Archive for November, 2009

It was a quiet Friday in terms of announcements from the FDIC. There were no U.S. bank closures . Have a good weekend!

I was looking through the latest Bellingham building permit applications and noticed a couple of interesting items:

- At 1426 Cornwall Ave., near the Pickford Cinema, there’s a tenant improvement application for a new gelato/chocolate shop. I couldn’t find the details on who the owner is at this point.

- Rocket Donuts at 306 W. Holly St. has applied for a permit to remodel the storefront, including expanding its bakery area.

I just got back in the office after watching the 4 a.m., 5 a.m. and 6 a.m. openings at the Bellingham stores. First thought: Busy, but not too chaotic. There was some confusion at Wal-Mart, but it look liked they handled things well. Early morning trends:

- Plenty of electronics going out the doors at several stores.

- There seemed to be more Canadians than last year.

- Door-buster products disappeared quickly.

- Lines for the cash registers got long quickly at Wal-Mart, Target, but didn’t see many tense moments (no yelling, elbows being thrown, etc).

The Old Navy store at Bellis Fair will be open at 4 a.m. on Black Friday, according to Dennis Curtis, general manager at Bellis Fair. The main doors at Bellis Fair will be open at 4 a.m. to allow access to Old Navy. The other non-anchor businesses at Bellis Fair are scheduled to open at 6 a.m.

The Bellis Fair JC Penney, by the way, will be planning on a 3:45 a.m. opening, which would make it the first offering Black Friday sales.

Here’s a press release from the FDIC about how banks fared in the third quarter. The upshot: Income grew, but banks weren’t lending, particularly to businesses. It’s a challenging spot to be in: To get the economy going, banks need to be lending to businesses so they can expand and hire people. But, because of problems with non-performing assets, many banks aren’t able to lend.

The bottom of the press release also talks about the list of “Problem Banks” growing to 552, the highest level since 1993. Here are the details from the FDIC:

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $2.8 billion in the third quarter of 2009, but loan balances declined by the largest percentage since quarterly reporting began in 1984. Quarterly earnings were more than three times the $879 million the industry earned a year earlier and represented an improvement over the industry’s $4.3 billion net loss in the second quarter of 2009. More than 26 percent of all insured institutions reported a net loss in the latest quarter, up slightly from nearly 25 percent a year earlier.

“Today’s report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” said FDIC Chairman Sheila Bair.

With regard to the decline in loan balances, Chairman Bair said, “There is no question that credit availability is an important issue for the economic recovery. We need to see banks making more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use.”

Provisions for loan losses totaled $62.5 billion in the quarter, an increase of $11.3 billion (22.2 percent) over the third quarter of 2008. Net interest income was $4.6 billion (4.8 percent) higher than a year earlier, noninterest income increased by $4.0 billion (6.8 percent), realized losses on securities and other assets were $3.8 billion lower, and noninterest expenses declined by $1.6 billion (1.7 percent).

The FDIC noted that indicators of asset quality continued to deteriorate during the third quarter; however, the pace of deterioration slowed for the second consecutive quarter. Both the quarterly net charge-off rate and the percentage of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) rose to the highest levels in the 26 years that insured institutions have reported these data. Insured institutions charged off $50.8 billion in uncollectible loans during the quarter, up from $28.1 billion a year earlier, and noncurrent loans and leases increased by $34.7 billion during the third

quarter. At the end of September, noncurrent loans and leases totaled $366.6 billion, or 4.94 percent of the industry’s total loans and leases.

Total loans and leases declined by $210.4 billion (2.8 percent) during the quarter. Loans to commercial and industrial borrowers declined by $89.1 billion (6.5 percent), residential mortgage loan balances fell by $83.7 billion (4.2 percent), and real estate construction and development loans declined by $43.6 billion (8.1 percent). Total assets of insured institutions declined by $54 billion. Banks’ balances with Federal Reserve banks increased by $142.4 billion (36.7 percent) during the quarter, and investments in U.S. Treasury securities rose by $28.6 billion (49.3 percent), as institutions increased their lower-risk assets.

Financial results for the third quarter and the first nine months of 2009 are contained in the FDIC’s latest Quarterly Banking Profile, which was released today. Among the other findings:

Net interest margins improved to a four-year high. The average margin (the difference between the average yield on interest-earning assets and the average interest expense of funding those assets) rose to 3.51 percent from 3.48 percent in the second quarter and 3.37 percent in the third quarter of 2008. Almost two-thirds of all institutions (62 percent) reported higher margins than in the second quarter. Net interest income totaled $99.9 billion in the quarter, up from $95.3 billion a year earlier.

The number of institutions on the FDIC’s “Problem List” rose to its highest level in 16 years. At the end of September, there were 552 insured institutions on the “Problem List,” up from 416 on June 30. This is the largest number of “problem” institutions since December 31, 1993, when there were 575 institutions on the list. Total assets of “problem” institutions increased during the quarter from $299.8 billion to $345.9 billion, the highest level since the end of 1993, when they totaled $346.2 billion. Fifty institutions failed during the third quarter, bringing the total number of failures in the first nine months of 2009 to 95.

“For now, the credit adversity we have been discussing for some time remains with us, and we expect that it will be at least a couple of more quarters before we see a meaningful improvement in that trend,” Chairman Bair added. “Despite the challenges, I am optimistic that if we address these problems head-on, we will see clear signs of improvement in bank earnings and lending in 2010.”

As projected in September, the FDIC’s Deposit Insurance Fund (DIF) balance – or the net worth of the fund – fell below zero for the first time since the third quarter of 1992. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings over the next year. Combining the fund balance with this contingent loss reserve shows total DIF reserves with a positive balance of $30.7 billion.

Chairman Bair distinguished the DIF’s reserves from the FDIC’s cash resources, which stood at $23.3 billion of cash and marketable securities. To further bolster the DIF’s cash position, the FDIC Board approved a measure on November 12th to require insured institutions to prepay three years worth of deposit insurance premiums – about $45 billion – at the end of 2009. “This measure will provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010, but without accelerating the impact of assessments on the industry’s earnings and capital,” Chairman Bair said.

Total insured deposits increased by 10 percent ($491.5 billion), reflecting new data collected on the temporary increase in the standard maximum FDIC deposit insurance amount from $100,000 to $250,000.

The complete Quarterly Banking Profile is available at http://www2.fdic.gov/qbp on the FDIC Web site.

I’m compiling a list of times retailers are opening for the day after Thanksgiving in Bellingham, which will go into an upcoming story. Retailers: Feel free to add to this list under the comments section, or send me an e-mail (dave.gallagher@bellinghamherald.com)

3 a.m.: Old Navy

4 a.m. Sears, Kohl’s, JC Penney

5 a.m.: Wal-Mart (Store open all night, but Black Friday sale starts at 5 a.m.), Target, Fred Meyer, Best Buy, Macy’s, DeWaard & Bode

6 a.m. Bellis Fair, Michaels, Home Depot, Lowe’s, Kmart, JoAnn Fabrics, Office Depot

7 a.m. OfficeMax, Ace Hardware

8 a.m. Yeager’s Sporting Goods.

9 a.m. Swell

9:30 a.m.: The Paperdoll

Government regulators have started its Friday afternoon closures with a small bank in Florida. Details are below. I’ll add new posts if there are more bank failures later today.

Commerce Bank of Southwest Fla. in Fort Myers was closed, then taken over by Central Bank of Stillwater, Minn. There was just one branch. Estimated cost to the FDIC: $23.6 million.

It’s the 124th U.S. bank closure this year.

Here’s an interesting story from the Associated Press (pasted below) about Alcoa having to idle some smelters in Italy because of trouble securing low electricity rates. It sounds very similar to what’s been happening in Ferndale the past 10 years. If the EU maintains this position, I wonder what kind of impact it would have for other commissions across the globe negotiating future rates. Would it show utility agencies that Alcoa is serious about shutting down, or would more follow the lead of the European Commission?

NEW YORK (AP) – Aluminum producer Alcoa Inc. said Thursday it will temporarily idle production at its two smelters in Italy, affecting about 2,000 workers, after a decision by the European Union left the company’s ability to secure electricity for the plants at low rates uncertain.

Italy for 10 years gave energy-intensive industries a break on power prices. The tariff was approved by the European Commission in 1995, when Alcoa purchased the smelters. Without that subsidy, Alcoa said the smelters – which employ 1,000 and another 1,000 workers indirectly, can’t make money at current Italian power rates.

But the EU ruled Thursday that Italy’s extension of electricity subsidies after 2005 did not comply with regulations, and is demanding that Alcoa repay those benefits to the state. Alcoa is appealing the decision.

“The EC is sending a signal to investors and workers that heavy industry is no longer a priority,” said Alcoa President and CEO Klaus Kleinfeld, in a statement. “The EC’s decision, which was not based on a complaint by a competitor or any third-party, will effectively shut down Italian aluminum production and make the European aluminum industry less competitive in the worldwide markets.”

The smelters will be wound down by the second half of December. Alcoa’s rolling mill in the town of Fusina, which is adjacent to the smelter, is not directly impacted by this action.

“We will continue to use every lever in an attempt to gain access to competitive power so that we can get our people back to work,” said Marcos Ramos, president of Alcoa Primary Products Europe.

Pittsburgh-based Alcoa, which has about 63,000 employees globally, said it will book a pretax charge of $300 million to $500 million in the fourth quarter related to stopping production at the Italian smelters.

Alcoa shares fell 54 cents, or 4 percent, to close at $13.22.

According to The Lynden Tribune, Fairway Country Furnishings in Lynden began a going-out-of-business sale today. The two owners, Joe Branion and Ardelle Kooy, are retiring after operating the store for 20 years. Here is the (Link) to the Tribune story. The business is scheduled to close at the end of December.

With Black Friday fast approaching, I’m looking for die-hard shoppers for an upcoming story.

Black Friday is the day-after Thanksgiving event where shoppers roll out of bed at some crazy early-morning hours to participate in store sales. The upcoming story will look at strategies involved in getting the best deals, what the expectationss are for this season and why so many people participate.

If you’re an avid Black Friday shopper, or know someone who is, let me know. I’m at 715-2269 or dave.gallagher@bellinghamherald.com. Thanks!