Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

2008: Better For Banks Than You Think

By

Despite credit crunch, most banks scraped by this year.

PrintPRINT

2008 certainly tried the nerves of American bankers - but other years were far worse.

University of Michigan economics professor Mark Perry notes that the 25 bank failures last year pale in comparison to banking crises past. Skeptical of comparisons with the Great Depression, Perry suggests first comparing the current situation to the S&L crisis of the 1980s, when almost 3000 banks were forced to close up shop.

As ugly as 2008 was, the banking system survived. And although many would argue (probably correctly) that it survived only because of unprecedented government intervention, survive it did. US banks are now set to benefit from the biggest economic stimulus package in a generation.

Stuffed with cash from the housing boom, years of low interest rates, and unnaturally high risk appetites, American banks entered the crisis with reserves to spare. In a year that saw the entire global financial system buckle, federal bailouts of AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM) -- and the collapse of Bear Stearns, Lehman Brothers, Wachovia and Washington Mutual -- the fact that only a handful of banks actually folded is remarkable.

Those that did collapse, however, did so in spectacular fashion.

The FDIC seized IndyMac Bank last July, in what was the second largest bank failure in history. The southern California-based lender -- which was spun off from also-defunct Countrywide -- was heavily leveraged to so-called Alt-A mortgages. Alt-A occupies the uneviable spectrum of home loans just barely good enough not to be considered subprime.
In late September, Washington Mutual collapsed, and its more than $300 billion in assets were absorbed by JPMorgan (JPM). WaMu's failure was the biggest bust of all time.

Downey Savings, another southern California mortgage specialist, survived until November, when it finally sucumbed under the weight of its portfolio of option adjustable-rate mortgages, or Option ARMs. Along with Charlotte-based Wachovia (which was forced to sell itself to Wells Fargo (WFC) in October) Downey found that giving out loans without bothering to charge interest turned out to be a bad business model.

Despite dour headlines and predictions of widespread bank runs, most smaller community banks avoided the fae of their larger brethren and survived. Weakened by worsening economic conditions, banks across the board are tightening loan guidelines and hoarding cash just to stay afloat.

2009 isn't likely to be a banner year for the country's bankers - but if they can fare at least as well as they did in 2008, few would be likely to raise a fuss.


TRADE BANK STOCKS? IN 2008 IF YOU HAD BUZZ & BANTER YOU WOULD HAVE BEEN WELL AHEAD OF THE COLLAPSE. GET REAL-TIME INSIGHT & IDEAS IN 2009.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE