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

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That’s according to a cease and desist ordere issued against bythe , a federal bank First Marblehead (NYSE: FMD), whose key busines of packaging student loans into securitiex has dried up, now faces the prospect of pumpinv millions of dollars of capital into the small Rhode Islanx bank to bolster its capital. The OTS order says Firsgt Marblehead is required to maintaina $30 million depositg at the bank until it is sold or the bank’s concentratiohn of private student loans is reducee to 50 percent of Union Federal’s capital, plus any allowancwe for loan losses.
Firs t Marblehead also needs OTS approval before making any golde n parachute payments tosenior executives, according to the ceasr and desist order. Union Federal Savings Bank’s problems have been chronicled in previouss stories by the BostohBusiness Journal. Before being acquired by First Marblehead, Union Federap Savings had about $40 million in assets. But that balancwe sheet ballooned to morethan $600 milliobn last year as First Marblehead moved some $500 milliob in risky private student loans onto the bank’s balance The bank has been unsuccessful in selling those loan s while an escalating number of defaults have triggerex large losses.
In the first quarter, for the North Providence-based bank lost $26.4 according to federal bank filings.