Tuesday, May 22, 2007

NetBank's Demise

PFStock has helped to chronicle the ongoing demise of the online bank NetBank. In my first posting (Sayonara NetBank) dated September 20, 2006, I stated that I was beginning the process of "evacuating my money" from NetBank. In subsequent posts on PFStock, I cited deteriorating financial conditions at NetBank as my prime reasons for closing out my account. Although I conceded that NetBank was not likely to be forced into bankruptcy, I felt that it would be a hassle for depositors to get their funds back from the FDIC.

In my more recent post, on April 15th (NetBank Revisited), I advised any of my readers that still owned shares of NetBank (Nasdaq: NTBK) to get out, even though the NTBK shares then trading at $1.74 per share seemed cheap at the time. Quoting myself:

For NTBK shareholders, I think that there are better investments out there. Taking a loss may be a difficult thing, but so is watching your remaining investment dwindle to practically nothing.

Yesterday (May 21st), the other shoe dropped. NetBank announced that it is selling a substantial portion of what remaining assets it has to privately held EverBank. Here are a couple of statements from the NTBK press release:

The company has been under extreme financial pressure for more than a year due to a difficult mortgage origination market, a flat yield curve environment and other factors. These pressures have resulted in large operating losses that have significantly reduced the company's capital position and prompted heightened regulatory oversight.


Regulators have been increasingly concerned about the bank's capital and earnings trends and advised management to find an alternative immediately that covered all of the bank's deposit obligations.

Doesn't this seem to imply that the aforementioned "regulators" forced NetBank to essentially liquidate its remaining assets in order to protect depositors' money? And the NTBK stock price has reacted very negatively to these developments. On Friday, May 18th, NTBK closed at 1.75, and it closed Monday at 0.59 (a stunning 66% one-day decline).

So, what is left of NetBank? According to NetBank CEO, Steven F. Herbert, "Our remaining businesses will include our mortgage servicing operation, along with our retail prime mortgage franchise, Market Street Mortgage." My interpretation is that there won't be anything left of the online banking operation, after EverBank takes its share. So substantially I can say that as you and I know it, the online bank, NetBank is no more!

NOTE: On May 12th PFStock received an anonymous comment that said, "Stay tuned for more on NetBank. There might even be some big news this coming week." (See Obsession Tagged.) I know for a fact that NetBank employees regularly read this blog, but I was not able to ascertain the identity of the commenter. Nevertheless, it is clear now that this event is what the anonymous reader was referring to.

I don't know if there is really much more to say about the NetBank situation, other than, "I told you so".

For further reading:
NetBank Revisited
The Decline and Fall of Internet-only Banks
Unprofitable and Unstable, NetBank Ousts its CEO
More on NetBank
Sayonara NetBank

PF Stock

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