U.S. Bank Failures Stretch to 64 - Analyst Blog

A capricious economy triggered another set of bank failures last week. On Friday, seven more banks were shuttered by U.S. regulators. Out of the seven failed banks, three were in Puerto Rico, two in Missouri and one each in Michigan and Washington. This brings the total number of bank failures to 64 so far in 2010, compared to 140 in 2009, 25 in 2008 and 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 the 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 failed banks are:

San Juan, Puerto Rico-based Eurobank, with total assets of $2.56 billion and deposits of $1.97 billion.

Hato Rey, Puerto Rico-based R-G Premier Bank, with $5.92 billion in total assets and $4.25 billion in total deposits.

Mayaguez, Puerto Rico-based Westernbank, with total assets of $11.94 billion and deposits of $8.62 billion.

Port Huron, Michigan-based CF Bancorp, with assets of $1.65 billion and total deposits of $1.43 billion.

Creve Coeur, Missouri-based Champion Bank, with total assets of $187.3 million and deposits of $153.8 million.

BC National Banks of Butler, Missouri, with $67.2 million in total assets and $54.9 million in total deposits.

Everett, Washington-based Frontier Bank, with $3.5 billion in total assets and $3.1 billion 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 $7.3 million.

Eurobank is expected to cost the deposit insurance fund about $743.9 million, R-G Premier Bank will cost about $1.2 billion, Westernbank will cost about $3.3 billion, CF Bancorp will cost about $615.3 million, Champion Bank will cost about $52.7 million, BC National Banks will cost about $11.4 million and Frontier Bank will cost around $1.4 billion.

San Juan, Puerto Rico-based Oriental Bank and Trust will assume all the assets and deposits of Eurobank.

San Juan, Puerto Rico-based Scotiabank de Puerto Rico agreed to buy all the assets and deposits of R-G Premier Bank

San Juan, Puerto Rico-based Banco Popular de Puerto Rico agreed to acquire Westernbank’s deposits and assets.

Troy, Michigan-based First Michigan Bank will assume all the assets and deposits of CF Bancorp.

Liberty, MO-based Missouri BankLiberty has agreed to acquire the deposits and assets of Champion Bank.

Butler, Missouri-based Community First Bank will acquire all the assets and deposits of BC National Banks.

San Francisco-based Union Bank will assume the assets and deposits of Frontier 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).