Updated Problem Bank List

We wanted to take a moment and post up some updated data regarding the 'problem bank list' since we saw late last week that yet another major bank (Corus Bank) has failed. The FDIC releases this data monthly with a delay and Calculated Risk (a great Economics blog by the way) with the help of a reader did a great job of aggregating the spreadsheet of information. This data was posted up on September 4th, so hopefully timelag isn't too bad since the information is already released on a delayed basis much like the SEC filings we track in our hedge fund portfolio tracking series.

Below is the table of problem banks and make sure you scroll (both horizontally and vertically) as the list is pretty comprehensive. RSS & Email readers come to the blog to view the table:





Under the 'Class' column, note that N stands for national chartered commercial bank, SM stands for state charter Fed member commercial bank, NM stands for charter Fed nonmember commercial bank, SA stands for state or federal charter savings association, and SB stands for state charter savings bank.

Very interesting stuff to examine as always. Lastly, since we're on the topic of bank collapses, we just went back and read a piece on Washington Mutual's failure and thought it would be interesting reading for those of you who haven't seen it. If you're all gloom and doom now that you've seen yet again the poor state our financial system is in, we can do you one better. Nevermind bank failures, hedge fund manager Kyle Bass of Hayman Advisors has previously predicted sovereign defaults. Now wouldn't that be just dandy? So, we'll end with a toast: here's to many more anticipated bank failures.

World's 50 Safest Banks: Global Finance World's Rankings

While this list was released back in March 0f 2009, we wanted to publish it up as we forgot to at the time. Global Finance World publishes a list of the World's 50 Safest Banks and they edited it mid-year which reflects the turmoil within the financial markets worldwide. Interesting tidbits regarding the list: Only 4 American banks make the list, none of which are in the top 10. The closest is Wells Fargo (WFC) at 21st. This will certainly draw much criticism as there are many skeptics out there regarding Wells Fargo's stability.

Another interesting fact is that all of the major Canadian banks are included in the top 50, which confirms what many strategists and prominent investors have been speaking of throughout the turmoil. They have said that if you want to own banks at all, then your best bet is a Canadian entity. Specifically, Dennis Gartman has often noted his preference of Canadian banks. In addition to a large amount of Canadian banks on the list, there is quite a cluster of Australian banks within the top 25. Lastly, we'd also like to highlight the large amount of German banks on the list, especially ranked within the top 10.

Embedded below is the publication. (RSS & Email readers will need to come to the blog to view the embedded document). Here is Global Finance World's 50 Safest Banks list:




Now, while rankings lists like these might be fine and dandy, we're inserting an asterisk next to this one. Why? Well, because upon examination of the criteria for ranking, we were a bit surprised. Global Finance World ranked the banks according to long-term credit ratings and total assets. They used ratings from Moody's, Standard and Poor's, and Fitch. And there is your red flag right there. They are compiling a list based on ratings from the ratings agencies... the same ratings agencies that have appalled many of us with their reactionary movements and downgrades. What good are the ratings agencies if they can't even provide accurate ratings to give us a barometer as to the health of various institutions? But, we digress. We've attached the list for your perusal (or comic relief) anyways.

As always, take things like this with a nice grain of salt.

Bank Stress Test Results

Drumroll.....

The eagerly awaited, somewhat informative, yet probably not completely accurate, overhyped and underdelivered, "it is what it is": Financials/Bank Stress Test Results.

(RSS & Email readers may need to come to the blog to view the presentation).


Bank Stress Test Results Overview - Free Legal Forms

Meredith Whitney's Latest Comments

Here's the latest from noted banking analyst Meredith Whitney, who appeared on CNBC late yesterday if you missed it:



Also, due to its tie-in with Whitney's thoughts, make sure you also check out our piece on consumer credit.

Washington Mutual's Failure

Very interesting piece on the rise and fall of Washington Mutual flagged to our attention by Barry Ritholtz. The Jacksonville Business Journal writes,

"But already by 2001 — long before the housing bubble stretched dangerously, before most Americans had heard the term “subprime loan” — Killinger (WaMu Chief Executive) had created the fractures that would cause Washington Mutual to collapse in the largest bank failure in U.S. history. The cracks, according to executives who were there at the time, would spread over the next 10 years, eventually rendering the 119-year-old bank that Killinger painstakingly built into the nation’s largest thrift too weak to withstand the greatest economic downturn of his career. “By the time you got to the last couple of years, pretty much the destiny of the company had been locked in,” said one former executive. Killinger declined repeated requests to be interviewed.

...

But, without exception, former and current executives interviewed for this article pointed to Killinger’s changes in the late 1990s as one of the chief causes of the company’s eventual downfall. One of the main reasons is that it gave much more power to the company’s mortgage division and the executives who ran it over the next 10 years, executives said. Under the new structure, the mortgage unit operated more on its own, and its independence grew when Killinger gave it its own IT and human resources departments, executives said. “The mortgage unit was responsible for its own bottom line,” said Lannoye. “The checks and balances were gone.” Ultimately, the changes paved the way for the mortgage unit to transform into a “culture of unmitigated greed,” according to a former executive team member, a view echoed by many former WaMu executives.

...

At the same time as he made the management shift in 1999, Killinger made an acquisition that seemed unremarkable. But Long Beach Financial was different. The California lender was a leader in a growing area of subprime mortgages, which were gaining popularity because banks could charge higher interest rates to those with poor credit, and reap more profit. Long Beach Financial was WaMu’s entry into the market. The highly profitable business made $752 million worth of loans in the first quarter of 1999 alone. Its 12,500 loan brokers were spread across all 50 states.

...

It marked the start of WaMu’s fateful foray into subprime loans, and its rapid, unchecked advance into risky mortgage lending — ultimately the chief cause of its collapse. Killinger had found a new growth strategy. After Long Beach, WaMu quickly snapped up three more mortgage banks. At the time, even many WaMu executives thought it was a good move. Home prices were rising, interest rates were low and banks earned sizable fees for originating loans. What’s more, the risk of default could be off-loaded by packaging the mortgages and reselling them to investors as securities.

...

Now the cracks at WaMu started to spread. The company began losing money on hedging — efforts to protect against movements in interest rates, a problem that was partially attributed to a failure to integrate a key mortgage system, according to executives who were present at the time. The bank also began losing money on home loans. Its profit, which had marched dramatically higher, plateaued at about $3.8 billion in 2003. Davis, who had led the home loan group since the late 1990s, left abruptly that year, executives said. The mortgage business, according to one executive, “became the Achilles’ heel of the bank.” The following year, the trouble deepened. Earnings tumbled by 25 percent, or more than $1 billion, the largest decline in annual earnings for at least a decade. More worrying, provisions for bad loans leapt fivefold, to $209 million. WaMu cut 13,450 jobs, closed 100 mortgage offices and closed 53 commercial banking operations.

...

In the desperate last months, Killinger was described as blindly optimistic and oblivious by those who worked with him. He had not in his career seen a market or a bubble like the one now engulfing Washington Mutual."

Read the entire piece.