On Failure Friday, we drill down into two pieces of information on corporate-level financial stress.
In the morning Standard & Poor's sends around its list of defaults -- i.e., which companies have missed payments or defaulted on bonds. In the afternoon, after the market closes and people head to happy hour, the Federal Deposit Insurance Corporation's unhappy hour commences. Starting at 5:00 p.m. or so, the FDIC begins sending out press releases announcing the latest bank failures.
Failure Friday helps fill in details of the larger picture that has emerged in this recovery. Signs of consumer debt stress continue to abound, from foreclosures to elevated levels of credit card charge-offs.
But it's a different story in the boardroom. Companies have moved quickly to repair their balance sheets by cutting costs, finding revenue growth in emerging markets and refinancing debt at rock-bottom levels. Banks have benefited from the extraordinary efforts of the Federal Reserve, the Treasury Department and the FDIC to forestall wholesale collapse. But such was the scale of the housing and credit boom (and subsequent bust) that casualties continue to amount in the propped-up sector.
(The previous installments of Failure Friday can be seen here, here and here.) Failure Friday took a break last week for President's Day weekend. So this week we're covering two weeks worth of ill tidings.
Once again, this week's installment of Failure Friday highlights the dichotomy between strong companies and weak banks. On Feb. 16, Ahern Rental, a construction equipment rental firm, defaulted on its debt. That marked the only global default in the past two weeks. Through the first eight weeks of 2011, three companies have defaulted on their bonds, compared with 17 for the first eight weeks of 2010. Through the first eight weeks of 2011, two U.S. firms have defaulted on bonds, compared with 14 for the first eight weeks of 2010.
The news from the FDIC wasn't quite as uplifting as S&P's dispatch. Five banks have been added to the failed bank list in the past two weeks. On Feb. 25, Valley Community Bank of St. Charles, Ill., (assets: $124 million) closed and was taken over by First State Bank.
The week before last there were four closings.
- Habersham Bank of Clarkesville, Ga., (assets: $387 million) closed and was taken over by SCBT National Association.
- Citizens Bank of Effingham of Springfield, Ga., (assets: $214 million) failed, and its assets were purchased by Heritage Bank of the South.
- Charter Oak Bank of Napa, Calif., (assets: $120 million) was felled and will be taken over by Bank of Marin.
- San Luis Trust Bank of San Luis Obispo, Calif., (assets: $333 million) closed and was taken over by First California Bank.
So what's the tally? Check out the FDIC's failed bank list. In the first eight weeks of 2011, 23 banks with a combined $9.6 billion in assets failed. By comparison, in the first eight weeks of 2010, 22 banks with a combined $15.9 billion in assets failed. So far this year, then, the pace of bank failures is somewhat higher than last year, but the typical size of this year's crop of failed banks is smaller than the 2010 vintage.
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- Bank of Marin
- Federal Deposit Insurance
- credit card
- emerging markets
- balance sheets
- consumer debt stress