Community Bank System Sells CDO Book Amid Volcker Uncertainty

Dec 31, 2013 9:06 am ET

Dec. 31 (Bloomberg) -- Community Bank System Inc., the New York state lender whose stock is up 45 percent this year, sold collateralized debt obligations and other securities at a loss of about $6.9 million to comply with the new Volcker Rule.

Community Bank liquidated its entire portfolio of bank and insurance trust-preferred CDOs, according to a statement today from the DeWitt-based firm. The lender also eliminated $226.4 million of Federal Home Loan Bank term advances and sold $417.6 million of Treasury securities that were classified as held to maturity, the company said. The $6.9 million pretax loss amounts to 12 cents a share after tax, which will be reflected in the fourth quarter, the bank said.

Community Bank cited a section of the rule, named for former Federal Reserve Chairman Paul Volcker, that requires banking firms to divest prohibited securities, including holdings of trust-preferred CDOs. The American Bankers Association, which represents mostly community banks, sued to block the rule, saying small lenders will suffer about $600 million in losses.

“These actions serve to eliminate the uncertainties created by the Volcker Rule,” Community Bank Chief Executive Officer Mark Tryniski said in today’s statement.

The rule was included in the 2010 Dodd-Frank Law that overhauled U.S. financial regulation to keep large banks from making risky bets with their own money after the 2008 credit crisis. The Fed has given banks until July 21, 2015, to comply.

Zions Bancorporation, Utah’s biggest lender, said this month the Volcker Rule forced the company to get rid of some disallowed holdings at a cost of about $387 million.

Community Bank has $7.3 billion in assets and more than 180 locations in upstate New York and northeastern Pennsylvania, according to the statement.

--Editors: Steven Crabill, Rick Green