I made two posts on this website about the inevitable demise of BankUnited. The charade finally ended, as the FDIC shuts the bank down. Here’s the link to the FDIC statement.

We insisted that the bank would be closed in two separate articles here and here, both of them in September 2008. Needless to say, there are many more such banks in this great crisis of the industry, but we have neither the interest nor the time to screen all of them here.

BankUnited will fail

September 12, 2008

It’s always better to provide evidence when arguing against the financial health of an institution with employees and depositors. Unfortunately, BankUnited is almost in default already, and the numbers don’t require much elaboration.

 

Percent

June 30, 2008

March 31, 2007

Earnings coverage of net loan chargeoffs

0.23

79.04

Loss allowance to noncurrent loans

23.43

56.79

Net chargeoffs to loans

2.56

0.02

 

The loss allowance of BankUnited at 23 percent is much worse than that of Florida average, which is one of the worst in all US. This number should be more than 100 percent in an average bank. What this implies is that BankUnited does not have enough funds to cover its losses, and with funding conditions getting tighter by the day, and capital injections more and more difficult, it is only a matter of time before BankUnited is dead. Let me emphasise, this bank should have been closed down a long time ago; that it’s still operating is nothing short of incredible.

 

More on the unhealth of the banking industry can be found here.

Update on bank failures

September 11, 2008

Last week the regulators closed down another bank. Silver State Bank has disappeared. It now appears that they’re closing a bank on every Friday, every week.

I have been following bank failures carefully for quite a while now. Vineyard Bank, Buckhead Security Bank, California’s Imperial Capital Bank, Gateway Bank, Liberty Bank of Florida, Community National bank of Sarasota, Alpha Bank, and Haven Trust of Georgia are on my personal watchlist; I believe that the failure of these banks is imminent. I also expect Bankunited to fail at some point. The numbers that document the bankrupt situation of BankUnited are here. Of course it’s certain that there are more banks than these that will fail.

All the banks that have failed and were reorganised by the FDIC in the past two weeks were on this list that was published here. Visitors can use that list to reach their own conclusions.

NY Times ran an article on August 6th about Bankunited of Florida. According to the article, the bank, the shares of which after having reached $15 before the credit crisis are on course to become a penny stock soon, has had its non-performing assets rise five-fold since the beginning of the downturn. After allowing the share of option adjustable-rate mortgages, a kind that used to be favoured by subprime borrowers, take up 75 percent of its mortgage portfolio, the bank is now struggling to stay afloat and is seeking to raise capital to solidify its balance sheet. Florida’s economy is likely to fall into a depression as the wider US economy suffers its recession, and as house prices fall, panic in the financial markets becomes acuter, it’s hard to see the long term viability of this institution.

 

Bankunited is one of the typical examples of the low interest rate intoxication of the financial system during the first part of this decade. Bankunited’s non-performing asset ratio is double that of National City Corp. which is not a stellar bank by any means. It and other banks in Florida will have a lot more to deal with as we move through the year, as defaults are likely to be even higher as house prices keep falling.

 

From the same article at NY Times: “The bank is currently well capitalized,” Douglas Rainwater, a banking analyst at Janney Montgomery Scott, said of Bank United. “But given the amount of nonperforming loans and the trend in their growth, losses would most likely increase substantially at some point.”.

 

What puts Bankunited more at risk in comparison with some of its peers is the cluelessness of its management – it appears that until very recently they were unable to recognize the failure of their business model, and the severity of the risks that they were facing. This is unacceptable in normal times, and probably is lethal during a financial crisis. The bank needs to raise capital, and will need to raise even more as the year progresses, and certainly during 2009. That it has failed to raise capital earlier in the year, for instance, during the March-June euphoria. is a great mistake, and it’s hard to see if this bank will survive its many mistakes.

 

Florida was one of the hotbeds of irrational mortgage activity during this crisis. It garnered the greatest benefits during the warm and breezy days of the boom. It will now be one of the states that will pay the heaviest price for its lack of financial sensibility.