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.

Let The Pigeons Loose: We Got A Bank Failure

After the FDIC decided - apparently - to give its people a few weeks off despite a backlog of several hundred banks, we finally have a another official bank failure: San Joaquin Bank in California. Every week the FDIC chooses to relax at home and not takeout banks costs the U.S. taxpayers another few hundred million dollars. But, as we noted yesterday, nobody seems to care about the government's wasteful ways.

San Joaquin Bank had $775 million of assets and $103 million of estimated losses (including a big loss-sharing agreement).

Link to the press release.

Sorry, but we just have to mention again how much we dislike the FDIC. Fuckers.

Guest Post: Max Headroom Brings The Rage To The FDIC

As your source for all things FDIC, we bring you a guest post from long time friend of TILB - Max Headroom - on the ongoing debacle that is the public "option" for deposit insurance. Don't worry though, we are sure a health care public option would be far sounder and less costly. The public options in mortgages (Fannie and Freddie) and deposit insurance (FDIC) are probably the outliers. Something as simple as healthcare (i.e., 16% of GDP and with all sorts of personal and moral decisions) would likely be much simpler.

In any case, Max brings the anger on the news the FDIC is going to borrow $45 billion from the banking system to support the banking system and that it expects to incur $100 billion of insured losses before all is said and done. Enjoy:

I can’t believe this isn’t getting more press. But I’ve been saying this for about 12 months now; finally the FDIC admits that it is a full-on insolvent sh!t show. It just ramped its loss estimates to $100 bn from merely $70 bn – that’s nearly an increase of 50% mind you – and says it will “go negative” this month (never mind the massive liabilities it has taken on and guaranteed too). So it officially has no money; actually, it officially has negative money.

But this is the shocker - to pay for this debacle, i.e. to do its job and protect depositors, Sheila is recommending that banks pay in advance 3 years of insurance premiums totaling $45 billion. What would you do if Allstate called you up and told you to pay 3 years of auto premiums in advance? An appropriate “go eff yourself” would no doubt be the response.

So while our “healthy” banks – which is hard for me to say with a straight face – continue to struggle (though not lend, i.e. do their job), our gubbernment chooses to further hinder their return to solvency (and hence lending) by placing this new $45 billion burden upon them. Keep in mind, this is direct thievery from the banks’ shareholders and can be seen as a penalty for prudence (or more correctly for being less insolvent).

“I do think this is a good balance,” Chairman Sheila Bair told reporters, and requires the industry to “step up” to spread the financial hit to banks (socialism, there, I said it).

Really, Sheila? You think that “stepping up” and stealing $45 billion from Americans to pay for your incompetency is “a good balance”? I recommend you “step down”, Sheila. You are a colossal failure of the largest proportions, only rivaled by AIG, US fiscal policy, and the Fed’s monetary policy. You are the Queen Joke of regulation in a time when it is really hard to be one because you are surrounded by so many regulatory jesters. Thanks, Sheila, for doing your part to destroy America.

Preach it M-M-M-Max.

FDIC Contemplates Making Banks Prepay $36 Billion In insurance Premiums

Seriously?

Lajuan Williams-Dickerson, is this true? Can it be?

We are skeptics but even TILB never saw this coming.

According to this story, the FDIC is contemplating asking, nay, forcing its insureds (banks) to prepay three years worth of insurance premiums. When we posted last week about the rumors the FDIC might rob the rich banks to pay the poor banks, we thought "maybe one quarter's worth of fees". But three years?

Wow.

We can't even get our mind around the balls that Sheila Bair must have dangling. She must f'ing hate Tim Geithner. Pure hate. She apparently prefers further imperiling the entire banking system to asking him to provide the FDIC with fresh cash that he (the Treasury) is legally bound to provide.

And why?

Ego is almost certainly the answer.

As long time TILB readers know, the issue the FDIC is facing is multifold:

1. The Deposit Insurance Fund (DIF) is negative. It brings in maybe $200-250 million of "revenue" per week but losses have substantially exceeded that. Using the FDIC's own numbers, we put the DIF at negative $1 billion before Georgian Bank's failure this weekend ripped another $892 million (perhaps $670 million net of revenue) out of the FDIC's already negative coffers. Our estimate is that the FDIC's Deposit Insurance Fund now has worse than negative $1.5 billion in its equity position (unless the FDIC chooses to fraudulently manipulates its reserving, which now is clearly on the table - TILB is basically expecting it at this point);
   
2. Much of the negative position is caused by reserving, so while the FDIC is insolvent and would have been taken over our failed if it were not a socialized insurer to begin with, it actually has plenty of "assets" to deal with its losses for the coming year;
   
3. However, an enormous portion of those "assets" are not cash. In fact, the largest line item on the DIF's balance sheet - by far - is toxic mortgages and other toxic loans that the FDIC could not sell when it took over a given bank. TILB's estimate is this number is currently in the $30-35 billion range. And to date, they have basically refused to sell these "assets" so we can safely opine those loan values are rapidly deteriorating in value as the delinquencies accelerate and servicing is limited or non-existent.
   
   

As we noted last week, charging premium before it's actually due does not fix the solvency problem. Borrowing money does not plug a hole that is fundamentally and "equity" problem. The DIF will still be negative and thus the FDIC will still be functionally insolvent. However, it does temporarily solve the "cash" problem that the FDIC was facing.

With that "solution" comes several potentially ill outcomes, most importantly the FDIC would be sucking $36 billion of much needed capital out of the banking system all at once in order to shore up the same banking system (bend your noodle on that for a bit), ironically making strong banks much weaker while not helping weak banks. This effectively will raise the cost of funds for strong banks (Sheila may as well go kick Helicopter Ben straight in his tiny balls). This capital is needed by banks to protect their own balance sheets or, God Forbid, to make new loans. But alas...

Next, she's kicking the can down the road: Sheila Bair will not be running the FDIC when it comes time to pay the piper as she's already announced that she likely won't stand for reappointment. This is creating a shitstorm for her successor.

Three, think of what this is signalling as to the scope of pending bank failures. The FDIC needs an immediate $36 billion infusion? Using the FDIC's own numbers, we know that the in the third quarter alone (6/30 - 9/30) losses for insured banks have been $14.9 billion so far. Last week we estimated that the FDIC likely had less than $10 billion of that precious asset called "cash" remaining. How long will the $36 billion last? One year? Maybe 18 months of we're generous? And then what? Banks won't owe any new premium for another 18 - 24 months at that point. How many times can the FDIC tap already staggering banks for more money? We suspect we will find out.

The Citizen Guarantors of the FDIC - you and me - will inevitably have to step up to the plate on this. It is a function of when, not if at this point.

We have a lot more to say on this matter, but frankly it's probably best if we just let it play out before letting the steam come out of our ears.

The FDIC Announces Intention To Rob The Rich To Give To the Poor

We assure you that it was never our intention to become a site dedicated to unmasking the shitshow that is the FDIC, but we play the hand we are dealt.

The most recent FDIC ridiculousness, which we will address below, should not surprise loyal TILB readers as we have been stating over and over again that, using the FDIC's own numbers, the FDIC is insolvent.

Last week, we proved mathematically that the FDIC DIF is now negative and chewing through its reserves. While its liabilities exceed its assets, a portion of those liabilities are reserves that will be used to offset actual losses and pay its creditors (depositors of failed banks). This conversion of reserves into realized losses will keep the DIF alive for a period of time, but the FDIC will soon hit a wall in which it still has "assets" but those assets just don't happen to be "cash". In fact, we also noted that a huge portion of its assets are illiquid assets that are amongst the toxic of the toxic. This of course would not be a problem if they could pay depositors with toxic mortgages, but alas...

After losing another $650 million of value to the Deposit Insurance Fund (DIF) last week (basically $850 million of insured losses offset by $200 million of accrued premium and guaranteed fees), the DIF's capitalization now stands at worse than negative one billion!

As we have said many times, if the FDIC were a bank under the regulation of the FDIC, it would have been seized a long time ago. As American citizens, we find this all very embarrassing.

So, that leads us to this week's FDIC announcement: the FDIC is considering asking sound banks to pay their regular deposit insurance premiums in advance of the normal timeframe (while not asking unsound banks to do the same [note: calling all sellside analysts, you now have a great question to ask the banks you track!!!])

This announcement tacitly equates to stating the following:
1) Oh, shit - we're out of money! ...but not really, but we do need cash, but don't worry, everything's great!
2) In order to remedy this problem, we are going to make all of our lend us their insurance premiums until the premiums come due (don't worry though, this isn't a backdoor special assessment - next quarter we'll credit you for it - wink, wink...)
2a) Oh, and we're not going to make relatively weak banks pay this advance payment...it just feels more fair that way
3) For the time being, our real problem is a "cash" problem rather than an asset problem - don't you see all our pretty reserves? We keep those reserves right there on our balance sheet offset by assets (e.g., toxic, unpurchasable mortgages)

What the deuce is going on here? Are we the only people on Earth that think taking capital out of the banking system to prop up the banking system makes no sense? Isn't Bernie Madoff in jail until he dies for f'ing fewer people behind their backs?

At least the mainstream press is catching on a little bit to the debacle that is the FDIC. That said, the press is confused in its rationale for why big banks "support" this. They obviously support it because they don't want yet another "special" assessment and if paying their normal assessment early helps them avoid said special assessment, they certainly will be in favor of that. However, the article goes on to state big banks don't want the FDIC to borrow from taxpayers...er, the Treasury.

This we are skeptical of.

To say that this would be construed as a taxpayer bailout of banks, is ridiculous. It's a taxpayer bailout of the government. And by the way, the FDIC's entire purpose is to provide bailouts. That's what the FDIC inherently is: a taxpayer guaranteed bailer-outer...but the bailout is to depositors, so to bailout the FDIC is to bailout depositors. While banks, of course, benefit from this in the form of reduced risk of bank runs, that is a statement that is always true, not true just now.

This proposal does not begin to address the FDIC's core problem: THE FDIC IS INSOLVENT. IT HAS LIABILITIES THAT MASSIVELY EXCEED ITS ASSETS. Borrowing more money does not generally address solvency (actually, it often makes the problem worse). What this solution does is simply delay the inevitable; kick the can down the road. As we said on SeekingAlpha last week, the FDIC's core problem is that while it has "reserved" $30 billion for losses (before Q3), it does not actually have $30 billion in cash. In fact, depending on how you calculate "cash" the FDIC had $20 billion or so of cash on June 30th (which is down by about $12 billion so far this quarter). Its largest asset was actually $22 billion of the most toxic loans from the most toxic banks: assets that buyers of failed banks were not willing to purchase ($22 billion as of June 30th, much bigger now).

...and, as we noted, the problem is compounding because the FDIC has been underreserving and its assets are almost certainly overstated. Because the FDIC has been extremely reticent to sell siezed assets, these generally non-performing loans have been sitting on their books stagnant, largely unmanaged and thus suffering deteriorating value as the likelihood of ultimate recovery declines by the day

[Note: generally when a bank fails, the FDIC sells some portion but not 100% of the assets of the failed bank. It retains the balance for disposition at a later date, generally through auctions]

And so this frames the FDIC's problem. It can pull cash forward by a few months, but that just means that unless the new payment cycle becomes permanent, the problem is worse three months hence. The FDIC can borrow from the Taxpayers...er, the "U.S. Treasury", but that does not address solvency - it simply adds another liability to the FDIC's balance sheet. Unless the Treasury makes an "equity" injection into the FDIC, we are not talking about "if" the FDIC is insolvent, we are simply talking about "when" people realize it.

When the FDIC files its September 30th balance sheet for the DIF, unless they start gaming their reserving (which is why bankers go to jail, mind you!), Sheila will have to admit that the DIF is technically insolvent.

The FDIC will have some modicum of claims paying ability that lasts for another two quarters perhaps, but it hits a wall soon unless she starts converting toxic assets into cash. TILB has been following the whole loan mortgage market for the past few years in a variety of capacities - we strongly suspect that the FDIC will not be able to move those assets at anything close to carrying value. When Q3's new basket of bank failures is added, the FDIC's total will exceed $30 billion of super-toxic loans. This is an enormous volume of this type of asset. Extracting value from these kinds of loans requires lots of time and manpower - the likely buyers are niche oriented.

Of course, if these toxic assets start actually trading to new hands (so that the FDIC can raise cash), these sales will have a depressing impact on the realizable value of similar assets on what are theoretically solvent banks, leading to yet more bank failures.

And so here we sit, staring at a Federal government operated trainwreck that's playing out in slow motion. Nobody seems to be paying any attention, yet we find ourselves mesmerized and not able to turn out attention away. We deal with it by standing tall and sharing our views with the our readers.

This is our world and we suppose it's indicative of the role that we play. If the mainstream media will not talk about the Emperor's lack of clothes, we'll go ahead and let you know: Sheila Bair is naked. No, not that way. She's naked in that she is managing a debacle of a regulatory body that has failed at its mission, is insolvent and is introducing all sorts of despicable incentives into the system. She's naked because she is now undertaking in all the despicable acts that she so rightly criticizes and regulates. She's playing favorites, mismarking her assets and understating her liabilities. But time is running out. The paintrain is coming - our view is man-up and admit the situation.

Don't "borrow" from Timmy G; rather, ask for an infusion of new "equity". Frankly, the truly appropriate thing to do would be to seek private capital, recapitalize the FDIC, spin it out completely from the government and operate it as a for profit insurer.

But what is the FDIC's response?

Pretend it's not happening.

Head in the sand, just hoping taxpayers keep walking by pretending there isn't some crazy bastard suffocating under the weight of the beach around them.

Is The FDIC Deposit Insurance Fund Broke; TILB Provides The Analysis

We are rolling out a new regular series on TILB today. We will update this periodically during the next year and a half.

As we noted recently, the FDIC Deposit Insurance Fund (DIF) took another $400 million hickey over the weekend. We have written several times about the de facto bankruptcy of the FDIC, including:

Now, now, we know the US Treasury guarantees the DIF, so depositors need not fear [other than for their tax dollars and the global incentive system], but hopefully this recognition of functional insolvency allows us to get past the ruse that the FDIC has fulfilled its duty of charging appropriate insurance premiums and providing capable regulatory oversight. In fact, the FDIC's has been an abject failure at these core functions. If the FDIC DIF were were an actual insurer, the FDIC Deposit Insurance Fund itself would have been taken over and killed by the government.

Keep that track record in mind when the FDIC "experts" espouse their opinions on the "solutions" to our current ills.

This is all happening in front of our very eyes and with another 300+ banks tee'd up to fail, if we assume the average failure costs $200 million (vs [$252] million per failure since 6/30/09), the FDIC will burn through another $60 billion of capital between now and the end of 2010.

So the natural thought arises, "TILB, you say the FDIC is broke, but on June 30th the DIF had $10.4 billion remaining. That seems like a lot of money, so why should I worry?"

Thus begins our regular tally of the DIF. We'll give you a sneak preview: the FDIC is bankrupt.

Deposit Insurance Fund Status:
+ $10.4 billion: DIF balance as of 6/30/09 (FDIC reported)
- $11.1 billion: Insured losses from 6/30/09 - 9/5/09 (FDIC reported)
- $0.2 billion: DIF operating expenses from 6/30/09 - 9/5/09 (estimate based on last 12 quarters)
+ $1.7 billion: Insurance assessments
+ $0.4 billion: TLGP fees (TILB estimate of 65bps p.a. on $339 billion outstanding guaranteed debt at 6/30/09)
+ $0.1 billion: Transaction Accounts Guarantee Program ($736 billion guaranteed at 10bps p.a.)
= $1.3 billion: Total DIF as of September 5th, 2009.

So, on a $4.7 trillion insured deposit base, that $1.3 billion represents less than 3 bps of reserve cushion. While Chairmen Bair, Bernanke and Geithner rail against the evils of overlevered banks and insurers, they share a hand in a government run insurer that is levered 3615 times its reserve base.

Don't you just feel secure? Thanks FDIC: you rock!

Green shoots.

As we noted last week, we expect the DIF to lose more than $60 billion between now and the end of 2009. If the FDIC were analyzing itself, it would look at its equity capital base of $1.3 billion, look at its likely losses of $60 billion (perhaps $20 of which would have already been reserved) and note that the stated net worth of the FDIC would be negative $18.7 billion with more losses on the way.

Given the higher insurance premiums it now charges, the FDIC generates about $10 billion per year in pre-reserving cash flow (i.e., it takes $10 billion of bank capital and sucks it out of the system, ironically weakening the banks it insures by precisely that amount), we suspect the FDIC would need the better part of a decade to "earn" its way out of this mess.

So, by its own standards not only would the FDIC would be on the problem bank list, the FDIC is broke. It is, in fact, a failed financial institution (and a big one at that).

Yes, these are the people in charge of the banking system (in combination with state regulators and the Fed, each of whom acquitted itself miserably over the past decade). As these bureaucrats make recommendations on future regulatory frameworks and on the future financial industry banking business model, please keep in mind that they themselves are proven abject professional failures.

While it is the FDIC that insures banks, it is the US Treasury that insures the FDIC and We The People that insure the U.S. Treasury. As such, the awful management of the FDIC and its failed practices leave you, TILB and the rest of us on the hook. Luckily, nobody is paying attention - Chairmen Bair, Bernanke and Geithner maintain robust credibility with the traditional media.

While they are busy negotiating our future amongst themselves, with not a dash of politics involved we're sure, We The People all sit back in our oversized ergo-chairs made to comfortably support either our 115 pound wives or our 300 pound friends that have a medical condition called "eating too much" and are brain-numbed by our 50 inch Chinese assembled plasmas and watch with placid stares of confusion and would-be bemusement as our country is systematically weakened from above.

Don't worry though, a "great" president frequently invoked by our modern incarnation once said "the only thing we have to to fear is...fear itself."

And spiders.

And snakes.

And werewolves.



-------------------------

If you find this enlightening, concerning, bemusing or some combination of the above, please let us know and share this with other folks. Spread the word.

We should not accept the revised regulatory profferings of the damned as the pathway to a sin-free future.

Be skeptical.

Be wary.

Most importantly, be angry.

Deposit Insurance Roulette Hits Green Zero; An Unusually Bloody Week For The FDIC

Depositors with more than $250,000 can take heart that the FDIC tends to favor them in contravention of their mandate by providing free insurance for 24 out of 25 bank failures. Loyal readers know that we have challenged FDIC spokesman Lajuan Williams-Dickerson to defend this indefensible position. In our mind, it is fraud. The FDIC is robbing its citizen guarantors by paying taxpayer money to uninsured depositors in virtually every single bank failure.

We said "virtually" every single bank failure. For the second time in the past two and a half months, the FDIC deposit insurance roulette wheel hit green zero when no buyer was found for the failure of Platinum Community Bank, Rolling Meadows, Illinois. This of course is what "should" happen every week. A service not purchased (insurance on the portion of a deposit that is over $250,000) is a service that should not be provided. Yet we at TILB are angry about this as well. We are angry because this inconsistency is nonsensical and immoral. We are frustrated because this leads to confusion and manipulated outcomes. We are incensed because certain taxpayers are favored at the expense of others for no predictable or reasonably explainable reason.

Lajuan Williams-Dickerson, come to the conversation prepared. You stand forewarned. If you aren't prepared, send The Sheila Bear our way.

This was an unusually bloody week as five banks failed and all five banks generated losses to assets of over 30%. Interestingly, after a week of brutal press on the dubious loss-sharing agreements the FDIC has been entering, they only entered one loss-sharing agreement this week. Prior to this week, 13 out of the last 15 failures had loss-sharing agreements.

It seems increasingly clear to us that the folks over at the FDIC are so overwhelmed by failure right now that they can't tell their ass from their head. This is what happens when you are forced onto the defensive. Understaffed, ill-prepared, under-capitalized, facing an ever-increasing tidal wave of failure and losses, and with uncertain leadership in the future (as GOP appointed Sheila Bair will likely leave after her term expires) it does not surprise us that the FDIC finds itself reacting to news stories with billions of taxpayer dollars rather than doing what they believe is right. Lajuan? Lajuan? Lajuan?

Our bank death scoreboard for the July 1st, 2009 through September 30, 2010 period stands at:

44 down: 206 (minimum) to go

On to this week's stats:

Red Jersey of Shame Leaderboard - Illinois picks up two points:
Georgia 18, Illinois 15, California 9, Florida 6.

Weekly Failure Summary:

First Bank of Kansas City, Kansas City, MO
Assets: $16mm, FDIC Losses: $6mm, Losses as a Percentage of Assets: 37.5%

InBank, Oak Forest, IL
Assets: $212mm, FDIC Losses: $66mm, Losses as a Percentage of Assets: 31.1%

Vantus Bank, Sioux City, IA
Assets: $458mm, FDIC Losses: $168mm, Losses as a Percentage of Assets: 36.7%

Platinum Community Bank, Rolling Meadows, IL
Assets: $345mm, FDIC Losses: $114mm, Losses as a Percentage of Assets: 33.1%

First State Bank, Flagstaff, AZ
Assets: $105mm, FDIC Losses: $47mm, Losses as a Percentage of Assets: 44.8%

Straight Average Losses as a Percentage of Assets: 36.6%
Weighted Average Losses as a Percentage of Assets: 35.3%

In total, the DIF suffered another $400 million of losses this week. Green shoots.

The Good Ship U.S.S. Bank Failure Keeps A Chipper Pace

With three more failures this week, each of which was a good sized bank ($400 million to $1 billion in assets), the FDIC further dug its hole. While The Sheila Bear may not cop to being broke for a while yet as she authorizes the FDIC to keep playing games like underestimating losses on failures by entering long-tail loss-sharing agreements and levying special assessments on its constituents, I cannot imagine there is a thinking person in the U.S. that has looked at the FDIC's own statistics and thought there is a chance in hell they do not tap the U.S. Treasury for emergency funding (is pre-authorized "emergency" funding really an emergency, or just an eventuality?).

Our bank death scoreboard for the July 1st, 2009 through September 30, 2010 period stands at:

39 down: 211 (minimum) to go

Everyone and their mother refers to the FDIC's published data on the size of its Deposit Insurance Fund (DIF) when discussing its size. For instance, in this paragraph from the 8/31/09 WSJ, we can see the DIF is $10.4 billion:

We're referring to the federal deposit insurance fund, which has been shrinking faster than reservoirs in the California drought. The Federal Deposit Insurance Corp. reported late last week that the fund that insures some $4.5 trillion in U.S. bank deposits fell to $10.4 billion at the end of June, as the list of failing banks continues to grow. The fund was $45.2 billion a year ago, when regulators told us all was well and there was no need to take precautions to shore up the fund.

What they fail to mention is that by the FDIC's on estimates, in the bank failures that happened in July and August alone, the FDIC self-reports that it lost $10.7 billion!!! Now, obviously it has continued to receive guarantee fees for its monoline-esque business and it continues to bring in premium. Those probably total $3 billion in the past two months. That means that the DIF has less than $3 billion remaining.

THE FDIC IS BROKE. As we noted last week:

Now, now, we know the US Treasury guarantees the DIF, so depositors need not fear, but hopefully this recognition of functional insolvency allows us to get past the ruse that the FDIC has fulfilled its duty of charging appropriate insurance premiums and providing capable regulatory oversight. In fact, the FDIC's has been an abject failure at these core functions. If the FDIC DIF were were an actual insurer, the FDIC Deposit Insurance Fund itself would have been taken over and killed by the government.

Keep that track record in mind when the FDIC "experts" espouse their opinions on the "solutions" to our current ills.

This is all happening in front of our very eyes and with another 300+ banks tee'd up to fail, if we assume the average failure costs $200 million (vs $274 million per failure since 6/30/09), the FDIC will burn through another $60 billion of capital between now and the end of 2010.

Happy days!

Luckily, our government shits out $50 billion like it ain't no thing these days. The Fed will continue its backdoor monetization as it attempts to inflate away our debt problem without anyone noticing via a variety of lightly masked helicopter drops (we'll address this another day as we can only put so much angst into one post). We're sure nobody will so much as blink an eye at this.

Nor will anyone talk about the fact that the FDIC continues to steal from the poor and give to the rich in absolute violation of its mandate with nearly each and every bank failure. This was yet another week in which every depositor, whether or not they had deposits in excess of $250,000, was fully preserved. THIS IS JUST AN ABSOLUTE ABDICATION OF RESPONSIBILITY AND FIDUCIARY DUTY! Tell me one other insurance company that volunfuckingtarily provides insurance to its customers for events that both parties agree were not actually covered by the policy.

Tell me one.

Half the time you cannot get a private insurer to pay for things that you thought were insured!

F!!!

F!!!

TILB hereby challenges anyone from the FDIC to justify why on fucking Earth they provide insurance to depositors that are over the $250,000 limit. LaJuan Williams-Dickerson, are you listening? And Lajuan Williams-Dickerson, don't you dare tell me that this is needed to keep the public calm; if that is the case and everyone agrees it is necessary (we do not agree, but assume everyone excluding us for the time being), then at least charge for the service provided (gasp!). This is not rocket science.

Lord willing we will see a series of congressional hearings that end this theft going forward.

In any case, on to this week's stats:

Red Jersey of Shame Leaderboard - California picks up one point:
Georgia 18, Illinois 13, California 9, Florida 6.

Weekly Failure Summary:

Bradford Bank, Baltimore, MD
Assets: $452mm, FDIC Losses: $97mm, Losses as a Percentage of Assets: 21.5%

Mainstreet Bank, Forest Lake, MN
Assets: $459mm, FDIC Losses: $95mm, Losses as a Percentage of Assets: 20.7%

Affinity Bank, Ventura, CA
Assets: $1000mm, FDIC Losses: $254mm, Losses as a Percentage of Assets: 25.4%

Straight Average Losses as a Percentage of Assets: 22.5%
Weighted Average Losses as a Percentage of Assets: 23.3%

Happy Happy, Joy Joy.

The FDIC Goes Broke; Guaranty Bank Find Its Way To The Dustbin Of History (And Three Other Banks Fail)

The FDIC is trickling bank deaths at its New Normal steady state of four or five per week. As we predicted a ways back, at least 250 banks would die before the end of September 2010.

Our bank death scoreboard on the July 1st, 2009 through September 30, 2010 period stands at:

36 down: 214 (minimum) to go

Should be fun.

We also had our second $10+ billion asset bank fail in as many weeks.

This week, Guaranty Bank of Austin Texas took a Glock single shot to the dome...and the FDIC dragged its feet long enough on reforming its rules that govern private equity ownership of banks that We The People ended up placing Guaranty in the hands of Spain's second largest (and probably best run) bank, Banco Bilbao Vizcaya Argentaria (BBVA). Technically BBVA's Birmingham, Alabama based subsidiary BBVA Compass is the acquiror (the South(ern banking capital of Birmingham) will rise again!).

This transaction cost the FDIC Deposit Insurance Fund (DIF) a cool $3 billion on Guaranty's $13 billion asset base (23%). As a citizen guarantor of the DIF, aren't you comforted by the FDIC's desire to keep private capital bidders out of these auctions? Nothing like suppressing capital to get a full and fair price on our behalf!

Jackasses...

Of the other three banks that failed, two were in Georgia (numbers 17 and 18 for the year) and one was in Alabama (its second in two weeks). And for the fourth time in less than three months, Stearns Bank of Minnesota acquired a failed bank (this time an internet bank ostensibly located in Atlanta, Georgia called eBank). This puts the Red Jersey of Shame leaderboard at: Georgia 18, Illinois 13, California 8, Florida 6.

Weekly Failure Summary:

eBank, Atlanta, GA
Assets: $143mm, FDIC Losses: $63mm, Losses as a Percentage of Assets: 44.1%

First Coweta, Newnan, GA
Assets: $167mm, FDIC Losses: $48mm, Losses as a Percentage of Assets: 28.7%

CapitalSouth Bank, Birmingham, AL
Assets: $6170mm, FDIC Losses: $151mm, Losses as a Percentage of Assets: 24.7%

Guaranty Bank, Austin, TX
Assets: $13,000mm, FDIC Losses: $3,000mm, Losses as a Percentage of Assets: 23.1%

Straight Average Losses as a Percentage of Assets: 30.1%
Weighted Average Losses as a Percentage of Assets: 23.4%

...another brutal week.

Per the FDIC's own estimates, since July 1st alone the DIF has lost $10.5 billion! Mind you, at March 31st the DIF stood at $13 billion and while the FDIC has taken in rich TLGP guarantee fees during that period, when the 4/1/09 - 6/30/09 losses (which we don't have at our fingertips but are substantial) are taken into account we can safely state that the DIF is, for all intents and purposes, broke.

Now, now, we know the US Treasury guarantees the DIF, so depositors need not fear, but hopefully this recognition of functional insolvency allows us to get past the ruse that the FDIC has fulfilled its duty of charging appropriate insurance premiums and providing capable regulatory oversight. In fact, the FDIC's has been an abject failure at these core functions. If the FDIC DIF were were an actual insurer, the FDIC Deposit Insurance Fund itself would have been taken over and killed by the government.

Keep that track record in mind when the FDIC "experts" espouse their opinions on the "solutions" to our current ills.

As an aside, the FDIC continues its rampant and unrighteous theft from its US citizen guarantors by providing deposit insurance to accounts over $250,000!

Memo To Sheila:
As if your horribly managed insurance "business" was not screwing us all enough, you have decided to insure depositors that - in essence - have not paid for insurance! What the deuce?! For the love of all that is holy, this gift to certain rich depositors is a regressive tax to end all regressive taxes. You are providing free deposit insurance to rich people paid for by the deposits of the portion of the population that does not happen to have two hundred fifty thousand dollars cash on hand. Are you kidding me? At least stop pretending like you don't insure these deposits and charge banks for this insurance. Otherwise, stop violating your mandate and stealing from U.S. citizens out of some sense of unfounded paranoia.
-TILB

The below video is intended to deliver TILB's message to the FDIC. Anytime it refers to Arthur, his cohort, or the English just substitute The Sheila Bear, her cohort, or the FDIC. Yes, we accept the roles as the French guys. It can be summarize as, "I fart in your general direction, your mother was a hamster and you father smelled of elderberries...you fuckers."

PPIP Faltering Before Ever Getting Launched: Shocker

The Journal, in its ongoing USA, Inc. series, discusses what many of us have assumed for a long time: banks cannot afford to sell so-called "toxic" assets at prices that generate acceptable returns to buyers (TILB last discussed that reality here). This, despite an incredibly generous financing proposal from We The People. That is how far reported bank balance sheets have diverged from reality.

That discrepancy is the real story here, but it continues to be completely unreported: selling these assets, even after a massive credit rally and with subsidized non-recourse funding, still generates a loss to the seller that is so big banks cannot afford to take the hit.

The implication, of course, is that bank balance sheets do not remotely reflect market realities. As such, we can expect the drag of realized losses to be an anchor on bank earnings reports for the foreseeable future. Green shoots, though.

Anyway, here are some highlights from the WSJ.

The government's plan to enable banks to dump troubled assets is facing troubles of its own.

Markets initially rallied when Treasury Secretary Timothy Geithner announced in March a two-pronged plan to offer favorable government financing to entice investors to buy bad loans and toxic securities from banks.

But that initiative -- called the Public-Private Investment Program, or PPIP -- has lost momentum. Big banks worried about having to sell at fire-sale prices while small banks feared they would be shut out. Potential buyers balked at the risk of doing business with the government, concerned that politicians might demonize them for making big profits.

The program's problems threaten to stymie efforts by struggling smaller banks, in particular, to clean up their balance sheets. That in turn could hinder efforts to revive the nation's economy.

A look at why the program has stumbled underscores how difficult it has been to solve one of the economy's biggest problems: Mountains of bad debt sitting on the books of the nation's banks. As those loans and securities lose value, they are saddling the banks with losses and constricting their ability to lend.

...

The slimmed-down program will focus not on bad loans, but on toxic securities, which are a problem for a relatively small fraction of the nation's banks. That is bad news for hundreds of smaller banks burdened with growing piles of defaulted loans. [TILB comment: once again small banks get the wide end of the shaft] These banks are less able to tap capital markets than their larger rivals, so they have been eager for U.S. help unloading loans as a way to bolster their capital cushions. Many of them can face big problems if just one or two large loans go bad. Seventy banks, most of them community institutions, have failed since the start of last year. Analysts are bracing for hundreds of lenders to collapse in the next few years.

...

During the last banking crisis, nearly two decades ago, the government established the Resolution Trust Corp. to sell off the bad loans and securities of banks that had failed. Many experts credit the RTC with helping defuse that crisis.

This time around, efforts to rid banks of soured assets have sputtered repeatedly. In late 2007, federal officials helped cobble together a plan for a bank-financed fund to buy securities held by bank investment funds, but the effort was aborted. In 2008, the Bush administration established a $700 billion program to buy banks' soured assets. Partly because of the complexity of valuing those assets, the U.S. abandoned that plan, instead opting to directly pump taxpayer money into banks.

...

On March 23, when Mr. Geithner unveiled PPIP, the Dow Jones Industrial Average surged nearly 500 points, or 7%, its biggest gain since October, on hopes that the program would nurse the banking industry back to health.

Many bank executives were skeptical about whether the program could succeed. Even before it was announced, some had grumbled that federal officials weren't consulting them, and instead were crafting the initiative with input from would-be investors. Some banking executives say they warned that they would be loath to sell at the kind of prices investors were likely to demand.

Executives at Citigroup Inc. shared those concerns, according to people familiar with the matter. While the New York bank was sitting on at least $300 billion of risky loans and securities, selling them at discounted prices would require painful hits to its already thin capital ratios, these people say [TILB: "already thin"? Didn't you see the stress test results - Citi almost qualified as well capitalized!].

Some Citigroup executives had a different idea: Maybe they could turn a profit by bidding on their own toxic assets at discounted prices, using government financing, according to the people familiar with the talks [TILB: If this had happened, I would have fucking moving out of the country.]. Other big banks also talked about setting up distressed-asset units to snap up troubled loans and securities, including from their parent companies, with taxpayer financing.

FDIC Chairman Sheila Bair later publicly shot down the idea. Citigroup declined to comment.

Meanwhile, many small-town bankers hoped the program would help them unload the bad assets -- generally loans to finance commercial real-estate projects -- that were hurting their balance sheets. Some potential buyers had surfaced before PPIP was announced, but they were offering such low prices that few banks could afford to sell the loans without severely denting their capital cushions.

...

When PPIP was announced, big-name investors were intent on figuring out how to profit from it. Raymond Dalio of giant hedge-fund firm Bridgewater Associates, which oversees $72 billion in assets, initially expressed interest in participating. But within days, he was blasting it, saying buyers and sellers would have difficulty agreeing on pricing and fund managers that profited would be exposed to criticism from politicians. The way PPIP is set up "makes us not want to participate and it makes us question the breadth of interest that we will see in the program," he wrote to clients.

...

In conference calls with bankers and investors, FDIC officials emphasized that PPIP was critically important to cleanse banks of their bad assets. "I think you know the stakes are very high with this," Ms. Bair, the FDIC chairman, said during a March 26 call, according to a transcript. "We need this program to work." [TILB: On to Super SIV v6.0, or whatever number we are at]

...

Next month, the FDIC intends to use PPIP for a far narrower purpose: to auction loans the agency has seized from failed banks. Eventually, it hopes to resuscitate the loan-buying program so that smaller banks can benefit from it.

...

Many banking experts contend that the financial system won't fully stabilize until banks get rid of their bad assets.

Mr. Segal, the bank adviser, complains that federal officials have cited recent capital raising by big banks as evidence that "the system is OK." That may be true "for the top 15 or 20 banks," he says. "But for everybody else, there really needs to be more attention paid." [all emphasis added by TILB]

FDIC Pushing To Purge Citi Management; Lower Its Health Rating

What follows is from an honest to goodness fantastical piece of reporting by The Wall Street Journal.

The WSJ is reporting that the FDIC is pushing to have The Panda Bear - Vik Pandit - and other Citi management replaced. Further, it seems like the FDIC was a nut hair from putting Citi on its list of Problem Banks at the end of March, but was convinced to hold off by the OCC.

Citi management responded to Sheila's endeavors by stoking the fire with a reply that basically kicks The Sheila Bear (Sheila Bair) directly in her giant balls:

"The FDIC is our tertiary regulator," behind the Office of the Comptroller of the Currency and the Federal Reserve, said Ned Kelly, Citigroup's chief financial officer.

Sure.

The same Tertiary Regulator that has to deal with your sorry ass(ets) when you fail? The same Tertiary Regulator that has already entered a $300 billion loss sharing agreement with you and has guaranteed $40 billion of your debt? Oh, and, by the way, the U.S. Treasury owns (or is about to own) 34% of you. I mean, why should the FDIC have any influence? What do they care? Those kooky FDIC bastards.

Keep swinging, Ned.

Apparently Ned is not the only one wailing at Sheila with gorgeous pedicured hands. The cat fight between The Panda Bear and The Sheila Bear actually dates back to The Sheila Bear's deep sixing of Citi's agreement to take over Wachovia. Here is how the WSJ presents the gossip:

The discord between Citigroup and the FDIC dates to last fall. In September, Citigroup agreed to buy faltering Wachovia Corp. in a government-arranged marriage. Days later, however, Wells Fargo & Co. swept in with a higher offer for Wachovia. Citigroup officials felt blindsided and faulted Ms. Bair for endorsing the Wells Fargo bid over their own.

On a 2 a.m. conference call at that time, the usually mild-mannered Mr. Pandit launched into an obscenity-laced tirade about the FDIC chairman, according to people familiar with the call.

Citigroup soon filed lawsuits against Wells Fargo and Wachovia, accusing them of improperly breaking up the Citigroup deal. Citigroup executives came to blame the deal's demise as the catalyst for a plunge in Citigroup's stock price, one cause of the federal bailouts.

Repairing Relations
After months of not talking to the agency, Citigroup executives in the past couple of months have tried to repair relations with the FDIC.

Board members including Mr. Parsons, the new chairman, have reached out to FDIC officials, according to people familiar with the matter. Their message: "We're here to help," one person said. "Please use us as your avenue. We want to facilitate your review of Citi."

In public statements, Ms. Bair has declined to discuss Citigroup.

In private conversations with other regulators, FDIC officials have argued the government should be tougher on Citigroup. In what is becoming a classic Washington turf battle, the Comptroller of the Currency has countered that replacing the bank's management could be too disruptive. The agency, which oversees Citigroup's national bank division, believes Citigroup needs more time to implement its turnaround strategy.

In March, senior officials from the FDIC and Comptoller sparred over the confidential financial-health rating the government assigns to the company's Citibank unit, people familiar with the matter said. The FDIC wanted the rating lowered, these people say. Banks rated a 4 or 5, on a scale of 1 to 5, are deemed "problem banks," which means they're at greater risk of failure.

Government officials decided to keep Citigroup off the "problem" list at the end of March, which became clear after the FDIC disclosed that the 305 banks on the anonymous list had a total of only $220 billion in assets, meaning Citi couldn't be among them.

Still, Citigroup officials believe that the FDIC will push them onto the "problem" list if they don't remove Mr. Pandit and his team. They fear being on the list could limit Citigroup's access to federal programs and prompt trading partners and clients to yank business. [emphasis added]

As a brief aside, small banks must love the Orwellian sense of equality The Borg, I mean, The Administration provides.

Anyone want to place odds that The Shelia Bear was a primary source for this story? The Panda Bear is probably chewing on some bamboo, just pissed as all hell right now. This article has all the hallmarks of "anonymous backstabbing media leak in order to execute a personal vendetta" written all over it.

We at TILB couldn't be more pleased.

------------------------------

Let us know what you think? Can a Sheila Bear beat a Panda Bear in a mud wrestling match?