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cletus8269

failing banks

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As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?”

Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.

Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry.

The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans and credit unions, which own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. If the mortgage giants ever defaulted on those obligations, banks might be forced to raise billions of dollars in additional capital.

The large institutions set to report results this week, including Citigroup and Merrill Lynch, are in no danger of failing, but some are expected to report more multibillion-dollar write-offs.

But time may be running out for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors.

Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

“Failed banks are a lagging indicator, not a leading indicator,” said William Isaac, who was chairman of the F.D.I.C. in the early 1980s and is now the chairman of the Secura Group, a finance consulting firm in Virginia. “So you will see more troubled, more failed banks this year.”

And yet IndyMac, one of the nation’s largest mortgage lenders, was not on the government’s troubled bank list this spring — an indication that other troubled banks may be below the radar.

The F.D.I.C. has $53 billion set aside to reimburse consumers for deposits lost at failed banks. IndyMac will eat up $4 billion to $8 billion of that fund, the agency estimates, and that could force it to raise more money from the banks that it insures.

The agency does not disclose which banks it thinks are troubled. But analysts are circulating their own lists, and short sellers — investors who bet against stocks — are piling on. In recent weeks, the share prices of some regional banks, like the BankUnited Financial Corporation, in Florida, and the Downey Financial Corporation, in California, have stumbled hard amid concern about their financial health. A BankUnited spokeswoman said the lender had largely avoided risky subprime loans.

In his “Who Is Next?” report over the weekend, Mr. Bove listed the fraction of loans at banks that are nonperforming, meaning, for example, that the assets have been foreclosed on or that payments are 90 days past due. He came up with what he called a danger zone, which was a percentage above 5 percent. Seven banks fell in this category.

An important issue for the regional and community banks will be whether they have managed to sell their riskiest loans to Wall Street firms.

And the government may have fewer failures than in the past because private investment funds might buy some troubled lenders. Regulators are considering rule changes that would allow private equity firms to buy larger shares of banks, and several prominent investors, like Wilbur Ross, have raised funds to leap in.

Eric Dash contributed reporting.

http://finance.yahoo.com/banking-budgeting...Banks-Will-Fail

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i dont know about anyone else but this is starting to look all too familiar... say '29ish? i really hope this isnt a sign of things to come. they say it will be especially hard on the smaller banks which my bank is a state wide bank. they made it through the great depression... lets hope they wont have to make it through another... and the country for that matter.

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Well, one difference is that the Fed won't suddenly clamp down the money supply like they did in the 30s, which made things much worse.

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Stupid, stupid, stupid. Who the F would buy a home with ZERO down? Who would lend them the money in the first place? Canada experienced the same BS in the last real estate crash in the late '80s because speculators were driving up the cost of housing by buying up dozens of new units with nothing down, then flipping them when they were constructed. The government tightened the rules here so that projects cannot go ahead until 50% of the units are sold and there is a minimum money to be put down.

I wonder how much Iraq is leaning on the U.S. ecomony. This is starting to look more and more like the late '60s when the out of control U.S. federal spending (and borrowing) led to the hyper inflation of the '70s.

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I think my bank will be fine (it's a state bank with seven local branches). It weathered the farm crisis and savings-and-loan of the late 80s / early 90s (only one bank in town failed, Conservative Bank, and it was bought out shortly after by Commercial Federal) and unlike the other banks in town, has survived being bought out by national banks.

We haven't seen the rapid growth that other parts of the country have, and Iowa's economy tends to see stable increases rather than huge rollercoasters. At work, you would never know the national economy is near the point of recession because we have so many new projects coming in right now.

It's just too bad so many people are short-sighted and don't know how to responsibly manage money. I grew up in a household where my parents (dad mostly) charged everything to credit cards, and sometimes money would be kind of tight growing up. For that reason, I rarely ever use my credit card (I've used it three times in the last 5 years, all for car repairs) and only spend money on something when I have it. The only debt I have to my name are my Iowa State loans, which will be paid off in about 10 years.

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