Another Late Day Bank Closure

The closing of Pinnacle Bank up in Beaverton, Oregon brings today's total to 4.

Really small bank, $73 million in total assets, estimated loss to the FDIC is $12.1 million.

Failure Friday: Another 3 Bite the Dust

The FDIC seems reluctant to close more than 3 banks per Friday. At this rate, I think that they will be closing banks for another 14 months.

Please click on the tables to expand.

Obama's Bare Cabinet

2/12/09 - New Hampshire Governor Mr. Judd Gregg withdraws his name from consideration for the post of Secretary of Commerce (does anybody want this job?). Fun Fact: Gregg won $850,000 in 2005, he bought $20 in PowerBall lottery tickets

2/3/09 - U.S. Senator (South Dakota) Mr. Thomas Daschle withdraws his name from consideration for the post of Secretary of the Department of Health & Human Services. Fun Fact: Aside from not liking to report income to the Internal Revenue Service, he became the nation's 1,776th senator when he was first elected in 1986.

2/3/09 - McKinsey & Co. partner Ms. Nancy Killefer withdraws her name from consideration for the post of Chief Performance Officer. Fun Fact: Aside from not liking to pay state unemployment tax, she was once a member of the IRS Oversight Board.

1/4/09 - New Mexico Governor Mr. William Richardson withdraws his name form consideration for the post of Secretary of Commerce. Fun Fact: Aside from allegedly handing out state contracts to those who donate to his political campaigns, he supported a state ban on cockfighting. In 2007, New Mexico became the 49th state to ban the contests (Louisiana followed in 2008).

Note: Despite failing to pay over $30,000 in federal taxes, Mr. Timothy Geithner was confirmed as the 75th Secretary of the Treasury. Fun Fact: Aside from not abiding by the rules set forth by the Department of the Treasury, he worked for Kissinger & Associates for 3 years and is a member of the Council on Foreign Relations.

Bankruptcy Review: YIKES !!!

Bankruptcy news abound today:

Filing - Charter Communications: majority owner is Paul Allen of Microsoft fame

Filing - Midway Games: famous for Mortal Kombat

Rumor - Sirius XM Satellite Radio considering filing: home of Howard Stern & Oprah

Update - Lyondell CDS/LCDS results from last week: 15.5 cents & 20.75 cents respectively (Lyondell debt is only worth 15.5 cents on the dollar or 20.75 cents on the dollar, depending on the type of borrowing)

There are 2 charts above, please click to expand.

Another Voice of Reason

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoc1E2sKjADk&refer=home

“The history of bubbles clearly shows that the significant consolidation of the financial sector is inevitable,” the strategist wrote. “The latest Treasury program is simply another attempt to stymie the consolidation process.”

This analyst is right on target.

Primary Dealer Holdings: Interesting Stuff

First, the list of primary dealers (those authorized to trade directly with the Federal Reserve):

BNP Paribas Securities Corp.		Goldman, Sachs & Co.
Banc of America Securities LLC*		Greenwich Capital Markets, Inc.
Barclays Capital Inc.		HSBC Securities (USA) Inc.
Cantor Fitzgerald & Co.		J. P. Morgan Securities Inc.
Citigroup Global Markets Inc.		Merrill Lynch Government Securities Inc.*
Credit Suisse Securities (USA) LLC		Mizuho Securities USA Inc.
Daiwa Securities America Inc.		Morgan Stanley & Co. Incorporated
Deutsche Bank Securities Inc.		UBS Securities LLC.
Dresdner Kleinwort Securities LLC
*It is anticipated that the two primary dealers will merge sometime in the first quarter of 2009. The below graph highlights the dramatic change in risk profile for these dealers.  They have abandoned corporate debt, making it difficult for businesses to refinance and keep workers employed.  Their appetite for insured product has stabilized.  The most interesting component is the Treasury position.  Often, a dealer will hedge overall interest rate risk of a bond they are long by shorting a Treasury issue.  This protects the dealer against overall increases in interest rates.  Of course, the dealer is still subject to the credit risk component of the bond they are long. Basically, dealers are now flat Treasuries, implying that they are betting that the overall direction of rates will be lower.  Perhaps they became tired of losing on these short positions as Treasuries rallied because of the poor economic scenario.  Either way, they are quite vulnerable to rates moving higher.  Unintended consequences indeed.

Fun With Numbers

Please click on the above table to expand.

- The stock market capitalization of the 4 largest bank holding companies totals about $214 billion

- The stock market capitalization of Google, Inc. is $113 billion

- The KBW Bank Index closed at 26.74 today

- The last time the Index traded around that level was January, 1995

I Must Give the Markets Some Credit...

The equity market shed about 4% today based on the milquetoast presentation from our new Secretary of the Treasury. Geithner's plan lacks clarity, vision and the tolerance for pain that the true solution requires, the solution being nationalization of the banking system.

It really is this simple: the banking system borrowed lots o' money and lost its bet. if a bank is levered 10 to 1, a 10% loan loss will cause it to collapse. Several institutions were levered 20 to 1, even 40 to 1. All that is left is to do the math. CDOs mimicked this levered profile in a nice, neat package for other types of accounts to buy.

The destruction of credit is painful, but the only cure. Bailing banks out only promotes retrenchment. Think about real GDP back at the year 2000 levels before any type of credit equilibrium is attained.

The fact that the government wants to foolishly maintain any stock market capitalization for these companies is a farce. Shareholders were the ones who reaped the outsized rewards, they should be the ones to suffer the pain. The taxpayer is the lone sucker in this, stuck with the bills.

This is eerily similar to the strategy that Japan followed years ago. They waited about 5 years before they finally gave in and forced banks to merge en masse or fold. Those 5 years cost their economy 20 years worth of expansion.

Late Night Bank Closing

One more: County Bank in Merced, CA was closed yesterday.  It was on the bad bank list.

The FDIC estimates that it will drain the Deposit Insurance Fund by $135 million.

Can They Do It?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.yAFsg.Y5kU


In private conversations and blog posts, I've mentioned execution risk. It is not enough to have a good plan (not that the government has that or anything), implementation is just as important.

2 More Banks Take a Powder

Alliance Bank (Culver City, CA) and FirstBank Financial Services (McDonough, GA) were shuttered by the FDIC today. The 2009 total is now 8 closed banks. Both institutions were on the bad bank list.

Earlier this week, the Chief Operating Officer of the FDIC mentioned these tidbits:

- TLGP backed debt totaled $221 billion as of 1/28/09

- the FDIC suggested increasing its credit line with the Treasury Department to $100 billion (from the current $30 billion)

- FDIC losses will "probably be higher" than the $40 billion estimate from last Autumn

http://www.fdic.gov/news/news/speeches/chairman/spfeb0309.html

News Links

http://www.bloomberg.com/apps/news?pid=20601208&sid=aTDor5YnbmQM&refer=finance

TARP...Lookin' Real Good


http://www.cbpp.org/9-8-08sfp.htm

Watch Your Muni Portfolio


http://www.dailybusinessreview.com/Web_Blog_Stories/2009/Feb/Cmmrcial_foreclosre.html

Commercial Real Estate Woes

More Unemployed Than Estimated

The Bureau of Labor Statistics released their monthly job situation report today: 598,000 were lost in January and the unemployment rate climbed to 7.6%. This was the largest number of jobs lost in a single month since 1974 and the highest unemployment rate since 1992.

In addition, the BLS massively revised the number of job losses in 2008. Including the most recent report, 3.57 million jobs have been lost since the beginning of 2008. This number would have been closer to 3.2 million without the revisions. The BLS and ADP reports now have a tighter correlation.

Jobs Data Continues to Cause Concern

ADP released their estimate for private employment yesterday: 522,000 jobs lost in January. They revised their December estimate to a loss of 659,000 jobs from a loss of 693,000 jobs. This points to a loss of about 500,000 jobs in tomorrow's BLS report. Economists are estimating a loss of 540,000.

Weekly jobless claims were released today and provide every reason to think that the unemployment rate will soon climb to the 9% - 10% range. 626,000 initial claims were filed and continuing claims stood at 4,788,000.

These numbers are at almost 30 year highs both on an absolute and relative basis.

Fed's "Balance" Sheet: I Don't Feel So Good

From the Federal Reserve statistical release H.4.1 (1/29/09):

-- The Federal Reserve System holds $47.37 in assets for each dollar of capital

-- Their holdings of U.S. Treasury securities have decreased by $243 billion in 1 year

-- Term auction credit totaled $415 billion

-- Commercial Paper Funding Facility has provided $248 billion in liquidity

-- Deposits from depository institutions (The Fed's liability) totaled $740 billion, a $702 billion increase from a year ago

Let's not forget the assets that the Fed is carrying on their balance sheet that resulted form the Bear Stearns deal and AIG deal: $47 billion in securities that are basically impossible to price.

Those assets are the ones that are particularly dangerous to the Fed, they only have $41 billion in capital.