You may say, "TILB, they shut seven banks, how can you say they are slowly doing their job?" Well, it was three months ago that - using some simple back of the envelope math - we predicted 250 banks would close in the ensuing 15 months. That would have meant about 300 failures through October of 2010(obviously with more to come afterwards), which was well above consensus.
Since then, loan performance has worsened and we've learned that the FDIC has ramped its staff by 10,000 - 15,000 employees. We suspect they will not sit idly be as a total waste of taxpayer money (simply a partial waste). Our current view is that ultimately we could have closer to 1,000 failures than 500, with several hundred (500+ coming before the end of 2010). It is our opinion that one dark, cold Friday, rather than the 3-6 weekly failures we've become accustomed to over the past few months (itself a step function up from the 1-2 we were used to pre-June 09), we will witness 10-15 failures. That should serve as a clarion call that it is go-time.
In any case, this was one of the largest failure weeks in nearly two decades (measured by number of banks). Seven failures.
So, let's go to this week's stats:
Red Jersey of Shame Leaderboard - Florida picks up three points, Georgia one and Illinois one. Cali picked up one last week. As an aside, much like Bill Poole, Illinois's state banking regulator is SHAMEFUL, he should be ashamed!:
Georgia 20, Illinois 17, California 10, Florida 9.
Weekly Failure Summary:
Partners Bank, FLSo, another ho-hum week: seven failures, continued ugly trending in loss levels, more obfuscating loss sharing agreements, etc.
Assets: $66mm, FDIC Losses: $28.6mm, Losses as a Percentage of Assets: 43.7%
American United Bank, GA
Assets: $111mm, FDIC Losses: $44mm, Losses as a Percentage of Assets: 39.6%
Hillcrest Bank Florida, FL
Assets: $83mm, FDIC Losses: $45mm, Losses as a Percentage of Assets: 54.2% (that's not a typo)
Flagship National Bank, FL
Assets: $190mm, FDIC Losses: $59mm, Losses as a Percentage of Assets: 31.1%
Bank of Elmwood, WI
Assets: $327mm, FDIC Losses: $101mm, Losses as a Percentage of Assets: 30.9%
Riverview Community Bank, MN
Assets: $108mm, FDIC Losses: $20mm, Losses as a Percentage of Assets: 18.5%
First DuPage Bank, IL
Assets: $279mm, FDIC Losses: $59mm, Losses as a Percentage of Assets: 21.1%
Straight Average Losses as a Percentage of Assets: 34.2%
Weighted Average Losses as a Percentage of Assets: 30.6%
Actually, the loss sharing agreements, while massive gifts to their recipients are not totally crazy (just mostly crazy). It basically equates to the FDIC paying the asset acquiror to manage the assets so that the FDIC doesn't have to. The FDIC already has $40-50 billion of inherited toxic assets to deal with, so it's basically giving sweetheart deals to acquirors to avoid adding to its already overwhelming burden. As an aside, this is in essence one of the reasons that banks are choosing not to foreclose on effectively defaulted CRE assets (in addition to defering the magnitude of the writedown): it allows the banks to outsource the property management while they get their own house in order.
Green shoots.
