Regulator issues cease-and-desist orders against AmTrust

(The following is a corrected version of a story that ran earlier.)

Cleveland-based AmTrust Financial Corp. and AmTrust, its bank, received cease-and-desist orders from their regulator last week.

The orders, from the Office of Thrift Supervision, are dated Nov. 19. They prohibit AmTrust from taking on new loans or extending new lines of credit only for land acquisition and development until the savings and loan and its parent company have more capital on hand.

Donna Winfield, an AmTrust spokeswoman, said the restrictions are only due to bad loans.

“It’s all about capital,” she said. “Our liquidity has never been stronger.”

By Dec. 31, the order says, AmTrust must have at least a 7% Tier 1 capital ratio and a total risk-based capital ratio of at least 12%. The order did not say where the savings and loan’s levels stood prior to the letter, and Ms. Winfield said she did not have those numbers.

It also requires the AmTrust board to revise its current business plan by the end of the month and for that plan to be enacted within 10 days of receiving any comments from regulators.

The new plan must include: strategies for capital preservation and enhancement, limits on high-risk lending activities, strategies to improve and sustain earnings, and detailed balance sheets for a three-year period, beginning in January.

Going forward, AmTrust will need to pay closer attention to its finances, including a review of capital levels at all board meetings and a quarterly comparison of projected earnings to actual earnings, the order said. Regulators will receive a copy of that comparison.

AmTrust will not be able to pay a dividend without approval and is restricted from making golden parachute payments or adding new board members without 30 days’ notice. The orders will remain until lifted by the Office of Thrift Supervision.

The Office of Thrift Supervision found that AmTrust Financial Corp. “engaged in unsafe and unsound banking practices.” Ms. Winfield said the unsound practices were related to the level of delinquent loans the bank has relative to its capital level.

Both orders say that the organizations “consent” to them.

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