With regulators catching flak for taking too long to close "zombie" institutions, the failure of United Western Bank seemed atypically quick.

The $2 billion-asset thrift had become undercapitalized only at the end of the third quarter. And by late last week it had lined up $149 million of the $200 million it needed. Regulators seized United on Friday anyway, surprising observers who have watched undercapitalized banks limp along for much longer than three months.

"If you have your ear to the ground, you get a sense of who is trouble and who is likely to close," said Thomas Beiging, a lawyer at Beiging, Shapiro & Burrus in Denver. "Somehow United Western went to the front of the line very quickly. With the capital raise going on, for United Western to go down suggests that something else occurred beyond a further deterioration in asset quality."

No one seemed more shocked than Guy A. Gibson, the chairman of United Western Bancorp Inc., the thrift's holding company. In a rare step for an executive of a just-failed institution, he issued a press release calling the regulators' actions "precipitious" given the company's capital commitments.

The Office of Thrift Supervision has said it believed United Western had a liquidity crisis. Sources close to the thrift disputed this claim, and said its capital restoration plans hinged on conditions the agency would not approve.

These sources interpreted the failure as a bit of housecleaning by the OTS, as it prepares to merge this summer into the Office of the Comptroller of the Currency. Other sources agreed that the failure shows the OTS is getting tough in its final hours.

"It is a myth that the OTS is the softest regulator," said Kip Weissman, a lawyer at Luse Gorman Pomerenk & Schick who has worked with United Western but would not discuss its case specifically. "In its waning days, the OTS is taking no prisoners when it comes to safety and soundness and regulatory compliance."

United Western found itself capital-strapped largely due to a particularly troublesome book of private-label mortgage-backed securities. An $80 million capital raise in late 2009 was insufficent to plug the hole.

Most recently the company delayed its third-quarter results as the thrift and the OTS negotiated valuations. In December United Western disclosed another $16.3 million of other-than-temporary impairment charges, which dropped the thrift's total risk-based capital ratio to 7.8%, or 20 basis points below the level regulators deem adequately capitalized.

While the asset treatment negotiations were disclosed in regulatory filings, the regulators and the thrift were also sparring over liabilities, sources said. The thrift funded itself largely with deposits from retirement funds such as 401(k)s and other trust services, though it had started to operate more like a community bank in recent years.

A souce close to the dealings said regulators began to view those deposits as brokered funds, especially after the shift of United Western's examination to the OTS' western division from the Midwest one. As the FDIC got more involved, deposits that were once treated as millions of accounts began to be classified as a concentration from four depositors.

"The regulators have a profoundly different perspective of United Western's deposit structure than what they did before," said Wesley Brown, a managing partner at St. Charles Capital in Denver who was not involved with United Western but followed the situation closely. "The OTS had for years accepted the large trust accounts as legitimate core depositors, but once the FDIC starts calling the shots, they became no longer acceptable."

The thrift's capital-restoration plan called for it to mostly keep its funding model, although it would focus on building traditional deposits. The OTS rejected this proposal. The regulator also denied United Western's bid to buy Legent Clearing LLC, a securities-clearing firm that Gibson said in June would bring in deposits and help the company find capital.

The continuation of the business plan, the approval of the Legent deal and the termination of growth restrictions were all conditions of the $149 million in capital commitments the company had, sources said. By rejecting these conditions, the OTS effectly killed the recapitalization efforts.

The FDIC referred question to the OTS, which declined an interview request but said by email that it "does not take lightly a decision to close an institution. When a proposal is made to rescue a failing institution, the OTS always carefully considers the prospects of the proposal successfully returning the institution to a safe-and-sound standing."

In a seven-page OTS document laying out its reasons for failing United Western, the regulator claims the thrift's "capital position has led to a liquidity crisis." One of the institutional depositors was pulling its money out because the thrift was undercapitalized. The OTS said that it expected $848 million in outflows from all institutional depositors, compared to $533 million in available liquidity.

The FDIC sold the thrift's assets and deposits to First-Citizens Bank & Trust Co. in Raleigh, N.C.

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