Interest Rate Roundup

Monday, July 14, 2008

Regional banks getting clobbered; BKX hits almost 12-year low

IndyMac's FDIC takeover appears to be causing a lot of concern about other regional banks. Indeed, regional bank shares have been getting killed today amid worries about their ability to weather the credit storm.

Buffalo, New York-based M&T Bank is one of the big losers after the company released some ugly numbers. Second quarter profit dropped 25% year-over-year. The $1.44 per share in earnings it released missed the average forecast of $1.55 in profit. The company also took a $100 million loan loss provision, more than triple the $30 million of a year earlier. Net chargeoffs surged to $99 million from $22 million.

Who else has been getting hit? National City. Its shares were recently halted amid a steep decline. The company released the following statement in response to the move:

"National City is experiencing no unusual depositor or creditor activity. As of the close of Friday's business, the bank maintained more than $12 billion of excess short-term liquidity. Further, as a result of our recent $7 billion capital raise, National City maintains one of the highest Tier I regulatory capital ratios among large banks."

UPDATE: Bloomberg is reporting that the KBW Bank Index's (BKX) 8.7% decline today is the biggest in the history of the index. The S&P 500 Financials index tanked 6.1%, the most since April 2000. If you chart the BKX on a weekly basis, you see that we have now undercut the bear market lows .... and the lows from the middle of the Long-Term Capital Management crisis in 1998. In fact, this broad index is at its lowest level since November 1996 (chart above). In other words, almost 12 years of gains have been wiped out if you are invested in some of the biggest financial institutions in this country. That’s a sobering thought.

UPDATE2: Washington Mutual is out after the close with the following statement:

"Washington Mutual recently raised $7.2 billion in capital and its tangible equity to total tangible assets ratio was 7.8% as of June 30. The company significantly exceeds all regulatory “well-capitalized” minimums for depository institutions. In addition, WaMu has current excess liquidity of more than $40 billion and a national franchise with approximately $150 billion in retail deposits. The company will provide a more detailed report on its capital position and liquidity, as well as the steps it is taking to work through the current environment, on its July 22 earnings call."


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