Friday, June 8, 2012

This Week in Bank Failures

The Vatican Bank is looking increasingly shaky two weeks after its board voted to dismiss the professional banker it had hired four years earlier, as part of an unprecedented effort to clean up the bank’s operations and make it a proper part of the international banking community. That board meeting occurred just after the pope’s butler had been arrested for leaking documents, and the bank president, accused of similar misconduct during the meeting, left hastily, not wanting to wait around to see if he too might be arrested. He would not avoid the police for long, however.

The ousted Vatican Bank president was questioned at length this week by Italian police, who confiscated his records of his time at the bank. The police were investigating two money-laundering cases, only one of which involved the Vatican Bank, and the confiscation of documents creates the appearance of an attempt to intimidate and silence the former bank president.

The Vatican Bank has a long and seedy history, and the latest moves can only be seen as a step backward in its attempts to transform into a fully legitimate bank. The troubles at the bank come at the same time that an internal war is dividing the cardinals who govern the Vatican. It is natural to see the sudden changes at the bank as a skirmish within that larger war, and the denials from the winning side at the bank can’t be given much weight.

Manhattan prosecutors have indicted Abacus Savings Bank and 19 employees for mortgage fraud. Prosecutors say the bank used false or forged documents for mortgage loans. The bank says it is cooperating with investigators.

Morgan Stanley is on the edge of junk-bond status, with investors, lenders, and ratings agencies worried about the broker’s European exposure, losses on business ventures, and highly leveraged business model. Morgan Stanley is paying down debts and reorganizing its financial arrangements to try to boost its financial status. If these moves are unsuccessful, it will shortly be forced out of some parts of its derivatives trading business.

Wall Street banks are preparing to lay off thousands of traders because of a global slowdown in stock trading. Volume has been declining for several years and is half of what it was three years ago. Summer is a traditionally slow season for the stock market, so some people on Wall Street are expecting layoffs to come this month.

According to insider estimates, UBS might have lost $350 million in the first day of trading for Facebook. This is just one of many reports that point to overreaching on Wall Street in the Facebook IPO.

The Treasury Department is preparing to auction off its remaining TARP investments so it can close the books on the program. Preferred shares currently owned by Treasury in 300 banks will be purchased by pension funds and private investors.

The pace of bank failures picked up tonight with the failure of Waccamaw Bank, based in Whiteville, North Carolina, with nearly $500 million in deposits. It had 16 locations mostly in coastal areas of North and South Carolina. Virginia-based First Community Bank is taking over the deposits and purchasing 97 percent of the assets.

Waccamaw Bank and its holding company had shown the unmistakeable signs of financial distress, with late financial statements leading to a Nasdaq delisting in November. This was followed in February by an auditor’s warning about the bank’s ability to continue operating. Around that time, the bank said it had reached a deal to sell most of its branches, but that transaction never took place.

Three small banks failed at closing time tonight, each with about $50 million in deposits.

  • The OCC closed Carolina Federal Savings Bank, located in the port city of Charleston, South Carolina, and the suburb of Mount Pleasant. Bank of North Carolina is assuming the deposits and purchasing most of the assets.
  • State regulators closed First Capital Bank in Kingfisher, Oklahoma, a small town in the central part of the state. F & M Bank is assuming the deposits and purchasing most of the assets.
  • State regulators closed Farmers & Traders State Bank, in Shabbona, Illinois, and Waterman, Illinois. First State Bank is assuming the deposits and purchasing the assets.

The four bank failures tonight bring the tally for the year to 28.

There was a credit union liquidation last weekend. California state regulators closed Telesis Community Credit Union, which had 37,600 members and $300 million in assets. Member accounts were transferred to Premier America Credit Union.