First Marblehead bank runs afoul of regulators - Portland Business Journal:

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That’s according to a cease and desistf order issued against bythe , a federal bank First Marblehead (NYSE: FMD), whose key businesss of packaging student loans into securities has dried up, now faces the prospect of pumping millions of dollars of capitalk into the small Rhode Island bank to bolster its capital. The OTS orde says First Marblehead is required to maintaina $30 millio n deposit at the bank unti it is sold or the bank’s concentratio of private student loans is reducer to 50 percent of Union Federal’s capital, plus any allowances for loan losses.
First Marblehead also needs OTS approvalp before making any golden parachutew payments tosenior executives, according to the cease and desisgt order. Union Federal Savings Bank’a problems have been chronicled in previoues stories by the BostonhBusiness Journal. Before beingb acquired by First Union Federal Savings hadabout $40 million in But that balance sheet ballooned to more than $600 milliob last year as First Marblehead moved some $500 million in risky privatr student loans onto the bank’s balance The bank has been unsuccessful in selling those loansd while an escalating number of defaultz have triggered large losses.
In the firsy quarter, for example, the North Providence-based bank lost $26.3 million, according to federal bank