Bank Failures in the U.S.

Problem Banks Rise to 15-Year High on Bad Loans, FDIC Says

August 27, 2009

Bloomberg - The U.S. added 111 lenders to its list of “problem banks” in the second quarter, a 36 percent increase that pushed the group to a 15-year high.

A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks...

The surge in failures prompted the agency to charge the industry an emergency fee in the second quarter to raise $5.6 billion to replenish its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. An $11.6 billion increase in loss provisions for bank failures caused the decline in the fund, the FDIC said.

FDIC-insured banks reported a net loss of $3.7 billion in the second quarter, compared with a $5.5 billion gain in the first quarter. The loss, the second quarterly one the industry has reported in 18 years, was driven by increased expenses for bad loans, the FDIC said...

The FDIC insures deposits at 8,195 institutions with $13.3 trillion in assets. The agency is a state-bank regulator that insures bank customer deposits, helps find buyers for failing banks and liquidates lenders that have collapsed.

The agency this week approved new guidelines for private- equity firms that invest in failed banks to increase the pool of buyers beyond traditional lenders and reduce costs to the banking industry and taxpayers.

1,000 Banks to Fail in Next Two Years: Bank CEO

August 27, 2009

CNBC - The U.S. banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May.

“We’ve already lost 81 this year,” Kanas told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They're smaller companies.”

Failed banks tend to be smaller and private, which exacerbates the problem for small business borrowers, said Kanas, who became CEO of BankUnited when his firm bought the bank and is the former chairman and CEO of North Fork bank.

“Government money has propped up the very large institutions as a result of the stimulus package,” he said. “There’s really very little lifeline available for the small institutions that are suffering.”

This comes at a time when the FDIC has established new rules on bank sales. Private equity, for instance, would have to hold double the capital of their competitors in order to buy such an institution, said Kanas.

“This will have somewhat of a chilling effect on our participation,” he said. “As a result of having to keep higher capital levels, we’ll see lower prices coming from that sector.”

Of the 81 failed banks this year, two have been successfully acquired by private equity, he said. Kanas’ private equity firm bought UnitedBank, the failed Florida-based bank, from the FDIC in May. Regulators also allowed the sale of IndyMac Bank of California earlier this year.

“We are seeing more people step up and lobby bids in this situation,” he said. “We’re seeing more players mostly as a result of being attracted to the sector. I’m not so sure that will continue now that the rules have been ratchet it up.”

Meanwhile, much of the commercial realty problem resides in the regional and small community banks, said Kanas, because larger banks haven’t fueled that sector in the past.

“The market is expecting about the way we were expecting,” he said. “Unfortunately, we’re not seeing any evidence of a recovery in the real estate market in the southern Florida market,” he said.

Analyst Bove Sees 150-200 More U.S. Bank Failures

August 23, 2009

Reuters - A prominent banking analyst said on Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010.

Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-U.S. banks and private equity funds to shore up the banking system.

"The difficulty at the moment is finding enough healthy banks to buy the failing banks," Bove wrote.

The FDIC is expected on August 26 to vote on relaxed guidelines for private equity firms to invest in failed banks, after critics said previously proposed rules were too harsh and would actually dissuade firms from making investments.

Bove said "perhaps another 150 to 200 banks will fail," on top of 81 so far in 2009, adding stress to the FDIC's deposit insurance fund.

Three large failures this year -- BankUnited Financial Corp. in May, and Colonial BancGroup Inc., Guaranty Financial Group Inc. in August -- collectively cost the fund roughly $10.7 billion.
The fund had $13 billion at the end of March.

Regulators closed Guaranty's banking unit on Friday and sold assets of the Texas-based lender to Banco Bilbao Vizcaya Argentaria SA. The FDIC agreed to share in losses with the Spanish bank.

Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.

He said these assessments could total $11 billion in 2010, on top of the same amount of regular assessments. "FDIC premiums could be 25 percent of the industry's pretax income," he wrote.

As of Friday, August 14, 2009, FDIC is Bankrupt

August 15, 2009

Mish's - Bank Failure Friday is in full swing. Tonight there were 5 more failures, numbers 73 through 77 on the year. In the biggest failure since WaMu, BB&T takes Over Colonial.

Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest bank failure since Washington Mutual Inc. collapsed last year.

Branches and deposits of Colonial, Alabama’s second-largest bank, were turned over to Winston-Salem, North Carolina-based BB&T in a deal brokered by the Federal Deposit Insurance Corp., the regulator said today. The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans.

Colonial’s failure will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said. The fund, which the agency uses to pay customers of a failed bank for deposit losses up to a $250,000 limit and is generated by fees paid by banks, stood at $13 billion at the end of the first quarter, according to the FDIC. The agency has set aside an additional $25 billion for bank failures, agency spokesman David Barr said.

Tonight, inquiring minds are asking "Is There Any Money Left In The Fund?"

For clues, please consider Saxo Bank Research FDIC’s Shrinking Deposit Insurance Fund – A Testimony of Current Accounting Standards.

As late as in the end of April just before the release of the bank stress tests, Ms. Bair Chairman of the FDIC said they would not need any additional bailouts from the U.S Treasury within the immediate future according to The Bulletin. After three new bank failures last Friday, the FDIC’s Deposit Insurance Fund (DIF) diminished by another $185 million for a total remaining balance of $648.1 million.

The old insurance limit with a maximum coverage of $100.000/account has been changed to cover up to $250.000/account until January 1st 2014. Estimates say that the change increases the deposits covered under FDIC insurance to approximately $6 trillion in total.

So, what does that imply? Basically it means that when valuating any U.S bank, their assets should probably be marked down significantly relative to their book value, much because of how they nowadays are allowed to manipulate their balance sheets in order to appear more solvent than they in fact are.

Friday, In reference to Colonial, Shelia Bair made the following galling claim:

"The past 18 months have been a very trying period in the financial services arena, but the FDIC and its staff have performed as Congress envisioned when it created the corporation more than 75 years ago," said FDIC Chairman Sheila C. Bair. "Today, after protecting almost $300 billion in deposits since the current financial crisis began, the FDIC's guarantee is as certain as ever. Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected. I commend our staff for their excellent work in assuring once again a smooth transition for bank customers with these resolutions. The FDIC continues to stand by the nation's insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits."

Nowhere does "Shelia the Fool" state the cost of this insurance. Without FDIC, banks like Colonial, Bank United, Corus Bank, and possibly even banks like Washington Mutual would have failed long before they mattered.

By offering above market rates on CDs, those bank attracted plenty of capital to the detriment of banks lending responsibly. In order to offer high rates on CDs and deposits, the banks had to take high risks.

Bank United and Corus Bank funded all sorts of risky housing projects including condo towers in the biggest bubble cities. Colonial Bank is under investigation for Fraud.

No one in their right minds would have deposited money at those institutions without FDIC. And if they did it should be their problem not yours or mine.

There were no bank failures for a very long time during the credit boom. Thus, FDIC insurance seemed to work very well for a while. The reality is such schemes always produce fat tails...

Colonial BancGroup Becomes Biggest Bank Failure of 2009

August 15, 2009

MarketWatch - Colonial BancGroup Inc. has become the largest bank failure this year as the 2009 toll of financial institutions approaches 80.

The Federal Deposit Insurance Corporation seized the struggling Alabama-based lender Friday and sold it to BB&T Corp.

Late Friday, the FDIC announced four other banks had been closed: Community Bank of Nevada and its Arizona subsidiary, Community Bank of Arizona; Union Bank, Gilbert, Ariz; and Dwelling House Savings and Loan Association, Pittsburgh.

The Colonial BancGroup deal will knock roughly $2.8 billion off a pool of money, known as the Deposit Insurance Fund, which the FDIC maintains to guarantee bank customer deposits.

BB&T agreed to assume all of Colonial's deposits, which totaled about $20 billion at the end of June, the FDIC said. Depositors of Colonial will automatically become depositors of BB&T and customers can continue accessing their money by writing checks or using ATMs and debit cards, the regulator stressed.

Colonial had $25 billion in assets at the end of June. That makes it the largest bank failure this year, exceeding the collapse of Florida's BankUnited Financial, which had less than $13 billion in assets.

BB&T agreed to buy about $22 billion of Colonial's assets. The FDIC said it will hold on to the rest - about $3 billion worth - and will try to sell them later.

The FDIC and BB&T will share losses on $15 billion of Colonial's assets. Loss-sharing deals have become common since the financial crisis struck last year, as the FDIC tries to encourage more stable banks to take over failing institutions.

This year, 78 banks have failed this year as a lingering recession and surging unemployment leaves the industry nursing heavy loan losses. More than 1,000 banks may fail during the next three to five years, RBC Capital Markets estimated in February.

The FDIC estimated Friday that the Colonial deal will cost its Deposit Insurance Fund about $2.8 billion. The regulator recently imposed a one-time assessment on banks to top the fund up. However, the surge in bank failures has increased concern about the fund, despite the fact that the FDIC can borrow hundreds of billions of dollars from the Treasury Department if it needs to.

Today, after protecting almost $300 billion in deposits since the current financial crisis began, the FDIC's guarantee is as certain as ever," FDIC Chairwoman Sheila Bair said in a statement late Friday. "Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected."

Shares of Colonial dropped 12% to 41 cents before trading was halted Friday morning. BB&T shares jumped more than 9% to close at $28.43.

BB&T, with more than $150 billion in assets, is seen by some analysts as a beneficiary of bank failures. Many closures have happened in the Southeast of the U.S., where BB&T is a dominant player...

BankAtlantic Reports $38.4 Million Loss, the Latest in a Series of Losses

August 11, 2009

Miami Herald - BankAtlantic Bancorp., which has chalked up a string of losses, plans to raise fresh capital by offering up to $100 million in common stock at a discount to existing investors...

In July, BankAtlantic, weighed down by troubled real estate loans, reported a net loss of $38.4 million, or $3.41 a share, for the second quarter, the latest in a series of losses. That was nearly double the loss that the company recorded for the same period of 2008 when it posted a net loss of $19.4 million, or $1.73 per share.

Despite the big losses, BankAtlantic remains well-capitalized under all regulatory measures. In addition, the parent pumped $5 million into the bank in the second quarter, fortifying the bank's capital position.

Levan said Monday the bank is no longer interested in TARP funds. Last month, Levan said he assumed the bank was ineligible for funds from the Treasury Department under the Troubled Asset Relief Program, or TARP, because the federal government typically hasn't considered giving TARP funds to institutions that have deferred-interest payments on trust preferred securities, as BankAtlantic has opted to do.

"The whole process is a mystery," Levan said of TARP. "We submitted an application and we never heard from Treasury."

Toxic Loans May Push 150 Banks to Point of No Return

August 14, 2009

Bloomberg - More than 150 publicly-traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound...