Complaint 4 26 13 Final - OakBridge Insurance Services

Case 3:13-cv-01328-CCC Document 1 Filed 04/26/13 Page 8 of 31
24. The Director Defendants were well aware of the precarious lending environment
in which the Bank was operating. Appraisals that the Board reviewed in 2005, a year before the
first of the Loss Loans, indicated that the Puerto Rico economy had been in a recessive trough
since 2001 and that recovery would be slow and stated that the total value of building permits
had fallen 11 percent from the previous year. The following year, appraisals noted that the value
of new building permits had dropped an additional 23 percent. Despite their awareness of the
need for extra diligence and caution in light of the worsening lending environment, the Director
Defendants continued to approve loans that violated the Bank’s Loan Policy, laws or regulations,
and safe and sound banking principles, and thus did not adequately adjust the Bank’s risk
management practices.
C. The Director Defendants’ Awareness of the Bank’s Problems
25. The Director Defendants were repeatedly warned that the Bank’s commercial
credit function was performing poorly and needed immediate attention. In 2004, an internal
audit found that there were numerous commercial loans that had deficiencies and failed to have
sufficient credit reporting and rated the Bank’s Construction Loan Department with its lowest
rating of “needs improvement.”
26. In the March 31, 2005, Joint FDIC-OCFI Report of Examination (“RoE”), the
examiners cautioned the Bank and reported that the dollar value of adversely classified assets
had increased, and that the commercial credit area accounted for 56 percent of adversely
classified loans. Examiners further noted that management needed to address weaknesses in
internal loan review, including lack of documentation.
27. The June 30, 2006 Joint FDIC-OCFI RoE downgraded Eurobank’s management
rating, noting numerous oversight deficiencies, including failure to implement promised
corrective action for Bank Secrecy Act-related deficiencies, numerous apparent violations of
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