From: Lenny Organ [mailto:email@example.com]
Sent: May-02-09 6:54 PM
To: Harvey Organ
Subject: Hit this link
----- Original Message -----From: Harvey OrganTo: 'Lenny Organ'Sent: Saturday, May 02, 2009 6:18 PMSubject: RE: May 2.09 commentary.when did they raise the ceiling. I could not find it anywhere?
From: Lenny Organ [mailto:firstname.lastname@example.org]
Sent: May-02-09 3:45 PM
To: Harvey Organ
Subject: Re: May 2.09 commentary.The debt ceiling is 12.1 million dad----- Original Message -----From: Harvey OrganTo: aaron peters ; al Grennell ; alex vega ; andrew wright ; 'Angela Mann' ; Angela Mann ; anne ; email@example.com ; arluck ; 'Barry Fishman' ; firstname.lastname@example.org ; Ben Ackerman ; Ben Sauder ; bernard bain ; email@example.com ; BLOG ; bob goldenkrantz ; Bourne, Ernest ; brian foster ; bryan somerville ; camille rasminsky ; christopher crofoot the new entrepreneur ; cray ; Dani Organ ; dave smith ; david oatman ; david street ; David Varadi ; dawn ; denise abraham ; don jack ; 'Doug Sommerville' ; Dr Peter Aldor ; 'Dwight Fowler' ; e gawronski ; fred lorusso ; gary ; gary kay ; Gary Lovell ; firstname.lastname@example.org ; email@example.com ; Gregorio Velasco ; HCHC ; Heidi Brooks ; helen spork ; hera neal ; jeff mandlsohn ; jim chandler ; Joseph Rudolph ; KAREN GLANCY ; firstname.lastname@example.org ; Lenny Organ ; email@example.com ; manish maingi ; mark birta ; Mark Organ ; martin ramsay ; marv michaels ; marvin e cohen ; medi ; michael crema ; Michelle Dudzic ; mike moore ; firstname.lastname@example.org ; otto spork ; Paul Jaggard ; Petrus B. van Bork ; Richard Pollock ; robert ; email@example.com ; ron desio ; ron kaplan ; rudy ; firstname.lastname@example.org ; Shane Fowler ; Shirley Don'tbenosy ; Shirley Wong ; silver gold ; Skip Stephens ; Spiros Goussios ; stan tick ; 'Stepfan Mann' ; stephen silman ; email@example.com ; Steve Bruce ; stuart waldenberg ; firstname.lastname@example.org ; teresa ; tom ireland ; varouj ; email@example.comSent: Saturday, May 02, 2009 11:01 AMSubject: May 2.09 commentary.
Good morning Ladies and Gentlemen;
Gold closed down by 2.00 to 887.90. Silver rose 4 cents to 12.49.
Yesterday the commodities were on fire with copper rising 5 cents, oil up by 2.08 a barrel, and all the agriculture products up big time like wheat, sugar, coffee, orange juice etc.
The CRB index rose by a huge 6.65 points to 229.04
The big news yesterday was on the credit side of things. The 1 year treasury yield fell to .02% per annum. (government money is free for our bankers)
However the 10 yr treasury yield rose to 3.18% from 3.10% and the long bond price fell (yield rose) to 122.15 from 122.7 on Thursday.
If the bond price falls bellow 116 in the next week or so, you will see huge derivative problems at JPMorgan. Remember they are long the short term treasuries (at yields of .02% per annum) and long treasuries that have seen the bond price fall from 140 to around 122.00 today
The bond vigilantes are back and they are well aware of the huge amount of bond offerings coming up. They are also alarmed that we are approaching the debt ceiling:
Total Public Debt Outstanding
04/30/2009 6,930,824,942,975.56 4,307,767,198,983.08 11,238,592,141,958.64
The total federal debt is now 11.238 trillion. The debt ceiling is 11.3 trillion.
With respect to gold and silver, the OI on both metals continue to fall. The gold OI comex is 329000 and silver OI is 89200.
I think you can safely say that these contracts are in strong hands. It will be very difficult to shake the tree and force this longs to give up their possessions.
I find the following newsbit amusing:
DJ : US Treasury Sets 0% Rate For Series I Savings Bonds
And now for some economic news:
Consumer sentiment seems to have picked up:
US consumer sentiment soars in April-U.Mich survey
NEW YORK, May 1 (Reuters) - U.S. consumers felt more confident about the economy last month than at any time since the September failure of Lehman Brothers that pushed global banking to the brink of collapse, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence climbed to 65.1 in April
from 57.3 in March. That was the highest since September 2008 and the biggest one-month increase since October 2006.
The April reading also marked the first yearly increase since July 2007. Economists polled by Reuters expected a slightly lower final reading of 61.9 for April.
The index of current economic conditions rose to 68.3 last month from 63.3 in March, the best reading in four months. The index of consumer expectations climbed to 63.1 from 53.5, also the highest since September of 2008…
We also saw Libor rates fall to 1.00% which means that lending between banks is starting to thaw. It looks like the massive amount of dollars printed to alleviate their budgetary deficits are finding their way into the banks.
US factory orders also slowed their decline:
US factory sector shrinks more slowly in April-ISM
NEW YORK, May 1 (Reuters) - The U.S. factory sector shrank further in April but at a slower pace, suggesting some stabilization in the battered sector and the broader economy, according to an industry report released on Friday.
The Institute for Supply Management said its index of national factory activity rose to 40.1 in April from 36.3 in March. The median forecast among economists polled by Reuters was 38.0.
A reading below 50 indicates contraction in the manufacturing sector. ISM said the index has been below this threshold for 15 straight months.
10:00 Mar Factory Orders (0.9%) vs. consensus (0.6%)
Feb reading was revised to 0.7% from 1.8%.
However, Washington released this right after the ISM april report:
US factory orders fall in March, Feb revised down
WASHINGTON, May 1 (Reuters) - New orders received by U.S. factories declined in March, the seventh decrease in the last eight months, government data showed on Friday, signaling that the economic recession may be far from abating.
The Commerce Department said factory orders fell 0.9 percent in March after a revised rise of 0.7 percent in February. Initially, February's gain was reported as much higher, at 1.8 percent, which ignited hopes that the manufacturing sector and the economy might be on the mend.
Economists polled by Reuters had expected a much smaller decrease in factory orders of 0.6 percent.
Orders for non-defense capital goods excluding aircraft, considered a measure of business confidence, were up a slim 0.4 percent in March, after jumping 4.1 percent the month before.
I brought this to your attention Thursday night:
19:13 Bloomberg confirms Reuters report earlier today that the Fed will postpone the release of the stress tests - Bloomberg
Bloomberg, citing government and industry officials, reports that the results scheduled for a 4-May release, may not be revealed until the end of the week. Regulators and bank executives are reportedly concerned about how investors will react towards the stocks of the weaker banks. Reuters reported the potential delay earlier today, citing a source who said the the announcement was being considered for Wednesday, 6-May. End
Highly respected analyst Dick Bove comments on the banking crisis. Pay attention to what he says:
09:34 Rochdale analyst Dick Bove expects 150 mid-sized banks to fail by year-end (pre-open)
Commenting on the recent activity in the sector, Bove believes the stress test is a farce, and says that it has the ability to harm the financial system and the economy through an attempt to quantify the amount of capital that should be raised in the event that an unquantifiable scenario may happen. Bove believes forced mergers will result, with new regionals created in Florida, the Midwest and the Pacific Northwest. Bove believes the split of the chairman and CEO role at Bank of America (BAC) is a positive.
The man who rescued the banking crisis in Sweden says that he doubts if the usa rescue plan will work. Here is the article for you to read:
Swedish bank rescue expert doubts U.S. efforts will work
By David J. Lynch, USA TODAY
WASHINGTON — The acknowledged masters of bank rescues say the Obama administration plan for saving the U.S. banking industry may be doomed.
While the U.S. has funneled tens of billions of dollars to embattled banks such as Citigroup, Sweden temporarily took over two banks late last year and then sold them back to private investors at a roughly 50% profit three months later, says Swedish Finance Minister Anders Borg.
U.S. officials should confront the financial industry's political power and seize temporary ownership of troubled banks, Borg says. Otherwise, error-prone bankers will be bailed out at taxpayer expense.
"We can't let them get away with the fact that they've been reckless," Borg told a group of economists while attending the recent International Monetary Fund and World Bank meetings here.
During a crisis in the early 1990s, Sweden successfully rehabilitated its banking system via temporary nationalization. The government divided the industry into healthy banks and troubled institutions. It pumped capital into the healthy ones, while punishing their shareholders, and held onto the troubled assets until their values recovered.
Borg says that approach better protected taxpayers than the current U.S. strategy.
The Treasury Department's "public private investment program," unveiled last month, seeks to tempt private investors to buy toxic assets by protecting investors against heavy losses and giving them access to public funds. "Trying to create a phony market" will prove less effective than taking ownership stakes, Borg says.
The ponytailed Swedish finance chief, who quotes free-market guru Milton Friedman, suggests ideological blinders are hindering the U.S. "This is not about the market economy," he says. "We don't believe in the state running the banking sector."
Both the Bush and Obama administrations have rejected Swedish-style nationalization. In February, President Obama said that the complexity and number of U.S. banks, as well as the country's market traditions, made the Swedish plan inappropriate. "Sweden looks like a good model," Obama told ABC News. "Here's the problem: Sweden had, like, five banks. We've got thousands of banks."
Douglas Elliott, a former JPMorgan investment banker, says nationalization would be costly, difficult and perhaps unnecessary unless the economy gets much worse.
With some additional public money, and the continuation of recent strong profits, U.S. banks will rebuild their depleted capital base over time, says Elliott, now at the Brookings Institution.
Borg says trying the asset purchase plan first may only raise the cost of an eventual government takeover. "I'm not certain it will work," he says. "It might be the case you'll do the same as we."
This is the next blockbuster to rattle Wall Street: the total destruction of the commercial real estate sector:
Towering Vacancies: Office Market Hits the Skids
By Ellen Gibson Ellen Gibson Thu Apr 30, 8:08 am ET
When the housing market began collapsing across the developed world, commercial real estate remained a bastion for builders. But now the global recession is dragging it down, too. Central business districts that only a year ago were crowded with construction projects are emptying out as office tenants cut staff and operations. Building values are sinking, while delinquencies on securitized loans have tripled in the past six months.
The abrupt downturn in commercial real estate is punishing cities as varied as Detroit, Dallas, and Hartford, where downtown office vacancy rates top 20%. Unoccupied space is piling up quickly in San Antonio, Las Vegas, Charlotte, and San Jose. Outside the U.S., high-profile towers have been halted everywhere from Dubai to Santiago, Chile.
New York, though, may be the epicenter of the bust. The world's biggest office market, with roughly 350 million square feet of floor space, New York added 2.9 million square feet of vacant property in 2009's first quarter alone -- more than the entire Empire State Building. In that same period, calculates commercial real estate brokerage CB Richard Ellis (NYSE:CBG - News), rents slid 14.6% to an average of $57.35 per square foot, the largest quarterly drop on record…
Chrsyler reported the sales were off 48% this past month as nobody wished to buy their cars without a guarantee of a warranty.
On Thursday, Chrsyler filed for chapter 11.
I am going to give you my 2 cents on this reorganization: in a nutshell it will not work. Chryslers big cars will not be in sync. with the Fiat smaller cars.
I think that the entire company will have to be liquidated. Remember we still have to deal with all of those credit default swaps.
Anyway, here is the news on its sales:
Chrysler U.S. Sales Fall 48% as Toyota, Ford Trail Estimates
May 1 (Bloomberg) -- Chrysler LLC’s U.S. sales plunged 48 percent in April as the automaker slid toward bankruptcy, helping drag Toyota Motor Corp., Ford Motor Co. and Nissan Motor Co. to declines that exceeded analysts’ estimates.
General Motors Corp.’s 34 percent drop and Honda Motor Co.’s 25 percent decrease were smaller than projections. Ford slumped 32 percent, Toyota tumbled 42 percent and Nissan decreased 38 percent. Chrysler also fared worse than estimates.
The results mean that the U.S. market contracted for an 18th consecutive month, as a rebound in consumer confidence was tempered by Chrysler’s filing for court protection and the swine flu outbreak...
China is very aware on the huge amt of dollars that the usa needs to print. China is not buying very much of this debt. Here is a great article for you to read on the subject:
China has 'canceled US credit card': lawmaker
China has 'canceled US credit card': lawmakerAFP/Pool – Republican US Senator Mark Kirk from Illinois speaks during a press conference in Baghdad in 2006.
Thu Apr 30, 6:08 pm ET
WASHINGTON (AFP) – China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday.
China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.
But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.
"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.
"I'm not sure too many people on Capitol Hill realize that this is now happening," he said.
The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.
Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.
"There will come a time where the lack of Chinese participation may have a significant impact," Kirk said.
"We should track that, because up until last month they were the number one provider of currency to the United States and now they're gone."
With China's economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country's investments in the United States.
China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.
Bill Holter comments on the huge increase in paper money obligations:
The "never pay" model
To all; 6 weeks ago the Federal Reserve promised us a huge dose of monetizing Treasury debt. This was done to "pressure" interest rates downward in the hopes of helping the real estate market. It worked, for about 1 month. Now rates are starting to creep higher than they were when the Fed made this announcement. I believe they will soon skyrocket.
This plan to monetize debt was not a "pro active" move, it was reactive to the fact that the Treasury needs to borrow more capital than is, or can be, provided by the free market. I view this action as an exclamation point to the "never pay" model used by both the Fed and Treasury. You see, they never, ever, planned to pay or settle for anything they purchased. The purchases were made with pieces of paper, "promises to pay", but never settled. The Treasury promises to pay you with more pieces of paper when they borrow "with interest". The Fed promises us, they will provide more "promises", (pieces of paper) if they deem there is not enough floating around.
The bottom line is that the entire financial system worldwide has become one of "fraudulent finance" because it is based on a system that truly promises never to REALLY pay. The Dollar WAS accepted because it was redeemable in Gold, then in 1971, that tie was cut. In the early '70's, Henry Kissinger came up with the great idea to get the Arabs to price oil in, and accept for it's purchase, ONLY Dollars. This created a huge demand for Dollars that prolonged the Dollar's supremacy.
Now, the Arabs, Asians, Russians, Brazilians, etc., are all wising up at the same time, they now are wondering why they send real products and goods to the U.S. while accepting unbacked pieces of paper in return. This is the end of an era for sure. This is the end of the biggest con job ever promulgated or accepted in history. This was the plan ever since 1971, send paper for real goods and thus NEVER REALLY PAY. Because the fraud was so widely accepted on a such global basis, everyone worldwide is, and will pay dearly for the foolishness. Make no mistake, the plan was originally started with the idea, no, the goal, of never ever paying.
If you understand this concept, you have only one alternative, OPT OUT! Opt out of the failing paper system and store your wealth in metal. It is clear that Gold and Silver are horribly and completely manipulated as far as price is concerned. Anyone who believes this, or worse yet, speaks or writes of this, is branded a conspiracy nut. No matter, if you know the truth, you can protect yourselves and families once the lie is finally exposed. Gold's price has been suppressed for years and the Dollar has been supported and propped up, why you ask? Because the "ownership" of the free printing press is a very valuable asset as long as the public, the world, can be fooled into assessing value to something that has none. Something for nothing in other words, or the "never pay" model. THIS is why they want you to believe Dollar=good, Gold =bad.
Don't be fooled no matter what they do to the price of Gold, once the fiat grip is broken, those who have metal will have all the marbles. It makes no difference whether Gold goes "up" or "down" 100's or 1,000's of Dollars, in the end, as the Dollar approaches zero, Gold, coffee, oil, gas, rice, you name it, will approach infinity in Dollar terms. This is the definition of hyper inflation. We will never again in our lifetimes witness a pure unbacked fiat currency. The bad memories will take generations to go away, we will all be long gone before another fraud like this one can be hatched. Regards, Bill H.
On the silver delivery front, it looks like we will have over 25 milllion oz standing, a little more than I thought yesterday. Silver is still in front month backwardation.
At 10 o`clock last night the FDIC reported that two banks have failed. Early this morning, a third bank has been closed bringing the total this year to 32:
Three Banks Seized by Regulators, Pushing Year’s Total to 32
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By Margaret Chadbourn and Ari Levy
May 2 (Bloomberg) -- Regulators seized banks in Georgia, New Jersey and Utah yesterday, boosting the tally of failed lenders in the U.S. this year to 32 and tapping more than $1.4 billion from the federal government’s deposit-insurance fund.
Silverton Bank of Atlanta, a commercial bank, was shut by the Office of the Comptroller of the Currency. Citizens Community Bank of Ridgewood, New Jersey, and America West Bank of Layton, Utah, were seized by state regulators. The Federal Deposit Insurance Corp. was named receiver for all three. Silverton was the largest failure since Downey Financial Corp. was shut in November, costing the FDIC about $1.37 billion.
The FDIC’s deposit-insurance fund, supported by fees on insured banks, fell 45 percent to $18.9 billion in the fourth quarter after 25 banks closed in 2008 amid the worst financial crisis since the Great Depression. The U.S. economy contracted at a 6.1 percent annual rate from January through March, the weakest performance since 1957-1958.
Silverton Bank, which didn’t take consumer deposits, provided services to about 1,400 banks in 44 states, the FDIC said yesterday in a statement. The Washington-based regulator set up a bridge bank to take over the operations of Silverton, which had about $4.1 billion in assets and $3.3 billion in deposits. Taking over the bank will cost the insurance fund about $1.3 billion, the FDIC said.
“Silverton had significant loan losses which had eroded its capital position,” Pamela Farwig, an associate director in the FDIC’s division of resolution and receivership, said on a conference call yesterday. “They had a large volume of problem assets centered in acquisition development and construction loans.”
Citizens Community Bank had assets of $45.1 million and deposits of $43.7 million, the FDIC said in a statement. North Jersey Community Bank paid a premium of 0.67 percent to acquire all of the deposits. North Jersey will take over Citizens Community’s single banking office and plans to open it May 4.
America West’s three branches were assumed by Cache Valley Bank of Logan, Utah, which also bought the failed bank’s $284.1 million in deposits at a discount of $352,000. Of America West’s $299.4 million in assets, Cache Bank purchased about $10.9 million, with a 30-day option to buy loans at book value, the FDIC said.
The FDIC is forcing the banking industry to pay a one-time, emergency fee to prop up the insurance fund. FDIC Chairman Sheila Bair said she may trim the assessment if Congress increases the agency’s authority to borrow from the U.S. Treasury.
Senate Banking Chairman Christopher Dodd, a Connecticut Democrat, introduced a bill this week that would raise the borrowing authority to $100 billion and temporarily increase it to $500 billion through 2010. The House of Representatives already passed a measure that would more than triple the FDIC’s credit line from $30 billion and permanently raise the deposit- insurance limit to $250,000 per depositor per bank, from $100,000.
FDIC-insured banks lost $32.1 billion from October through December, the first aggregate quarterly loss since 1990. The agency insures deposits at 8,305 institutions with $13.9 trillion in assets.
Last Updated: May 2, 2009 00:01
We have no word on the Utah bank. However the Silverton bank failure is very troubling to the Federal Reserve. Silverton is a national bank and services over 40 banks in the southwest. This may cause a huge domino effect. I will follow this story.
And this from Bloomberg;
Stress Test May Push 14 Banks to Raise Money, FBR’s Miller Says
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By Christine Harper
May 2 (Bloomberg) -- U.S. Regulators may compel as many as 14 of the nation’s 19 largest banks to raise common equity based on financial stress tests due to be completed next week, said Paul Miller, an analyst at FBR Capital Markets Corp.
Miller, a former bank examiner, said his estimate assumes regulators will require banks to maintain tangible common equity, one of the most conservative measures of capital, equal to 4 percent of their risk-weighted assets over the next two years, to withstand losses in case the recession worsens. The tests, originally scheduled for release on May 4, are set to be disclosed after U.S. markets close on May 7, according to a government official who spoke on condition of anonymity.
Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and the 16 other banks received preliminary results last week and have been debating the findings with regulators. Officials favor tangible common equity of about 4 percent of a bank’s assets and so-called Tier 1 capital worth about 6 percent, people familiar with the tests say. Tangible common equity, or TCE, is a gauge of financial strength that excludes intangibles such as trademarks that can’t be used to make payments. Tier 1 capital is a broader measure monitored by regulators.
“When you start talking about 4 percent on risk-weighted assets based on the stress test two years out, most banks will be required to raise more capital,” Miller said in an interview yesterday. “I believe it will be as high as 14.” He declined to name them.
Citigroup, which has already taken $45 billion in U.S. taxpayer funds to shore up its finances, may need to raise as much as $10 billion in new capital, the Wall Street Journal reported today, citing people familiar with the matter. Jon Diat, a spokesman for the New York-based bank, declined to comment.
Trone Picks Four
Miller, 47, is a former examiner for the Federal Reserve Bank of Philadelphia and was the top-ranked stock picker among bearish analysts evaluated by Bloomberg Markets magazine last year. He’s based in Arlington, Virginia.
Miller’s views aren’t shared by all of his peers. David Trone, who covers 13 of the 19 lenders at Fox-Pitt Kelton Cochran Caronia Waller in New York, said his math shows that only four of the banks he focuses on will need more capital because of the stress test. Trone’s team upgraded the U.S. banks to “marketweight” from “underweight” this week.
The four are Regions Financial Corp., SunTrust Banks Inc., PNC Financial Services Group Inc. and Wells Fargo & Co., Trone said. He estimates that PNC Financial needs $1.9 billion, Regions Financial requires $1 billion and Wells Fargo has to line up $1.5 billion. SunTrust needs $400 million, he said.
Government’s Preferred Stock
He added that, while his calculations don’t show a need for Citigroup and Bank of America to increase common equity, it’s possible the government is using different assumptions and will require them to do so.
Miller and his team expect the banks will be encouraged to convert preferred stock held by private investors into common stock before converting preferred stock purchased by the government as part of the Troubled Asset Relief Program.
It’s possible the government will forfeit dividends on its preferred stock to enable the banks to suspend payouts on trust preferred securities, known as TRUPS, that are held by private investors and encourage those investors to convert into common stock as well, Miller said.
“You couldn’t pay the TARP dividend and cut the TRUP dividend, you’d have to cut them both, so the government could do that, the government could allow that to happen,” he said. “And frankly we’ve argued that you’re bleeding capital away from these banks that need it by making the banks pay these dividends and that they should waive all these dividends.”
By contrast, Trone said he doesn’t think the government should encourage the banks to exchange privately owned preferred stock and dilute common shareholders in anticipation of potential future losses.
Instead he said the government should help the banks that may need more common equity by converting the government’s preferred stock into a new class of so-called convertible preferred securities, which could be turned into common stock as required.
“Converts could provide you contingent common in the amount needed,” Trone said. “A lot of these companies could end up doing better than we expect. This is supposed to be the worst-case scenario.”
The banks in the tests hold two-thirds of the assets and more than one-half of the loans in the U.S. banking system, according to a Fed study released April 24.
The delay in releasing the stress-test information follows an internal debate among regulators about how best to reveal to markets the health of the biggest banks, which is usually reserved for bank examiners.
The government will disclose both aggregate information about the capital buffer required to absorb losses if the recession worsens and firm-specific details, the government official said yesterday. The details may help investors distinguish strong from weak banks, leaving the latter to turn to the government for capital.
Here is a newspaper account of the Silverton collapse and its implications:
MAY 2, 2009
Key Cog in South, Silverton Bank Fails
By DAMIAN PALETTA and DAN FITZPATRICK
ATLANTA -- Federal regulators shuttered Silverton Bank in Atlanta on Friday and the much smaller Citizens Community Bank in Ridgewood, N.J., bringing the total count of banks closed in the U.S. this year to 31.
Regulators are trying to limit the Silverton closure's impact on 1,400 banks it did business with throughout the U.S.
Banks That Went Bust
Review the details on the banks that have been shut down by federal regulators since the start of 2008.
The Federal Deposit Insurance Corp. estimated the Atlanta bank's failure would cost its deposit insurance fund $1.3 billion. Silverton's condition was so poor that the FDIC couldn't find a buyer.
With $4.1 billion in assets, Silverton is the fifth-largest bank to fail since the financial crisis intensified in 2008. The bank provides services to one of every five banks in the country, and its customers, depositors and investors are all banks. It didn't take deposits from the general public or make loans to consumers.
The FDIC said loan losses caused Silverton's failure, as charge-offs for bad loans went from $4 million in 2007 to $69 million in 2008.
Walt Moeling, Silverton's counsel and an attorney with Bryan Cave LLP in Atlanta, said problems tie back to Silverton's exposure to the Southeast and Georgia, not its recent expansion across the country into many business lines: "If their core business had stayed strong they wouldn't have failed."
Some Georgia bankers argued to FDIC officials that the bank was "too big to fail" because its collapse could take down at least eight to 12 others.
Now There Are 31
Silverton Bank's failure, and one by a smaller New Jersey bank, bring total failures to 31 in 2009:
Roughly 400 banks are investors in Silverton, and it clears payments and participates in loans with 1,000-plus lenders. The FDIC created a bridge bank, Silverton Bridge Bank, to manage Silverton. Bridge banks are used rarely and typically only occur when a government decides a bank's collapse would be too disruptive. Federal regulators were "not sympathetic" to the argument that a Silverton failure had to be averted, Mr. Moeling said. "The argument tends to be that 'You guys got yourself into this mess, don't look for us to come fix it. Don't look for us to bail you out, because you are not Citigroup.'"
Banks that invested in Silverton will likely incur a loss, FDIC officials said. But regulators played down the possibility that the failure would cause major problems for shareholder banks. The typical bank's Silverton exposure is "very small" when compared with its overall investment portfolio, said Pam Farwig, associate director of the FDIC's division of resolutions and receivership.
Banks also stand to lose money on loan participations arranged by Silverton that allowed smaller banks to team up on large multimillion-dollar hotel and real-estate deals, many backed by poor-performing residential real estate. The FDIC will attempt to sell those packages for cents on the dollar, Mr. Moeling said. Also, banks with holding company loans from Silverton may have to scramble to replenish these funds, said Christopher Marinac of FIG Partners in Atlanta.
Federal regulators worried about how to handle the bank's collapse because Silverton is so interconnected in the Southeast. Chartered in 1984, Silverton used to be known as the Bankers Bank until several years ago.
Write to Damian Paletta at firstname.lastname@example.org and Dan Fitzpatrick at email@example.com
I think you have enough to read.
Speak to you on Monday.