November 13, 2008 / 2:33 PM / in 11 years

Ranieri's Franklin Bank files Chapter 7 bankruptcy

NEW YORK (Reuters) - Franklin Bank Corp FBTX.PK, the lender founded by mortgage securities pioneer Lewis Ranieri, filed for bankruptcy protection and plans to liquidate, after federal regulators seized its banking unit.

The Houston-based lender late Wednesday filed for Chapter 7 protection from creditors with the U.S. Bankruptcy Court in Wilmington, Delaware.

Franklin said it had “very limited remaining tangible assets” following the November 7 Federal Deposit Insurance Corp seizure of its banking unit.

The company said it has less than $500,000 of assets, and between $100 million and $500 million of liabilities, including some convertible notes and preferred securities.

Ranieri, who had been Franklin’s chairman, and all other Franklin officers and directors apart from Chief Executive Alan Master have resigned their positions, the company said.

Formed by Ranieri in August 2001, Franklin is the third-largest U.S. lender to fail this year, after Washington Mutual Inc WAMUQ.PK and IndyMac Bancorp Inc IDMCQ.PK, which both also filed for bankruptcy protection.

It struggled with a shortage of capital and an increase in loans to builders that went sour. Franklin was the first Texas bank to fail in more than six years.

Nineteen U.S. lenders have failed this year, up from three in 2007. Analysts expect dozens of additional failures as the nation’s economic and housing struggles deepen.

Franklin had $5.1 billion of assets as of September 30. Its $3.7 billion of deposits and 46 branches were taken over by Houston-based Prosperity Bancshares Inc PRSP.O.

Once a Wall Street mail clerk, Ranieri is sometimes called the “father of securitization” for popularizing mortgage-backed securities in the 1980s while he was at Salomon Brothers Inc.

Ranieri was also a key figure in Michael Lewis’ 1989 best-selling book “Liar’s Poker.”

Breakdowns in the securitization market, stemming in part from the failure of banks, investors, credit rating agencies and others to correctly assess risk, have been a major cause of the global credit crisis.

Editing by Maureen Bavdek

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