Tag: Failure

Bank Failures by the Numbers

empty-2dpockets-small.jpgThis isn’t mathleticism, this is simply truth in numbers. With Colonial Bank officially R.I.P. and torn to shreds (North Carolina-based BB&T has picked up the branches, the garbage will likely be marked down and sold off to whichever sucker the FDIC can find) this past week, it might be a good idea to look at the mathematical reality of the situation.
Lately, bank failures seem to lead tangentially to accounting in that banks often point the finger at mark-to-market as the key piece which sent them hurtling toward doom. Sure, blame the accounting, that’s always a classy move. But all’s fair in love and value right?
In an era where the word “trillion” hardly raises an eyebrow, let’s put this into perspective and look at the 5 largest bank failures of all time (in terms of costs to FDIC):
More, after the jump


5. BankUnited, Coral Gables, FL: $4.9 Billion
4. American Savings and Loan, Stockton, CA: $5.7 billion – at the time, the amount to cover American S & L cost the FDIC 10% of its “fund” and was one of the largest failures of the savings and loan crisis.
3. Continental deserves its whole epic tale
2. Washington Mutual (we can’t discuss costs to the FDIC for this one since JP Morgan swooped in to get it and there are still active lawsuits around the deal)
1. IndyMac: $10.7 billion. That wasn’t too long ago so you should still remember the tale.
In one day (this past Friday), the FDIC found itself on the hook for an estimated $3.68 billion, and surely that’s a positively-doctored number. Move along now, nothing to see here.

Authorities on August 14 closed down five banks — Colonial Bank; Dwelling House Savings and Loan Association; Union Bank, National Association; Community Bank of Arizona and Community Bank of Nevada.
As per the Federal Deposit Insurance Corporation (FDIC), which is often appointed as the caretaker of failed entities, the collapse of these five banks would cost the agency a staggering USD 3.68 billion.

Maybe now would be a good time to express a doubt.

It’s Hard Convincing People to Use Lame Internal Social Networking Sites

facebook at work.jpgWe’ve covered the whole social networking thing on a couple of different occasions, including the new kid on the block, HubStreet, which will allow you to keep yourselves isolated from the bottom feeders in your professional social scene (at least virtually).
A reader who was a former Green-dotter informed us about that firm’s attempt to develop an internal social network known as Dstreet. This was clearly a priority within the Firm, according to our source:
More, after the jump

When I was wrapping up my sentence there, they were trying to get everyone to join up to their internal social networking site – Dstreet. As if that is what we wanted to do after working there 12 hours. After I got my third email asking me to update my profile for my promotion to manager (I hadn’t even set up a page yet and already I have to update it!), I set up a joke profile complete with picture of myself with huge 80s hair…I told people about it at my going away party and no one had seen it (it had been posted for 2 months)…complete waste of time!!

Apparently the Big 4 Horsemen of the Apocalypse are hell bent on trying to re-invent the Facebook-wheel because to our knowledge, all the firms have some form of an internal social networking site it sounds like they all suck.
At the very least, we would suggest that status updates be allowed so that all your connections can get real time updates on how close you are to quitting for the umpteenth time.
If your firm is failing miserably at developing an internal social network or has developed anything else that seems to be of little use, let us know in the comments.

Colonial Bank Shouldn’t Make Any Late Summer Plans

thumbs down col.gifSo all that fuss over at Colonial Bank? Accounting irregularities, natch. According to Reuters, “Colonial BancGroup Inc (CNB.N) said it faces a criminal probe by the U.S. Department of Justice (DoJ) related to accounting irregularities at its mortgage lending unit, and the struggling lender warned it may be put under receivership.”
The SEC is also taking a peek at the bank’s participation in TARP. Book cooking for taxpayer funds may have its poster child. Top notch, Colonial. Top notch.
Colonial BancGroup faces criminal probe, FDIC action [Reuters]

The FDIC May Have to Seize Itself

PiggyBank_broken.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adventures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
In honor of Bank Fail Friday, let’s take a look at our doubt over the FDIC continuing as a going concern. Sure, we know it’s technically a government agency and therefore not subject to the same sorts of worries as public companies but there is certainly something brewing here.
We are not in the business of auditing the financial statements of the FDIC, even if they provided such information. Frankly, if they did, we really aren’t equipped to analyze said statements. Be that as it may, you don’t need to be an expert to see that the FDIC is in a whole shit ton of trouble (yes, that is our qualified opinion).
More, after the jump


Remember Colonial Bank? Surely Sheila Bair has been up late since the news broke on Monday that they’d cooked their books, or something about TARP fraud (though the bank never received TARP funds after that TBW deal for $300 million fell through Friday). Maybe it was undercapitalization? Who keeps track of these things?
Anyway, the point here is that the FDIC well has run dry and there’s no magically conjuring up a Treasury line of credit. While Congress has offered up a $500 billion “line of credit” to our friends at the FDIC, that money technically does not exist. (Psst: hate to break it to Congress but yours truly is only a tad concerned that there may be trouble in the bond market ahead).
I’m no mathlete but this should be fairly simple to understand:
Colonial has about $25.5 billion in assets, while the FDIC has about $13 billion remaining in the fund. According to Sheila’s math, new FDIC fees levied against Too Big to Fail will net the fund about $27 billion this year. To put this into perspective, the FDIC lost $33.5 billion in 2008 to cover 25 bank failures. Add it up, as we’ve had 69 bank failures in 2009 to date. Carry the 1 and I believe we arrive at the following figure: the FDIC is screwed.
Like I said, someone might want to check my numbers but it doesn’t look good.
I could also point out that perhaps the FDIC should have chosen the “proactive” route and collected insurance premiums for the last 10 years instead of assuming the good times would last forever but again, not my jurisdiction.
Disclosure: the author has long since diversified her “investments” in the First National Bank of Her Mattress, thankyouverymuch.

UPDATE 2: SEC Memo says Guaranty Bank to be Seized, not Sold

thumbs down col.gifEditor’s Note: Teri Buhl is a Wall Street investigative reporter who has written for the New York Post, Trader Monthly and HousingWire.com. Her big scoops include breaking news on all things wrong at IndyMac, calling out Bob Steel for lying to investors about losses on CNBC, and shining a light on Wells Fargo for manipulating earnings with paper accounting gains. She resides in lower Fairfield County, CT and actually earned an accounting degree from Uer case of the Feds proping up zombie banks, sources have reported that an SEC memo has stated that the FDIC will seize Guaranty Bank (GFG: 0.123, -5.38%) and it will not be sold as previously rumored.
This continues the trend of bank seizures occurring with virtually no warning. According to one prominent hedge fund manager:
“The problem is that the regulators know that if they call these things anything worse than “well capitalized”…it is a kiss of death. In many ways it is the same issue as rating agencies (curse of the AAA) that know that if they downgrade certain types of companies, they are putting them out of business. As a result, many banks are “well capitalized” until the day they are seized. It is absurd.”
More, after the jump


Austin, Texas based Guaranty Bank just updated its bank reports to show a $1.8 billion loss for the 1st quarter, of which $1.6 bil was due to “Other-Than-Temporary Impairment Charges on Debt and Equity Securities”. Um, not good.
What’s worse is that, according to our OTS sourcing, this will be a full shutdown. This means that after insured deposits are returned the bank will be unwound and put out to pasture. No cash rich private equity groups will sweep in to offset losses and clean up the regulator’s mess this time.
The updated bank regulatory reports show Guaranty’s assets are now $13.35 billion, with over 70% of those assets being real estate related. There are $2.1 billion in deposits listed as uninsured. Guaranty operates 164 branches and employs around 1,700 people.
Sourcing inside the regulator said,”Considering the OTS let the bank defer taking write-downs, I’m sure there will be skeletons that will embarrass the OTS again.”
The seizure will hit the FDIC’s budget to the tune of at least $5.3 bil according to sources within the OTS. Another top bank analyst has predicted the hit to be closer to $8 billion.
This, on top of what’s going on with Colonial Bank failing, should wipe out what’s left of the FDIC’s budget. As a result, they are going to have to borrow from the Treasury and then add that cost to our nation’s banks, which we all know just gets passed on to the taxpayer in the form of higher banking fees.
Paul Miller, analyst for FBR Capital Markets, told Going Concern, he believes that banks will be assessed a fee of 5 bps of total assets this fall in order to fund the FDIC’s empty coffers. This new fee assessment will raise $5 billion for the FDIC’s bank seizure budget.
We’ll continue to update this story as we learn more.

What is Going on at Colonial Bank?

thumbs down col.gifEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your businesures in Fedbashing and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
The Colonial BancGroup audit group is going to have some ‘splaining to do when all’s said and done. Proof that you really don’t want to mess around when it comes to $700 billion taxpayer injections.
SIGTARP top cop Neil Barofsky said early on “I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case” but evidently forgot to knock on a nearby piece of wood in the Treasury basement when he did as SIGTARP agents have raided two Florida offices in conjunction with possible TARP fraud.
The whole thing, after the jump


Via Florida’s Ocala.com:

“I can confirm for you that our office, the Office of the Special Inspector General for the Troubled Asset Relief Program, has executed two search warrants today in the state of Florida,” said Kristine Belisle, communications director. “It’s our investigation. It’s our agents that have executed search warrants.”

Belisle said the warrants were sealed.
“I can’t provide any further information because of the nature of an on-going investigation,” Belisle said.
While Belisle is hesitant to get into the details, we’d be happy to catch you up for now.
The story, as we understand it, goes something like this: Colonial BancGroup, finding itself under increased pressure by both federal and state regulators including the FDIC, Federal Reserve, and the Alabama State Banking Department to bump up capital, thought it had a $300 million deal in the bag with Florida-based Taylor, Bean & Whitaker. We’d like to point out here that while the author enjoys stirring up trouble wherever possible, it’s never a good idea to do so when Federal regulators are involved, especially when they toss out demands like this:

WHEREAS, on July 15, 2009, the board of directors of BancGroup at a duly constituted meeting adopted a resolution authorizing and directing Simuel Sippial, Jr. to enter into this Order on behalf of BancGroup, and consenting to compliance with each and every provision of this Order by BancGroup and its institution-affiliated parties (blah blah blah)
(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

Our emphasis/edit. Long story short, the Taylor, Bean & Whitaker deal was never a go and Colonial shares have been in full-on death watch ever since. But wait, there’s more!
As of about 11a EST this fine Monday morning, SIGTARP agents have crawled around both Colonial and TBW offices in search of… well, we don’t know exactly what they were looking for as company reps and regulators have been fairly tight-lipped since this story broke but we’re pretty sure they aren’t trying to track down Michael Jackson’s body.
Not so coincidentally, Colonial (CNB) reported a $606 million loss on Friday. The phrase “going concern doubt” was probably invented just for cases like this, although we have our own phrasing that we like to use including “totally screwed!” and “Just Big Enough to Fail”
This is the first large SIGTARP case that we are aware of and if Colonial is closed by regulators, it will be the largest bank failure of the year. No disclosures, though we will be excited to see what else Barofsky’s office is cooking up (no pun intended).
Feds raid Colonial Bank office in Florida [Reuters]