Fin - Daniel Gross - US

Failure Friday: Pirates of the Caribe

Contrary Indicator

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. 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. (Recent installments of Failure Friday can be seen here and here.)

On the corporate side, there's one new failure to report. Caribe Media, a Puerto Rico-based company that publishes phone directories, filed for Chapter 11 on May 3.

Through the first 19 weeks of 2011, according to S&P, there have been 15 defaults, compared with 35 in the first 19 weeks of 2010. Of those, ten were in the U.S., compared with 24 in the first 19 weeks of 2010.

No banks failed this week. As a result, through the first 19 weeks of 2011, 40 banks with a combined $17.2 billion in assets have failed. By comparison, in the first 19 weeks of 2010, 72 banks with a combined $66.06 billion in assets failed.

So far this year, then, the pace of bank failures is substantially lower than last year, and the typical size of this year's crop of failed banks is smaller than the 2010 vintage.

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