WEISS RESEARCH’S Weakest and Strongest Banks and Thrifts
M ARTIN D. W E I S S P H .D.
Copyright Š 2009 by Weiss Research Published By: Weiss Research Publication Date: June 2009
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Weakest and Strongest Banks and Thrifts by Martin D. Weiss, Ph.D. HU
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To flag potential failures in the banking system, the Federal Depositors Insurance Corporation (FDIC) maintains a “Problem List” of banks, often used to gage the severity of the banking crisis. And in its most recent release, 1 the FDIC reported that: F
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In the fourth quarter of 2008, its Problem List grew from 171 to 252 institutions, the largest number since the middle of 1995.
The total assets of institutions on the Problem List increased from $115.6 billion to $159 billion.
Compared to a year earlier, the number of institutions on the list rose 232 percent, while their total assets surged by a surprisingly sharp 623 percent.
Unfortunately, however, the FDIC does not disclose the names of the institutions on its Problem List. But we have a solution: A free list of the weakest banks and thrifts in the United States, based on data provided by the FDIC and the Office of Thrift Supervision (OTS), the Financial Strength Ratings provided by TheStreet.com (formerly the Weiss Safety Ratings), and our own analysis of the financial statements of large banks. HU
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The good news: There are still many strong banks in the United States. The bad news: We believe the FDIC is greatly underestimating the number of banks and thrifts that are at risk of failure. Specifically, we find that:
1,372 banks are at risk of failure with total assets of $1.79 trillion (based on their Financial Strength Ratings of D+ or lower.)
196 savings and loan associations are at risk with $528 billion in assets (also with ratings of D+ or lower.)
Four major banks – Citibank, HSBC Bank USA, JPMorgan Chase and SunTrust Bank – are also at risk of failure despite their large size, and despite government intervention, with total assets of $3.16 trillion.
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Quarterly Banking Profile, Fourth Quarter 2008, available at http://www2.fdic.gov/qbp/2008dec/qbp.pdf HU
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In sum, a total of 1,572 banks and thrifts are at risk with assets of $5.48 trillion. That’s six times the number or institutions and 34 times the assets of banks and thrifts on the FDIC’s fourth quarter 2008 Problem List.
Since the FDIC does not disclose how it decides to put a bank on its Problem List, we do not know what explains the discrepancy. However, in its 1994 study, Insurance Ratings: Comparison of Private Agency Ratings for Life/Health Insurers, 2 the U.S. General Accountability Office (GAO) reviewed the Weiss ratings scale (from A to F) and determined that a Weiss Safety Rating of D+ or lower denotes institutions that are “vulnerable” to future financial failures. Although the GAO was referring to a different industry (life and health insurers), the Weiss ratings scale was designed to convey the same significance across various financial industries, including commercial banks, savings banks, and savings and loan associations3 HU
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Virtually all institutions that subsequently failed had received a D+ or lower rating from Weiss months earlier; and few, if any, institutions with a high rating have ever failed within a year after the ratings were published. Don’t get me wrong: Not ALL weak-rated institutions subsequently failed. But in a deep recession or depression, the failure rate of low-rated institutions can be very high, validating our view that they are at risk of failure. So here’s what we recommend you do to check the safety of your bank: Step 1. First, become familiar with the ratings scale: A = excellent B = good C = fair D = weak E = very weak + = the upper third of each grade range - = the lower third of each grade range
Step 2. Find your bank in our list of Weakest Banks and Thrifts in the U.S. For your convenience; they are listed in alphabetical order. Or you can simply use the “Find” function on your screen. HU
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2
http://archive.gao.gov/t2pbat2/152669.pdf. HU
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Step 3. If you cannot find your bank or thrift in one of our lists, here’s what to do:
Go to www.TheStreet.com.
At the home page, in the menus in the upper right, you’ll see the item “PORTFOLIO & TOOLS.” Pull down that menu and select “Banks & Thrifts Screener.”
This will take you to a new page with the bank screener, and you’ll see a box on the left-hand side to fill in your bank information. To narrow the search, type in the state if you have it. Then, under Bank name, type in strictly the FIRST word of the bank’s name with no spaces. (If you type in more than the first name, the program will probably not find your bank.)
A list of banks with their ratings should appear to the right of the data entry box.
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Step 4. When you have your bank’s rating, follow these guidelines:
If your bank is rated B- or higher, it implies your bank’s relative safety is “good” or better.
If your bank is rated D+ or lower, it’s a red flag. Seriously consider moving your money elsewhere, while weighing the cost of any interest penalties. For uninsured deposits, the interest penalty is a small price to pay for safety. For insured deposits, it will depend on how much you value your peace of mind.
If your bank is rated C-, C or C+, it’s a yellow flag. Monitor the rating every three months or so to make sure it has not been downgraded below C- (to D+ or lower).
Step 5. If you’re shopping for a new bank, favor institutions with a rating of B+ or better. Refer to our list of the Strongest Banks and Thrifts in the U.S. Or ... HU
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Return to Bank and Thrift Screener,
Under State, select your state,
Under Rating, select B,
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To the right of the rating, select “or higher,”
Then, on the list to the right, under “display,” set the number of banks to be listed to 100.
From the list displayed to the right, look for banks with a rating of B+ or better. You may see some that you know have a branch near your home or place of work. Or search for the bank at Google Maps. HU
Step 6. Once you’ve found a strong bank, be sure to keep your deposits under the FDIC’s insurance limit. For reasons I explain in the next chapter, FDIC insurance is not foolproof. But it does give you a second layer of protection. Step 7. Seriously consider moving a large portion of your savings out of the banks entirely, switching them to the safest and most liquid place for your money in the modern world: Short-term U.S. Treasury securities. For specific instructions, see our free report, How to Buy Short-Term Treasuries. U
Strongest banks and thrifts
http://www.moneyandmarkets.com/files/documents/A-List_banks.htm H
Weakest banks and thrifts
http://www.moneyandmarkets.com/files/documents/X-List_banks.htm
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