Article

2010-03-07 Economy

Banks shuttered in Fla., Ill., Md., Utah

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Posted by Fred 2010-03-07 00:00|| || Front Page|| [11125 views ] Top

#1 Karl Denninger pointed out a bit of math on these bank failures that the media otherwise missed:
* Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits. They were "underwater" by $800,000, right? Wrong: Estimated loss, $51 million. That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.

* Bank of Illinois, Normal IL: $211.7 million in assets, $198.5 million in deposits. They were "underwater" by $13.2 million (which is why they were seized), right? Wrong: Estimated loss $53.7 million. That is, the the assets of $211.7 million were overvalued by more than 25% at the time of seizure.

* Sun American Bank, Boca Raton FL: $535.7 million in assets (so they claimed anyway), $443.5 million in total deposits. Heh, why did you seize them - they have more assets than liabilities? Oh wait: Estimated loss: $103.8 million, so the actual assets are worth $443.5 - $103.8, or $339.7 million. That is, the assets of $535.7 million were overvalued by a whopping 37% at the time of seizure.
Denninger speculates that if this pattern of overvaluing extends to the biggest banks, not only will the economy and lending environment not recover -- it can't

Posted by Anguper Hupomosing9418 2010-03-07 01:16|| 2010-03-07 01:16|| Front Page Top

#2 AH, I think it's been you who has pointed out that we are soon going to be in an environment where it will be like things werer before Wilson's administration, IOW, you can't borrow money unless you really don't need it. Maybe we are at that tipping point.

Many will howl but I think it's a good thing. The whole house of cards of money valued at less than the free market would price it combined with government (tax) subsidized real estate in order to achieve the outcome egalitarian dream of every single person owning a home regardless of their ability to pay has been teetering for decades and now it has begun to fall.

Borrowing money will be an option available to those who are secure and frugal who want to expand. It will no longer be for the wasteful and undisciplined to maintain a lifestyle beyond their means.

Posted by no mo uro 2010-03-07 06:47|| 2010-03-07 06:47|| Front Page Top

#3 My son works in real estate and was telling me yesterday that there are some mortgage lenders that are trying to branch out into something called "social lending".

Basically this is facilitating owner financed sales. However, the gov't paperwork and requirements pretty much stifle the attempt.

He also told me that mortgage loan requirements of the feds have been tightened to the point that lending has slowed to a trickle. Not sure I believe this one cause they're still lending on 3% down.

Posted by Alanc 2010-03-07 07:59|| 2010-03-07 07:59|| Front Page Top

#4 There is more to this than is being covered.

If the feds raise requirements high enough, then even good banks, small and medium size, can't loan. If they can't loan, they can only sustain themselves on existing loans. Basically eating their seed grain. Its only time before they are eating returns just to run operations.

It looks like the feds are using regulation to push corporatism, putting the small and medium banks in a position for a take over by their buds in the big banks. The big banks can play volume by borrowing from the Fed at 1 percent and buying Treasuries at 2 or 3 percent and make money. The small banks can't and are out of the game. Meanwhile the assets of the smaller entities are being absorbed by the Fed-Wall Street team though the FDIC route. They're killing the potential that some small and medium size banks in good condition can play the game and position themselves when the dust clears to be real competition to the good old boys.

Posted by Procopius2k 2010-03-07 10:13|| 2010-03-07 10:13|| Front Page Top

#5 I've read that the small community banks by and large haven't been hurt by the economic struggles of the past two years. In banks of this size, many were prudently managed in the first place, didn't get into exotic financial instruments, and for the most part didn't join the rush into sub-prime and marginal real estate loans.

For those banks, there's money to be made working with local business, making prime home loans which they keep rather than sell to Fannie/Freddie, and doing auto loans to qualified customers.

The owners and managers of those banks are angry because the FDIC wants them to carry the burden of the larger banks: for example, making them pre-pay 3 or 4 years worth of deposit insurance (which FDIC uses to bail out other banks), etc.

The Obama administration apparently views the community banks as both a problem for them (no control) and as a piggy-bank for other ventures. We can expect various moves to get the small banks to cooperate or to drive them into the control of large banks, which Bambi's people can manipulate.

Posted by Steve White 2010-03-07 10:25|| 2010-03-07 10:25|| Front Page Top

#6 The other shoe will drop this year for the small community banks. They couldn't compete in the residential origination market and they weren't located in markets where residential was skyrocketing. So they went into commercial real estate big time.

They lent the money to developers to build all the empty shopping centers and offices that appear to be owned by the conglomerate FOR LEASE. Now the construction loans have to be rolled into mortgages and guess what? Rents have nose dived and properties are worth nowhere near the balance of the outstanding construction loan.

It's that simple, aside from the ones run by the usual small town crooked mini-madoffs. No fed-big-bank conspiracies. Just incompetence, primarily at the Fed. In fact the FDIC is making all banks, regardless of size, accelerate premiums, in order to avoid borrowing from the treasury, and it is going to introduce a progressive premium scale so that big banks pay for their TBTF status.

If this is a topic you want to watch, be here every Friday night for the recap of closures and unofficial problem banks.

Posted by Nimble Spemble 2010-03-07 10:54|| 2010-03-07 10:54|| Front Page Top

#7 And here.

Posted by Nimble Spemble 2010-03-07 12:03|| 2010-03-07 12:03|| Front Page Top

#8 "The Obama administration ~~apparently~~ views the community banks as both a problem for them (no control) and as a piggy-bank for other ventures."

Bambi views everything he doesn't control as a piggy-bank for his policies now that he's got the gummint that can make regulations so he does control them :-(

Change!

Posted by Barbara Skolaut 2010-03-07 12:23|| 2010-03-07 12:23|| Front Page Top

#9 Yes, commercial RE is the next shoe to fall. Get ready for an even bigger crash than the one in residential RE.

Posted by lex 2010-03-07 15:49|| 2010-03-07 15:49|| Front Page Top

#10 More weird stuff is happening: Nevada Federal Credit Union has a deal for big savers: Withdraw your money and you'll get a bonus.

The credit union, one of the largest in Nevada, figures that deposits from members who don't have a checking account, mortgage loan or any other products are expensive... the credit union expects the National Credit Union Administration to boost deposit insurance premiums by 0.15 percent to 0.4 percent this year.

For each $100 million in deposits, that premium increase will increase Nevada Federal's costs up to $400,000 yearly, Beal said.

While Nevada Federal is well capitalized, reducing deposits also will increase its net worth as a percent of assets.

Posted by Anguper Hupomosing9418 2010-03-07 20:14|| 2010-03-07 20:14|| Front Page Top

#11 "The credit union . . . figures that deposits from members who don't have a checking account, mortgage loan or any other products are expensive..."

They charge a fee for checking accounts? At my credit union, they're free (but I do have to pay for the checkbooks).

Posted by Barbara Skolaut 2010-03-07 20:21|| 2010-03-07 20:21|| Front Page Top

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