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Guest Post: SEC Memo Says Guaranty Bank To Be Seized, Not Sold
Submitted By Teri Buhl, republished from Going Concern
In another case of the Feds proping up zombie banks, sources have reported that an SEC memo has stated that the FDIC will seize Guaranty Bank and it will not be sold as previously rumored.
This continues the trend of bank seizures occurring with virtually no warning. According to one prominent hedge fund manager:
“The problem is that the regulators know that if they call these things anything worse than “well capitalized”…it is a kiss of death. In many ways it is the same issue as rating agencies (curse of the AAA) that know that if they downgrade certain types of companies, they are putting them out of business. As a result, many banks are “well capitalized” until the day they are seized. It is absurd.”
Austin, Texas based Guaranty Bank just updated its bank reports to show a $1.8 billion loss for the 1st quarter, of which $1.6 bil was due to “Other-Than-Temporary Impairment Charges on Debt and Equity Securities”. Um, not good.
The seizure by the FDIC will hit the regulator’s budget to the tune of at least $5.3 bil according to sources within the OTS. This, on top of what’s going on with Colonial bank failing, should wipe out what’s left of the FDIC’s budget. As a result, they are going to have to borrow from Treasury and then add that cost to our nations banks, which we all know just gets passed on to the taxpayer in the form of higher banking fees.
According to Paul Miller, analyst for FBR Capital Markets, banks could be assessed 0.5 bps this fall in order to fund the FDIC’s latest seizure.
We’ll continue to update this story as we learn more.
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In a previous post an anonymous poster said that Congress had already authorized an additional $500B for the FDIC.
Yeh, I read that somewhere. I think going to congress for authorization is redundant. Probably all these independent bodies will get a new cash printer soon.
Actually Denninger reported that they have a "potential" line of credit from the Treasury of up to $500 B.
In order the FDIC to tap that credit line, the Treasury needs to sell a shitload of debt first. The credit line is available, just not funded.....YET.
it was in a House bill, I believe, not sure if it became law, etc.
Sorry, this doesn't wash. GFG has said the recent MBS write-down left it with negative regulatory capital. It has said that the FDIC considers it "critically undercapitalized." It has said that its board voted to give OTS the authority to put it in receivership or conservatorship.
So I'm not sure how the "well-capitalized until they day they are seized" comment pertains here. Maybe it has been true elsewhere, but in this case, where's the evidence?
Before you call me a troll, realize I'm just "thinking for myself" as Tyler always tells us to...
The quote is a quote from the refrenced article. Check your links.
Yeah, I see that. I'm calling BS on the article because it makes no sense. You want to try to catch me out on some ticky-tack crap or would you rather try to refute my logic?
"well capitalized" in quotes... as in, that's all the regulators can *call* them - whether they are or not - because calling them anything else causes a run... which is counter-productive to attempting to 'contain' or 'minimize' losses...
Ok, what part of what you just wrote jibes with this excerpt from GFG's 8-K filed two weeks ago:
"Based on these adjustments, the Bank’s core capital ratio stood at negative 5.78% as of March 31, 2009. The Bank’s total risk based capital ratio as of March 31, 2009 stood at negative 5.52%. Both of these ratios result in the Bank being considered critically under-capitalized under regulatory prompt corrective action standards.
"The adjustments and capital ratio impacts described above were prepared for pro forma purposes only and were included in the Bank's amended TFR at the direction of the OTS."
This bank is on the brink of failure? Who is saying it is well-capitalized? No one. Not the holdco, which is disclosing its problems to the public here. And not the OTS, which ordered the changes that made the company undercapitalized.
So how does this particular Zero Hedge post make any sense? It doesn't. It's BS. There is no evidence for its assertions. Doesn't mean they're wrong, necessarily, just not proven.
That's how we roll around here, right?
dude. it's a quote from a "prominent hedge fund manager".... said manager is commenting on the regulators calling them "well capitalized" b/c, in effect, they have to. has nothing to do with any 'facts' in any other stories...
a bank can be "well capitalized" in a regulatory sense b/c regulators can elect to suspend m2m etc... that does not mean they are solvent, but they can then call them "well capitalized" and put off the 'run' on deposits until they have time to seize...
the hf manager is calling bs on that and liking it to the spiral that a downgrade can cause for a company.... in both cases, 'telling the truth now' is put off in favor of stemming a 'run'...
I don't think we're going to see eye-to-eye on this, but I appreciate the response.
My question is simply this: You don't see a disconnect here?
GFG says two weeks ago in an SEC filing that regulators view it as critically undercapitalized. Anonymous hedge fund manager says today that GFG is an example of how regulators say banks are well capitalized right up until they fail.
That's a big disconnect between what ZH is saying and observable reality, IMHO.
yeh but this comes as no surprise does it? this shit has been talked about for days now. so now, something is finally happening on it. their problem all along is that they could't get anyone to step up and take ahold of this hot potato.
"That's a big disconnect between what ZH is saying and observable reality"
let's see if this makes sense -- I'll just comment in parenthesis:
"That's a big disconnect between what ZH is saying (ie what regulators say in the press) and observable reality (what regulators say in SEC filings)"
in the press, they will suspend m2m and calculate ratios without haircuts to capital. behind the scenes, they will not.
You are into semantics and missing the point I think. They went from well capitalized to being basically bankrupt over night. Whether it was today or two weeks ago doesn't matter. By the time they aren't well capitalized the jig is up and the game is over. They obviously should have lost that status a much longer time than 2 weeks ago...
what you said, can be said about the entire banking system of the world, i would think. its like many have said, it is not a question of liguidity, it is question of insolvency. the way it is though, of course, is that some players, (like this one) have no stroke at company headquarters( the FED)....so they must die so that others may live. frankly the aspect of being located in flyover country, did not help them any in this reguard. they are too far away from the mother ship.....
The point is that even though GFG said it two weeks ago in its SEC filing, the FDIC continued to drag their feet until now. How many other banks are currently "critically undercapitalized" but have yet to be put in receivership?
The process of emergency creation to obtain needed billions for the Fed & Treasury to lever up is ramping up to the needed pitch to extract the 500-700 needed this year.
Oh well...
So... was the funding for the FDIC line of solvency already factored in when the guv. released their downwardly revised borrowing estimates for 2009? Can the remaining banks really keep effdick alive with a .5 bps charge going forward? Whatever, I don't even know why I ponder this crap anymore. The charges will be reported with a positive spin anyway. The stock market is loving the news, probably loving the news on the rumored flash order ban as well. I should have told my brain to just shut it and buy some BAC on the morning dip and rip. It's just really eery when the markets become as predictable as the tides, especially when the pattern has held up consistently for more than three months.
This is the story of USA. "Well capitalized" until the last day. When we go have sexy time.
the trouble is, though......who will be pitching and who will be catching.....
The FDIC doesn't just get $500bn guys they have to borrow it from Treasury. And then they just assess the banks a new fee - like they tried to do this spring.
I thought the point here was that if the OTS wasn't allowing its banks to cook their books then the FDIC wouldn't be running out of money. Why do they have to prop up these thrifts - let's just clean out the banking system, tell the truth, and move on.
Great find on this story TD.
Phil
The real propping up is going on in commercial real estate, in which so many community banks invested. The Feds do NOT want to hear of defaults in this area.
But it's all pretty useless. Yesterday, I read that the next leg down will occur when we realize that the bad debt is not $20 trillion, but rather, $30 trillion. But that's the for the debt registered on the books. Altogether, there is about $100 trillion in bad debt, and I may be low.
So around November expect the full reality to settle in.
who is your source on that number of 20-30-100t
usd?
i have read about 3t usd from denninger
in residential with
some comparably large number for cre....
Sheila: "I thought we only seized on Fridays"......
the apparent "ramping up" of siezures or news relating to conservatorship cases leads me to believe that they're quickly losing control of the situation. Needless to say I could be wrong.
my .02
COngrats, Bloomberg is now using you as a reference:
http://www.bloomberg.com/apps/news?pid=20601087&sid=anmUt3cxZCL4
CNBC actually had a little blurb about Guaranty two weeks ago, and then it vanished. My family has a great deal of money in Guaranty and we took it out before the hordes of people make a mad dash for their money.
Banks are evil. Anyone underwater on their mortgages/credit cards should just stop paying and walk away.
http://goingconcern.com/2009/08/sec-memo-says-guaranty-bank-to.php
They've updated the story two days ago - it gets more agressive on predictions that this bank will be a wind down. Also Miller's quote it changed to 5pbs not .5.
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