Bank Failure Closes Seven, Three in Puerto Rico

8/9/2019 Bank Failure Closes Seven, Three in Puerto Rico

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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

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May 3, 2010 Bank Fai lur e Closes Seven, Three in Puer t o Rico

Bank Failure Friday costs $7.3 billion in one weekend. I estimate that the FDIC DepositInsurance Fund is in arrears by $36.8 billion. GDP is up for the third consecutive quarterswithout job creation. The Housing and Banking Indices appear to have peaked. My call for theDow remains, Dow 8,500 before Dow 11,500.

Bank Failure Friday Seven banks with three in Puerto Rico were closed on Friday, and the total costfor these failures was $7.3 billion in one weekend. Five of the seven banks were publicly traded andfour of five were on the ValuEngine List of Problem Banks.

The failures of the publicly traded banks were not anticipated in the share prices of Frontier Bank(FTBK) which was trading at $7.90 per share a week ago and closed Friday at $3.57. This is whyinvestors should have a subscription to the ValuEngine List of Problem Banks. The other publiclytraded bank failures were R-G Premier Bank of Puerto Rico (RGFC), Westernbank (WHI) and

Eurobank (EURK). WHI closed at $5.31 on Friday, (OUCH). EUBK traded at $1.50 on April 26th

. Only 25 banks failed in 2008, as the FDIC was slow closing community and regional banks. There were 140 bank failures in 2009 with a peak of 50 in the third quarter. In the first quarter of 2010 there were 41 failures, and so for in Q2 the total is 23 for a year to

date total of 64. At this pace 192 banks will fail in 2010. Since the end of 2007, the FDIC has closed 229 banks.

All seven of Fridays bank failures were overexposed to C&D and / or CRE loans. Six of seven were overexposed to C&D loans with exposures of 129.5% to 1810.0%. All seven had overexposures to CRE loans with exposures between 470.7% and 6626.6%. Five had loan pipelines of 85.1% to 98.9% of loan commitments funded. The other two failures

had relatively healthy loan pipelines. The ignored regulatory guidelines are 100% for C&D loans and 300% for CRE loans.

The Deposit Insurance Fund (DIF) was tapped for $6.5 billion in the first quarter of 2010 and another$9.4 billion for just the first month of the second quarter. This brings the estimated DIF deficit to $36.8billion excluding the prepaid $46 billion that sits on the sideline for 2010 through 2012. After applyingthe $15,333 billion prepaid assessments for 2010 the DIF is in arrears by $28.0 billion. After you applythe total $46 billion prepayments, there is only $9.2 billion left that is supposed to cover all lossesthrough 2012. It looks like the FDIC will have to tap its $500 billion line of credit with the USTreasury, which will put tax payers on the hook yet again.


2/6

Three Quarters of GDP Growth lacks real job creation

On Friday we learned that the Advanced GDP for Q1 2010 was up 3.2%, which was below many of theestimates I saw. This followed a 5.6% rise in Q4 2009, but where are the jobs? Even with current dollarGDP at a record high of $14.6 trillion it will be difficult for the NBER to time stamp Recessions end. Thelabor market is their most important determinant, and unemployment was 4.6% when Recession wastime stamped at the end of 2007. At the end of March unemployment was 9.7%, and even if 200,000

jobs were created in April, the unemployment rate will remain more than double the rate of when theRecession began. GDP may have been up 3.2% in Q1, but Home Investments declined 10.9% andthats key to the economic recovery on Main Street USA.

Consumer spending is said to be at the fastest pace in three years, but keep in mind thatgasoline prices, food prices, and healthcare costs are up significantly from a year ago.

Many economic experts say that we are recovering from the worst recession since the GreatDepression, but now its hard to even compare the two with current dollar GDP going to an all time highafter declining only 1.3% in 2009. It seems to me that if our banking regulators did their jobs that thenear collapse of the banking system would not have occurred in the first place. In hindsight that wascaused by unregulated short selling of bank stocks including naked shorts and the establishing andtrading of mortgage related and company specific derivatives which should have never been allowed. Itwas Wall Street greed at the expense of Main Street, USA.

The Great Credit Crunch is not over as there remains too much leverage in the banking systemrelative to current dollar GDP. This table shows the overleveraged statistics that are only starting to beunwound.


3/6

The Housing Sect or Index (HGX) is overbought and is set t o

Decl ine on t he r isk o f a Double-Dip in Housing

Housing Sector Index (HGX) ended April up 21.8% year to date, but down 57.4% since its July 2005high. The overbought reading suggests that the 200-week simple moving average should be strongresistance at $143.33. This average was a strong support from July 2006 through July 2007. Supportfor May is $105.96, and weekly closes below the five-week modified moving average, now at $117.32signals a bear market for housing stocks.

Chart Courtesy of Thomson / Reuters


4/6

Despi t e cont inued s t ress, Com m uni t y and Regional Banks

have led s toc k s h igher so far th is year.

The Americas Community Bankers Index (ABAQ) is up 19.9% year to date, but is down 43.7%from their December 2006 highs. The index is extremely overbought with my monthly support for Mayat $105.96, and my semiannual and annual resistances at $181.00 and $195.07. The April high at$184.90 thus tested this resistance zone. The 200-week simple moving average declined to $218.05.


The Regional Bankers Index (BKX) is up 30.5% year to date, but is down 54.0% from their February2007 highs. The index is extremely overbought with my monthly support for May at $49.20, and mysemiannual resistance at $59.12. The April high at $58.81 came close to this resistance. This high was

just above the 38.2% Fibonacci Retracement of the decline form the February 2007 high to the March2009 low. The 200-week simple moving average has declined to $75.35.



5/6

Daily Dow:The high of 11,258 was a test of up trend resistance. We now have declining MOJO withthe Dow below its 21-day simple moving average at 11,052, which is a negative chart profile. Thisindicates risk to the 50-day and 200-day simple moving averages at 10,795 and 10,144.


Weekly Dow:The Dow ended last week above its 200-week simple moving average at 11,134 with the61.8% Fibonacci Retracement of the October 2007 to March 2009 low at 11,246. This level was

tested on Monday with a new high for the year at 11,258. MOJO has become even moreoverbought. The weekly chart remains positive but overbought on a close this week above its 5-week modified moving average at 10,879. My annual pivot is 11,235 with semiannual resistance at11,442. I still predict Dow 8,500 before Dow 11,500.



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Thats todays Four in Four. Have a great day.

Richard Suttmeier

Chief Market Strategistwww.ValuEngine.com(800) 381-5576

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. Ihave daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters aswell as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as theValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sampleissues of my research.

I Hold No Positions in the Stocks I Cover.

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Bank Failure Closes Seven, Three in Puerto Rico