Second List of Troubled Banks

Yesterday, we published a list of banks that Richard Bove of Ladenburg Thalmann believes are in "the danger zone" as to the possiblity of failing. That list is here.

Now a second list has emerged. This list is from Washington-based Research Associates of America. RAA use versions of the so-called Texas ratio. The Texas Ratio is a measure of a bank's credit troubles. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing loans by the sum of its tangible equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

There are 10 banks that RAA has listed with a ratio exceeding 100. Here they are:

Colorado Federal Savings, Greenwood Village, CO with a ratio of 244.8. Eastern Savings Bank FSB, Hunt Valley, MD with a ratio of 222.7. Integrity bank, Alpharetta, GA with a 191.6 ratio. Ameribank, Welch,WV with a ratio of 153.7. First Priorty Bank, Bradenton, FL with a 122.6 ratio. First Security Bank, Norcross, GA with a ratio of 112.1. Magnet Bank, Salt Lake City, UT with a ratio of 110.4. Security Pacific Bank, Los Angeles, CA with a ratio of 102.8. First National Bank of Brookfield, Brookfield, IL with a ratio of 102. And, The State bank of Lebo, Lebo,KS with a ratio of 100.6.

Banks in the Danger Zone

On the heels of the failure of IndyMac Bank, Richard Bove at Ladenburg Thalmann has run a few screens on bank stocks to see who else may be in danger of failing.

In a report, he looks at all the FDIC-backed institutions, comparing each bank’s bad loans to its overall assets through two ratios. First, he divides the “non-performing assets” of an institution--bad loans, late loans, foreclosed assets--by all of its outstanding loans. “A ratio above 5 percent suggests danger.” The overall industry ratio is below 2 percent.

Downey Financial, Corus Bankshares, Doral Financial, FirstFed Financial, Oriental Financial, and BankUnited Financial all have danger zone ratios with Downey the highest at 13.6%.

Then Bove ran a second set of numbers dividing a bank’s non-performing assets by its reserves plus common equity. “A ratio about 40 percent is the danger zone.” You have all the same names as listed before, PLUS WASHINGTON MUTUAL which comes in with a ratio at 40.6 percent. Bove calls this being “on the edge” of danger but not quite there yet.