Get breaking news alerts via email

Click here to manage your alerts
(Photo by Leah Hogsten | The Salt Lake Tribune) Real estate loans that weren’t repaid when the housing bubble burst were a key reason why Utah regulators seized the insolvent Barnes bank in January 2010.
Suit: Actions by Barnes bank officials cost $130M
Banking » Shareholder alleges missteps led to institution’s demise.
First Published Feb 22 2012 04:57 pm • Last Updated Feb 22 2012 08:28 pm

A shareholder of the company that owned Barnes Banking Co. when it collapsed two years ago has sued numerous directors and officers, accusing them of nepotism and encouraging risky lending practices that ultimately destroyed the financial institution.

The lawsuit filed in 3rd District Court last month might start a new chapter in the ongoing troubles faced by Utah community banks during and after the financial crisis. Since 2009, five banks have failed because of their overexposure to construction and land-development loans that turned bad when the real estate bubble burst and the U.S. recession began. Until now, shareholders apparently haven’t attempted to hold officers and directors of the banks — America West, Barnes, Centennial, MagnetBank and SunFirst — legally accountable for the failures.

Join the Discussion
Post a Comment

It isn’t clear how much money shareholders of the five banks have collectively lost from the failures. Only the Barnes suit attempts to quantify that. It suggests shareholders saw $130 million vanish. But even as they were coming to grips with their combined losses, the Federal Deposit Insurance Corp.’s insurance fund that protects bank deposits in the event of a collapse paid out $656 million to consumers, including $271 million to Barnes customers, since the first bank failed in 2009.

Starting in 2005, former Barnes Bancorp CEO Curtis Harris and seven other defendants abandoned a century of conservative lending to farmers and small businesses primarily in Davis County in order to cash in on consumer demand for high-risk real estate loans in hot housing markets elsewhere in the state, shareholder J. Canute Barnes alleged in his suit.

The defendants allegedly compounded the bank’s exposure to risky loans by appointing inexperienced and incompetent managers, including family members, to head up Barnes offices where large numbers of commercial real estate and land development loans were being made, according to the suit. Real estate loans that weren’t repaid when the housing bubble burst were a key reason why Utah regulators seized the insolvent bank in January 2010.

Canute Barnes, a retired physician who lives in Seattle, said Wednesday he would not discuss the suit until a later time. He is the son of Herbert Barnes, a former director of the bank.

Harris, Chairman Michael Pavich and Gary Wright, the current CEO of Barnes Bancorp, could not be reached for comment. Former Chairman Ned Giles; directors David Barnes and Robert Thurgood; and former chief financial officer Douglas Stanger did not respond to requests for comment.

Jerry Stevenson, a director and Utah legislator, said the lawsuit was "unfounded" but would not elaborate. He was countered by Thomas Karrenberg, an attorney at one of two Salt Lake City firms representing Canute Barnes, who said "we disagree with Mr. Stevenson. The complaint sets forth the allegations and even includes information from the [Federal Deposit Insurance Corp.] and the Federal Reserve about the conduct complained of."

Canute Barnes filed the suit on behalf of "all similarly situated" shareholders, alleging that the defendants "destroyed" Barnes Bancorp by permitting the bank to make real estate loans with unsafe loan-to-value ratios and based on "stale" appraisals. The suit said Barnes Bancorp also allowed so-called liar loans to borrowers who supplied "improper" or "incomplete" financial disclosures in their applications.

The suit alleges that the defendants allowed the bank to make large numbers of land-development and construction loans in St. George, where James Harris, the son of Curtis Harris, managed a Barnes branch office.

story continues below
story continues below

John Barnes, the son of director David Barnes, was appointed manager of the bank’s Fort Union branch in Midvale. John Barnes, like James Harris, were two of three bank officers singled out in the suit as lacking "the competence and experience to manage the bank’s branches ... particularly ... those branches that were investing heavily in risky CRE [commercial real estate] and ADC [real estate acquisition, development and construction] loans, which were a leading cause of the bank’s demise."

John Barnes and James Harris could not be reached for comment.


Twitter: @saltlakepaul

Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment

About Reader Comments

Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.