Rainier Pacific Financial calls rescue 'unlikely'

The parent company of Rainier Pacific Bank on Monday reported another hefty quarterly loss, and cast doubt on its own ability to remain in business.

In its third-quarter report filed with the Securities and Exchange Commission, Rainier Pacific Financial noted the bank's capital levels have fallen so far that it is considered to be "significantly undercapitalized."

State and federal regulators, including the Federal Deposit Insurance Corp., have ordered Rainier Pacific to raise more capital — either by finding new investors or selling the entire bank.

But a rescue of either kind is unlikely, the company said in unusually candid terms.

"Given the generally soft current market conditions for bank mergers and acquisitions, and the desire for FDIC-assisted transactions by many acquirers, it is unlikely that the company's efforts to meet the recapitalization requirements ... will be successful prior to any further or more severe actions that the company's and the bank's regulators may take, including the assumption of control of the bank to protect the interests of the depositors insured by the FDIC."

Victor Toy, senior vice president and secretary at Rainier Pacific, said the company wasn't predicting an FDIC takeover: "We're just stating factual information to investors and others, that conditions for capital raising are challenging in the extreme."

Based in Tacoma, Rainier Pacific has 14 branches in Pierce and South King counties.

At the root of most of the bank's problems, including the $35 million ($5.82 a share) third-quarter loss reported Monday, is an ill-fated investment in complex securities called trust preferred collateralized debt obligations.

Those securities bundled together debt issued by dozens of banks and insurance companies, and were intended to diversify the bank's investment portfolio.

Instead, many of the underlying issuers have deferred payments, and the market for such securities has disappeared.

The portfolio of 15 securities, originally valued at nearly $109 million, now is valued at just $23.4 million.

The decline has eaten away at Rainier Pacific's capital reserves. That, along with continued high levels of problem loans, raises doubts about the company's ability to stay in business.

"Unless we return to profitability or identify and execute a viable strategic alternative consistent with the (FDIC) directive, which is unlikely, it is not likely that we will be able to continue as a going concern," the company said in its filing.

Should Rainier be seized by regulators and sold, depositors would be protected up to $250,000.

So far this year, three Washington-based banks have been seized. An additional 23 are operating under enhanced regulatory oversight.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com