Yet More Banks Recession Victims

Even more banks turn victims of recession

U.S. regulators have shut down 7 more banks with total assets of about $1.5 billion, bringing the total number of failed U.S. banks during 2009 so far to 52, compared to 25 in 2008 and 3 in 2007. This marks the largest number of bank failures in one week during the 2008-2009 banking crisis, breaking the previous record of five bank failures in the previous week.

The failed banks witnessed massive capital erosion stemming from losses due to significant exposure in collateralized mortgage obligations (CMOs), commercial real estate loans and other commercial and industrial loans.

The Federal Deposit Insurance Corp. (FDIC) was appointed receiver of the following 7 failed banks: The John Warner Bank of Clinton, First State Bank of Winchester, Rock River Bank of Oregon, Elizabeth State Bank, Founders Bank, First National Bank of Danville and Millennium State Bank of Texas. FDIC arranged for other institutions to assume all the deposits and branches of the failed banks.

The FDIC estimates total cost to the deposit insurance fund from the failure of these banks to be approximately $314 million. The deposit insurance fund now stands at its lowest level since 1993 - $13 billion as of the end of March 31, 2009.

The largest acquirers of U.S. bank failures during 2008 and 2009 include JPMorgan Chase (JPM - Analyst Report) (acquired Washington Mutual), Wells Fargo & Company (WFC - Analyst Report) (acquired Wachovia Bank), Zions Bancorporation (ZION - Analyst Report) (acquired Alliance Bank), BB&T Corp. (BBT - Analyst Report) and Fifth Third Bancorp (FITB - Analyst Report).

Though the signs of recession easing out may bring an end to the losses on home mortgages, we expect losses on commercial real estate loans portfolio to continue to affect profitability in the near-term for banks (e.g FITB, ZION) having large exposures. Furthermore, based on our expectations that unemployment and loan defaults will continue to rise in the coming months, we expect more small-cap banks to succumb in this prolonged recession.

Read the full analyst report on JPM

Read the full analyst report on WFC

Read the full analyst report on ZION

Read the full analyst report on BBT

Read the full analyst report on FITB