Analysts Say More Banks Will Fail

Discussion in 'Wall St. News' started by S2007S, Jul 14, 2008.

  1. S2007S


    Analysts Say More Banks Will Fail
    by Louise Story
    Monday, July 14, 2008

    provided by
    The New York Times

    As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

    But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

    The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

    But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

    “Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?”

    Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.

    Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry.

    The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans and credit unions, which own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. If the mortgage giants ever defaulted on those obligations, banks might be forced to raise billions of dollars in additional capital.

    The large institutions set to report results this week, including Citigroup and Merrill Lynch, are in no danger of failing, but some are expected to report more multibillion-dollar write-offs.

    But time may be running out for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors.

    Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

    “Failed banks are a lagging indicator, not a leading indicator,” said William Isaac, who was chairman of the F.D.I.C. in the early 1980s and is now the chairman of the Secura Group, a finance consulting firm in Virginia. “So you will see more troubled, more failed banks this year.”

    And yet IndyMac, one of the nation’s largest mortgage lenders, was not on the government’s troubled bank list this spring — an indication that other troubled banks may be below the radar.

    The F.D.I.C. has $53 billion set aside to reimburse consumers for deposits lost at failed banks. IndyMac will eat up $4 billion to $8 billion of that fund, the agency estimates, and that could force it to raise more money from the banks that it insures.

    The agency does not disclose which banks it thinks are troubled. But analysts are circulating their own lists, and short sellers — investors who bet against stocks — are piling on. In recent weeks, the share prices of some regional banks, like the BankUnited Financial Corporation, in Florida, and the Downey Financial Corporation, in California, have stumbled hard amid concern about their financial health. A BankUnited spokeswoman said the lender had largely avoided risky subprime loans.

    In his “Who Is Next?” report over the weekend, Mr. Bove listed the fraction of loans at banks that are nonperforming, meaning, for example, that the assets have been foreclosed on or that payments are 90 days past due. He came up with what he called a danger zone, which was a percentage above 5 percent. Seven banks fell in this category.

    An important issue for the regional and community banks will be whether they have managed to sell their riskiest loans to Wall Street firms.

    And the government may have fewer failures than in the past because private investment funds might buy some troubled lenders. Regulators are considering rule changes that would allow private equity firms to buy larger shares of banks, and several prominent investors, like Wilbur Ross, have raised funds to leap in.
  2. Its okay. The Treasury will just bail them out.

    Oil at 250$.
  3. Fed is giving out free money, who cares about the failures. :p
  4. S2007S


    Oil at $250, hey might as well make it an even $1000, Look oil isnt going to skyrocket, oil is going to collapse as the US heads deeper into a recession and takes all other countries with it. The demand for 86 million barrels a day is going to drop and oil prices will collapse. Where will demand be when the consumer is tapped out, where will demand be when all those major developments around the world come to a halt because growth in all countries is slowing. There is no demand for oil with the US in a recession and when the US is deep in a recession oil will follow that same road as well, down. The oil bubble is going to pop just like every bubble does. No need to think that this time its different, every bubble is met with the same wording.
  5. S2007S


    Tax payers money, wait to you see what this does to this economy, there is no way out of this mess. The banks created it and now have to accept it, they were greedy during the great times this economy has had, all this wealth that was built, was built on MONOPOLY money and now they want to fix the problem with that same MONOPOLY money. You just cant fix this problem, it has to work out entirely on its own.
  6. FED is giving money to oil suppliers and oil companies.

  7. S2007S


    Whats this, wow you dont say, a slowing economy is going to threaten demand, ha, I guess its finally setting in that a slowing economy will threaten demand.

    Oil Tumbles More Than $6 as Slowing Economy Threatens Demand

    By Margot Habiby
    Enlarge Image/Details

    July 15 (Bloomberg) -- Crude oil tumbled more than $6 a barrel in New York amid concern that a slower U.S. economy will curtail demand for oil and gasoline.

    Oil dropped as Federal Reserve Chairman Ben S. Bernanke said risks to growth and inflation have risen, in testimony to the Senate Banking Committee. He abandoned a June assessment that the threat of an economic slowdown had diminished.

    ``We're getting to the point where the market's looking at an increasing likelihood of a deep recession,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

    Crude oil for August delivery fell $6.49, or 4.5 percent, to $138.69 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. It was the biggest percentage drop since March. Oil fell as much as $9.26 to $135.92 today. Futures reached a record $147.27 a barrel on July 11 and have risen 86 percent in the past year.

    ``When it traded below $140, a big wave of selling hit,'' said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Connecticut. ``The market was trading a little bit above $140, and when it traded below, it fell something like $2 in a minute. Nothing seemed to hold it. There seems to be a bit of a panic.''

    U.S. gasoline demand fell 5.2 percent last week, the 12th consecutive weekly decline, a sign record pump prices are changing driving habits, a MasterCard Inc. report showed today. Gasoline futures fell 18.06 cents, or 5.1 percent, to $3.3771 a barrel in New York.

    The profit margin, or crack spread, for making three barrels of crude into one of heating oil and two of gasoline, reached its lowest since March 27, based on futures prices. The crack spread fell 32 cents to $11.02 a barrel.

    OPEC Demand

    The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, said it expects demand for its members' crude will fall in 2009 as the global economy slows. Demand for OPEC crude next year will average 31.2 million barrels a day, a drop of 710,000 barrels a day from the forecast for 2008, the group said in its monthly oil market report today.

    ``The whole U.S. economic scene is sort of being questioned and obviously that would say something about the demand for oil,'' said Paul Tossetti, director of oil market analysis at PFC Energy in Washington. ``Economic worries have completely pushed out of the way this weaker U.S. dollar.''

    Economy Versus Dollar

    Earlier, oil rose amid an expectation that the dollar's drop against the euro would boost the appeal of crude as a currency hedge.

    The dollar fell to an all-time low of $1.6038 per euro in London from $1.5908 yesterday. The rising appeal of commodities caused by the declining value of the dollar has outweighed concern that an economic slowdown in developed countries will cut demand for oil.

    Also pressuring prices, Petroleo Brasileiro SA, Brazil's state-controlled oil company known as Petrobras, said it resumed normal crude production at the Campos Basin after a strike that began yesterday.

    The U.S. National Hurricane Center said today that a low- pressure system in the Atlantic Ocean is less likely to develop into a stronger storm known as a tropical depression, which can be a precursor to a hurricane.

    Storm Threat

    The system, which traders were tracking yesterday as a possible threat to Gulf of Mexico output, ``still has the potential to become a tropical depression within the next day or so,'' though ``conditions are becoming less favorable for development,'' according to an advisory at 8 a.m. New York time.

    Royal Dutch Shell Plc, Europe's biggest oil company, indicated it would resume deliveries of Nigerian Bonny Light crude oil as of 6 p.m. Nigerian time today, Reuters reported, citing a Shell spokesman in The Hague. Shell had declared force majeure, a legal clause that allows producers to get out of delivery contracts because of circumstances beyond their control.

    Brent crude oil for August settlement fell $5.27, or 3.7 percent, to $138.65 a barrel on London's ICE Futures Europe exchange, after touching $134.96 a barrel. The August contract, which expires tomorrow, reached a record $147.50 on July 11. The more widely held September contract dropped $5.70, or 3.9 percent, to $139.63 a barrel. It touched $136.20.

    ``It's time for everyone to reassess where this market is headed and whether the try for $150 is worth the risk,'' Tim Evans, an energy analyst for Citi Futures Perspective in New York, said in an e-mail. ``Today's answer is no!''

    U.S. oil supplies probably fell last week as record prices discouraged buying by refiners. Supplies probably declined 1.5 million barrels in the week ended July 11 from 293.9 million the week before, according to the median of seven responses by analysts surveyed before an Energy Department report tomorrow.

    Gasoline stockpiles probably gained 500,000 barrels from 211.8 million barrels the week before, the survey showed. Distillate fuel, including heating oil and diesel, probably rose 2 million barrels from 122.5 million barrels the week before. Refineries probably operated at 89.2 percent of capacity, unchanged from the week before.