Friday, November 1, 2013

This Week in Bank Failures

Royal Bank of Scotland went through the whole exercise of designating a portfolio of its “bad” assets, those with a projected value near zero, only to learn that it must continue to hold its bad portfolio on its own books. At least it will be able to report separately how its “bad” assets are doing. That may reassure investors, but with no restructuring, there has to be some doubt about whether RBS will be able to become privately owned again anytime soon.

At least Citizens Bank will eventually break free of state control. The RBS U.S. subsidiary, purchased in 1988 and based in Rhode Island, will see an IPO about one year from now, with plans to sell a 25 percent stake at that time. RBS says it will complete its spinoff of Citizens Bank by 2016, probably with additional stock offerings. As recently as last week there were reports of TD Bank buying Citizens Bank, but that apparently will not happen. The spinoff of Citizens Bank is seen as an important step toward recapitalizing RBS.

A probe of currency trading by banks is now targeting at least nine giant global banks. As a sign of how seriously the banks take the investigation, many suspended traders and executives this week, particularly in London. The suspicion of investigators and banks alike is that traders at several banks may have been working together to manipulate foreign exchange markets, similar to the way that other traders colluded to manipulate Libor base rates. One consequence of suspending traders is that it may prevent them from making new trades to cover their tracks.

There was a rare Wednesday evening bank failure this week. State banking regulators closed Bank of Jackson County, which had branches in Graceville and Marianna, Florida, near the Alabama border. It had $25 million in deposits and a similar amount in assets. First Federal Bank of Florida took over the deposits and purchased the assets.

The NCUA took charge of a credit union in Philadelphia tonight, placing Mayfair Federal Credit Union into conservatorship. Only the main office will stay open. The credit union has 1,500 members.