Michael Scott, a reporter at the Santa Rosa Press Democrat, put a local North Bay spin on the national mortgage crisis Sunday with a feature story that began “Is my bank safe?” before reassuring readers that “Sonoma County banks, however, remain on stable ground.”
Within hours of the story’s publication, events undermined its message. The U.S. government took over mortgage giants Fannie Mae and Freddie Mac. That action indirectly ravaged the balance sheet of Westamerica, a San Rafael-based bank with 86 branches around California, including one in San Francisco. The takeover led to the vaporization of about one-sixth of the bank’s tangible assets.
According to a report by RBC Capital markets, as summarized in the New York finance newspaper the Daily Deal, Westamerica held an unusually large portfolio of preferred shares in the seized mortgage giants – shares whose value all but disappeared with the government takeover.
Westamerica was by far the worst hit in the country, with 16.4 percent of its equity tied up in Fannie Mae or Freddie Mac preferred shares. By Monday, the value of those shares had declined by 90 percent, the Deal story said.
Regulators attempted to reassure depositors by announcing they’d support Westamerica, along with other banks less damaged by this crisis, by helping scramble for additional cash to back deposits and avert panic.
Interestingly, Scott’s erroneously rosy article was informed by an interview with Rob Thorson, chief financial officer for Westamerica. Thorson seems to have been hinting that a much bigger, and very different, story was about to unfold.
“It certainly takes a lot more financial resources from the bank when there’s a problem," Thorson was quoted as saying.
You don’t say? --Matt Smith