Reader Steve A has been on the Friday night FDIC bank euthanasia watch, and in the last two weeks, he has discerned a disturbing trend. If this pattern persists, it seems a sign that things in bank-land may be much worse than is widely acknowledged.
From last week’s post, “This Week’s Bank Failure Surprisingly Costly,” on the demise of the faith-based Integrity Bank of Alpharetta:
$250 to $300 million of losses for a mere $1.1 billion in assets bank? As reader Steve A noted:
Today’s failure of the amusingly named Integrity Bank of Alpharetta, GA, confirms two very ugly trends: once again, FDIC was only able to pass cash and cash-equivalents to the assuming bank, and the FDIC’s loss estimate is extremely high ($250M – $350M on $1.1B of assets). I don’t have hard numbers handy but I seem to recall that receivership losses in the range of 25% – 35% were unusual in the commercial bank failures of the late 80’s. I could be wrong, but the numbers this year are extremely high. FDIC’s expected losses certainly make me wonder what on earth the bank examiners were doing for the last year besides critiquing the bank’s coffee and color scheme.
Now to this week’s FDIC prepack, Silver State Bank of Henderson, Nevada:
As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent….
Silver State Bank also had approximately $700 million in brokered deposits that are not part of today’s transaction. The FDIC will pay the brokers directly for the amount of their insured funds….
In addition to assuming the failed bank’s insured deposits, Nevada State Bank will purchase a small amount of assets comprised of cash and securities. The FDIC will retain the remaining assets for later disposition.
The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million.
The losses are stunning. and proportionately almost identical to the levels last week. a range of 22.5% to 27.5%. One wonders why the same loss estimate ranges are being applied to banks in two different states. Regardless, the estimates raise questions as to how these banks could have gotten in such bad shape without anyone taking notice.
And Steve A called our attention to another worrisome aspect (boldface ours):
FDIC …has again retained all assets except cash and “certain securities” (i.e. govies). There appears to be no market for performing bank loans..
Update 11:50 PM: This tidbit from the Wall Street Journal:
Until recently, the son of Republican nominee Sen. John McCain sat on Silver State’s board and was a member of its three-person audit committee, which was responsible for overseeing the company’s financial condition.
Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing “personal reasons.” He is Sen. McCain’s adopted son from his first marriage.