Banks at Risk of Failure – Continued

August 28, 2008

During the housing bubble, house prices appreciated by 60 percent above their long term trend. Those economists who expect house prices to fall by another 15 percent are basing their expectation on a return to this long term trend. But it is very possible that after such a wild swing toward the appreciation side, house prices will actually correct with a similar irrational swing to the depreciation side, falling actually below the long term trend, and if this happens, it is hard to see how hundreds of banks can avoid failure unless there’s meaningful government intervention.

Meanwhile, unemployment is rising, and it’s highly likely that we’ll see at least a fifty percent rise in the unemployment rate from today’s levels, which makes more credit card defaults, and more writedowns for all banks likely. Consumer defaults will eventually trigger defaults on commercial real estate, as the consumer is the main source of revenue for paying the debt back.

Commercial mortgage activity has been declining steadily this year – from 147 billion in the first 6 months of 2007, the amount of completed deals has already collapsed to 12 billion in January- June of this year. The disastrous state of the residential mortgage industry doesn’t require any further detailing, however, the 10 million homeowners who have negative equity in their homes do bear noting.

The momentum of the crisis is still snowballing. All these losses will eventually appear on bank balance sheets which are suffering from extreme distress. It’s well known that consumers who had limited success in extending home equity loans have been resorting to ever increasing credit card borrowing, and as this is fundamentally a consumer-recession, it’s not hard to see accelerating defaults further constraining balance sheets, leading banks to shrink their lending base, leading to more defaults by their customers, and so forth.

The greatest risk for the US and global economy is this feedback loop. Unfortunately, Central banks around the world seem to choose to stick their heads in the sand when confronted with this prospect. Mr. Bernanke’s insistence before the Congress that subprime losses would be limited to 100 billion dollars is common knowledge, and nowadays he seems to believe that the greatest risk of a severe recession has receded. On the other hand, the efficiency of uncoordinated central bank action is doubtful.

As more and more banks default, those that aren’t too big to fail are obviously the ones at greatest risk. A regional bank in Kansas or Florida is far less likely to obtain international or federal backing in the case of trouble or failure. As raising capital becomes more and more difficult, some of these regional banks with the greatest exposure to CMBS and mortgage defaults will face an impossible situation. On the other hand, according to Bloomberg, despite writing down billions of dollars Merril’s Thain still has the confidence of Temasek, and it’s not wise to bet against Asian nepotism, exporter cash or petrodollars.

Finally, according to RealtyTrac.com, the top states with the highest foreclosure per household ratings are Nevada, California, Florida, Arizona, Ohio, Georgia, Michigan, Colorado, Utah and Virginia, in the same order. So far FDIC’s problem banks are scattered across the country, according to their own statements, but as the crisis intensifies, we’re likely to see a greater concentration in these states with highest mortgage default rates. We don’t have the FDIC’s own list, but here’s a possible list of the problem banks in these 10 states, compiled from the list of the lowest ranking banks at Bankrate.com

California

Loss allowance ratio has fallen by 47 percent in california, which is the second highest in this list. Number of unprofitable institutions has risen by 42 percent in the past two quarters, and the speed of deterioration is very worrying.  

1st Centennial Bank CA
Affinity Bank CA
Community Bank of Southern California CA
County Bank
Desert Commercial Bank
Downey S&L, F.A.
First Federal Bank of California, FSB
First Private Bank & Trust
First Standard Bank
Gateway Bank, FSB
Imperial Capital Bank
Los Padres Bank
Palm Desert National Bank
PFF Bank & Trust
Seacoast Commerce Bank
Security Pacific Bank
Vineyard Bank, National Association

Florida

Florida is by far one of the worst states in terms of the health of its banks. Many failures are likely. There’s no sign of any improvement, as of June 30. 

The Bank of Bonifay
The Bank of Commerce
Bankunited, FSB
Bayside Savings Bank
Centerbank of Jacksonville, N.A.
Century Bank, A Federal Savings Bank
Citrus Bank, N.A.
Coastal Community Bank
Community Bank of Cape Coral
Community Bank of Manatee
Community National Bank of Sarasota County
Cornerstone Community Bank
Espirito Santo Bank
Federal Trust Bank
First Florida Bank
First Guarantee Bank and Trust Company of Jacksonville
First People’s Bank
First Priority Bank
First State Bank
Florida Capital Bank
Florida Community Bank
Freedom Bank
Freedom Bank of America
Great Eastern Bank of Florida
Integrity Bank
Key West Bank
Landmark Bank of Florida
Liberty Bank
Marco Community Bank
Marine Bank
Ocala Nation Bank
Ocean Bank
Old Harbor Bank
Partners Bank
People’s First Community Bank
Pilot Bank
Republic Federal Bank, N.A.
Riverside Bank of the Gulf Coast
Southbank, A Federal Savings Bank
Sunrise Bank
The Oculina Bank
The Bank
Vanguard Bank and Trust Company
Vision Bank

Nevada

Nevada is one of the most troubled states.

First National Bank of Nevada
Great Basin Bank of Nevada
Nevada Basin and Trust Company
Nevada Commerce Bank
Silver State Bank
Washington Mutual Bank

Arizona

Similar to California, Arizona’s banking sector is in great trouble, and is the slowest to recognise the severity of the situation in this list.

Credicard National Bank
First National Bank of Arizona
First State Bank
Parkway Bank
Valley First Community Bank

Ohio

In general, Ohio is better than most other states in this list.

Bramble Savings Bank
Centerbank
Century Bank
The Community National Bank
The First National Bank of Germantown
The Guernsey Bank
Indiana Village Community Bank
National City Bank
Ohio Legacy Bank
The Ohio State Bank
People’s Community Bank

Georgia

The number of unprofitable institutions has doubled in the past two quarters alone. Loss allowance to non current loans ratio has fallen by about thirty percent. Georgia is one of the worst states with respect to banking sector health.

Alpha Bank & Trust
American Southern Bank
American United Bank
Bank of Cometa
Bank of Ellday
The Buckhead Community Bank
Citizens & Merchants Bank
Community Bank of Rockmart
Community Bank of West Georgia
The Community Bank
Community Trust Bank
Crescent Bank and Trust Company
Eank
First Century Bank, National Association
First Choice Community Bank 1874
First Commerce Community Bank
First Covenant Bank
First Coweta Bank
First Georgia Community Bank
First National Bank of Gwinnett
First National Bank of the South
First Piedmont Bank
First Security National Bank
Firstbank Financial Services
Firtcity Bank
Freedom Bank of Georgia
Gainesville Bank & Trust
Georgia Banking Company
Georgia Heritage Bank
Haven Trust Bank
Heritage Bank
Hometown Bank of Villa Rica
Integrity Bank
McIntosh Commercial Bank
Mountain State Bank
Neighbourhood Community Bank
Northside Bank
Omni National Bank
The Park Avenue Bank
The Peach Tree Bank
The People’s Bank
Plantersfirst
The Private Bank
Quantum National Bank
Security Bank of Bibb County
Security Bank of Gwinnett County
Security Bank of Houston County
Security Bank of North Metro
Southern Community Bank
Sunrise Bank of Atlanta
The Tattnall Bank
United Americas Bank, National Association
United Bank & Trust Company
Unity National Bank

Michigan

Starting from an already troubled base, Michigan’s banking sector health has been deteriorating continuously during the past two quarters, and before that. Bank failures are highly likely.

Citizens First Savings Bank
Citizens State Bank
Clarkstone Savings Bank
Community Central Bank
Crestmark Bank
Davison State Bank
Detroit Commerce Bank
Farmers State Bank of Munith
First Federal of Northern Michigan
Flagstar BAnk, FSB
Grand Haven Bank
Kent Commerce Bank
Lakeside Community Bank
Macombe Community Bank
Main Street Bank
Mainstreet Savings Bank, FSB
Mercantile Bank of Michigan
Michigan Heritage Bank
Muskegon Commerce Bank
Oakland Commerce Bank
Oxford Bank
Paragon Bank & Trust
Paramount Bank
People’s State Bank
Select Bank
Sterling Bank & Trust, FSB
West Michigan Community Bank

Colorado

There’s a clear trend of deterioration in Colorado’s banking sector, but it hasn’t yet reached the levels of the worst states.

American National Bank
Colorado FSB
Colorado National Bank
Kit Carson State Bank
Premier Bank

Utah

The banks of Utah appear to be aggressive in loan loss provisioning, and this should bring better results than in other states. However, the deterioration in profitability is quick and worrying.

Centennial Bank
Magnet Bank

Virginia

Virginia’s the strongest in this group. The overall data on its financial insitutions do not give the impression of a state in a banking crisis.

Alliance Bank Corporation
First State Bank
Greater Atlantic Bank
Imperial Saving and Loan Association
Virginia Savings Bank, FSB

No one knows which banks are going to default, but the list could provide some guidance. The highest numbers are in Georgia, Florida, Michigan, and California.

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One Response to “Banks at Risk of Failure – Continued”

  1. […] and were reorganised by the FDIC in the past two weeks were on this list that I had published here. Visitors can use that list to reach their own conclusions. Posted by moneymill Filed in […]

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