Transfer of Deposits at Valencia Gets Tentative OK

An Orange County Superior Court judge on Sunday tentatively approved the transfer of all insured deposits from the failed Valencia Bank of Santa Ana to Barclays Bank of California.

The ruling by Judge Robert C. Todd was not made final because there was some uncertainty over whether he could take such an action during a Sunday court session. Final approval of the transfer will be made by Todd at 8:30 a.m. today if attorneys for Valencia, Barclays and the Federal Deposit Insurance Corp. do not voice any objections.

“It appears to me that the transaction proposed--the transfer of assets from Valencia Bank to the FDIC--is not only necessary but fair and equitable,” Todd told the small group of bankers, attorneys and FDIC officials assembled in his Santa Ana courtroom for the 3 1/2-hour emergency hearing.

Act as Agent for FDIC

“What we’re doing today will have to be approved tomorrow,” Todd said. “From what I’m hearing, everything will work out, pending the objections of counsel. But you can’t go away thinking you have a deal.”

Under the agreement worked out with the State Banking Department and the FDIC, San Francisco-based Barclays will essentially act as an agent for the FDIC in taking control of $91.9 million in 10,600 Valencia accounts.

William E. Corcoran, a Barclays senior vice president, testified during the hearing that Barclays representatives will be stationed at all six Valencia Bank locations this morning “with a packet of documents if they (the customers) wish to keep with us. If they don’t wish to stay, we will pay them directly” at Barclays’ offices.

Checks to Be Honored

In addition, Corcoran said, his bank will honor all checks drawn on Valencia Bank accounts for at least 30 days. Although the Valencia branches will not reopen for regular business under an agreement with Barclays, safety-deposit customers will be serviced at the failed bank’s offices for the present because the boxes’ contents have not been transferred yet.

“We’re working around the clock to provide the ex-Valencia Bank customers good service,” Corcoran said after the hearing. He said bank officials were considering printing, for use this morning, short agreement forms for Valencia customers who wish to keep their accounts with Barclays.

The FDIC, which insures deposits up to $100,000 per account, said 46 customers holding an additional $2.1 million----the amount over the insured limit--will be given receivers’ certificates that will entitle them to share in whatever money is left after liquidation.

Another provision of the transfer is that Barclays Bank may renegotiate the interest rates of an as-yet-unknown number of high-interest-earning certificates of deposit after 30 days, an FDIC official testified during the hearing.

“These deposits are not being assumed,” said Paul S. Jennison, assistant regional director of the FDIC. “Barclays Bank is acting as our agent in making money available to these customers.” As a result, Jennison said, holders of these certificates of deposit may either keep their money with Barclays if the new rates are acceptable, or withdraw their money and reinvest elsewhere.

Barclays is trying to “maintain some semblance of regularity for these depositors,” said Albert R. Karel, an FDIC attorney. “This bank is dead. These deposits don’t exist.”

Valencia was seized and declared insolvent Friday by state and federal regulators, who said that “significant loan and operating losses had exhausted” the bank’s capital.

Examiners working through the weekend determined that Valencia had total assests of $96.7 million and $94 million in deposits at the close of business Friday. In the past three years, the bank has lost $10.4 million.

Valencia executives had been seeking a suitor that would take over what was Orange County’s oldest independent bank. But during the past two years, two deals to sell the bank or a controlling interest in it fell through.

FDIC officials testified at the hearing that they had notified 25 California banks of a bidding meeting that was held last Wednesday. Representatives from only eight banks attended the Los Angeles meeting, where they were told that the FDIC would take bids at 6 p.m. Friday for the privilege of assuming all of Valencia’s insured and uninsured deposits and for purchasing selected bank assets.

According to Jennison, only one bid--for $10,000--was received. The bid was rejected, and FDIC officials contacted the eight interested banks again and reopened the bidding--this time for the assumption of insured deposits only and the chance to buy certain of the bank’s assets.

Barclays officials submitted a $251,000 bid at 12:45 p.m. on Saturday, and FDIC officials subsequently accepted the offer. Jennison said that “other banks” also bid but that their offers were lower and were rejected.