FDIC "Troubled Bank" List

I'll update this entry at 3 PM but every quarter the FDIC updates it's problem list; I'm on record saying when we look back in 12, 18, 24 months we'll see a slew of bank failures, many of which are names we've never heard of. We are in a historical housing slump combined with a historical credit contraction - this does not lead to a quick recovery despite the pundit assurances (note: the same people assured us nothing to worry about LAST summer). We had yet another failure this past Friday (it appears to the status quo is take them over on a Friday night and then re-open Monday under the government's banner), but that's only a measly 9 - we had thousands during the S&L crisis of early 90s. At some point the FDIC will run out of money to guarantee the $100K per account so they will have to raise the fees on the remaining banks to raise more money to fund their bailout fund. Which is sort of circular when you think about it.

So far other than Indymac its been smaller names, but just looking at this Washington Mutual (WM) it seems almost apparent that our largest savings and loan will go at some point. Now in the perversity that is Wall Street they will probably celebrate this as (a) that's one less thing to worry about and (b) we don't need to worry about it anymore, it's up to the taxpayers (government) and (c) really how much worse can it get? this clearly marks the bottom! :) (which is what they say during every major event in financial land) Now when you really begin to put these all together, our 2 government sponsored entities about to be "saved", our 5th largest investment bank "gone", and the 4th largest threatened every day. Our 3rd largest had to sell its CDO package at 22 cents on the dollar, while funding it, and backing up most of the losses. Our largest commercial bank (Citigroup) on the ropes. Our largest private mortgage broker (Countrywide) having to be taken over to survive. Our 2 largest bond insurers losing 95%+ of their value and only existing because everyone is wink winking and saying "yes they are AAA rating". Etc etc. All of these trouble spots were ignored or we were told not to worry about before hand, as we are overreacting. Just like they tell us now. When you begin to put them all together it speaks to the ignomy that is a system run amuck. And the "regulator" of regulators only now is thinking - hey we better do something about this - give us more power.

Per Tony Crescenzi over at Realmoney.com

Focus should be placed on not only the number of banks on the "problem list" but the tally of assets, which could reveal whether or not a big bank has been put on the list.

Here are the FDIC's remarks regarding its "problem list" from Q1. "The number of institutions on the FDIC's 'Problem List' increased from 76 to 90 in the first quarter. Total assets of "problem" institutions rose from $22.2 billion to $26.3 billion.

This is the sixth consecutive quarter that the number of "problem" institutions has increased, from a historic low of 47 institutions at the end of third quarter 2006. The current level represents the largest number of institutions on the list since third quarter 2004, when there were 95 "problem" institutions."

I'll update this at 3 pm... if there is a major upswing, that could be a short term catalyst downward for the market. So we want to see how much higher the asset number is over $26.3 billion and how many more institutions over 90 are in trouble.

Update 3:15 PM

• U.S. banking industry profits plunged by 86 percent in the second quarter and the number of troubled banks jumped to the highest level in about five years, as slumps in the housing and credit markets continued.
• The FDIC said 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter and the biggest tally since mid-2003.
• Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July — the biggest regulated thrift to fail in the United States.
• Troubled assets — loans that are 90 or more days past due — continued to rise in the second quarter, jumping by $26.7 billion, or 19.6 percent, over the first quarter. It was the first time since 1993 that the percentage of total loans that were troubled broke 2 percent, at 2.04 percent.
• "More banks will come on the (troubled) list as credit problems worsen," Bair said. "Assets of problem institutions also will continue to rise."

So troubled banks went up 27, or 30% (thats from last quarter, not last year)
Assets (ex IndyMac which already failed) are up from $26 Billion to $46 Billion, or 77% (again that's in 1 quarter)
And loans 90+ days past due jumped 20% (again thats from last quarter - this shows the weakening consumer)

As for FDIC insurance it is down to $45.2B from $52.8B just from 1 large failure (IndyMac) Now I'm not saying every bank on this list will fail, but the total assets under threat is $46 Billion. Which is greater than the total insurance pool ;) Now what happens if this list grows to 300, 400, 600 banks, or more in 18 - 24 months? Impossible. Surely ;)

• Bair also said the agency will consider a plan in early October to replenish its Deposit Insurance Fund, which had a large drop due to IndyMac and other bank failures.
• To replenish the fund, the F.D.I.C. will probably have to raise the fees it charges banks in October by at least 14 cents for every $100 of deposits, analysts estimate. Banks, whose earnings are already under pressure from the year-long credit crisis, are already girding for a fight.

The good news is as gas drops from $4.19 to $3.70 all these problems go away since the consumer will surely begin to pay off those 90+ day late loans. Yep, that extra $25 a week is going to go a long way to solving the multitude of stresses on said consumer. And again, we have not even begun an official recession per government (faulty) reports. I continue to wonder how things will turn out if we ever get into a government sanctioned recession. ;)

Now just close your eyes, think of mermaids, unicorns, and rainbows. And drink your Kool Aid. The market is up post this announcement, ignoring this news as "blathering numbers that guys in the debt market can worry about" - there is no use for hyperbole aka "facts". Or maybe they are using the "better than expected" rationale. Whatever the reason - the supercomputers are excited - buy, buy, buy.

We're just starting the really fun part folks. 8th inning? hah.