Welcome to yet another addition of FDIC Friday.  This weekend see the closing of three banks of modest size:

• Century Bank, Federal Savings Bank, Sarasota, Florida (total assets of $728 million and total deposits of approximately $631 million)
• Orion Bank, Naples, Florida (total assets of $2.7 billion and total deposits of approximately $2.1 billion)
• Pacific Coast National Bank, San Clemente, California (total assets of $134.4 million and total deposits of approximately $130.9 million)

The cost to the FDIC fund this week is roughly $986 million dollars.  Remember back at the end of September the FDIC said they were going to be running in the red (out of money) and they were looking at “all options”.  Well, they’ve picked their option – on Thursday, 11/12, the FDIC finalized their 3 year, forced pre-payment of fees, raising about $45B for their funding needs.

Does this decision make sense to anyone?

As banks will need to find this cash to pay the FDIC what will that impact? Their desire to lend.  In a time where financial institution are holding back financing from even some of the best potential borrowers, why would the FDIC give banks an excuse to lend even less?

The other fear I have about this decision comes down to repeat behavior.  Much like a crack addict looking to score his hit, what happens if the FDIC funds run out before the 3 year period ends?  Will demanding 3, 4 or 5 years of payments become the norm for the industry and, if so, what impact would that have?

Just let that noodle around in your head for some time.

Another Friday and another set of failed banks.  Up this week are a number of small financial institutions – well in comparison to failure this year.

The banks in question are:

• United Security Bank, Sparta, GA;
• Home Federal Savings Bank, Detroit, Michigan;
• Prosperan Bank, Oakdale, MN;
• Gateway Bank of St. Louis, St. Louis, MO;
• United Commercial Bank, San Francisco, CA;

The FDIC expects to report a loss of $1.532B for closing down these fine, outstanding, examples of the business community.

There are a number of developments to point out this evening so let us get right into it, shall we?

FDIC Friday!

9 Banks closed were shuttered by the FDIC on Friday with a total asset base of $19.1B in total – and I thought the 7 from last week were bad .  The banks in question are:

• California National Bank, CA
• Bank USA, NA, AZ
• San Diego National Bank. CA
• Pacific National Bank, CA
• Park National Bank, IL
• Community Bank of Lemont, IL
• North Houston Bank, TX
• Madisonville State Bank, TX
• Citizens National Bank, TX

How much will the 9 closings cost the FDIC DIF fund? A nice little sum of $2.5B.  Nice, huh?

Stimulus has saved, created 650,000 – Bullsh*t

The magic of being a politician is that one can say just about anything without providing much detail about your statement or claim and very few people will have the ability to debunk your claim.  Then, if someone does attempted to make sense of your statement, you can simply attack them without using facts and claim the person questioning you is unfit or unqualified to be asking such a question.

In 2008 Mr. Obama stated he would “save or create 3.5 million jobs by 2011” including “600,000 “created or saved” this year.  There are so many problems with this claim it is laughable.

There is virtually no way to hold him accountable to this number as there is no realistic way to count a “saved” job.  So, to hear the administration claim a total of 650,000 jobs were saved due to $159B in stimulus spending is highly questionable.

If you break it down one could imply there were 650,000 new/saved jobs that pay $160,000 per year? God forbid one actually questions the administration on such a thing:

Jared Bernstein, chief economist and senior economic advisor to the vice president, called that “calculator abuse.”

He said the cost per job was actually $92,000 — but acknowledged that estimate is for the whole stimulus package as of the end of 2010.

Stay classy Bernstein.

Two areas that allegedly benefited where construction (80K) and education (325K).  You mean to have the public believe roughly 400,000 construction and teaching jobs were created AND pay 92K a year?

Really?

Look at the base average of those two groups and tell me there is any truth there.

We already know the official unemployment number reported is severely under reported, and the method of collecting data for this survey is faulty, how can anyone believe this claim?

It’s politics, pure and simple.

The coming (Commercial) Real Estate Crash

Capmark was the big signal last week that CRE lenders are really feeling the economic pinch.  While people have been warning of the CRE implosion for almost a year now, the press is beginning to really take notice of the situation.

Wilbur Ross Jr, the leveraged buyout specialist, is warning of the impending doom:

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”

Let’s put this into terms most people can relate to.

You have a mall and each vendor needs to make rent; however, you have a bad holiday season.  As a result, quarter of the vendors can no longer make their monthly payments.  Stores close, occupancy goes down. Unfortunately the property owner must have a certain occupancy rate to meet the demands of their loan.  No longer being at this threshold the property owner defaults and banks now have a “toxic” loan on their hands.

Rinse. Repeat.

This story is going on all over the United States in both retail on office. Unfortunately for CRE lenders the Federal Reserve is saying “Hey, good luck with that!”

Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications. In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined.

Just a matter of time until the banks get hammered.

Do you happen to think it odd that GMAC is asking for ANOTHER financial life line only days after Capmark Financial went belly up?

In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 34% stake in the company could increase if existing shares eventually are converted into common equity.

Seeing they retained 25% ownership in Capstone, GMAC was abound to take a hit.

Recently the FDIC stated the United States needs to move beyond the concept of “too big to fail.” Even the Treasury also got into the mix; however, it seems that no one in the government is serious about the situation. If the administration was, wouldn’t they stop throwing funds at these worthless banks?

Oh, that is right, GMAC will get more funding because they finance GM purchases.

GMAC going back to the well also raises the question of  how long before others will head on back to Uncle Sam for a check?

I’m not saying, I’m just saying.

This – Capmark, Big Commercial Lender, May File for Bankruptcy - has the potential to put even more stress the financial markets…not simply because it is a bankruptcy but to long term – commercial banking – c0nnections:

The Capmark Financial Group, the big commercial real estate finance company cobbled together from pieces of GMAC, may file for bankruptcy as soon as this weekend, a person briefed on the matter told DealBook on Saturday.

…

Capmark has about $10 billion in assets, with another $10 billion in a Utah bank the company owns that would not be subject to a bankruptcy filing. Capmark has already moved several hundred million dollars into the bank to shore up its financial health.

Walk through this with me.

1. Capmark Financial is GMAC’s former Commercial Real Estate lender, but GMAC retained their retail banking  and renamed it to Ally.
2. GMAC still retails 25% ownership of Capmark Financial
3. Capmark Financial just had a $1.62B quarterly operating loss
4. Capmark Bank, a sub of Capmark Financial (the company that $posted a 1.62B loss) just obtained an FDIC “raise capital” letter from the FDIC

Add all the things above together and I have to wonder how far off are the failures of Ally and Capmark Bank.  Unless they simply packaged up ALL of the toxic assets and moved them to Capmark Financial, I would have to think both banks are/were involved in driving the losses at Capmark Financial, not just the CRE investments by the parent company.

I’m shocked.

I don’t say that with a cynical tone, I’m truly shocked. The FDIC closed down 7 banks today.

They are:

• Partners Bank,  Naples, Fla., with $68.7 million in assets and $63.4 million in deposits;
• Hillcrest Bank Florida, Naples, Fla., which had $83 million in assets and $84 million in deposits;
• Flagship National Bank, Bradenton, Fla., with total assets of $190 million and total deposits of about $175 million;
• American United Bank, Lawrenceville, Ga., with $111 million in assets and $101 million in deposits
• Bank of Elmwood, Racine, Wis., with $327.4 million in assets and $273.2 million in deposits;
• Riverview Community Bank, Otsego, Minn., with $108 million in assets and total deposits of about $80 million;
• First Dupage Bank, Westmont, Ill., with $279 million in assets and total deposits of $254 million.

The FIDC expects the above failures to cost the Deposit Insurance Fund roughly $356 million dollars.  This video of Shelia Bair, chairman of the FIDC, states (in regards to insuring funds) “We are the government…we cannot run out of money.”

Usually when people in power tell me not to worry, that is the time to worry… just think of how many CEO’s have said “We are not going bankrupt” only to see the company go down the tubes a month later?

Frankly, at this very moment, I am not sure what to think.

I was wondering when someone was going to point out that the small banks (or companies) that did not get bail-outs can not compete against those that obtained government funding.

Ironically, it is the FDIC head that points this out:

Community banks are coming under intense pressure from a crumbling commercial real estate market, a weak economy — and lop-sided competition with banking goliaths deemed too big to fail, FDIC Chairman Sheila Bair said Monday.

…

‘Too big to fail’ has become worse,” Bair told USA TODAY. “It’s become explicit when it was implicit before. It creates competitive disparities between large and small institutions, because everybody knows small institutions can fail. So it’s more expensive for them to raise capital and secure funding.”

When will “too big to fail” end?

Does the fact that FDIC Chairman Sheila Bair says “too big to fail” must end act as a warning to anyone?

Another perspective on the bail-out subject – Will other industries experience the same results?  Will Ford be able to, ultimately, compete against a government backed GM?

FDIC bank fund in the red until 2012.

The government insurance fund designed to protect consumer bank deposits will likely stay in the red through 2012, Federal Deposit Insurance Corp. chief Sheila Bair said Wednesday.

Testifying before members of the Senate Banking Committee, the nation’s top commercial bank regulator stressed that her agency was taking immediate steps to replenish the dwindling fund. But she said those efforts would not put the rescue fund in the black until a little more than two years from now at the earliest.

You don’t say!

The situation for CIT Group is getting worse:

CIT Group Inc is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said.

The lender to small and medium-sized businesses said earlier this month it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy.

If CIT goes into bankruptcy, they could be the 5th largest bankruptcy in U.S. history.  No only would leasing, consumer credit and vendor financing be impacted… so would bank customers.

CIT Group owns CIT Bank (not to be confused with CITI Bank) with roughly 6.4B in assets as of April 2009.  Since the FDIC short on funds, it would be interesting to see how a collapse  of this size would impact the FDIC’s ability to insure accounts.

Last August I wrote a piece about “The Syk Falling” or the banking collapse. My position then reflected my belief that what the nation was facing at the time was NOT a banking collapse, but part of a free market boom and bust.

Shortly after I commented, the FDIC came out with their update in the hopes of providing a bit of stability to the market. The highlights they pointed to:

• bank profits are down 86%
• 117 banks and thrifts are considered to be in trouble
• 8500 banks reserved $50.2 billion to cover losses from bad mortgages

The results at that point were very ugly. By no means a total banking collapse. So what would be total collapse? How about the closure of 9000 financial institutions, much like 1930 to 1933? That is a collapse. What the public is seeing now is the “key” financial institutions facing rough times and having government money pumped into them. Even if the Top 5 banks failed – with trillions of dollars in securities under their umbrella – they would be picked up by other institutions and life would go on.

But back to “the sky is falling” mentality. Let’s look at just how bad bank industry is doing, based on number of closures this year… and you have 36. Not as bad as some may have you think.

For your records, here is the full list.

So, to sum it up, the economy and the banking industry face a number of hurdles. Interest rates are expected to say low in order to stimulate lending, and more banks will fail. But we are not at a system wide collapse.