Steepest-Ever Decline in Bank Stock Index (Update2)
July 14 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, and National City Corp., Ohio's largest bank, led the steepest-ever decline in the two-decade history of an index of bank stocks after IndyMac Bancorp Inc.'s collapse spurred concern more lenders are vulnerable to bad home loans.
IndyMac's failure has people worried about others.
The Standard & Poor's 500 Banks Index had its worst one-day decline since its was created in 1989, falling as much as 10 percent to close at 136.01.
``Take a very low profile,'' Laszlo Birinyi, who oversees more than $350 million in Westport, Connecticut, said in an interview on Bloomberg Television. ``There's an awful lot of fires that need to be put out. I'm concerned about how we get them all out.''
Investors are speculating about which banks may fail after the demise of Pasadena, California-based IndyMac, which once ranked as the second-biggest U.S. mortgage company.
The collapse of IndyMac and deterioration in the construction, mortgage and auto lending markets indicate that losses at U.S. regional banks will force dividend cuts and additional capital raising, said analysts at Goldman Sachs Group Inc. and CreditSights Inc.
``After IndyMac, everyone asks, 'Who's next?' but I can list several names that strike me as far more likely to fail than National City,'' said Sterne Agee & Leach Inc. analyst Sean Ryan in an e-mail. National City has ``tons of capital and a real deposit base.'
Goldman put Zions, Utah's biggest bank, on its ``conviction sell'' list. Lehman Brothers Holdings Inc. predicted $26 billion in cumulative losses for Seattle-based Washington Mutual, and M&T Bank Corp., based in Buffalo, New York, posted a 25 percent decline in second-quarter profit.
Banks may report record unrealized securities losses of $35 billion in the second quarter, up 64 percent from the previous three months, the Goldman analysts said in a report today. Zions, SunTrust Banks Inc., Regions, Comerica Inc. and Bank of America Corp. are among companies that Goldman and CreditSights said may cut their dividends to help restore depleted capital.
IndyMac was seized after a run by depositors left the California mortgage lender short on cash last week. The government stepped in to help beleaguered home lenders Fannie Mae and Freddie Mac yesterday when Treasury Secretary Henry Paulson asked Congress for authority to buy unlimited stakes and lend to the companies to halt a collapse in confidence.
The decision to protect Fannie Mae and Freddie Mac was needed to ``stem the growing risk of credit contraction in the U.S.,'' the Goldman analysts said.
So, IndyMac was the first domino to fall and is now operating under Gvt Conservatorship. I'm curious how that went today -- first day operating in this mode.
Customers swamp IndyMac to withdraw money
PASADENA, Calif.—Worried customers with deposits in excess of insured limits flooded IndyMac Bank branches on Monday, demanding to withdraw as much money as they could or get answers about the fate of their funds.
With the failed bank now under federal control, hundreds of people lined up before dawn outside its headquarters branch in Pasadena.
The crowd swelled throughout the day, with customers seeking shelter from the hot sun under makeshift tents. Many waited for hours to get inside what became IndyMac Federal Bank after its takeover Friday by the Federal Deposit Insurance Corp.
"I didn't think this could happen," said Charles Tengeri, a retired school teacher who emerged from the bank with a check for $171,000—an amount he said represented most of his savings.
"I'm glad to get anything out," he said.
After waiting more than seven hours in line, Amy Miller walked out of the bank offices with a check for the funds she had invested in a one-year certificate of deposit. The crowd of fellow IndyMac customers burst into applause.
"Finally," the 35-year-old travel agency owner said, then took a bow. "I just couldn't wait for my money anymore."
Customers had been limited over the weekend to taking out funds through automated teller machines, debit card transactions and checks.
Customer Harvey Soldan spent Sunday night at a hotel near the bank so he could be among the first in line. With more than $100,000
in deposits, he anxiously waited to speak with bank officials.
"It's a question of how much we can get and how soon," Soldan said while waiting in line.
FDIC spokesman David Barr, who was stationed outside IndyMac headquarters, said it could take several years before the agency fully addresses customer claims.
"We have to completely unwind the affairs" of the bank, Barr said. "We may sell a portion to another bank, sell real estate. There may be lawsuits. There are a lot of different aspects to this."
IndyMac is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, according to its regulator, the Office of Thrift Supervision.
The FDIC insures bank deposits of up to $100,000 per depositor and up to $250,000 for funds in retirement accounts such as an IRA.
Speaking of the FDIC, I wonder how are they handling this potentially, very contagious, consumer loss of confidence in our public banking system?
With lots of Reassuring Propaganda -- of course:
With that calming reassurance out of the way (don't you feel better now), let me now tell you a couple of things the FDIC doesn't really want you to know/understand.
The FDIC has a set Designated Reserve Ratio of 1.25% of estimated, insured deposits -- therefore they have ~ $53 Billion (in insurance funds) backing total FDIC insured deposits of ~ $4.5 Trillion.
Current estimates for IndyMac's failure is between $4-8 Billion.
For ease of math (I imagine this initial failure estimate is very low), lets pick $8 Billion.
Therefore, the FDIC has ~ 45 Billion (53-8=45) left.
Let's now hypothetically suggest WAMU, National City and a few other banks also tank within the next year or so and this crisis completely depletes FDIC insurance... What then?
Glad you asked... How about another government taxpayer Bailout! Why not -- the Gvt will have already taken over Fannie and Freddie by then, and what's a few more trillion shared among the broke citizens of an already insolvent country.
Bottom line to the FDIC "what if": Depositors will still get their $100,000 insured by the FDIC, but it will take some time -- money will first need to be printed (causing a massive wave of new inflation). So by the time depositors get their physical money, inflation will have eroded away its purchasing power... It may or may not buy you a roll of toilet paper, but look at the bright side: even if it doesn't, you can use the dollars for the same purpose.
Weimar here we come!
Closing Note: We currently have > $14 Trillion circulating the globe and, in the U.S., less than 3% of that is available in cold, hard, cash -- the rest are ones and zeros on computer hard drives... Really makes one stop and think...
Do you have enough cash on hand in the event YOUR Bank closes it's doors? What if it take 6-months to a year to get your hyperinflated FDIC insurance money? Are you prepared?