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Friday, July 24, 2009

This Year's Largest Bank Failure Just Around the Corner

Guaranty Bank may face federal control
By BRENDAN CASE / The Dallas Morning News

Austin-based Guaranty Financial Group Inc. probably can't continue as a going concern, the company said Thursday.

Its subsidiary, Guaranty Bank, is "critically undercapitalized" after recent write-downs related to its mortgage-backed securities portfolio. Guaranty's primary shareholders are unwilling to inject additional capital, the company said.

"In light of these developments, the company believes that it is probable that it will not be able to continue as a going concern," Guaranty said in a filing with the U.S. Securities and Exchange Commission.

The bank's assets include a weakened loan portfolio and a large chunk of mortgage-backed securities, many based on risky California mortgages.

In its filing Thursday, Guaranty Financial said it wrote down the value of its mortgage-backed securities and took accounting charges of about $1.5 billion.

The write-downs left it with a core capital ratio of negative 5.78 percent as of March 31 and a total risk-based capital ratio of 5.52 percent.

Guaranty was spun off from Temple-Inland Co. of Austin in late 2007, a move sought by Temple-Inland shareholder and New York billionaire Carl Icahn.

A year ago, Guaranty picked up a $600 million additional investment from Icahn and Dallas billionaire Robert Rowling.

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