Friday, January 16, 2009

This Week in Bank Failures

The largest U.S. banks looked disheveled today. Citi this morning reported an $8 billion quarterly loss and announced a sketchy plan to divide Citibank into two operating companies, one in banking and the other in investments, after splitting off its brokerage franchise. Bank of America lost $2 billion — and walked away with a backstop deal from the U.S. government (the Treasury, FDIC, and Fed each kicking in billions), a giveaway nearly as large as the $100 billion Citi got a couple of months ago. In spite of these moves, investors’ doubts that the banks can survive in their current form sent both banks’ stocks down all week, each losing nearly half its market value between Monday and Friday. And they were not alone. The bailout index closed at 724 today, down 28 percent in the two weeks since Nasdaq created it.

Another banking giant, JPMorgan Chase, showed the same kind of financial weakness that we saw in Wachovia one year ago. The profit JPMorgan Chase reported was a profit in name only, coming entirely from $1 billion in accounting gains from its purchase of Wamu. A near-break-even quarter for JPMorgan Chase wouldn’t be a concern at the end of a recession, but with the recession just getting rolling, it is, as JPMorgan described it, “very disappointing.”

The sight of riot police on the streets of Riga, the capital of Latvia, Wednesday served as another reminder of the extent of the financial crisis. After the collapse of an Iceland-style banking bubble and a housing bubble more extreme than California, worried Latvians have been demanding political reform. Even so, the report of rioting in Riga is unexpected. Latvia is, after all, a country that managed to navigate the breakup of the Soviet Union without this level of unrest. By tonight, the protests had spread to Bulgaria and Lithuania.

After a month-long gap, the FDIC oversaw its first two bank closures of 2009.

National Bank of Commerce, a community bank with two offices in the western suburbs of Chicago, was closed tonight. The FDIC transferred the deposits and sold most of the assets to Republic Bank of Chicago, a larger bank with 10 offices around the Chicago area. National Bank of Commerce had just over $400 million in deposits, according to the FDIC. Republic Bank of Chicago is buying the assets at a 12 percent discount and leaving the FDIC with $45 million in assets to sell separately.

An independent study released a week ago said that National Bank of Commerce had the lowest capital levels of any financial institution in the United States, according to one financial measure. The Office of the Comptroller of the Currency (OCC) said tonight the bank was “critically undercapitalized.”

In Vancouver, Washington, a city on the Columbia River across from Portland, Oregon, Bank of Clark County was closed, and the insured deposits turned over to Umpqua Bank. Bank of Clark County had two offices and deposits of $366 million. It had been open for nearly 10 years.

Umpqua Bank is a regional bank with nearly 100 locations in northern California and Oregon, along with three in Washington, including one in Vancouver. In addition to the deposits, Umpqua Bank is acquiring $30 million in liquid assets of the closed bank.

The Washington Department Of Financial Institutions (DFI) said the faltering economy had hurt Bank of Clark County’s loan portfolio, leaving it without enough capital or liquidity to operate.

Tonight’s two bank closures are likely to cost the FDIC almost $200 million. In addition, owners of uninsured deposits at Bank of Clark County have lost an estimated $39 million.