Tuesday, 09 September 2008 01:00

I made a boo boo

I made a mistake in posting the title of a recent article "It's about time these guys got tire of losing money" in regards to PIMCO and Bill Gross's investment in GSE MBS. He had a big pay day, and his gambig apparently paid off. Of course, it does look a little fishy, but chances are he made a calculated bet that bore fruit. The conspiracist in me could say he was bailed out too, but kudos to the man for a good call.

Of course, since I am never completely wrong, let's see what may be happening on the many other fronts. From FT.com:

One of the largest defaults in the history of the $62,000bn credit derivatives market has been triggered by the US government’s seizure of Fannie Mae and Freddie Mac, raising questions about how dealers will unwind billions of dollars worth of contracts.

Although the $1,600bn of debt issued by the troubled mortgage groups is regarded as safe after the US government’s move to take control of the companies, their move into “conservatorship” counts as the equivalent of a bankruptcy in the credit derivatives market....

...

The uncertainty surrounding the Fannie Mae and Freddie Mac CDS contacts highlights the need for improved settlement and trading procedures. Already, regulators have put pressure on CDS dealers, including all the large financial institutions, to reduce settlement and trading risks.

The near-collapse of Bear Stearns in March highlighted the extent to which many large financial institutions were linked together through the CDS market, and the Federal Reserve and other regulators want to reduce such systemic financial risks.

The growth of the CDS market over the past decade has outpaced development of settlement systems and trading infrastructure. One worry is the lack of standard procedures in contracts for dealers to agree ways to settle defaulted credit derivatives.

The actual payments on credit default swaps on Fannie Mae and Freddie Mac are expected to be limited because the value of the mortgage agencies’ debt remains high after the US government stepped in to back it.

That means that meeting any claims on CDS may not be that costly, although the details are still being worked out and the impact is unknown.

Analysts at Creditsights said regulators could “use the bail-out as another lever” to enhance the CDS market’s efficiency.

Reference Reggie Middleton says the CDS market represents a "Clear and Present Danger"! and CDS stands for Credit Default Suckers... for what this may portend. This particular event has no significant credit losses, per se, but it does highlight what mish mash the clearing and settle system of CDS currently is. No one knows for sure who gets what to who, when, and how. With the amount of leverage and lack of credit monitoring and risk management rampant among these circles, there is a surprise waiting in the rafters, particularly when

Published in BoomBustBlog

In reading an article in the NY Times just now, I came across this poignant statement:

The Treasury secretary, Henry M. Paulson Jr.,
who won authority from Congress last month to use taxpayer money to
bolster the companies, always maintained that he hoped never to use
that power. But, as the companies’ stocks continued to languish and
their borrowing costs rose, some within the Treasury Department began
urging Mr. Paulson to intervene quickly.

Then, last week, advisers from Morgan Stanley
hired by the Treasury Department to scrutinize the companies came to a
troubling conclusion: Freddie Mac’s capital position was worse than
initially imagined, according to people briefed on those findings. The
company had made decisions that, while not necessarily in violation of
accounting rules, had the effect of overstating the companies’ capital
resources and financial stability.

Indeed, one person briefed on
the company’s finances said Freddie Mac had made accounting decisions
that pushed losses into the future and postponed a capital shortfall
until the fourth quarter of this year, which would not need to be
disclosed until early 2009. Fannie Mae has used similar methods, but to
a lesser degree, according to other people who have been briefed.

Is
anybody truly surprised? These companies used massive leverage to write
and/or insure trillions of dollars of loans, many of which were written
on top of the largest real asset and credit bubble in modern history.
It was bound to happen. I have went through this in excruciating detail
(see The Asset Securitization Crisis).

Does
anybody truly think that "real" privately owned and publicly traded
banks operated any differently. Reread the NY Times quip above, then
visit my findings (yes, I was the first) on Wells Fargo accounting
proclivities below. An excerpt:

Increasing provisions and chare-offs

· In
1Q2008, WFC’s NPAs increased to over 1.16% of total loans from 1.01% in
4Q2007. Overall NPAs increased to $4.5 bn from $3.9 bn in 4Q2007. NPAs
in real estate construction loans witnessed highest increase of 49% to
$438 mn in 1Q2008. NPAs of C&D loans stood at 2.32% of total
C&D loans, followed by real estate 1-4 family mortgage (1.91%)
and lease financing (0.83%)

· Wells Fargo’s gross charge offs increased to 0.46% of total loans compared to 0.37% of total loans in 4Q2007. C&D
loans witnessed the highest increase in charge-offs with an increase of
nearly three-fold to $29 mn in 1Q2008, showing signs of increased
stress in these loans.
Real estate 1-4 family junior
lien mortgage, credit card loans and Other revolving credit and
installment had charge-offs of 0.61%, 1.68% and 0.98% to total loans,
respectively.

· However
despite increase in NPAs and increase in charge offs, Wells Fargo
provision for credit loss sequentially declined to $2.0 bn in 1Q2008
from $2.6 bn in 4Q2007. (0.52% of total loans in 1Q2008 from 0.68% of
total loans in 4Q2007) raising concerns over possible inadequacy of
provision amount.

· From
April 1, 2008 onwards, Wells Fargo has changed its home equity
charge-off policy to 180 days from 120 days previously. Amid current
deteriorating credit markets with residential sector showing no signs
of recovery, it is quite understandable that the bank has changed the
policy in a bid to defer recognition of provision and charge-offs.


Published in BoomBustBlog

I have fixed the archived links, so all links to all articles are
now working properly. This is the Asset Securitization Crisis roadmap
to date. Feel free to spread it around.

The Asset Securitization Crisis Analysis road-map to date:

  1. Intro:
    The great housing bull run - creation of asset bubble, Declining
    lending standards, lax underwriting activities increased the bubble - A
    comparison with the same during the S&L crisis
  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
  5. Municipal bond market and the securitization crisis - part I
  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9. More on the banking backdrop, we've never had so many loans!
  10. As I see it, these 32 banks and thrifts are in deep doo-doo!
  11. A little more on HELOCs, 2nd lien loans and rose colored glasses
  12. Will Countywide cause the next shoe to drop?
  13. Capital, Leverage and Loss in the Banking System
  14. Doo-Doo bank drill down, part 1 - Wells Fargo
  15. Doo-Doo Bank 32 drill down: Part 2 - Popular
  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17. The Anatomy of a Sick Bank!
  18. Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19. GE: The Uber Bank???
  20. Sun Trust Forensic Analysis
  21. Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street
  22. Goldman Sachs Forensic Analysis
  23. American Express: When the best of the best start with the shenanigans, what does that mean for the rest..
  24. Pt one of three of my opinion of HSBC and the macro factors affecting it
Published in BoomBustBlog
Tuesday, 22 July 2008 01:00

I told you so, AGO

For those who are new to the blog, I have had heavy short positions and a lot of research performed on the monoline insurers as far back as the 3rd quarter of last year. It has paid off handsomely, despite the fact that many pundits had argued, tooth and nail, against my findings. Well, the market has spoken, and all of the monolines negatively blogged have reached the ending that I anticipated, if not worse. The business models just do not make sense for the derivative markets.

See my AGO primer and the full forensic analysis. These are some of my comments on the other monolines last year when they were trading in the 60's and 70's:

  1. A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton
  2. Tie-in to the Halloween Story
  3. Welcome to the World of Dr. FrankenFinance!
  4. Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  5. Follow up to the Ambac Analysis
  6. Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibili
  7. More tidbits on the monolines
  8. What does Brittany Spears, Snow White and MBIA have in Common?
  9. Moody's Affirms Ratings of Ambac and MBIA & Loses any Credibility They May Have Had Left
  10. My Analyst's Comments on MBIA/Ambac/Moody's Post
  11. As was warned in this blog, the S&P downgrade of a monoline insurer reverberated losses through c

Here is a blurb from Bloomberg regarding AGO's price movement today:

Assured Guaranty Plunges, Bond Risk Soars on Review (Update1)

By Christine Richard and Shannon D. Harrington - Assured Guaranty Ltd., one of two bond insurers with a AAA ranking from the three major ratings companies, fell as much as 58 percent in New York trading after Moody's Investors Service said it may downgrade the firm.

The cost to protect against a default by Assured Guaranty soared to a record. Credit-default swaps on Financial Security Assurance Holdings Ltd., the unit of Europe's Dexia SA that was also placed under scrutiny by Moody's, also rose to a record.

Moody's review is a blow to Hamilton, Bermuda-based Assured Assured Guaranty and Financial Security of New York, the only two bond insurers to maintain their top ratings as losses in the industry crippled competitors. The companies are dominating new municipal bond insurance and seeking to fend off Warren Buffett, whose new bond insurer was awarded a Aaa rating. Without a Aaa stamp, former market leaders MBIA Inc. and Ambac Financial Group Inc., have seen their new business plunge.

``Potentially all the legacy companies are gone now,'' said Rob Haines, an analyst with CreditSights in New York. ``It has huge implications for the municipal bond market and for banks that may have to take another round of writedowns. It's just a mess.''

What makes this interesting is that there are now (or soon will be), no more Aaa rated insurers that will wrap derivatives. These wraps are what the commercial, mortgage and investment banks relied on to get AAA rated ABS and MBS securities, CDOs, CLOs etc. To put this in other words, its curtains for all of those products that didn't take a big haircut due to their alleged superior "investment grade" status. These banks, as I type this, are currently rallying as they have been doing for the last few days. One would think that the SEC should be doing something about this problem in lieu of trying to administratively discourage short sellers on a few favored stocks. The fundamentals sucked before, I won't even lower myself to the levels of vulgarity needed to describe what they are now. GSE AAS rated debt, hah! Super senior AAA wrapped tranches, hah ha ha hah!

Published in BoomBustBlog
Tuesday, 22 July 2008 01:00

Doo doo in the Wall Street Journal

Washington Mutual announced a second-quarter net loss of $3.33
billion (vs $1.04 consensus estimate - an absolute joke to be so far
off after nearly 10 quarters of losses in its mortgage department) as
it increased its loan-loss reserves by $3.74 billion. Let me add that
this loss was ex-items. I don't do ex-items without knowing exactly
what the items are. Does this mean ex-another $3 per share in HELOC
writedowns??? What the hell is an item. Remember, GGP tried to pack
non-recurring income (lease cancellation fees) into their net income
as ordinary recurring income. Beware of the fine print and footnotes.
The stock is actually trading up after hours, as is Amex which just had
a big consensus miss as well as a very bleak management outlook.
Pushing up these weak stocks is very bad is very bad for our markets.
It shows a lack of transparency and a severe disconnect from the
fundamantels. A company has a big miss, it trades up, it beats
estimates and it trades up, it issues bleak outlook and guess what???
It trades up.

Published in BoomBustBlog
Friday, 18 July 2008 01:00

Mortgage news from the front line

Here is a submission from one of the boombustbloggers in the California real estate biz.

A little something from the front lines (San Diego Real Estate). We
just got word from one of our few reputable loan agents that ALL PMI
companies are dropping coverage of any loan with less than 10% down. We
did a quick review of deals in escrow and the count was that 4 out of
50 escrows were conventional and less than 10% down along with 6 that
are going 3% FHA.

This just knocked an important part of the market out of the game or at least into the arms of GinnieMae. Here is an unintended consequence. Lets
say that if someone wants to get an FHA loan on an entry-level condo
(we have boatloads of them) if the condo project doesn't meet FHA
requirements than... no loan. The only buyer is 10% down or more (if the lender will go for it). Unfortunately,
the most likely buyer for most of these houses is still an owner
occupant but with this catch-22, there is more fuel for the price-drop
fire.

Published in BoomBustBlog
Thursday, 17 July 2008 01:00

It's Reggie Middleton vs. the "Man"!

Government manipulation in the free markets will lead to more volatility, not less

The market has predictably rallied as a result of a massive, US government induced short squeeze. We all saw this coming. We all know this is government manipulation, and not a fundamental occurrence. Yes, that's right! Pure, unadulterated government manipulation. The government gave special relief to a very small segment of the market, the very same segment from which many of those same officials hail from (Wall Street), in an attempt to prevent the price of their shares from reaching equilibrium with their value. This is nothing but interference in the free market system. Let's not even broach the discussion of the ethics or legality of naked short selling. The government failed to ban the practice for the homebuilders whom I shorted into single digits, they failed to do it for the monolines whom I shorted into the single digits, they failed to do it for the regional banks whom I am on way to riding to the single digits, they failed to do it for the retain industry, the automotive industry. So what makes them do it for Wall Street? Let me help you ponder that query... The table below is derived from  , and is a compilation of Washington lobbyist money by sector. If you had to guess who donated the most money to Washington over the past 10 years, who do you think it would be? Okay, I know that's a hard question, so I'll give you a hint. What sector just got preferential treatment in an attempt to prevent entities such as mine from shorting certain companies' share to the point where their share price matches their companies' intrinsic value (ex. Goldman Sachs is worth a tad bit less than $130 per share, yet it is trading over $180, an ideal opportunity for me)? Still can't guess. Okay, here is another hint. What industry (or even company whose shares are currently overvalued) spawned the last few treasury secretaries? Need more hints???

Sector Total
Finance, Insurance & Real Estate $3,102,713,952
Health $2,902,546,732
Misc Business $2,764,829,300
Communications/Electronics $2,561,657,697
Energy & Natural Resources $2,052,875,397
Transportation $1,626,912,330
Other $1,570,867,542
Ideological/Single-Issue $1,055,993,246
Agribusiness $960,997,755
Defense $875,340,534
Construction $339,588,492
Labor $323,749,249
Lawyers & Lobbyists $248,316,048

So the SEC participates in this cronyism cum capitalism for sale game (and I really mean that) and the shares of the financial stocks (whose macro situations, micro situations, and balance sheets are very bad and getting worse) sky rocket upwards. The CEOs of these companies such as Dimon (who just bought a $20 billion company for less than 5% of that and still had bad numbers), says outright, things are bad and they are getting worse - yet his shares jump, and jump hard (more on this later). Well, if you think that there was a lot of volatility when they fell the first time, what do you think will happen to the volatility number after they knee jerk upward with valuations still falling down. Eventually, price = valuation, then free fall. Granted, somebody may have had an opportunity to dump some stock while the prices were artificially elevated above their intrinsic value, but so be it.

So, now you all know what I think will happen when the market eventually comes to the same valuation conclusions that I do? The government (actually, the SEC) has exercised its rendition of the Bernanke put, and I have been assigned. No problem, I have plenty of cushion from reading the overvaluations in the market correctly up till this point. Thus, I will accept my assignment and move on with my synthetic short position ala the SEC, for I am confident equilibrium will be reached. So, what happens if I am right?

At the end of the day, the fundamentals will always rule. After all, we all eventually have to pay our bills

I've been offline for a day or two, come back and see many have lost faith in the fundamentals due to a government induced bear market rally! My, hence this blog's focus and forte, is extreme fundamental and forensic analysis. My strength is cutting through the bullsh1t. You know how some guys are good at basketball, some are natural poker players, well my nose is acutely attuned to bullsh1t. Do not, and I repeat, do not take the PR and marketing pitch's in press releases, financial media news blips, and people who generally either have no idea what they are talking about or have an extreme incentive to bend the facts as a proxy for actual

This should put the current banking
crisis in perspective. No amount of government manipulation will make
the subject matter of these postings dissipate, sans proper regulation
of off balance sheet activities and mortgage lending - Oh Yeah, it's
too late for that, isn't it!
Remember, if the link leads to this message, "Cannot
find the entry.The user has either change the permanent link or the
content has not been published." it means that the article has already
been archived, and you will need to access it through this link in the
main menu - "Archives"
.

The orginal Doo Doo 32 post: As I see it, 32 commercial banks and thrifts may see the feces hit the fan blades

A sampling of the Asset Securitization series:

  1. Intro:
    The great housing bull run - creation of asset bubble, Declining
    lending standards, lax underwriting activities increased the bubble - A
    comparison with the same during the S&L crisis

  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure

  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)

  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue

  5. Municipal bond market and the securitization crisis - part I

  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)

  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two

  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux

  9. More on the banking backdrop, we've never had so many loans!

  10. As I see it, these 32 banks and thrifts are in deep doo-doo!

  11. A little more on HELOCs, 2nd lien loans and rose colored glasses

  12. Will Countywide cause the next shoe to drop?

  13. Capital, Leverage and Loss in the Banking System

  14. Doo-Doo bank drill down, part 1 - Wells Fargo

  15. Doo-Doo Bank 32 drill down: Part 2 - Popular

  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank

  17. The Anatomy of a Sick Bank!

  18. Doo Doo 32 Bank Drill Down 1.5: The Forensic Analysis of Wells Fargo

performance. Look at the actual performance numbers, not the press releases, and not the "analyst's "so-called" expectations which fluctuate like the wind and are easily manipulated by management. An example of what I am referring to is when analysts expect a company to report $1 profit. The company comes out with guidance, 60 cents lower, and the sell side community drops there expectations accordingly to 40 cents (I look at its as this company is #$@#$ up). Well, when the company reports a 50% drop in profit, the "Street" applauds and the stock skyrockets because the company beat expectations by 25%. Whaaaaat!!!!??? Think about it. The company earnings stream, based on this period's earnings, is half as valuable as it was last period, yet the stock pops as if there was some good news to be had. This is a shell game, plain and simple. I understand why the Street plays it, but the readers of this blog know better. Just imagine if you received a 50% pay cut, then your boss wants to celebrate your "promotion" with a party. I already see many with that bewildered look on their face as I type this. Well, welcome to the earnings expectations vs. reality game.

Now, I will briefly go over the results that accompanied the Cox version of the Bernanke put:

JP Morgan: CEO has dire outlook for the present and even worse for the future, credit reserves increase across the board, gets a $20 billion plus company (along with a $3 billion Park Avenue office building), a fat government subsidy and plethora of guarantees, for almost less risk adjusted economic outlay than the Yankees paid for A Rod, and still reports 51% drop in net (I didn't even check to see if BSC's profit and revenue were added in to JPM's numbers). Where is the good news in this???

PNC: As I forecasted in my analysis, charge-offs skyrocket, capitalization remains thin.

MTB: More of the same

Wells Fargo: Smoke and mirrors at its best. They move the goal posts closer then say they kicked a field goal. Note the HELOC charge off modification. Note no explanation on how they profited from MBS sales when the rest of the WHOLE WORLD failed to do so. They raise their dividend during a time of global bank capital constraints. Why do such an imprudent thing, you ask? Smoke and mirrors, my friend. Smoke and mirrors.

I will go a little more in depth into PNC and WFC if I get the time later on today.

As a backdrop, for those who haven't read my background research on the banking system, please do. After reading it, I don't see how anybody can be very positive on the US banking system - at all.

Published in BoomBustBlog
Tuesday, 15 July 2008 01:00

The Doo Doo 32 - Back by Popular Demand

A few people have had trouble finding this post, so I dug it up myself. There are approximately 465 archived posts dating back to Sept 1 2007. I strongly suggest those who have either the time or the economic interest browse throgh my Archives (click here to access them). There is the equivalent of hunreds of thousands of dollars of quality research buried in there. A shame to let it go to waste. Remember, if the link leads to this message, : Cannot find the entry.The user has either change the permanent link or the content has not been published." it means that the article has already been archived, and you will need to access it through this link in the main menu - "Archives".

The orginal Doo Doo 32 post:

As I see it, 32 commercial banks and thrifts may see the feces hit the fan blades

A sampling of the Asset Securitization series:

  1. Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis

  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure

  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)

  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue

  5. Municipal bond market and the securitization crisis - part I

  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)

  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two

  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux

  9. More on the banking backdrop, we've never had so many loans!

  10. As I see it, these 32 banks and thrifts are in deep doo-doo!

  11. A little more on HELOCs, 2nd lien loans and rose colored glasses

  12. Will Countywide cause the next shoe to drop?

  13. Capital, Leverage and Loss in the Banking System

  14. Doo-Doo bank drill down, part 1 - Wells Fargo

  15. Doo-Doo Bank 32 drill down: Part 2 - Popular

  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank

  17. The Anatomy of a Sick Bank!

  18. Doo Doo 32 Bank Drill Down 1.5: The Forensic Analysis of Wells Fargo

Published in BoomBustBlog
Saturday, 12 July 2008 01:00

I must apologize to the blog readers...

I've had knowledge of the Indy Mac Bank takeover for about a week, and failed to post it. It was timely, but I've been overwhelmed by this blog, starting a new business, winding down the old business, investing in this "new depression era", three kids, a wife, 2 dogs, a bird, a ferret and 2 snakes (plus fish, parents and in laws). Burnout ensues. I only get to post about 40% of what comes across my (virtual) desk.

So, to make up for not passing the gossip, I will pass along some empirical innuendo. C. Peterson's blog has an interesting post surmising the extent of the implied haircut the FDIC is taking on IMB assets. It appears significant from Mr. Peterson's perspective. Remember, the FDIC is undercapitalized for the event that is coming. Taking over IMB is a big chunk for them to swallow (the 2nd largest bank failure to date, but I think that record will be broken soon), and they have four 12 course meals coming down the pike. Remember my post, The worst is behind us, unless massive bank failure is a bad thing. According to the WSJ: The collapse is expected to cost the Federal Deposit Insurance Corp. between $4 billion and $8 billion, potentially wiping out more than 10% of the FDIC's $53 billion deposit-insurance fund.

Well there are a few more banks coming. The regulators are saying that my local Senator, Chuck Schumer, is responsible for the collapse of IMB, by instigating a run on the bank. Well, that's debatable, but I'm going to give him a call anyway for I can see the logic in the statement. If he'll have me in such a manner, I'll go over the entire Asset Securitization Crisis Analysis, page by bage - and hopefully make him the most knowledgeable and educated politician on the subject, or maybe not.

Below, you will see where Huntington Bancshares and WaMu are most likely on the FDIC list. These companies score very poorly in the Eyles test as well (different spreadsheet).

image003.png

Countrwide has just been rescued (a temporary thing, I'm sure), which leaves Huntington Bancshares lonely at the top of the pile in regards growth in Texas ratio. For those who need a quick primer, from Wikipedia:

The Texas ratio is a measure of a bank's credit troubles, developed by Gerard Cassidy and others at RBC Capital Markets. It is calculated by dividing the value of the lender's non-performing loans by the sum of its tangible equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

image005.png

According to these growth measures and the historical validity of the Texas Ratio, as long as ratio growth measures remain constant these two banks may fail sometime in the fourth quarter.

This is just my unconfirmed opinion, but if the FDIC has to take over WaMu, it will put a severe financial strain on them that will hamper their ability to handle the other smaller banks that are bound to fail as the future unfolds. Without additional funding, the FDIC itself may fall victim to insolvency. I have not explicitly ran the numbers, so don't consider this set in stone, but one would be very unwise to flirt with FDIC insured limits and maybe even brave to think that the FDIC (in its cuurent funded capacity) has the upcoming situation under complete control. For those that haven't read my lengthy Asset Securitization Crisis Analysis - it is now required reading to be on this blog.

I expect this list to grow very quickly:






Failed
Bank List






The FDIC is often appointed as receiver for failed banks. This page
contains useful information for the customers and vendors of these
banks. This includes information on the acquiring bank (if applicable),
how your accounts and loans are affected, and how vendors can file
claims against the receivership.

This list includes banks which have failed since October 1, 2000.















































Bank Name
Closing Date Updated
Date

IndyMac Bank, Pasadena, CA

July 11,
2008

July 11,
2008

First Integrity Bank, NA, Staples, MN

May 30,
2008

May 30, 2008


ANB Financial, NA, Bentonville, AR

May 9, 2008
May 9, 2008


Hume Bank, Hume, MO

March 7, 2008
July 1, 2008


Douglass National Bank, Kansas City, MO

January 25, 2008
June 17, 2008


Miami Valley Bank, Lakeview, OH

October 4, 2007
April 28, 2008


NetBank, Alpharetta, GA
September
28, 2007
April 28, 2008


Metropolitan Savings Bank,
Pittsburgh, PA
February
2, 2007
April 28, 2008

Bank of Ephraim, Ephraim, UT
June 25, 2004
April 9,
2008

Reliance Bank, White Plains, NY
March 19, 2004
April 9,
2008

Guaranty National Bank of Tallahassee, Tallahassee, FL
March 12, 2004
April 28,
2008

Dollar Savings Bank, Newark, New Jersey
February 14, 2004
April 9,
2008

Pulaski Savings Bank, Philadelphia, PA
November 14, 2003
July 22, 2005

The
First National Bank of Blanchardville, Blanchardville, WI
May 9, 2003
April 28,
2008

Southern Pacific Bank, Torrance,
CA
February 7, 2003
April 28,
2008

The Farmers Bank of Cheneyville,
Cheneyville, LA
December 17, 2002
October 20, 2004

The Bank of Alamo,
Alamo, TN
November 8, 2002
March 18, 2005

AmTrade
International Bank of Georgia, Atlanta, GA
September 30, 2002
September 11,
2006


AmTrade
International Bank of Georgia, Atlanta, GA
Spanish Version

September 30, 2002


September 11,
2006

Universal Federal Savings
Bank, Chicago, IL
June 27, 2002
April 9,
2008
Connecticut Bank of Commerce,
Stamford, CT
June 26, 2002
April 28, 2008

New Century Bank, Shelby Township, MI
March 28, 2002
March 18, 2005

Net 1st National Bank, Boca
Raton, FL
March 1, 2002
April 9,
2008

NextBank, N.A., Phoenix, AZ
February 7, 2002
April 28,
2008

Oakwood Deposit Bank Company,
Oakwood, OH
February 1, 2002
April 28,
2008

Bank of Sierra Blanca,
Sierra Blanca, TX
January 18, 2002
November 6, 2003

Hamilton Bank, N.A., Miami, FL
Spanish Version
January 11, 2002
April 28,
2008

Sinclair
National Bank, Gravette, AR
September 7, 2001
February 10, 2004

Superior
Bank, FSB, Hinsdale, IL
July 27, 2001
April 28,
2008

The Malta
National Bank, Malta, OH
May 3, 2001
November 18, 2002

First
Alliance Bank & Trust Company, Manchester, NH
February 2, 2001 February 18, 2003
National State
Bank of Metropolis, Metropolis, IL
December 14, 2000
March 17, 2005
Bank of Honolulu, Honolulu, HI October 13, 2000
March 17, 2005

Published in BoomBustBlog
Saturday, 12 July 2008 01:00

Roubini at his best!

See: Insolvency of the Fannie and Freddie Predicted Here Two Years Ago. What Happens Next? Or How to Avoid the “Mother of All Bailouts”

The following is a heavy excerpt (pardon me Dr., but you were so accurate in expressing my thoughts and feelings on the topic that I just had to spread the word) from the afore-linked post in Nouriel Roubini's blog:

First notice that, as discussed previously in this column, the farce that Fannie and Freddie were “private sector" firms was obviously a farce as investors always expected that the liabilities of the two GSEs would be eventually backed by the U.S. government. And in spite of the decade long rhetoric by Fed, Treasury, the Bush administration, conservative government-bashing hawks and a slew of other regulators that Fannie and Freddie were private firms, that investors should not assume that they would be bailed out if these firms turn out to be insolvent and that the moral hazard deriving from perceptions of an implicit guarantee should be stomped as hard as possible, the reality was different: these were effectively public institutions – not private ones - used by the government (especially this administration) to pursue public policy goals. The hawkish rhetoric about the “moral hazard” the from implicit guarantees that Greenspan, Bernanke, Paulson, Bush and the administration peddled for eight years was thrown out of the window the moment the housing and mortgage bust started. Instead, for the last few months the GSEs – that were already bleeding and becoming insolvent on their own portfolio – have been used by the government to back stop the mortgage markets: their portfolio limits were raised, their regulatory capital was reduced and the limits to what conforming mortgages (that the GSE can repackage/insure) are were raised from $420k to over $720k. So much for barking in public about “moral hazard” and then going ahead and using already distressed GSEs to bail out the mortgage market and make them even more insolvent. Now this “the emperor has no clothes” farce has been revealed to be what it always was: a high-flatulin “moral hazard” farcical rhetoric with zero substance and credibility.

To minimize the financial cost of this farce the administration should stop pretending that these are private institutions and go ahead and take them over and nationalize them since they are going to bail them out anyhow. The financial costs of this farce include the $50 billion of subsidy that the GSEs bondholders/creditors are receiving every year as the spread of the agency debt over Treasury is now close to 100bps (100bps on $5 trillion of liabilities is equal to $50 billion). Today the market prices the debt of the GSEs as if there is a meaningful probability that – once bankrupt – these firms will be treated as private firms and their bondholders will take a loss. But if the government is going to bail them out - because the consequences of a capital levy on their bondholder will destroy the mortgage and housing markets - the government should at least make this implicit liability (the guarantee of the $5 trillion debt of the GSEs) explicit and thus save the U.S. taxpayer that $50 billion subsidy that is given every year to the creditors/bondholder of Fannie and Freddie. An implicit liability that is not made explicit is the worst of all worlds as fat cats on Wall Street and around the world get a 100bps spread relative to safe Treasuries ($50 billion subsidy) on their holdings of agency debt and they know they will be anyhow bailed out if Fannie and Freddie go bust. Saving those $50 billion will not make Fannie and Freddie solvent as their insolvency hole is too big to be filled but it would at least reduce the fiscal bailout bill – that could be as high as $200-300 billion – that their insolvency and government takeover will imply.

Published in BoomBustBlog