The Worst Banks in South Florida (MiamiHerald.com)

Company name City Total assets(in millions) Must capital ratios be raised? Enforcement action
1st National Bank of South Florida Homestead 321,271 Yes Cease and Desist
Bank of Coral Gables Coral Gables 145,320 Yes Cease and Desist
BankAtlantic Fort Lauderdale 4,424,565 Yes Cease and Desist
City National Bank of Florida Miami 3,861,652 No Formal Agreement/Consent Order
Coconut Grove Bank Miami 615,282 No Formal Agreement/Consent Order
Eastern National Bank Miami 427,616 No Formal Agreement/Consent Order
Executive National Bank Miami 285,467 No Formal Agreement/Consent Order
First East Side Savings Bank Sunrise 81,591 Yes Cease and Desist
Gibraltar Private Bank & Trust Coral Gables 1,654,974 No Cease and Desist
Great Eastern Bank of Florida Miami 62,757 Yes Cease and Desist
Great Florida Bank Miami Lakes 1,516,057 Yes Cease and Desist
Home Federal Bank of Hollywood Hallandale Beach 81,082 Yes Cease and Desist
Intercredit Bank Miami 258,268 No Formal Agreement/Consent Order
Landmark Bank Fort Lauderdale 316,166 No Formal Agreement/Consent Order
Ocean Bank Miami 3,590,044 Yes Cease and Desist
OptimumBank Fort Lauderdale 183,601 Yes Cease and Desist
Pacific National Bank Miami 348,912 No Cease and Desist
Professional Bank Coral Gables 124,016 No Cease and Desist
Regent Bank Davie 487,796 Yes Formal Agreement/Consent Order
Security Bank North Lauderdale 113,404 Yes Cease and Desist
TransCapital Bank Sunrise 244,993 Yes Cease and Desist
Valley Bank Fort Lauderdale 124,427 Yes Cease and Desist

Type of Enforcement Action

Order to Cease and Desist:

An order issued when a bank is engaging or has engaged or is about to engage in an unsafe or unsound banking practice or a violation of law. The bank must follow certain requirements or take specific actions.

Formal agreement/Consent Order:

A formal agreement between a bank and the FDIC. The agreement states that certain actions be taken and/or certain activities are prohibited, or else the bank will be subject to a cease and desist order.


• Written agreement/Consent Order: A formal agreement between a bank and the FDIC. The agreement states that certain actions must be taken and/or certain activities are prohibited, or else the bank will be subject to a cease and desist order.

South Florida banks under scrutiny
.Many financial institutions in South Florida are operating under regulatory directives, working to put themselves back on sound footing.

By Ina Paiva Cordle
icordle@MiamiHerald.com
Hit hard when the real estate bubble popped in 2007, many South Florida-based community banks are still reeling from the aftershocks.

Over the last few years, past-due loans have mounted, funds required to offset loan losses have skyrocketed, and real estate has been repossessed and marked down, leading to a flood of red ink and a drain on capital.

All the while, regulators have been keeping a close watch.

In fact, of 240 Florida-based banks and thrifts, 78 — 32.5 percent — are currently operating under severe regulatory enforcement actions, including prompt corrective actions, cease and desist orders, formal agreements and consent orders. The actions are among the tools regulators use to work with banks to correct deficiencies and make sure they are on sound financial footing, and following safety and soundness guidelines and regulations.

That’s a higher proportion than in most, if not any, other state, banking experts say, and it reflects the current economy.

“It’s just only natural to see the increase in actions when the economy does go down,’’ said David Barr, spokesman for the Federal Deposit Insurance Corp. “It happened in the last crisis, in the late ‘80s and early ‘90s. And during the good times, there were considerably fewer.’’

Florida led the nation in bank failures in 2010, with 29 statewide. And one-third of all U.S. bank failures were in two states: Florida and Georgia, said Ken Thomas, a Miami-based independent banking consultant and economist. With 10 failures to date — including Palm Beach-based Lydian Bank on Aug. 19 — he anticipates a total of at least 15 bank failures in Florida this year. That would be on par with 2009, when 14 banks failed in the state, following two failures in 2008 and none in 2007 or 2006, before the crisis, when the number of banks in Florida topped 300.

The impact on the local economy of a bank seizure and sale to a stronger institution is hard to measure, Thomas said. Senior staff may well lose jobs, and if the new owners close branches, other employees may be out of work as well.

The successor bank may be stricter in its lending practices. Customers sometimes find themselves stripped of long-time working relationships and the accumulated good will that came with them. Though deposits are protected, bank closures may heighten anxiety about the overall economy.

A regulatory action doesn’t necessarily mean a bank is heading into failure; many are issued to banks that recover and thrive. Still, all but two of the 37 Florida banks and thrifts that have failed since Jan. 1, 2010 had a severe enforcement action in place, according to SNL Financial, a data and analysis firm.

“Many of the institutions cited by regulators may correct their infractions, yet others may be forced to raise capital, merge with a stronger peer, or see their bank seized by regulators,’’ SNL said in a report.

Without a doubt, South Florida holds the largest concentration of banks operating under regulatory directives within the state. Of the 78 community-based banks in Florida under such directives, 22 are based in Miami-Dade or Broward Counties, SNL data shows.

Requirements may be both strategic and operational. Some banks are instructed to engage their board of directors more actively in decision-making; others are told to bring in experienced senior managers. Some are told to create formal ethics policies, formalize anti-money laundering procedures, raise credit standards, increase loan-loss funds or write off bad loans. Most significant are directives to boost capital to meet higher capital-to-asset ratios required by regulators .

BauerFinancial, which rates banks nationwide on a five-star scale — two or fewer stars are classified as “troubled and problematic’’ — counts 19 problem banks in Miami-Dade and Broward, based on March 31, 2011 financial statements.

“Capital, profitability and asset quality, or non-performing or delinquent loans — those have the most impact’’ on the bank’s rating, said Karen Dorway, president and director of research for Coral Gables-based BauerFinancial.

Almost all the banks deemed “troubled and problematic’’ by BauerFinancial are also those operating under regulatory orders.

But consumers need not worry.

“As long as their money is insured by the FDIC, there are a lot of other things they need to worry about than the safety of their money,’’ Barr said.

REAL ESTATE SPILLOVER

Florida and South Florida have been hit harder than other markets because of the severity of the real estate downturn and our location as the epicenter of the housing crisis, Thomas said.

“The fortunes of most Florida banks, especially here in South Florida, are tied to the real estate market, both the residential and commercial sides,’’ he said. “And as it has collapsed so too have the fortunes of our banks.’’

While some indicators suggest local real estate values may soon be on an upswing, experts agree that the banking recovery will still take more time.

“It took us six years to blow up the bubble. It’s going to take five to six years to get out of this mess. And we’re now entering the fifth year,’’ said Ben Bishop, chairman of Jacksonville-based Allen C. Ewing & Co., an investment banking firm that specializes in banking.

Recent turmoil in the global economy has renewed fears about the health of the national banking system. Still, Bishop believes the worst is over for Florida. As long as the economy does not dip into another recession, next year will be the first full year of the recovery for Florida community banks, he said.

“Two-thousand-twelve is the first year that will see the loan loss provisions for banks start to decline, and that means earnings are right around the corner,’’ Bishop said. “They may not make a lot of money, but they will lose a whole lot less in 2012.’’

In the meantime, many South Florida banks operating under regulatory actions are working hard to correct their issues, including raising capital.

CORRECTING ISSUES

Here are the stories of seven such banks and the steps they say they are taking to meet regulators’ requirements.

• U.S. Century: In June, Doral-based U.S. Century Bank signed a consent order with regulators that cited issues with asset quality, management, earnings, capital, liquidity and sensitivity to market risk. The order was released by the FDIC in late July.

“The problem you will find with most banks is devaluation,’’ said U.S. Century Vice-Chairman, President and Chief Executive Octavio Hernandez. “When you have properties that have lost 50, 60, in some cases 70 percent of their original value, it is very difficult not to have capital issues, because when new appraisals come in, you have to adjust your books accordingly.’’

So far, the nine-year-old bank has made strides in disposing of some of its problem loans, which are mostly related to commercial real estate.

With $359 million in delinquent loans, U.S. Century sought to dispose of at least $25 million in loans in the second quarter, and it succeeded in selling off $38 million, said Abel Montuori, first executive vice president and senior lending officer. The goal for the third quarter is to dispose of another $71 to $80 million in loans, he said.

U.S. Century also recently hired the Japanese investment banking firm Nomura Securities to raise at least $150 million in private equity funds, said Hernandez. Last week he flew to New York to make presentations to potential investors. U.S. Century currently has $1.6 billion in assets.

“Our focus right now is on two things: raising capital and reducing our classified assets, and we have beefed up that department significantly,’’ Hernandez said. “All the attention of the bank is there and on the effort to raise capital, and meeting all the other areas of the consent order. We’re focused on that, and hope to have all that resolved quickly to regulatory satisfaction.’’

• Ocean Bank: Miami-based Ocean Bank, which previously had been asked to correct deficiencies, signed its most recent consent order with regulators April 28. The directive required stricter capital ratios and anti-money laundering controls and cited weaknesses in asset quality, management, earnings, liquidity and sensitivity to market risk. The bank, with $3.5 billion in assets, was founded in 1982.

Ocean Bank President and Chief Executive A. Alfonso Macedo said the bank has invested in new anti-money laundering systems and training and has put together a new team of experts.

Ocean Bank also has reduced its delinquent loans by half, from more than $770 million to $324 million.

“That’s been our biggest focus, because the more we improve our asset quality, the better we’re going to look and the more profitable we are going to be,’’ Macedo said.

To boost its ratio of capital to assets, since 2007 Ocean Bank reduced overall assets and has raised $100 million from its current shareholders. The company is now seeking additional capital from both current shareholders and outside investors. But it has not yet met an early July deadline for raising its capital ratios to the required level.

“We have a very good relationship with regulators,’’ Macedo said. “We are working closely with them and they know what we are doing.’’

• Great Florida Bank: Miami Lakes-based Great Florida Bank, which previously was served with a cease- and-desist order, received its most recent directive in April. It also was instructed to increase its capital. The bank, founded in 2004, has $1.4 billion in assets.

“We have entirely focused our plan on making sure we manage our risk, which we have, and making sure our risk does not deteriorate, and that our ratios improve, which they did over the last quarter,’’ said Great Florida Bank President and Chief Executive Mehdi Ghomeshi.

Trying to improve its capital ratios through internal measures, since late 2010 Great Florida has shrunk its balance sheet by 7 percent; reduced its non-performing loans by 8 percent; decreased its interest expense by 26 percent; and cut its overall expenses by 16 percent, Ghomeshi said.

“When the investors gain confidence in the economy and the banking sector, we will be able to raise the capital [from investors],’’ he said. “Unfortunately right now, investors are investing in bonds.’’

• Professional Bank: Coral Gables-based Professional Bank, which agreed to a consent order in December, just satisfied one of regulators’ primary directives last week by hiring an experienced president and chief executive, Raul G. Valdes-Fauli. Most recently president of the South Florida market at CNL Bank where he managed the tri-county region, Valdes-Fauli was previously president and CEO of commercial banking for Miami-Dade County for Colonial Bank.

Other issues — such as creating a business plan, a blueprint for earnings, and creating policies for lending, loan losses, ethics and interest rate risk management — have either been addressed or are in the works, said Valdes-Fauli, who started his job Aug. 15. The bank, founded in 2008, has $126 million in assets.

“We have a detailed business plan that is addressing all the issues raised in the order,’’ he said. “And we’re making wonderful progress in hopefully showing examiners we have everything buttoned up.’’

Other South Florida banks say they have already been successful in correcting every issue cited by regulators.

• Fort Lauderdale-based BankAtlantic was issued its most recent action, a cease and desist order, in February 2011, requiring, among other issues, that the bank raise its capital.

“What led to the C and D was that our non-performing loans ballooned because we’re a Florida bank, and many of our commercial real estate customers were having trouble, and as a result, the regulators required us to have even higher capital than we currently had,’’ said Alan Levan, chairman and chief executive of BankAtlantic Bancorp, the parent of BankAtlantic.

“We understood the rationale for it, and they gave us to June 30 of 2011 to increase the capital ratios, which we did,’’ he said. The ratios now meet regulators demands and are the highest capital ratios since the bank was founded in 1952, Levan said.

BankAtlantic raised its ratios through several methods, including selling its branches in Tampa; completing a stock offering to existing shareholders; reducing its concentrations of loans; and restructuring its balance sheet. For the quarter ending June 20, 2011, the bank, with $3.8 billion in assets, showed a profit for the first time since the second quarter of 2007.

“We believe that we have met everything that was required of us in the C and D,’’ Levan said. Typically, it takes regulators months to reexamine a bank and lift any enforcement actions.

• City National Bank of Florida, co-founded in 1970 by Leonard Abess and sold by his son Leonard Abess Jr. in 2009, signed a formal agreement/consent order with regulators in April 2010. The order cited City National’s anti-money laundering procedures as well as its concentration of real estate risk.

“Like most community banks we had a high percentage of real estate assets on our books,’’ said Jorge Gonzalez, president and chief executive of Miami-based City National Bank, which has $3.9 billion in assets and is now owned by Caja Madrid, the third largest financial services company in Spain.

“So we cleaned up all the assets that were underperforming, and we reduced the amount of real estate concentration,’’ he said. The bank’s nonperforming assets now represent 1.3 percent of total assets, and its capital ratios are above required levels, Gonzalez said. He expects the regulatory action to be lifted by the end of this year.

• In March 2010, Coconut Grove Bank signed a formal agreement/consent order that cited concerns found during a March 2009 examination, said Lynn M. Cambest, chief financial officer and treasurer.

“By the time we signed the agreement we literally had substantial compliance with all the issues raised in the letter, with the exception of raising capital,’’ Cambest said. Among those issues were board oversight, credit risk management, funds for loan losses, and improvement of assets and investments.

On June 24, Miami’s oldest continuously run bank — founded in 1926 — completed its last requirement, raising $32 million in a private placement, funded by 33 local investors, including Ivax Pharmaceuticals-founder Dr. Phillip Frost. It now has $648 million in assets.

Frost is now the bank’s largest individual shareholder, with more than 20 percent of the bank’s shares.

Other experienced businesspeople — including TECO Energy Executive Chairman Sherill Hudson — have recently joined the board.

As a result of the private placement, Cambest said Coconut Grove Bank’s capital ratios at the end of the second quarter were more than in compliance with regulatory directives.



Read more: http://www.miamiherald.com/2011/08/21/v-fullstory/2369351/south-florida-banks-under-scrutiny.html#ixzz1VmU8xVPP

How Healthy are the US Banks? (Zacks)

Analyst Interviews: U.S. Banks Stock Update

By Zacks Investment Research on May 19, 2010

Although a major recovery in the asset markets has been witnessed in recent quarters, the outlook for the U.S. banking industry still remains in question due to several negatives, including asset-quality troubles, drawbacks of new regulations and the continuation of both residential and commercial real estate loan defaults.

After enduring extraordinary shocks in 2008, the U.S. banks entered an exceptional state of turmoil in 2009. Starting as a credit issue in the subprime segment of the mortgage market, the situation affected about the entire financial services industry, in all corners of the globe. In other words, the financial crisis ultimately morphed into a massive economic crisis, which has had major ramifications across the whole world.

Although the banking industry is dealing with liquidity and confidence challenges in 2010, it is now comparatively stable, with financial support from the U.S. government. The government had taken several steps, including programs offering capital injections and debt guarantees, to stabilize the financial system.

We believe that the worst of the credit crisis is now behind us. After more than a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis.

But the banking system is not yet out of the woods, as there are persistent problems that need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain its growth momentum once these issues are resolved.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still in a very weak financial state, and the Federal Deposit Insurance Corporation’s (FDIC) list of problem banks continues to grow.

Bank Failures Continue

Despite the government’s strong efforts, we continue to see bank failures. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll on small banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.

Furthermore, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending will continue to hurt margins and the overall economy, though the low interest rate environment should be beneficial to banks with a liability-sensitive balance sheet.

Out of the $247 billion given to the banks, more than half has come back from the healthy banks who have repaid their TARP funds in full. Banks have also paid about $11 billion in interest and dividends. Also, taxpayers have received decent returns on many of its financial-sector investments. Repayments under the TARP have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the major banks that have already repaid the bailout money include JPMorgan Chase (JPM: 39.56 +0.54 +1.38%), Goldman Sachs (GS: 138.90 +1.54 +1.12%), Morgan Stanley (MS: 26.98 +0.25 +0.94%), BB&T (BBT: 32.44 -0.10 -0.31%), US Bancorp (USB: 24.37 +0.01 +0.04%), Bank of America (BAC: 16.2894 +0.3394 +2.13%), Wells Fargo (WFC: 30.17 -0.42 -1.37%) and Citigroup (C: 3.82 +0.09 +2.41%).

Following the U.S. Treasury’s appeal to the world banking system to maintain stronger capital and liquidity standards by the end of 2010 to prevent a re-run of the global financial crisis, 15 large banks that control the majority of derivative trading worldwide have committed themselves to maintaining greater transparency in the $600 trillion market, which needs stricter oversight in the interest of the global financial system.

Moreover, in mid-January 2010, the Obama Administration proposed a tax on about 50 of the nation’s largest financial firms in order to recover the losses incurred by the government on its $700 billion bailout program. On approval of Congress, the tax, which the White House calls a “financial crisis responsibility fee,” would force the banks to reportedly pay the federal government about $90 billion over 10 years.

Targeting banks to recover the shortfall in bailout money can be considered justified, as they are the major beneficiaries of the taxpayers’ largesse. Most of the bailout loan was provided to financial institutions, as they form the backbone of the economy and were the primary victims of the crisis.

If the economic recovery tails off, high-risk loan defaults could re-emerge. About $500 billion in commercial real estate loans would be due annually over the next few years.

Above all, there are lingering concerns related to the banking industry as well as the economy. Continued asset-quality troubles are expected to force many banks to record substantial additional provisions at least through the end of 2010. This will be a drag on the profitability of many banks for extended periods, which will further stretch their capital levels.

While the economy is in a recovery phase, a lot remains to be done. The Treasury continues to hold huge direct investments in institutions like American International Group (AIG: 37.4205 -0.3595 -0.95%), Fannie Mae (FNM: 0.9394 -0.0406 -4.14%) and Freddie Mac (FRE: 1.265 -0.085 -6.30%).

Additionally, rating agency Standard & Poor’s said in March 2010 that it is maintaining its negative outlook for the U.S. banking industry based on FDIC’s industry financial performance data as of the end of 2009. The agency expects credit losses in the loan books of banks to be on the upside. Further, the agency warned that the pressure on ratings has not yet fully eased.

In conclusion, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions at least in the near term, affecting their profitability. We think that the financial crisis is far from over, and it will be awhile before we can write the end to this crisis story.

OPPORTUNITIES

The Treasury’s requirement of focusing on banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

Specific banks that we like with a Zacks #1 Rank (Strong Buy) include Central Valley Community Bancorp (CVCY: 6.21 -0.09 -1.43%), Financial Institutions Inc. (FISI: 17.57 -0.08 -0.45%), S&T Bancorp Inc. (STBA: 22.56 -0.07 -0.31%), Bank of the Ozarks, Inc. (OZRK: 37.16 +0.25 +0.68%), First Community Bancshares, Inc. (NASDAQ:FCBC), Republic Bancorp Inc. (NASDAQ:RBCAA) and Old National Bancorp. (NYSE:ONB).

There are currently a number of stocks in the U.S. banking universe with a Zacks #2 Rank (Buy) including Mainsource Financial Group (NASDAQ:MSFG), Bancorp Rhode Island, Inc. (NASDAQ:BARI), MBT Financial Corp. (NASDAQ:MBTF), Mercantile Bank Corp. (NASDAQ:MBWM), MidWest One Financial Group, Inc. (NASDAQ:MOFG), Tower Financial Corporation (NASDAQ:TOFC), BancFirst Corporation (NASDAQ:BANF), Southwest Bancorp Inc. (NASDAQ:OKSB), Viewpoint Financial Group (NASDAQ:VPFG), Center Financial Corporation (NASDAQ:CLFC), North Valley Bancorp (NASDAQ:NOVB), Summit State Bank (NASDAQ:SSBI), Washington Banking Co. (NASDAQ:WBCO), Washington Trust Bancorp Inc. (NASDAQ:WASH), Lakeland Bancorp Inc. (NASDAQ:LBAI), Fidelity Southern Corporation (NASDAQ:LION) and Cardinal Financial Corp. (NASDAQ:CFNL).

We favor Commerce Bancshares Inc. (NASDAQ:CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best-capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were negative.

WEAKNESSES

The financial system is going through massive de-leveraging, and banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years.

Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are being absorbed by the larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (NYSE:WL), KeyCorp (NYSE:KEY) and Zions Bancorp (NASDAQ:ZION), will remain under pressure.

Also, there are currently a number of stocks with a Zacks #5 Rank (Strong Sell) including Nara Bancorp Inc. (NASDAQ:NARA), Sierra Bancorp (NASDAQ:BSRR), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Horizon Bancorp (NASDAQ:HBNC), Hudson Valley Holding Corp. (HUVL), Legacy Bancorp Inc. (NASDAQ:LEGC), VIST Financial Corp. (NASDAQ:VIST), Metrocorp Bancshares Inc. (NASDAQ:MCBI), Firstbank Corporation (NASDAQ:FBMI) and First Financial Bancorp (NASDAQ:FFBC).

Rise in Short Term Interest Rates - Get Ready (AP)

Regulators tells banks to prep for higher rates
By JEANNINE AVERSA
AP Economics Writer

Financial regulators told banks Thursday to have procedures in place to minimize their risks from loans when rock-bottom interest rates start to rise.
The advisory came from the Federal Financial Institutions Examination Council, which includes the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The advisory wasn't meant to signal any upcoming change in interest-rate policy by the Fed.

To nurture the budding recovery, the Fed has slashed a key bank lending rate to a record low near zero, where it has been for a year. When the economy is on firm ground, the Fed at some point will start boosting rates. Some economists think the Fed might begin to raise rates later this year to safeguard against any inflation problems.
It's unusual for the council to issue such an advisory. The last time it did so was in 1996, a Fed spokeswoman said.

"In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates," the council said in the advisory issued Thursday.

Higher interest rates make it more expensive for banks to borrow and increase their costs of doing business. The council suggested that banks make sure they have sufficient capital cushions to protect against any possible losses.

"In this challenging environment, funding longer-term assets with shorter-term liabilities can generate earnings, but also poses risks to an institution's capital and earnings," the council said.

The council said banks should be testing their risk-management systems for scenarios including instantaneous and significant changes in interest rates.

Deficiencies in banks' risk-management systems - along with lax regulation - have been blamed for contributing to the financial meltdown. The crisis, the worst since the 1930s, was triggered in 2007 when home mortgages soured as the housing market collapsed.

Citi Preferreds-government suspends some dividends - Reuters

Citi dividend decision may roil bank funding
Tue Mar 3, 2009 3:46pm GMT
By Karen Brettell - Analysis

NEW YORK (Reuters) - Citigroup's decision to halt dividend payments on some of its preferred shares may be the final blow for certain bank preferred stocks and may further dry up the willingness of private investors to buy other bank securities.

The government on Friday boosted its equity stake in Citigroup to as much as 36 percent and the bank said it will suspend dividends on some preferred and common stock and convert up to $25 billion in preferred shares to common stock as part of the agreement.

"While the dividend suspension was largely priced into current spreads, the announcement is a watershed event," and will likely dry up the ability to sell similar securities in the primary market, said Ricardo Kleinbaum, trading sector specialist at BNP Paribas in New York.

Investors will be concerned that the government may intervene in other banks, such as Bank of America (BAC.N: Quote, Profile, Research) and Wells Fargo & Co (WFC.N: Quote, Profile, Research), which have borrowed from the Troubled Asset Relief Program, and this will have a similarly negative impact on these types of preferred shares, he said.

Citigroup's dividend suspension affected its traditional preferred shares, but the bank will continue to pay dividends on its trust preferred shares, which rose on the announcement.

Credit ratings on the negatively affected Citigroup preferred securities were slashed to levels only slightly above default by all three major rating agencies on Friday.

"We believe there is a risk that Citi's future access to the capital markets could be impaired by this action," Standard & Poor's said in a statement.

"More broadly, we are also concerned that Citi's action could mark a tipping point for the financial institutions sector, and serve as a visible precedent for other companies considering a similar course of action," the rating agency added.

The intervention may also set a precedent for international banks to follow, said BNP's Kleinbaum.

"The Citi action opens the door for governments to look to preferred investors to sacrifice dividends in order to share losses," he said. "Thus, it would seem that institutions with higher government ownership are more vulnerable."

When Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) were nationalized last year their preferred shares lost almost all of their value.

Moody's Investors Service and Fitch Ratings also both cut American International Group's (AIG.N: Quote, Profile, Research) trust preferred shares and subordinated debt into junk territory on Monday.

AIG was given access to up to $30 billion of capital in a new government bailout on Monday, at the same time as the insurer posted a record $61.7 billion quarterly loss.

Bank subordinated debt has also come under pressure as investors worry that payments on the bonds, which sit above a company's preferred shares but below its senior debt, may also be halted if bank liquidity woes persist.

The potential for the government to make loans to a company that is more senior to its other existing debt is also weighing on investors minds.

"The concern right now on banks is capital structure related," said John Atkins, credit analyst at IDEAglobal in New York. "I think everybody is worried about getting bumped down the food chain in a recovery event."

As investors take fresh losses to bank securities, financial companies are increasingly at the mercy of government programs for their funding.

Banks are able to sell bonds guaranteed by the Federal Deposit Insurance Corp (FDIC) as part of the Temporary Liquidity Guarantee Program (TLGP).

"The only way banks can continue to roll debt maturities is through the FDIC program," Atkins said.

(Editing by Kenneth Barry)


© Thomson Reuters 2008. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.

Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

How Safe is Your Safe Deposit Box - from FDIC

From www.fdic.gov

The Key to Your Safe Deposit Box

If you think there isn't much to using a safe deposit box beyond putting keys in locks, you're in for a surprise. The safe deposit service may be tucked down in the basement or far corner of your bank, but in its own quiet way it is among the bank's most important offerings-- and among the most misunderstood.

While millions of Americans rent a safe deposit box, few pay attention to questions such as who could or should have access to a safe deposit box (especially in an emergency) and how the contents of the box are protected. About the only time people ever consider these issues is when there's a problem, and then it may be too late to prevent a loss.

To help you decide whether to use a safe deposit box, and how to use one wisely, FDIC Consumer News has put together the following questions and answers. Several of these questions came from our readers, in response to an appeal from us. We thank everyone who wrote in with questions or suggestions. (To keep things simple, our references to "banks" are intended to apply broadly to banks, savings institutions and credit unions.)

In or Out?

Why should I rent a safe deposit box?

It's a convenient place to store important items that would be difficult or impossible to replace. The box also offers privacy (only you know what's inside) and security. Although many people like to keep valuables close by in a closet, safe or file cabinet at home or in the office, these places probably are not as resistant to fire, water or theft. Also, some insurance companies charge lower insurance premiums on valuables kept in a bank's box instead of at home.

What items should go into a safe deposit box?

Any personal items that would cause you to say, "If I lose this, I'm in deep trouble." Important papers to consider putting into your box: originals of your insurance policies; family records such as birth, marriage and death certificates; original deeds, titles, mortgages, leases and other contracts; stocks, bonds and certificates of deposit (CDs). Other valuables worthy of a spot in your safe deposit box include special jewels, medals, rare stamps and other collectibles, negatives for irreplaceable photos, and videos or pictures of your home's contents for insurance purposes (in case of theft or damage).

OK, what should NOT go in a box?

Anything you might need in an emergency, in case your bank is closed for the night, the weekend or a holiday. Possible examples: originals of a "power of attorney" (your written authorization for another person to transact business on your behalf), passports (in case of an emergency trip), medical-care directives if you become ill and incapacitated, and funeral or burial instructions you make. Consider giving the originals to your attorney, and making copies to go in your safe deposit box or to give a close friend or relative.

If I have a will, shouldn't it go in my safe deposit box?

Whether your will should be at the bank or elsewhere, such as with your attorney, depends on what your state law says about who has access to your safe deposit box when you die. Ideally, the person you name to oversee your financial matters after you die (your "executor" or "personal representative") should have early access to your original will (copies aren't valid). David P. McGuinn, president of Houston-based Safe Deposit Specialists, a consultant to banks and consumer groups, says the recent trend in most states is to make it relatively easy for co-renters, family members or the executor to remove the will and certain other documents (such as life insurance policies and burial instructions) from a deceased person's safe deposit box. In those states, it's a good idea to leave your will in the safe deposit box. "But in some states," McGuinn notes, "it may require a court order or another official action to remove the will, which can take time and money. That's why you should check with a bank official to find out what is required under state law and your bank's own policies in the event of your death."

Access by Others
Can I arrange for someone to access my box in an emergency?

Yes. You can jointly rent your box with a spouse, child or other person who would have unrestricted access to the box. (Warning: In some states your co-renter may face delays in accessing the box if you die. Also, merely giving someone else a key won't be enough to grant access. He or she also must sign the bank's rental contract as a joint-renter.) An alternative is to appoint a "deputy" or "agent" (NOT a power of attorney) who will have access to your box. A deputy/agent and a general power of attorney are similar in that you may grant or revoke the authority at any time, and the appointment ends if you become incompetent or die. The main difference is that a deputy or agent is appointed in the presence of the box renters and a bank employee, which gives the bank greater assurance about the validity of the authorization. "Many people are surprised to find that a power of attorney does not allow access to a box," says Donald Sansone, a Chicago banker who specializes in safe deposit issues. "The bank has no way of knowing if the power of attorney is still in effect or if the renter was competent when the power of attorney was signed."

Can law enforcement authorities access my safe deposit box without my knowledge or permission?

Mark Mellon, an attorney with the FDIC in Washington, says that if a local, state or federal law enforcement agency persuades the appropriate court that there's "reasonable cause" to suspect you're hiding something illegal in your box (guns, drugs, explosives, stolen cash or money obtained illegally), "it can obtain a court order, force the box open and seize the contents." But what about non-criminal matters, such as a dispute with the Internal Revenue Service, a company or other people over money they say you owe? McGuinn of Safe Deposit Specialists says the IRS can "freeze" your assets (effectively placing a hold on your bank accounts and safe deposit box) until the dispute is resolved. Private parties also can freeze your assets but doing so involves going before a judge and proving that there's a legitimate dispute over a debt.

Can a box be declared "abandoned" and the contents turned over to the government?

Yes, but only if you don't pay your rental fee for a number of years (as determined by state law) and after attempts to notify and locate you prove unsuccessful. In that case, your box will be reported as abandoned and the contents will be turned over to the state's unclaimed property office. Often this happens because the renter dies and the heirs have no knowledge of the box or its contents. The good news is that even if the state has sold your unclaimed property, you or your heirs still have the right to claim its value. To contact a state's unclaimed property office (sometimes part of the treasurer's office), check the state government section in your phone book. On the Internet, go to the home page of the National Association of Unclaimed Property Administrators.

What happens to my box if my bank fails?

When an insured bank or thrift closes, the FDIC usually arranges for another institution to take it over, including branches where you might have a safe deposit box. In those situations, you should be able to conduct business as usual. If the FDIC cannot find a buyer for your bank, it arranges for you to remove the contents of your box so you can obtain a box at another institution, if you wish. This is done within a few days after the bank fails.

How Safe?

Are safe deposit boxes protected from fire, flood or other disasters?

The companies that manufacture safe deposit boxes and the vaults that house the boxes make them highly "resistant" to fire, flood, heat, earthquakes, hurricanes, explosions or other disastrous conditions. However, the key word here is "resistant." There's no 100 percent guarantee against damage, and substantial losses sometimes occur.





Are there extra precautions I can take to minimize damage?

Yes. McGuinn offers this advice: Prevent water damage by sealing items in airtight, zip-lock bags or Tupperware-style containers. Also, put your name on each item, keep a list of the box's contents, make copies of important documents and even take photos of your most prized items left in the box. That way, McGuinn says, if a disaster occurs your chances of successfully identifying, claiming or recovering an item would be increased.

Doesn't FDIC insurance cover the contents of safe deposit boxes if they're damaged or stolen?

No. By law, the FDIC only insures deposits in deposit accounts at insured institutions. Although you may be putting valuables, including cash and checks, into an area of the bank that has the word deposit in its name, these are not deposits under the insurance laws that the bank can use, for example, to make loans to other customers. A safe deposit box is strictly a storage space provided by the bank.

Does anyone insure my safe deposit box against damage or theft?

Unless your bank is found to be negligent in the way it handled or protected your safe deposit box, do not expect the bank or its private insurance to reimburse you for any damage or loss. If you're concerned about the safety or replacement of the items in your box, first check whether your own homeowner's or tenant's insurance policy covers your safe deposit box against damage or theft. Many do cover box contents up to a certain dollar amount, even including items lost or damaged when they're out of the box. If your home-related insurance isn't sufficient, talk to your insurance agent about additional protection or find out if your bank is among those selling limited insurance coverage on safe deposit boxes. But before buying any extra coverage, carefully review the policy and do some comparison-shopping.

Can thieves rob a safe deposit box?

Yes, it happens, but fortunately not often. Safe deposit boxes are stored in concrete or steel vaults equipped with sophisticated alarms, locks, video cameras, motion sensors, heat detectors and other security devices. Most U.S. banks also have very strict access procedures, among them: verifying signatures, restricting access to the vault, never leaving anyone unattended inside the vault, and requiring two different keys (one being the bank's "guard key") to open a box. You can do your part to prevent a rip-off by following our recommendations to consumers below.

Final Thoughts

It's smart to want to protect irreplaceable documents and valuable possessions, for yourself
and your heirs. We hope this report has given you answers and ideas to make you even
smarter- and safer- when it comes to making decisions about a safe deposit box.

Making Your Safe Deposit Box Even Safer

These simple measures should prevent thefts from your safe deposit box
Before renting a box: Read the security and operating procedures in your rental contract. Talk to the vault attendant about access procedures and security devices until you are comfortable with the level of protection. ''Observe such things as whether customers, locksmiths or other people are left alone inside the vault, which may give them an opportunity to tamper with the locks," says Kate Spears of the FDIC's Division of Compliance and Consumer Affairs in Washington. ''Nowadays, devices such as electronic lock-picks or other special tools can be used in a flash and leave no sign of tampering— except that the contents of the box are missing." Also, make sure the bank's safe deposit area has a ''viewing" room or booth outside of the vault that you can use to inspect your box's contents in privacy and safety.
At home: Keep your two safe deposit box keys apart from each other and in safe places (not with your house keys or car keys). Don't keep your keys on a key ring or in an envelope that would indicate the bank's name or the location of your box. Give your extra key only to someone you trust. ''If even one of your keys is lost," says Chicago banker Donald Sansone, ''notify the bank immediately so their personnel are on alert against someone trying to perpetrate a fraud." If both keys are lost, you should get a new box (and be prepared to pay to have your old box drilled open). Keep written and photographic records of your box's contents at home, in case any items are lost and you need to file a claim. Also check your home insurance policy to see if it covers the items in your box against loss or damage.
Inside the vault: Accompany the bank employee into the vault, and be sure no other customers are there with you. After you arrive at the vault, it's OK to give the attendant your key for the few seconds it takes to open or close the box door, but never lose sight of the key and never leave it in the box door. An unscrupulous attendant or dishonest customer only needs a few seconds to make a wax impression of your key, which can be used to make a duplicate. Also, never let a bank employee take the box out of your sight. When you return your box to the vault, be sure the box door is properly locked and that you have your key before you leave. ''Don't allow a bank employee to keep your key and handle transactions for you if you're not there— something elderly customers have done and regretted," adds Carol Mesheske, chief of a section in the FDIC's Division of Supervision that monitors fraudulent activities at banks.
Outside the vault: Only open the safe deposit box when you're inside the viewing booth and away from bank employees and customers. ''Before leaving the privacy booth, make sure all valuables are safely back inside the box," recommends Gene Seitz, also of the FDIC's anti-fraud group. ''And make sure there's nothing left behind that may indicate the contents of your box, such as a currency strap, a specially-marked envelope or an empty jewelry box."
If there's a problem: Tell a bank manager if the vault attendant seems a bit lax in following security procedures or if you spot something suspicious going on. Immediately report to the manager any items you believe are missing from your box or if there are signs of unauthorized or forced entry. If you're pretty sure you've been victimized, it's also a good idea to contact the National Fraud Information Center (phone: 800-876-7060), which reports suspected crimes to law enforcement agencies. If your bank doesn't resolve the matter to your satisfaction, you may contact its federal regulator.

Protection for Credit Union Accounts - from National Credit Union Association (NCUA)

http://webapps.ncua.gov/

What is the Standard Maximum Share Insurance Amount or SMSIA for NCUSIF share insurance coverage?
The SMSIA for a credit union member is defined in NCUA’s Rules and Regulations, as $100,000 and may be increased from time to time. Share accounts maintained in different rights or capacities, or forms of ownership, may each be separately insured up to the $100,000 SMSIA, or in the case of certain retirement accounts, up to $250,000. Thus, a member may hold or have an interest in more than one separately insured share account in the same insured credit union.



What types of accounts are insured?
All types of member share accounts and deposits received by the credit union in its usual course of business, including regular shares, share certificates, and share draft accounts are insured. Investment products offered by a credit union to its members, such as mutual funds, annuities, and other non-deposit investments are not insured by the NCUSIF.


Is NCUSIF share insurance coverage increased by placing funds in two or more of the same kind of share accounts in the same credit union?
No. NCUSIF share insurance is not increased merely by dividing funds owned by the same person or persons into one or more of the different kinds of share accounts available. For example, a regular share account, a share draft account and a share certificate account owned by the same member are added together and insured up to the $100,000 SMSIA. Insurance can be increased by opening a different type of account - one that is held in a different right and capacity. For example, insurance on a single ownership account is separate from insurance on a joint account.



If a member has accounts in several different insured credit unions, will the accounts be added together for the purpose of insurance coverage?
No. Share insurance is applied to share accounts in each insured credit union. A member who has share accounts in two or more different insured credit unions would have coverage up to the full insurable amount in each credit union. In the case of a credit union having one or more branches, the main office and all branch offices are considered as one credit union.