Bank Failures

Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.

The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.

When TARP was created in the heat of the financial crisis, government officials said it would help only healthy banks. The depth of today's problems for some of the institutions, however, suggests that a number of them were in parlous shape from the beginning.

Seven TARP recipients have already failed, resulting in more than $2.7 billion in lost TARP funds. Most of the troubled TARP recipients are small, plagued by wayward lending programs from which they might not recover. The median size of the 98 banks was $439 million in assets as of Sept. 30. The median TARP infusion for each was $10 million, federal filings show.

[See Banks Face Another Mortgage Crisis]

"We certainly understand and recognize that some of the smaller institutions are experiencing stress," said David Miller, chief investment officer at the Treasury Department's Office of Financial Stability, which runs TARP. He noted that Congress mandated that banks of all sizes be eligible for TARP, adding that the government's TARP investment as a whole is performing well.

Chris Cole, senior regulatory counsel at the Independent Community Bankers of America, a trade group, said small banks are "turning around slowly." Smaller TARP recipients are in worse shape than larger banks because the larger ones got help in addition to TARP, Mr. Cole said. Bank of America Corp. and Citigroup Inc. tapped the Federal Reserve's emergency-liquidity programs frequently during the crisis.

The troubled banks identified by the Journal all have either a Tier 1 capital ratio under the "well-capitalized" 6% level; both a total risk-based capital ratio of under the "well-capitalized" 10% threshold and nonperforming loans of over 10% of their portfolio; or a regulatory order requiring the bank to monitor or boost its capital.

A Federal Deposit Insurance Corp. spokesman declined to comment on the Journal's analysis, which also calculated that 814 of the nation's 7,760 banks and savings institutions are troubled according to these standards, up from 729 at the end of the second quarter. The FDIC's official list of problem banks, which uses different criteria from the Journal's analysis, includes 860 financial institutions. The banks aren't publicly identified.

In October, the Government Accountability Office said 78 banks on the FDIC's troubled-bank list as of June 30 were TARP recipients, up from 47 at the end of 2009. Dozens of TARP banks were "marginal institutions" that were financially weaker than other recipients and should have gotten more scrutiny before receiving taxpayer-funded infusions, the GAO said.

In a response to the GAO report, the Treasury Department said it would consider the GAO's recommendations to improve its funding process if it ever has a program similar to TARP again.

In comparison, the first eight banks and securities firms receiving TARP got a total of $125 billion. All have repaid the funds

Arthur Wilmarth, a George Washington University law professor and expert on banking regulation, said a lot of smaller TARP recipients are burdened with risky commercial-real-estate loans tied up in troubled strip malls and the like, and that makes it hard for them to raise new capital. "A lot of them are in kind of a frozen position," he said.

One example of a TARP recipient in deep trouble: closely held Legacy Bank of Milwaukee. The bank had $205 million in assets as of Sept. 30 and got $5.5 million in TARP funds in January 2009. But more than half of Legacy's loans were in commercial real estate, and its nonperforming loans have escalated to 23% of its portfolio. It has posted eight straight quarterly losses, for a total loss of $11.6 million.

Last month, the Federal Reserve declared Legacy "significantly undercapitalized," giving the bank until mid-January to either sell itself or raise more capital.

José Mantilla, Legacy's president and chief executive, said the bank lends to an underserved, lower-income customer base. During the recession, those customers "have suffered, and they have fallen behind," Mr. Mantilla said.

Legacy is working to raise capital, and "we still feel optimistic" about the bank's chances, he said.

CommunityOne Bank of Asheboro, N.C., got $51.5 million in TARP funds in February 2009 through parent FNB United Corp. (NasdaqGS: FNBN - News) The company has suffered nine straight quarterly losses, sapping its capital. In July, the Office of the Comptroller of the Currency said the bank had engaged in "unsafe or unsound banking practices."

[See Banks Got the Goldmine, Consumers Got the Shaft]

R. Larry Campbell, the bank's interim president and chief executive, said CommunityOne is "fully engaged" in efforts to boost its capital.

How the Journal Compiled Its List

The Journal's list of troubled banks consists of all banks that met at least one of these criteria based on the most recent available data:

• Tier 1 capital—a measure of a bank's most reliable and liquid capital—of less than 6% of risk-weighted assets, the level regulators require for a bank to be considered "well-capitalized."

• Both total risk-based capital of less than 10% of risk-weighted assets—the "well-capitalized" level for that measure—and non-performing loans of at least 10% of total loans. That suggests a bank may have a potential drain on capital without the resources to cope with it.

• An enforcement order from regulators, issued since the 2007 beginning of the financial crisis, requiring the bank to monitor or boost its capital levels—suggesting regulators are already concerned about a bank.

Well over 90% of the banks that have failed since the beginning of the financial crisis met at least one of these three criteria. Banks that trip all the criteria may be at highest risk: Of those that have done so at any time during the past 18 months, more than 60% have since failed.

SNL Financial, a financial-information firm, assisted the Journal with the data screening; the Journal is responsible for the methodology and analysis.

The Journal's methodology differs from bank regulators' method of coming up with their official problem bank list, which is based on banks' low ratings from examiners on the so-called CAMELS scale—capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.

Hoovering

Note we have been hoovering around the 1.618 area mentioned a week ago. Nothing is going on here and it is the worst I have seen it is a long time. A lot of noise around that funds are barely surviving and traders who in the past were racking up huge bonuses will be lucky if they get any this year.
Most have already taken holiday vacations starting last friday so I really don't expect anything to happen over the next 2-3 weeks when most are back.

Watching

Watching this area still remember 1243 is the bottom range of my target. 1.618 target on the fib is 1260 which I think will happen especially with the usual holiday manipulation.
Volume is light and most traders and funds are done training for the year.

Europe and US similarities

The United States' financial situation is as dire as that of many European countries, yet the US Government's actions contrast sharply with the austerity measures of European governments. In the last few weeks, the Federal Reserve boosted its quantitative easing program by $600 billion and Chairman Bernanke said that he was willing to increase bond purchases even further. In addition, the White House proposed an extension of the Bush tax cuts and unemployment benefits, and a reduction in payroll taxes. Although US politicians continue to ignore the US fiscal situation, the bond market, as seen by the recent declines in bond prices, may be reacting negatively toward the free-spending ways of the Government.

This country's deficit problem is widely known. In fact, during the press conference announcing the bi-partisan agreement for extending the Bush tax cuts, Obama questioned, "...how are we going to pay for all that at a time when we've got both short-term deficit problems, medium-term deficit problems, and long-term deficit problems? Now, that's going to be a big debate." Despite acknowledging the problem, Obama and the GOP decided to move forward with the proposal. This policy decision, made in the face of mounting deficits, is similar to policy mistakes made by many European countries which, prior to their debt crises, chose not to address deficit issues. However, politicians can only ignore deficits for as long as the bond market ignores deficits. Time may be running out.
Chairman Bernanke's objective in pursuing quantitative easing is to keep interest rates low based on his view that low interest rates are necessary for stimulating the economy, especially the housing sector. However, with Treasury bond prices falling, bond vigilantes are proving to be a force greater than the Federal Reserve, exacerbating the very problems that Bernanke is trying to fix.

Although financial markets are penalizing European countries with excessive budget deficits and US politicians are speaking candidly about the US deficit problem, the US continues to take actions that make the deficit worse. Despite the ECB and IMF supporting peripheral European countries' bond prices, interest rates have continued to rise and thus pressure the entire region's economy. Additionally, in order for countries to obtain the required bailout funding they are being forced to slash spending and raise taxes. While the US government still has complete access to market funding, the bond market will ultimately force the US to replace its current stimulative measures with austerity measures similar to those being introduced in Europe.

Areas to watch

I am back but this cold weather has gotten me sick. Rrrggg hate this time of year I am always sick.
Anyways current upside target range in the market is 1243- 1286. I will assume any trade in the upper area of this level will trigger some sizeable selling. Also it should be noted that we have small divergences setting up and these area I would take profits if you are long.

Gold has taken a slight pullback but I think it still goes higher. Anyone seen silver, that's what you call a lagging play!!

Still away but!!! Bingo

Bingo Bingo Bingo on those areas to watch as we bounced hard off them. That's how it goes, you got to use support points and buy and sell at resistance. 9 out of 10 time it will yield a nice play.

Still traveling be back soon