bank of Gaea (national forest, etc).

Stop supporting the system that represses you.

Mon, 10/26/2009 - 08:35 |

Anonymous

this is the real boston tea party and needs to
be done with haste....

Mon, 10/26/2009 - 11:21 |

Rainman

Thanks for the analysis, Marla.

I have only one probable answer, and sadly no certain answers to your other valid questions.

Regarding question #3, the answer is no, CFG creditors are not likely to be amused. Instead, they are more likely to be totally screwed :(

Mon, 10/26/2009 - 12:40 |

Anonymous

I believe there is a 6 months window where action of insiders stocks buying and selling before a bankruptcy becomes questionable. So there might be something like that for capital injection. But the main question is:even if there are rules on the books,who is going to enforce them?. Also,this is the issue that I always thought of as very non business like:all those holding companies that move capital between companies,and complicate matters in both,accounting for revenue profit and in bankruptcy proceedings. Why all those cloudy issues when you need very clear and precise numbers for accountants and investors to see before they dive in with other people's money into a share?The whloe model of investing is flawed in my opinion.

Mon, 10/26/2009 - 14:05 |

mopgcw

you might find this helpful:

http://www.gmaccm.com/CAPMARK/uploadedFiles/About_Us/Investor_Relations/Current%20Report%2010-23-09.pdf

Wed, 11/10/2010 - 05:26 |

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Capmark It Zero!

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