Friday, February 5, 2016

This Week in Bank Failures

Stock prices are evidence enough that Wall Street is worried about banks. Major U.S. banks are trading below stated liquidation value, an indication that investors don’t quite trust the management, balance sheets, or future prospects. An unguarded comment by the Goldman Sachs CEO on CNBC, referring to current U.S. politics as “a dangerous moment,” reinforces the impression that Wall Street banks are, to put it mildly, not feeling comfortable. A who’s who of European banks have also seen their stocks tumble this year and now there is worry about the possible disruption of a United Kingdom exit from the European Union. Oil countries have mostly been able to keep their banks standing so far, but at considerable cost. Oil country banks will not recover until global oil prices double from current levels, but analysts are beginning to wonder if that will ever happen. Besides the problems of oil industry loans, a broad decline in the prices of industrial commodities may put banks’ mining and manufacturing loans at risk.

Finally, the size of the banking system in China is cause for concern. Bank assets and liabilities in China are larger than all of North and South America combined, a risky top-heavy arrangement that, absent a global economic miracle, will require state intervention this year. Banks in China face bubbles in stocks and real estate (both financed largely by bank lending), an overextended manufacturing sector, the overhang of a decade of lax regulation, a series of natural and man-made disasters, a slowing national economy, and worries about a possible global recession. Everything has to go nearly perfectly to avoid a systemic failure. China will surely have to pursue inflationary policies for several years to rescue its stock market and banks and to try to prop up its flagging factories.

Former bond giant Pimco continues to shrink at a startling but manageable rate, with its Total Return Fund showing $1.1 billion in outflows in January. Outflows make it harder for fund managers to maximize returns, as liquidity has to be given greater priority, and the fund is hurt by a lackluster performance, with a return under 1 percent in 2015.

Legal setbacks this week: Barclays, Credit Suisse, Wells Fargo, Deutsche Bank. Cutting costs: Lloyds Bank, with 1,755 retail job cuts announced.

A credit union was rescued by a NCUA-assisted merger. Montgomery County Credit Union in western Ohio was already in conservatorship and as of January 31 was merged into Bridge Credit Union. Prior to the merger, Montgomery County Credit Union had 6,000 members and $27 million in assets.

State regulators in Ohio placed another credit union into conservatorship yesterday. Cory Methodist Church Credit Union has 700 members. For now, members can conduct transactions at Steel Valley Federal Credit Union.

Today, Wisconsin state regulators ordered the liquidation of CTK Credit Union. It had 400 members, who were members of Christ the King Baptist Church of Milwaukee.