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.
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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
