Problem bank list climbs to 829

U.S. bank failures total 108 after 5 shut on Friday

(Reuters) - U.S. bank failures reached 108 so far in 2010 on Friday as regulators seized five small banks in the Pacific Northwest and the Southeast, none publicly traded.

Bank failures are expected to peak this quarter, with the industry slowly recovering from large portfolios of bad loans, many tied to commercial real estate.

The banks seized on Friday were Liberty BankOregon; The Cowlitz Bank of Longview, Washington; Coastal Community Bank of Panama City Beach, Florida; Northwest Bank & Trust of Acworth, Georgia; and Bayside Savings Bank of Port Saint Joe, Florida, according to the Federal Deposit Insurance Corp.

The five banks would cost the agency's deposit insurance fund about $335 million, the FDIC said.

The largest of the five banks was LibertyBank with 15 branches and about $768.2 million in total assets and $718.5 million in total deposits. The smallest was Bayside Savings Bank with just two branches and $66.1 million in total assets and $52.4 million in deposits.

Although failures are still occurring at a rapid pace, it is mostly smaller institutions that have been collapsing recently.
The biggest bank failure of the crisis was Washington Mutual, which had $307 billion in assets when it was seized in September 2008.
The annual level of bank failures has not reached the levels during the savings and loan crisis, when 534 institutions were seized in 1989 alone.


In the current crisis, the problems dogging the banking industry have migrated from home mortgages to commercial real estate, especially for community banks that tend to have higher concentrations of commercial real estate loans.

Regulators have not publicly revealed estimates of how many bank failures are still to come, but the FDIC has said it expects the cost to hit $60 billion from 2010 through 2014.

More troubled Banks on the Rise

By ALAN ZIBEL

WASHINGTON (AP) - The government says the number of troubled banks kept growing last quarter even as the industry as a whole had its best quarter in two years.
The Federal Deposit Insurance Corp. says the number of banks on its confidential "problem" list leaped to 775 from 702 in the January-March period.

Federal Reserve Board amends Reg Z new rules take effect on October 1, 2009

Release Date: July 14, 2008
Anthony Landaeta
Posted 07/14/2008
The Federal Reserve Board on Monday approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.
The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.
"The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Federal Reserve Chairman Ben S. Bernanke. "Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers," the Chairman said.
The final rule adds four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. For loans in this category, these protections will:
Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
Require creditors to verify the income and assets they rely upon to determine repayment ability.
Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.
"These changes have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system," said Governor Randall S. Kroszner.
In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced:
Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.
For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.
The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.
One element of the original proposal has been withdrawn. The Federal Reserve Board had proposed for public comment certain requirements pertaining to so-called "yield-spread premiums." During the intervening period, the Board engaged in consumer testing that cast significant doubt on the effectiveness of the proposed rule. As part of its ongoing review of closed-end loan rules under Regulation Z, however, the Board will consider alternative approaches.
In finalizing the rule, the Board carefully considered information obtained from testimony, public hearings, consumer testing, and over 4,500 comment letters submitted during the comment period. "Listening carefully to the commenters, collecting and analyzing data, and undertaking consumer testing, has led to more effective and improved final rules," Governor Kroszner said.
The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.
In a related move, the Board is publishing for public comment a proposal to revise the definition of "higher-priced mortgage loan" under Regulation C (Home Mortgage Disclosure), which requires lenders to report price information for such loans, to conform to the definition the Board is adopting under Regulation Z.

big bank dividend cuts lie ahead

After a sharp selloff, BofA, Wachovia and other high-yielders may need to cut their payouts before long.
Colin Barr, Fortune Senior Writer
Last Updated: June 17, 2008: 9:05 AM EDT

NEW YORK (Fortune) -- Falling bank stock prices are a warning to investors not to get too attached to those fat dividend checks.

The latest struggling lender to sock shareholders is Cleveland-based KeyCorp (KEY, Fortune 500), whose shares tumbled 24% Thursday after the bank said it would slash its quarterly dividend in half to conserve $200 million annually.

But with inflation worries driving up interest rates and house prices still tumbling, the market is betting Key won't be the last bank to cut its dividend. Unusually high dividend yields could point to coming dividend cuts at banks ranging from giants Bank of America (BAC, Fortune 500) and Wachovia (WB, Fortune 500) to regionals such as Fifth Third (FITB, Fortune 500) and Regions Financial (RF, Fortune 500).

The yield is the result of dividing the annual stated dividend payout by the current stock price. A higher number is typically better for investors, of course, because it means a bigger income stream relative to how much they've invested.

But in a credit crunch-obsessed market, a high dividend yield can actually be a warning signal. That's because an increase in the bank's dividend isn't the only factor that can cause the dividend yield to rise. So can a decrease in its stock price.

And with banks facing sharply reduced earnings prospects due to rising credit losses and tightening lending standards, a high yield can spell trouble ahead.

Gary Townsend, CEO of Hill-Townsend Capital in Chevy Chase, Md., says bank stocks historically have yielded in the range of 3% to 4%. So any stock with a yield in the high single digits can be viewed as a candidate for a future dividend cutback.

"When you get to about 8%, that speculation becomes quite pronounced," says Townsend, a former Wall Street bank analyst.

Which banks are in danger?
Some of the big banks with yields around that level include Bank of America, which as a yield of almost 9% and Wachovia, whose recent price swoon has left the stock yielding more than 8% even after a dividend cut in April.

Other candidates for dividend cuts include double-digit yielders Fifth Third of Cincinnati, which yields 14% after Friday's double-digit selloff; Regions of Birmingham, Ala., which yields 11%; and U.K.-based Barclays (BCS), which recently yielded 13%.

For now, the banks aren't signaling any intention to cut their dividends. Representatives from BofA, Wachovia, Fifth Third and Regions didn't immediately reply to requests for comment.

Barclays, which isn't due to make a semiannual dividend declaration until August, told analysts on a conference call last month that it hadn't made a decision on its payout.

"We're active managers of capital and we have a range of options. We're explicitly keeping all of them open today," finance director Chris Lucas said back on May 15. "We're aware of the importance that shareholders place on dividends."

To be sure, not every bank is cutting back. CNNMoney's Paul R. La Monica recently rattled off a list of banks whose cautious underwriting and conservative financing means their dividends are probably safe.

But no one is immune from scrutiny, given that even banks that have already reduced their dividends have, under stress, gone on to do so again.

Washington Mutual (WM, Fortune 500), for instance, cut its quarterly dividend to 15 cents from 56 cents back in December. WaMu then cut it again -- to a penny a share -- in April when it sold a big stake to a group led by private equity firm TPG.

Not everyone believes a big dividend yield points to a future cutback though.

Oppenheimer analyst Meredith Whitney, who was the first Wall Street analyst to predict (correctly) a dividend reduction at Citi, said last week that a chat with BofA chief Ken Lewis led her to conclude Bank of America's dividend was safe.

Lewis later said that while he hasn't explicitly defended the bank's current dividend, which runs $2.56 a share annually, he thinks the bank would only reconsider its payout if the economy suffers a sharp slowdown - an outcome he doesn't foresee.

Analyst: Credit Trends 'Are Quite Negative'
But Townsend wrote last week at the bankstocks.com Web site that he expects BofA to cut its dividend by about 40% later this year to reduce the strain on its capital base.

Townsend points to another dividend number - the bank's profit payout ratio, which reflects the proportion of annual earnings the bank sends out to investors as common dividends - as supporting that analysis.

He estimates BofA will spend all its projected net income this year and nearly three-quarters of its profit next year on common dividends - a trend he calls unsustainable. "The market is of a mind this dividend is too high," he says.

The dividend yield and the earnings payout ratio aren't the only numbers to consider either. Banks that have raised capital via preferred stock sales - such as Citi and Bank of America -- also agree to issue preferred dividends. And those must be paid out before any common dividends can be paid.

Finally, with house prices falling, mortgage defaults on the rise and employment growth weak, credit trends right now "are quite negative," Townsend says.

That gives banks another reason to be careful about not paying out too much in dividends -- and shareholders in high-yielding bank stocks another cause for concern.