Friday, December 25, 2009Defining moments of 2009: Bank failures, workouts grow
One hundred forty banks and thrifts failed through the first 50 weeks of 2009, including 14 in Florida and four in the Tampa Bay area, and industry experts anticipate that pace will continue through 2010.
Banks with high loan losses relative to their capital already are in trouble, and an expected increase in commercial foreclosures could cause the failure of more community banks, said David Hendrix, shareholder at the law firm GrayRobinson. “It doesn’t take many losses at a community bank for the losses to exceed the capitalization rate and for the [ Federal Deposit Insurance Corp.] to find a larger bank to take over the assets.”
Hendrix expects to see more transactions structured similar to BB&T Corp.’s acquisition of Colonial Bank. BB&T (NYSE: BBT) and the FDIC agreed to share losses on Colonial’s loan portfolio.
“We picked up some losses, and the employees stayed employed,” said Bill Klich, BB&T’s Florida president.
Unknown is how much capital investors are willing to sink into banks to prop them up, said Lee Bell, leader of the business adviser group at Saltmarsh Cleaveland & Gund and shareholder in charge of the CPA firm’s Tampa office. Banks based out of state, such as IberiaBank, which bought the failed Century Bank FSB in Sarasota, and Stearns Bank, the buyer of failed First State Bank and Community National Bank of Sarasota County, will continue to enter Florida through acquiring failed or struggling community banks, but in-state buyers will gain ground as well.
Bell, whose firm serves about 100 community banks primarily in Florida, said institutions that survived have been very conservative in their lending approach. He expects to see conservative lending for the foreseeable future.
“You have bankers that have been lenders and today they are workout specialists. They’re focused on figuring out how to help their clients,” Bell said.
Alternative lenders have turned off the spigot but traditional banks continue to make cautious loans, Klich said.
“We’re all trying to build capital and generate revenue,” he said. Also, bankers’ criteria changed from real estate based lending to asset-based lending, Hendrix said. Real estate loans won’t rebound until existing inventory shrinks and prices rise. In their stead, banks will lend to small businesses that pay their bills and have collateral.
“Asset-based lending means banks won’t fail 10 years from now,” Hendrix said.
Why should we care about this in 2010: A few banks will fail, and new companies will enter or existing ones will expand through acquisitions.
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