Now raising intellectual capital

from Rolfe Winkler:

Bank Death Watch: Five failures + new addition

There were five bank failures tonight.  Two of meaningful size, but none in Georgia!

We're still waiting on two big fish, however, Guaranty and Corus.  In an SEC filing today, Corus said it was "critically undercapitalized" with Tier 1 Capital of $157 million.  They also admitted is was "highly unlikely" they'd be able to raise capital, so FDIC seizure is a matter of when, not if.  Next Friday may be the day. (ht CR)

And we have a new addition to the Bank Death Watch list: Colonial BancGroup, which late today expressed doubt it can continue as a going concern.  With $26.4 billion of assets and $24.6 billion of deposits as of March 31st, it's larger than Corus and Guaranty put together.


    Failed Bank:  First State Bank of Altus, Altus OK Acquiring Bank: Herring Bank, Amarillo TX Vitals: At 6/19/09, assets of $103.4m, deposits of $98.2m DIF Damage: $25.2m


Goldman, what about the FDIC-backed debt

Goldman Sachs is trumpeting the fact it just paid the federal government $1.1 billion to buyback the warrants it gave the Treasury Dept. as part of last fall’s baillout package. But Goldman still is benefiting from the government’s largess by sitting on some $22 billion in FDIC-guaranteed debt it sold this past winter.

Goldman can’t say it’s truly free of government assistance until it retires this $22 billion in long-term debt that it sold to investors. Last week I argued that Goldman, instead of setting aside money for record bonuses, should use some of that cash to retire these FDIC-backed notes early.

Tax Goldman debate heats up

The idea of taxing Goldman Sachs and other banks that engage in prop trading is heating up.

I fully endorsed the idea in a column on Thursday. (i amended my thoughts a bit from earlier in the week). FDIC Chairman Sheila Bair seems to be talking about a similar bailout tax concept. And we may hear more from Bair on the subject next Thursday when she is set to testify before the Senate Banking Committee.

Goldman needs to retire its FDIC-backed debt

If Goldman Sachs wants to go back to the future and keep setting aside record sums of money for compensation and year-end bonuses, it should first retire all of its oustanding FDIC-backed debt.

The big investment firm has issued some $22 billion in longer-term debt under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program. Goldman sold most of those notes during the height of the financial crisis, when the bank desperately needed to raise capital like most other financial institutions.

Tax Goldman

Goldman Sachs is entitled to make as much money as it wants from proprietary trading–that is trading stocks, bonds, currencies and bonds for its own account. But as long as Goldman benefits from bonds it sold with a government guarantee, it should pay an extra tax on those prop trading gains.

The Wall Street Journal editorial today proposed a tax along this lines and I think it’s a good idea. It’s not often I find myself in agreement with the WSJ editorial page, but the paper’s edit writers are right in calling for an “FDIC bailout tax.”

CIT is a warning sign


agnes1If it’s not a risk to the financial system, let it fail.

That’s the message from the government’s reluctance to swoop in and bail out one of the nation’s biggest commercial lenders, CIT Group Inc, as it struggles to stay afloat. But even though CIT doesn’t have the firepower to take down the global financial system, its failure would certainly be felt by some of the struggling small businesses that rely on its financing.

CIT is negotiating with its regulators to find a solution to its near-term liquidity problems, but speculation that it will file for bankruptcy has intensified after the Wall Street Journal reported that it was preparing for a possible filing.

Pandit buys time with Citi reshuffle

– Peter Thal Larsen is a Reuters columnist. The views expressed are his own –

Notch up a win for Sheila Bair. It’s hard to see the latest management shake-up at Citigroup as anything other than an attempt to placate the combative chairwoman of the Federal Deposit Insurance Corporation.

Sheila Bair gets it right

FDIC Chairman Sheila Bair last month told a US Senator her agency would “get it right,” in coming up with a set of rules to govern private equity investments in failed banks. And it appears that’s what Bair has done.

The FDIC’s new proposed guidelines on PE investments in failed banks are tough and smart. The new regulation should discourage the worst of the PE crowd only interested in making a quick buck by taking on the deposits and assets of a failed bank.

PE bank rules–now that’s news

Glad to hear the FDIC is getting close to issuing tough rules for allowing private equity firms to buy the assets of lenders taken over by the regulator. The Wall Street Journal reports on the development today.

Then again, none of this is really news to readers of this blog. Back on June 18, I reported that FDIC Chairman Sheila Bair had sent a letter to Rhode Island Sen. Jack Reed saying the regulator was in the process of developing “applicable policy guidance” for prospective investors. (A hat tip goes out again to Freedom of Information Act requester extraordinaire Ken Thomas for unearthing the Bair letter).

Bair on PE bank deals: “We will get this right.”

The idea of the strip-and-flip crowd a/k/a private equity firms buying distressed banks out of government receivership raises a lot of dicey issues. But with federal regulators approving three such transactions this year and more bank failures on the way, get used to the idea of PE banking.

Last month Rhode Island Sen. Jack Reed, a member of the Senate Banking Committee, sent a letter to regulators in which he raised some concerns about these deals. Now at least one regulator, FDIC Chairman Sheila Bair has responded.