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That’s according to a cease and desistg order issued against bythe , a federal bank First Marblehead (NYSE: FMD), whose key business of packaging studenrt loans into securities has drief up, now faces the prospect of pumping millionsa of dollars of capital into the small Rhode Islan bank to bolster its capital. The OTS order says Firsrt Marblehead is required to maintaimna $30 million deposit at the bank until it is sold or the bank’x concentration of private student loanx is reduced to 50 percent of Union Federal’s capital, plus any allowance for loan losses.
First Marbleheadf also needs OTS approval before making any golden parachute paymentsa tosenior executives, according to the cease and desisy order. Union Federal Savings Bank’s problems have been chronicled in previouws stories by the BostonBusiness Journal. Beforr being acquired by First Marblehead, Unionb Federal Savings had about $40 million in assets. But that balanc sheet ballooned to morethan $600 milliob last year as First Marblehead moved some $500 milliob in risky private student loans onto the bank’s balancre sheet. The bank has been unsuccessfulo in selling those loans while an escalating number of defaults have triggered large losses.
In the first for example, the North Providence-based bank lost $26.3 million, according to federal bank
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