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Bailed-out banks slip toward failure
Number of Shaky Lenders Rises to 98 as Bad Loans Pile Up; Smaller Institutions Hit Hardest
By Michael Rapoport
The Wall Street Journal
Sunday, December 26, 2010
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.
... Dispatch continues below ...
Prophecy Receives Permit To Mine at Ulaan Ovoo in Mongolia
VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY, OTCQX: PRPCF, Frankfurt: 1P2) announces that on November 9, 2010, it received the final permit to commence mining operations at its Ulaan Ovoo coal project in Mongolia. Prophecy is one of few international mining companies to achieve such a milestone. The mine is production-ready, with a mine opening ceremony scheduled for November 20.
Prophecy CEO John Lee said: "I thank the government of Mongolia for the expeditious way this permit was issued. The opening of Ulaan Ovoo is a testament to the industrious and skilled workforce in Mongolia. Prophecy directly and indirectly (through Leighton Asia) employs more than 65 competent Mongolian nationals and four expatriots. The company also reaffirms its commitment to deliver coal to the local Edernet and Darkhan power plants in Mongolia."
The Ulaan Ovoo open pit mine is 10 kilometers from the Russian border and within 120km of the Nauski TransSiberian railway station, enabling transportation of coal to Russia and its eastern seaports. Thermal coal prices are trading at two-year highs at Russian seaports due to strong demand from Asian economies.
For the complete press release, please visit:
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.
"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. 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."
R. Larry Campbell, the bank's interim president and chief executive, said CommunityOne is "fully engaged" in efforts to boost its capital.
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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property
Company Press Release, October 27, 2010
VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:
-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.
-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.
-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.
Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface. "The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."
For the company's full press release, please visit:
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