This seems to get no press anymore, but we still have banks failing at a record rate. Tonight we have 3 more bank failures, Republic Federal Bank out of Miami, Solutions Bank out of Overland Park KS and Valley Capital Bank out of Mesa AZ. Last week we had 6 bank failures and year-to-date we have a total of 133 banks that have failed. Nothing to see here, everything is fine so keep buying stocks as there is no risk. Even though we have the smart money, the credit markets, keeping short-term treasuries near zero.
I am sorry, but when the smart money is saying. pay me nothing for up to 6 months and we are having banks fail at a record rate there is a problem. Retail sales may be up, we may have a stimulus induced GDP pump, mostly because of a devalued dollar, which is coming to an end quickly here, but there is no real recovery. The employment reports are showing zero hiring as the average worker is looking for work, and giving up, after a record 27+ weeks and is either removed from the labor force or placed on the EUC and no longer counted. These are all signs that something is about to happen.
Today’s Failures:
Bank
State
Assets
Deposits
Republic Federal Bank
FL
$433M
$352M
Solutions Bank
KS
$511.1
$421.3M
Valley Capital Bank
AZ
$40.3M
$41.3M
Total
1
$984.4M
$814.6M
Estimated FDIC Losses, including loss-share agreements:
Immediate Loss
$252.1M
Loss-share agreement
$651.5M
Total
$903.6M
Not bad for an organization that is already running in the red. I guess it is a good thing Congress just decided to raise the debt ceiling by $1.8T to just about $14T altogether. It is shocking that the dollar actually went up in value today, but it is merely short covering and once people realize that Ben will never raise interest rates, see failed bank list total above, ever again I am sure the dollar will come down again.
Finally, we have the 99th bank closure of the year with San Joaquin Bank closing down tonight. It is still odd that the US is on a run rate of about 3-4 bank closures per week all year long then all of a sudden, right after the FDIC admits its insolvency, we get none and then a trickle of closures. It’s not that I am disappointed that we are not getting failures it is that there is no way the government is being honest with us when the troubled banks list has increased 50% and closures just magically stop. If they are not going to be honest with us about this issue then they aren’t going to be honest about the bigger things that are going on.
San Joaquin Bank_______CA________________$775M_______________$631M
The FDIC estimates it will lose $103M on the closure and the agency entered into a loss-share agreement for $683M with Citizens Business Bank, who assumed deposits of San Joaquin Bank.
The total potential loss to the FDIC, including the loss-share agreement, is estimated to be $786M.
San Joaquin Bank:
San Joaquin Bank, Bakersfield, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens Business Bank, Ontario, California, to assume all of the deposits of San Joaquin Bank.
The five branches of San Joaquin Bank will reopen on Monday as branches of Citizens Business Bank. Depositors of San Joaquin Bank will automatically become depositors of Citizens Business Bank. 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 Citizens Business Bank that it has completed systems changes to allow other Citizens Business Bank branches to process their accounts as well.
Seriously, 2 weeks in a row and no failures? Give me a break. There are 416 banks on the FDIC watch list and Georgian Bank was not even on that list when it collapsed a couple weeks back, with a couple billion in assets. We know as of September 30th the FDIC is bust, technically, but we still had closures up until October 2nd. Now, we could still have failures later tonight, but its 6PM and nothing. Are we really supposed to believe all is well? Please… By the way, I bought March 2010 90 SPY puts and June 2010 89 SPY puts, so guess where I think things are heading?
It is according to former FDIC Chairman Bill Isaac, who made this statement to CNBC, and he estimated the rate of closures will remain robust for a couple of years. Clearly he has an idea of what is going on, but I have to humbly disagree with his statement and logic.
According to Mr. Isaac bank failures are a good thing because it takes a deeply troubled bank who cannot lend out of the market. Presumably he is assuming that the takeover bank will be able to fill the needs of the bank client, which is true. However, a bank failure is not a good thing as it adds strain to the whole banking infrastructure which includes the government.
When a bank fails, on Friday nights which we report on in real time, the FDIC will either take the bank into receivership or sell it to another institution. Either way it can cost the FDIC money, which it has little to none of, or the new institution will have to backstop the losses which caused the bank to fail in the first place. Either way you cut it, failures are not a good thing as the bailout of the failed institution will either cost the government money or take money out of the banking system to acquire the assets.
If you look at last week’s closures the FDIC entered a loss-share agreement for $15B in the Colonial deal and it was virtually ‘riskless’ for BB&T to take it over. However, this will reduce the amount the FDIC has in its reserves which means it will have to go back to the Treasury for more money. The losses BB&T may incur will reduce its ability to loan out that $300M or so. Not to mention that people will lose their jobs when the merger is completed.
While I do believe that banks need to go out of business for making bad decisions I will not ever say it is a good thing. The failure of a bank costs us all money and, eventually, jobs which is a very bad thing. Not to mention that the government is letting some banks fail and others, who should fail, to continue on by backstopping the institutions. In other words, the banks that really deserved to fail are still here, but the banks we should support, small local banks, are allowed to disappear forever. Something is just not right with this system.
Community of Nevada_____________NV_____$1.52B_______$1.38B
Community Bank of Arizona_________AZ_____$158M_______$143M
Union Bank, National Association_____AZ_____$124M_______$112M
Community Bank of Arizona will cost the FDIC an estimated $25.5M
Community Bank of Nevada will cost the FDIC an estimated $781M
Union Bank, National Association will cost the FDIC an estimated $61M
Community Bank of Nevada, Las Vegas, Nevada, was closed today by the State Commissioner, by Order of the Nevada Financial Institutions Division, which then appointed Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC created the Deposit Insurance National Bank of Las Vegas (DINB), which will remain open for approximately 30 days to allow depositors access to their insured deposits and time to open accounts at other insured institutions. At the time of closing, the receiver immediately transferred to the DINB all insured deposits of Community Bank of Nevada, except for brokered deposits, certificates of deposit (CDs) and individual retirement accounts (IRAs). The receiver also transferred to the DINB all secured public unit deposits.
Community Bank of Arizona, Phoenix, Arizona, was closed today by the Arizona Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with MidFirst Bank, Oklahoma City, Oklahoma, to assume all of the deposits of Community Bank of Arizona.
Union Bank, National Association, Gilbert, Arizona, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with MidFirst Bank, Oklahoma City, Oklahoma, to assume all of the deposits of Union Bank, National Association, excluding those from brokers.
From Earlier tonight:
There were two more FDIC closures tonight and there may be more as the Pacific Time zone is still open for business. This brings the total to 74 banks closed for 2009 so far which is astounding to say the least.
Dwelling House Savings & Loan_____PA____________$13.4M______$13.8M
The FDIC entered into a loss-sharing agreement over Colonial Bank for $15B and the FDIC expects to lose $6.8M on the Dwelling House deal. Tonights estimated loss for the FDIC is $15.06B.
BB&T bought Colonial and PNC acquired Dwelling House.
It will be interesting to see what banks get shuttered tonight with the news of the Colonial and BB&T deal. We will count the Colonial as a failed bank early and will post the details about it later, as in the potential cost the FDIC, etc. The main problem will more than likely be the so called ‘hot money’ or broker sold CD’s combined with riskier loans and defaults, we are working on a detailed post about this very issue. However, Bloomberg had an article today about problem loans reaching 5% of capital for banks, which can pose major problems or failures.
This comes on the heels of the FASB report yesterday which may force banks to price loans to market which will clearly exacerbate this very problem. However, what Bloomberg had to report was my greatest concern about banks and their solvency or lack thereof. According to the article there are 150 publicly trading banks that have reached the 5% level of nonperforming loans, defaulted loans, and a total of 305 banks on the FDIC’s troubled institution list which have bad loans at 3% of capital already.
This is a major problem and will continue to squeeze consumer credit lower as these small banks are shuttered by the Feds. Not to mention the cost to the FDIC and other institutions either holding their debt or who have lent money to these institutions. With this whole too big to fail nonsense these smaller institutions have been left behind to wither and die on the vine. Even though these failures will be less problematic to the financial system it is still a problem for smaller towns where these banks operate and, frankly, an embarrassment considering all of the money we have thrown at the problem.
I believe that this situation is also a major problem with regional banks that hold a lot of commercial real estate and residential mortgages. The greatest amount of this 5% bad loan threshold is within these regional banks. While the vast majority of the institutions are currently at only 3% of bad loans it is safe to assume that number can jump if the economy slips further, which it more than likely will. Here is what Walter Mix said; “At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.
The article also stated the following;
Nonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. Chicago- based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut.
“This is a fairly widespread issue for the larger community banks and some regional banks across the country,” said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.
This crisis is not over which has been our sentiment for some time now and recently confirmed by Deutsche Bank earlier this week. With this type of action in the banking system is it no wonder why consumer sentiment is down so drastically? The media has done a great job of talking down our most serious problems and think that positive equities, which priced in perfection for the economy and earnings, is indicative of an economic recovery.
Equities are the worst indicators of economic health for an example just look at the market in November of 2007, when the crisis was pretty apparent to everyone, for the most part, when the market reached its all-time high and then the rally of 2002 when things appeared all clear because of higher equity prices. Clearly equities are not forward looking and should not be used as a gauge of economic health.
This is why I have been extremely reluctant to invest in equities and greatly reduced my exposure last week and earlier this week. Now, it appears, I am vindicated about my decision as the market failed to breach its resistance on the S&P and we see a fairly sharp selloff today. I think we are closer to the end rather than the beginning of the recession, but there are so many issues that are being ignored.
Based on the Bloomberg article and the rising bank closure rate it would be insane to invest in regional banks at this time. I see no problem with buying the majors as the government owns them and they will not fail, but the smaller and regional banks are clearly on their own and they are failing. Make sure you examine the balance sheet of any bank stocks you own as it may be surprising for you to see exactly how much bad debt is still on the books.
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