Mortgage-related troubles continue to haunt regional banks. The melt down of the housing market has created a self-reinforcing spiral where lower prices lead to more defaults and unsold inventory, which in turn causes prices to slide further and depress demand because investors shy away from throwing good money after bad.
Toxic assets in banks will continue to exert major resistance on the stock market until the credit crunch is over. But that is months away and I don’t see an easy way out.
On Friday, Silver State Bank became the latest banking casualty and was placed in the receivership of the Federal Deposit Insurance Corporation (FDIC). This marks the 11th federal insured bank failure of 2008 and we are still counting.
Before these banks walk into history without so much as a mention, I think we shall at least afford them the dignity of a quick body count.
Nevada regulators shut down Silver State Bank and the bank’s insured deposits will be assumed by Nevada State Bank of Las Vegas.
Andrew McCain, son of Republican presidential nominee John McCain, was previously a member of the bank’s board, but recently stepped down for “personal reasons.”
Silver State bank had $2 billion in assets and $1.7 billion in deposits as of June 30. FDIC said Friday Its branches will reopen Monday as depositors continue to have full access to their deposits.
State regulators shuttered Integrity Bank on 29th August 2008. The bank possessed $1.1 billion in total assets and $974.0 million in total deposits as of June 30.
All deposits of Integrity Bank, including those in excess of the FDIC’s insurance limits, will be assumed by Regions Bank (Alabama) for the full amount. Depositors will continue to have uninterrupted access to their deposits.
Closed on August 22 2008, Columbian Bank and Trust (Kansas) had total assets of $752 million and total deposits of $622 million. FDIC entered into a purchase and assumption agreement with Citizens Bank and Trust (Missouri) for the insured deposits of Columbian Bank.
Closed on August 1 2008, First Priority Bank (Florida) had total assets of $259 million and total deposits of $227 million. The insured deposits and six branches of First Priority were taken over by SunTrust Bank.
At the time of closing, approximately $13 million of uninsured deposits held in 840 accounts could have exceeded insurance limits.
The FDIC entered into purchase and assumption agreements on July 25, 2008 with Mutual of Omaha Bank to take over all deposits and certain assets of the First National Bank (Nevada), and First Heritage Bank (California).
As of June 30, 2008, First National had total assets of $3.4 billion and deposits of $3.0 billion while First Heritage Bank had total assets of $254 million and deposits of $233 million.
7. Indymac Bank
Indymac’s bank run is one of the spectacular collapse in US financial history. Consider this: total assets of problem institutions increased from $26 billion to $78 billion this year, and $32 billion came from Indymac. Undoubtedly, the champion so far.
Principal and interest on insured accounts, through July 11, 2008, are fully insured by the FDIC, up to the insurance limit of $100,000.
ANB Financial was closed on May 9, 2008 and it had approximately $2.1 billion in assets and $1.8 billion in total deposits. FDIC approved the assumption of the insured deposits by Pulaski Bank and Trust Company.
Closed on March 31, 2008 with $54.7 million in total assets and $50.3 million in total deposits. FDIC approved the assumption of all deposits by First International Bank and Trust.
In addition, First International will purchase $35.8 million of First Integrity’s assets for a total premium of $2.03 million.
10. Hume Bank
FDIC was named receiver to Hume Bank, Missouri on March 7, 2008. Hume had total assets of $18.7 million and total deposits of $13.6 million. Security Bank will assume Hume Bank’s $12.5 million of insured deposits for a premium of 4.26 percent.
Closed on January 25 2008 with $58.5 million in total assets and $53.8 million in total deposits.
Ok, that is all for the round-up. Meanwhile, credit rating agency Standard & Poor’s downgraded two regional banks and revealed another eight banks are holding precarious portfolios. In all, 37% of regional banks could see lower ratings.
Being deemed less creditworthy increases cost of borrowing which could aggravate the liquidity crunch for these “thinly capitalized” banks.
If you are shocked by 11 bank collapses, just look back into history and you will understand that this is just the tip of the iceberg. Back in 2002, the FDIC saw 11 banks going under and during the downturn of the early 1990s, 291 FDIC insured banks failed between 1991 to 1993.
Certainly, we will see more distressed financial institutions before the storm is over. Nevertheless, there is always a silver lining. This banking crisis presents the perfect time for mergers and acquisitions. Despite a pathetic balance sheet, Lehman Brothers have several suitors, of which Korea Development Bank is a forerunner.
For those who sense bargains, they will snap up banking stocks and profit immensely when the market turns in their favor. But KDB’s track record is really poor. We shall see if Lehman Brothers turn out to be the crown in their jewel or the dud investment of the decade.