The following is already a part of my previous “links” post, but having encountered a related article from the NYT made me think this is worth having its own post.
Bloomberg is reporting that there are now 150 banks who hold about 5% or more of its assets in non-performing loans or NPLs, which could eventually eat up on their earnings, and eventually their existence. While the economy may have bottomed out, the game is not yet over for the consumer and commercial real estate loans with rising unemployment continuously taking its toll on the consumers.
The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.
The biggest banks with non-performing loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.
As I said in the previous post, goodbye banks, hello FDIC takeover! The last time I checked (it was perhaps 3-4 weeks back via the CalculatedRisk blog), the number of banks that have been seized by the SEC has gone past the number 60. I could only surmise that with bank seizures happening on about a daily to every-other-day basis, this could now be in the upper 70s. As of August 7, there has been 72 bank failures.
And speaking of bank failures, NYT today has this article out on what could be the biggest bank failure of 2009. With assets amounting to more than $25bn, Colonial BancGroup is on the verge of death. After showing strong earnings and even increasing dividends even just last year, the increasing commercial real estate and consumer loans have hit hard the bank. To make matters worse, it is being investigated of accounting fraud following its attempt to seek for federal aid.
From the NYT:
If Colonial does fail, it will call into question both the effectiveness of the regulation of rapidly growing banks, and of the capital standards regulators use. Even now, Colonial claims to be adequately capitalized. As recently as March, it met the criteria for being “well capitalized,” the highest designation.
How could a bank be well capitalized and facing government orders to find more capital? One reason is that the government’s rules allow banks to ignore the declines in market value of many loans and other assets in computing how much capital they have. Had Colonial been forced to count the losses it had already acknowledged, its capital situation would have appeared dire earlier than it did.
The NYT story here.
Now as I was about to end this post, blog CalculatedRisk brought to my attention what seems to be another lawsuit filed by BofA being faced by the bank.
Bank of America Corp (BAC.N) sued Colonial BancGroup Inc (CNB.N) for more than $1 billion in loans and cash, and urged a federal court to order the struggling lender not to sell certain assets, pushing the company into further trouble.
Bank of America, which was the collateral agent for certain loans of Ocala Funding LLC, said Colonial refused to return more than $1 billion of loans and cash which it held as a custodian, agent and bailee. Ocala Funding was a commercial paper vehicle sponsored by Taylor, Bean & Whitaker Mortgage Corp (TBW).
Take note that TBW is the reason why Colonial is facing accounting fraud charges. TBW was supposed to provide Colonial with a $300m funding to help it survive but the deal fell through in July. The federal aid to be received by Colonial was contingent upon the extra funding it was going to get from outside sources, which in this case was TBW.
This is interesting stuff.
Let me link up the stories:
Colonial’s story in the NYT here.
Colonial’s lawsuit filed by BofA here.
And the most recent development via CalculatedRisk here.
The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.