U.S. regulators on Friday shuttered seven more banks in Illinois, pushing up U.S. bank failures to 57 so far in 2010. This compares to a total number of bank failures of 140 in 2009, 25 in 2008 and only 3 in 2007. Although the economy is showing signs of a gradual recovery with large financial institutions stabilizing, tumbling home prices, soaring loan defaults and rising unemployment continue to take their toll on small banks.
While we expect economic recovery to gain momentum soon, there remain lingering concerns in the banking industry. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. The most recent failed banks are:
Rockford, IL-based Amcore Bank with $3.8 billion in total assets and $3.4 billion in total deposits.
Chicago-based Broadway Bank with assets of $1.2 billion and deposits of $1.1 billion.
Citizens Bank & Trust Company of Chicago with assets of $77.3 million and deposits of $74.5 million.
Chicago-based New Century Bank with assets of $485.6 million and deposits of $492.0 million.
Chicago-based Lincoln Park Savings Bank with assets of $199.9 million and deposits of $171.5 million.
Peotone, IL-based Peotone Bank and Trust Company with assets of $130.2 million and deposits of $120.0 million.
Naperville, IL-based Wheatland Bank with $437.2 million in total assets and $438.5 million in total deposits.
These bank failures will deal another blow to the Federal Deposit Insurance Corporation’s (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks. When a bank fails, FDIC reimburses customers for their deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund. However, the FDIC has about $66 billion in cash and securities available in reserve to cover losses arising from bank failures. Also, the FDIC has access to the Treasury Department’s credit line of up to $500 billion.
The seven failed banks together would cost the FDIC’s Deposit Insurance Fund about $973.9 million.
Amcore Bank is expected to cost the deposit insurance fund about $220.3 million, Broadway Bank will cost about $394.3 million, Citizens Bank & Trust Company will cost about $20.9 million, New Century Bank will cost about $125.3 million, Lincoln Park Savings Bank will cost about $48.4 million, Peotone Bank and Trust Company will cost about $31.7 million and Wheatland Bank will cost about $133.0 million.
MB Financial Bank will acquire the deposits of both Broadway Bank and New Century Bank.
Republic Bank of Chicago will assume the deposits of Citizens Bank & Trust Company.
Chicago-based Harris National Association will acquire Amcore Bank’s deposits.
Northbrook Bank and Trust Company will assume the deposits of Lincoln Park Savings Bank.
Itasca-based First Midwest Bank will acquire Peotone Bank and Trust’s deposits and Wheaton-based Wheaton Bank & Trust will acquire the deposits of Wheatland Bank.
In the fourth quarter of 2009, the number of banks on the FDIC’s list of problem institutions grew to 702 from 552 in the third quarter. This is the highest since the savings and loan crisis in the early 1990’s.
Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $100 billion over the next three years.
The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).
We expect loan losses on the commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
Read the full analyst report on “JPM”
Read the full analyst report on “FITB”
Read the full analyst report on “USB”
Read the full analyst report on “ZION”
Read the full analyst report on “STI”
Read the full analyst report on “PNC”
Read the full analyst report on “BBT”
Read the full analyst report on “RF”
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