US Bank Failures Exceed 100 for Year, First Time Since 1992
Oct. 24 (Bloomberg) -- U.S. regulators closed more than 100banks in a single year for the first time since 1992, signalingthe financial crisis hasn’t abated for lenders struggling withmounting losses tied to commercial real estate.
Seven banks -- three in Florida and one each in Georgia,Wisconsin, Minnesota and Illinois -- were shut yesterday,according to the Federal Deposit Insurance Corp., pushing thisyear’s total to 106. That’s the most since the savings-and-loancrisis led regulators to shutter 179 institutions in 1992.
“It’s very painful, it costs a lot of money, it ruinscareers,” said Gerard Cassidy, an RBC Capital Markets analystin Portland, Maine. “But shutting down failed banks and writingoff the bad loans is a necessary solution that has to be done toget the economy and the banking system back on its feet.”
Banks looking to weather the storm of bad loans have slowedlending to U.S. consumers and sought ways to preserve and raisecapital. U.S. financial institutions have suffered about $1.1trillion in credit losses and writedowns since 2007. Thenation’s unemployment rate rose to 9.8 percent in September, thehighest since 1983, according to the Labor Department. A record531 lenders were seized in 1989, according to the FDIC’s Website, which cites data back to 1934.
In August, the FDIC said 416 banks with combined assets of$299.8 billion were on its list of “problem” lenders at mid-year. It isn’t known whether the banks closed yesterday wereamong them because the FDIC doesn’t release the list.
Commercial Loans
Declines in commercial property loans contributed to thecollapse of U.S. banks this year. Losses linked to hotels, mallsand condominiums pose the biggest threat to lenders as financingcomes up for renewal, FDIC Chairman Sheila Bair said last week.
“The most prominent area of risk for rising credit lossesat FDIC-insured institutions during the next several quarters isin CRE lending,” Bair said to the Senate subcommittee onfinancial institutions, referring to commercial real estate.
Banks with assets of $10 billion or less tend to have morecommercial loans than loans tied to residential real estate,Foresight Analytics LLC analyst Matthew Anderson said.
“The largest banks have a meaningful dollar exposure tocommercial real estate, but it’s a relatively smaller piece ofwhat they do,” Anderson said. The Oakland, California-basedfirm maintains a “watch list” of 466 problem banks.
Regulators closed Partners Bank of Naples, Florida, andStonegate Bank in Fort Lauderdale, agreed to assume about $64.9million of deposits without paying a premium, the FDIC said inan e-mailed statement. Stonegate also agreed to acquire all $84million in deposits of Hillcrest Bank Florida, another Naples-based lender.
Other Bank Closings
Federal regulators closed Flagship National Bank inBradenton, Florida, and the FDIC arranged for First Federal Bankof Florida in Lake City to assume all $175 million in deposits.
State regulators closed American United Bank ofLawrenceville, Georgia, the FDIC said. Ameris Bank of Moultrie,Georgia, agreed to assume $101 million in deposits, the FDICsaid in an e-mailed statement.
Riverview Community Bank of Otsego, Minnesota, was seized.Stillwater, Minnesota-based Central Bank bought Community Bank’sdeposits. State officials closed Bank of Elmwood in Racine,Wisconsin. Tri City National Bank of Oak Creek, Wisconsinpurchased all of the Bank of Elmwood’s deposits and almost allof the assets, the FDIC said in a statement.
First Dupage Bank of Westmont, Illinois, was closed bystate regulators. First Midwest Bank of Itasca, Illinois, paid apremium to assume all of First Dupage’s deposits.
Yesterday’s failures cost the FDIC’s insurance fund almost$357 million.
FDIC Insurance
The FDIC insures deposits of up to $250,000 and thecollapse of more than 120 banks in the past two years hasdepleted the agency’s deposit-insurance fund.
The number of bank closings would likely be higher thisyear if the FDIC’s fund wasn’t depleted and if the agency hadmore bank examiners, RBC’s Cassidy said. The agency shrank underPresident George W. Bush before adding employees in the Obamaadministration. The FDIC has about 6,000 employees now, comparedwith 21,000 during the savings-and-loan crisis in 1991, he said.
“We certainly know there are hundreds and hundreds ofzombie banks out there,” Cassidy said. “The only alternativefor them is to be seized and it’s only a matter of manpower andmoney before they get to it.”
The FDIC has proposed banks pay three years of advancedeposit insurance fees to raise $45 billion and replenish theinsurance fund. It costs anywhere from 25 percent to 30 percentof a failed bank’s assets to shut it down, Cassidy said.
“There are losses that will have to float through thesystem not just for one quarter or two, but for years,” saidPaul Miller, a financial industry analyst at FBR Capital Marketsin Arlington, Virginia. “I think you’ll see closures speed upafter they replenish the fund.”
To contact the reporters on this story:Dakin Campbell in San Francisco at dcampbell27@bloomberg.net;Michael McKee in New York at mmckee@bloomberg.net.
Last Updated: October 24, 2009 00:00 EDTSource: Bloomberg
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