Monday, February 28, 2011

Global Sovereign Risk: The Top 10 Most Risky Debtor Nations (Lists) *February 2011 Month End Review*

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Sovereign Risk


Global Sovereign Risk: Top 10 Most Risky Debtor Nations
* February 2011 Month End Review *

Below is a comparison of and the changes to the Top 10 Most Risky Debtor Nations from The 4th Quarter 2010 CMA Global Sovereign Debt Credit Risk Report (December 31, 2010) to the recent CMA Sovereign Risk Monitor (February 28, 2011). This is a snapshot, the market for collateral default swaps (CDS), on which the lists are based, can be volatile and the Top 10 list can change quickly. Civil and military events, government statements and activity, and credit rating agency actions can change the Top 10 list instantly.


Top 10 Most Risky Nations

The Top Ten Most Risky Sovereign Debt (February 28, 2011) The CMA "Sovereign Risk Monitor" listed the following ten nations as having the highest risk of default:
1    Greece
2    Venezuela
3    Pakistan
4    Ireland
5    Argentina
6    Portugal
7    Ukraine
8    Dubai/Emirate of
9    Iraq
10  Egypt

The Top Ten Most Risky Sovereign Debt (December 31, 2010) The CMA "Global Sovereign Credit Risk Report: 4th Quarter 2010" listed the following ten nations as having the highest risk of default:
1    Greece
2    Venezuela
3    Ireland
4    Portugal
5    Argentina
6    Ukraine
7    Spain
8    Dubai/Emirate of
9    Hungary
10  Iraq

Changes in and Comments about the Top 10 from December 31, 2010 to February 28, 2011
Pakistan enters Top 10 as #3 on deteriorating foreign debt status
Egypt enters Top 10 as #10 on the recent revolution and overthrow of government
Spain drops out of Top 10
Hungary drops out of Top 10


About CMA and the CMA Global Sovereign Debt Credit Risk Report 

CMA, the world’s leading source of independent, accurate OTC credit market data, has unrivalled access to information about what is actually happening in the CDS markets. It combines this unmatched breadth and depth of pricing data with market-leading technology to deliver clear and valuable information to financial institutions around the world. The CMA ranks sovereign default risk by CPD (Cumulative Probability of Default). "CPD quantifies the probability of a country being unable to honour its debt obligations over a given period of time period. For Sovereign CDS, this typically includes the probability of a restructuring of debt."


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* Data Courtesy of CMA *


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Friday, February 25, 2011

Bank Failure Friday: FDIC Seizes 1 Bank (Charts) *2011 Totals: Failures 23, Cost $1.74 Billion*

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2010 bank failures were 157, 2009 bank failures were 140


Bank Failure Friday: FDIC Seizes 1 Bank

The FDIC closed 1 bank on Friday, February 25, 2011 to increase the 2011 total to 23. Annual charts of USA bank seizures, FDIC Deposit Insurance Fund Cost for Failed Banks, and the FDIC problem bank list are below. States where banks have been closed in 2011 are: Arizona 1, California 3, Colorado 2, Florida 2, Georgia 6, Illinois 2, Michigan 1, New Mexico 1, North Carolina 1, Oklahoma 1, South Carolina 1, Wisconsin 2.

Total assets of the 1 closed bank was $123,800,000 ($123.8 million), based on the December 31, 2010 call report (regulatory financial statements). The bank was merged via purchase and assumption agreements into another bank.

Overall, the bank was a small community bank with less than $500 million in total assets.

The estimated cost to the FDIC Deposit Insurance Fund for the 1 bank closure this week was $22.8 million. The 2011 YTD total cost is now $1.74 billion. (See chart below).

#23 Valley Community Bank, St. Charles, IL
First State Bank, Mendota, Illinois, to assume all of the deposits
* As of December 31, 2010, Valley Community Bank had approximately $123.8 million in total assets
* First State Bank agreed to purchase essentially all of the assets
* FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.8 million

The next FDIC bank closings, if any, will most likely be announced on Friday, February 25.


USA Failed Banks by Year

Bank failures and therefore FDIC seizure of banks, dramatically increased in 2009 and 2010 - a 2-year total of 297 compared to 0 in both 2005 and 2006. As noted below regarding total problem banks, bank failures in 2011 are expected to continue at a high rate and be 100+. The chart below is the data from 2004 through 2010. Bank failures for 2011 are estimated by extrapolating 2011 actual closures based on a 52-week year. Actual 2011 bank failures will be included on the chart later this year as the closures accumulate to a higher level.
Year, Total Bank Failures
2004: 4
2005: 0
2006: 0
2007: 3
2008: 25
2009: 140
2010: 157
2011: 23 actual, 150 estimated




FDIC Deposit Insurance Fund Cost of Failed Banks

Failed banks and the seizure by the FDIC cost money. The seized banks' deposits are usually assumed by another bank as are most of the assets. However, not all assets of the failed bank have value (usually the worst performing loans, non-performing loans, repossessions, and foreclosures). The FDIC may enter into a loss-share agreement with another bank to manage the questionable assets or take direct possession of the assets and attempt to dispose of them. Upon seizure of a bank, the FDIC estimates the loss to the Deposit Insurance Fund. The Deposit Insurance Fund is normally funded by the banking community through FDIC assessments to each FDIC insured bank based on insured deposits, plus special assessments. Below is a chart of the estimates by the FDIC of costs (losses) incurred upon seizure of banks in 2011. The chart is by week for 2011 and shows the accumulated losses as the year goes along.




FDIC Problem Banks by Year

The FDIC problem bank list continues to rise, actually skyrocket, although the total assets of these banks has leveled off. Now at 12/31/2010 the total is an astronomical 884. The total assets of the problem banks from the year-ends 2004 through 2009 were $28B, $7B, $8B, $22B, $159B, and $403B, respectively. The total assets of the current (12/31/2010) 884 problem banks is $390B, indicating most of these are small to medium community banks.
Date, Total Problem Banks
12/31/2004: 80
12/31/2005: 52
12/31/2006: 50
12/31/2007: 76
12/31/2008: 252
12/31/2009: 702
12/31/2010: 884




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USA Problem Bank List Increases to 884 (Charts) *FDIC Quarterly Banking Profile*

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FDIC Quarterly Banking Profile


USA Problem Bank List Increases to 884 with Total Assets of $390 Billion

Quarterly Banking Profile (QE December 31, 2010) The Federal Deposit Insurance Corporation (FDIC) has issued the Quarterly Banking Profile for the 7,657 commercial banks and savings institutions reporting.  Overall, the USA banking system has rebounded from the 2008 financial crisis but systemic problems and weakness continue.
Insured Institution Performance
On the positive side, the FDIC headlined the Quarterly Banking Profile:
* Banks Earned $21.7 Billion in Fourth Quarter as Recovery Continues
* Full-Year Net Income of $87.5 Billion Is Highest Since 2007
* Asset Quality Improves for Third Consecutive Quarter
* Institutions Set Aside Half as Much for Loan Losses as a Year Earlier
On the negative side, the FDIC also noted in the Quarterly Banking Profile:
* 157 Insured Institutions Failed During 2010

Quarterly Banking Profile Review Although the FDIC is reporting an increase in aggregate Net Income for the 7,657 commercial banks and savings institutions for 2010. Aggregate Capital continues adequate. Both the Net Charge-Off and Noncurrent Assets ratios remain too high and, if not reduced in the next few quarters, will negatively impact Net Income and therefore Return on Assets. The following was noted and charted below:
* Return on assets has increased to +0.66% in 2010 from -0.08% in 2009
* Net charge-off ratio has increased to 2.54% in 2010 from 2.52% in 2009
* Noncurrent (non-earning) assets to total assets has decreased to 3.11% in 2010 from 3.36% in 2009
* Total failed banks has increased to 157 in 2010 from 140 in 2009
* Total problem banks has increased to 884 at 12/31/2010 from 702 at 12/31/2009

Return on Assets (Chart) The aggregate Return on Assets for all FDIC insured institutions bottomed in 2008 and 2009 at about a break-even +0.03% and -0.08%, respectively. The annualized Return on Assets in 2010 is a much improved +0.66% (annualized). A Return on Assets of +1.00% is a benchmark and above is considered very good. Chart data is:
Year, Return on Assets
2004: 1.28%
2005: 1.28%
2006: 1.28%
2007: 0.81%
2008: 0.03%
2009: (0.08%)
2010: 0.66%


Net Charge-Offs to Loans (Chart) The ratio of Net Charge-Offs to Loans continues increasing, which reveals ongoing weakness in loan performance. Net Charge-offs are loan charge-offs net of any recoveries via settlements, payments, or sale of collateral. The Net Charge-Off Ratio has been a very high 2.52%  and 2.54% in 2009 and 2010, respectively. If the Net Charge-Off Ratio does not begin to decrease in 2012, Net Income and therefore Return on Assets will also begin decreasing. A net Charge-Off Ratio of less than 0.50% is a benchmark and considered very good. Chart data is:
Year, Net Charge-Off Ratio
2004: 0.56%
2005: 0.49%
2006: 0.39%
2007: 0.59%
2008: 1.29%
2009: 2.52%
2010: 2.54%



Noncurrent Assets to Total Assets (Chart) The ratio of Noncurrent Assets to Total Assets continues above 3.0%, which is too high. Noncurrent Assets are loans and leases that are noncurrent (90 days or more past due or in nonaccrual status) plus other real estate owned (foreclosed and/or deeded to bank). Noncurrent assets are nonearning assets. As with the Net Charge-Off Ratio discussed above, if the Noncurrent Asset Ratio does not begin to decrease in 2012, Net Income and therefore Return on Assets will also begin decreasing. A Noncurrent Assets Ratio of less than 0.50% is a benchmark and considered very good. Chart data is:
Year, Noncurrent Asset Ratio
2004: 0.53%
2005: 0.50%
2006: 0.54%
2007: 0.95%
2008: 1.91%
2009: 3.36%
2010: 3.11%



Total Failed Banks by Year (Chart) Bank failures and therefore FDIC seizure of banks has dramatically increased in 2009 and 2010 - a 2-year total of 297 compared to 0 in both 2005 and 2006. As noted below regarding total problem banks, bank failures in 2012 should continue at a high rate. Chart data is:
Year, Total Bank Failures
2004: 4
2005: 0
2006: 0
2007: 3
2008: 25
2009: 140
2010: 157



Total Problem Banks (Chart) The FDIC problem bank list continues to rise, actually skyrocket, although the total assets of these banks has leveled off. Now at 12/31/2010 the total is an astronomical 884. The total assets of the problem banks from the year-ends 2004 through 2009 were $28B, $7B, $8B, $22B, $159B, and $403B, respectively. The total assets of the current (12/31/2010) 884 problem banks is $390B, indicating most of these are small to medium community banks. Chart data is:
Date, Total Problem Banks
12/31/2004: 80
12/31/2005: 52
12/31/2006: 50
12/31/2007: 76
12/31/2008: 252
12/31/2009: 702
12/31/2010: 884





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