Whoa… Didn’t See THAT Coming!
Andy Miller, the pro whom we lean on to help keep us in the know about what’s really going on behind the scenes in commercial real estate, tossed the following into an email yesterday. While you, too, may have seen it already, it’s well worth a second look and a little reflection.
Oct. 1 (Bloomberg) -- There was a stunning omission from the government's latest list of "problem" banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.
It failed last week.
Georgian's clean-up will be unusually costly. The book value of Georgian's assets was $2 billion as of July 24, about the same as the bank's deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank's assets. That percentage was almost double the average for this year's 95 U.S. bank failures, and it was the highest among the 10 largest ones.
What this latest failure reveals is that (a) whatever methodology the regulators are using in their bank reviews, it is disastrously flawed; (b) without mark-to-market accounting, the nature and scale of what actually lurks in the loan portfolios of banks is unknown and unknowable.
Further, (c) the percentage loss suffered should send shudders down the spine of any reasonable observer; the stuff Georgian Bank was holding on its books wasn’t just bad, it was radioactive toxic. There’s more, including (d) the FDIC is now bankrupt, and the $46 billion it hopes to raise by having its member banks pony up their dues for three years in advance is not likely to last out 2010. Then what? I’ll tell you what… all further bills will be forwarded straight on to U.S. taxpayers.
And finally, (e) if this bank, previously considered untroubled by the FDIC, can keel over from a heart attack (perhaps from working 80-hour weeks, supported by gallons of strong coffee?), how many other institutions are in the same position?
Wish we knew. Unfortunately, due to the dumping of mark-to-market accounting standards, we have no idea. And, apparently, neither does the FDIC.
Andy Miller, the pro whom we lean on to help keep us in the know about what’s really going on behind the scenes in commercial real estate, tossed the following into an email yesterday. While you, too, may have seen it already, it’s well worth a second look and a little reflection.
Oct. 1 (Bloomberg) -- There was a stunning omission from the government's latest list of "problem" banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.
It failed last week.
Georgian's clean-up will be unusually costly. The book value of Georgian's assets was $2 billion as of July 24, about the same as the bank's deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank's assets. That percentage was almost double the average for this year's 95 U.S. bank failures, and it was the highest among the 10 largest ones.
What this latest failure reveals is that (a) whatever methodology the regulators are using in their bank reviews, it is disastrously flawed; (b) without mark-to-market accounting, the nature and scale of what actually lurks in the loan portfolios of banks is unknown and unknowable.
Further, (c) the percentage loss suffered should send shudders down the spine of any reasonable observer; the stuff Georgian Bank was holding on its books wasn’t just bad, it was radioactive toxic. There’s more, including (d) the FDIC is now bankrupt, and the $46 billion it hopes to raise by having its member banks pony up their dues for three years in advance is not likely to last out 2010. Then what? I’ll tell you what… all further bills will be forwarded straight on to U.S. taxpayers.
And finally, (e) if this bank, previously considered untroubled by the FDIC, can keel over from a heart attack (perhaps from working 80-hour weeks, supported by gallons of strong coffee?), how many other institutions are in the same position?
Wish we knew. Unfortunately, due to the dumping of mark-to-market accounting standards, we have no idea. And, apparently, neither does the FDIC.
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