March 12, 2010

The over/under is 5. Just to clarify; the bet is that 5 banks will fail today. You can bet more than 5 will fail (over) or fewer than 5 will fail (under). The unders win. Four banks failed. If you guess correctly, you win nothing. In 1930, whole communities bet on bank failures. When a local bank went belly up, life savings, businesses, and communities were wiped out. Back then it was not a situation where you won nothing, rather you lost everything. I just wanted to start with a thought about complacency.

The percentage of American workers with virtually no retirement savings grew for the third straight year. The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

The consumer sentiment index declined to 72.5 in March from 73.6 in February.  The consumer expectations reading dipped to 67.2 from 68.4. The glass is half empty. One analyst described consumer sentiment as “meandering”.

Despite rain, sleet, and lots of snow consumers meandered to the stores last month. Retail sales increased 3.9% from a year ago, to $355 billion. Sales have risen in four of the past five months.

The trade deficit shrank a seasonally adjusted 6.6% to $37.29 billion in January from $39.90 billion in December, as both imports and exports fell. We haven’t seen a trade surplus in more than 3 decades. A deficit is still a deficit. You don’t increase prosperity with deficits. The lower numbers indicate that economic activity is slowing. Money has almost no velocity.

Households and businesses continued to increase debt at a 1.6% annual pace, but that’s the slowest increase since 1991. M1 money supply, the measure of how money moves through the economy, has dropped off a cliff. The Fed has been throwing money out of helicopters but none of it makes its way to Main Street. We are not taking on much new debt, in part because it is difficult to get credit and credit limits on existing accounts have been cut back. Another reason for the deleveraging is because consumers are defaulting.  Still, our debts continue to grow like a cancer. Default makes more and more sense. Fed's Flow of Funds numbers again show average Americans' net worth gaining more by mortgage defaults than asset appreciation. So, that's how American families are getting ahead -- by falling behind on their house payments.

The U.S. government posted a record deficit of $221 billion in February. Income totaled $107.5 billion. Spending was $328 billion. Year to date, the deficit is $652 billion. At some point, default will be the only answer.

What happens when debt overwhelms assets and income? A tipping point, and some think that point is when external debt tops about 75% of GDP or 240% of exports. IMF data shows the US has already passed the point of no return on debt, with external debt at 96% of GDP and 748% of exports. The point of default may be much closer than we realize, but there’s a basketball game on the TV, so let’s get to the Main Event.

The Friday Night Frights Lineup:

Once upon a time, Friday happened just once a week. The FDIC got tricky and closed a bank on Thursday: LibertyPointe in NY, acquired by Valley National Bank. On Friday, Valley National also picked up Park Avenue Bank in NY. The Thursday closure was probably to accommodate the Valley people.  Old Southern in Orlando will not rise again. Statewide Bank becomes the first failure in Louisiana since 2002. I was a little surprised. The region has been pummeled by hurricanes and such, but the banks held up.

The FDIC insurance fund lost $208.2 million dollars today. The FDIC Deposit Insurance Fund ended 2009 in arrears by $20.9 billion, the second quarter deficit in a row. The last time the fund was negative was in 1992. When you consider the $46 billion in pre-paid insurance fees for 2010 through 2012 the fund is in the black by $20 billion, not enough to make it through the year. Meanwhile, the Deposit Insurance Fund declined from $52.4 billion at the end of 2007 to minus $20.9 billion at the end of 2009, a decline of 140%.

#27 - LibertyPointe Bank, New York, New York, was closed Thursday, March 11, 2010 by the New York State Banking Department, which appointed the FDIC as receiver. Valley National Bank, Wayne, New Jersey will assume all of the deposits of LibertyPointe Bank.

 LibertyPointe Bank had approximately $209.7 million in total assets and $209.5 million in total deposits, and three branches. Valley National Bank will pay the FDIC a premium of 0.15 percent to assume all of the deposits of LibertyPointe Bank. In addition to assuming all of the deposits, Valley National Bank agreed to purchase essentially all of the failed bank's assets.The FDIC and Valley National Bank entered into a loss-share transaction on $181.5 million of LibertyPointe Bank's assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $24.8 million. LibertyPointe Bank is the 27th FDIC-insured bank failure in the nation this year, and the first in New York.

Cert # 58071

#28 - The Park Avenue Bank, New York, New York, was closed Friday, March 12, 2010 by the New York State Banking Department, which appointed the FDIC as receiver. Valley National Bank, Wayne, New Jersey will assume all of the deposits of The Park Avenue Bank.

The Park Avenue Bank had approximately $520.1 million in total assets and $494.5 million in total deposits, and four branch locations. Valley National Bank will pay the FDIC a premium of 0.15 percent to assume all of the deposits of The Park Avenue Bank. In addition to assuming all of the deposits of the failed bank, Valley National Bank agreed to purchase essentially all of the assets.The FDIC and Valley National Bank entered into a loss-share transaction on $379.8 million of The Park Avenue Bank's assets. As part of this transaction, the FDIC will acquire a cash appreciation instrument.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $50.7 million. The Park Avenue Bank is the 28th FDIC-insured bank failure in the nation this year, and the second in New York.

Cert # 27096

#29 - Old Southern Bank, Orlando, Florida, was closed Friday, March 12, 2010 by the Florida Office of Financial Regulation, which appointed the FDIC as receiver. Centennial Bank, Conway, Arkansas will assume all of the deposits of Old Southern Bank.

Old Southern Bank had approximately $315.6 million in total assets and $319.7 million in total deposits, and seven branches. Centennial Bank will pay the FDIC a premium of 1.00 percent to assume all of the deposits of Old Southern Bank. In addition to assuming all of the deposits, Centennial Bank agreed to purchase essentially all of the failed bank's assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $94.6 million. Old Southern Bank is the 29th FDIC-insured bank failure in the nation this year, and the fourth in Florida.

Cert # 58182

#30 - Statewide Bank, Covington, Louisiana, was closed Friday, March 12, 2010 by the Louisiana Office of Financial Institutions, which appointed the FDIC as receiver. Home Bank, Lafayette, Louisiana will assume all of the deposits of Statewide Bank.

Statewide Bank had approximately $243.2 million in total assets and $208.8 million in total deposits, and six branch locations. Home Bank did not pay the FDIC a premium to assume all of the deposits of

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $38.1 million. Statewide Bank is the 30th FDIC-insured bank failure in the nation this year, and the first in Louisiana. The last FDIC-insured institution closed in the state was The Farmers Bank & Trust of Cheneyville, Cheneyville, December 17, 2002.

Cert # 29561

Sinclair Noe

Eat the Bankers

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