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Two years ago this month, I wrote a column about a bank failure in Maryland. Not my beat, you understand, but I had stumbled onto “Review of the Failure of NBRS Financial,” an in-depth report by the Office of Inspector General for the Federal Reserve System, and I’m just the kind of geek who finds that kind of thing fascinating. (Plus, I’m always scrounging around for material. This opinion-writing gig isn’t as easy as I hope it looks.)
In its review of NBRS Financial, which failed in October 2014, the OIG concluded that the Federal Reserve needed to develop specific training to help bank examiners spot what it called a “dominant management official.” In my column, I called this guy — it’s always been a man — “Boss Hogg,” and at that point he had been identified as a factor in at least four bank failures between 2009 and 2014.
The OIG’s review of NBRS Financial, where the Boss Hogg was named Jack Goldstein, made me think about one Little Rock banking character in particular: Scooter Stuart, the owner, president, CEO and chairman of One Bank & Trust until federal regulators forced him out six months before he died. (That’s been five years ago, by the way.)
I did allow that Goldstein might be a prototype for “some others right here in Arkansas.” But I had no way of knowing that the next dominant management officials identified by the OIG as factors in a bank failure would be right here in Arkansas — specifically Lex and Alex Golden, Boss and Boss Jr. at Allied Bank of Mulberry. When I wrote about Boss Hogg in April 2016, Allied was still five months from failing.
Even after Allied was shut down by the Arkansas State Bank Department that September and the Federal Deposit Insurance Corp. paid Today’s Bank of Huntsville to take it on, I wasn’t expecting a 40-page report from the OIG. The FDIC was out less than $7 million; that’s a pittance to the Federal Reserve, which normally performs a full post-mortem only when a bank failure costs the FDIC at least $50 million.
But Allied was special. Or, more precisely, the OIG “determined that Allied Bank’s failure presented unusual circumstances that warranted an in-depth review for several reasons, including questionable business practices and alleged insider abuse.”
I can’t say I was surprised by its findings. Problem loans made by the bank, net losses, bankruptcies and litigation over loans made to the Golden family, reported by Senior Editor George Waldon with worrisome regularity since 2011, had sketched out a picture of a mismanaged bank being used to enrich the Goldens far more than its (negative) earnings could afford. This is what the OIG referred to as “suspicious activity” and “alleged insider abuse.”
(See this week’s cover story, How the Goldens Ruled: Fed Report on Allied Notes Self-Dealing, Insider Abuse)
It’s not clear to me exactly when the Goldens started living beyond their means, but George’s reporting suggests that they were highly leveraged by 2010. (Pro tip: Wealth and the appearance of wealth are two different things.) That’s also the year that Allied ramped up its financing of subprime auto loans in a way that quickly alarmed state and federal examiners.
For most folks, subprime lending has become synonymous with the “liar loans” blamed for the housing crash of 2008. But some of us — including, one would think, Lex and Alex Golden — are old enough to remember that the first bank to fail in Arkansas this century, tiny Sinclair National Bank at Gravette in 2001, succumbed to the risks associated with subprime loans on automobiles and manufactured housing. Those subprime interest rates are attractive, especially if one desperately needs one’s bank to support an extended family and produce more dividends, but high reward comes with high risk. And consumer finance is not for the faint of heart — or the inexperienced.
I emailed to ask the Federal Reserve whether the training for bank examiners that was recommended by its Inspector General after the failure of NBRS Financial had been implemented, but I didn’t hear back by press time.
The examiners seem to have recognized dominant management officials at Allied Bank just fine, even before NBRS failed. They even tried to get Lex and Alex Golden removed by sending recommendations upstairs back in 2013.
The action items that came out of the OIG’s review of Allied’s failure concern what regulators should do when they spot suspicious activity and how recommendations for enforcement actions (like the recommendation that the Goldens be removed from their management jobs) are handled after they are submitted.
A lot went wrong for Boss Hogg and Boss Hogg Jr., but they did get lucky in one way: Regulatory efforts to fire them slipped through the cracks.
Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com. |