Friday afternoon death watch

July 18, 2008

death.jpgMost reporters covering the M&A space are all too familiar with the Sunday night dealwatch. Many big takeovers are traditionally announced on Sunday night so they can be splashed all over the front page of Monday papers  that are otherwise devoid of major news.

Now, meet the Friday afternoon death watch, which is threatening to ruin the weekends for many U.S. banking executives, their customers, regulators and some reporters.

Banking regulators typically swoop down and take over troubled banks on Fridays, and with the U.S. economy slowing, executives at many more banks may have to make changes to their weekend plans.

Although it is not a policy, the Federal Deposit Insurance Corp prefers to take over institutions on a Friday as it gives regulators the time to do the transition before reopening branches the following Monday.

“It gives you the weekend to put new people in place,” says John Douglas, a former FDIC general counsel who is now a partner at the law firm Paul Hastings.

“In an emergency situation they would do it earlier,” Douglas says. “But typically it is a Friday.”

It is a strong preference. Five banks have failed this year, and all of them have been taken out on Fridays.

It might just be a coincidence, but Friday evenings are also typically the time that both companies and politicians typically announce bad news — as it is the day that many newspapers tend to have earlier deadlines and as fewer people tend to read them on a Saturday. 

The latest bank failure — and one of the largest of them all – was just last Friday. Regulators swooped in to seize mortgage lender IndyMac Bancorp after a bank run in which panicked customers withdrew more than $1.3 billion of deposits in 11 business days. By Monday, regulators had reopened the bank’s doors and will run the bank while they look for a buyer.

Analysts decline to speculate about which banks might fail, but several smaller lenders and even larger ones appear to have elevated levels of troubled loans relative to their sizes.

Earlier this month, RBC Capital Markets analyst Gerard Cassidy estimated that more than 300 banks could fail in the next three years, up from his February estimate of no more than 150.

For at least a year or two, TGIF may not be the refrain at many banks.

(Photo credit: Reuters)

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