Wednesday, March 24, 2010
Delay on FDIC Update
Oh, dear Reader, what can we say? We are going to hold off on updating the FDIC Report until this week's closures are in. Our lack of updates is solely due to time management issues: we have a large project which we're scurrying to finish. When we're done... we'll find some new excuse for our delays!
Saturday, March 13, 2010
Commentary on the FDIC Bank Failure Report (12 March 2010)
New York City was the scene of much action this week, with the closures of LibertyPoint and Park Avenue Banks. It was also a very strange circumstance, as well, because LibertyPointe was closed on a Thursday, which is very much not how the FDIC likes to do business. The why is not exactly clear, since - as far as we can tell - LibertyPointe was actually not all that badly off. The worst bank this week was Old Southern Bank ($315 million in assets, $319 million in deposits. Oops.), and that bank managed to politely sit pretty (and insolvently) until Friday evening.
Additionally, LibertyPointe's recoverability was not all that bad: 87.93 cents on the dollar. That's actually the best recoverable value in our records! So go figure; there must have been something especially exciting going on at LibertyPointe for a mid-week closure, but unfortunately it is invisible to our financial analysis. Whatever was going on, though, we have the strong suspicion that the FDIC knew all about it, and had taken the traditional regulator stance toward fraud: do nothing.
Speaking of fraud, we notice a trend of recent weeks, regarding the recoverable value of the banks which the FDIC closes. Except for the closures on 6 January 2010, all have been sharply over the overall trendline of ~57%. This week alone was 86.78%, one of the best weeks we've seen, if not the best ever. This makes us wonder: is the FDIC targeting their end costs ever more closely? If so, that means the FDIC is not necessarily closing the worst of the banks, but rather the banks they can afford to close. Remember, Dear Reader, the FDIC will not be receiving any quarterly insurance payments for a little under two years now; they have no source of regular income. Whatever is in the coffers is pretty much what they have to work with, barring either A) tapping the Treasury credit line, and B) a special insurance assessment.
However, the first has been vicoferously written off as an "extreme emergency measure" by Chairwoman Sheila Bair (translation: Goldman Sachs needs pin-money), and the second is likely not politically palatable, considering that banks would prefer to hunker down and park their money in Treasury Bills. Even if the FDIC should decide to tap their Treasury credit line, they will still have to pay the interest on the funds thus extended. As many people are discovering in this Depression, it's pretty hard to pay off debt when one does not have any income.
Sure, the FDIC could levy special insurance assessments to pay the interest, but that is a one or two trick pony; if the FDIC should try to levy multiple special assessments, the banking system would likely rebel. Congress would apply pressure to the FDIC, and force it to back down; at the very extreme, Congress would attempt to force out Sheila Bair for someone more light-handed. The banks, after all, are tolerant of the FDIC, so long as it does not interfer excessively in their operations.
Bringing this back to our original comment, a constricted income is likely the driving force behind the targeted closure programme which we posit the FDIC is undertaking. Capital is presently scarse, and it will be two years until new, dependable income will resume; therefore, the FDIC has every impetus to conserve their resources as carefully as possible.
This, Dear Reader, brings us to fraud: if the FDIC is closing, not the worst banks in the United States, but rather those banks they think the can close with minimal outlays of precious capital, they are shirking their fundamental mission. They are not protecting depositors by closing the cheapest banks to close, but rather attempting to instill a false sense of health and solvency in depositors, to protect the truly horrible banks. By supporting the perception of solvency and deposit protection, the FDIC serves to shield insolvent banks (Citibank, anyone?) from sudden, disasterous outflows of capital.
Such a disastre can be seen in the capital flight from Greece, which - as of 23 February - amounted to 8 billion out of the 30 billion under management in private Greek banks (originial article here, subscription needed). 25% loss of a country's private capital base spells D-O-O-M for the banking system.
The FDIC-as-shield-for-banks, let us repeat, is fraud, if it is indeed the case. Innocent depositors are being duped into believing that their banks are in sound financial shape, since 'only a few banks are getting closed,' and 'the recovery is underway!', et cetera. We do not believe there is a recovery, nor do we see one in the future; the next leg down of the ongoing Depression, whenever it arrives, will likely take be a gut-punch to the FDIC. It's then that we expect bank runs to begin, and when the so-called insurance offered by the FDIC will be seen as the farse it really is.
Additionally, LibertyPointe's recoverability was not all that bad: 87.93 cents on the dollar. That's actually the best recoverable value in our records! So go figure; there must have been something especially exciting going on at LibertyPointe for a mid-week closure, but unfortunately it is invisible to our financial analysis. Whatever was going on, though, we have the strong suspicion that the FDIC knew all about it, and had taken the traditional regulator stance toward fraud: do nothing.
Speaking of fraud, we notice a trend of recent weeks, regarding the recoverable value of the banks which the FDIC closes. Except for the closures on 6 January 2010, all have been sharply over the overall trendline of ~57%. This week alone was 86.78%, one of the best weeks we've seen, if not the best ever. This makes us wonder: is the FDIC targeting their end costs ever more closely? If so, that means the FDIC is not necessarily closing the worst of the banks, but rather the banks they can afford to close. Remember, Dear Reader, the FDIC will not be receiving any quarterly insurance payments for a little under two years now; they have no source of regular income. Whatever is in the coffers is pretty much what they have to work with, barring either A) tapping the Treasury credit line, and B) a special insurance assessment.
However, the first has been vicoferously written off as an "extreme emergency measure" by Chairwoman Sheila Bair (translation: Goldman Sachs needs pin-money), and the second is likely not politically palatable, considering that banks would prefer to hunker down and park their money in Treasury Bills. Even if the FDIC should decide to tap their Treasury credit line, they will still have to pay the interest on the funds thus extended. As many people are discovering in this Depression, it's pretty hard to pay off debt when one does not have any income.
Sure, the FDIC could levy special insurance assessments to pay the interest, but that is a one or two trick pony; if the FDIC should try to levy multiple special assessments, the banking system would likely rebel. Congress would apply pressure to the FDIC, and force it to back down; at the very extreme, Congress would attempt to force out Sheila Bair for someone more light-handed. The banks, after all, are tolerant of the FDIC, so long as it does not interfer excessively in their operations.
Bringing this back to our original comment, a constricted income is likely the driving force behind the targeted closure programme which we posit the FDIC is undertaking. Capital is presently scarse, and it will be two years until new, dependable income will resume; therefore, the FDIC has every impetus to conserve their resources as carefully as possible.
This, Dear Reader, brings us to fraud: if the FDIC is closing, not the worst banks in the United States, but rather those banks they think the can close with minimal outlays of precious capital, they are shirking their fundamental mission. They are not protecting depositors by closing the cheapest banks to close, but rather attempting to instill a false sense of health and solvency in depositors, to protect the truly horrible banks. By supporting the perception of solvency and deposit protection, the FDIC serves to shield insolvent banks (Citibank, anyone?) from sudden, disasterous outflows of capital.
Such a disastre can be seen in the capital flight from Greece, which - as of 23 February - amounted to 8 billion out of the 30 billion under management in private Greek banks (originial article here, subscription needed). 25% loss of a country's private capital base spells D-O-O-M for the banking system.
The FDIC-as-shield-for-banks, let us repeat, is fraud, if it is indeed the case. Innocent depositors are being duped into believing that their banks are in sound financial shape, since 'only a few banks are getting closed,' and 'the recovery is underway!', et cetera. We do not believe there is a recovery, nor do we see one in the future; the next leg down of the ongoing Depression, whenever it arrives, will likely take be a gut-punch to the FDIC. It's then that we expect bank runs to begin, and when the so-called insurance offered by the FDIC will be seen as the farse it really is.
FDIC Bank Failure Report (12 March 2010)
On 11 March and 12 March 2010, the Federal Deposit Insurance Corporation closed four banks: LibertyPointe Bank, New York, NY; Park Avenue Bank, New York, NY; Old Southern Bank, Orlando, FL; and Statewide Bank, Covington, LA. The assets of the closed banks were $1,288,600,000 and insured deposits were $1,232,500,000. The cost to the FDIC is estimated at $1,020,050,000. The closure data is available here, at the FDIC website.
According to our methodology, the recoverable value of the banks was only 79.16% of declared asset value. This makes the recoverability of this week's closures well above the cumulative recoverability since December of 2007, which stands at 57.68% (up sharply from 57.63%). This means that the failed banks' assets were worth approximately 79.16¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.68¢ on the dollar.
Cumulative cost to the FDIC to close all 191 banks (since December of 2007) was brought to $61,347,720,000. These closures bring the total declared assets of failed institutions to $562,753,780,000, and total FDIC-insured deposits to $385,967,840,000. The recoverable value of all failed banks was only $324,620,130,000 (57.68% of the declared value).
* * *
Stress in a State's banking system can be best seen in how costly that State's cumulative closures were to the FDIC. Below is the list of those States which likely have the most stressed banks, calculated by comparing that State's total FDIC cost of closures to their share of United States population. Only those States which have two or more closures are considered.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
The recoverable value represents how much of declared assets are worth, by our estimate, on the open market. The following are the ten States with the lowest recoverable value, representing those States which have the most overvalued banking system assets. Only those States which have had two or more closures are considered in this analysis.
1. Florida (40.91%, up from 40.50%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%)
5. Nevada (50.22%)
6. Ohio (50.84%)
7. Washington (54.17%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Utah (58.13%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $1,020,050,000. The value now stands at $33,791,020,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
According to our methodology, the recoverable value of the banks was only 79.16% of declared asset value. This makes the recoverability of this week's closures well above the cumulative recoverability since December of 2007, which stands at 57.68% (up sharply from 57.63%). This means that the failed banks' assets were worth approximately 79.16¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.68¢ on the dollar.
Cumulative cost to the FDIC to close all 191 banks (since December of 2007) was brought to $61,347,720,000. These closures bring the total declared assets of failed institutions to $562,753,780,000, and total FDIC-insured deposits to $385,967,840,000. The recoverable value of all failed banks was only $324,620,130,000 (57.68% of the declared value).
* * *
Stress in a State's banking system can be best seen in how costly that State's cumulative closures were to the FDIC. Below is the list of those States which likely have the most stressed banks, calculated by comparing that State's total FDIC cost of closures to their share of United States population. Only those States which have two or more closures are considered.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
The recoverable value represents how much of declared assets are worth, by our estimate, on the open market. The following are the ten States with the lowest recoverable value, representing those States which have the most overvalued banking system assets. Only those States which have had two or more closures are considered in this analysis.
1. Florida (40.91%, up from 40.50%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%)
5. Nevada (50.22%)
6. Ohio (50.84%)
7. Washington (54.17%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Utah (58.13%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $1,020,050,000. The value now stands at $33,791,020,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
Wednesday, March 10, 2010
Commentary on the FDIC Bank Failure Report (05 March 2010)
Apologies on not updating for the last two-plus weeks. We have a large project which we're in the throes of wrapping up, so quite a bit of other things fell off the table, FDIC reports being one of them.
* * *
The last two weeks' closures were relatively unremarkable, except for their small-ish size - none were larger than $1 billion. Even the least recoverable bank, Rainier Community Bank, wasn't all that bad: it was 'only' 48.25 cents on the dollar. Below average, yes, but not a bell-ringer, as the tenth worst failure by recoverable value - Century Bank FSB - was 40.72 cents on the dollar. Rainier's board of directors needed to fritter away another 8 cents per asset dollar to make our prestigious Ten Nastiest Bank Closures.
Oh well, maybe next time.
It is presently fashionable to blame the U.S. for the ongoing Depression, and we are only too happy to join in: the U.S. banking system has, for the past decade, exported rot and decay to the rest of the world, in the form of securities and derivatives, passed off by the credit rating agencies as somehow AAA debt. In 2007 the domestic became so unutterably septic that even the U.S. banks couldn't handle it anymore, and so the system broke down. Left to its own devices, the banking system would have imploded, taken down the U.S. economy and Government, knocked the stuffing out of the world economy, and then that would have been that.
That obviously did not happen, and now that same rot and decay is not only still extant in the world economy, but the U.S. is attempted to restart the exportation of more, so as to stave off domestic economic collapse. Both issues have severe implications for the rest of the world: first, if said securities and derivatives are not expurgated from the economy, they will with age become even more poisonous than they are now; and second, if the U.S. managed to force-feed more toxic assets to the rest of the world, there will be just that much more poison in the system.
What that means for the person on the ground, trying to make his or her way through this Depression, is rather grim. The greatest Keynesian-Fisherian nightmare is mass liquidation; which is to say, everything must go. We posit that the Keynesians presently holding the purse-strings in the central banks of the world are only forestalling the inevitable, and thereby making the future situation worse, in exchange for papering over the present. When the papering-over fails, as we suspect it will, then more of the baby will be thrown out with the bathwater; or, more good assets (e.g. precious metals, tools, bicycles, et cetera) might collapse in value with those assets which have none to begin with (e.g. AAA rated debt, designer clothing, suburbia, et cetera). This facet will make investing one's financial resources very difficult; indeed, down not so much might become the new high return.
Since the ongoing Depression was fomented in the U.S., we suspect that the next big leg down will also come from the U.S. When - not if - this next drop occurs, we suspect that the FDIC will be caught flat-footed and flat broke. That situation might already be in place, and the economy is not crashing fast enough to reveal the tenuous position of the FDIC, but whatever the case, going into the future, having large and vital amounts of cash sitting on deposit at banks will become a riskier proposition. Put another way, a bank account will change from being an asset, to a liability, for the average person.
Some banks will be better off than other. Some might even be perfectly solvent and capable of performing adequately, and be able to defend their depositors' money. Tying back into our earlier comment, it is highly possible that these rare, healthy banks will be destroyed along with the bad banks, either by hapless Government intervention, or panicked bank runs, or both.
* * *
The last two weeks' closures were relatively unremarkable, except for their small-ish size - none were larger than $1 billion. Even the least recoverable bank, Rainier Community Bank, wasn't all that bad: it was 'only' 48.25 cents on the dollar. Below average, yes, but not a bell-ringer, as the tenth worst failure by recoverable value - Century Bank FSB - was 40.72 cents on the dollar. Rainier's board of directors needed to fritter away another 8 cents per asset dollar to make our prestigious Ten Nastiest Bank Closures.
Oh well, maybe next time.
It is presently fashionable to blame the U.S. for the ongoing Depression, and we are only too happy to join in: the U.S. banking system has, for the past decade, exported rot and decay to the rest of the world, in the form of securities and derivatives, passed off by the credit rating agencies as somehow AAA debt. In 2007 the domestic became so unutterably septic that even the U.S. banks couldn't handle it anymore, and so the system broke down. Left to its own devices, the banking system would have imploded, taken down the U.S. economy and Government, knocked the stuffing out of the world economy, and then that would have been that.
That obviously did not happen, and now that same rot and decay is not only still extant in the world economy, but the U.S. is attempted to restart the exportation of more, so as to stave off domestic economic collapse. Both issues have severe implications for the rest of the world: first, if said securities and derivatives are not expurgated from the economy, they will with age become even more poisonous than they are now; and second, if the U.S. managed to force-feed more toxic assets to the rest of the world, there will be just that much more poison in the system.
What that means for the person on the ground, trying to make his or her way through this Depression, is rather grim. The greatest Keynesian-Fisherian nightmare is mass liquidation; which is to say, everything must go. We posit that the Keynesians presently holding the purse-strings in the central banks of the world are only forestalling the inevitable, and thereby making the future situation worse, in exchange for papering over the present. When the papering-over fails, as we suspect it will, then more of the baby will be thrown out with the bathwater; or, more good assets (e.g. precious metals, tools, bicycles, et cetera) might collapse in value with those assets which have none to begin with (e.g. AAA rated debt, designer clothing, suburbia, et cetera). This facet will make investing one's financial resources very difficult; indeed, down not so much might become the new high return.
Since the ongoing Depression was fomented in the U.S., we suspect that the next big leg down will also come from the U.S. When - not if - this next drop occurs, we suspect that the FDIC will be caught flat-footed and flat broke. That situation might already be in place, and the economy is not crashing fast enough to reveal the tenuous position of the FDIC, but whatever the case, going into the future, having large and vital amounts of cash sitting on deposit at banks will become a riskier proposition. Put another way, a bank account will change from being an asset, to a liability, for the average person.
Some banks will be better off than other. Some might even be perfectly solvent and capable of performing adequately, and be able to defend their depositors' money. Tying back into our earlier comment, it is highly possible that these rare, healthy banks will be destroyed along with the bad banks, either by hapless Government intervention, or panicked bank runs, or both.
FDIC Bank Failure Report (05 March 2010)
On 26 February and 05 March 2010, the Federal Deposit Insurance Corporation closed six banks: Rainier Pacific Bank, Tacoma, WA; Carson River Community Bank, Carson City, NV; Sun American Bank, Boca Raton, FL; Bank of Illinois, Normal, IL; Waterfield Bank, Germantown, MD; and Centennial Bank, Ogden, UT. The assets of the closed banks were $1,887,100,000 and insured deposits were $1,497,490,000. The cost to the FDIC is estimated at $419,710,000. The closure data is available here, at the FDIC website.
According to our methodology, the recoverable value of the banks was only 57.11% of declared asset value. This makes the recoverability of this week's closures well below the cumulative recoverability since December of 2007, which stands at 57.63% (essentially unchanged from 57.64%). This means that the failed banks' assets were worth approximately 57.11¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.63¢ on the dollar.
Cumulative cost to the FDIC to close all 191 banks (since December of 2007) was brought to $61,735,260,000. These closures bring the total declared assets of failed institutions to $561,465,180,000, and total FDIC-insured deposits to $384,735,340,000. The recoverable value of all failed banks was only $323,600,080,000 (57.63% of the declared value).
* * *
Stress in a State's banking system can be best seen in how costly that State's cumulative closures were to the FDIC. Below is the list of those States which likely have the most stressed banks, calculated by comparing that State's total FDIC cost of closures to their share of United States population. Only those States which have two or more closures are considered.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
The recoverable value represents how much of declared assets are worth, by our estimate, on the open market. The following are the ten States with the lowest recoverable value, representing those States which have the most overvalued banking system assets. Only those States which have had two or more closures are considered in this analysis.
1. Florida (40.50%, up from 39.95%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%)
5. Nevada (50.22%, up from 49.81%)
6. Ohio (50.84%)
7. Washington (54.17%, down from 55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Utah, replacing Maryland (58.13%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $419,710,000. The value now stands at $34,811,070,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
According to our methodology, the recoverable value of the banks was only 57.11% of declared asset value. This makes the recoverability of this week's closures well below the cumulative recoverability since December of 2007, which stands at 57.63% (essentially unchanged from 57.64%). This means that the failed banks' assets were worth approximately 57.11¢ on the dollar; overall, all closures since December of 2007 were worth approximately 57.63¢ on the dollar.
Cumulative cost to the FDIC to close all 191 banks (since December of 2007) was brought to $61,735,260,000. These closures bring the total declared assets of failed institutions to $561,465,180,000, and total FDIC-insured deposits to $384,735,340,000. The recoverable value of all failed banks was only $323,600,080,000 (57.63% of the declared value).
* * *
Stress in a State's banking system can be best seen in how costly that State's cumulative closures were to the FDIC. Below is the list of those States which likely have the most stressed banks, calculated by comparing that State's total FDIC cost of closures to their share of United States population. Only those States which have two or more closures are considered.
1. Alabama
2. Georgia
3. Nevada
4. California
5. Florida
6. Illinois
* * *
The recoverable value represents how much of declared assets are worth, by our estimate, on the open market. The following are the ten States with the lowest recoverable value, representing those States which have the most overvalued banking system assets. Only those States which have had two or more closures are considered in this analysis.
1. Florida (40.50%, up from 39.95%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.47%)
5. Nevada (50.22%, up from 49.81%)
6. Ohio (50.84%)
7. Washington (54.17%, down from 55.25%)
8. Georgia (55.33%)
9. North Carolina (56.70%)
10. Utah, replacing Maryland (58.13%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $419,710,000. The value now stands at $34,811,070,000. This is our estimate of how much money the FDIC has remaining from its special assessment of approximately $45 billion (click here to read the FDIC press release about the assessment). Every week since December of 2009, we subtract that week's cost of bank closures to the FDIC from the standing total.
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