Like A BankUnited Sex Crime

In the annals of rank regulatory intercourse there isn’t much more severe debauchery than the distant history that is the BankUnited story. Yes, big bank failures have become so common that they seem to pass through the cycle news unnoticed, untapped and unexplored. The ugly girl on prom night. Attended to briefly, then discarded in the blinding haze of hangover blurred Sunday morning sunshine, a rueful shake of the head and the cursed oath never again to drink Jagermeister. Even the deep investigation into IndyMac seems to have joined the ranks of early morning beer goggle mistakes and is now attended by an endless chorus of "who cares" or perhaps "so what?" Last we checked the remnants of BankUnited were about to be acquired by W.L. Ross & Co., Blackstone Group and Carlyle Group. We wonder if some due diligence details haven’t escaped their notice in the rush to vacuum up the marbles.

Picking through some of BankUnited’s public filings we discovered some interesting details.

From BankUnited’s 2007 10-K:

For the 2007, 2006 and 2005 fiscal years, BankUnited retained the law firm of Camner, Lipsitz and Poller, Professional Association ("CLP"), as general counsel. Alfred R. Camner, Chief Executive Officer and Chairman of the Board of Directors of BankUnited, is the Senior Managing Director of CLP. For the 2007, 2006 and 2005 fiscal years, BankUnited paid CLP approximately $4.9 million, $3.6 million, and $3.5 million, respectively, in legal fees allocable to loan closings, foreclosures, litigation, corporate and other matters. Errin Camner, Managing Director of CLP, is the daughter of Alfred R. Camner.

In fiscal 2005, CLP subleased approximately 2,223 square feet of office space from BankUnited in Coral Gables, Florida. The sublease extends through January 31, 2014 and may be renewed for up to four additional five-year terms, subject to BankUnited’s exercising its right to renew under the master lease. Under the terms of the sublease the minimum annual rent for the property is $61,249. Payments from CLP to BankUnited during the fiscal year 2007 totaled $79,026 consisting of rental payments and $12,533 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and $87,161 consisting of rental payments and $22,598 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and in fiscal year 2005 BankUnited was paid $52,265 in rent. BankUnited believes that the terms of the sublease reflect market rates comparable to those prevailing in the area for similar transactions involving non-affiliated parties at the time the sublease was made. (emphasis added)

Camner, Lipsitz and Poller and its predecessor Stuzin and Camner prior to 1998 seem to be no more than single-client (or nearly single client) firms designed to extract fees from a public institution. This has, unsurprisingly, been going on for a long time. Going back through 10-Ks and DEF 14As we find the following amounts paid to Camner, Lipsitz and Poller:

2007: $4.9 million
2006: $3.6 million
2005: $3.5 million
2004: $3.6 million
2003: $3.7 million
2002: $2.3 million
2001: $2.1 million
2000: $2.5 million
1999: $2.7 million
1998: $2.2 million

We run out of data on specific payments to Camner, Lipsitz and Poller in 1998 not because we run out of 10-Ks or DEF-14As, but rather because these disclosures are not made prior to the 1998 DEF-14A. We do have disclosures on the overall professional fees paid by BankUnited to parties unknown, which are in the 10-Ks:

1997: $1.6 million
1996: $0.9 million

Of course, it is claimed that a substantial portion of these fees are "rebated back," but it is not clear what portion that is, exactly, how long the rebating takes (this would constiute an interest free loan after all) or how those payments are structured, exactly.

Forgetting this for a moment, we have about $31 million in inflation-unadjusted cash flowing from the bank into a small, dedicated law firm run by the Bank’s Chairman and CEO. Coincidentally, it is not clear from the filings what portion of these fees went to the principals of Camner Lipsitz and Poller or its predecessor Stuzin and Camner.

Is it possible that Camner Lipsitz and Poller and/or Stuzin and Camner have been charging above market rates as a means to supplement the incomes of senior bank executives and circumvent reporting requirements? If so it certainly wouldn’t be the first time this tactic was used to avoid disclosure.

Camner’s 2006 employment agreement shows his salary as $475,000. Pulling only 10% of the revenue paid into Camner Lipsitz and Poller (a total guess on my part) increases his cash compensation to $835,000.

Slide.

All of this still leaves many questions unanswered.

• Stuzin and Camner, Camner’s prior firm, seems also to have been a single-client (or nearly so) for Citizens Federal Savings (also with Camner’s involvement). Were similar billing practices employed there?
• How much, exactly, flowed to BankUnited insiders in these arrangements?
• How much is *actually* reimbursed to the bank for mortgage closing work?

For all these details, we suspect that, even though we once loved them, stories that suggest gross over billing of public firms by single-client professional service firms probably go nowhere. The concealed personal enrichment of executives of large, failed banks doesn’t seem to invigorate the public animus any longer. These tales are more than likely to end up discarded on the side of the road. Tinsel still clinging to them. Like a sex crime victim. Underwear inside out. Bound with electrical tape. Perhaps the authorities will take interest. Perhaps not.