Friday July 17th, 2009 was a special day for TILB.
As we referenced in our post this past weekend on bank failures, two of this past weekend's four failures communicate a particularly fascinating message. Today we will address one of those messages.
Not only did four banks fail, one of them was Vineyard Bank. TILB first wrote about Vineyard Bank's walking dead status a year ago. In that blog posting, we walked through its deleterious state noting that it was virtually certain to fail.
Vineyard's collapse gives us a specific, useful metric: for all intents and purposes, this bank failed over a year ago in May 2008 when its regulators began sending angry and restricting letters. The FDIC finally admitted as much and took it over this past weekend. As such, that 14.5 month span provides a handy measuring stick for determining how far behind the curve the FDIC is. As of now, it appears the pipeline is 14-15 months deep.
Since May 5th, 2008, we have had 81 banks fail. Of course, the past year has seen much worse credit performance than the year prior. The pace of bank failures has been 4x in 2009 what it was in 2008 (and actually many times greater yet if you just compare 1H08 to 1H09).
Given that asset performance continues to worsen for most banks and we can easily define how far behind the curve the FDIC is by using the Vineyard measuring stick, TILB believes it is fair to extrapolate that the pipeline for failures in the next 15 months is approximately 3x-4x the past 15 months or 243-324 banks. That comes out to somewhere between 3.7 - 5.0 failures per week for that entire 15 month period.
We will state it again: TILB is forecasting over 250 failures in the next 15 months. If borrower performance deteriorates further (which it will), we believe the number could be much greater than 250.
Ignore our warning at your own risk.
Nay. Brown vines.