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Tracking the Problem Banks


And summarizing the status of the housing market as mortgage delinquencies continue to rise.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

Problem banks are publicly traded FDIC insured financial institutions that are overexposed to Construction & Development Loans and/or Nonfarm Nonresidential Real Estate Loans, with "1-Engine" -- Strong Sell, or "2-Engine" -- Sell. I also include all other engine-rated banks -- and those with "n/a" ratings but that forecast figure data points according to my firm's models -- in violation of FDIC guidelines vis-a-vis loan exposures.

Those that aren't covered by ValuEngine due to poor fundamentals or because there's no available EPS estimate but are still in violation of FDIC guidelines are also listed in the ValuEngine FDIC Report.

As of February 15, 2010, there were 228 publicly traded banks overexposed to C&D and/or CRE loans in the ValuEngine database with full data coverage. Of these overexposed banks, 85 were rated "1-Engine" Strong Sells, 64 were rated "2-Engine" Sells -- all of which are predicted to underperform the markets as a whole; 72 were rated "3-Engine" Holds -- which are predicted to roughly match the overall market; seven were rated a "4-Engine" Buy, and none held our highest rating of "5-Engine" Strong Buy -- with the 4- and 5-Engine stocks predicted to outperform the overall market.

There are 755 publicly traded FDIC insured financial institutions overexposed to C&D Loans or Nonfarm Non-Residential Real Estate Loans as per the FDIC's own guidelines. This means that there are currently 149 banks rated Sell or Strong Sell that are also overexposed to C&D and/or CRE loans. There are 186 overexposed institutions with only partial ValuEngine coverage and thus those banks have no rating -- these are included in the problem bank list. There are 341 additional institutions carrying C&D and/or CRE loans in excess of the FDIC guidelines that don't appear in the ValuEngine database.

Failed ValuEngine Problem Banks

Below is a list of the 38 banks that failed in 2009/2010 which were tracked by our ValuEngine List of Problem Banks and FDIC loan exposure data. Banks that have failed since our last report are highlighted in RED. With more bank failures on the horizon, you can track our Problem List by subscribing to the ValuEngine FDIC Report.

Builder confidence inches higher: Touting an increase to 17 from 15 for the NAHB Housing Market Index is like finding a pulse. The NAHB cited signs of healing in the jobs market, continued low mortgage rates, and the tax credits for this sober bounce in an index where 50 is neutral. Based upon this reading to be optimistic doesn't this index need to be above 50? A reading of 17 by definition has to imply that confidence is "very poor."

Housing starts rise in January: An annual rate of 591,000 units is just a bounce due to the tax credits. To show that the tax credit window is small ending on April 30 for contracts, Building Permits declined 4.9%. Getting a home financed and built by June 30 is becoming a stretch.

Not helping housing are higher fourth-quarter 2009 mortgage delinquencies: The percentage of quarterly delinquencies reached another record in the fourth quarter, as 8.9% of mortgage payments were 60 days or more past due, up from 6.25% in the third quarter of 2009. Keep in mind that there remains that wave of adjustable-rate mortgages that were set in 2006 and into 2007 that are in the window of the three to five year resets.

Fed considering quantitative tightening: We appear to be stuck with a zero percent funds rate, but the Federal Reserve appears close to cut back cash in the banking system buy selling securities bought during quantitative easing. The Fed is unlikely to be too aggressive, as they worry about a continued elevated unemployment rate.

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