BANKS KEEP FAILING, NO END IN SIGHT

Sky · Tue Sep 28, 2010 8:00 am

BANKS KEEP FAILING, NO END IN SIGHT

SINCE WAMU FELL, 279 LENDERS HAVE COLLAPSED; LOST JOBS, CURTAILED LENDING
AND THE BIG GET BIGGER

By Randall Smith and Robin Sidel
With help from Dan Fitzpatrick
Wall Street Journal
September 27, 2010

The largest number of bank failures in nearly 20 years has eliminated jobs,
accelerated a drought in lending and left the industry's survivors with more
power to squeeze customers.

Some 279 banks have collapsed since Sept. 25, 2008, when Washington Mutual
Inc. became the biggest bank failure on record. That dwarfed the 1984 demise
of Continental Illinois, which had only one-seventh of WaMu's assets. The
failures of the past two years shattered the pace of the prior six-year
period, when only three dozen banks died.

Two more banks went down last Friday, and failures are expected to "persist
for some time," according to a report issued Tuesday by Standard & Poor's.
In the second quarter of this year, the Federal Deposit Insurance Corp.
increased its number of problem banks by 6% to 829.

Between failures and consolidation, the number of U.S. banks could fall to
5,000 over the next decade from the current 7,932, according to the top
executive of investment-banking firm Keefe, Bruyette & Woods Inc.

The upside of failures is that they can represent a healthy cleansing of a
sector that grew too fast, with bank assets more than doubling to $13.8
trillion in the decade that ended in 2008. Many banks that failed were
opportunistic latecomers. Of the failed banks since February 2007, 75 were
formed after 1999, according to SNL Financial.

Still, economists say, the contraction represents an enduring threat to
capital, lending and the economy.

"When we step back and look at this financial disaster 10 years from now,
the destruction of capital in our economy as a result of what we've endured
will be the single greatest lasting impact on recovery and how the economy
performs in the future," says Howard Headlee, president of the Utah Bankers
Association.

The pain is less severe than in the Japanese banking crisis, in which banks
languished for a decade despite $440 billion the government spent to assist
the industry.

But, in the past two years, the whole U.S. banking system recoiled. Large
banks like Countrywide Financial Corp. and Wachovia Corp. were acquired to
avert failure while powerful banks including Citigroup Inc. and Bank of
America Corp. were propped up by the government.

Between the failures and government assistance, Gerard Cassidy of RBC
Capital Markets says, the impact to the system has been "far more severe"
than the savings-and-loan crisis. Not only were government rescue measures
more sweeping and more global this time, the weakness in real estate
continues to constrain economic growth.

Since 2008, the industry's assets have shrunk by 4.5%.

"If you reduce the amount of assets at a bank, it means they make fewer
loans, and that has a negative impact on the economy," says Richard Bove, a
bank analyst at Rochdale Securities in Lutz, Fla.

From small towns like Rockford, Ill., to Miami, the banks' disappearance
means not only cutbacks in lending but fewer banking choices, lower interest
rates on savings accounts, and lost jobs.

The recession and collapse of the housing bubble have cut bank-industry
employment by 188,000 jobs, or 8.5%, since 2007, according to FDIC data.
Failures alone have cost 11,210 jobs, or 32% of the employees at failed
banks, according to FIG Partners, an Atlanta investment firm that
specializes in the banking industry.

For more than a year, Martin Quantz and his co-workers at the Woodstock,
Ill. branch of Amcore Bank checked the FDIC's website each Friday afternoon
to see if their flailing bank had gone under. Regulators seized the bank in
April and turned over its 58 branches to Harris National Association.

By August, Mr. Quantz was unemployed. He now hopes reconnecting with an old
contact will lead to a new bank job.

"There's a lot of pain out there, and there are a lot of people in the
industry who won't go back," says Mr. Quantz, 41 years old.

The city of Clinton, Utah, may never be refunded $83,000, a portion of their
cemetery-maintenance funds that wasn't insured when nearby Centennial Bank
failed without a buyer.

Snip

Since acquiring operations of the failed Frontier Bank in Everett, Wash.,
last April, Union Bank N.A. has started originating loans in Frontier's
region in western Washington and Oregon. Though Union lowered interest rates
on certificates of deposit, "We desire to grow our loan portfolio and are
eager to find ways to make loans that make sense," says Tim Wennes, chief
retail banking officer for Union Bank, a unit of San Francisco-based
UnionBanCal Corp.

Such consolidation also means the biggest are getting bigger: Bank of
America, J.P. Morgan Chase & Co. and Wells Fargo hold 33% of all U.S.
deposits, up from 21% in 2006, according to SNL Financial. That gives them
more market power to squeeze out smaller competitors.

John Squires, who was chief executive officer of Old Southern Bank when it
failed in March, protests that his larger competitors in his Orlando, Fla.,
neighborhood all survived thanks to heavy doses of government support, which
allowed them to raise capital more easily.

"Absolutely unfair -- the big boys have the clout," says Mr. Squires.
"Community banks are in jeopardy all over the country."

http://online.wsj.com/article/SB10001424052748704760704575516272337762044.html

Sure don't sound good at all!! :awe

BANKS KEEP FAILING, NO END IN SIGHT

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