As Twentieth US Bank This Year Fails Vultures Are Circling Over Citigroup
The Community Bank, based in Loganville, Georgia was closed by regulators on Friday, the Federal Deposit Insurance Corporation said, making it the 20th bank failure of the year amid the ongoing financial crisis.
The question on everyone's lips is who's next?
The vultures are circling over Citigroup, whose value has slumped from $180 billion to $20 billion in the last twelve months. Shares of Citigroup Inc. fell as much 24% Friday, before recovering slightly to close 20% lower at $3.77, less than a year ago they were $35.29.
Citigroup's share price has now dropped more than 60% this week alone, and analysts are starting to wonder just what the future holds for the financial-services company.
Truly Shocking Data From America
Strapped for cash? Lost your job? Negative equity on the house? Worried about Christmas? Chill out, slap it on the plastic, something is bound to turn up. Isn't it?
Commercial US banks' outstanding credit card debt soared by $7.1 billion in the week ending Oct 15th. Let me read you that again. In one single week, US consumers slapped an extra $7.1 billion on their credit cards.
That represents a single week expansion of 1.9%, multiply that up by 52 weeks and, if the Yanks carry on at that rate, then credit card debt in the US will increase by almost 100% year-on-year.
Here's some more data for you. It gets worse.
US credit card debt rose more in the ten week period Aug08 to 15th Oct08 ($32.3 billion) than in the previous ten months ($29.1 billion) combined. That's some rate of acceleration that is.
American Express say that defaults on credit card debt with them are now running at 4.1% in the third quarter, up from 2.7% in Q3 2007. Bank of America say that their default rate is now running at 5.9%. The overall pool of "uncollectable" credit card debt is now estimated at 6.7%, double what it was twelve months ago.
Get ready for this one.
Q. Who do you think is the second largest "merchant vendor" for credit card use in the US is?
A. Ronald MacDonald!
Now if you're so strapped for cash that you have to stick the $4 tab for a Big Mac and fries on the old plastic then things are indeed bleak.
This recession isn't over by any means yet. Are you sure you still want the job Mr Obama?
And Today's Bank Failure Is... Washington Mutual
Washington Mutual (WaMu) has been closed by its regulator, making it the biggest US bank to fail.
The Office of Thrift Supervision (OTS) stepped in to shut the mortgage lender before selling its assets to JPMorgan Chase for $1.9bn (£1.0bn).
The OTS said it was worried WaMu would run out of cash as $16.7bn of deposits had been withdrawn since 15 September.
WaMu was one of the lenders worst-hit by the collapse of the US housing market and soaring mortgage defaults.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
The bank had about $307bn of assets but only about $188bn of deposits.
US Bailout Plan - Its Happened All Before
The planned US bailout has parallels to a similar operation carried out by Finland, Sweden & Norway in the early 1990's.
The upshot of that rescue bid was a deeper recession and surging unemployment. The benefits took five years to filter through to the economy.
Full story here
You Can't Eat Gold, And You Can't Drink Crude
I think if I was a Lehman's employee (or ex-employee to be more accurate) right now I'd be checking my underarm for signs of the kind of news that not even your best friend passes on.
I'd be asking "why were/are the government prepared to bail out everybody else and not us?"
I think that the answer is that having already stumped up the cash to bail-out Fannie & Freddie, the government thought "we can't keep doing this, enough is enough"
Lehman's were in the wrong place at the wrong time. The subsequent down draught from letting them go to the wall was so severe that it seems that the US government reconsidered, and are currently looking to take on board just about every failure and hard luck story going.
The collapse of the US economy is at stake (and pretty much by default that of the rest of the world). Who is going to foot the bill? From where I'm sitting it looks like the US banks losses may well be dwarfed by the future losses incurred by the US homeowners who aren't defaulting on their mortgages.
And at some point not too far away this has to have a serious very impact on consumer spending. And the US economy is driven by consumer spending.
If you want to pull your money out of the US economy where do you put it when even the banks aren't safe anymore?
Precious metals and crude seem to be flavour of the week, followed by grains. Yet these are driven by a strong world economy, if and when the US economy goes down the pan, the world economy goes with it.
The US government appear to have got themselves caught between a rock and a hard place, pretty much now obliged to take on any bank failure that pops up. How many independent US banks will there by left by Christmas?
And if more banks continue to fail how much more pain will US homeowners have to endure? It seems like a no-brainer to me that consumer spending will be slashed. And that spells doom and gloom for the rest of the world too.
Today's US Banking Shock
It seems like there's big shock banking news out every Monday at the moment, and today is no exception.
The last two major US investment banks Morgan Stanley and Goldman Sachs have changed their status to become bank holding companies, allowing them to take deposits from investors.
The changes should enable them to raise more funds by opening commercial banks and will also give them access to Federal Reserve support.
Both banks filed requests with the Federal Reserve to change their status, and late on Sunday, the Fed announced it had granted the requests.
Don't Blame The Short-Sellers
Guess what? Up until 2003, all US investment banks were allowed only 12 to 1 leverage. Then in 2004, the U.S. Securities and Exchange Commission gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Guess which ones they were then? Bear, Lehman, Merrill, Morgan and Goldman. Three men down and two walking wounded.
So whilst they point the finger at short-sellers, they really want to be pointing it at themselves, and the management of the Five Horsemen of the Apocalypse who leveraged themselves up to 40-1 with bad investments.
Not Everyone Is A Fan Of Proposed US Bailout
Criticism is starting to mount over the US government's proposed bailout of the ailing financial markets before its even happened.
Critics say that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can't postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.
They have a point.
The Fed or Treasury first stepped in to rescue investment bank Bear Stearns Cos. in March, followed by the takeover of mortgage companies Fannie Mae and Freddie Mac in September. This week the Fed put up $85 billion to keep insurance giant AIG afloat, and Congress is mulling tens of billions of dollars in loans to Detroit automakers.
Critics are asking: "how far down the road do they go, and where do they stop?"
The ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, said he wants the Fed to let markets work rather than opt for bailouts, even if the consequences are "brutal."
Peter Boockvar, an equity strategist at Miller Tabak & Co in New York, agrees. Bailing out Bear Stearns and creating lending facilities for investment banks, he said, "gave financial companies a false sense of security that they had time to de-lever at their leisure."
Unless the central bank stops interfering with market discipline, Wall Street's problems will continue, he said. "The market can get to the right price on its own," Boockvar said. "Anything that prevents it from happening is just prolonging the inevitable."
Another US Bank Collapses Friday
The Silver State Bank of Henderson, Nevada was closed by US regulators Friday, the 11th US bank to collapse this year amid a surge in soured real-estate loans stemming from the worst housing slump since the Depression.
Silver State, with $2 billion in assets and $1.7 billion in deposits, was shut by the Nevada Financial Institutions Division and the Federal Deposit Insurance Corp., the FDIC said Friday.
Shares in Silver State have fallen 97% in the last year.
Banking Industry Outlook - Bad, And Getting Worse
The US Federal Deposit Insurance Corp. warned Tuesday that the outlook for the ailing banking industry was bad - and getting worse.
The FDIC, which provides cover for U.S. bank deposits, may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures. Its chairwomman Sheila Bairsaid the borrowing would not be to cover any FDIC losses, instead it would provide short-term liquidity to cover bank failures.
The FDIC Tuesday said its "problem list" of banks increased 30 percent in the second quarter to 117 banks as more commercial real-estate loans were overdue. Nine US banks have failed so far this year.
Worried US banks sharply reduce business loans
(International Herald Tribune) -- Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.
Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term "commercial paper" not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.
The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.
"The second half of the year is shot," said Michael Darda, chief economist at the trading firm MKM Partners in Greenwich, Connecticut, who was until recently optimistic that the economy would continue expanding. "Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit."
Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.
Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.
But when Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.
"The exact words were, 'We're saying no to almost everybody,' " Greenblatt recalled. "This is why God made banks, for this kind of transaction. This is going to slow down the American economy."
Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.
That is a drop of nearly $150 billion, an amount much larger than the value of the tax rebates the government has sent to households this year in an effort to spur economic activity.
Two More US Banks Fail
(AP) -- US federal regulators closed two small Western banks Friday, bringing to seven the number of US banks that have failed this year.
The banks, owned by First National Bank Holding Co. of Scottsdale, Arizona, will have their deposits and some assets transferred to Mutual of Omaha Bank, according to the Federal Deposit Insurance Corp., or FDIC.
One bank, First National Bank of Nevada, based in Reno with $3.4 billion in assets, also operates as First National Bank of Arizona. The other, First Heritage Bank, based in Newport Beach, California, had $254 million in assets and primarily served businesses. The banks were undercapitalized, the Office of the Comptroller of the Currency said Friday.
Bill Uffelman of the Nevada Bankers Association called the FDIC action "a reflection of the times for the banks." The world's largest banks and securities firms have announced more than $468 billion in writedowns and credit losses since the start of 2007.
Sheila Bair, chairwoman of the FDIC, has said bank failures will increase as foreclosures rise and home sales slump.
