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FDIC Enforcement Decisions and Orders

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   [10,002] In the Matter of BBH Capital Corporation, Beverly Hills, California, Docket No. FDIC-89-172b (8-11-89).

   Bank to cease and desist from practices such as hazardous investment, lending and lax collection practices and operating with inadequate equity capital and reserves in relation to volume and quality of assets, with large volume of poor quality loans and real estate investments, with inadequate valuation reserve, and in a manner as to provide operating losses. (This order was terminated by order of the FDIC dated 3-21-94; see ¶ 15,829.)

   [.1] Loans—Extensions of Credit—Curtail
   [.2] Loans—Accrual—Overdue
   [.3] Definition—"Well Secured"
   [.4] Definition—"In the Process of Collection"
   [.5] Loans—Loan Concentrations—Reduce
   [.6] Loan Loss Reserve—Adequacy—Review
   [.7] Investments—Real Estate—Curtail
   [.8] Liquidation—Commencement—Terms
   [.9] Shareholders—Disclosure—Cease and Desist Order
   [.10] Compliance—Progress Reports—Frequency
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In the Matter of

BBH CAPITAL CORPORATION
BEVERLY HILLS, CALIFORNIA
a participant in the conduct of the affairs
of
THE BANK OF BEVERLY HILLS,
BEVERLY HILLS, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   BBH Capital Corporation, Beverly Hills, California ("Capital"), a wholly owned subsidiary of The Bank of Beverly Hills, Beverly Hills, California, having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by Capital and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREE-

(Next page is C-7.)

{{4-1-90 p.C-7}}MENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated August 8, 1989, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices, Capital consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that Capital had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that Capital, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of Capital, as a participant in the conduct of the affairs of The Bank of Beverly Hills, Beverly Hills, California, cease and desist from the following unsafe or unsound banking practices and violations:
   (a) following hazardous investment, lending and lax collection practices;
   (b) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by Capital;
   (c) operating with a large volume of poor quality loans and real estate investments;
   (d) operating with an inadequate valuation reserve; and
   (e) operating in such a manner as to produce operating losses.
   IT IS FURTHER ORDERED that Capital take affirmative action as follows:

   [.1] 1. (a) Beginning with the effective date of this ORDER, Capital shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from Capital that has been charged off at any time or classified in the Report of Examination as of September 30, 1988, in whole or in part, "Loss" and is uncollected. Subparagraph 1(a) of this ORDER shall not prohibit Capital from renewing or extending the maturity of any credit in accordance with the Financial Accounting Standards Board Statement Number 15 ("FASB 15").
   (b) Beginning with the effective date of this ORDER, Capital shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from Capital that has been classified in the Report of Examination as of September 30, 1988, in whole or part, "Substandard" and "Doubtful" without the prior approval of a majority of the board of directors or the loan committee of Capital. Subparagraph 1(b) of this ORDER shall not prohibit Capital from renewing or extending the maturity of any credit in accordance with FASB 15, providing that such renewal or extension shall be made only with the prior approval of a majority of the board of directors or the loan committee of Capital.

   [.2] (c) In connection with subparagraph 1(a) and 1(b) of this ORDER, Capital shall not:

       (i) continue the accrual of interest on any loan which is delinquent in principal or interest payments 90 days or more unless the asset is both well secured and in the process of collection; or
       (ii) engage in any practice or device which essentially avoids recognition of overdue loans and/or artificially inflates the income of Capital. For any loans restructured in accordance with FASB 15, consideration should be given to the reasonableness of the modified terms of the loan, since loans should not be restructured in any attempt to conceal credit losses or delay their recognition.

   [.3] (d) For the purpose of subparagraph 1(c) of this ORDER, debt is "well secured" if it is secured by:
       (i) collateral in the form of liens on or pledges of real or realizable value sufficient to discharge the debt (including accrued interest) in full; or

   [.4] (ii) the guaranty of a financially responsible party.
   A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status.

   [.5] 2. Within 365 days from the effective date of this ORDER (unless an alternative timetable or proposal is submitted by {{4-1-90 p.C-8}}Capital and approved by the Regional Director of the San Francisco Regional Office ("Regional Director") and the Superintendent of Banks for the State of California ("Superintendent") within 60 days), Capital shall reduce the Beverly Drive Center, et al., and the Land for Development and Operating Land Leases concentrations as specified on Page 2-c of the Report of Examination as of September 30, 1988, to an amount which shall be in each case less than 25 percent of the total equity capital and reserves of The Bank of Beverly Hills. In addition, Capital shall not make new extensions of credit to any borrower or associated entities which will equal 25 percent or more of either The Bank of Beverly Hills' or Capital's total equity capital and reserves.

   [.6] 3. Within 30 days from the effective date of this ORDER, the board of directors of Capital shall review the adequacy of the reserve for loan losses and establish a comprehensive policy for determining the adequacy of the reserve for loan losses. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans classified "Loss" or otherwise determined to be "Loss" items. The policy shall provide for a review of the reserve at least once each calendar quarter. Said review should be completed in such time so that the findings of the board of directors with respect to the loan loss reserve may be properly reported to the Regional Director. The review should focus on the results of internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the reserve shall be remedied in the calendar quarter it is discovered, prior to submitting the report, by a charge to current operating earnings. The minutes of the board of directors' meeting at which such review is undertaken shall indicate the results of the review.

   [.7] 4. During the life of this ORDER, Capital shall not engage in any new real estate activities permitted under the authority of section 751.3 of the California Financial Code (section 751.3 CAL. FIN. CODE). Any further advances to, or debt incurred on behalf of existing real estate investments previously originated under section 751.3 authority must receive the prior approval of the board of directors of The Bank of Beverly Hills and Capital and the reasons for such approval shall be documented in the minutes of both boards.

   [.8] 5. The plan to liquidate Capital, submitted July 7, 1989 to the Regional Director and the Superintendent, shall be complied with within the estimated time frames stated therein, or should additional time be requested to liquidate a particular asset, a written explanation for the necessity for an extension shall be submitted to the Regional Director and Superintendent prior to the expiration of the time previously estimated, and they must concur that good cause permits the extension of time. Quarterly progress reports shall be submitted to the Regional Director and Superintendent updating the status of the liquidation of Capital.

   [.9] 6. Following the effective date of this ORDER, Capital shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with Capital's next shareholder communication and also in conjunction with its notice or proxy statement preceding Capital's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the Regional Director within fifteen (15) days prior to dissemination to any shareholder. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.10] 7. Within 30 days of the end of the first quarter following the effective date of this ORDER, and within thirty (30) days of the end of each quarter thereafter, Capital shall furnish written progress reports to the Regional Director and the Superintendent detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Superintendent have released Capital in writing from making further reports.
   The provisions of this ORDER shall be binding upon Capital, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of Capital, as a participant in the conduct of the affairs of The Bank of Beverly Hills, Beverly Hills, California.
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   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Dated at San Francisco, California, this 11th day of August, 1989.

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