bank run blog

Just as the some of the nation’s largest and most coddled banks step up to ostentatiously “repay” a tiny fraction of the money that the Treasury and Federal Reserve have funneled to them through a purposely bewildering variety of mechanisms since August 2007, the ratings agencies have discovered similar widespread insolvency at the regional and super regional level. According to Reuters :

“Standard & Poor’s on Wednesday cut its ratings on 18 banks citing expectations of more difficult operating conditions due to volatile financial markets and tighter regulation.

Among the rating changes, S&P cut the counterparty credit ratings of Wells Fargo & Co by one notch to AA-minus, U.S. Bancorp by two notches to A-plus and Fifth Third Bancorp by two notches to BBB.

S&P also downgraded the counterparty credit ratings of Huntington Bancshares and Carolina First Bank by two notches to junk-status BB-plus with a negative outlook. It also cut Citizens Republic Bancorp counterparty credit rating by three notches to BB-minus with a negative outlook.”

The Associated Press reports that S&P analysts predict “permanent repercussions” still to come from the banking crisis that so many believe is over :

“Widescale changes to the industry because of the credit crisis and ongoing recession will dramatically alter the banking landscape, S&P credit analyst Rodrigo Quintanilla said in a release.

‘We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,’ Quintanilla said. ‘Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality. Such a transition period justifies lower ratings as industry players implement changes.’”

Reuters : S&P cuts credit ratings on 18 US banks

Associated Press : Standard & Poor’s cuts ratings on 18 banks

Bloomberg : U.S. Stocks Fall, Led by Banks on Downgrade; Health Shares Gain

Henry Blodget of the Business Insider had an interesting post Friday on the topic of bear market rallies in historical context, accompanied by some excellent charts :

“Now that stocks have rallied nearly 30% off their low, pundits agree: It’s a new bull market. So be very afraid.

Market punditry is a lagging indicator, not a leading one. Pundits are excellent at describing what has happened, not what is going to happen.”

Of course, many serious economists have been warning that the tumult in the financial sector is far from over, and that the markets will see large movements as a result. Nouriel Roubini made the rounds in Europe a couple of weeks ago, purveying that same message. The Independent reported on April 21 :

“In particular, the economist warned of further dangers ahead for the financial services industry in the US. ‘I see financial shocks in the months ahead. Some financial institutions are in so much trouble we may have to take them over,’ he said, before adding that losses in the industry could rise from $1 trillion to as high as $3.6 trillion.

Firms from across financial services will go out of business or be taken over, he said, particularly focusing on the bleak future for hedge funds.

Mr. Roubini also disagrees with more optimistic forecasts for the US economy. In an interview published on Forbes.com yesterday, he said that the prediction of a 2 per cent growth rate next year was far too bullish. He called it at somewhere around 1 per cent. ‘So while we are going to be technically out of a recession, it is going to feel like a recession,’ he added.

He blamed weak recovery, deflation which would dog the US for the next two years, and financial shocks for the lower-than-expected growth.”

Business Insider : Stop Thinking The 30% Stock Rally Means The Bear Market Is Over

Independent : Stock market bulls have got it wrong, warns Nouriel Roubini

On Friday afternoon, the Treasury announced that it was pushing back publication of the bank stress test results to next Thursday, apparently because some banks are trying to appeal their grades. According to CNN :

“Regulators have delayed releasing the results of stress tests conducted on the nation’s largest banks until May 7, government officials familiar with the matter said Friday.

The government expects to release its assessment next Thursday afternoon and will provide information both on individual companies as well as the overall group, according to sources.

For weeks, Wall Street has been anxiously awaiting the results of the tests, which regulators originally indicated would be announced on May 4.

Austan Goolsbee, a top economic adviser to President Obama, indicated Friday that the delay was driven, in part, over a disagreement by banks over the results of the tests. Regulators began notifying participating institutions of the results last Friday.”

The Financial Times reports that Treasury officials are concerned about the effect of the test results on share prices in the financial sector :

“The authorities’ decision to let the original timetable slip also reflects the widespread belief that, after months of speculation since the tests were first announced in February, their outcome has the potential to disturb the markets.

Government sources said regulators were likely to release both aggregate and individual data for each of the 19 banks, detailing their losses and capital needs under adverse economic -scenarios.

Some of the banks will then supplement those data with regulatory filings and analysts’ calls. Bankers said several lenders had pleaded with regulators for more time to lay out plans to plug any capital shortfall identified by the stress tests, by raising equity from either the government or from the stock market.

People familiar with the situation said that, despite their objections, Citi and BofA – and at least four more lenders – were almost certain to need more equity capital.”

It is left to the Times of India to mention the obvious next step for the feds, in an article headlined Markets expect more bailouts after bank stress tests :

“The relief after banks’ better-than-expected results during the first quarter has been short-lived.

Standard & Poor’s warned in a report that the credit cycle is tougher than expected.

’Markets are concerned about the rapid deterioration in bank loan portfolios in the US, as not only consumer loans, but commercial and commercial real estate delinquencies are on the rise,’ S&P said.”

CNN Money : Bank stress test results delayed

Financial Times :Cautious regulators delay release of financial stress report

Economic Times : Markets expect more bailouts after bank stress tests

The FDIC has announced the failure of America West Bank, of Layton, Utah. The federal agency has arranged a sale of the failed bank’s assets to Cache Valley Bank of Logan.

America West Bank is the 32nd bank to fail in the nation this year, and the second in Utah. The FDIC closed MagnetBank, Salt Lake City, on January 30. There were a total of twenty-five bank failures in the United States in 2008. From the official press release :

“America West Bank, Layton, Utah, was closed today by the Utah Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Cache Valley Bank, Logan, Utah, to assume all of the deposits of America West.

The failed bank’s three offices will reopen on Monday as branches of Cache Valley Bank. Depositors of America West Bank will automatically become depositors of the assuming bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches.”

see resources–

FDIC Failed Bank Information Page : Cache Valley Bank, Logan, Utah, Assumes All of the Deposits of America West Bank, Layton, Utah

Salt Lake Tribune : America West Bank shuttered

The FDIC has announced the failure of Citizens Community Bank, of Ridgewood, New Jersey. The federal agency has arranged a sale of the failed bank’s assets to North Jersey Community Bank, of Englewood Cliffs.

Citizens Community Bank is the 31st bank to fail in the nation this year, and the first in New Jersey. The last FDIC-insured institution to fail in the state was Dollar Savings Bank, Newark, on February 14, 2004. There were a total of twenty-five bank failures in the United States in 2008. From the official press release :

“Citizens Community Bank, Ridgewood, New Jersey, was closed today by the New Jersey Department of Banking and Insurance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with North Jersey Community Bank, Englewood Cliffs, New Jersey, to assume all of the deposits of Citizens Community Bank.

The failed bank’s sole office will reopen on Monday as a branch of North Jersey Community Bank. Depositors of Citizens Community Bank will automatically become depositors of the assuming bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until North Jersey Community Bank can fully integrate the deposit records of Citizens Community Bank.”

see resources–

FDIC Failed Bank Information Page : North Jersey Community Bank, Englewood Cliffs, New Jersey, Assumes All of the Deposits of Citizens Community Bank, Ridgewood, New Jersey

Los Angeles Times : Banks fail in New Jersey and Georgia