How I learned to love the economic crisis: 2010 edition

[jiimbergin]

Re: How I learned to love the economic crisis: 2010 edition

3 this week

Bank Name	City	State	CERT #	Closing Date	Updated Date
Bank of Florida - Tampa	Tampa	FL	57814	May 28, 2010	May 28, 2010
Bank of Florida - Southwest	Naples	FL	35106	May 28, 2010	May 28, 2010
Bank of Florida - Southeast	Fort Lauderdale	FL	57360	May 28, 2010	May 28, 2010

76 this year v 36 last year.

[Chomsky]

Re: How I learned to love the economic crisis: 2010 edition

Though the rate this year is twice last year's (huzzah!), we are nowhere near the rate required to meet EJ's call of 1000 banks shuttered by the end of 2010. I do believe that was the call.

[zoog]

Re: How I learned to love the economic crisis: 2010 edition

Sorry for being late to this party. The FDIC website doesn't make it easy to gather the data on failed bank assets and deposits. The only way I have found is to go through the press release for each bank and find the numbers. Tedious to say the least, especially when I don't keep up.

The exceedingly obvious spike was Washington Mutual. Note that the FDIC Deposit Insurance Fund is $20 billion in the hole these days. This does not mean that the FDIC is entirely bankrupt, they do have other assets and accounts; and anyway they are still winding down banks and covering people's deposits in an orderly fashion. Don't panic.


Here's my running tally of weekly failed bank closures, starting in 2007. The pace is not really slowing down...


Of course it doesn't look so bad in historical context.

Though the rate this year is twice last year's (huzzah!), we are nowhere near the rate required to meet EJ's call of 1000 banks shuttered by the end of 2010. I do believe that was the call.

From August 17, 2009 (my boldface emphasis):

Ready for an epidemic of bank failures?

Even if, as we expect, another 900 or so banks fail over the next two or three years, the Treasury Department can move hundreds of billions to the FDIC. The FDIC is, for all practical purposes, an account of the Treasury Department.
.
.
.

We estimate banks will continue to fail through the end of 2011, that more than 1,000 will fail representing a total asset loss of $900B, based on RBS estimates, information from contacts at the FDIC, and our own calculations.

By my numbers we're only at 244 banks so far, but already ~$581 billion in assets.

Also, from February 2, 2007:

My guess is that for years after 2010 when the housing bubble bust may finally bottom we'll see a bumper crop of housing bubble collapse related bank failures. How big a year? Bigger than the early 1990s.

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

Make that 78 vs. 36...

Sun West Bank	Las Vegas	NV	34785	May 28, 2010	May 28, 2010
Granite Community Bank, NA	Granite Bay	CA	57315	May 28, 2010	May 28, 2010
Bank of Florida - Tampa	Tampa	FL	57814	May 28, 2010	May 28, 2010
Bank of Florida - Southwest	Naples	FL	35106	May 28, 2010	May 28, 2010
Bank of Florida - Southeast	Fort Lauderdale	FL	57360	May 28, 2010	May 28, 2010

Skoal! Skoal! Skoal! Skoal! Skoal!

As for EJ's call - it should be noted that the pace is more than twice that of last year...even as both the real estate market is not (quite) sliding down more due to the taxpayer subsidies and the overall economy is 'recovering' under 'green shoots'.

Should indeed a resumption of the recession begin in the summer due to massive state level layoffs, it is more than likely the already 300+ run rate will head for 500+ for 2010.

[Chomsky]

Re: How I learned to love the economic crisis: 2010 edition

Thanks zoog - the 2011 call is looking pretty solid.

[mmr]

Re: How I learned to love the economic crisis: 2010 edition

If anything, the pace of closures will slow down in the second half of the year. Thanks to ZIRP, there's so much money chasing anything with the possibility of generating "yield" that investors are buying banks that were widely believed to be on death's door.

- Sterling Financial (STSA): $10B in assets, 10% non-performing loans? No problem - Warburg Pincus and another PE shop were there to invest $275 million.
- South Financial: $12B in assets, lost $700 MM last year? No problem - TD was there to buy the bank, as long as Treasury was willing to take a 60% haircut on their TARP investment (which they were - our tax dollars at work)
- Flagstar (FBC): $14B mortgage bank in Michigan, 13% non-performing loans? Sounds like a winner? Again, no problem - raised $575 million.

Clearly these investors must think that the peak of this credit cycle is past and that they can flip the banks before the next cycle hits. In the meantime, as the bad loans run off, they can collect a nice healthy spread borrowing from the Fed at 25 bps and buying Treasuries and agency MBS like all the other banks. We'll see...

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

If anything, the pace of closures will slow down in the second half of the year. Thanks to ZIRP, there's so much money chasing anything with the possibility of generating "yield" that investors are buying banks that were widely believed to be on death's door.

- Sterling Financial (STSA): $10B in assets, 10% non-performing loans? No problem - Warburg Pincus and another PE shop were there to invest $275 million.
- South Financial: $12B in assets, lost $700 MM last year? No problem - TD was there to buy the bank, as long as Treasury was willing to take a 60% haircut on their TARP investment (which they were - our tax dollars at work)
- Flagstar (FBC): $14B mortgage bank in Michigan, 13% non-performing loans? Sounds like a winner? Again, no problem - raised $575 million.

Clearly these investors must think that the peak of this credit cycle is past and that they can flip the banks before the next cycle hits. In the meantime, as the bad loans run off, they can collect a nice healthy spread borrowing from the Fed at 25 bps and buying Treasuries and agency MBS like all the other banks. We'll see...

Thanks for the insight. Certainly I was wondering why Sterling hadn't hit the failure sheets yet; they were the only holdout from the list that hadn't either failed or been TBTF'd:

http://www.forum.itulip.com/forums/s...ad.php?p=37789

Using this ratio, IndyMac Bancorp, Sterling Financial, Corus Bankshares, Imperial Capital Bancorp, and GMAC Bank are all on the verge of busts. Look for these banks to possibly lead the list of failures, each with unique vulnerabilities.

The $64,000 question then is: will enough PE types buy enough banks to affect the ongoing failure rate?

Picking off a dozen or so wouldn't do it; the run rate being well over twice that of last year implies 100 or more banks would need to be converted into Fed ZIRP leeches.

Is there really that much PE out there willing to take on this risk?

Or perhaps there is no risk...

[mmr]

Re: How I learned to love the economic crisis: 2010 edition

Here's why the PE shops will take the risk of buying banks before they fail:

- The FDIC will do anything in its power to keep PE from winning a failed bank bid, unless there's basically no other bidder. The FDIC was perceived to have been picked off badly on Indymac and they don't want to go down that road again. (Keep in mind that the FDIC's decision-making process is primarily driven by avoiding headline risk. Sheila Bair hates losing to the Treasury Department and the Fed and will give up economics to avoid doing so.)

- Since they generally won't win a bidding process for a failed bank, PE shops will have to buy banks while they're still alive. For some borderline banks, if the PE shop can invest enough capital to more than offset future loan losses at a low enough share price, it's possible to make a double-digit return if the bank merely survives. Warburg Pincus did something like this with Webster, a mid-sized bank in Connecticut, where it bought in at a price below tangible book ("liquidation") value; as soon as other investors saw that Warburg was willing to make a significant investment, they assumed that failure was no longer an option and piled into the stock. Warburg has already nearly doubled its money if it chose to sell today. Webster hasn't been profitable since 2007.

- There were at least a dozen pools of capital (special-purpose acquisition companies, or SPACs) that were raised within the last year for failed bank purchases. If a SPAC can't execute on a deal within a fixed period of time (usually 1-2 years), they have to give the money back. Since giving the money back is the same as taking a 100% loss from the fund manager's perspective (i.e., no fees either way), you may see them do some truly irrational deals to deploy the money.

With so much PE money out there and with most strategic buyers truly believing that the worst of the credit cycle is past, I would be surprised to see anything else with, say, 50+ branches go through the FDIC unless SHTF.

You'll continue to see a trickle of small banks with absolutely no franchise value that will go through the FDIC process, but even many of the smaller banks are beginning to stabilize (thanks to the magic of lending at 5% and borrowing at 1% - that will offset a lot of credit losses.)

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

Thank you for the clarification.

I have a much stronger understanding of what's going on.

It does sound like trolling for dying banks is a potentially profitable endeavor in the short term; of course long (or even medium)term this contributes to the ongoing zombification of the American economy.

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

TierOne Bank	Lincoln	NE	29341	June 4, 2010	June 4, 2010
Arcola Homestead Savings Bank	Arcola	IL	31813	June 4, 2010	June 4, 2010
First National Bank	Rosedale	MS	15814	June 4, 2010	June 4, 2010

81 vs. 37 now...

Skoal! Skoal! Skoal!

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

Another week, another bank failure:

Washington First International Bank

Seattle

WA

32955

June 11, 2010

June 11, 2010

82 in 2010 vs. 37 in 2009 now...

Skoal!

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

Another one...

Nevada Security Bank

Reno

NV

57110

June 18, 2010

June 18, 2010

83 vs. 40 in 2009

This next few weeks may see some catchup; the mmreilly predicted slowdown plus a 'bulge' in 2009 failures in the late June/July time frame.

[jiimbergin]

Re: How I learned to love the economic crisis: 2010 edition

only 3 this week

High Desert State Bank	Alburquerque	NM	35279	June 25, 2010	June 25, 2010
First National Bank	Savannah	GA	34152	June 25, 2010	June 25, 2010
Peninsula Bank	Englewood	FL	26563	June 25, 2010	June 25, 2010

[c1ue]

Re: How I learned to love the economic crisis: 2010 edition

86 in 2010 vs. 45 in 2009

If mmreilly is right (again), the next few weeks will likely see the ratio continue to shrink: there were 24 failures from this point on until the end of July 2009, with 15 in August 2009 and 11 in September 2009.

[mmr]

Re: How I learned to love the economic crisis: 2010 edition

One analyst's take on the prospects for FDIC deals in the southeast:

Pace of failures climbs as costs fall in the Sunshine State The FDIC has picked up the pace of failed bank sales in Florida this year, and the offers it has received have continued to improve. We expect the trend of lower hits to the FDIC's deposit insurance fund to continue. The heightened pace of bank failures in Florida seems unlikely to change any time soon. Several bank advisers have told us that liquidity problems are beginning to plague many banks in the Sunshine State, and the institutions are beginning to run out of steam. They said the market should expect an uptick in failures in the state, adding to the momentum already witnessed this year. The problems among Florida banks have been known for quite a while, but the pace of failures in the state has lagged other similarly overheated markets like the state's northern neighbor, Georgia. In 2009, 25 banks failed in Georgia, compared to just 14 banks in Florida. The pace of failures has declined in Georgia, with only nine banks failing this year, but 14 banks have already failed in Florida in 2010, on par with the level witnessed last year. Liquidity among Florida-based banks has improved as the institutions have decreased their reliance on brokered deposits. The median level of Florida-based banks' brokered deposits had fallen to 2.57% of total deposits at the end of the first quarter from 5.50% at year-end 2008, according to SNL data. However, five banks in Florida had brokered deposit concentrations in excess of 35% at the end of the first quarter. Such high concentrations are alarming, as the average brokered deposit concentration for all U.S. banks that failed between Jan. 1, 2008, and May 28, 2010, was 36.69% of total deposits, according to SNL data. Along with liquidity concerns, serious credit issues affect plenty of banks in Florida. According to SNL data, there were 62 banks in Florida with adjusted Texas ratios in excess of 100% as of March 31, a widely regarded threshold at which banks tend to fail. Like the normal Texas ratio, the adjusted Texas ratio is defined as nonperforming assets plus loans 90 days past due divided by tangible equity plus loan loss reserve, but importantly, it excludes government-guaranteed loans, including loans covered through loss-share agreements. Clearly, there are a substantial number of banks that could potentially fail, and the ultimate cost to the FDIC's deposit insurance fund will depend on how many buyers the agency can attract when marketing failed banks. In 2009, the average government-assisted transaction in Florida cost the fund 41.72% of the failed institution's assets, well above the national average of 28.90%, according to SNL data. However, the cost to the fund resulting from assisted transactions in Florida has decreased this year, with the average cost of assisted deals in the state equating to 22.55% of the failed institution's assets, compared to the national average of 23.31%. A number of strategic acquirers are targeting Florida for expansion, and most of those institutions plan to take part in the bidding for failed banks. Private equity firms and investor groups formed to bid on failed banks probably will not make a huge impact on the bidding process, but they could end up saving the FDIC quite a bit of money by helping keep distressed banks afloat. Few private equity firms and investor groups have successfully won auctions of failed banks anywhere in the country, and Florida is no exception. Bond Street Holdings LLC did close its third assisted deal of the cycle in Florida this past Friday, June 25. But Bond Street is one of the few groups to actually land a deal, and many people we've spoken with expect private equity firms and investor groups to be more active in recapitalizing open banks rather than acquiring failed banks. There has been some evidence of heightened private equity and investor group investment activity in live institutions in the Sunshine State during the last few months. For instance, Ovation Holdings Inc. agreed to purchase National Bank of Southwest Florida in March, and CapGen Capital Group IV LP inked an investment in Jacksonville Bancorp Inc. in May. Even more noteworthy was North American Financial Holdings Inc.'s announcement on June 29 to inject TIB Financial Corp. with fresh capital. The investment will ensure TIB Financial's survival, and a number of people we had spoken with in the past had questioned whether the Naples, Fla.-based bank would make it through the cycle. Had TIB Financial ended up in the FDIC's hands, the hit to the deposit insurance fund likely would have been in excess of $300 million, assuming that the cost was consistent with recent pricing of assisted deals. Recapitalizations such as the North American/TIB Financial deal likely will be more rare, and the deals that do come down the pike will most likely include a number of contingencies as seen in some other recaps across the country, such as the Sterling Financial Corp. recapitalization plan. Still, the emergence of recap activity and better offers from strategic buyers in assisted transactions in Florida is certainly a positive for the FDIC and should ultimately lead to lower hits to the deposit insurance fund in the future.