FDIC Concentrating Risk Not Resolving Failed Banks
Interesting article from the WSJ "FDIC's Challenge With Busted Banks" illustrates how instead of passing the remains of closed banks to unequivocally strong banks, the FDIC is doing deals with many acquirers who are dealing with their own issues with high exposure to commercial real estate.
Last month, United Community Banks, of Blairsville, Ga., acquired assets and liabilities of Southern Community Bank, including $224 million of loans, from the FDIC, which provided a loss-sharing agreement. Yet United Community has commercial real-estate exposure equivalent to over 850% of its tangible common equity, or TCE. Moreover, its Texas ratio, nonperforming assets as a percentage of TCE plus loan-loss reserves, is 55%. That is more than double the 26% median for smaller U.S. banks.
PrivateBancorp of Chicago acquired all the deposits and just over $900 million of assets of Founders Bank. Adjusted for a recent share issue, PrivateBancorp's commercial real estate is equivalent to 590% of its TCE. Brokered deposits are up over 220% since the end of 2007. They helped fund a 326% increase in corporate loans over the same period.
Great Southern Bancorp, of Springfield, Mo., in March acquired certain deposits and $443 million of loans from TeamBank. Great Southern's commercial real estate, which contains a large share of construction loans, is 536% of TCE. Brokered deposits leaped 44% last year. Last year the bank took a $35 million hit, equivalent to 21% of its TCE at the time, after a single loan to another bank went bad.
This appears to be further aggregation of risk rather than resolution and mitigation of risk. It's the the FDIC's own version of "extend and pretend".
Last month, United Community Banks, of Blairsville, Ga., acquired assets and liabilities of Southern Community Bank, including $224 million of loans, from the FDIC, which provided a loss-sharing agreement. Yet United Community has commercial real-estate exposure equivalent to over 850% of its tangible common equity, or TCE. Moreover, its Texas ratio, nonperforming assets as a percentage of TCE plus loan-loss reserves, is 55%. That is more than double the 26% median for smaller U.S. banks.
PrivateBancorp of Chicago acquired all the deposits and just over $900 million of assets of Founders Bank. Adjusted for a recent share issue, PrivateBancorp's commercial real estate is equivalent to 590% of its TCE. Brokered deposits are up over 220% since the end of 2007. They helped fund a 326% increase in corporate loans over the same period.
Great Southern Bancorp, of Springfield, Mo., in March acquired certain deposits and $443 million of loans from TeamBank. Great Southern's commercial real estate, which contains a large share of construction loans, is 536% of TCE. Brokered deposits leaped 44% last year. Last year the bank took a $35 million hit, equivalent to 21% of its TCE at the time, after a single loan to another bank went bad.
This appears to be further aggregation of risk rather than resolution and mitigation of risk. It's the the FDIC's own version of "extend and pretend".
posted by ENSO Advisors at
11:22 AM
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