Bank failures continue, but at a slower pace
U.S. regulators shut down the Bank of Wyoming, Thermopolis last week with total assets of about $70 million — bringing the total number of failed U.S. banks during 2009 so far to 53, compared to 25 in 2008 and 3 in 2007. This comes as a reduction from the previous week, which marked the largest number of bank failures in one week (7) during the 2008-2009 banking crisis. There were 5 bank failures in the week before that.
The failed bank witnessed massive capital erosion stemming from losses due to significant exposure to construction loans, commercial real estate loans and other commercial and industrial loans. Under regulatory capital guidelines, the minimum requirement for Tier 1-leverage and total risk-based capital ratios is 5% and 10%, respectively, for most institutions to be considered well-capitalized. However, Bank of Wyoming had Tier 1 leverage ratio of 4.05% and risk-based capital ratio was 8.81% as of March 31, 2009.
The Federal Deposit Insurance Corp. (FDIC) was appointed receiver of the bank and sold all of the bank’s retail deposits to Central Bank & Trust. However, Central Bank and Trust did not take approximately $8 million in brokered deposits, which will be paid directly to the brokers and advised customers by the FDIC.
The recent closure marked the first one in Wyoming state during the current crisis. Georgia ranks first among states with 14 bank failures during 2008 and 2009, followed by Illinois (13), California (11), Florida (5) and Nevada (4).
The FDIC estimates total cost to the deposit insurance fund from the failure of the bank at approximately $27 million bringing the total costs of bank failures to the fund year-to-date to $341 million. The deposit insurance fund now stands at its lowest level since 1993 — $13 billion as of the end of March 31, 2009.
The largest acquirers of failed U.S. banks during 2008 and 2009 include JPMorgan Chase (JPM, acquired Washington Mutual), Wells Fargo & Company (WFC, acquired Wachovia Bank), Zions Bancorporation (ZION, acquired Alliance Bank), BB&T Corp. (BBT) and Fifth Third Bancorp (FITB).
Though the signs of recession easing out may bring an end to the losses on home mortgages, we expect losses on the commercial real estate loans portfolio to continue to affect profitability in the near-term for banks having large exposures, such as Fifth Third and Zions. Furthermore, based on our expectations that unemployment and loan defaults will continue to rise in the coming months, we expect more small-cap banks to succumb in this prolonged recession.
Read the full analyst report on “JPM”
Read the full analyst report on “WFC”
Read the full analyst report on “ZION”
Read the full analyst report on “BBT”
Read the full analyst report on “FITB”
Zacks Investment Research
