Failure Friday: March 5, 2010 – Updated

Posted by Ray on March 5, 2010 under FDIC | Be the First to Comment

Little attention has been given to the main Friday events this year, I am guilt of not reporting on it either, which is bank failures. I guess everyone, me included, has become complacent with the fact that banks are failing at a very scary rate still. I am thinking that the Fed should have left the discount rate along as we are now up to 25 bank closures this year, 3 tonight (see below). At this rate we will see, assuming February is the example of what the rest of the year holds, we will see upwards of 180 bank failures for 2010. I thought the crisis was over?

Clearly there are major structural problems within the banking system still. Although the “too big to fails” will remain, well, too big to fail the smaller banks are up the creek without a paddle. Clearly whatever plan the administration had in mind for these smaller institutions has not worked or the problems are so severe that no one wants to talk about them. I think the latter is probably more likely than the former. Either way, these failures are a major problem especially as the FDIC is technically bankrupt, what else do you call an organization that has a substantial negative net worth? Obviously that lifeline with the Treasury will have to be tapped in order to guarantee the $250,000 per deposit.

Tonight’s winners are:

I guess the losses are not that bad, but given the sorry state of the FDIC I think any loss is bad news. So much for the FDIC’s national savings week push, why save when your bank goes out of business?

Waterfield Bank had no buyer, apparently, but the other 2 banks did have buyers. As you can see the losses are pretty severe given the asset size of the banks. All told losses could hit $808.1M if the FDIC needs to make good on the loss-share agreements, certainly some of the loss-share will be realized if not all of it. Bank of Illinois was purchased by Heartland Bank and Trust Company out of, get this, Normal Illinois and Sun American Bank was acquired by First-Citizens Bank out of Boca Raton FL.

Centennial Bank and Waterfield Bank had deposits of $1.8M and $407,000, respectively, not covered by the FDIC insurance, keep no more than the maximum insured limit at banks, especially smaller banks. There may be more closures later tonight so check back. Below are the press releases.

Waterfield Bank:

Waterfield Bank, Germantown, Maryland, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the insured depositors, the FDIC created Waterfield Bank, FA—a new depository institution chartered by the OTS and insured by the FDIC—to take over the operations of Waterfield Bank. The new institution will remain open until April 5, 2010, to allow depositors access to their insured funds and time to move accounts to other insured institutions.

The bank had one branch location. It also took deposits from customers via the Internet and 38 affinity groups.

At the time of closing, the receiver immediately transferred to Waterfield Bank, FA, all insured deposits of the failed bank, except certificates of deposits (CDs) and individual retirement accounts (IRAs). The FDIC will mail checks directly to customers with CDs and IRAs for the amount of their insured funds, on Monday morning, March 8.

Customers with savings accounts, checking accounts and money market deposit accounts will have access to their insured funds as usual during this transitional period. Banking activities, such as direct deposit, check writing, and ATM and debit card use, will continue as normal for the customers with demand deposit accounts until Waterfield Bank, FA, closes on April 5. At the end of this transition period, the FDIC will mail checks to customers who have not closed their accounts or transferred their funds to another institution.

On-line banking services, including bill pay, will be unavailable for transactions over the weekend; however, these systems will be active by Monday morning, March 8.

As of December 31, 2009, Waterfield Bank had $155.6 million in assets and $156.4 million in deposits. At the time of closing, the amount of deposits exceeding the insurance limits totaled about $407,000. This amount is an estimate and is likely to change as the FDIC works with customers of Waterfield Bank. The uninsured deposits were not transferred to the newly chartered institution.

Depositors with more than $250,000 at Waterfield Bank should call the FDIC at (800) 830-4735 to make an appointment to discuss the status of their funds. The phone number will be operational this evening until 11:00 p.m., Eastern Standard Time (EST); on Saturday from 9:00 a.m. to 9:00 p.m., EST; on Sunday from noon to 6:00 p.m., EST; and thereafter from 8:00 a.m. to 8:00 p.m., EST.

Customers who would like more information about today’s transaction can call the toll-free number; send an e-mail to waterfieldbankquestions@fdic.gov.

Under the FDI Act, the FDIC may create a new depository institution to ensure that depositors have continued access to their insured funds where no other bank has agreed to assume the insured deposits. This arrangement allows for uninterrupted direct deposits and automated payments from customers’ accounts and allows them time to find another institution with which to do business.

The FDIC estimates that the cost to its Deposit Insurance Fund will be $51.0 million. Waterfield Bank is the 25th bank to fail in the nation this year and the first in Maryland. The last FDIC-insured institution to fail in the state was Bradford Bank, Baltimore, on August 28, 2009.

Bank of Illinois:

Bank of Illinois, Normal, Illinois, was closed today by the Illinois Department of Financial Professional Regulation – Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Heartland Bank and Trust Company, Bloomington, Illinois, to assume all of the deposits of Bank of Illinois.

The two branches of Bank of Illinois will reopen on Saturday as branches of Heartland Bank and Trust Company. Depositors of Bank of Illinois will automatically become depositors of Heartland Bank and Trust Company. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from Heartland Bank and Trust Company that it has completed systems changes to allow other Heartland Bank and Trust Company branches to process their accounts as well.

This evening and over the weekend, depositors of Bank of Illinois can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Bank of Illinois had approximately $211.7 million in total assets and $198.5 million in total deposits. Heartland Bank and Trust Company will pay the FDIC a premium of 3.61 percent to assume all of the deposits of Bank of Illinois. In addition to assuming all of the deposits of the failed bank, Heartland Bank and Trust Company agreed to purchase essentially all of the assets.

The FDIC and Heartland Bank and Trust Company entered into a loss-share transaction on $166.6 million of Bank of Illinois’s assets. Heartland Bank and Trust Company will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $53.7 million. Heartland Bank and Trust Company’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Bank of Illinois is the 24th FDIC-insured institution to fail in the nation this year, and the third in Illinois. The last FDIC-insured institution closed in the state was George Washington Savings Bank, Orland Park, on February 19, 2010.

Sun American Bank:

Sun American Bank, Boca Raton, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of Sun American Bank.

The 12 branches of Sun American Bank will reopen on Monday as branches of First-Citizens Bank & Trust Company. Depositors of Sun American Bank will automatically become depositors of First-Citizens Bank & Trust Company. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from First-Citizens Bank & Trust Company that it has completed systems changes to allow other First-Citizens Bank & Trust Company branches to process their accounts as well.

This evening and over the weekend, depositors of Sun American Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Sun American Bank had approximately $535.7 million in total assets and $443.5 million in total deposits. First-Citizens Bank & Trust Company did not pay a premium to acquire the deposits of Sun American Bank. In addition to assuming all of the deposits of the failed bank, First-Citizens Bank & Trust Company agreed to purchase essentially all of the assets.

The FDIC and First-Citizens Bank & Trust Company entered into a loss-share transaction on $433.0 million of Sun American Bank’s assets. First-Citizens Bank & Trust Company will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers.

Customers who have questions about today’s transaction can call the FDIC toll-free at 1-866-954-9532. The phone number will be operational this evening until 9:00 p.m., Eastern Standard Time (EST); on Saturday from 9:00 a.m. to 6:00 p.m., EST; on Sunday from noon to 6:00 p.m., EST; and thereafter from 8:00 a.m. to 8:00 p.m., EST.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $103.8 million. First-Citizens Bank & Trust Company’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Sun American Bank is the 23rd FDIC-insured institution to fail in the nation this year, and the fourth in Florida. The last FDIC-insured institution closed in the state was Marco Community Bank, Marco Island, on February 19, 2010.

Centennial Bank:

The Federal Deposit Insurance Corporation (FDIC) approved the payout of the insured deposits of Centennial Bank, Ogden, Utah. The bank was closed today by the Utah Department of Financial Institutions, which appointed the FDIC as receiver.

The FDIC entered into an agreement with Zions First National Bank, Salt Lake City, Utah, to accept the failed bank’s direct deposits from the federal government, such as Social Security and Veterans’ payments.

The FDIC was unable to find another financial institution to take over the banking operations of Centennial Bank. As a result, checks to the retail depositors for their insured funds will be mailed on Monday. Brokered deposits will be wired once brokers provide the FDIC with the necessary documents to determine if any of their clients exceed the insurance limits. Customers who placed money with brokers should contact them directly for more information about the status of their funds.

As of December 31, 2009, Centennial Bank had approximately $215.2 million in total assets and $205.1 million in total deposits. At the time of closing, the bank had an estimated $1.8 million in uninsured funds. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

Customers who have questions about today’s transaction can call the FDIC toll-free at 1-800-889-4976. Customers with accounts in excess of $250,000 also should contact the toll-free number to set up an appointment to discuss their deposits. The phone number will be operational this evening until 9:00 p.m. Mountain Standard Time (MST); on Saturday from 9:00 a.m. to 6:00 p.m. MST; and on Sunday from noon to 6:00 p.m. MST; and thereafter from 8:00 a.m. to 8:00 p.m. MST.

Beginning on Monday, customers of Centennial Bank with deposits exceeding $250,000 at the bank may visit the FDIC’s Web page “Is My Account Fully Insured?” at https://www2.fdic.gov/drrip/afi/index.asp.

Centennial Bank is the 26th FDIC-insured institution to fail this year and the second in Utah since Barnes Banking Company, Kaysville, was closed on January 15, 2010. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $96.3 million.

Andrew Cuomo, can NY ever catch a break?

Posted by Ray on March 3, 2010 under Politics | Read the First Comment

Haven’t we learned anything about legacy political leaders after the Bush years and countless other Congressional leaders who “inherited” their seat from a parent? Part of the reason the US is in shambles is because we elect these people, why I do not know, and they are ignorant about the problems the country faces. It is no secret that Mario Cuomo was extremely liberal and responsible, in my view, for NY States horrible financial condition because of his socially liberal programs. While I was young during his reign even I knew he was a terrible governor, but we elected Pataki twice so New Yorkers are not known for picking the better candidates.

Now we might be living under another Cuomo who is also a terrible leader and, as Dick Bove claims, largely responsible for the GSE’s collapse. According to Bove, Cuomo’s relentless pursuit to force Freddie and Fannie to loan to the poor led to the GSE’s into buying sub-prime mortgages and eventually their collapse. Frankly, in my opinion, Mr. Bove is correct, you will not hear me agree with Bove much I might add. Cuomo took the GSE’s and many banks to court because of discrimination, some of which I am sure is true, but his main problem was that banks were not loaning money to the poor. Now, I am not a rocket scientist, but I do know if you loan money to poor people who do not have the ability to pay back loans they will eventually default. The banks knew this and that is why they did not lend money to the poor, yes, some discrimination probably existed though.

Because of his zealous behavior we know have had to guarantee Freddie and Fannie for unlimited losses, which is also why the Fed will stop buying MBS’s as well because the GSE’s can now pick up the slack. With NY in such dire straits, and we are, is it wise to elect another lawyer to the governors position? I think not. Surprisingly, I actually like our current governor, who is a Democrat, because for all of his faults he realizes what a horrible position NY is in. He is actually trying to cut spending, but is met with the same corrupt response from the unions and Assembly that usually appears when you try to take money away from their interests.

Patterson is a mess and not the best person for the job, but I would vote for him over Cuomo any day of the week. Of course, Obama and other NY Democrats want him out, are you really surprised over the recent scandals breaking? My belief is that these timely scandals are appearing because Patterson is trying to cut spending which will impact many social programs like schools and welfare. Those are the Democrats pet projects and by cutting spending there, which is the primary reason for our fiscal distress I might add, he was a marked man and is now out.

Cuomo will be a party man upping the spending as much as the market will allow, but that will not be too much more given our deficits. He will do what he is told and not make those hard decisions because he is just like his father, a tax and spend liberal without the knowledge on how to pay for it. It is far easier to get reelected when you make your base happy and paper over the major problems. However, our problems here are so severe they cannot be papered over any longer. They have already robbed the highway and bridge trust fund to pay for the interest on our debt, that money was supposed to be secured for, well, highways and bridges.

How anyone can look to this man or to the Democratic Party in NY is beyond me. They have shown themselves to be horrible when it comes to financial issues and refuse to make the hard decisions. I am referring to NY Democrats not Democrats nationwide. I will not vote for him and I will find it difficult to vote for the Republican challenger, Rick Lazio is potentially the R’s candidate, because politics in NY have not changed. They simply pick the next person in line who is ‘due’ for the next run at a major office. I almost hope we go into receivership as it will let some sane court appoint conservator to get rip of the ridiculous contracts the unions have and, ultimately, uncover all of the corruption we know exists, but has been masterfully hidden from the public.

Rate Hike!

Posted by Ray on February 18, 2010 under Main | Read the First Comment

The Fed just raised interest rates to .50-.75% on the discount window. What does this mean? Nothing. It is simply just a measure to shut people like me up and to encourage banks to go to the private markets for capital. Essentially, this was a populous encouraged move and will have a negative impact on equities, but do not concern yourself with this.

This hike will not hurt corporate bonds, but treasuries and equities, ouch! The bottom line is that the Fed is not selling its assets so, again, this is meaningless at best. If they raise rates above 1% then be worried, but other than that, who cares. Ben, apparently, has just had enough of the negative mean people like me. However, this could prove difficult for Treasury as they have to place so much paper on to the Street. It is also a move to “prove” that this statistical recovery is for real, which it is not. A meaningful rate hike would be well above 1%, don’t hold your breath for that anytime soon.

Arrogance at its Greatest

Posted by Ray on January 3, 2010 under Main | Be the First to Comment

Ben Bernanke may in fact seem like the unassuming soft spoken professor who is well spoken and polite, and he is, but at the same time he is perhaps suffering from the greatest of the deadliest of sins, pride. I am translating pride into arrogance with Ben because it is essentially the same thing and the sin is identical. There is also no question that Ben suffers from the delusion that he s right and everyone else is wrong, which is how we can tell that he suffers from this disease of arrogance wich will be his ultimate downfall.

I am referring to an article I read this weekend from Reuters, which was reprinted on Bloomberg and various other news sources, where Ben announced that it was not the Federal Reserve’s wall of liquidity during the early 2000’s that caused the housing boom, and subsequent bust, but rather lack of regulation. First of all, he is wrong, because without the liquidity easy credit or the showdown securitization mortgage market simply would not have existed, that is obvious. What is not so obvious is the fact that his regulation argument is also an attack on himself. While Congress did encourage the GSE’s and banks to loosen credit standards, so did the Federal Reserve Bank and the Fed had some significant regulatory authority over these mortgages.

Am I the only one that finds it ironic that Ben, Man of the Year, Savior of the Economy, or whatever else we are calling him now, is the same guy saying that his wall of liquidity is not to blame and more regulation’s was the answer, when part of his job was to regulate the banks? Granted, the Fed’s job in regulating the banks is somewhat small, but are we forgetting Greenspan’s famous speech were he encouraged banks to get more inventive when it came to mortgage origination? This does not sound like getting tough with banks, in fact it sounds like it was a green light to do whatever you want to get homeowners into a house.

Essentially, the Fed gave its blessing to do whatever it took to get people to sign the dotted line on the mortgage application. Not only that, the Fed also provided the liquidity to encourage the lax lending standards. Having just one of those two things is bad, but both combined is disastrous, which we found out. However, our Savior still does not realize that it was the Fed at fault for this mess and I think I know why he is saying this now. He simply wants to be left alone. He figures with his reappointment a done deal, his Man of the Year award, and the magical 25% S&P 500 returns in the market people will get off his back as he built up some credibility, especially the audit the Fed people.

I honestly believe he thinks that his sins of the past can be forgiven because of his recent ‘accomplishments’ which were not really accomplishments. If anything Ben was merely picking up after himself, but with our money. To put everything into perspective on how Ben feels here is how the article ended, and what he thinks caused, I guess, the credit crisis:

“Bernanke pointed to adjustable-rate mortgages and overconfidence that house prices would continue to rise as the main culprits behind the catastrophic housing bubble.”

That is that I guess. He was partially right, but it was not just ARM’s that were the problem, not at all, it was a whole slew of mortgages that were problems. There were jumbo’s that trigger higher rates if the LTV slides below a certain value, there were sub-prime, there was the fact that the asset bubble from the Fed was not just in housing, but in commercial real estate and, well, everywhere. The question is why were people betting so heavily on housing prices to rise? Perhaps because the liquidity spigot was going full force for way too long and then when you went to turn it off the effort was meager at best.  Regardless, the biggest problem now is with all types of mortgages, not just ARM’s and sub-prime.

The sheer arrogance of this man is just unbelievable though. The one thing about the deadly sins is that they are deadly and catch up to you, pride is always the one that kills the worst to. At first it was nice to see Ben apologize for the Fed’s role in the Great Depression, but how could we go from a guy who knows that his organization caused the Depression to him denying the Fed caused this problem. What happened over the last 4 years to Ben where he could state the obvious before only to deny it know? It makes no sense other than he suffers from the affliction of arrogance or pride. What I do know is what Ben is doing, long-term, will not work, because Ben has a terrible track record, and the Fed’s powers are on the verge of finally being reduced, which is a great thing as the system failed us greatly and it’s time for it to go.

No matter what Ben and Greenspan are to blame for a large portion of what happened. I am not saying that Congress is innocent, you know me better than that, and I am not saying that those who lied or bought houses they couldn’t afford are innocent either. However, legitimate fraud too place, even to reasonably intelligent people, the Fed let things happen that they should not have and Congress, well, Congress is just incompetent, what do you expect.

Who Wants to be Scrooge?

Posted by Ray on December 24, 2009 under Main | Be the First to Comment

I guess a few firms had to be to Scrooge given the 452K initial claims we saw this morning. Anyone expecting a larger number than we got is crazy because companies just do not or try not to fire people around the holidays. In fact, I am shocked that we saw claims as high as we saw today which reinforces my thought that the employment picture is not getting any better, I know I wouldn’t know a V shaped recovery if it hit me in the head because employment is a lagging indicator. That would be true for an inventory recession, but not for a credit collapse or do I have my type of recessions mixed up?

These initial claims and the ISM data is still not consistent with the magical -11K employment report we got in November, sorry for being a doubter. I simply do not trust government data and neither should you because the BLS along with this administration, any administration for that matter, will do anything to make themselves look better. For example, even though banks are not lending the BLS insists that 30K people started their own businesses in November, really, that is what the birth/death model says. Go back a year ago when things were really bad and the numbers are even higher, 100K+ people were starting their own businesses when the credit markets were frozen solid, so trust those BLS numbers all you want, I don’t.

To further illustrate this point, last month the BLS reduced the number of people in the work force by some 130K, they just took them out of the work force, why? Because they gave up looking for a job, or could not find one, and that is how you get a -11K employment report and massively revised prior reports. I wish we could all doctor our books like the government as we would all be rich. However, did you hear Steve Liesman tell you about how the BLS removed people from the workforce? Nope, you did not. Santelli told you about it and Santelli told you about how retail sales were doctored, but none of the other talking heads, why? I don’t have an answer, I really want to know why. I get that no one wants all bad news all the time, even I don’t want that, but I do want the truth.

My point is that last week and this week we will see soft initial claims numbers and December’s employment report will probably be OK, unless they doctor it up again. If they doctor the report, which will be unnecessary, it will be spectacular and completely unbelievable which will be the problem. Moving forward credibility will be an issue for the government, kind of like the USSR in the 1980’s when they said everything was fine and we knew it wasn’t, we are trying to do the same freaking thing. The thing is when 20% of the population is unemployed/underemployed, 1 out of 5 people, you cannot lie your way out of that and you will pay through the elections. This AM on Squawk even Liesman finally admitted that the Bush “economic recovery” was very poor and we are right where we were at the beginning of the decade. We need massive job growth, 300K+ a month now to turn this around and that is not going to happen.

The economy is bad and without government intervention there is no green shoots, period. The housing data yesterday proves that because that was the first look at housing starts without the tax credit, starts were down 11% when expectations were for +6%, ouch. That is quantifiable proof that the private sector is doing nothing right now and it is 110% government intervention growing the economy which has zero multiplier effect, it actually destroys wealth especially when your country has to borrow 100% of the money. That one data point on its own destroys the V shapers story, but if you combine it with any other data point it completely buries it. Let us not forget that if this was a V shape the Fed would have at least changed its language during the last meeting, but nope they did not even do that. Keep in mind I want out of this to, but I am just not delusional. Sure stocks are higher, but that doesn’t mean the economy is OK and in fact it means there is pain coming hard and fast somewhere along the way. Oh, where’s the volume?

Just how bad are things? Well, banks aren’t lending to the wealthy either. I spoke to a very wealthy friend of mine yesterday in Florida which is telling of what is really going on in the mortgage market right now. Now, I know how lending works, but there is simply no excuse for what he is going through right now in trying to refinance his condo in Florida, I know it is a hard hit area, but hear out the story before passing judgment. His condo was worth 7 figures before, but now in the high 6 figures and he has zero debt, $2M in cash, 790 FICO score and he is self employed. Now his self employed status is an issue because he has inconsistent income, $40K a year to $400K a year which is wild swings, but not bad considering he only wants to refinance $200K.

Here is the thing, he cannot get any financing from any bank anywhere. He wants to refi a portion of his condo, so it is totally secured, he has cash, credit, no debt and income with no bank wanting the business. Keep in mind I am not talking about a second lien where if he filed for bankruptcy the bank gets nothing, we are talking first lien here. So, how can this be if banks are ‘eager’ to lend, the credit markets are fully functional or the economy is just fine? It is not possible as this guy is prime to lend to. Now, if a bank is not going to lend to him, which is a collateralized loan I might add, then they are not going to lend to a small business or consumers in general.

All of this points to much tighter credit and much higher unemployment coming soon. Especially since banks are dumping TARP as fast as they can because they do not want to be told to lend by the administration or they want that one last big payday before the whole thing comes down. Actually, my belief is that why wouldn’t banks not want to repay TARP since they know they could get it back anytime they want. Either way, banks do not want to lend and they are not going. No lending, no growth.