Saturday, July 31, 2010

The Small Bank Failure Story Plays Out Across US: LibertyBank in Oregon Closes

By staff
Story Published: Jul 31, 2010 at 12:16 PM PDT

On Friday the Oregon Department of Consumer and Business Services ordered the closure of LibertyBank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. Home Federal Bank of Idaho acquired LibertyBank deposits, assets, and a portion of its loans from the FDIC.

LibertyBank is headquartered in Eugene, and it has 15 branches in Eugene/Springfield, Central Oregon, and Southern Oregon, and a loan office in Portland. All deposit accounts of LibertyBank are being transferred to Home Federal Bank, and will be available immediately. All branches will reopen Monday as Home Federal Bank. In the meantime, depositors of LibertyBank will see no disruption; they can continue to access their accounts through automated teller machine transactions, checks, and debit transactions. All loan customers should make their payments as usual.

LibertyBank was significantly undercapitalized, primarily due to nonperforming residential construction loans. Without an infusion of capital, the bank was unable to recover given the prolonged downturn in real estate markets, particularly in Central and Southern Oregon where it had lent to a number of developers. As those loans continued to deteriorate, the bank was no longer able to meet its financial obligations and became insolvent.

“This has been a sobering period in Oregon’s banking history,” said Cory Streisinger, director of the Department of Consumer and Business Services. “Any time a bank closes, it’s a real loss for the community, but we are pleased that Home Federal Bank is expanding its presence in Oregon by acquiring LibertyBank.”

LibertyBank began in 1979 as Central Oregon Savings & Loan Association in Bend. It moved to Eugene in 1987. As of March 31, 2010, LibertyBank had total assets of approximately $794 million and total deposits of $718 million.

Based in Nampa, Idaho, Home Federal Bank has $822 million in total assets and $522 million in total deposits. Home Federal Bank was founded in 1920 and has 16 branches in southwestern Idaho and eight branches in Central Oregon. Home Federal expanded into Oregon in August 2009 when it acquired Community First Bank of Prineville.

Because Home Federal Bank is acquiring all of LibertyBank’s deposits, there will not be any losses for former LibertyBank depositors, including those who have deposits exceeding the FDIC Deposit Insurance amount. The FDIC is retaining $300 million of LibertyBank’s loans, but Home Federal will service all loans. The acquisition will ensure a seamless transition for Liberty’s customers.

“LibertyBank management made many attempts to raise capital and worked hard to improve its financial condition,” said David Tatman, administrator of the department’s Division of Finance and Corporate Securities. “Closing LibertyBank was a difficult but necessary step to protect depositors.”

Declining real estate values and general economic weakness continue to pose problems for banks in Oregon and across the country. There were 140 bank closures nationwide in 2009, including three in Oregon, and more than 100 banks have closed in 2010. LibertyBank is the third Oregon bank to close in 2010, and the second this month. Each time a bank has closed in Oregon, another bank has taken over the deposits of the failed bank. No Oregon depositor has lost money as the result of a bank closure.

Oregon banks with a heavy concentration of real estate loans continue to struggle, as developers are unable to make payments. Several banks have raised capital to help them weather the economic downturn, which is a good sign and a vote of confidence in Oregon community banks, according to Streisinger.

“Although no other Oregon banks are in immediate danger of closing, we expect that some banks will continue to have challenges until the economy fully recovers,” Streisinger said.

Source: Press release from the Oregon Department of Consumer and Business Services:

The Department of Consumer and Business Services is Oregon’s largest business regulatory and consumer protection agency. The department’s Division of Finance and Corporate Securities regulates Oregon financial institutions. For more information on Oregon banks as well as frequently asked questions about today’s transaction, visit

Home Bancshares Buys Two Lenders as Failures This Year Hit 108


July 31 (Bloomberg) -- Home Bancshares Inc., the Arkansas bank with $3 billion in assets, purchased two seized lenders and regulators closed three others as this year’s failures climbed to 108.By Dakin Campbell

Home Bancshares acquired about $415 million in deposits and 13 branches in its third and fourth purchases of failed Florida banks this year, according to statements posted to the Federal Deposit Insurance Corp.’s website. Banks in Georgia, Washington and Oregon were also closed. The five failures cost the FDIC’s deposit-insurance fund $334.7 million.

“This is a terrific opportunistic acquisition which allows us to further expand our current Florida footprint,” C. Randall Sims, chief executive officer of Home BancShares, said in a statement. “The Panhandle represents a natural extension to our current Florida footprint and serves as a popular, longtime vacation destination for many Arkansans.”

Regulators may close the most banks this year since 1992 as souring residential and commercial mortgages impair capital levels. The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31, an increase from 702 banks with $402.8 billion at the end of the fourth quarter. FDIC Chairman Sheila Bair has said 2010 failures will surpass last year’s total of 140.

Home Bancshares, through its Centennial Bank unit, acquired Florida-based lenders Bayside Savings Bank and Coastal Community Bank, the FDIC said. It added offices from Port Saint Joe’s Bayside and Panama City Beach’s Coastal Community Bank.

Recession Hits Florida

Florida is among U.S. states hardest hit by the recession. Regulators have closed 20 banks in the state so far this year. Home Bancshares bought two of them before its latest purchases, according to the FDIC. The bank had $2.2 billion of deposits at the end of the June, according to Bloomberg data.

Heritage Financial Corp. paid a 1 percent premium for the deposits and some assets of Longview, Washington-based Cowlitz Bank, the FDIC said. Heritage, based in Olympia, Washington, picked up about 62 percent of the assets Cowlitz held at the end of March and all nine branches, the agency said. The FDIC kept the remaining assets for later sale.

Home Federal Bancorp also paid the FDIC a 1 percent premium to purchase the $718.5 million in deposits held at the end of March by LibertyBank, closed by Oregon banking regulators. Nampa, Idaho’s Home Federal picked up 15 branches of Liberty, based in Eugene, Oregon. The lender held $869 million in assets at the end of June, according to Bloomberg data.

State banking regulators also closed Acworth, Georgia’s NorthWest Bank and Trust, the 11th bank to fail in Georgia this year, the FDIC said. The agency sold the lender to State Bank & Trust Co., of Macon, Georgia.

--Editors: Dan Reichl, Paul Tighe

To contact the reporter on this story: Dakin Campbell in San Francisco at

To contact the editor responsible for this story: Alec McCabe at

Friday, July 30, 2010

Objective Stress Test: IMF Says U.S. Financial System May Need $76 Billion in Capital

Bloomberg News

July 30 (Bloomberg) -- The U.S. financial system remains fragile and banks subjected to additional economic stress might need as much as $76 billion in capital, according to the results of International Monetary Fund stress tests.

The findings, released today as part of a broader IMF report on the U.S. financial system, suggested that while the nation’s banking system is stable, it remains vulnerable. Home prices, commercial real estate loans and economic growth have the potential to cause shocks that could expose banks to more losses.

Under one scenario, small and regional banks as well as subsidiaries of foreign banks would need $40.5 billion in additional capital to meet a benchmark capital ratio of 6 percent Tier 1 common equity from 2010 to 2014. Under the adverse scenario, those needs rise to $76.3 billion, according to the report.

“Pockets of vulnerabilities linger,” the fund said in the report. The U.S. is recovering from what the IMF called “one of the most devastating financial crises in a century.”

Because the economic recovery is proceeding slowly, regulators must be especially vigilant in guarding against risks and weak spots, the report said.

The IMF also renewed its call for the Obama administration to push ahead with changes to Fannie Mae and Freddie Mac, the government-sponsored enterprise housing companies. The report suggested a partial privatization strategy, in which the government would take over the GSEs’ public housing mission while privatizing investment operations.

Regulators’ Role

The IMF stopped short of recommending recapitalizing the banks it studied in the report. Instead, it urged regulators to monitor conditions, especially for smaller institutions with less market access.

The numbers “are not frightening,” said Christopher Towe, the IMF’s deputy director of monetary and capital markets who directed the assessment. The review process was created in the wake of the Asian crisis, and the U.S. is the first major economy to undergo it since the global financial turmoil.

“We are particularly concerned about the situation among the small and medium-sized banks, which are most heavily exposed to the commercial real estate sector,” he told reporters in a press briefing yesterday.

The IMF said second-quarter results underscore the balance- sheet risks identified by the stress tests. “Initial releases of second-quarter earnings results have been disappointing,” the IMF report said.

Real Estate

The IMF said about $1.4 trillion of commercial real estate loans will mature from 2010 to 2014, almost half of which are already “seriously delinquent,” with payments 90 days or more past due, or “underwater,” with loan values exceeding property values. Home prices are another concern, as are the spillover effects if problems intensify as they spread among institutions.

U.S. regulators will need to step up their efforts to coordinate oversight after the Dodd-Frank legislation that President Barack Obama signed this month, the IMF said. The report generally praised the new law, while also flagging ongoing concerns.

“In some areas we were a little bit disappointed,” Towe said. “We see the system of regulatory agencies as still remaining exceptionally complex with a very large number of agencies involved and we would have preferred to have seen a much more bold streamlining.”

To contact the reporter on this story: Sandrine Rastello in Washington at Rebecca Christie in Washington at

Thursday, July 29, 2010

More Gloom: Foreclosure Filings Rise in 75% of U.S. Metro Areas

Bloomberg News

July 29 (Bloomberg) -- Foreclosure filings climbed in three-quarters of U.S. metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc.

The number of properties receiving a filing more than doubled from a year earlier in Baltimore, Oklahoma City and Albuquerque, New Mexico, the mortgage-data company said today in a report. Notices of default, auction or bank seizure rose more than 50 percent in areas including Salt Lake City; Savannah, Georgia; and Atlantic City, New Jersey.

“Foreclosures are spreading out from areas that had been hardest hit,” Rick Sharga, senior vice president for marketing at Irvine, California-based RealtyTrac, said in a telephone interview. “We’re dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans.”

Private employers added fewer jobs than economists projected in June and the U.S. unemployment rate fell to 9.5 percent as discouraged job seekers stopped looking for work, the Labor Department said July 2. The Commerce Department last month reduced its estimate for first-quarter economic growth after consumer spending grew less than previously forecast.

The number of Americans filing first-time claims for unemployment insurance fell by 11,000 to 457,000 last week, while the number continuing to collect jobless benefits rose to 4.565 million in the week ended July 17, Labor Department figures showed today.

Delaying ‘Inevitable’

Continued weakness in employment and efforts to prevent foreclosure may “delay the inevitable” and weigh on home prices, RealtyTrac Chief Executive Officer James J. Saccacio said in a statement.

The company said 154 of 206 U.S. metro areas with populations of more than 200,000 had increases in households with filings from January through June.

Cities in Nevada, Florida, California and Arizona accounted for the 20 highest foreclosure rates. Nine of the top 10 metro areas had decreases in the total properties receiving filings, a sign that foreclosures may have peaked in the states hurt the most by the housing market’s collapse, RealtyTrac said.

Las Vegas had the highest rate as 6.6 percent of households received a notice, while filings dropped 8.8 percent, the data company said. Cape Coral-Fort Myers, Florida, was second at 5 percent of households. Filings fell 30 percent from a year earlier.

California Filings

California cities ranked third through fifth. Modesto had 4.6 percent of households get a notice, Merced had 4.5 percent and Riverside-San Bernardino had 4.4 percent. Filings declined 14 percent in Modesto, 35 percent in Merced and 23 percent in Riverside-San Bernardino.

Miami-Fort Lauderdale-Pompano Beach led in total properties with filings, at 94,466. That was up almost 11 percent from the first half of 2009. Los Angeles-Long Beach-Santa Ana was second with 93,263, down 12 percent. Chicago-Naperville-Joliet was third with 78,022, up 23 percent, RealtyTrac said.

The company sells default data from more than 2,200 counties representing 90 percent of the U.S. population.

To contact the reporter on this story: Dan Levy in San Francisco at

Picking Up the Slack. Are Credit Unions Up to the Job?

Bloomberg News

Credit Unions Can Do More Small Business Lending, Cheney Says

July 29 (Bloomberg) -- Congress should raise the lending limits for credit unions because it would help small businesses and create jobs, said Bill Cheney, president and chief executive officer of the Credit Union National Association.

“Credit unions are lending but they can do a lot more,” said Cheney, 50, in an interview at Bloomberg’s New York office. He became CUNA’s head earlier this month.

Credit unions are owned by their depositors and represent about 6 percent to 10 percent of total deposits held by financial institutions, said Cheney. The Washington and Madison, Wisconsin-based CUNA represents about 7,800 lenders and 92 million members.

Cheney, the former head of the California and Nevada Credit Union Leagues, said Congress should pass legislation introduced by Senator Mark Udall, a Colorado Democrat, to let credit unions make loans to small businesses up to 27.5 percent of their assets, compared with the current limit of 12.25 percent.

“It would free up $10 billion in lending to small business and create 108,000 jobs in the next year,” Cheney said.

Credit unions take deposits from their owner-customers and make loans to their members, who are typically small businesses, he said. Deposits in credit unions are federally insured up to $250,000 by the National Credit Union Share Insurance Fund, similar to the Federal Deposit Insurance Corp., which insures bank accounts.

The U.S. Senate is debating a small business aid bill, a version of which has been approved by the House of Representatives. President Barack Obama has been pressing Congress to push forward on initiatives to help small businesses in an attempt to encourage job growth.

The nation’s unemployment rate fell to 9.5 percent in June from 9.7 percent in May. Companies with fewer than 500 workers employ about half of the working population and account for 60 percent of gross job creation, Federal Reserve Chairman Ben S. Bernanke said July 12 at a conference in Washington.

To contact the reporter on this story: Margaret Collins in New York at .

Wednesday, July 28, 2010

Earnings Reports Are In: FDIC-Assisted Banks Thrive

Umpqua Holdings

Posted on 07/28/10 at 9:18am
by Scott Loeb

Analysts at J.P. Morgan reiterated their Overweight rating on shares of Umpqua Holdings (UMPQ), while increasing their price target to $15 from $13.50.

In their report J.P. Morgan writes, "With the company moving more quickly on offense, a strong pipeline of FDIC targets in its cross-hairs, and well positioned for long-term organic growth, we view the current peer-level valuation on the shares as a buying opportunity."

Umpqua Holdings Corporation operates as the bank holding company for Umpqua Bank that provides commercial and retail banking services to corporate, institutional, and individual customers primarily in the areas of Oregon, northern California, and Washington.

East West Bancorp

By Shanthi Venkataraman

07/28/10 - 10:04 AM EDT

PASADENA,Calif. (TheStreet) -- California-based East West Bancorp(EWBC) swung to profit in the second quarter helped by the improving credit quality and successful integration of the United Commercial Bank acquisition.

Net income for the second quarter came in at $36.3 million or 21 cents a share, compared to a loss of $92.1 million in the year-ago quarter. Analysts were expecting 18 cents a share.

The results included a pre-tax gain of $19.5 million in relation to the FDIC-assisted acquisition of Seattle-based Washington First International Bank (WFIB)in June. East West acquired total assets of $492.6 million, including $313.9 million of loans (net of purchase accounting adjustments) and assumed $395.9 million in deposits. The acquisition was the third FDIC-assisted deal the bank participated in.

Net interest income before provision of losses rose 130 % to $203.62 million from $88.2 million in the year-ago quarter. Net interest margins improved to 3.98% from 2.98% in the second quarter of 2009, as the bank secured funding at lower costs. It grew core deposits by 5% or $359.9 million during the quarter, excluding the impact of WFIB acquisition. Meanwhile, the cost of deposits declined 67 basis points year-on-year to 0.8%

Credit quality showed significant improvement, with provision for loan losses declined 64% to $55.3 million from $151.4 million in June 2009. Net charge-offs declined 59% to $55.2 million. Non -performing assets as a percentage of total assets declined to 0.9% from 1.5%

Management expects that the provision for loan losses and net charge-offs will continue to decrease for the second half of 2010 and range from $35 million to $40 million for the third quarter of 2010.

Tuesday, July 27, 2010

Bank Owned City: Nevada's Economic Misery May Be America's Future

Arthur Delaney

Ryan Grim

First Posted: 07-27-10 04:20 PM | Updated: 07-27-10 04:33 PM

So many homes in Las Vegas have been foreclosed upon that banks rarely bother to hang a "For Sale" sign on the front lawn anymore. Instead, visitors identify bank-owned properties by the brown grass and the 8.5 x 11-inch sheet of paper taped to the front door or the garage.

On a cul-de-sac in the once-pleasant neighborhood of Silverado Ranch, Larry Wood is the last remaining resident. Two of the four homes are in foreclosure and a third is a "party rental" only occupied by rowdy tourists on weekends. One of his neighbors made a few bucks before abandoning the home, he says. "They sold all the palm trees and just walked away from it," says Wood, sporting a "Freedom Isn't Free" T-shirt. "It's a great neighborhood. I guess that people weren't financially set up to get through the crash."

Wood takes little comfort in being the last resident. "Sometimes it's scary. There's a possibility someone would try to rob me and I wouldn't have any neighbors to help me," he says, recounting a previous attempted intrusion when his then-neighbor called to warn him not to answer the door because there was a group of thugs knocking. Armed and ready, he huddled near the door but the gang gave up and left.

Walking away is becoming a habit among law-abiding residents too. It's hard to find a home bought before 2009 that isn't underwater and very few landlords, when running credit checks, look for foreclosures or short-sales on a tenant's record. Otherwise, a manager couldn't fill a building.

Nevada has a greater concentration of economic misery than any other state. The state's unemployment rate, which in June edged up to 14.2 percent, has risen faster during the past year than it has anywhere else, and nearly six percent of all homes across the state's desert landscape received a foreclosure filing in the first six months of the year.

While the concentration of misery may be greater in Nevada, it was caused by the same unchecked housing bubble and unregulated financial gambling that brought pain to the rest of the country. If present trends go unchecked, Nevada is America's future.

The jobless rate would likely be much higher, say residents, if Nevada were not such a transient state. When folks lose their jobs and their homes, they often pack up and move in with relatives.

Others, though, have roots in the state. Robert Garcia, 58, moved to Vegas more than a decade ago to take a job with what is now MGM as a video producer. Back in Salt Lake City, Utah, he'd met his wife, an anchorwoman, on the set. She went to work for US Airways in Las Vegas. The couple, who have two kids, divorced several years ago and sold their home at a healthy profit, which they split. Garcia put $100,000 into a new home that he bought for $350,000. Making nearly six figures, he said, he had no problem covering the mortgage and the $2,400 in alimony and child support. In 2008, things took a turn for the worse.

He has been able to weather the downturn, he says, because he always lived within his means -- no credit card debt, no car payment. He has a "junky car," he says, that his kids are embarrassed to ride in.

"It's funny," Garcia adds, pausing. "Just before I was laid off, I was gonna buy a BMW." He pauses for another long moment as his eyes well up. Asked where he is living now, he breaks down instantly, tears pouring down his cheeks, knocking his contacts out. "Actually, I'm looking for a place. I'll be right back," he says, leaving to compose himself.

When he returns, he says that he's still in his home, which is more than 50 percent under water, but will be leaving as soon as the bank approves a short sale. He had an offer several months ago, but the buyer, a teacher, backed out at the last minute. She'd been laid off.

Garcia has applied for 200 jobs all across the country but, at his age, employers want younger workers, leaving him to scrape by on freelance work. He has nothing left, but one bright spot is that the devastation in Vegas is so profound that landlords tell him they no longer check credit reports for short sales or foreclosures. Garcia's wife, meanwhile, has been laid off by the airline, as fewer tourists fly into town. She's now on welfare, he says, and, as a consequence, half his wages are garnished. (Welfare policy requires such payments to be made through garnishment.) He doesn't mind, he says. His bigger fear is that the only job he'll be able to find will require him to leave Vegas and his children.

Meanwhile, the debate in Washington enrages him. It particularly galls him that Republicans say help for the unemployed must be offset with spending cuts elsewhere. Garcia, in fact, volunteers the term "offset," expressing a better grasp of economics than most of the deficit hawks in Washington. "It drives me crazy when they say that. There's nothing to take from! Where are they going to offset it?! What's the phrase? You can't get blood from a turnip," he said.

"This is my hometown and I've watched it struggle and go through so many challenges, particularly over the past two years," says Julie Murray, president of Three Square, a food bank in Vegas that distributes food to more than 300 partner programs and schools around town. "The way that this economic downturn has been different from others is that I've never seen the gaming industry be impacted. Our community would suffer when the economy suffered but gaming was always resilient."

Three Square delivered 10 million pounds of food in 2008; this year the food bank is on track to distribute twice that amount (some of the increase, Murray said, owes to the fact that Three Square is growing; the nonprofit was founded in 2006). Murray said corporate donations to the food bank have been down during this recession, but individual and foundation giving has remained steady. "We've been able to sustain distribution of food in a recession because of the sheer will and passion of the community," she said. "Things are dire -- we have more children who are struggling with hunger and more seniors and more families and more middle class families who never thought they'd need social services -- however, Las Vegas is rallying."

"Nevada was pretty much a growth economy for most of the past two decades," says Steven Horsford, the Nevada State Senate's Minority Leader, a Democrat who represents North Las Vegas. "When the financial crisis hit, it disproportionately affected Las Vegas because of our growth rate."

Horsford says the local economy is struggling not because fewer tourists are coming to Vegas, but because the people who do come are spending less money. (A cab driver complains that he doesn't have many fewer customers, just more families haggling over the $60 fare.) Horsford said Vegas needs to switch from relying on casino tourism to green energy and medical tourism.

"We were used to being able to help virtually all segments of our population get a job if they wanted a job, have benefits, earn money to put their kids through college -- we called it the Las Vegas dream," he says. "From a leadership standpoint, knowing that two-thirds of all homes are either upside down or are in foreclosure is one of the most humbling realities we are dealing with."

The decay in Vegas doesn't stay there: It reverberates throughout the state. "Coming Soon" signs have been pulled down across the city, because nothing is coming soon other than more foreclosures. The Nevada landscape is pockmarked by empty condos and casinos, some of them fully built and sitting there empty, others are shells frozen in time. When analysts talk abstractly about Wall Street sucking capital out of the real economy, these stalled construction projects are the on-the-ground reality. "60% Reduced Prices" promises one empty condo development.

The $3.1 billion Fontainebleau Las Vegas construction project sits nearly complete but the lender pulled out and everybody is suing everybody else. The first Ritz-Carlton in the company's history to shut down is in Las Vegas.

The city's dance clubs aren't empty, but there's less money circulating. "Saturn," an exotic dancer at Spearmint Rhino, says she and her fellow dancers are making roughly half what they were two years ago. The house she bought for more than $450,000 on an interest-only loan is now worth a third that. She's negotiating a short-sale with the bank.

The Dunkin Donuts that opened in Fabienne Chalaye's neighborhood five months ago is already empty. "Dunkin Donuts... It's all empty. Everything is empty," she marvels, while giving a HuffPost reporter a tour of the city.

Chalaye, a chauffeur, says her business is down roughly 60 percent over the last two years. It slowed down almost imperceptibly after 2006, then fell off a cliff in 2008. She hasn't made a mortgage payment in 15 months and expects to be booted from her home, along with her husband, her adult daughter and her daughter's boyfriend any day now. She bought the house in 2008 on an interest-only loan for $313,000; it's now worth $117,000 and her interest rate shot up to 12 percent. Both she and Garcia, however, say they're leaning toward voting for Harry Reid to return to the Senate, because they have no faith in his opponent, Sharron Angle. "'I wanna get rid of Social Security,'" Garcia quotes Angle saying. "How stupid is that?"

Garcia says a friend of his in the crane business told him he was offloading the hulking useless tools to builders in China because it isn't worth the cost of storing them. "Office Space Available" blares a sign next to a stalled office project.

A five-bedroom home with Spanish tile and a game room sits vacant on half an acre of land. "This property is Bank-owned. We reserve the right to prosecute any and all trespassers illegally accessing the property. Thank you for your cooperation."

The Nugget Casino in tiny Searchlight (population: 576), about an hour from Vegas, laid off a third of its 85 employees in the past two years to cope with reduced demand for the Nugget's slot machines and chicken fried steaks, says owner Verlie Doing, 86.

"We had a great banker when we built this place," says Doing, who opened the Nugget with her husband in 1979. Now, Doing says, she doesn't think Wells Fargo will give her a loan to fix the three air conditioners that recently failed. "I'm not gonna talk to the bank. I'm not even gonna bother to waste my time with 'em."

Doing, a friend and supporter of Harry Reid, is optimistic. "It's gradually getting better," she says. "Not noticeably a bunch better -- but it's getting better."

Sarcastic references to President Obama's 2009 stimulus bill can be seen throughout the Las Vegas area, from glossy Keno fliers at Vegas hotels to the mysterious sign by the front entrance to the Nugget advertising a "Great opportunity" to "stimulate yourself" and make money. "You won't need a bailout. Call Barry."

Reached by phone, Barry Bunnell of Chloride, Ariz. -- a town even smaller than Searchlight -- explains that he's been trying to hire people to sell his Easy Out Fire Protector product, a bottle of fire retardant liquid that's handy for snuffing out small pan fires, especially in RV trailers. Bunnell needs people who can go door-to-door demonstrating the product.

He says he received 37 responses to the Searchlight flier, but nobody was interested in sitting down for an Easy Out interview after Bunnell described the job. He suspects they'd rather stay on unemployment benefits and use the Easy Out inquiry as an easy way to prove to the state they're still looking for work. (That the unemployed would rather draw benefits than look for work is a common argument among congressional Republicans, even though there are nearly 15 million people looking for three million available jobs.)

"You can sell two for $39 and keep $20," says Bunnell of his product, "and people won't do it because it's beneath their dignity."

Monday, July 26, 2010

CRE Indicators: Monthly CMBS Delinquency Report – Realpoint LLC Commentary

In June 2010, the delinquent unpaid balance for CMBS increased by $3.11 billion, up to $60.45 billion from $57.34 billion a month prior. Four of the five delinquency categories increased while the 60-day category reflected a $2.06 million decrease from the prior month, offset by further credit deterioration in all other categories. This included a $3.2 million increase in the 30-day category. Overall, the delinquent unpaid balance is up 111% from one-year ago (when $28.64 billion of delinquent unpaid balance was reported for June 2009 – impacted at such time by the historical GGP loan delinquency), and is now 27 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 30th straight month – up by $2.0 billion (5%) from the previous month and $30.71 billion (214%) in the past year (up from only $14.34 billion in June 2009).

The total unpaid balance for CMBS pools available for review for the June 2010 remittance was $784.86 billion, down from $788.7 billion in May 2010. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months are …clearly trending upward. The resultant delinquency ratio for June 2010 of 7.7% (up from the 7.27% reported one month prior) is over two times the 3.5% reported one-year prior in June 2009 and over 27 times the Realpoint recorded low point of 0.283% from June 2007. The increase in both delinquent unpaid balance and percentage reflects a steady increase from historic lows in mid-2007.

Realpoint LLC

Apollo exploits loophole to create new bank

By Henny Sender in New York

Published: July 25 2010 22:36 | Last updated: July 25 2010 22:36

Private equity group Apollo Management will establish a new bank under an obscure provision buried in the US financial regulations signed into law last week.

Apollo is to take advantage of a change that allows banks to operate in multiple US states without a national charter, lawyers say.

The company, which has about $55bn under management, has hired a team from Countrywide Financial to run the bank, and is awaiting regulatory approval. Apollo plans to get round ownership restrictions which can force a private equity group to be considered a bank holding company by asking its investors to put money alongside it in the new bank, to be called Ares. The bank will have a separate board and operate independently of Apollo. However, it is not currently clear how ambitious Apollo’s plans for the bank will prove, people familiar with the matter say.

Apollo’s move reflects a back-to-basics thesis that bank lending will become more important as capital markets decrease in importance in coming years – at least as long as the securitisation market remains frozen.

The group, which plans to list on the New York Stock Exchange soon, declined to comment.

The Countrywide team came from the banking side of the lender, not the mortgage operation that came under scrutiny following the collapse of the US housing market. It is headed by James Furash, who founded the banking side and built up its retail deposits, and Mark Suter, another senior executive, people familiar with the matter said.

Apollo’s new template comes as most private equity groups have abandoned efforts to create banks and given up hope that Federal Deposit Insurance Corp sales of troubled banks would be a source of lucrative deals.

In numerous FDIC auctions, regulators have made it clear they prefer strategic buyers, putting private equity groups at a disadvantage. “There is only downside for regulators in selling banks to private equity firms,” said the person in charge of financial investments for one private equity group.

For example, on the Blackstone earnings call last week, Tony James, president, said the company had “changed focus from assisted bank deals”. This month, Wilbur Ross, the turnround specialist bought a minority stake in publicly listed Sun Bancorp of New Jersey.

Sunday, July 25, 2010

Pace of Georgia bank failures expected to rise

By J. Scott Trubey

The Atlanta Journal-Constitution

11:49 a.m. Thursday, July 22, 2010

The expected wave of bank failures in Georgia so far this year hasn’t been the tsunami some predicted.

But most industry watchers say the water is about to get rough again. Bank failures will likely pick up in Georgia during the second half of the year, many banking experts say.

Through the end of June, nine banks have failed in the Peach State in 2010. Some industry watchers had predicted as many as 50 failures in Georgia at the start of the year.

Walt Moeling, a banking attorney with Bryan Cave in Atlanta, expects two to four failures per month through the end of the year.

“If the economy remains stable, it’s one answer,” he said. “If it slumps ... borrowers are going to give up [paying their loans] quickly, and that will boost the number.”

Thirty-nine banks have failed in Georgia since August 2008, tops in the nation. But Florida and Illinois are creeping up and rank first and second, respectively, for 2010.

The Federal Deposit Insurance Corp. has said 2010 will be the peak year nationwide, with the number of forced closures tapering off next year.

The pickup in the economy seen in the first half of the year helped wounded Georgia banks buy time. Some got better deals selling foreclosed real estate, helping them preserve precious capital, and fewer borrowers defaulted.

Don Coker, a bank consultant from Woodstock, expects the number to remain flat. Closing banks is costly and time-consuming to the FDIC, and the regulator “wants to give troubled institutions and the investor market every opportunity to correct problems so that the FDIC won't have to deal with them.”

Georgia has 66 banks with a Texas Ratio of more than 100. The ratio compares a bank’s problem loans with the amount of capital it has on hand to absorb them. A score approaching 100 means problems are exceeding the bank’s ability to absorb the loans.

At least 31 banks top 200, said Adam Aspes, an institutional equity trader with Sterne Agee & Leach. He predicts 16 to 20 banks will fall through the end of the year.

“The FDIC operates like the PGA Tour,” Aspes said. “They are due for a swing through the state of Georgia where you probably get eight to 10 failures in a two to three week stretch in the fall and then again before year's end.”

Friday, July 23, 2010

Bank Failure #103: Home Valley Bank of Grant Pass OR closes

Friday, July 23, 2010, 6:40pm PDT

Portland Business Journal - by Andy Giegerich Business Journal staff writer

The Oregon Department of Consumer and Business Services has closed Home Valley Bank of Grant Pass.

All deposit accounts — including those that exceeded Federal Deposit Insurance Corp.’s $250,000 limit — have been transferred to South Valley Bank & Trust of Klamath Falls.

Home Valley becomes the fourth Oregon bank to fail since the start of 2009 and the second to close this year. The Oregon Department of Consumer and Business Services and the Federal Reserve Bank of San Francisco issued a cease-and-desist order against Home Valley for unsafe and unsound banking practices in November of last year.

South Valley will take over Home Valley’s five branches when they reopen Monday and has also acquired the failed institution’s loans.

“Home Valley Bank was an important part of the Grants Pass community, and we are saddened to see it close,” said Cory Streisinger, director of the Department of Consumer and Business Services, in a statement. “However, it is fortunate that South Valley Bank & Trust is acquiring Home Valley to continue to serve the area. Customers should see no disruption.”

Customers of Home Valley can continue to access their money by writing checks or using ATM or debit cards, according to the FDIC, and loan customers should continue to make their payments as usual.

Home Valley Bank was founded in 1980. As of March 31, Home Valley had total assets of approximately $258 million and total deposits of $229 million.

South Valley Bank & Trust has total assets of about $600 million and total deposits of $500 million. Before the move, South Valley Bank & Trust had 18 offices, with locations in Klamath Falls, Lakeview, Central Oregon, and the Rogue Valley.

The FDIC and South Valley Bank & Trust entered into a loss-share transaction on $211.6 million of Home Valley Bank’s assets. South Valley Bank & Trust will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction would “maximize returns on the assets covered by keeping them in the private sector,” according to the FDIC.

Oregon regulators noted that declining real estate values and general economic weakness continue to pose problems for all banks. Home Valley’s capital levels had dropped so low that the bank became insolvent, said David Tatman, administrator of the department’s Division of Finance and Corporate Securities. Tatman blamed the failure on Home Valley’s heavy dependence on construction project loans.

“Despite efforts by the Home Valley Bank management to turn things around, the bank was not able to recover in this current economic environment,” Tatman said in a statement.

Tatman added that nonperforming real estate loans have particularly taxed Oregon’s banks. Many lenders provided money to construction project developers who have been unable to make payments during the economic downturn.

Home Valley is the 103rd FDIC-insured institution to fail this year and one of seven banks to close today. The others included Sterling Bank of Lantana, Fla., Crescent Bank and Trust Company of Jasper, Ga., Williamsburg First National Bank of Kingstree, S.C., Thunder Bank of Sylvan Grove, Kan., Community Security Bank of New Prague, Minn. and Las Vegas-based SouthwestUSA Bank.

The FDIC expects its insurance fund to pay out around $60 billion for bank failures between 2010 and 2014.

Before the failures of Community First Bank of Prineville, and Silver Falls and Pinnacle banks last year, no Oregon lender had failed for 17 years.

Illinois has experienced the most bank failures since Jan. 1, 2009, with 33 institutions going under. Georgia and Florida are next with 29 and 26, respectively.

Pennsylvania, the country’s sixth-largest state, has had just one bank close in the last 17 months. | 503-219-3419

U.S. Bank Failures Reach 102 So Far This Year

By Corbett B. Daly



U.S. bank failures reached 102 so far in 2010 on Friday as regulators seized six small banks, a faster pace of closures than last year when the century mark was not reached until October.

Bank failures are expected to peak this quarter, with the industry slowly recovering from large portfolios of bad loans, many tied to commercial real estate.

The banks seized on Friday were Sterling Bank of Lantana, Florida; Crescent Bank and Trust Company of Jasper, Georgia; Williamsburg First National Bank of Kingstree, South Carolina; Thunder Bank of Sylvan Grove, Kansas; Community Security Bank, New Prague, Minnesota and SouthwestUSA Bank of Las Vegas, Nevada, according to the Federal Deposit Insurance Corp.

The largest of the six banks was Crescent Bank and Trust with 11 branches and about $1.01 billion in total assets and $965.7 million in total deposits. The smallest was Thunder Bank with two branches and just $32.6 million in total assets and $28.5 million in deposits.

The FDIC estimated the six failures would add about $394 million to the tab for its deposit insurance fund.

The FDIC late last month gave an update on the overall health of the bank industry, saying it sees improvements, but economic threats are still lurking.

The agency, which insures individual accounts up to $250,000, updated its estimates of the cost of bank failures, now expecting a $60 billion hit to its insurance fund from 2010 through 2014.

The recovery of the community bank industry has lagged the bounceback of Wall Street and the healing in the overall economy.

IBERIABANK Corp agreed to assume all of the deposits of Sterling Bank, the FDIC said.

(Reporting by Corbett B. Daly; Additional reporting by Karey Wutkowski; Editing by Tim Dobbyn)

Mixed Signals on Bank Reserve Policies: Real Profits Realized?

JULY 23, 2010

Banks Cite Improving Conditions in Loan-Loss Recalibration; Accounting Debate

By DAN FITZPATRICK, Wall Street Journal

First Horizon National Corp., a Memphis, Tenn.-based bank still exposed to housing problems, shocked Wall Street last week when it announced its first quarterly profit in more than two years.
What was its magic formula? It cut by 73% the cash set aside toward iffy loans. The reduction was almost entirely responsible for its return to the black.

"We wouldn't be decreasing reserves if we didn't feel that was a good thing to do," said Chief Financial Officer William Losch III, who noted First Horizon's reserve-to-loan cushion is still a healthy 4.55%.

Several regional banks in the Midwest and Southeast said Thursday that they made similar moves, reducing reserves in the second quarter. Cleveland-based KeyCorp reported its first quarterly profit in two years as the money it set aside for bad loans fell 72%. Columbus, Ohio-basedHuntington Bancshares cut its loan-loss provision by 53%, squeezing out a surprise profit of $48.8 million for the period. And McLean, Va.-based lender Capital One Financial Corp. slashed the amount applied to reserves by 23% as it recorded a profit of $608 million. The added cushion was about $1 billion less than the amount it charged off on bad loans.

At a time when revenues are slowing and loan balances are shrinking, banks across the U.S. are boosting net income by saving less for a rainy day. Some observers worry the aggressive moves could leave the banks exposed if the economy gets worse, because reserves act as a first line of defense against bad loans. Banks, however, say reductions are justified because credit conditions are improving, although reserve levels also are falling because banks are shrinking their loan portfolios.

Either way, this string of reserve reversals may stoke the debate over how best to account for bad loans. The process remains more art than science, and is further complicated by differing recommendations from regulators.

J.P. Morgan Chase & Co. Chief Executive James Dimon acknowledged a reserve lift, which contributed about a third of the bank's second-quarter profits, was little more than a temporary fix. "We don't consider that earnings," he said last week. "It means nothing."

Not all banks are rushing to release large amounts of reserves just yet, reflecting lingering concerns about the U.S. recovery. Winston-Salem, N.C.-based BB&T Corp on Thursday said it set aside just 7% less for bad loans in the second quarter of 2010 than it did in 2009. "We really want to be conservative," said BB&T CEO Kelly King on a conference call.

Banks typically use past loan performance and economic models when setting reserve levels, but certain regulators are pushing for changes in how banks arrive at those numbers. The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency want banks to set aside money based on expected losses over time. Reserve levels across the industry are at a 62-year high, or 3.7% of total loans.

The Securities and Exchange Commission, on the other hand, has in the past asked banks to stick to generally accepted accounting principles when setting reserves and has slammed certain banks for overstating provisions and using fat reserves to pad earnings.

The SEC declined to comment. An FDIC representative said "the FDIC supports building strong reserves that buffer losses that arise in bad times."

In the late 1990s, the SEC questioned the loan-loss accounting used by Atlanta-based SunTrust Banks Inc., and the bank agreed to cut provisions it made over a three-year period by a combined $100 million.

SunTrust on Thursday was among the banks that got a boost from a drop in reserve levels. Its loss of $56 million narrowed from a loss of $164 million a year earlier, as the amount it set aside for bad loans dropped 31%.

SunTrust CEO James Wells said on a conference call that he hopes for more regulatory guidance on appropriate levels of reserves, acknowledging the differences between bank regulators and the SEC. It isn't clear, he indicated, which regulator's view will prevail. "At this point, it's a toss-up."

Analysts said bank regulators should have done more to encourage a build up of reserves before the recent crisis. John Dugan, head of Office of the Comptroller of the Currency, said banks were deterred from setting aside more when times were good because auditors want them to build reserves based on losses already incurred, as opposed to expected losses over the life of the loan.

"Banks would have been far better off if they could have had higher reserves coming into the crisis to absorb the losses that occurred," Mr. Dugan said.

The Financial Accounting Standards Board has asked for comment on a proposal that would require banks to base their reserves on expectations of losses instead of historical measures, said a FASB spokesman. FASB hasn't signed off on the proposal, the spokesman said.

Last August, the SEC told bank CFOs they needed to justify any differences for how banks are accounting for loan losses and warned about the use of reserves to manipulate earnings: "Where we believe a financial institution's financial statements are inconsistent" with generally accepted accounting principles, the agency said, "we will take appropriate action."

Write to Dan Fitzpatrick at