Seven More Failures; FDIC On A Bank Failure Treadmill

Seven banks were closed today.

The FDIC almost cannot shut banks down fast enough these days.

Earlier this week, TILB predicted that the FDIC would shutdown 250 or more banks over the next 15 months (equating to 4-5 failures per week). One week into our prediction, the FDIC has not let us down.

That said, as with the last time we had seven failures, this week comes with a big caveat: six of the failures were sister banks in Georgia: Security Bank of Gwinnett County, Security Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, and Security Bank of North Fulton. Collectively these six banks had a pretty good sized asset base at $2.8 billion.

The seventh bank was the tiny Waterford Village Bank in Williamsville, NY with $61.4 million of assets.

As has been true in the majority of cases, no depositors took losses as all deposits were absorbed by acquiring banks (including deposits over the FDIC minimum). Someday in the future, we will talk about how the FDIC is basically subsidizing non-insured depositors despite this clearly being outside their legal mandate. In our opinion, the FDIC's action on this front is dishonest, illegal and immoral. This undeserved gift to uninsured depositors, of course, comes at the expense of the tax payer and the dollar-based saver (the latter resulting from our suspicion that printing money is the Occam's Razor answer that will be pursued to handle the enormous debts our government is issuing, including the debt it will take on in order to replenish the FDIC deposit insurance fund, which is virtually empty).

Unlike most weeks, the FDIC did not break out its estimate of losses for each of the different bank failures. Instead, the Security Bank failures were aggregated together. As such, we've assumed that each bank is allocated a pro-rata share of losses based on its asset base (collectively, the Security Banks are estimated to cost the FDIC insurance fund 28.8% of their assets). Here's this week's analysis (spoiler alert: things still suck for the FDIC):

Waterford Village Bank, NY
Assets: $61.4mm, FDIC Losses: $5.6mm, Losses as a Percentage of Assets: 9.1%

Security Bank of Gwinnett County, GA
Assets: $322mm, FDIC Losses: $92.8mm, Losses as a Percentage of Assets: 28.8%

Security Bank of Bibb County, GA
Assets: $1,200mm, FDIC Losses: $346mm, Losses as a Percentage of Assets: 28.8%

Security Bank of Houston County, GA
Assets: $383mm, FDIC Losses: $110mm, Losses as a Percentage of Assets: 28.8%

Security Bank of Jones County, GA
Assets: $453mm, FDIC Losses: $131mm, Losses as a Percentage of Assets: 28.8%

Security Bank of North Metro, GA
Assets: $242mm, FDIC Losses: $64.6mm, Losses as a Percentage of Assets: 28.8%

Security Bank of North Fulton, GA
Assets: $209mm, FDIC Losses: $60mm, Losses as a Percentage of Assets: 28.8%

Straight Average Losses as a Percentage of Assets: 26.0%
Weighted Average Losses as a Percentage of Assets: 28.4%

For those keeping score at home, you may recall that last week we applauded California and Georgia for making a contest of the failure championship. Illinois, on the backs of the Campbell family, seemed to be running away with the 2009 Red Jersey of Shame (mistakenly referred to as black last week).

What a difference a week makes! Georgia now leads the competition and has posted sixteen bank failures in 2009. Third place California has eight bank failures and current runner-up Illinois has twelve. Those three states represent 36 of the 64 failures this year.

Noticeably absent from the list is meaningful failure volume from Nevada, Florida or Arizona based banks. We suspect California banks have a good chunk of Nevada and Arizona risk, but there is no way local banks in those states are not getting obliterated. As an email from a friend of TILB at BTIG said today:

*LAS VEGAS AREA HOME PRICES FELL 41.3% IN JUNE FROM YR EARLIER

*LAS VEGAS HOME SALES INCREASE 44%, MDA DATAQUICK SAYS

--- so homes are starting to clear = good, but the clearing prices are still 45% lower than they are now = bad ....... i wonder if they have a break down of speculators vs real family buyers

This does not auger well for the FDIC's bank failure pipeline. When you're levered 12:1 or 15:1, collateral value declines of 50% (peak to today) have a particularly upsetting impact.