RBC Analyst: 300 Banks Could Fail [Housing Tracker]

Quote Of The Day 

“Locally, everything is going well with us, and with other local banks. But it creates great bargains all around, and there are hundreds of banks that will benefit from this cycle in the long run."- J. Williar Dunlaevy, president and CEO of Massachusetts-based Legacy Banks, which saw its lowest stock price of $10.51 yesterday.  "Our shareholders are hanging with us. The conservatism of New England has helped credit issues to be almost benign compared wtih other areas." - Michael P. Daly, president and CEO of Berkshire Bank. (Berkshire Eagle, July 19^th)

Subprime and Banks

Bank Accuses Lutz Analyst Of Defamation. “BankAtlantic (BBX) has filed a defamation suit against Richard Bove and his investment banking firm, Ladenburg Thalmann [after] Bove issued a research report… that tried to identify potential bank failures [after] the failure of IndyMac Bank… Bove measured more than 100 large publicly traded banks according to their "nonperforming assets," such as loans delinquent by more than 90 days and foreclosed assets. He then compared the nonperforming assets to the banks' outstanding loans. If a bank's nonperforming assets came to more than 5% of its outstanding loans it "suggests danger… Only seven large banks out of more than 100 [fell] in this so-called danger zone. BankAtlantic Bancorp fell just outside the danger zone, with nonperforming assets that were 4.4% of outstanding loans, Bove’s data showed.”  (Tampa Bay Online, July 22^nd)

Thornburg Offers Potential 37% Gain for Arbitragers. “Thornburg Mortgage Inc. (TMA), the “jumbo” home lender that averted bankruptcy in March, may offer investors a chance to earn a 37% profit under terms of its rescue package. Preferred shareholders will receive $5 in cash and 3.5 common shares if two-thirds of holders tender their stakes by Sept. 30. Were the deal to close today, holders would receive cash and stock totaling $6.09 for each preferred share, which closed yesterday between $4.46-$4.62. The bailout, financed by MatlinPatterson Global Advisers LLC, is little consolation for longer-term shareholders who have lost as much as 99% of their investment in the past year.” (Bloomberg, July 22^nd)

Bank of America Earnings Drop Less Than Estimates. “Bank of America Corp. (BAC), the biggest U.S. consumer bank and home lender, said second-quarter profit fell less than analysts estimated and predicted the purchase of Countrywide Financial Corp. will add to earnings this year. Bank of America… said net income declined 41% to $3.41 billion, or $0.72/share, from $5.76 billion, or $1.28, a year earlier. That beat the $0.54 average estimate of analysts surveyed by Bloomberg.” (Bloomberg, July 21^st)

Freddie Mac Becomes an SEC Registrant. “Freddie Mac has become a registrant with the U.S. SEC under the Securities Exchange Act of 1934. In connection with the registration process, Freddie (FRE) filed a Form 10 registration statement with the SEC that includes unaudited financial statements for the quarter ended March 31, 2008, and audited financial statements for the full years 2007, 2006 and 2005… Separately, the company reiterated that it has committed to its regulator, the Office of Federal Housing Enterprise Oversight, to raise $5.5 billion of new core capital through one or more offerings, which will include both common and preferred securities.” (Originator Times, July 21^st)

Freddie Mac May Slow Purchases of Mortgages, Bonds.  “Freddie Mac, the second-largest U.S. mortgage-finance company, may cut purchases of home loans from banks and bonds backed by housing debt to shore up its capital amid record delinquencies. The government-sponsored company is also considering selling securities and reducing its dividend while it prepares to issue $5.5 billion of stock, Freddie Mac said in a July 18 filing with the U.S. SEC. JPMorgan Chase & Co. analyst Matthew Jozoff: Growth in mortgage holdings of Freddie Mac and the larger Fannie Mae will be “weak.” (Bloomberg, July 21^st)

Indymac May Not Be Last Bank To Fail, Analysts Say. “The FDIC said eight banks, including IndyMac, have collapsed since February 2007. At the end of Q1’08, it listed 90 "problem institutions" on its watch list. However, FDIC spokesman Andrew Gray noted that just 13% of institutions on the watch list have failed on a historical basis. Also, the list now is far shorter than the 2,165 names it had in 1987 prior to the savings-and-loan crisis. Gerard Cassidy, an RBC Capital Markets analyst… estimated that 300 of the country's 8,494 banks and thrifts are likely to fail over the next three years… FDIC: More than 2,300 banks and thrifts went up in smoke during the S&L crisis 20 years ago.”  (Investment News, July 21^st)

UnionBanCal Dances with Wall Street, Analysts. “UnionBanCal Corp. (UB) said profits fell amid fast-rising loan loss provisions, but earnings [still beat] analyst estimates [and] suggested that Q3 earnings would top earlier estimates. The large California-centric regional bank’s [announcement resembled] Wells Fargo & Co. (WFC), which reported a drop in earnings due to increasing credit costs but beat analysts’ estimates — and… raised its dividend by 10%. Bank of America which also saw credit loss charges jump five-fold from year-ago levels and earnings drop accordingly, beat Street estimates and then… suggested that its acquisition of Countrywide would be accretive to earnings by the end of this year.”  (Housing Wire, July 21^st)

Fortress Mortgage Fund Down 30 Percent: Report. “A fund set up by the private-equity and hedge-fund giant Fortress Investment Group LLC (FIG) to take advantage of turmoil in the mortgage bond market has tanked so far, to the tune of 30% in just three months after its formation. Wall Street Journal’s [report on] Fortress Mortgage Opportunities Fund, suggests performance has fallen as even the top-rated tranches of non-prime mortgage deals have suffered fits... The pursuit of a AAA-rated investment strategy has proven no fail-safe, either, as major credit rating agencies have been taking the axe to former investment-grade ratings amid continuing declines in collateral performance.”  (Housing Wire, July 21^st)

FDIC Faces Mortgage Mess After Running Failed Bank. “It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court. The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender... Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million.” (Wall St. Journal, July 21^st)

Mid-South Bank Customers Protected by FDIC. Tennessee: “After taking over IndyMac, the FDIC is now keeping an eye on 90 other troubled banks around the country.  FDIC won't identify those banks.   But Mid-South financial experts tell Eyewitness News Everywhere they do not believe any of the area's major banking institutions are on the watch list. The FDIC currently has $53 billion available to pay off customers at failed banks…  Other banks will likely see their insurance premiums go up to keep FDIC fully funded.” (My Eyewitness News, July 21^st)

 

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Comments

[Wez:]

In regards to TMA:

www.bloomberg.com/apps...

So the preferred holders who would be selling $25 dollar par value shares at $5 are disappointed, but it's a for sure BK if they don't, so isn't it a no brainer??? They have to sell or they get nothing. So question is, what does it mean for common shareholders?

2008 Jul 22 06:49 PM

[anastos:]

I think this means you take it without any lube.

2008 Jul 22 06:57 PM

[dixie:]

RBC ANALYST: "300 BANKS ARE LIKELY TO FAIL" HAS NO MORE RELEVANCE THAN SAYING 8200 BANKS WILL LIKELY SURVIVE.

WHAT A THOUGHTLESS STATEMENT. WHERE IS THE PROOF?

2008 Jul 22 09:19 PM

[User 231288:]

The proof is in the putting

2008 Jul 23 12:34 AM

[CrossProfit_:]

dixie,
Agree. With only 90 on the watch list and the analyst doesn't have any information that we don't have, RBC must be short the financial s and is getting scared with BAC and others recent recovery.

User 231288,
Cute!

CrossProfit
Disclosure: Long BAC (associates).

2008 Jul 23 06:52 PM