FDIC Troubled Bank List Now Hits 305

Every quarter when I post this, I get the question of "where are the names of the troubled banks," so let me preface this post by saying - the names are not disclosed. That is on purpose. The FDIC does not want you to run to banks on their list and withdraw money because that is how a troubled bank seals its fate.

Second, let us be clear - without the US taxpayer supporting their operations Bank of America (BAC) and Citigroup (C) would have been farther along than "troubled". The fact that these 2 never made the list despite hundreds of billions of government support among the two tells you all you need to know about this list.

Last year [Aug 26, 2008: FDIC Troubled Bank List], I was making the same point with Washington Mutual (WM) - the nation's largest savings and loan. It was NOT on the list, but we had to do an emergency intervention and sell it to JP Morgan (JPM) in a backdoor deal. But folks, it was never "troubled" according to this list.

Wachovia ? Which we had to deliver to Wells Fargo (WFC) to "save it"? Never on the list [Nov 25, 2008: FDIC Troubled Bank List Grows 46% - Is Your Bank Safe?].

So as these numbers grow [Feb 26, 2009: FDIC Troubled Bank List Up to 252], and do not include the "most connected" banks i.e. our personal financial oligarchs, please take it all with a grain of salt. And frankly it is not the number of banks but the assets involved that really are the story. Remember our top 4 banks now control a vast amount of American resources - 2 of which were effectively nationalized to keep them alive.

I also said in August 2008:

At some point the FDIC will run out of money to guarantee the $100K per account so they will have to raise the fees on the remaining banks to raise more money to fund their bailout fund.

This has happened.... then in November 2008 I said:

Again, please don't worry - if we cannot raise fees on banks to pay for their own failures, we always have your grandchildren's fund aka the Great Printing Press. Helicopter Ben stands at the ready. Look for the FDIC to borrow from the US Treasury for insurance funds by this time next year.

And now that has come true...we have the FDIC borrowing $500B from the Treasury. Because... as always, money grows on trees and our pockets are endless. Folks, I know you are numb to these numbers but that is half a trillion.

• President Barack Obama on Wednesday afternoon signed into law two major housing bills, one of which would allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department to protect the deposits of bank customers.

All you need to know is your banking system is "sound" and money dropped from the heavens has solved all our ills. That's the benefit! Costs? Don't you worry about that - just go out there and shop... we'll discuss costs with your grandchildren at the appropriate time. Let me distract you with the stock market going up - isn't that proof enough that "the right thing" was done? (i.e. enriching a small select group of financial elites at the cost of generations of debt?) The answer is clearly yes because when the market is up, we know everything is right in the world.

Here are the latest "incorrect" statistics

• U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter... The FDIC classified 305 banks with $220 billion in assets as “problem” lenders as of March 31, rising from 252 with $159 billion in assets in the fourth quarter, the agency said today without naming any institutions.
• The FDIC said its insurance fund slumped 25 percent in the period. The insurance fund fell to $13 billion, from $17.3 billion in the previous quarter. The FDIC is imposing an emergency fee to raise $5.6 billion to rebuild the fund. (not a problem - that is where new money borrowed from the Treasury will come in handy - as with any problem in America whether at the state or federal level; just borrow and kick the can down the road.)

Really it is hard to imagine any banks are in trouble with everything the US taxpayer has given up for them.... but then again almost all our "solutions" are based on helping the most politically connected (read: largest) banks in the country. The other 7900? Bah. Too small to care about.

[May 9, 2009: WSJ - Banks Won Concessions on Tests]

[Apr 15, 2009: Treasury Saving $10 Billion for Big Banks to Modify Loans]

[Mar 31, 2009: Financial Rescue Package Now Totals $12.8 Trillion]

[Mar 27, 2009: It Appears Citigroup and Bank of America are Already "Potentially" Already Gaming the US Taxpayer]

[Nov 13, 2008: Washington Post - A Quiet Windfall for US Banks

[Oct 17, 2008: Your Tax Money Paid to Investment Banks and Hedge Funds via AIG]

Comments

[Donald Ingram:]

Read the entire report.
Number of institutions at maximum risk is 2,131 or 25.6% of total, with $860 billion of domestic deposits or 11.5% of total domestic deposits.

Over $336 billion outstanding, comprised (64.4%) mainly of medium term notes.

Total number of failures of institutions since January 01, 2008 at 48.

May 28 02:55 AM

[Donald Ingram:]

Hmmm? Only 48 bank failures since January 01, 2008. Hey! That's not too bad! Hold on there pilgrim. Those are 48 failed INSTITUTIONS.

Just 'Washington Mutual' alone comprised many, many banks that were closed. The statistics from the Great Depression are much more complete. There were no big banking conglomerates with many small branches everywhere. One little town bank that failed got counted as one "institution".

So the number "48" is misleading. since many, many, many individual banks are comprised in that number. I suppose they keep this information away from us so we don't become frightened!

May 28 03:06 AM

[TraderMark:]

Citi and BAC would of failed if not for intervention. Would make for much better comparisons to reality. We did not have that level of internvention in early 90s or 30s.


On May 28 03:06 AM Donald Ingram wrote:

> Hmmm? Only 48 bank failures since January 01, 2008. Hey! That's not
> too bad! Hold on there pilgrim. Those are 48 failed INSTITUTIONS.
>
>
> Just 'Washington Mutual' alone comprised many, many banks that were
> closed. The statistics from the Great Depression are much more complete.
> There were no big banking conglomerates with many small branches
> everywhere. One little town bank that failed got counted as one "institution".
>
>
> So the number "48" is misleading. since many, many, many individual
> banks are comprised in that number. I suppose they keep this information
> away from us so we don't become frightened!

May 28 10:22 AM

[RiskReturnO...:]

My investment thesis continues to be: avoid large national / multi-national players, as its way too hard for the retail investor to properly value the risk-reward trade-off.

Instead, focus on small, local, community banks that can benefit from the steepest yield curve in history! Their loan books are so much easier to understand, and they largely avoided all the complex mortgage derivatives, and are focused on basic lending -- borrow low, lend high. Many are taking share from the big players who are distracted with merger integration, re-branding, and cost cutting efforts.

My approach involves running the "stress test" assumptions on small, local banks. This ensures no regulatory risk (e.g., forced to raise capital). Next, review the loan portfolio for problem areas like risky mortgages, credit cards, and commercial real estate, and assume worse case vintage credit loss rates. Finally, assign a probability to worse case ($0 stock price), and probability of realistic case in 3 years (50% of 2006 peak earnings and stock value, assuming economy rebounds halfway -- the "new normal").

For example, a strong Texas-based community bank, Metrobank (MCBI) traded at more than $20 in 2006. Under stress test scenarios for housing prices and unemployment rates, the bank's TCE (tangible common equity) still exceeds the stress test minimum required levels.

Nevertheless, to be ultra-conservative, assign a 50% chance for completely unforeseeable sh** factor that drives the stock to $0.

Assign a 50% chance that the stock recovers to 1/2 the previous value (50% of $20 = $10) after 3 years.

The expected value is $5 for this stock, which recently traded at around $3. Buying and holding this thing for three years for a 50% expected return offers 4 times risk-adjusted-return over "risk-free" treasuries (3 * 3.7% yield = 11% return)

If this is not bargain / value investing, I'm not sure why people even bother owning equities!!

May 28 01:57 PM

[John Galt:]

The number of banks in danger of failing increased, and the number of banks that will fail increased. It's as simple as that.

I can't believe how much people trust the government. 10/19 banks failed the low bar stress tests and they rally like no tomorrow.

Right now everybody is optimistic because the market is going up, but if the market was flat, or if the market was slowly creeping down, would everybody still feel this way? Rising unemployment, more foreclosures, housing prices still falling, businesses lowering estimates, the dollar in trouble, the government printing money to give to political favorites.... but who cares, the market is going up so in 6 to 9 months everything will be better. How would you feel if the market wasn't going up? Can you point to anything bullish at all? Losing 500,000 jobs instead of 600,000 is less bad, but does that make it good?

I never thought about it but good point about bank failures. In the 1930's they had lots of smaller community banks fail, but if one big bank like Wachovia or WaMU failes, then in reality our numbers that don't looks so bad are worse than they look.

$

May 30 05:49 PM