The Federal Deposit Insurance Corp. recently estimated that losses associated with First National Bank of Keystone to be between $500 million and $800 million, pending the disposal of First National's $400 million residuals portfolio.

Whether or not the FDIC plans to securitize the residuals on its own is still a question, according to FDIC spokesman David Barre.

"We, at the FDIC, have used [securitizations], but only about two or three times in our 60-some-odd-year history," Barre said. "So the likelihood of us doing one is probably slim, but you can't rule it out."

Before any type of sale occurs, whether it be whole loan or asset-backed, the FDIC must get a proper appraisal of the portfolio, Barre said.

"I do know right now we're actively looking for a consultant in these regards, especially one that can help us with the residuals, because they're a pretty hard nut to crack, and to [help us] evaluate the true worth," he said. "Even though there is a market for them, from what I understand, it's a pretty narrow, limited market."

In addition to the residuals, the FDIC holds close to $20 million in loans seized from First National, which will likely be disposed of in a straightforward loan sale. Another $3 million dollars is held in Treasury securities.

As Barre explained, on average, when the FDIC closes a bank, the loss it sustains ranges from 12% to 15% of the total assets of the closed bank. However, in the case of First National and the missing half-billion (First National had failed to remove $515 million in securitized loans from its books), the percentage lost could leap as high as 80% percent, or $800 million of the $1 billion portfolio.

"Whatever assets are left from Keystone, whatever we can dispose of them for - collect on them, or sell them, or do whatever we're going to do with them - that will have an impact on our loss," Barre said.

Therein lies the $300 million discrepancy in the FDIC's total-loss estimates.

The Plot Thickens, Sort of

Last week, a U.S district judge in Bluefield, W.Va., released documents that First National had submitted as evidence of fraud on the part of the Office of the Comptroller of the Currency, the government agency that originally filed against the bank. A First National employee, Michael Graham, allegedly discovered the documents. The documents are said to be incriminating e-mails sent internally between officials at the OCC.

According to reports, Graham swore in court that he accidentally found the documents while pushing a cart of the "OCC's things" into the bank's vault.

Bob Garson, spokesman for the OCC, contended that the documents are in no way legitimate. "We think the authenticity of those e-mails is in serious question," he said. "We referred them to the appropriate agencies as soon as we became aware of them. Furthermore, there's no evidence whatsoever to suggest that our examination was conducted in anything other than the most professional manner possible."

Garson suggested that these e-mails might be another example of First National bending the rules. "It's important to remember that the reason the bank was closed was that half of its assets could not be located," said Garson.

Further, Graham has had his own trouble, according to reports. Both West Virginia and Virginia had previously terminated his Certified Public Accountant certificate; and in 1997, when he re-applied, the West Virginia Accountancy Board found he had "forged or altered" documents, and refused to reinstate his license.

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