What were they thinking? Post Script
The Los Angeles Times reported this morning that Wells Fargo Bank had terminated Cheronda Guyton yesterday following a thorough and what appears to be a remarkably quick investigation. Guyton had been a senior vice president at Wells Fargo where she was in charge of a unit that was responsible for disposing of the bank’s foreclosed properties.
The front paper and not buried in the business section article seemed to conclude that the bank wanted to quickly put this unauthorized use of the foreclosed property behind them and move forward. The article concluded that the use of the property was an aberrant act of only one employee.
I somehow feel there will be other personnel actions in the next week or so taken against employees who knew or should have known something was wrong and failed to act. Obviously, these actions will never reach the front page of the newspaper; sort of like when you cut a cancerous tumor out of a body, you take the tumor and the surrounding tissue out to prevent its regrowth and harm.
Be well and stay happy.
Tuesday, September 15, 2009
Monday, September 14, 2009
Consequences of a bank failure
Consequences of a bank failure
I noted last week that credit unions generally have local senior management and decision makers and that this may be a benefit to a small business owner. Let me explain what I mean.
On Friday, Venture Bank of Lacey, Washington failed and was acquired by a bank that is headquartered in North Carolina. How will a bank that is more or less 3,000 miles away understand the local Lacey market?
I don’t have any idea how it will.
What happens when a problem develops late in Washington and everyone has gone home in North Carolina? I wouldn’t want to be the small business owner who has to ask for help at a time like that.
Full and Fair Disclosure: There are many large credit unions that have multi-state operations. I have worked at one but at least our decision makers where usually in the office until 8:30 PM eastern time. Most credit unions, even very large ones, tend to be local. I am eligible to join, two, billion dollar plus credit unions; both have their head offices no more than six miles from my home and both offer business services.
Be well and stay happy.
I noted last week that credit unions generally have local senior management and decision makers and that this may be a benefit to a small business owner. Let me explain what I mean.
On Friday, Venture Bank of Lacey, Washington failed and was acquired by a bank that is headquartered in North Carolina. How will a bank that is more or less 3,000 miles away understand the local Lacey market?
I don’t have any idea how it will.
What happens when a problem develops late in Washington and everyone has gone home in North Carolina? I wouldn’t want to be the small business owner who has to ask for help at a time like that.
Full and Fair Disclosure: There are many large credit unions that have multi-state operations. I have worked at one but at least our decision makers where usually in the office until 8:30 PM eastern time. Most credit unions, even very large ones, tend to be local. I am eligible to join, two, billion dollar plus credit unions; both have their head offices no more than six miles from my home and both offer business services.
Be well and stay happy.
What were they thinking?
What were they thinking?
Last week, the Los Angeles Times, my local newspaper, reported that a Wells Fargo bank senior vice president had spent the Summer living in a super luxury foreclosed home in the exclusive Malibu Colony.
The Times story identified the senior vice president as Cheronda Guyton whose job it was to manage the disposition of foreclosed Wells Fargo Bank property in Southern California. As you might expect, Ms Guyton has been unavailable for comment.
Wells Fargo Bank has promised a vigorous investigation. The Times reported that it was well established bank policy that employees could not use foreclosed property for their own use. Additionally, the bank policy prohibits conduct that will create a conflict of interest.
The Times story valued the home at about USD$12 million and quoted local real estate agents who stated it was available for rent for $60,000 a month. It does have direct access to the beach and the property includes an ownership interest in sixty feet of sandy beach; how much beach depends on where the high tide line.
For those of you who are unfamiliar with Southern California real estate, Malibu is a section of the coast that is usually populated by entertainment industry celebrities and executives. The Malibu Colony is a more exclusive section of Malibu and is surrounded by a wall and has limited gated access; you need a pass to get in, even if you own property there.
Malibu is our version of the Hamptons I guess only without the New Yorkers.
Wells Fargo acquired the property as a debt settlement with one of the Madoff victims. This much is clear cut and agreed upon. I recall the transaction between the borrower and Wells Fargo as being stated to have occurred in March.
Here is where things start to get murky.
The Times reported that Wells Fargo had agreed to delay the marketing and sale of the property for several months. The newspaper stated over the weekend that Wells Fargo was getting ready to sell the property
Why?
Delaying the sale of property seems to be on the less than bright side of things. It is a prime beachfront property. Fall and the coming Winter are just not good times to show a beach front property especially if a storm is eating away at the beach. Spring time would be an excellent time to advertise the property for sale.
With a probable $12 million price tag, it doesn’t seem like the property is going to attract the average Joe and Jane. Properties in the Malibu Colony go on sale all of the time; agents know how to properly market the property to obtain maximum value.
Banks do not want to be in the property management business; it is expensive and generates no direct income. Maintaining property costs money for things like electricity, water, gas, insurance, property taxes, gardening, security, and the list goes on.
Our local television stations, apparently hot for an interesting weekend story, jumped on the newspaper report. The local television news reports featured quotes about large, lavish, and loud weekend parties at the house with one party having the guests arriving on a yacht and then being ferried to the house in the yacht’s dingy.
Wells Fargo Bank is in a major public relations disaster. While one of its employees was partying at a foreclosed luxury home in the Malibu Colony, the bank was evicting hundreds of low and moderate income renters in the San Fernando Valley so the bank could quickly sell the foreclosed properties.
If the bank wanted to quickly sell rental properties in the San Fernando Valley, why wouldn’t it want to do the same for a luxury home in the Malibu Colony?
This story is being to smell like a week old fish that has been baking on the Malibu pier.
It seems to me that Wells Fargo is going to have heads roll and one or more soon to be former employees who will be branded or identified as rogue employees who will be terminated.
As Dr. Phil might say, “What were you thinkin’?”
I would love to be an electronic listening device on the wall when the bank employee explains his or her rationale for their conduct in the face of clearly stated bank policy.
After reflecting, I like Forrest Gump’s line better; “stupid is as stupid does.”
Be well and stay happy.
Last week, the Los Angeles Times, my local newspaper, reported that a Wells Fargo bank senior vice president had spent the Summer living in a super luxury foreclosed home in the exclusive Malibu Colony.
The Times story identified the senior vice president as Cheronda Guyton whose job it was to manage the disposition of foreclosed Wells Fargo Bank property in Southern California. As you might expect, Ms Guyton has been unavailable for comment.
Wells Fargo Bank has promised a vigorous investigation. The Times reported that it was well established bank policy that employees could not use foreclosed property for their own use. Additionally, the bank policy prohibits conduct that will create a conflict of interest.
The Times story valued the home at about USD$12 million and quoted local real estate agents who stated it was available for rent for $60,000 a month. It does have direct access to the beach and the property includes an ownership interest in sixty feet of sandy beach; how much beach depends on where the high tide line.
For those of you who are unfamiliar with Southern California real estate, Malibu is a section of the coast that is usually populated by entertainment industry celebrities and executives. The Malibu Colony is a more exclusive section of Malibu and is surrounded by a wall and has limited gated access; you need a pass to get in, even if you own property there.
Malibu is our version of the Hamptons I guess only without the New Yorkers.
Wells Fargo acquired the property as a debt settlement with one of the Madoff victims. This much is clear cut and agreed upon. I recall the transaction between the borrower and Wells Fargo as being stated to have occurred in March.
Here is where things start to get murky.
The Times reported that Wells Fargo had agreed to delay the marketing and sale of the property for several months. The newspaper stated over the weekend that Wells Fargo was getting ready to sell the property
Why?
Delaying the sale of property seems to be on the less than bright side of things. It is a prime beachfront property. Fall and the coming Winter are just not good times to show a beach front property especially if a storm is eating away at the beach. Spring time would be an excellent time to advertise the property for sale.
With a probable $12 million price tag, it doesn’t seem like the property is going to attract the average Joe and Jane. Properties in the Malibu Colony go on sale all of the time; agents know how to properly market the property to obtain maximum value.
Banks do not want to be in the property management business; it is expensive and generates no direct income. Maintaining property costs money for things like electricity, water, gas, insurance, property taxes, gardening, security, and the list goes on.
Our local television stations, apparently hot for an interesting weekend story, jumped on the newspaper report. The local television news reports featured quotes about large, lavish, and loud weekend parties at the house with one party having the guests arriving on a yacht and then being ferried to the house in the yacht’s dingy.
Wells Fargo Bank is in a major public relations disaster. While one of its employees was partying at a foreclosed luxury home in the Malibu Colony, the bank was evicting hundreds of low and moderate income renters in the San Fernando Valley so the bank could quickly sell the foreclosed properties.
If the bank wanted to quickly sell rental properties in the San Fernando Valley, why wouldn’t it want to do the same for a luxury home in the Malibu Colony?
This story is being to smell like a week old fish that has been baking on the Malibu pier.
It seems to me that Wells Fargo is going to have heads roll and one or more soon to be former employees who will be branded or identified as rogue employees who will be terminated.
As Dr. Phil might say, “What were you thinkin’?”
I would love to be an electronic listening device on the wall when the bank employee explains his or her rationale for their conduct in the face of clearly stated bank policy.
After reflecting, I like Forrest Gump’s line better; “stupid is as stupid does.”
Be well and stay happy.
Worse than I thought
Worse than I thought
I mentioned last week that I thought FDIC deposit insurance premiums would have to go up in the future to cover all of the losses the fund has incurred and will incur in the future as the financial system and its mess sorts itself out in the coming years. I think I understated the scope of the problem.
It was worst than I thought it was.
The Associated Press reported last week that the deposit insurance fund account balance was down to about USD$10.4 billion at the end of June. The FDIC is forecasting continuing costs of up to an additional USD$70 billion through 2013 resulting from the failures of the nation’s banks.
Last Friday’s three closures are estimated to cost the FDIC an additional $2 billion.
You don’t need Wall Street quant to tell you that this is not good. I can do the math in my head and see this is one of “woe shit” epiphany moments.
On the not so dull an bleak side of the picture, the FDIC does have a very large line of credit at the US Treasury and the Federal Reserve will not allow the FDIC to fail.
My small change in my local regional bank is safe unless the Government falls. I don’t think that will happen.
For those of you who might be conspiracy theorists, rent the film, SEVEN DAYS IN MAY, and then buy gold before you dive into your survival bunker somewhere in southern Utah or western Colorado.
Be well and stay happy.
I mentioned last week that I thought FDIC deposit insurance premiums would have to go up in the future to cover all of the losses the fund has incurred and will incur in the future as the financial system and its mess sorts itself out in the coming years. I think I understated the scope of the problem.
It was worst than I thought it was.
The Associated Press reported last week that the deposit insurance fund account balance was down to about USD$10.4 billion at the end of June. The FDIC is forecasting continuing costs of up to an additional USD$70 billion through 2013 resulting from the failures of the nation’s banks.
Last Friday’s three closures are estimated to cost the FDIC an additional $2 billion.
You don’t need Wall Street quant to tell you that this is not good. I can do the math in my head and see this is one of “woe shit” epiphany moments.
On the not so dull an bleak side of the picture, the FDIC does have a very large line of credit at the US Treasury and the Federal Reserve will not allow the FDIC to fail.
My small change in my local regional bank is safe unless the Government falls. I don’t think that will happen.
For those of you who might be conspiracy theorists, rent the film, SEVEN DAYS IN MAY, and then buy gold before you dive into your survival bunker somewhere in southern Utah or western Colorado.
Be well and stay happy.
Friday, September 11, 2009
416 and Rising
416 and Rising
The Federal Deposit Insurance Corporation recently released the aggregate number of troubled banks. The new total is 416, the highest level in 15 years.
Not very comforting news.
The problem is growing instead of shrinking. Last week, the regulators closed five banks. These closures are likely to cost the FDIC’s deposit insurance fund just under USD$400 million. There will be more closures this weekend I think.
The costs to the FDIC insurance fund should concern you. The fund, by law, has to maintain certain capital levels. Banks provide all of the money in the insurance fund. The money the banks pay in comes from their profits.
If any insurance company has a bad string of losses or if you have a couple of automobile accidents, the premiums will go up to cover the losses. The policyholders will pay the increased premiums.
The FDIC will increase its premiums, if you will, that banks have to pay. Unlike consumers who can shop around for the best deal on insurance or decide to have the minimum coverage, banks have no choice. They have to have FDIC insurance to stay in business.
Period, end of discussion, send your check to the FDIC on time.
Banks then will pass this added cost of doing business on to you and me, gentle readers, in the form of higher interest rates and higher fees and elimination of free and low costs services and reduced rates on deposits.
If I were a betting man, I would bet that probably close to 400 of those troubled institutions will fail. Failure is defined as ceasing to be an independent financial institution. This possible number of failures doesn’t include other banks that haven’t reached the troubled banks list yet.
How long could a regime of higher interest and fees last?
It all depends on how long the FDIC decides to take to rebuild the insurance fund capital base. My guess is that it might last as long as five years. But, after five years, customers will be so used to the higher rates and fees there will be no incentive to reduce them.
I think I’ll stop for now. I don’t want to scare you that much; it is still too soon for Halloween.
Be well and stay happy.
The Federal Deposit Insurance Corporation recently released the aggregate number of troubled banks. The new total is 416, the highest level in 15 years.
Not very comforting news.
The problem is growing instead of shrinking. Last week, the regulators closed five banks. These closures are likely to cost the FDIC’s deposit insurance fund just under USD$400 million. There will be more closures this weekend I think.
The costs to the FDIC insurance fund should concern you. The fund, by law, has to maintain certain capital levels. Banks provide all of the money in the insurance fund. The money the banks pay in comes from their profits.
If any insurance company has a bad string of losses or if you have a couple of automobile accidents, the premiums will go up to cover the losses. The policyholders will pay the increased premiums.
The FDIC will increase its premiums, if you will, that banks have to pay. Unlike consumers who can shop around for the best deal on insurance or decide to have the minimum coverage, banks have no choice. They have to have FDIC insurance to stay in business.
Period, end of discussion, send your check to the FDIC on time.
Banks then will pass this added cost of doing business on to you and me, gentle readers, in the form of higher interest rates and higher fees and elimination of free and low costs services and reduced rates on deposits.
If I were a betting man, I would bet that probably close to 400 of those troubled institutions will fail. Failure is defined as ceasing to be an independent financial institution. This possible number of failures doesn’t include other banks that haven’t reached the troubled banks list yet.
How long could a regime of higher interest and fees last?
It all depends on how long the FDIC decides to take to rebuild the insurance fund capital base. My guess is that it might last as long as five years. But, after five years, customers will be so used to the higher rates and fees there will be no incentive to reduce them.
I think I’ll stop for now. I don’t want to scare you that much; it is still too soon for Halloween.
Be well and stay happy.
Where would I bank?
Where would I bank if I were a small business owner?
If I were a small business owner, I would certainly consider my local community bank but only after checking its financial condition. But, a community bank probably would not be my first choice.
I would go to a local credit union. Many credit unions now offer a full range of small business banking services like credit card merchant accounts, remote deposit capture, term loans, and lines of credit in addition to a full set of consumer banking products and services.
Full and fair disclosure: I have a checking account and line of credit with a local regional bank. I have three credit union accounts and one credit card account. My primary financial institution is a credit union.
Here’s why I like using a credit union.
First, my credit union deposits are insured by an agency of the federal government to USD$250,000, just like banks. My credit union is examined annually by federal examiners, just like banks. My credit union has its financial statements audited by an independent certified public accounting firm, just like banks.
My credit union is a member of a credit union shared branch cooperative that allows me to transact business at any one of over 2,500 credit union branches across the country. I have to drive by four shared branch offices, where I could conduct the transaction, when I visit my credit union’s office. My credit union is a member a free, no fee ATM network that has over 26,000 machines worldwide.
I don’t think banks can offer all of these services.
For those of you who have seen your interest rates rise on a credit card or loan from a bank, this next difference might make you blink.
Federal credit unions, they have the word “federal” in their name, have a maximum interest rate on any loan or credit account of only 18.0% APR. It is set by the federal agency that regulates them and has been at this limit for maybe 25 years or more.
No 9.0% interest today and 29.9% tomorrow with a federal credit union. Federal credit unions can increase interest rates; just not to such onerous levels as some banks have done recently.
I can’t speak about state chartered credit unions because each state has its own laws. In California, for example, there is no limit on much interest a credit union may charge.
Credit unions are nonprofit financial institutions. They are owned by the depositors, no out of state shareholders or Wall Street investors to answer to. To date, there has never been a hostile takeover of one credit union by another credit union.
Credit union typically charge less interest on loans and pay higher on deposits. Although with interest rates on deposits as low as they are now, the deposit interest difference may not be all that significant.
Not all credit unions offer business services. The larger credit unions that have a community charter usually offer some range of business services. A community charter means anyone who lives, works, goes to school, or worships in a specific geographic area may join the credit union.
In my case, I am eligible to join three, very large, community based credit unions. These credit unions have offices within less than five miles of my home and they some form of business services. These credit unions all have assets over USD$1 billion which puts them in the category of a regional bank.
One of the nice things about a credit union is that its decisions makers are usually local as well. That may be nice when you have a problem and you do not have the time to deal with an automated phone center.
Just think how convenient it would be, you could speak with the President and Chief Executive Officer or other decision maker about your problem instead of being ignored. You may not receive the answer you want but at least you will have had a prompt face-to-face hearing by a live person.
Finding a credit union is fairly easy. You can do it from the comfort of your home. This is a low tech solution. Open the local Yellow Pages to credit unions; this will give you a list of credit unions in your immediate area. Then, you can go to the Internet and search the list for a credit union that offers the business services you need and want.
I do not want to paint a picture that shows credit unions are near perfect and that banks are not small business friendly. There are probably many fine community banks out there that out small business friendly; I may not have met them yet.
Some credit unions, like banks, are suffering with the current financial crisis. For the most part, credit unions were not involved with sub-prime mortgages and they are not involved with commercial real estate which will be the next big financial mess for banks.
All federal and most state licensed credit unions have to post their financial condition in their offices or make it available to the public on a monthly basis. Take a look at the information; it can be very informative.
Here are some simple calculations that will give you an idea of how healthy the credit union may be. Divide total reserves by total assets; if the number is 7% or greater, this is a good indication of financial health. Divide delinquent loans by total loans, if the number is less than 2%, this is a good indication also.
Good luck on your search and analysis.
Be well and stay happy.
If I were a small business owner, I would certainly consider my local community bank but only after checking its financial condition. But, a community bank probably would not be my first choice.
I would go to a local credit union. Many credit unions now offer a full range of small business banking services like credit card merchant accounts, remote deposit capture, term loans, and lines of credit in addition to a full set of consumer banking products and services.
Full and fair disclosure: I have a checking account and line of credit with a local regional bank. I have three credit union accounts and one credit card account. My primary financial institution is a credit union.
Here’s why I like using a credit union.
First, my credit union deposits are insured by an agency of the federal government to USD$250,000, just like banks. My credit union is examined annually by federal examiners, just like banks. My credit union has its financial statements audited by an independent certified public accounting firm, just like banks.
My credit union is a member of a credit union shared branch cooperative that allows me to transact business at any one of over 2,500 credit union branches across the country. I have to drive by four shared branch offices, where I could conduct the transaction, when I visit my credit union’s office. My credit union is a member a free, no fee ATM network that has over 26,000 machines worldwide.
I don’t think banks can offer all of these services.
For those of you who have seen your interest rates rise on a credit card or loan from a bank, this next difference might make you blink.
Federal credit unions, they have the word “federal” in their name, have a maximum interest rate on any loan or credit account of only 18.0% APR. It is set by the federal agency that regulates them and has been at this limit for maybe 25 years or more.
No 9.0% interest today and 29.9% tomorrow with a federal credit union. Federal credit unions can increase interest rates; just not to such onerous levels as some banks have done recently.
I can’t speak about state chartered credit unions because each state has its own laws. In California, for example, there is no limit on much interest a credit union may charge.
Credit unions are nonprofit financial institutions. They are owned by the depositors, no out of state shareholders or Wall Street investors to answer to. To date, there has never been a hostile takeover of one credit union by another credit union.
Credit union typically charge less interest on loans and pay higher on deposits. Although with interest rates on deposits as low as they are now, the deposit interest difference may not be all that significant.
Not all credit unions offer business services. The larger credit unions that have a community charter usually offer some range of business services. A community charter means anyone who lives, works, goes to school, or worships in a specific geographic area may join the credit union.
In my case, I am eligible to join three, very large, community based credit unions. These credit unions have offices within less than five miles of my home and they some form of business services. These credit unions all have assets over USD$1 billion which puts them in the category of a regional bank.
One of the nice things about a credit union is that its decisions makers are usually local as well. That may be nice when you have a problem and you do not have the time to deal with an automated phone center.
Just think how convenient it would be, you could speak with the President and Chief Executive Officer or other decision maker about your problem instead of being ignored. You may not receive the answer you want but at least you will have had a prompt face-to-face hearing by a live person.
Finding a credit union is fairly easy. You can do it from the comfort of your home. This is a low tech solution. Open the local Yellow Pages to credit unions; this will give you a list of credit unions in your immediate area. Then, you can go to the Internet and search the list for a credit union that offers the business services you need and want.
I do not want to paint a picture that shows credit unions are near perfect and that banks are not small business friendly. There are probably many fine community banks out there that out small business friendly; I may not have met them yet.
Some credit unions, like banks, are suffering with the current financial crisis. For the most part, credit unions were not involved with sub-prime mortgages and they are not involved with commercial real estate which will be the next big financial mess for banks.
All federal and most state licensed credit unions have to post their financial condition in their offices or make it available to the public on a monthly basis. Take a look at the information; it can be very informative.
Here are some simple calculations that will give you an idea of how healthy the credit union may be. Divide total reserves by total assets; if the number is 7% or greater, this is a good indication of financial health. Divide delinquent loans by total loans, if the number is less than 2%, this is a good indication also.
Good luck on your search and analysis.
Be well and stay happy.
Saturday, August 29, 2009
Too Big to Fail Made Easy
Too Big to Fail Made Easy
The best and simplest explanation of the concept of a bank or savings and loan being too big to fail that I have found comes from the Federal Reserve Bank of Cleveland. It can be found on the Economix blog at [ http://economix.blogs.nytimes.com/2009/08/20/defining-too-big-to-fail/?dbk ].
Yes, I know that I should learn to embed links in my blog. I’m not the most technically astute individual and I am waiting for my son to show me how to do this. This is one of things children are supposed to do; help their technologically backward parents.
Be well and stay happy.
The best and simplest explanation of the concept of a bank or savings and loan being too big to fail that I have found comes from the Federal Reserve Bank of Cleveland. It can be found on the Economix blog at [ http://economix.blogs.nytimes.com/2009/08/20/defining-too-big-to-fail/?dbk ].
Yes, I know that I should learn to embed links in my blog. I’m not the most technically astute individual and I am waiting for my son to show me how to do this. This is one of things children are supposed to do; help their technologically backward parents.
Be well and stay happy.
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