Saturday, March 21, 2009

Bank Failure Friday – A Trifecta, plus a Daily Double with a REIT Twist…

The pace is picking up. We had three bank failures, plus two credit unions, plus GGP properties had another shopping mall seized.

General Growth Properties (GGP) is a REIT that owns over 200 shopping malls in 44 states, making it one of the largest in the nation. They are missing debt payments like crazy and just had another shopping mall foreclosed – this one by Citi Bank on a mall in New Orleans after GGP missed a $95 million payment (a general bankruptcy filing may not be far off).

This is going to be a massive trend going forward. The problem is that these developers took out huge loans and are not performing. The same is true with home builders and contractors. The banks have been reticent to foreclose as they do not want to take possession. Now, though, the banks themselves are so sick that they have no choice but to begin calling in their chips. This is going to happen with the big banks all the way down to the little ones who lent local builders more than they should have. The water level in the swamp is beginning to get low enough that we are seeing who is swimming naked.

And the bank and credit union failures were not insignificant. We have now shut down 20 banks for the year. As Seth says, it was just 13 on the 13th of the month, now it’s 20 on the 20th of the month. Has the pace picked up to one a day? We may very well be closing in on it:
Credit Unions With $57 Billion in Assets Seized; 3 Banks Fail

By Margaret Chadbourn and Ari Levy

March 21 (Bloomberg) -- Two corporate credit unions, with combined assets of $57 billion, were seized by the National Credit Union Administration yesterday to stabilize a system used by 90 million customers amid a worldwide financial crisis. Three U.S. banks failed, bringing this year’s total to 20.

U.S. Central Corporate Federal Credit Union, in Lenexa, Kansas, and Western Corporate Federal Credit Union in San Dimas, California, were put into conservatorship, the regulator said in a statement. The credit unions failed so-called stress tests that found an “unacceptably high concentration of risk” from mortgage-backed securities, the agency said.

“Most of the bad assets that we’ve seen in the corporate world reside at these two institutions,” NCUA spokesman John McKechnie said in a telephone interview. “We will be able to resolve them in a more efficient way.”

The U.S. has 28 corporate credit unions, which make loans and provide other services for the retail credit unions that cater to the public. This is the first time a corporate credit union was seized since 1995, when NCUA took control of Capital Corporate, based in Landover, Maryland.

U.S. Central has about $34 billion in assets and serves 26 retail credit unions. Earlier this year, it was granted a $1 billion federal injection in an effort to shore up public confidence.

Western Corporate has $23 billion in assets and about 1,100 retail credit union members, the NCUA said. Yesterday’s two seizures may cost the agency’s insurance fund about $1.2 billion, McKechnie said.

Emergency Borrowing
The regulator is seeking $30 billion in emergency borrowing authority from the Treasury Department to combat mounting losses. The U.S. House of Representatives has already approved expanding credit to $6 billion from $100 million.

“Service continues uninterrupted at both U.S. Central Corporate Federal Credit Union and WesCorp,” the NCUA said in its statement. “Members are free to make deposits and access funds.”

Also yesterday, banks in Kansas, Colorado and Georgia were seized as foreclosures surged amid a recession and the highest unemployment in a quarter century. The banks with $1.1 billion in total assets and $853 million in deposits were shut by regulators, and the Federal Deposit Insurance Corp. was named receiver, according to e-mailed statements from the FDIC.

The deposits of TeamBank in Paola, Kansas, will be passed to Great Southern Bank in Springfield, Missouri. Herring Bank in Amarillo, Texas, is assuming the deposits of Colorado National Bank in Colorado Springs. Regulators were unable to find a bidder for FirstCity Bank of Stockbridge, Georgia, and the FDIC will send payments to insured depositors beginning on May 23.

FDIC-insured banks lost $32.1 billion from October through December, the first quarterly loss since 1990. The agency’s deposit insurance fund, used to reimburse customers of closed banks, tumbled 45 percent to $18.9 billion in the quarter from $34.6 billion in the preceding period, reflecting the closing of 25 lenders last year.

“There is no question that this is one of the most difficult periods we’ve had to deal with since the FDIC was created 75 years ago,” Chairman Sheila Bair said yesterday at the Independent Community Bankers of America conference in Phoenix.
Banks Acquire Assets

Herring Bank will take Colorado National’s four branches and buy $117.3 million of Colorado National’s assets at a discount of $4.2 million, the FDIC said. TeamBank’s 17 offices will open tomorrow as branches of Great Southern. The acquiring bank will purchase $656.5 million in assets at a discount of $100 million. The FDIC said the three failures will cost its deposit insurance fund, supported by fees on insured banks, about $207 million.

The FDIC classified 252 banks as “problem” in the fourth quarter, a 47 percent jump from the previous period and the highest total since June 1995. The Washington-based agency doesn’t name the “problem” banks. The FDIC projects bank failures will cost its insurance fund $65 billion through 2013.

Note that the NCUA is asking for $30 billion. The money for these operations does not exist, yet it must come from somewhere. The FDIC has been collecting insurance fees, but the Federal Government has been spending it while returning I.O.U.'s to the FDIC's balance sheet and I presume the NCUA as well, thus they must go to Congress to get "real" money. Where's that going to come from?

Where is that somewhere? The taxpayer? TAX REVENUES ARE CRASHING. They are crashing on all levels, local, State, and Federal. Look for desperate acts from desperate government officials as this crises progresses. What a mess. Are you beginning to see how years of abuse are catching up to us?

Somehow the morose mood that Morison creates is just more appropriate for this Bank Failure Friday. Sure, I could play “Another one Bites the Dust,” but the lyrics just don’t say, “Another FIVE Bite the Dust!”

Doors – When the Music’s Over: