Balboa Bank Hit With Suit to Raise Worth-Assets Ratio

Federal regulators on Tuesday asked the U.S. District Court in San Diego to force Balboa National Bank to increase its net worth-to-assets ratio to 7%, as directed in 1984 by the U.S. comptroller of the currency.

Balboa “is not in compliance with the provisions of the (1984 order) . . . and it has neither implemented nor adhered to an acceptable capital plan,” according to the suit filed by the comptroller.

The comptroller asked the court to “summarily order” Balboa to comply with the 1984 “cease and desist” order that directed the National City-based bank to raise its net worth-to-assets ratio to the 7% regulatory minimum.

“I’d agree that we’re not in compliance with the old order, but I’d argue that we do have an acceptable recapitalization plan,” Balboa President Richard Long said Tuesday.

That plan, approved by shareholders Sept. 22, would draw $2 million into the troubled bank through the sale of stock to directors. The proposed infusion, which requires regulatory approval, would raise the bank’s net worth-to-assets ratio to about 8% from the current 3%.

Long, who on Tuesday had not seen a copy of the suit, anticipates that federal regulators will approve Balboa’s recently submitted recapitalization plan “within the next few days or weeks.”

Under the proposed recapitalization plan, the bank would issue 100 million shares of a newly created class of preferred stock. About 40 million of those shares would be sold to directors who take part in the recapitalization plan. The remaining shares will be held for future use.

About $1.2 million of the expected capital infusion would come from board member Harry Fraser, owner of Fraser Boilers, a National City-based boiler repair company.

In May, Balboa’s board of directors invested $3 million in the bank, a move that evidently kept the institution from being shut down by federal regulators. At that time, each of Balboa’s seven directors contributed to the infusion, according to then-President Richard K. Castetter.