The New Year is just around the corner so using the most recent 09/30/2010 banking industry data submitted to the FDIC, I have recently compiled the Quanta Analytics List of U.S. Banks in Trouble for 2011 and Beyond. But before I explain how you can obtain this free, no strings attached, no hassle, and no continuous follow-up list, I believe it is important to explain several key points in relation to the Quanta Analytics List.
One, although the banking world may still be struggling, the Quanta Analytics List shows that it is not going to crumble. Even though there are still a significant number of banks in trouble, most of the bill has been paid and the worst of the banking crisis is over. The new Quanta Analytics List of Troubled Banks for 2011 and Beyond identifies 446 banks with a total asset base of $219 billion, which is approximately half the size of the FDIC’s own troubled bank list which is not made public.
Two, putting the size of the QA troubled bank list into perspective, it is important to understand that the QA list represents less than 5.8% of the banks in the banking industry and that these troubled banks account for less than 1.7% of all banking assets.
Three, not all banking assets are toxic. The total estimated losses that Quanta Analytics expects the FDIC to incur if they had to shutdown all 446 banks on the Quanta Analytics list (which they will not have to do) would be in the range of $13 – $20 billion.
Four, the Quanta Analytics List for 2010, which was also less than half the size of the FDIC’s troubled bank list, contained 52 of the last 53 banks shutdown by the FDIC. Essentially what I am saying with this point is: the Quanta Analytics list is a tight list, sorted by the banks most in trouble. And even though the list may contain a few “weak sisters” that are likely to survive, it does not stretch its risk criteria to add banks just to try and protect its record against banks actually shut down by the FDIC nor does it try to over-dramatize the remaining bank risk.
Five, not all areas of the country are created equal. Thirteen states account for 72% of the banks in trouble and 63% of the banking assets on the QA troubled bank list. These thirteen states in order of the number of troubled banks counting downward are: Georgia; Florida; Illinois; Minnesota; Washington; Michigan; California; Missouri; Colorado; North Carolina; Wisconsin; South Carolina; and Kansas.
Six, and I repeat myself—but not all areas of the country are created equal. Fourteen states and the District of Columbia account for only 2% of the banks and 7% of the banking assets on the list. These fourteen states in order of least concern are: Alaska, Maine, New Hampshire, Vermont, West Virginia, Wyoming (all of which do not have any banks on the QA list), then Connecticut, Mississippi, South Dakota, Hawaii, Indiana, Delaware, Massachusetts, and Rhode Island (all of which have one bank on the list).
Seven, even troubled banks can be segregated into different risk groups and the Quanta Analytics list does this by segregating banks into four quadrants by comparing the ratio between Non-performing Assets (i.e., NPA or the amount of loans in delinquent status or foreclosure) and Equity. For example, the worst risk quadrant on the QA list contains 102 banks that have an NPA to Equity ratio greater than three—not good by the way.
Eight, as a check point, the values for annualized net income (which is negative for most of the banks on the list) were compared to the values for Non-performing assets and they correlated well. For example, 70-five per cent of the banks identified as falling in risk quadrant one would burn out the remaining equity in less than two-years at the current annualized rate of losses. Four banks on the list already show negative Equity.
And finally nine, a small sampling of eighteen of the troubled banks (the worst 10 and the eight banks that had more than $1 billion in assets in QA’s risk quadrant one) showed that more than 15% of deposits sat in accounts with amounts greater than the FDIC insurance level of $250,000. For this small sample group of eighteen from the QA list there were more than $2.63 billion out of a total deposit total of $15.0 billion in 3,508 accounts which had account balances greater than $250,000—an average of $752,000 for this particular group of accounts.
As someone who directed the group of analysts who helped Ginnie Mae manage and monitor the risk of their mortgage-backed security portfolio during the Savings & Loan crisis, I cannot help but admire the work the FDIC has done to effectively begin cleaning up the banking industry. I only wish that I could say the same thing for Congress, the Federal Reserve, and the U.S. Treasury.
The Quanta Analytics List can be used in many different ways, but the primary reasons for developing it were to: (1) independently monitor the FDIC; (2) verify the quality of public data; (3) substantiate and fine tune quantitative theories developed nearly 20-years ago during the S&L crisis; and (4) hopefully protect some of those people that have accounts in troubled banks that are not fully insured. The Quanta Analytics List can be obtained through the following email address: [email protected].
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