Closer Look At FDIC Bank Closures (excellent analysis on Jim Sinjclair's Mineset)

Forestalls the day of reckoning when banks

are forced to own up to the decimated condition

of their balance sheets.

11/18/10
Jim Sinclair’s Commentary

I consider this analysis one of the most important articles ever carried on Link to Jim Sinclair Site. I ask you to please read it so you know what a camouflage operation this so called recovery is.

Major congratulation are due to CIGA Richard for all the work he has put into bringing this to our attention.

Look how degraded the Western Financial system is, yet the public sees no wrongdoing in what Western Society has become.

The Piper must, will and is being paid.

Dear CIGAs,
The following analysis covers the 38 banks closed by the FDIC between August 6, 2010, and November 12, 2010. So far this year, the FDIC has closed 146 banks. So far in this crisis, since 2007, it has closed 311 banks.

Collectively, the 38 banks had stated assets of $13.78 billion and deposits of $11.97 billion. The FDIC’s estimated cost of closing all 38 banks was $2.72 billion, about 23% of deposits. That brings the FDIC’s total estimated losses for 2010 up to $21.6 billion.

Loss Share Remains The Rule

In the overwhelming majority of cases (30 closings out of 38), resolution of the failures was accomplished by way of the FDIC entering into loss share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these 30 closings, the FDIC entered into new loss-share agreements covering an additional $8.2 billion in assets.

That brings the total face value of assets covered by FDIC loss share agreements up to about $189 billion. As we have discussed in the past, these loss share agreements typically guarantee at least 80% of the value of assets over a period of eight to ten years.

This is another form of quantitative easing being practiced by the federal government. FDIC loss share agreements place an artificial floor under the value of bank assets. This forestalls the day of reckoning when banks are forced to own up to the decimated condition of their balance sheets.

Failures Show Dramatic Overvaluations

One of the more valuable bits of information we can glean from FDIC bank failure announcements is the extent to which management of the failed banks exaggerated the value of the banks’ assets. These exaggerations were made legal in early 2009 when the Financial Accounting Standards Board repealed fair value accounting requirements.

Taking the 38 failed banks as a whole, they had declared assets of $13.78 billion and deposits of $11.97 billion. The FDIC estimated the closings cost $2.72 billion, meaning the banks’ assets were really only worth $9.25 billion. Overall, bank management overvalued assets by $4.53 billion, around 49%.

Specific examples were far worse:

• Maritime Savings Bank of West Allis, Wisconsin, had stated assets of $350.5 million and deposits of $248.1 million. The FDIC estimated its closing cost $83.6 million. Based on that estimate, the bank’s assets were really only worth $164.5 million, and had been overvalued by 113%.
• ShoreBank of Chicago, Illinois, had stated assets of $2.16 billion and deposits of $1.54 billion. The FDIC estimated its closing cost about $370 million. Based on that estimate, the bank’s assets were really only worth about $1.17 billion, and had been overvalued by 84%.
• Premier Bank of Jefferson City, Missouri, had stated assets of $1.18 billion and deposits of $1.03 billion. The FDIC estimated its closing cost $407 million. Based on that estimate, the bank’s assets were really only worth $623 million, and had been overvalued by 84%.
• K Bank of Randallstown, Maryland, had stated assets of $538.3 million and deposits of $500.1 million. The FDIC estimated its closing cost $198.4 million. Based on that estimate, the bank’s assets were really only worth $301.7 million, and had been overvalued by 78%.
• Finally, Horizon Bank of Bradenton, Florida, had stated assets of $187.8 million and deposits of $164.6 million. The FDIC estimated its closing cost $58.9 million. Based on that estimate, the bank’s assets were really only worth $105.7 million, and had been overvalued by 78%.

Pace of Bank Closings Artificially Slow

The FDIC’s closure of 38 banks over three months is by no means an insignificant number. However, in the context of the FDIC’s overhang of troubled banks, it suggests the pace of bank closings is being kept artificially low.

As of April 2010, there were about 425 banks operating under serious FDIC enforcement orders that called into question the banks’ solvency. Since then, upwards of 25 new banks have come under such orders each month.

Therefore, closing 13 banks a month has done nothing to reduce the backlog of troubled banks operating in the Country. That backlog could only have grown.

Most likely, the pace of bank closings had been held back artificially by the need to keep up appearances for the benefit of the mid-term elections. With those now behind us, I would expect the pace of bank closings to accelerate considerably.

Respectfully yours,
CIGA Richard B.



This is a dark day for the Harley Guys (Jim Sinclair)

Jim Sinclair’s Commentary
11/8/10
Jim's Site

Has the economic world ended? The American Icon has moved to India. This is a dark day for the Harley Guys.

Will they have to fly the Indian flag along with the American flag when they come to Sturgis this year? Instead of the low wave Harley guys are going to Namaste each other.

Not a bad return for $200 million a day. I bet you will be able to buy some cheap Harleys soon. I am turning mine in for a Rice Rocket.

CNN

Harley-Davidson, the iconic American motorcycle brand with a cult-like following, has announced it has chosen to build its second assembly plant ever outside the United States in India. India or Bust

Other Harley-Davidson News

The Kansas City Star
By Randolph Heaster
11/8/10
Workers at Harley-Davidson Inc.’s Kansas City plant figured it was coming. But when the company told the work force last week that “competitive gaps” at the factory would need to be addressed in order to keep it open, it still was a jolt, the plant’s union leader said.

Earlier, Harley used the same negotiating tactic at plants in York, Pa., and Wisconsin, saying that work would move elsewhere unless the plants became more competitive. In both cases, the union workers agreed to cost-cutting changes that will take effect in 2012.

“We’ve been kind of expecting it,” said Tony Wilson, president of Machinists Local 176 at the Kansas City plant. “We were hoping it would be later rather than sooner. Even though our people recognized we would probably negotiate again, it still raised concerns when you finally get the news.”

The recession and the slow recovery have created a bumpy ride for Harley, the motorcycle maker that in the past was held up as the model for how an American manufacturer can succeed with a unionized work force. Profits fell sharply in 2008, and Harley posted a rare annual loss in 2009.

Keith Wandell became Harley’s CEO in the spring of 2009. A few months later, the negotiations in York began, resulting in a contract that reduced the work force by more than one-half.

About 325 jobs were also eliminated as result of workers approving a new contract at Wisconsin plants in Menomonee Falls and Tomahawk. The union also agreed to eliminate full-time jobs and allow the company to use more part-time or casual workers.

Harley has not specified what types of changes it will seek in Kansas City, which now has about 625 production workers and about 750 total employees. Read more

The Future Of Quantitative Easing (Jim Sinclair)

10/31/10
My Dear Friends,

Tomes have been written this week about quantitative easing, many written by those who didn’t know what QE meant twelve months ago. Tomes are silly as very few actually read them. Those that do read are comatose by the end. We do not do tomes here. We present conclusions.

QE to infinity means the economic can gets kicked down the road again at the cost of the dollar’s value and therefore sparks the event of accelerated currency induced cost push inflation.

No QE means a violent collapse of general business within 90 days. That takes the camouflage off of the following:

• False balance sheets of financial entities, thanks to the sale of the FASB’s soul to political pressure, are exposed.
• Further collapse of tax revenue to states brings about a financial crisis much larger than anyone presently anticipates.
• The malaise in the US destroys what little is left of general confidence in the austere Euro region.
• The rape of pension funds is exposed.

Gold will go to a figure equal to all foreign debt of the USA divided by the number of ounces that the US is assumed to have. This is how you can calculate the potential price.

If moderate levels of QE are utilized, that means the can gets kicked down the road once again at the cost of the dollar and therefore the event of accelerated currency induced cost push inflation. It might in this case take a few days before the markets figure it out. If moderate QE is announced that means QE to infinity but only revealed a little at a time or not revealed at all. To do QE to infinity without revealing it violates the tool of communication recently discuss by the Fed which means MOPE. It will be revealed.

By Jim Sinclair
 Jim Sinclair's Site

A World That Cherishes Lies (Jim Sinclair)

For those of you that are not familiar with Jim Sinclair's site, I encourage you to visit as it is truly worth the trip. The following is a post on Jim's site today. Link to Jim's site

Jim Sinclair's Motto

“Quis custodiet ipsos custodes? Qui tacet consentire videtur.”

(Who will watch the watchers? He who is silent appears to consent.)Dear Friends,

Please read the following. I consider this one of the most important viewpoints given to you since this endeavor began seven years ago.

I am totally disgusted that the world we live in welcomes, maybe even cherishes, lies when they benefit from those lies. It is possible that the number of broken banks in the USA and elsewhere are comparable to the number of broken banks in 1930.

FASB capitulated to lobby pressure and legislative threats to cancel Fair Value Accounting. Read the following article. Lying and kicking the can down the road only turns a simple can to a nuclear device.

The financial industry has been given the blessing of their regulators, FASB, to publish false and misleading balance sheets and income statement. God help us all. At least Sodom and Gomorra had some fun in their last days. Financial Sodom and Gomorra have been invited and are being blessed by those we have put our trust in to maintain ethics.

Fabrication is economic sin and therefore cannot cure our problems but lead us into a form of damnation economically. If you, like yesterday, were thinking of throwing out your insurance because paper gold can be manipulated, do so, but do not break my chops.

What you see below is as prevalent in major banks as it is in regional banks. How much is your bank overvaluing their assets by?

Dear Jim,
Last Friday, July 16, 2010, the FDIC announced six more bank failures, making the total 96 so far this year. These were relatively small banks. Collectively, they had assets of $2.03 billion and deposits of $1.78 billion.

The FDIC’s estimated cost of closing these six banks was 334.8 million, about 19% of deposits. All six were resolved with the FDIC entering into loss share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these closings, the FDIC entered into new loss-share agreements covering an additional $1.5 billion in assets.

That brings the FDIC’s total losses for 2010 up to $18.11 billion. The total face value of assets now guaranteed under FDIC loss share agreements has grown to $178.66 billion.

Each failure announcement allows us a peek into how extensively bank management have been exaggerating the value of their least liquid assets since the FASB’s roll-back last year of fair value accounting requirements. The worst offenders from the past week were as follows:

Main street Savings Bank, FSB, had stated assets of $97.4 million and deposits of $63.7 million. The FDIC estimated its closing cost $11.4 million. Based on that estimate, the bank’s assets were really only worth $52.3 million, and had been overvalued by 86%.

Turnberry Bank of Aventura, Florida, had stated assets of $263.9 million and deposits of $196.9 million. The FDIC estimated its closing cost $34.4 million. Based on that estimate, the bank’s assets were really only worth $162.5 million, and had been overvalued by 62%.

Woodlands Bank of Bluffton, South Carolina, had stated assets of $376.2 million and deposits of $355.3 million. The FDIC estimated its closing cost $115 million. Based on that estimate, the bank’s assets were really only worth $240.3 million, and had been overvalued by 57%.

Metro Bank of Dade County of Miami, Florida, had stated assets of $442.3 million and deposits of $391.3 million. The FDIC estimated its closing cost $67.6 million. Based on that estimate, the bank’s assets were really only worth $323.7 million, and had been overvalued by 37%.

Keep in mind that since the FDIC is resolving all these failures by way of granting loss share agreements, the assumed value of each failed bank’s assets is being skewed to the upside. Were the assets being sold without any future obligation on the FDIC’s part the prices realized would be much lower and the extent of overvaluation much higher.

Respectfully yours,

CIGA Richard B.