Friday, July 18, 2014

This Week in Bank Failures

Aside from the financial troubles I have written about and a predictable parade of litigation, banks have mostly managed to stay out of the news this summer. Most of the banking headlines have to do with giant banks hiring away each other’s senior managers and executives.

Unraveling: Espirito Santo International, indirectly the primary owner of Banco Espirito Santo in Portugal, filed for protection from creditors in Luxembourg. It revealed that an audit by the central bank of Portugal in May had found it desperately short of cash. It had raised money through the sale of assets, but this did not happen fast enough to meet its obligations to its creditors. Separately today, prosecutors in Portugal announced an ongoing investigation of possible accounting irregularities at Espirito Santo International and its related companies. Authorities in Angola stepped in to shore up BES Angola, in which Banco Espirito Santo has a majority ownership. The government has issued a guarantee good for 70 percent of loans in that country. Banco Espirito Santo appears to be reasonably well isolated from the problems surrounding it, but stock traders continue to bet against the bank.

Tonight in Panama, banking regulators took over ES Bank SA (Panama), which like Banco Espirito Santo is a subsidiary of Espirito Santo Financial Group. It is small in comparison to the financial questions at Espirito Santo International, but otherwise a medium-sized bank, with deposits and assets close to $1 billion. Regulators will manage the bank for the next 30 days in order to ensure stability and solvency. The bank has been operating in Panama for 13 years.

Raising capital: Synchrony Financial, the private-label credit card business of General Electric. It hopes to raise $3 billion in an offering of about 15 percent ownership, though Wall Street analysts are skeptical. Synchrony draws two thirds of its revenue from managing retail credit cards. Some of those retailers, especially JCPenney and Walmart, have stumbled in the last two years as shoppers tired of seeing the same old merchandise on the shelves.

State bank regulators in Georgia closed Eastside Commercial Bank, with two locations in the eastern suburbs of Atlanta. The failed bank had $162 million in deposits. Atlanta-based Community & Southern Bank is assuming the deposits and purchasing two thirds of the assets, including the branches. Separately, State Bank and Trust Company is purchasing part of the loan portfolio, equal to one fourth of the assets. The failed bank was founded in 2005 — unfortunate timing, just after the peak of the real estate boom in Georgia. It is the first Georgia bank failure in over a year, but the state still has more than its share of troubled banks. Only 6 out of 7 banks in Georgia are turning a profit.