Two Enormous Weekends Of Bank Failures And The Response Is???

Crickets.

Sheila is getting good at her job. She's managed to drag this bank failure parade on for so long that we've collectively become numb to it. Nobody cares anymore. For instance, last weekend (10/30/09), we lost a $19 billion BHC (nine separate banks!) and nary a word was written about it.

This weekend, we lost another five banks including an $11 billion San Francisco based bank that caters to Asian Americans called United Commercial Bank (as an aside, check this out from earlier this week for a good laugh!). In addition to being a good sized bank, it actually has an international presence with a Chinese partner and branches in Hong Kong and Shanghai. What will the press say about this?

More crickets.

The Fourth Estate does not seem capable of simple arithmetic, as they rarely (never?) report the aggregate losses incurred since the end of the prior quarter, instead preferring to lean on the FDIC's quarterly reporting as their crutch. These are some hawkshaw pressmen if we've ever seen them!

So we will do the math for you.

In the five weekends since the end of last quarter (i.e., beginning on Friday October 2nd), we have suffered 25 failures with a total estimated loss to the FDIC deposit insurance fund (DIF) of $4.8 billion. During that period, the FDIC has managed to place the vast majority of failed assets at acquiring banks by entering into expensive loss-sharing agreements. In fact, the FDIC has entered into loss-sharing agreements during those five weekends covering $23.8 billion of assets.

But it has not been able to put all of the assets of failed banks to the acquiring banks, even with the incentive of loss-sharing agreements. The FDIC takes ownership of these residual assets. As you might imagine, an asset that someone won't acquire even when virtually all of the risk of loss is taken off the table is a wee bit more toxic than your average bear. The FDIC has inherited $2.7 billion of these assets in the past five weeks alone.

But, who really cares?

Crickets.

Seven Bank Failures - Sheila, Sheila, Sheila

Well, after a few weeks of sitting on their hands costing tax payers money, the FDIC decided to continue slowly doing their job and shut seven more banks this past Friday.

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, FL
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%

So, another ho-hum week: seven failures, continued ugly trending in loss levels, more obfuscating loss sharing agreements, etc.

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.

Sheila Spreads Calm And Sweet Words

This is too f'ing funny. "In short, we cannot run out of money." "For the insured the depositors, a bank failure is a non-event." Love it!

She also lays the groundwork for borrowing from the Treasury.

From the FDIC's website:


Man, we're gonna miss this crisis when it's finally past us in 2017 or so. The unintentional comedy meter is just so high these days.

For instance, watch how her head bobs and weaves with every word. Also, watch and listen to the big "I know I'm lying to you" gulp she takes a 1:20 when she tries to say that we won't have as many failures as the S&L crisis.

Hilarious.

Five More Bank Failures, Including The Colonial Bank Doozy; WSJ Reports On FDIC Struggles

Another Friday, another five bank homicides.

The FDIC closed five more banks this past weekend, including the sixth largest failure in the FDIC's history: Colonial Bank at $25 billion asset base.

BB&T stepped up to the plate to takeover Colonial in what looks like a win for the FDIC. The Sheila Bear even went on record as stating, "losses from [Friday's] failures are lower than had been projected." Perhaps not surprisingly, TILB has a alightly different take on the matter.

We have been stating for some time, losses are actually higher than they should be under the FDIC's legal mandate, as the FDIC continues to provide insurance on deposits that are, in fact, not insured. This theft from the FDIC's U.S. citizen owners seems completely ignored by the fourth estate and, frankly, everyone else in the world.

On Friday, all deposits were again protected except potentially $4.2 million from the Community Bank of Nevada. That bank was apparently so toxic that there was no willing buyer at a price the FDIC found acceptable. As such, the FDIC set up a government managed run-off bank and will likely leave those $4 million of depositors out in the cold. As George Orwell warned us so long ago, "All animals are equal but some animals are more equal than others."

Apparently.

While The Sheila Bear may be pounding the table that losses are lower than "projected," TILB will note that a) these losses are still estimates, we'll see how final losses come out; b) it's obviously (and appropriately) weighted largely by Colonial's failure given its size; and c) three of the other four banks that failed had losses that were 50% of assets. Holy shit.

Losses have trended so poorly that even the media is starting to catch on. In tomorrow's WSJ, this article by Joe Bel Bruno will begin highlighting to the masses what TILB has been saying for over a year: losses as a percent of bank assets are trending at a staggeringly high rate.

Banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry's last crisis, a looming problem for the government agency charged with insuring deposits.

At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency's deposit-insurance fund is expected by the Federal Deposit Insurance Corp. to be about 50% of their assets.

The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets and an estimated cost of $781.5 million. The failure of Colonial Bank, a unit of Colonial BancGroup Inc. that was sold to BB&T Corp., will cost $2.8 billion, or 11% of the Montgomery, Ala., bank's assets.

For the 102 banks that have collapsed in the past two years, the FDIC's estimated cost averaged 25% of assets. That is up from the 19% rate between 1989 and 1995, when 747 financial institutions were closed by regulators, according to the FDIC.
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As the number of bank failures escalates, FDIC officials have been trying to find investors and buyers for terminally ill financial institutions, increasingly by agreeing to shield acquirers from certain losses on assets of the failed bank.

Down to the nitty gritty, as the WSJ's nifty chart shown at the top of the post indicates, this was a binary week. Two banks trended better than average (including Colonial) and three were epically horrible:

Weekly Failure Summary:

Dwelling House Savings and Loan Association, Pittsburgh, PA
Assets: $13.4mm, FDIC Losses: $6.8mm, Losses as a Percentage of Assets: 50.7%

Colonial Bank, Montgomery, AL
Assets: $25,000mm, FDIC Losses: $2,800mm, Losses as a Percentage of Assets: 11.2%

Community Bank of Nevada, Las Vegas, NV
Assets: $1,520mm, FDIC Losses: $781.5mm, Losses as a Percentage of Assets: 51.4%

Community Bank of Arizona, Phoenix, AZ
Assets: $158.5mm, FDIC Losses: $25.5mm, Losses as a Percentage of Assets: 16.1%

Union Bank, NA, Gilbert, AZ
Assets: $124mm, FDIC Losses: $61mm, Losses as a Percentage of Assets: 49.2%

Straight Average Losses as a Percentage of Assets: 35.7%
Weighted Average Losses as a Percentage of Assets: 13.7%

As The Sheila Bear noted, the weighted average outcome is a substantial improvement. However, the simple average outcome was by far the worst we've seen. This was driven by the fact that any of the three truly toxic takeovers would have represented the single worst percentage of assets performer in our dataset by a wide margin (our dataset is incomplete and has not yet been backfilled but covers approximately the last 40 failures).

While we have not yet seen it reported, we strongly suspect that the Community Bank of Arizona and Community Bank of Nevada are controlled by the same folks. The Arizona failure probably had to be done at the same time as the Nevada failure to avoid creating a taint from one to the other. Additionally, the FDIC sold both Arizona failures to MidFirst Bank (based in Oklahoma City). Its Arizona presence just jumped a notch...

Tracking the race for the Red Jersey of Shame, it's good to see Nevada (now three) and Arizona (now two) put some points on the board. We highlighted a few weeks ago that we suspected they had some good, toxic bank failure runway in front of them. The leaderboard now stands at:
Georgia with 16, Illinois 13, California 8, Florida 6.

Failure Friday; Three More Put Out Of Their Misery

Almost a boring week; only three bank failures.

As with virtually every other failure during this run, the FDIC insured all deposits, not just those within the $250,000 limit, effectively stealing from its citizens to give money away in violation of its mandate (as we discussed last week).

In that same post last week, we also noted that Florida was a dark horse contender to make a run at the Red Jersey of Shame, which will be granted by TILB the state that leads the nation in bank failures. Going into this week, Florida had a paltry four failures trailing: Georgia with 16, Illinois 13, California 8. Last week we said,

In our opinion, Florida with four seems woefully underrepresented. We suspect their most shameful days are ahead of them.

Florida responded quite helpfully with two this week and Oregon tacked on its third of the year. Both Florida banks were in the Sarasota area and were acquired by Stearns Bank in Minnesota. These are the second and third banks Stearns acquired this year (the last being the June 26th failure of Horizon Bank in Minnesota).

Here's this week's summary of losses. A slight improvement from last week, though still generally in the ballpark:

First State Bank, Sarasota, FL
Assets: $463mm, FDIC Losses: $116mm, Losses as a Percentage of Assets: 25.1%

Community National Bank of Sarasota County, FL
Assets: $97mm, FDIC Losses: $24mm, Losses as a Percentage of Assets: 24.7%

Community First Bank, Prineville, OR
Assets: $209mm, FDIC Losses: $45mm, Losses as a Percentage of Assets: 21.5%

Straight Average Losses as a Percentage of Assets: 23.8%
Weighted Average Losses as a Percentage of Assets: 24.1%

Importantly, the pace of failure has stayed brisk. As we predicted, banks are going to begin failing at such a rapid clip that people will almost become numb to the problem. In mid-July, we wrote that we expect at least 250 failures in the next 15 months, equating to 3-4 failures per week. Since then we have averaged five a week.

Go home and get your boots, the party is just getting started.

Sun Rises In East; Five More Bank Failures

As TILB predicted several weeks ago, we believe four or five banks will fail on average, per week, for at least the next fifteen months.

A few weeks into this and we look smart.

After seven failures last week, the FDIC cashed five more banks this week. LB's line for weekly bank failure over/under has ceased to be a question of whether or not the overs will take it and instead has become a question of "by how much?"

Weekly Failure Summary:

First State Bank of Altus, OK
Assets: $103.4mm, FDIC Losses: $25.2mm, Losses as a Percentage of Assets: 24.4%

Integrity Bank, Jupiter, FL
Assets: $119mm, FDIC Losses: $46mm, Losses as a Percentage of Assets: 38.7%

People's Community Bank, West Chester, OH
Assets: $705.8mm, FDIC Losses: $129.5mm, Losses as a Percentage of Assets: 18.3%

First BankAmericano, Elizabeth, NJ
Assets: $166mm, FDIC Losses: $15mm, Losses as a Percentage of Assets: 9.0%

Mutual Bank, Harvey, IL
Assets: $1,600mm, FDIC Losses: $696mm, Losses as a Percentage of Assets: 43.5%

Straight Average Losses as a Percentage of Assets: 26.8%
Weighted Average Losses as a Percentage of Assets: 33.8%

This is on par with the worst set of averages over the past month and a half since the pace of collapse has accelerated.

Two other points worth noting.

First, Illinois sank another basket, tightening the Red Jersey of Shame tally: Georgia - 16, Illinois 13, California 8. In our opinion, Florida with four seems woefully underrepresented. We suspect their most shameful days are ahead of them

Secondly, the FDIC again this week made sure that all deposits were absorbed by an acquiring bank.

Our opinion is this is illegal.

The FDIC is taking losses (that means TILB and our dear readers, as citizen guarantors of the FDIC, are taking losses) rather than depositors that clearly do not qualify for insurance.

The FDIC waterfall should look like this:
1) FDIC takes over failing institution;
2) Cash out from FDIC Deposit Insurance Fund (DIF) to insured depositors;
3) Cash into DIF for sale of insured deposits;
4) Cash into DIF for sale of assets;
5) Cash to uninsured depositors if #3 and #4 exceed #2;
6) Any final excess cash falls through the capital structure as expected: unsecured creditors, subordinated debt, preferreds, equity.

For reasons that we can guess at but that have not been adequately addressed, #5 has generally been moved ahead of repaying the DIF. Basically, the FDIC is insuring depositors that have not "paid" an insurance premium and thusly should not receive insurance proceeds. The FDIC is doing this with our money and we feel it is akin to theft.

TILB is getting angry...

Four Banks Fail; FDIC Euthanization Pace Stays Brisk

The overs take it for the third week out of four...and each of those wins was by a wide margin, perhaps indicating a new stage in our ongoing bank failure cycle.

The real turn began four Fridays ago when we had what seemed like the dawning of a new era as five banks failed. That was trumped a week later by an epic Fourth of July fireworks celebration of seven failed banks. The seven failures were followed by a relative snoozer last week with only one failure. This past Friday was back on track with four failures: Temecula Valley Bank in CA, Vineyard Bank in CA, BankFirst in SD and First Piedmont Bank in GA.

As a personal aside, it's nice to see Cali and Georgia get back in the game. Illinois had broken off from the peloton and it seemed California and Georgia might simply compete for second as they let Chief Illiniwek run away and capture the black jersey of shame. But the chase pack has mobilized! In 2009, Georgia has posted ten bank failures, California eight bank failures, and Illinois leads with twelve. Those three states represent 30 of the 57 failures.

Anyway, back to the story at hand. With 17 failures in the past four weeks, it seems to indicate that the FDIC has finally ramped its staff to begin handling a sustainably higher level of failures. It has long been our suspicion that the FDIC was woefully undermanned for the crisis at hand. More than four failures per week for four weeks has us believing that the staffing issues are much closer to being ironed out.

As long time readers of TILB know, one of the metrics we are fond of tracking is what the FDIC assumes losses will be as a percentage of stated bank assets. In mid-2008, losses were averaging 20-25% of assets. More recently it has been in the 30%+ range, which is an enormous number.

Let's see how this week and last week went:

Bank of Wyoming, WY (last week's single failure)
Assets: $70mm, FDIC Losses: $27mm, Losses as a Percentage of Assets: 38.6%

First Piedmont Bank, GA
Assets: $115mm, FDIC Losses: $29mm, Losses as a Percentage of Assets: 25.2%

BankFirst, SD
Assets: $275mm, FDIC Losses: $91mm, Losses as a Percentage of Assets: 33.1%

Vineyard Bank, CA
Assets: $1900mm, FDIC Losses: $579mm, Losses as a Percentage of Assets: 30.5%

Temecula Valley Bank, CA
Assets: $1500mm, FDIC Losses: $391mm, Losses as a Percentage of Assets: 26.1%

Straight Average Losses as a Percentage of Assets: 30.7%
Weighted Average Losses as a Percentage of Assets: 28.9%

This is in line with the longer-term trend and indicates that the lower loss percentage that accompanied the six Illinois-based banks all controlled by one family (the Campbell's) that failed on July 2nd was the anomaly.

When those six and one other bank failed two weeks ago, the summary stats were as follows:

Straight Average Losses as a Percentage of Assets: 23.0%
Weighted Average Losses as a Percentage of Assets: 23.5%

We strongly suspected that because the banks were controlled by a single family, the FDIC took a few down that - if they'd been truly independent - it may have otherwise kept on life support for more time. In fact, we wrote:

We suppose this is "good" news as 23% average losses seems like a bit of an improvement (though still epically horrible). However, this week is a bit of a strange bird given that six of the banks are related to each other and all six were in pretty bad shape even if all six were not in the 30%+ camp. One of the six Illinois cousins was 30%+, one was 20%+, the largest bank was just under 20% and the other three were mid-teens. I suspect the reality is the FDIC knew if it closed one it would have to close all six.
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The Texas bank, on the other hand, is just a total shit show at almost 40% losses to assets.

We will have more commentary on this week's failures in ensuing posts as two of the failed banks provide particular insight into the state of our current crisis.

Stay tuned...