Friday, December 3, 2010

This Week in Bank Failures

Bank holding companies rarely survive when their banks are liquidated, and the old Washington Mutual holding company is not really an exception. It filed for bankruptcy immediately after the bank was seized, and final arguments in the bankruptcy proceeding are scheduled for Monday. The only really valuable asset the holding company has is income tax credits, but it was such a big company that this asset is worth the trouble to hold on to. The bankruptcy court has the option to transfer the tax credits to a successor company, probably a small reinsurance company that the holding company also owned. In essence, this company will be able to operate tax-free until the tax credits expired. However, it is also possible that JPMorgan, which bought the assets of the failed bank, could end up with the tax credits. If that were to happen, the reinsurance company would probably have to be sold to a well-funded buyer to keep it operating. Washington Mutual shares continued to trade at a significant market value even after the bankruptcy on speculation that there would be enough money to pay some out to shareholders, but so far, there is no indication of that.

The Salt Lake Tribune is reporting that Utah’s Far West Bank is likely to be sold next week to an investment company. The bank has been operating this year under an prompt corrective action notice from the FDIC, which encourages the bank to be sold to a well-funded buyer. The buyer in this anticipated sale expects to add $200 million to the bank to restore its depleted capital.

There have been no bank failures reported tonight, possibly because of technical issues at the FDIC. The FDIC web server was mostly shut down for server changes last weekend and is still not fully functional tonight. If the FDIC is experiencing server problems that go deeper than the web servers, that might be reason enough to postpone any planned bank closings until next week.