Big Al45

Guaranty Financial Group: On the Rocks

Well, Guaranty is in bad shape but there are a lot of other worthy closure candidates out there. Georgia alone has 10 functioning banks with a Texas Ratio over 200% In normal times, a Texas ratio over 100% would result in a cease and desist order and put the bank on the fast track to closure

Think that Sheila selects the banks for closure based on the FDIC's ability to dispose of the assets and not the degree of insolvency. There's no hurry to close a bank provided the depositors don't withdraw their deposits and the bank doesn't make more questionable loans

Personally, I'm betting that Corus or Security Bank of Georgia will be the next mult billion dollar bank closure. However, that won't happen for a couple of weeks. The FDIC can't handle more than one large failure a month.

Chewing on the FDIC List of 'Problem' Banks

The problem here is that the "problem list" is based on the FDIC's analysis of unaudited reports submitted by the banks themselves. There is no assurance that the banks are submitting accurate reports.

Furthermore, most publically traded bank stocks are actually bank holding companies. A bank holding company can own multiple FDIC banks and each subsidiary bank submits a separate quarterly report.

For example, WaMu is a bank holding company that owns two individual FDIC insured thrifts - one headquarted in Nevada and one in Utah. Each thrift submits a separate report and the assets of the Utah subsidiary are small enough to be included on the problem list. (Although it's probably not on the list- the Utah subsidiary is highly solvent according to Bankrate.)

The bottom line - you can't really rely on the FDIC problem list to evaluate the solvency of publically traded bank stocks.

10 Financial Entities On the Brink

Cesar, I agree in principal with your comments, but why would anyone want to short VNBC or DSL?

The potential reward from shorting stocks that are trading under $3 a share is much less than the potential risk. Some idiot (like Ken Thompson or Ken Lewis) could decide to acquire them to expand their "footprint in the rich California market.?"

10 Financial Entities On the Brink

For an independent opinion on the viability of a particular bank, check out the bank ratings at bankrate.com/brm/safes... Any bank that receives one star (including WM, BKUNA, DSL) from bankrate is probably going to fail. Any bank that receives two stars (Corus, Wachovia) is at risk of failure. Any bank that receives three or more stars (Regions) does not have an immediate risk of failure.

One word of caution. To use this site you have to know the banks legal structure. Most publically traded banks are bank (or thrift) holding companies that own multiple subsidiary banks. Bankrate evaluates each subsidiary bank separately. A holding company can transfer all of its garbage assets to the holding company level and make the subsidiary banks' financial statements look clean.