On 8/01/10, the Federal Deposit Insurance Corporation rang in the New Year closing one bank: Horizon Bank of Bellingham, Washington.The assets of the closed bank were $1,300,000,000 and deposits were $1,100,000,000. The cost to the FDIC is estimated at $539,100,000.
According to our methodology, the recoverable value of the bank was only 43.15% of the declared asset value. This makes the recoverability of this week's closure distinctly below the cumulative recoverability since December of 2007, which stands at 57.63% (down slightly from last report's 57.66%).
Cumulative cost-to-FDIC so far in the Depression was brought to $56,923,690,000. These closures bring the total declared assets of FDIC-failed banks (since December of 2007) to $545,760,780,000, and total FDIC-insured deposits to $371,446,650,000. The recoverable value of all failed banks was only $314,522,960,000 (57.63% of the declared value).
* * *
It appears Santa Claus has not fixed the US banking system, after all. This week's closed bank was a particularly putrid affair and we consider it a bad omen for the rest of the year.
The Federal Reserve system laid a sulfurous egg this week too, announcing that bank consumer lending is declining at an 8 1/2 percent annual rate as of November. Revolving credit, primarily credit card lending is declining at a whopping annual rate of 18.5 percent! There is clearly no recovery in bank lending. We suspect that is in part due to the sorry state of household finances, but more so due to the utter insolvency of the banking system as a whole. The credit unions and banks out there that are still solvent enough to lend just cannot pick up the slack from the collapse of the system.
* * *
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in each State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.
1. Georgia
2. Nevada
3. Illinois
4. Kansas
5. Minnesota
6. Utah
7. Florida
8. Missouri
9. Oregon
10. Arizona
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; only those States which have had two or more closures are considered in this analysis.
1. Florida (38.89%)
2. Colorado (42.80%)
3. Michigan (43.53%)
4. California (45.06%)
5. Nevada (49.81%)
6. Washington, up from #9 (50.62% down from 56.18%)
7. Ohio (50.84%)
8. Georgia (54.64%)
9. Utah (55.45%)
10. North Carolina (56.70%)
* * *
The Frugal Scotsman's FDIC Cash Burn Through O'Meter gets adjusted with a subtraction of $539,100,000. The value now stands at $39,020,890,000.
Showing posts with label revolving credit balance. Show all posts
Showing posts with label revolving credit balance. Show all posts
Sunday, January 10, 2010
Friday, July 10, 2009
July Credit Card Collapse Report
In last month's report, we expected to see rising charge-offs on bank's credit card receivables as more of their shrinking portfolios were dodgy. Sure enough, when the big banks reported their default rates last month, the results were impressive.
Bank of America - the USA's largest bank - reported a 12.5% default rate in May, up from 10.47% in April. This is a 19% increase in one month! The default rate is also perilously close to the interest earned on all credit card balances (according to the Federal Reserve at last report, 13.54% on all credit card accounts with balances nationally). Effectively, credit cards have become a money-losing operation for the Bank of America. We expect, over the coming months, that credit card defaults will destroy all the capital which the Bank of America allocated to its credit card operation - and then some. Other credit card lenders are suffering the same fate.
Speaking of the Federal Reserve, their most recent report on consumer credit shows a continuing and, to us, unsurprising decline in revolving loans. The drop in April was revised substantially upwards (as we predicted), now equivalent to a 28% annual rate of decline. The May preliminary data shows a moderating of the decline - which we consider to be highly suspicious. We expect next month's revisions to actually show an acceleration - as default induced charge-offs increase, and paydowns by still-solvent borrowers continue. Stay tuned...
Bank of America - the USA's largest bank - reported a 12.5% default rate in May, up from 10.47% in April. This is a 19% increase in one month! The default rate is also perilously close to the interest earned on all credit card balances (according to the Federal Reserve at last report, 13.54% on all credit card accounts with balances nationally). Effectively, credit cards have become a money-losing operation for the Bank of America. We expect, over the coming months, that credit card defaults will destroy all the capital which the Bank of America allocated to its credit card operation - and then some. Other credit card lenders are suffering the same fate.
Speaking of the Federal Reserve, their most recent report on consumer credit shows a continuing and, to us, unsurprising decline in revolving loans. The drop in April was revised substantially upwards (as we predicted), now equivalent to a 28% annual rate of decline. The May preliminary data shows a moderating of the decline - which we consider to be highly suspicious. We expect next month's revisions to actually show an acceleration - as default induced charge-offs increase, and paydowns by still-solvent borrowers continue. Stay tuned...
Saturday, May 9, 2009
Credit Card Collapse Report
With today's post we are introducing what we expect to be a recurring report on consumer credit in the USA.
On May 7, the Federal Reserve issued its monthly report on consumer credit. Going beyond the massaged, 'seasonally adjusted' figures, there are some impressive numbers. Apparently in the first quarter of 2009, revolving credit balances - mostly credit cards - fell $60.4 billion, approximately 6%.
This means that not only are people not taking on additional credit card debt, they are paying it off at a rapid rate. If this should continue as a trend, and there are at least two reasons to expect that it will, it will have a serious dampening effect on consumer and business spending.
The first reason to expect the credit card paydown to continue is that credit card issuers are cutting credit lines right and left. Even good customers who have always paid on time are finding letters in the mail informing them their lines have been reduced or their accounts closed altogether.
The second reason is the debtors themselves are feeling less inclined to be debtors. When one's income is declining or even just less certain, all debts become onerous.
It should also be mentioned that part of the decline in debt outstanding is due to writeoffs by lending institutions. These writeoffs also erode the lenders' capacity to issue new loans.
On May 7, the Federal Reserve issued its monthly report on consumer credit. Going beyond the massaged, 'seasonally adjusted' figures, there are some impressive numbers. Apparently in the first quarter of 2009, revolving credit balances - mostly credit cards - fell $60.4 billion, approximately 6%.
This means that not only are people not taking on additional credit card debt, they are paying it off at a rapid rate. If this should continue as a trend, and there are at least two reasons to expect that it will, it will have a serious dampening effect on consumer and business spending.
The first reason to expect the credit card paydown to continue is that credit card issuers are cutting credit lines right and left. Even good customers who have always paid on time are finding letters in the mail informing them their lines have been reduced or their accounts closed altogether.
The second reason is the debtors themselves are feeling less inclined to be debtors. When one's income is declining or even just less certain, all debts become onerous.
It should also be mentioned that part of the decline in debt outstanding is due to writeoffs by lending institutions. These writeoffs also erode the lenders' capacity to issue new loans.
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