Daily Archives: August 21, 2009 @ 10:21 am (Friday)

Guaranty Bank: OTS Closes the Barn Door

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Interesting they are selling the assets to a foreign bank, presumably at high rates of return. Just one more thing that pushes exports and reduces our real terms of trade and standard of living.

Also, by addressing the banking issue from the ‘top down’ by funding the banks and supporting net interest margins, the US govt. has neglected the borrowers who are still not earning sufficient income working (or collecting unemployment) to make their payments.

The answer was my payroll tax holiday, per capita revenue sharing, and $8/hour job for anyone willing and able to work. That would still immediately reverse things and prevent continuing deterioration, but the losses are gone forever.

It has been widely reported that the assets of Guaranty Bank (Texas) will be seized Friday by the FDIC and sold to Banco Bilbao Vizcaya Argentaria SA of Spain.

Meanwhile the OTS issued a Prompt Corrective Action (PCA) to Guaranty yesterday. Maybe they didn’t get the memo …

Also, from the WSJ: In New Phase of Crisis, Securities Sink Banks

Guaranty owns roughly $3.5 billion of securities backed by adjustable-rate mortgages, with two-thirds of the loans in foreclosure-wracked California, Florida and Arizona, according to the company’s latest report. Delinquency rates on the holdings have soared as high as 40%, forcing write-downs last month that consumed all of the bank’s capital.

Guaranty is one of thousands of banks that invested in such securities …

It’s not just their own bad loans (usually C&D and CRE) taking down the local and regional banks, but also bad investments in securities based on other bank’s bad loans.


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China Macro Flash:Capital Requirement May Tighten To Further

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Looks like the push to restrict lending is continuing.

The new capital will ‘automatically’ be available for profitable loans, but it will take some time and some repricing of risk.

>   
>   (email exchange)
>   
>   On Fri, Aug 21, 2009 at 5:53 AM, Dave wrote:
>   
>   Good summary of rumored changes in China’s banking system
>   

China Macro Flash: Capital Requirement May Tighten To Further Curb Lending

The reported tightening of bank capital requirement is in a draft of
regulatory changes that are being circulated among banks for feedback.
It is likely a measure prepared by the government to curb loan growth
and asset price bubbles. If bank loans and asset prices continue to
rise, new rules could be enforced quickly, but if both stabilize or
undergo healthy adjustments or corrections, it is not clear how soon the
changes will be adopted.

The core of changes suggested in the draft is to end the connection
among banks through mutual holding of subordinated and hybrid debts.
These debts are issued by one bank and held by other lenders. Those
debts that relate one bank to another may increase systematic risk of
the banking sector.

The new rule proposes that:1) The holding of subordinated and hybrid
debts issued by other lenders should be capped. This will make new
issuance of such debts more difficult. 2) Subordinated and hybrid debts
can no longer be counted as supplementary capital. 3) Banks that fall
below the capital adequacy requirement will have to either shrink
balance sheets or issue more shares to lift capital adequacy ratios.

The proposed changes, if implemented, will likely curb loan
growth as some banks will have to cut new loans to fulfill the
requirement. Also, the changes will likely affect smaller banks more
than large state-owned banks. Almost all key state-owned banks (except
the Agricultural Bank of China) were listed in recent years, and their
capital adequacy ratios should be high enough to cope with the change.
Smaller banks facing limited channels of fund raising could suffer the
most. Current excess liquidity should help lower the cost of capital. If
banks need to fulfill the required adjustment in a short period of time,
this could tighten the liquidity condition in the market sizably,
putting downward pressure on asset prices.


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FDIC May Add to Special Fees

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This just serves to raise the cost of funds for banks

FDIC May Add to Special Fees as Mounting Failures Drain Reserve

By Alison Vekshin

August 20 (Bloomberg) — Colonial BancGroup Inc.’s collapse and the prospect of mounting failures among regional lenders may prompt the Federal Deposit Insurance Corp. to impose a special fee as soon as next month to boost reserves by $5.6 billion.

The FDIC board might act sooner than expected after the Aug. 14 failure of Alabama-based Colonial cost the agency’s insurance fund $2.8 billion, and as banks such as Chicago-based Corus Bankshares Inc. report dwindling capital and Guaranty Financial Group Inc. of Austin, Texas, says it may fail. The fund fell to the lowest level since 1992 in the first quarter.


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