It was banks vs. autos this week as a few members of Congress wanted to divert $25 billion from the Wall Street bailout fund to the Big Three automakers. That’s in addition to the $25 billion Congress gave the U.S. auto industry less than two months ago. Really, the money was meant for GM, which says it may go broke before the year is over. The administration objected that money being held to keep the banking system from collapsing shouldn’t be spent on just anything. It was a confusing picture in Washington as no one could come up with a convincing scenario by which the government could subsidize a company just because it was being clobbered by its competition. As soon as the GM team got on their private jet to fly back to Detroit, GMAC applied for bank holding company status.
All eyes were on Citi this week as the banking giant unveiled plans to cut its staff to 300,000 workers, 20 percent less than at its peak of two tears ago. The cuts would seem to be nearly enough to keep Citi solvent, yet Wall Street seemed to respond by considering for the first time the prospect of Citi’s failure. It did not help that two more Citi hedge funds failed during the week. Citi’s stock price ended the week below $4, half the level of a week ago and the lowest since 1994. Last night Citi executives told one newspaper they were seriously considering selling off large parts of the company while telling another newspaper that nothing of the kind was on the table.
Other banks announced mass layoffs this week, or were rumored to be planning them. Most were in the United States, but there were others in every part of the world.
Three banks failed tonight, one in Georgia and two in southern California.
In Georgia, The Community Bank had four branches in Loganville, Georgia, and three other small towns east of Atlanta. All deposits from the four branches have been transferred to Bank of Essex of Tappahannock, Virginia.
Like the two other banks that failed recently in Georgia, The Community Bank suffered from the real estate market in Georgia, which began to decline two years before the rest of the country. The Community Bank had $409 million in construction loans and only about $100 million in other loans. Bank of Essex is a smaller bank, a community bank with 13 offices across Virginia.
The two California banks that failed tonight were considerably larger. Downey Savings and Loan of Newport Beach had $9.7 billion in deposits, and PFF Bank of Pomona had $2.4 billion in deposits. Both banks are being acquired relatively intact by U.S. Bank, one of the largest banks in the country with offices in 27 states. Both banks are relatively old. Downey was founded in 1957 and was one of the first banks to emphasize placing branches in shopping centers. PFF was said to be the oldest bank in Southern California. It was founded in 1892, when the region was dominated by citrus groves.
Downey’s problems were linked to option ARMs, a kind of home mortgage that allows borrowers to decide the size of each monthly payment. PFF’s problems stemmed from real estate development loans. California’s real estate market has fallen the most of any area in the country.
This is the first time this year the FDIC has closed three unrelated banks on the same day. Part of the reason, I have to imagine, is that the FDIC is hoping not to be closing any banks a week from now during a holiday weekend.
