Friday, April 26, 2013

This Week in Bank Failures

The New York Fed obviously wouldn’t call it a bubble, but its new report suggests that many people who invest in a higher education aren’t benefiting financially. By some measures, 30-year-olds who borrowed money to go to college appear to be worse off financially on average than those who never went to college, a reversal of a long-term pattern. Banks too have seen this shift, and have become reluctant to issue car and home loans to student loan borrowers whose student loans have not been paid off.

Banks have their money in everything, but fish? Yes, fish too. When Spanish seafood producer Pescanova filed for bankruptcy amid a laundry list of financial irregularities, a big part of the back story in the bankruptcy filing was the collapse of two regional banks, Caixa Galicia and Caixa Nova. These two banks were not just Pescanova’s two largest “independent” shareholders, but also an effectively bottomless source of working capital. The company apparently did did not know to adjust when the two banks were nationalized, and continued to take risks as if it still had a reliable line of credit. It started to sell off subsidiaries, which are scattered around the world, only in its last few weeks, after it was already too late to avoid a bankruptcy filing. For the state-managed successor to the two banks, the bankruptcy probably wipes out the value of its shares and some part of the loans also, billions of euros in total. It might seem fishy now that banks were involved in the first place, but of course these questions are never asked quite so loudly when things are going well.

There was a cluster of bank failures last weekend, and it continued tonight. Douglas County Bank in Georgia failed, with $314 million in deposits. It is not connected to a bank of the same name in Kansas. The failed bank was the subject of a consent decree in 2009, when it agreed to improve its management oversight and the quality of its lending. The bank’s liquidity suffered as it was unable to sell off foreclosed real estate. By last year, it had developed an extraordinarily high level of non-performing assets, prompting financial observers to put it at the top of some lists of banks likely to fail.

Hamilton State Bank is taking over the deposits and purchasing 82 percent of the assets.

Farther north in North Carolina, state regulators closed Parkway Bank. CertusBank is taking over the $104 million in deposits and purchasing nearly all of the assets. CertusBank had previously purchased several failed banks in South Carolina and neighboring areas of Georgia.