Friday, August 29, 2008

FDIC: Getting Ready for the Worst

The US banking system has over $8.5 Trillion in deposits, $4.4 Trillion of which are backed by the FDIC. With a paltry $45B in insurance money and a growing list of ailing banks, the FDIC is becoming very concerned they will likely run out of money if significant issues are encountered... Problem is: Significant issues are popping up everywhere and they are nearly surrounded.

Note: The failure of just one large institution (i.e. Wamu) could wipe them out.

So what's going on in the US Banking system?

From Mike Larson, Money and Markets: Latest FDIC Report Reads Like a Horror Novel

Bank income PLUNGED 86.5%! Insured commercial banks and savings institutions reported net income of $5.0 billion for the second quarter of 2008 — down a whopping 86.5% from a year earlier.

Loan loss provisions QUADRUPLED! Loss provisions totaled $50.2 billion, more than four times the $11.4 billion quarterly total of a year ago. Second-quarter provisions absorbed nearly one-third of the industry’s net operating revenue — the highest proportion in 19 years.

Actual loan losses nearly TRIPLED! Bad loan losses soared to $26.4 billion in the second quarter. That’s almost triple the $8.9 billion that was charged off in the second quarter of 2007 and the highest quarterly charge-off rate in 17 years.

Credit card losses rose 47% ... commercial and industrial loan losses more than doubled, increasing 128% ... home equity loan losses jumped 633% ...

Plus, loan defaults on residential mortgage loans soared 822%.

And get this: Bad construction and land development loans skyrocketed a staggering 1,227%!

Surging loan delinquencies signaled MUCH more pain to come! The number of past-due loans and leases rose for a ninth consecutive quarter, posting the second-largest quarterly increase in the nine-quarter streak — a dead give-away that bank losses will continue to surge for the foreseeable future.

List of Problem Banks Grow:

Guardian.UK: FDIC sees 117 problem banks; most since 2003 (Remember, INDYMAC wasn't even on the list)

The number of troubled U.S. banks rose 30 percent to 117 in the second quarter, the highest level in five years, and a top regulator warned that conditions will worsen as the housing slump and credit crisis continues to pound profitability.

Nine U.S. banks have failed so far this year, including mortgage IndyMac Bancorp Inc, which has drained the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks.

The FDIC said the sector's earnings fell 86 percent from a year earlier to $5 billion in the second quarter, mainly due to a fourfold rise in provisions for bad loans to $50.2 billion. With the exception of the fourth quarter of 2007, industry profits were the lowest since the fourth quarter of 1991.

Delinquent loans -- those more than 90 days past due -- jumped by almost 20 percent during the quarter to $162.9 billion, the FDIC said.

"The numbers are alarming, but we are coming off of an incredibly low base of problem institutions and failures," said Mike Stevens, senior vice president for regulatory policy at the Conference of State Bank Supervisors.

FDIC Lifeline:

Reuters: FDIC may borrow money from Treasury

Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.

The fact that the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

FDIC Getting Ready for Bigger Problems:

Bloomberg: FDIC Adds Office Space in Dallas, Ready for More Bank Failures


The Federal Deposit Insurance Corp. is preparing to sign a five-year lease to add five floors of space at its Dallas regional office as the agency prepares to increase scrutiny of failing and troubled U.S. banks.

The federal agency, which insures deposits and disposes of failed banks and their assets, will add 125,000 square feet to the 185,000 square feet it rented last year at 1601 Bryan St., a 49- story tower in downtown Dallas. That agency will add about 300 staff at the building, including some of the 69 retirees it is bringing back to help handle the increased workload, said spokesman Andrew Gray.

``Already you've seen nine failures of institutions this year,'' said Gray. ``While historically this isn't a large number, it does represent an increase over the past two years. We anticipate additional failures and thus we would anticipate additional workload.''

The staff additions would bring the total number employees at that location to about 850.


Closing:


We're currently dealing with a self-perpetuating, downward, nearly out-of-control spiral:

Debt ladened US Consumers are strapped, defaults are increasing across the spectrum, and the housing, commercial real estate and construction markets are getting worse. These issues are increasing writedowns/losses, impairing already severely deteriorated banking system capital ratios and hampering future credit creation/banking system earnings - all exacerbating the perpetual feed-back loop.

So, is there light at the end of the tunnel?

Unless the real estate markets and credit conditions improve soon (highly unlikely) I don't expect to see light at the end of the tunnel for quite some time. As a matter of fact, the odds are probably higher for a tunnel collapse than for catching a glimmer of emergent light.

Regards

Randy

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11 Comments:

At 8/29/2008 1:33 PM, Blogger Justin_n_IL said...

This is truly the perfect storm.

 
At 8/29/2008 3:42 PM, Anonymous jobuck said...

I called my bank the other day to prevent a CD from rolling over. They asked why? I said, I can get a better rate from an online savings bank with 100% liquidity and no minimums. In response, they said they would boost my savings account (with them) rate 1% above whatever their normal rate would be for six months; effectively making the rate higher than my online savings bank. When was the last time you heard of a bank doing that? Can anybody comment on the relative SAFETY of money in a discount brokers cash/money market account vs a banks. Brokers have depositor insurance like FDIC but it's not exactly the same.

 
At 8/29/2008 4:03 PM, Anonymous Anonymous said...

GOLD and SILVER in physical form are 100% safe.

Forget the rest.

 
At 8/29/2008 7:06 PM, Blogger FOFOA said...

Guess what kids, it's Friday night! And you know what that means. That's right..... another BANK FAILURE

And you gotta love the name of this one: Integrity Bank!

 
At 8/29/2008 10:46 PM, Anonymous jerry said...

This is the the beginning of the in-your-face recession. This is like Neil Young's song, Powderfinger. It is sung by a young guy seeing a gun boat coming up the river. He sees it pointed at him and knows he is about to take his last breath. He is singing about his life as it quickly races before his eyes. "look out mama, there's a white boat comin' up the river...And when the first shot hit the docks I saw it comin'."

This week's news is that first shot that this backwood's kid is seein' comin' at him.

Declining incomes, failing consumer news, bank failures, Fannie uh falling flat, FDIC needing more cash (this is why Bush wants a timetable in Iraq. The burning up of $12 billion per month needs to be used for FDIC.), and the DOW gearing up for a slide under the 11,000 net, Weaker employment numbers will also factor in the mix. And, don't forget foreclosures.

Xmas is 17 weeks away. It will not be looking too pretty by then. Although, who am I to say. I really don't have a crystal ball. All I've got is a handful of tea leaves.

The purchasing of CD's through on-line banking may cause one to be waiting for an FDIC check for a long time when that troubled bank locks its doors from the inside. I am not sure that money markets are insured.

If you want a CD, look locally for a bank that has not sold subprimes. Many banks will remain solvent, although in need of cash.

I have gold Troy's, but remember, you cannot go into the pharmacy and cash it in when times are tough and your ounce is worth over $1000. One will need to find a dealer/buyer who has the cash to take it off your hands, for a price, in order to flip it. We should all be skeptical about getting the market value for a Troy when times will get real tough. It is only worth as much as what a buyer will give you. That's the market place for ya. It may not be that easy to get one's meds, mouthwash, and milk in a timely manner with your Troy. Cash will be king one way or another.

As Justin so beautifully stated, this national, as well as global, unfolding is like watching a real-time thriller peel away its layers right before one's eyes.

Once again, I am burning the Pittsburgh midnight oil reading and writing on this great blogspot.

 
At 8/29/2008 11:51 PM, Anonymous Patrick said...

This is the end, my only friend the end.

If the 5% rate Wamu is offering on CDs isn't indication enough that there's trouble brewing, the fact that Wamu is promoting it with a hand drawn white board sign certainly clinches it.

Photo taken at corner of Hualapai and Charleston Blvd, Las Vegas, Nevada.

http://lastnightinvegas.blogspot.com/2008/08/this-is-end-my-only-friend-end.html

 
At 8/31/2008 8:38 AM, Anonymous Dave said...

jobuck,

I'd be very cautious these days about where you put your money. An additional 1% is meaningless if you take a 50% haircut in the end!

As I understand it, money market accounts are absolutely not insured in any way.

Brokerage accounts might be backed by the SIPC.

Normal bank accounts, of course, are backed by the FDIC up to $100,000 PER PERSON, not per account. If you have more than that you should distribute your money among several banks to keep the amount below $100,000 in any one bank. I cannot imagine that the government will let anyone lose money in the $100,000 category. That would instigate an immediate nationwide run on the banking system.

Finally, banks offer higher rates to lure customers. The more desperate the bank, the higher their offer will be. So beware!

I have a pretty good track record for selecting banks that fail. I had an account with the online NetBank, which was shut down last year. My remaining account is with WaMu, and I'm expecting it will be shut down soon enough! It disappoints me to see these banks go under because I had accounts with them for nearly a decade and they were always good to me. It seems that as the good ones go under we're left with the scummy ones to deal with.

Dave

 
At 9/01/2008 6:55 PM, Anonymous Anonymous said...

Yo, Jobuck!
Get your money out of that bank, now!
Don't wait until its too late. It wont matter
what percentage you get if they go out of
business. Any bank doing that (offering more) is doing so due to desperation. Take your money out. I did. Buy yourself some silver bars, some gold/silver mining stock, and watch gold and silver take off!

 
At 9/01/2008 6:57 PM, Anonymous Jim Morrison said...

...Of everything that stands, the end,
I'll never look into your eyes, again,
so he took down the ancient mask and he walked on down the hall, and he went into the room where the Democrats and Republicans were and he ....walked on down the hall.

 
At 1/11/2013 12:39 PM, Anonymous QUALITY STOCKS UNDER 4 DOLLARS said...

Who knows what the furture holds.

 
At 3/27/2014 10:33 PM, Anonymous PENNY STOCK INVESTMENTS said...

The worst is yet to come.

 

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