Run got state regulators running at Capital Bank.

They acted fast when depositors began yanking funds

State banking regulators had to move more quickly than expected to close Capital Bank of California after a run on the bank drained it of millions of dollars of liquidity, Stan Cardenas, deputy banking superintendent, told the Business Journal last week.

The Century City-based bank with $212 million in assets was undercapitalized and under orders to inject $16 million in capital by June 30, Cardenas said. But it was closed June 18 after a wave of customers pulled their deposits, Cardenas said.

A Persian-language newspaper, Asre-Emrooz, published an article June 16 stating the bank was in financial trouble, he said. Cardenas said banking regulators did not know if the run was related to the article.

"All we know is there was a sudden withdrawal of a substantial amount of the deposits," he said. "We also know there was this article."

Publisher Homayoun Houshiarnejad said his newspaper's article said there were "big problems" at the bank and it was published out of concern for readers who have "a lot of money" in the bank. Houshiarnejad declined to comment further.

Cardenas said state and federal laws prohibit newspapers from publishing articles about a bank which are untrue and cause financial deterioration at the bank. According to Cardenas, a translation of the story indicates it said Capital Bank was in bankruptcy, which was untrue.

Asked if the Banking Department was investigating the newspaper for possible violation of the law, Cardenas said, "I can't comment on an investigation. All I can say is individuals are providing authorities with information."

Capital Bank had 14,000 deposit accounts totaling $219.5 million when it was seized, according to a statement issued by the Federal Deposit Insurance Corp. Of those deposits, $23.5 million was in about 400 accounts that were over the $100,000 insurance limit.

The FDIC voted to give uninsured depositors 66 percent of what was uninsured, but depositors may lose the rest, Cardenas said.

He said the early seizure forced regulators to shorten the process for other banks to bid for Capital Bank's deposits, assets and branches. Some banks did not get a chance to bid, Cardenas said. Ultimately no bid was accepted when the bank was closed.

Cardenas said early seizure also may have prevented the bank's owners from coming forward with an acceptable capital injection plan.

Skip Miller, former general counsel of Capital Bank of California, said regulators rejected a proposal by Abel Holtz, who owns the privately held bank, and a group of his investors to inject $20 million of new capital.

Miller, a partner in the Century City law firm of Christensen White Miller Fink & Jacobs, said he did not know why regulators rejected the plan. But he said the proposal was made weeks before the bank was closed as well as on the day it was shut.

However, Cardenas said regulators rejected the plan because it "came minutes before" regulators were going to close the bank and was full of "contingencies." One contingency was that an investor from Argentina would provide much of the capital.

"Whenever there is a foreign investor, there's a lengthy research process into the background of the individual," Cardenas said. Capital Bank "had weeks" to come up with a plan to save the bank, he added.

"A mere promise to inject capital at that stage was wholly inadequate, given the critical condition of the bank," Cardenas said.

When it was closed, Capital Bank had only $330,000 in capital to back up $212 million in assets, a tangible equity capital ratio of 0.2 percent. Under federal law, banking regulators must close banks with tangible equity ratios of less than 2 percent within 90 days if there is no viable rescue plan, Cardenas said.

In addition, it had $56.8 million worth of problem loans and foreclosed real estate and only $4.3 million in loan loss reserves, according to Banking Department data.

According to documents released by the state Banking Department, the bank had a net loss of $3.2 million for the period of Jan. 1 to May 28. It also had a net loss of $2.2 million in 1990, $4 million in 1991 and $11.2 million in 1992, according to the agency.

Capital Bank was opened by Holtz in 1980 and is one of three banks the Miami-based banker owns nationwide. According to the Miami Herald, Florida banking officials are investigating allegations Holtz misused bank funds from his $1.2-billion-in-assets-bank, Capital Bank of Miami.

Holtz was also the subject of a number of newspaper articles in the Miami area for allegedly taking $355,000 from the Miami bank's capital base to settle a sexual harassment suit against him.

The Miami bank's board of directors found that Holtz did not act improperly in the settlement of the sexual harassment suit, a bank spokeswoman said. The bank's attorney has issued an opinion that there was no misuse of bank funds, the spokeswoman added.

Cardenas said the Florida investigations and controversies are not related to the California closure.