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Published: August 24, 2009
The bank failure scene in the U.S. turned a
shade uglier over the weekend. By this time tomorrow, it’ll
probably be even worse.
For starters, Guaranty Financial of Texas went belly up late
Friday and secured a spot in the history books. With $13 billion
in “assets,” the bank is the third largest to fail this year and
tied for the 11th biggest bank failure in U.S. history.
Even more interestingly, the FDIC brokered Guaranty’s assets to
Banco Bilbao Vizcaya Argentaria, a bank from northern Spain.
We’re surprised on two fronts here: 1) That a bank from Spain —
strapped with double-digit unemployment and a wretched housing
bust — wants to bring their euros to I.O.U.S.A. 2) That BBVA
already has a huge presence in Texas. With this acquisition,
they will be the fourth largest banking chain in the Lone Star
State. That could be an interesting trend to watch.
Three other banks failed along side Guaranty: CaptialSouth,
First Coweta and ebank. That brings the yearly total to 81.
This should put the FDIC’s deposit insurance fund on its last
legs. At the beginning of 2008, the FDIC’s bank failure war
chest had over $52 billion. At the end of the March 2009, the
last time the FDIC has given us a look into the DIF, they had
$13 billion left. 60 banks have failed since, including Guaranty
and Colonial, which by themselves took out half of that
remaining $13 billion. Only the FDIC can say with accuracy if
there is any money left, but this chart gives you a pretty good
idea of how the trend is shaping up:
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The DIF does have a source of income
— it taxes member banks a
significant “insurance fee.” But we
have to think that the DIF is still
in bad shape, perhaps even empty…
and that the FDIC will soon be
hitting up someone (Tim Geithner,
Joe Taxpayer and/or U.S. banks) to
refill their coffer.
The FDIC will provide their
second-quarter report tomorrow,
which among other things will
include a look into the DIF and
their infamous bank “problem list”…
could get ugly. We’ll keep you up to
speed.
“Recent bank failures remind us of
the problem loans festering on small
and regional bank balance sheets,”
writes Dan Amoss, “and that many of
them are marking loans at fantasy
levels. The secondary market value
for some of the worst loans, like
construction loans, is 20 or 30
cents on the dollar.
“There’s a backlog of at least a few
hundred insolvent banks that need to
be shut down and sold into stronger
hands. Bank stock bulls are ignoring
the credit losses yet to be
recognized, so there are lots of
shorting opportunities in the
sector. Many banks will not be able
to “earn their way out” of their
credit losses.
“The problem is, there aren’t many
strong buyers with lots of capital
out there. Those that are, like
private equity groups, are buying
only after the FDIC agrees to eat
most of the credit losses, and the
buyer is gifted with the remaining
shell — the profit-making engine of
spread lending.
“It’s understandable that the FDIC
doesn’t want much publicity about
the Deposit Insurance Fund; it wants
to maintain the public’s confidence
that it can ‘insure’ all deposits
with just a few basis points of
capital reserves and skimpy premium
income. The fund is clearly not
adequate to cover the bank failures
still in the pipeline, so we’ll see
another ‘special assessment’ imposed
on all other banks, which will
ultimately be passed on to
depositors via lower interest
rates.”
-- Ian Mathias
Managing Editor
AgoraFinancial.com Editor's Note: This
article originally appeared in
The Daily Reckoning. |
