12 Down…How

Many more to Go? And the FDIC pulls a Fast one on the First Regional’s

Retirees…

It’s just

one month into 2010, and the FDIC has already seized 12 banks –

the ultimate and embarrassing result of insolvency. Multiply that

out by 12, and it would appear, on the surface, that the FDIC is

on track to close about 144 banks this year.

In 2009, the

FDIC closed a total of 140 banks. With the second wave of subprime

and Alt-A mortgages set to hit in the later half of 2010, I’d

expect a ramp-up in the number of banks that need to be seized…and

my

colleagues are expecting something much more sinister might be underway…

Already, I’ve

compiled a list of the top 108 banks likely to fail this year. What

makes them likely? They’ve all got Texas Ratios above 100.

It sounds scary, but you won’t truly be frightened until you

understand exactly what that means…

A full-fledged

collapse in real estate occurred in Texas in 1980, as the high oil

prices of the 1970’s drove up land values. A team of analysts

at RBC Capital Markets, lead by Gerard Cassidy came up with a simple

equation to determine a bank’s solvency, becoming this mysterious

Texas Ratio.

The math is

understandable. Simply divide the value of the lender’s non-performing

assets (i.e., bad loans) by the total outstanding equity and loss

reserves. When the ratio is at 1, the bank is insolvent.

February

12, 2010