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Five Things You Need to Know: Regional Bank Woes Awaken Main Street


While Wall Street slaps backs and fires up victory cigars for surviving the fall, Main Street is about to get a gritty dose of reality and throw the fat right back into the fire.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Regional Bank Woes Awaken Main Street

While Wall Street is busy congratulating itself with heart thumping back slaps over how Goldman Sachs' (GS) earnings yesterday demonstrates how far the Debt Crisis is behind us, the guy who lives down the street from you in upper management of a regional bank is flipping over sofa cushions looking to scrounge up enough capital to make it to the end the year.

Fifth Third Bank (FITB) today said it would try to raise $2 billion in capital through a combination of preferred and common stock offering and the sale of "non core" businesses. To a junkie, "non core" is just about anything in the flophouse not nailed down to the floor. In the case of Fifth Third, the bank spent, literally, the last decade swallowing up smaller banks all over Ohio, Indiana and Kentucky in the hopes of attracting a suitor. The debt crisis makes that plan unlikely at best.

Most astonishing, the bank said it saw a 40% to 45% increase in non-performing assets in the second quarter versus the first quarter. Yes, while Wall Street slaps backs and fires up victory cigars for surviving the fall, Main Street is about to get a gritty dose of reality and throw the fat right back into the fire.

See, Bear Stearns, Lehman Brothers (LEH), Goldman Sachs, those are Wall Street banks with Wall Street problems. There's probably not more than a dozen people in all of Ohio who could be paid to muster up the strength to pretend to care about a big time Wall Street bank on the ropes. But Fifth Third? That's different. That's where people deposit their paychecks. That's where people keep their certificates of deposit. That's Main Street.

With consumer confidence and sentiment near their lowest in 20 years, dividend cuts and troubles for regional banks matter. This is Act II of the Debt Crisis. And it's only beginning.

2. More Main Street Heat

According to internal memos obtained by USA Today, for more than a year Wachovia (WB) has been urging its employees not to refund too many overdraft fees because they "make up a big percentage of our revenue and is (sic) a HOT button among leadership."

Meanwhile, in more forthright fashion, Bank of America (BAC) and Washington Mutual (WM) have raised overdraft fees and eased rules to make it easier to dole out multiple fees to customers.

3. Senior Bankruptcy Filings Increase

According to AARP, from 1991 to 2007 the rate of bankruptcy filings by seniors increased 150%. for those 75 and older the increase was even larger, 433%. Meanwhile, the filings by people under age 55 decreased for all age demographics over the same time, -24% for 45-54, down 30% for 35-44 and down 46% for 25-34. How could this be?

The reason is simple: the majority of seniors are living on a fixed income while health care, food and energy costs increase even as interest rates have remained artificially low. Real interest rates have been negative for seven years. This punishes anyone who is risk averse and dependent on an income stream from deposited assets.

So yes, Alan Greenspan, yes, Ben Bernanke, there is a cost to maintaining artificially low interest rates and we're about to find out how expensive that cost really is.

4. More on "Real" Wages

Speaking of "real wages" and income, Richard Moody, chief economist for Mission Residential noted the following regarding yesterday's "Five Things."

"Kevin, the chart below from my monthly commentary is similar to yours, only it shows real wages as well as nominal (data are quarterly). As you note, real wages have been contracting, and, one of the points I make in my piece is that even if workers start to demand higher wages in response to higher food and energy prices, they have relatively little bargaining power today as opposed to back in the 1970s. Not a pretty picture indeed."

5. World's Oldest Profession Facing World's Oldest Dilemma: How to Make More Money

Toddo pointed out an interesting story from Newsweek on tough times for brothels in Vegas. Apparently, according to the Nevada Brothel Owners' Association, revenues for brothels year-to-date is down as much as 45%.

According to Newsweek, prostitution may be recession resistant but it's not recession proof. "Business is in a lower slump than I've ever seen it before," George Flint, director of the Nevada Brothel Owners' Association told the magazine.

Man, when brothels fall into recession you know social mood is getting darker.

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