Troubled Banks Etc.

WASHINGTON MUTUAL SEIZED BY THE US GOVERNMENT 

September 2008

Americans woke up Friday to more dramatic news about the financial bailout. As a big meeting between President Bush, the presidential candidates and congressional leaders ended Thursday without a consensus, news broke of the failure of the nation's largest savings and loan.

The government seized Washington Mutual, and much of the company is being sold for about $2 billion to JPMorgan Chase, which also bought Bear Stearns after its collapse in March. Like Bear Stearns, Lehman Brothers and IndyMac, Washington Mutual was caught in the implosion of the mortgage market, NPR's Jim Zarroli tells Linda Wertheimer. It's being called the biggest bank failure in U.S. history.

"Washington Mutual in particular did a lot of mortgage lending in California and Florida — which are both states that have had a lot of foreclosures. The Office of Thrift Supervision, which regulates the banks, said Washington Mutual had lost more than $6 billion in the last three quarters," he says.

After the recent ramp-up in the chaos in the financial markets, customers pulled out about $16 billion worth of deposits, which were 9 percent of Washington Mutual's deposits as of June 30.

"The government figured it had to step in, it had to act before things got much worse, so it came in, it shut Washington Mutual down and arranged to sell it," Zarroli says.

Trying to keep more people from taking their money out, regulators are saying it will be a seamless transition — and that the bank is reopening Friday as usual, just with new owners.

The move spares taxpayers another costly bailout, as the Federal Deposit Insurance Corp. would have had to come in with a big federal rescue for the depositors.

"It's an FDIC-insured bank, so the FDIC would have had to pay for accounts up to $100,000," Zarroli says. "The thing is, the FDIC that is supposed to pay customers is running low — there have just been a lot of bank failures this year — so the fact that JPMorgan Chase has stepped in means there's a company with deep pockets getting involved."

 

Los Angeles Times

 

 

 

 

DOWNEY SAVINGS ACQUIRED BY U.S. BANCORP

Source: Marketwatch

MINNEAPOLIS, Nov 21, 2008 (BUSINESS WIRE)

U.S. Bancorp announced today that, effective immediately, its lead bank, U.S. Bank National Association, has acquired the banking operations of two separate California financial institutions from the Federal Deposit Insurance Corporation. The two acquired institutions are Downey Savings & Loan Association, F.A., the primary subsidiary of Downey Financial Corp., headquartered in Newport Beach, Calif. and PFF Bank & Trust, a subsidiary of PFF Bancorp Inc., headquartered in Rancho Cucamonga, Calif.

Under the terms of these transactions, U.S. Bank will receive approximately $12.8 billion of assets and assume approximately $11.3 billion of liabilities, including $9.7 billion of deposits, of Downey Savings & Loan and will receive approximately $3.7 billion in assets and assume approximately $3.5 billion of liabilities, including $2.4 billion of deposits, of PFF Bank & Trust. As part of the transactions, U.S. Bank has agreed to assume the first $1.5 billion and $0.1 billion of expected losses on the assets of Downey Savings & Loan and PFF Bank & Trust, respectively. Any losses in excess of these amounts will be subject to a loss sharing agreement with the FDIC. U.S. Bank will not acquire any assets or liabilities of the banks' parent holding companies, Downey Financial Corp. or PFF Bancorp Inc. These acquisitions are expected to meet or exceed the company's internal financial hurdles for internal rate of return and earnings per share accretion.

"The timing of this transaction could not be better, as we have just completed the highly successful integration of our Mellon 1st Business Bank acquisition in Los Angeles and Orange County. With the addition of the Downey Savings & Loan and PFF Bank & Trust branch locations, we continue to widen our distribution network in our growing California and Arizona markets," commented Joseph M. Otting, vice chairman of commercial banking and U.S. Bancorp's Western U.S. senior executive. "Once the conversions and integrations are completed, both current and new customers of U.S. Bank will have the increased convenience of 561 branches in California and 75 branches in Arizona to serve their banking needs. This also presents a great opportunity for us to deepen customer relationships by offering U.S. Bank's extensive mix of products and services to our new customers."

As part of these transactions, U.S. Bank will modify the terms of certain acquired residential mortgage loans in accordance with the FDIC Mortgage Loan Modification Program. The objectives of this program are to improve affordability, increase the probability of performance, and allow borrowers to remain in their homes.

Read more: http://www.marketwatch.com/news/story/US-Bank-Acquires-...

 

 

COUNTRYWIDE SOLD TO BANK OF AMERICA

The New York Times

Bank of America announced yesterday that it has agreed to pay about $4 billion in stock to acquire Countrywide Financial, the troubled lender that became a symbol of the excesses that led to the subprime mortgage crisis.

"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," Kenneth D. Lewis, Bank of America's chairman and chief executive officer, said in a statement published on the bank's Web site.

The statement said the agreement was approved by the boards of directors of Bank of America and Countrywide and was subject to approval by Countrywide's shareholders and regulators.

According to the agreement, Countrywide shareholders would receive 0.1822 of Bank America stock for each Countrywide share.

"We believe this is the right decision for our shareholders, customers and employees," Angelo R. Mozilo, Countrywide's chairman and chief executive officer, said in the statement.

"Bank of America is one of the largest financial institutions in the U.S. and internationally, and we are confident that the combination of Countrywide and Bank of America will create one of the most powerful mortgage franchises in the world."

Bank of America said it expected the deal to close in the third quarter of this year.

The acquisition would not affect its earnings in 2008, the bank said.

It expects $670 million in after-tax cost savings from the transaction, starting in 2009. Most of the savings would come in 2010.

According to Reuters, the transaction would value Countrywide at $7.16 per share, a 7.6 percent discount to Thursday's closing price.

Because it is an all-stock transaction, Countrywide investors will benefit if Bank of America stock rises, which it did Thursday.

As the nation's largest mortgage lender, Countrywide helped fuel the housing boom by offering loans to high-risk borrowers.

But as home prices dropped last year and borrower defaults soared, Countrywide's lending practices came under the spotlight of legislators, regulators and consumer advocates.

With financial pressures mounting, Countrywide's stock price collapsed in 2007, falling 80 percent, wiping out $20 billion in market value.

Earlier this week, Countrywide's shares plummeted further with speculation about a bankruptcy filing, a rumor the company denied.

 

COLLAPSE OF INDYMAC BANK

July 15, 2008 

 The collapse of IndyMac, the fifth FDIC-insured bank to fail this year, has heightened fears that more bank failures may be on the way.

IndyMac, which reopened on Monday as IndyMac Federal Bank, went under last week because of the excessive number of risky mortgage loans that it held.

Customers lined up early Monday morning to withdraw cash, but for some that meant taking home something less than what they had originally deposited. Here, a look at some of the questions raised by IndyMac's failure, including what deposits the federal government insures, and what other banks may be at risk.

Does IndyMac's failure mean my bank is at risk?

Probably not. IndyMac was in an unusual situation because it had an "extremely risky" exposure to assets, says Stuart Plesser, a banking analyst for Standard and Poor's. "Their specialty was no document or low-document loans," he says — meaning borrowers didn't need much proof of income to get approved. Most banks hold a more diversified portfolio of loans, he adds.

And although five banks have failed this year, that number is tiny compared to the height of the savings and loan crisis, when 534 banks closed in 1987, according to FDIC Chairwoman Sheila Bair.

Still, Standard & Poor's has a negative outlook for banking stocks, which have not performed well: Various bank indexes are down more than 50 percent from a year ago, Plesser says.

"The chance that your bank is going to fail is very remote. The overwhelming majority of banks are quite healthy in this country," Bair told NPR. "Even if your bank does fail, your insured deposits will be there for you."

The American Bankers Association says that banks are well positioned to handle the economic downturn with a buffer of $1.48 trillion, including reserves and cash, to hold as operating capital.

Have there been mass withdrawals from other banks?

Not in the United States. But the credit crisis has prompted some banks to issue statements about their capitalization levels — in other words, how much cash they have on hand to fund operations — in an attempt to calm both depositors and investors.

How many more banks are at risk of failure?

The FDIC has identified 90 banks as "problem institutions" that are at risk of failure for the first quarter of 2008. "That number will go up," but historically, only about 13 percent of banks on this list typically fail, says the FDIC's Bair.

What deposits are insured by the FDIC?

A depositor with any type of account at an FDIC-insured bank or savings and loan is fully insured for up to $100,000 per bank. It's possible that a depositor could have more than $100,000 insured if he or she has a joint account or one of seven other legal ownership arrangements. (Get details on insured accounts.) All types of individual retirement accounts are also insured for up to $250,000.

Are money market funds insured?

Not by the FDIC. However, many money market funds invest in Treasury notes and government agency bonds, which are backed by the full faith and credit of the U.S. government. This means that investors are guaranteed that they will be paid back in full.

This category typically also includes bonds issued by Fannie Mae and Freddie Mac, the two housing finance giants that are the subject of a rescue plan announced by the Treasury Department earlier this week. Money market funds may also invest in municipal bonds backed by state governments, short-term notes issued by corporations or in CDs.

Since 1983, when the SEC revised its rules governing money market funds, there has been only one instance of a money market fund paying investors less than the principal they invested, according to the Investment Company Institute (ICI), a trade association for U.S. investment companies. That instance involved institutional — not individual — investors.

How have IndyMac customers fared?

More than 200,000 customers had a complete guarantee and have had virtually uninterrupted access to their money since the failure of the bank, says Bair.

The FDIC says IndyMac had close to $1 billion of "potentially uninsured deposits," held by 10,000 customers. The agency said that as it sorts things out, it will pay customers with such deposits an advance of 50 percent of the uninsured amount and ultimately, customers may lose between 10 to 20 percent of their uninsured money.

With additional reporting by Michele Norris.

 

 

 

WACHOVIA SOLD TO WELLS FARGO

Citigroup Inc.'s takeover of Wachovia Corp. was torpedoed on Friday when San Francisco-based Wells Fargo & Co. agreed to pay $15.4 billion to buy Wachovia.

Wells Fargo's offer upended the government's hastily arranged effort last weekend to match New York-based Citigroup with Wachovia of Charlotte, N.C. -- a federal effort to prevent the bank from joining the growing ranks of failed financial institutions.

Wells Fargo's deal on Friday marked a stunning turn of fortunes for Wachovia, the nation's fourth-largest bank in market value as recently as last year. Wells Fargo had been among the leading suitors for Wachovia during a tense period of negotiations last weekend that ended, in the wee hours Monday morning, with a government deal to sell most of Wachovia to Citigroup.

The Citigroup deal, which included a provision for the government to possibly absorb hundreds of billions of dollars in future Wachovia losses, was warmly received by Citigroup shareholders but nearly wiped out Wachovia's. Now, in forcing Wachovia back into play, Wells Fargo sets the stage for one of the most dramatic takeover battles in recent memory, pitting against each other the No. 3 and No. 4 U.S. banks in terms of stock-market value.

The Wells Fargo offer provides a glimmer of support for the fundamental value of troubled U.S. banks: It signals that there is still a market, albeit limited, for private takeovers of these institutions, one that does not place taxpayer dollars at risk. It is also significant because the new buyer, unlike Citigroup, asks for no government assistance.

But Wells Fargo's offer, made Thursday night, also opens up a hornet's nest of legal claims and counterclaims. Citigroup officials, already deep in discussions about integrating Wachovia, were caught off guard by Wells Fargo's agreement. After learning of Wells Fargo's strike, Citigroup Chief Executive Vikram Pandit roused his deputies in the middle of the night and began plotting a counterattack -- including possibly challenging the new deal for Wachovia in the courts.

Citigroup never signed a definitive merger agreement with Wachovia, and was relying instead on language in a two-page terms sheet. In addition, Citigroup and Wachovia executives had signed an "exclusivity agreement" that says Wachovia can't negotiate a deal with any other party. Citigroup believes Wachovia's deal with Wells Fargo is in "clear breach" of that agreement. It's unclear what remedy Citigroup would have to enforce its exclusivity agreement.

Some U.S. officials appeared frustrated with Wells Fargo's handling of the deal, given that it had passed up a chance to buy Wachovia last weekend. In a strongly worded statement, the chair of the powerful Federal Deposit Insurance Corp., Sheila Bair, said her agency "stands behind its previously announced agreement with Citigroup." It wasn't clear whether the FDIC was rejecting the Wells Fargo transaction or simply saying the Citigroup bid isn't off the table entirely.

Later on Friday, Congress, too, appeared to weigh in on the fate of Wachovia. The $700 billion federal bailout bill passed by the House of Representatives on Friday and signed into law immediately by President George W. Bush appeared to give Wachovia wiggle room in its takeover bid. A provision of that new law suggests that contracts relating to pending acquisitions in which the FDIC is involved might not "be enforceable."

Wachovia signed an agreement with Wells Fargo in part because it knew of the language in the bill, according to a person close to Wachovia. Citigroup, on the other hand, could argue that the bill's language could be used to invalidate a Wachovia-Wells Fargo deal. Lawyers not involved in the matter believe the language could be used to support either Citigroup's or Wells Fargo's position and the matter would likely need to be decided in court.

A Citigroup deal would be subject to a vote by Wachovia shareholders, who aren't likely to approve it in the wake of a higher offer. So unless Citigroup is prepared to significantly sweeten its bid -- a possibility its executives were considering Friday -- it won't be easy for it to walk away with Wachovia.

The Wells Fargo offer is for $7 a share in stock, based on Thursday's closing price, 79% above where Wachovia shares finished. Wells Fargo also would assume Wachovia's preferred stock and debt.

Any resolution against Citigroup would be bad for the New York bank. Citigroup investors had responded warmly to the proposed Wachovia deal, because the retail bank, with some 3,400 branches, would have greatly bolstered Citi's deposit base. The deal's potential undoing sent Citi shares down 18%, to $18.35, in 4 p.m. trading on the New York Stock Exchange. Citi immediately put on hold its plans to finance the Wachovia acquisition by selling $10 billion worth of shares, according to people familiar with the matter.

The past few months have seen a surge of deals, often with government prodding, as banks and investment banks have found partners to solidify their finances and investor perception of those finances. Deals that are usually done over weeks or months are done in days or even hours. J.P. Morgan Chase & Co. had to increase the price it agreed to pay for Bear Stearns Cos. earlier this year to $10 a share from $2 in part because of the speed in which the deal was done.

The sale of Wachovia came together very quickly. Two weeks ago, the company was in merger discussions with Morgan Stanley. That fell through when Morgan Stanley decided to become a bank-holding company. Then, with Wachovia stock falling amid concerns over its mortgage portfolio, the bank rushed into discussions with Wells Fargo and Citigroup.

On Thursday, Sept. 25, hours before federal regulators organized the rescue of troubled Washington Mutual Inc., Wachovia began seeking a buyer. But by Sunday morning, Wells Fargo had emerged as the favorite suitor, initially saying it would buy Wachovia for more than $20 billion. By Sunday evening, the Wells Fargo offer was off the table.

Regulators were frustrated at the way Wells Fargo officials -- and its Chairman Richard Kovacevich in particular -- had negotiated, forcing government officials to pull together a middle-of-the-night deal when Wells Fargo backed out, Washington officials say. The federal government stepped in late Sunday to forestall a Wachovia failure. Regulators were particularly angry that they had to take unprecedented steps to offer government assistance, which future acquirers could ask for as well.

By Monday morning regulators had arranged a shotgun marriage between Wachovia and Citigroup. In that deal, Citigroup would take everything but Wachovia's retail brokerage, asset-management, insurance and retirement-services units. Losses on Wachovia's souring loans would be capped at $42 billion, with government agreeing to absorb anything above that amount. Wachovia shareholders would take a beating: Analysts estimated shares in a new Wachovia, once Citigroup stripped away most of its assets, would be worth about $2 each, down from recent highs of $52.

Around 3 a.m. Monday, say people familiar with the situation, the two banks inked a two-page term sheet. The lack of a traditional, signed merger pact was unusual, advisers to Citigroup and Wachovia said this week, a product of the haste with which the deal was hammered out.

But Citigroup executives weren't worried. Wachovia Corp. CEO Robert Steel spent the day Thursday at Citigroup headquarters in New York, say people familiar with the matter. As recently as Thursday evening, a Citigroup official said the two companies' lawyers were closing in on a definitive pact. The deal was scheduled to be signed Friday, two people said. The Citigroup executives didn't see a serious threat of an alternative bidder emerging.

To finance its deal, Citigroup was planning to sell common stock to raise $10 billion in capital. The company's investment bank had buyers lined up, say people familiar with the matter.

A full-page print ad heralding "A new partnership" between Citibank and Wachovia ran Friday in USA Today and regional daily newspapers. The ad, which people familiar with the situation say was reviewed by Wachovia, went on to say: "Citibank is honored to enter into a partnership with Wachovia...the perfect partner for Citibank." Citigroup's creative ad agency, Publicis, declined to comment.

On Thursday afternoon, Mr. Steel and other Wachovia executives spent hours with their Citigroup counterparts discussing human-resources issues and how to handle the expected transition. The two parties dived into details such as how Citigroup should reach out to Wachovia branch managers and tellers to assure them that their jobs were safe. They also discussed plans to relocate Citigroup's retail-banking headquarters to Charlotte from New York, one person said. The meetings lasted until around 6 p.m.

But 90 minutes later, Wachovia received a call from federal regulators. The government representatives had a surprising message: Wachovia should expect to receive a merger proposal from Wells Fargo later that evening.

It emerged Friday that even as Citigroup and Wachovia were working on a deal, Wells Fargo executives had been continuing their own quest for Wachovia -- a deal that they had "drooled" over for years, according to a person familiar with the matter.

Although previous accounts indicated that Wells Fargo had rescinded its initial offer for Wachovia on Sunday, this person said that hadn't been the case: Wells Fargo had submitted a bid that called for the purchase of the whole company and included some government assistance, this person said. The Wells Fargo team "was shocked" when they learned that Wachovia and the government had chosen the Citigroup deal instead, this person said.

A person close to Wachovia, however, maintained that a final offer had never come before the board.

Over the next few days, Wells Fargo pressed on with the analysis of Wachovia, according to the person familiar with Wells Fargo. The Wells Fargo group "realized that the other side didn't have a signed merger agreement, but just a letter of intent which means absolutely nothing," this person said.

By Thursday afternoon, the board of Wells Fargo had decided to make another offer for Wachovia that didn't call for government assistance. They voted to proceed. "Five days [of due diligence] is different than one. There was a tremendous amount of comfort at the board, executive and advisory level" about the new offer, this person said.

At around 5 p.m., before approaching Wachovia, the Wells Fargo group alerted the FDIC and the Office of the Comptroller of the Currency, which regulates all national banks, to the new offer.

By 9:30 p.m. Thursday night, Mr. Steel received the formal offer from Wells Fargo. With Citigroup's lawyers still wading through hundreds of pages of merger documents, Wachovia immediately suspended its discussions.

The proposed deal's structure was much simpler than the transaction with Citigroup, because Wells Fargo was willing to buy Wachovia in one piece and wasn't relying on a backstop by the FDIC.

Wachovia's board was elated by the new offer, said a person familiar with the matter, because the price was clearly superior. But the board was also cheered by the fact that Wells Fargo would buy the company whole, rather than leaving a "rump" Wachovia, a broker-dealer operation with 14,600 brokers.

Danny Ludeman, the chief executive of Wachovia's retail brokerage unit, told the brokers on a Friday conference call said "this is the one of the combinations I had been hoping for a long, long time," he said. "It's been a bizarre week."

Lawyers for Wachovia knew that they risked violating an exclusivity agreement that Wachovia and Citigroup had entered into in the pre-dawn hours Monday. But Wachovia's advisers concluded that any legal concerns were trumped by the board's fiduciary duty to shareholders. Since Wells Fargo's offer appeared to be better for Wachovia's shareholders than the Citigroup deal, they were obliged to consider it. Wachovia's advisers acknowledged the risk that the company could face legal liability if Citigroup sued. They determined that was a risk worth taking.

After hours of stewing over the deal and related concerns, Wachovia's directors formally accepted Wells Fargo's bid. Shortly after 2 a.m. Friday, Mr. Steel phoned Mr. Pandit at Citigroup. "We cut a new deal," Mr. Steel said.

Mr. Pandit called to wake his deputies, who were only beginning to recover from the all-nighters they'd pulled earlier this week. "Come on in," Mr. Pandit told one top executive, without elaborating.

Mr. Pandit and a handful of executives convened for another all-nighter at the offices of New York law firm Davis Polk & Wardwell, about a half-mile south of Citigroup's headquarters.

The Citigroup executives were stunned -- and furious. They couldn't believe that they'd spent hours laying out integration plans with Wachovia when another deal would be in the works hours later. "Why would they be wasting time getting to that level of detail?" one angry executive asked Friday.

Operating out of an impromptu war-room at Davis Polk's offices, Citigroup executives spent much of Friday lobbying government officials to intervene on their behalf. They couched their argument in patriotic terms: For the good of the country and its financial system, Citigroup had plunged into a complicated and potentially risky transaction, only to essentially be punished days later. "What has transpired here is complete moral irresponsibility," a Citigroup official said.

In a statement, Citigroup "demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction, any conduct in furtherance thereof, or any other act in violation of the Exclusivity Agreement. Citi has substantial legal rights regarding Wachovia and this transaction."

Meanwhile on Friday, at Wachovia's headquarters in Charlotte, N.C., where 20,000 employees had anticipated draconian cuts, there was elation in the hallways. "Even in bull markets, I've never seen people this happy," said one Wachovia employee.

WSJ.com

 

 

 FIRST FEDERAL BANK RECEIVED TARP FUNDS

Two banks operating in Lenawee County have received funds from the federal government’s Troubled Asset Relief Program (TARP). Officials from United Bank & Trust of Tecumseh and First Federal Bank are using the funds to bolster their assets and expand their business.

UBT has been approved to receive $20.5 million, and First Federal Bank, which is based in Defiance, Ohio, and has offices in Lenawee County, received $37 million in TARP funds. However, Joe Williams, UBT president and chief executive officer, and Jeff Vereecke, northern market president of First Federal, both said that’s not a bad thing and doesn’t mean either bank is in trouble.

“We are very happy to receive the TARP funds,” Williams said. “We’re not afraid to tell people that. Our bank is well-capitalized — that’s the highest rating you can get. The government is investing in UBT because of our sound management and the fact that we are well-capitalized.”

UBT is one of six Michigan-chartered banks to be approved for the funds (First Federal is chartered in Defiance.) Vereecke and Williams both took issue with the term “bailout” as the program relates to their institutions.

“The U.S. Treasury has purchased preferred stock in our company and we’re expected to repay the funds over a period of time,” said Vereecke.

Williams said UBT had to apply for the funds, and the Federal Deposit Insurance Corp., which insures bank deposits, recommended appro­val. Williams noted a major misconception exists that banks are not lending during this economic downtime.

“In the first quarter of 2009, we’ve seen a continued increase in mortgage loan volume and good opportunities in commercial lending,” Williams said. “We partner with the local community. That’s what a community bank is for.”

Williams said the UBT board of directors felt applying for the TARP funds was a good financial decision. The action allows the bank to enhance and expand its services and to leverage more capital to lend out.

“We take deposits locally and lend locally,” Williams said. “That’s our expertise.”

Vereecke noted the TARP funds would bolster what he called an already strong balance sheet. He said the capital adds more flexibility to First Federal’s commercial and retail client base.

“First Federal Bank has proven that it is well-positioned to continue its role as a leader in banking throughout this market area,” he said. “As such, we believe we have a responsibility to participate in the capital purchase plan.”

What the action does, Williams explained, is allow the federal government to buy preferred United Bankcorp stock in exchange for 5 percent quarterly dividends. That rate is good for five years, and  the federal government can convert the preferred stock to common stock any time during that period.

Like many financial institutions, UBT and First Federal have been affected by the events on Wall Street and within the industry. However, Vereecke and Williams said customers and stockholders can be assured their banks are sound and will continue doing business as they always have.

 

 

FDIC UPDATE

Feb. 26th, 2009

 The nation's banks lost $26.2 billion in the last three months of 2008, the first quarterly deficit in 18 years, as the housing and credit crises escalated.

The Federal Deposit Insurance Corp. said Thursday that U.S. banks and thrifts also more than doubled the amount they set aside to cover potential loan losses, to $69.3 billion in the fourth quarter from $32.1 billion a year earlier.

Rising losses on loans and eroding values of assets "overwhelmed" banks' revenue in the fourth quarter, the FDIC said. More than two-thirds of all banks and thrifts turned a profit in that period but their earnings were outstripped by large losses at a number of major banks.

FDIC Chairman Sheila Bair said the agency on Friday will raise the insurance premiums paid by U.S. banks and thrifts, effective in the second quarter, to rebuild a fund depleted by 25 bank failures last year. That will follow a plan to replenish the deposit insurance fund put in place in October that increased average premiums to 13.5 cents for every $100 of banks' deposits from 6.3 cents.

The FDIC believes U.S. bank failures will cost the deposit insurance fund more than $40 billion over the next four years.

Fourteen federally-insured institutions already have failed this year, extending a wave of collapses that began in 2008. Last year's tally of 25 banks shut down by regulators was more than in the previous five years combined and up from only three bank failures in 2007.

The failures sliced the amount in the deposit insurance fund to $18.9 billion as of Dec. 31, the lowest level for the fund since 1993, during the savings and loan crisis. That compares with $52.4 billion a year earlier.

The regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

THE HUFFINGTON POST

 

 

 

CITI GROUP FACES  BIG NEW TROUBLE

March 5, 2009 

 

 

BANK THAT COLLECTED 25 BILLION FACES CRITICISM

Feb. 4th, 2009

Wells Fargo & Co. abruptly canceled Tuesday a pricey Las Vegas casino junket for employees after a torrent of criticism that it was misusing $25 billion in taxpayer bailout money.

The company initially defended the trip after The Associated Press reported it had booked 12 nights beginning Friday at the Wynn Las Vegas and the Encore Las Vegas. But within hours, investigators and lawmakers on Capitol Hill had scorned the bank, and the company canceled.

The conference is a Wells Fargo tradition. Previous all-expense-paid trips have included helicopter rides, wine tasting, horseback riding in Puerto Rico and a private Jimmy Buffett concert in the Bahamas for more than 1,000 of the company's top employees and guests.

"In light of the current environment, we have now decided to cancel this event as well," the company said Tuesday night in a news release that also said the it had never planned to use taxpayer bailout money for the trip.

Corporate retreats have attracted criticism since the bank bailout last fall. Congress scolded insurance giant American International Group Inc. for spending $440,000 on spa treatments for executives just days after the company took $85 billion from taxpayers. AIG has since canceled all such outings.

Because of the bailout and the recession, other banks have canceled employee outings, including Morgan Stanley, which informed employees Monday that an appreciation trip to Monte Carlo was off.

Wells Fargo, however, had not. And initially, the company indicated it had no plans to cancel.

"Recognition events are still part of our culture," spokeswoman Melissa Murray said Tuesday afternoon. "It's really important that our team members are still valued and recognized."

In previous years, top Wells Fargo loan officers were treated to performances by Cher, Jay Leno and Huey Lewis. One year, the company provided fortune tellers and offered camel rides, said Debra Rickard, a former Wells Fargo mortgage employee from Colorado who attended the events regularly until she left the company in 2004.

Every night when employees returned to their rooms, there was a new gift on their pillows, she said.

"I was amazed with just how lavish it was," Rickard said. "We stayed in top hotels, the entertainment was just unbelievable, and there were awards — you got plaques or trophies."

Kevin Waetke, another spokesman for Wells Fargo, said the Las Vegas trip provided a "unique opportunity" for Wells Fargo employees and employees of newly acquired bank Wachovia Corp., "to focus on continuing to do all we can for U.S. homeowners."

On Capitol Hill, lawmakers disagreed.

"Let's get this straight: These guys are going to Vegas to roll the dice on the taxpayer dime?" said Rep. Shelley Moore Capito, a West Virginia Republican who sits on the House Financial Services Committee. "They're tone deaf. It's outrageous."

The trip was to come on the heels of this week's announcement that Wells Fargo lost more than $2.3 billion in the last three months of 2008.

"Now, they're sending employees on junkets to Las Vegas. You do the math," said New York Attorney General Andrew Cuomo, who recently sought information about Wells Fargo's bonuses as part of his investigation into the banking industry.

Rooms at the Wynn and the Encore are consistently among the most expensive in Las Vegas. The $2.3 billion Encore opened in December. Its decor includes a 27-foot Asian dragon made from 90,000 Swarovski crystals and artwork by Colombian artist Fernando Botero. One of the restaurants features Frank Sinatra's 1953 Oscar.

Both properties have high-end retail stores, including Manolo Blahnik at Wynn and Chanel at Encore.

Wells Fargo reversed course Tuesday evening. The company said it had planned to scale back the Las Vegas trip but decided to cancel it, just as it had already done for other events scheduled for this year.

The statement did not say what, other than a four-night sales conference, the company had planned for its 12 nights in Las Vegas. The company said, however, it did not plan any other employee recognition events this year.

Morgan Stanley, another $25 billion bailout recipient, had been planning to send its top employees to a hotel in Monte Carlo this April. A Morgan Stanley travel agent said that the trip, along with a similar event in the Bahamas, was still on as of Tuesday afternoon. But company spokesman Jim Wiggins said employees were told Monday that the events were canceled. He said the travel agent was incorrect.

MSNBC.com

 

 

 

AIG's SPIRAL DOWNWARD TIMELINE

November 18th, 2008

Here it is: a timeline showing how AIG went from boasting about how the subprime mortgage crisis was no problem at all to being the American taxpayers’ problem. Assurances from AIG executives continued even as losses mounted – assurances that have reportedly drawn the curiosity of federal investigators.

As we’ve noted before [1], the main cause of AIG’s collapse was its credit-default swap portfolio. The swaps were essentially insurance contracts on securities, and for a fee, AIG guaranteed the security’s value. The problem: If the prices of the securities collapsed, AIG was on the hook. Because the portions of the securities that AIG guaranteed were judged to be almost risk free, not much thought [2] seems to have been given to that scenario.

At the end of 2007, through its swaps, AIG covered about $61 billion in securities with exposure to subprime mortgages.

That portion of the swaps wreaked havoc on AIG’s health in two ways.

First, the company was forced to post mounting losses as the value of the securities AIG was guaranteeing deteriorated. AIG assured investors these losses were only paper losses – "unrealized losses" in accounting lingo – and that the securities were sure to regain their lost value before AIG would be forced to pay up.

Second, AIG was vulnerable to collateral calls, and it was this that ultimately sunk the company. According to the contracts AIG had with its counterparties (its clients) in the swaps trades, AIG agreed to put up money if the value of the securities deteriorated or AIG itself became less creditworthy.

Starting in the summer of 2007, AIG’s counterparties began demanding that AIG put up collateral. As you can see below, the number steadily mounted until the company collapsed from the strain.

Under the government’s latest deal, the Fed has helped AIG pay its obligations to those counterparties. The identity of those banks remains officially under wraps, but the Wall Street Journal has named [3] a number of them [4]: Goldman Sachs, Merrill  Lynch, UBS, Deutsche Bank, Barclays, Credit Agricole, Royal Bank of Scotland, CIBC and Bank of Montreal. As the Journal reported, the banks are sure to be happy with the deal [3], even if the U.S. taxpayer might not be.

August 5, 2007: During a conference call with investors, various high-ranking AIG officials stressed the near-absolute security of the credit-default swaps.

"The risk actually undertaken is very modest and remote," said AIG’s chief risk officer.

Joseph Cassano, who oversaw the unit that dealt in the swaps, was even more emphatic: "It is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions…. We see no issues at all emerging. We see no dollar of loss associated with any of that business."

"That’s why I am sleeping a little bit easier at night," said Martin Sullivan, AIG’s CEO.

See interactive chart [5]

August, 2007: Goldman Sachs, a big swaps customer of AIG, demands that AIG post $1.5 billion in collateral [4] to cover some of its exposure. AIG privately agrees to post $450 million.

October 1, 2007: Joseph St. Denis, the VP of Accounting Policy at AIG Financial Products, resigns [6] (pdf) after Cassano tells him, "I have deliberately excluded you from the valuation of the [credit-default swaps] because I was concerned that you would pollute the process."

Late October, 2007: Goldman asks AIG to post another $3 billion in collateral [4]. AIG privately agrees to post $1.5 billion.

November 7, 2007: In an SEC filing, AIG reports $352 million in unrealized losses from its credit-default swap portfolio, but says it’s "highly unlikely" AIG would really lose any money on the deals.

The company also discloses that there have been disagreements with some of its counterparties (the banks in the U.S., Canada and Europe that had purchased the swaps) about the "collateral required." The report does not disclose how much collateral AIG has been forced to post, however.

November 29, 2007: An auditor from PricewaterhouseCoopers, AIG’s outside auditor, privately warns AIG CEO Martin Sullivan that AIG could have a "material weakness" in its risk management [7] (pdf) of the swaps.

December 5, 2007: In an SEC filing, AIG discloses $1.05 billion to $1.15 billion in further unrealized losses to its swaps portfolio, a total of approximately $1.5 billion for 2007.

During a conference call with investors, CEO Martin Sullivan explains that the probability that AIG’s credit-default swap portfolio will sustain an "economic loss" is "close to zero."

AIG’s risk-modeling system had proven "very reliable," Sullivan said, and since the transactions were so "conservatively structured," AIG had "a very high level of comfort" with its risk models.

Federal investigators are probing whether Sullivan and other AIG executives misled investors [4] at this meeting, according to the Wall Street Journal.

February 11, 2008: AIG discloses in a regulatory filing that its auditor, PricewaterhouseCoopers, has found a problem: a "material weakness" in its valuation of the swaps. AIG therefore needed to "clarify and expand" its prior disclosures.

AIG puts the unrealized losses of its swaps portfolio at $5.96 billion through November 2007.

February 28, 2008: In its year-end regulatory filing, AIG sets its 2007 total for unrealized losses at $11.5 billion. AIG also discloses that it had thus far posted $5.3 billion in collateral. It’s the first time the company has disclosed the amount of posted collateral. AIG puts the notional value of the entire swaps portfolio at $527 billion. But as we said above, about $61 billion of the swaps had exposure to subprime mortgages.

The next day, CEO Martin Sullivan tells investors that AIG expects those losses to "reverse over the remaining life" of the portfolio. These losses, he said, were "not indicative of the losses AIGFP may realize over time."

AIG also announces that Joe Cassano, the chief of the unit that dealt in the swaps, has resigned. What AIG doesn’t disclose is that he’s kept on under a $1 million per month consulting contract [8].

May 8, 2008: In its first quarter filing, AIG ups its estimate of its unrealized losses in 2008 to $9.1 billion through the end of March, for a grand total loss of $20.6 billion over 2007 and 2008. It also discloses that it had posted an aggregate of $9.7 billion of collateral over the past two years.

May 20, 2008: AIG raises $20 billion in private capital to help with the growing problems.

August 6, 2008: In its second quarter filing, AIG ups its unrealized loss in 2008 from the credit-default swaps to $14.7 billion, for a grand total loss of $26.2 billion. It also discloses another impressive number: It’s posted a total of $16.5 billion in collateral.

September 15, 2008: Standard & Poor’s cuts AIG’s credit rating [9] due to "the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses."

AIG is forced to raise another $14.5 billion in collateral [10] due to the rating downgrade. The company faces collapse.

September 16, 2008: The Federal Reserve Board saves AIG by pledging $85 billion [11]. As part of the deal, the government gets a 79.9 percent equity interest in AIG.

October 8, 2008: The Fed pledges another $37.8 billion to AIG [12].

November 10, 2008: AIG discloses that it had thus far posted a total of $37.3 billion in collateral on the swaps. It estimates its total unrealized losses from the credit-default swap contracts for 2007 and 2008 at $33.2 billion.

The government and AIG announce [13] that they’ve reached a new agreement for a total of $150 billion. As part of the agreement, the New York Fed, together with AIG, will purchase the worst-performing securities covered by the credit default swaps, going to the root of the problem.

The swaps covering these “multi-sector” CDOs (collateralized debt obligations), at a notional value of approximately $72 billion, were the cause of almost all of AIG’s losses and collateral postings (about $61 billion had exposure to subprime mortgages). Purchasing the securities themselves will terminate the swaps. The Fed will advance $30 billion and AIG $5 billion. The banks get to keep AIG’s collateral. Together, the sums exceed $72 billion.

 

PROPUBLICA.com

 

 

 

MORE BANK FAILURES

 

March 30th, 2009

All 46 bank failures since the beginning of 2008 are detailed on this interactive bank failure map:

CLICK HERE FOR TABLE

For the second straight week, the Federal Deposit Insurance Corporation was unable to simply sell a failed institution's deposits to another institution. Instead, SunTrust Bank of Atlanta, held by SunTrust Banks Inc. , agreed to act as paying agent on the behalf of the FDIC receivership.

The agreement covers insured retail deposits, which must be withdrawn or transferred to new SunTrust accounts by April 27. There were about $2 million in uninsured deposits which would not be paid out by SunTrust.

When a bank or savings  and loan institution fails and deposit balances exceeding FDIC insurance limits are not acquired by another institution, depositors become creditors to the FDIC receivership for the amount of their uninsured balances. Any money recovered on these balances is called a "dividend." There were no advance dividends announced for Omni's uninsured depositors in the FDIC's Friday press release.

Not surprisingly, states at the center of the residential housing boom have produced the greatest number of failing institutions. Out of 41 bank and thrift failures since the beginning of 2008, nine were in Georgia, eight were in California and four in Florida.

Omni was the second-largest Georgia bank to fail during 2008 and 2009. The largest was Integrity Bank of Alpharetta, which has $1.1 billion in total assets when it was shuttered by state regulators on Aug. 29. Integrity's deposits were acquired by Regions Financial Another significant Georgia failure was Haven Trust Bank of Duluth, which failed on Dec. 12th, with deposits acquired by BB&T Corp. Omni National was considered significantly undercapitalized as of Dec. 31, per regulatory guidelines.

 

THESTREET.COM

 

 

WASHINGTONS RELUCTANT AUTO BAILOUT

March 24th, 2009 

NEW YORK  -- General Motors and Chrysler LLC have about a week or less before they find out if they'll get the additional help they need from taxpayers, creditors and unions to avoid bankruptcy.

What they already know is that any assistance they receive won't be given happily.

The two companies face a March 31 deadline to win concessions from bondholders and unions in order to prove to the Treasury Department that they can be viable in the long term. Without such a finding, the government can recall the $13.4 billion it has already lent to GM (GM, Fortune 500) and the $4 billion it loaned to Chrysler.

Few expect Treasury to take such a drastic step. Still, it's clear that the automakers need more than the loans they already have received. Chrysler is on record as saying it needs as much as $5 billion in additional funds by March 31 to avoid being forced into bankruptcy.

And while GM now says it doesn't face an immediate cash crunch, it has asked for up to $16.6 billion more in federal assistance, with most of that needed later this year. Its auditors have even said there is significant doubt about GM's ability to stay in business without more loans.

But it's growing less certain that GM will be able to get enough concessions from its creditors to satisfy the government. On Sunday, an ad hoc committee of leading GM bondholders issued a statement saying they were not ready to agree to swap their current notes for a combination of new debt and stock.

According to the letter released by the bondholders' financial advisors, the creditors are concerned GM may be headed for bankruptcy since the rebound in auto sales that the company is calling for in the turnaround plan it submitted to the government last month may not occur.

Without the government agreeing to give the bondholders some protections or more cash upfront, GM and Chrysler might not be able to restructure their debt in the manner called for in their turnaround plans. And without shedding debt, it will be difficult to win the necessary additional cost savings from the United Auto Workers that the union has already granted Ford Motor (F, Fortune 500).

Shelly Lombard, lead auto analyst for debt research firm Gimme Credit, said it will be tough for GM and Chrysler to get approved for additional loans if they are unable to get more concessions from the creditors and the union. And she said a deal with creditors is looking more and more unlikely.

Perhaps most troubling for GM and Chrysler though is the fact that President Obama said in an interview on "60 Minutes" Sunday that while he wants to help the companies stay out of bankruptcy, they have yet to prove that they can remain viable.

He acknowledged that, given the political uproar over bailouts in general, it may be difficult for his administration to agree to further help for the automakers while it is also fighting for a controversial bank rescue package that Obama said is his top economic priority.

"I just want to say the only thing less popular than putting money into banks is putting money into the auto industry," Obama said during the interview.

Still, the automakers remain hopeful, at least on the record, that the federal help they are seeking will be approved in time to avoid bankruptcy.

They point to the $5 billion bailout of the auto parts sector announced by the Treasury Department last week as a sign that the Obama administration is committed to saving the automakers -- even though a member of the government's auto industry task force cautioned reporters that help for GM and Chrysler was a separate issue from loans for the parts makers.

"I think you have to take it as a positive sign, as a commitment to help the industry like other countries are doing, and certainly a recognition of what the industry means for the country's economy and manufacturing sector," said GM spokesman Greg Martin.

GM and bondholders both said in their statements Sunday that they were open to additional talks. Other industry experts say the reluctance of bondholders to accept the demand to swap debt for stock is likely more of a negotiating stance than a final position.

"If it's something or nothing, they're going to take something," said Bob Schnorbus, chief economist for J.D. Power & Associates.

The member of Obama's auto industry task force, who spoke to reporters last week on the ground that his name not be used, said to expect some kind of announcement from Treasury about what's next for GM and Chrysler ahead of the March 31 deadline. But he cautioned that won't settle the issue.

"I don't expect what we say before March 31 will be the final word on this situation," he said. "It's very big, very complicated."

And that's why Schnorbus and others say they expect negotiations between the automakers, government, creditors and the UAW will well go beyond next Tuesday's deadline.

"I'm inclined to think they'll get just enough federal help to keep the lights on," Schnorbus said. "Treasury will give them a lifeline. But even with that, they'll still be a long way from safely being out of harm's way."

 

CNNMoney.com

 

 

WHO PAYS FOR THE BAILOUT

September 19th, 2008 

 

 

 

MORE BANKS THREATENED PER FDIC

Feb. 26ht, 2009

ABC News’ Daniel Arnall, Matt Jaffe and Charles Herman report: The Federal Deposit Insurance Corp. reports that commercial banks and savings institutions insured by the FDIC lost $26.2 billion in the fourth quarter of 2008, the first quarterly loss for FDIC-insured banks since 1990. For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990.

The FDIC said that 252 banks (3 percent of the banks it covers) are on its “watch list.” That’s an increase of 47 percent from the previous quarter. On average, about 13 percent of the banks on the watch list eventually fail.

The FDIC insurance fund -- money collected from banks to pay to insure your deposits should a bank fail -- was $18.9 billion as of Dec. 31, 2008, a drop of 45 percent in just 90 days.

"The unprecedented size was a result of large losses at a few institutions," FDIC chair Sheila Bair said today.

For the full year, the insurance fund fell by $33.5 billion, or 64 percent, because of more than $40 billion spent on bank closings. The fund is quickly being used, which is why the FDIC is expected to propose on Friday more than doubling the amount banks have to pay for the deposit insurance. Currently, it is 6.3 cents for every $100 insured. The proposed increase would be to 13.5 cents.

The FDIC also has a $30 billion direct line of credit with the Treasury Department. Recently the agency asked Congress to increase that line of credit to $100 billion. And if the fund were ever completely depleted, the FDIC has the support of the federal government.

Last year, 25 banks were shut down, the highest number since 1993. In just the first seven weeks of this year, 14 banks have been shut down.

One positive note: As people have pulled their money out of risky stock investments, it appears they are putting what money they do have in the bank. Literally. For all of 2008, total domestic deposits increased by 8.4 percent. And in the last three months of 2008, when the market was at its worst, total deposits increase by $307.9 billion, an increase of 3.8 percent, the fastest quarterly growth in nine years.

Commercial banks and saving institutions include everything from Citigroup, Bank of America and Wells Fargo. There are more than 8,305 of these institutions. As of Dec. 31, 2008, they had $13.8 trillion in assets (loans, etc.) and $9.0 trillion in deposits.

ABC.com