Smaller Banks Thrive Out of the Fray of Crisis (WAPO)

[chill_wind]

"Smaller banks, by contrast, make few mortgage loans, and their lending is fueled by deposits, rather than borrowing. That has insulated them from the troubles on Wall Street."

Smaller Banks Thrive Out of the Fray of Crisis
People Shift Money From Wall St. to Main St.

by Binyamin Appelbaum
Washington Post Staff Writer
Friday, September 26, 2008; Page D01


The industry is resilient despite the struggles of some members. Washington Mutual, a troubled Seattle savings and loan that was among the nation's largest mortgage lenders, yesterday was seized by the government and sold to J.P. Morgan Chase.

At the same time, many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

"We collect money from local savers, and we lend it in the local community," said William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J. "We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine."

Dunkelberg, a professor of economics at Temple University and chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 percent said getting a bank loan was the great challenge facing their businesses.


Even some of the nation's largest banks, which have pushed hard for a federal bailout, deny that the current situation is forcing them to reduce lending. "The strength of our core businesses, capital and liquidity are enabling us to continue to support our customers," Bank of America, the nation's largest bank, said in a statement. It added, however, that the bailout plan would allow more lending.

(....)

"The banking system did need to slow down," Fitzgerald said. As it does, riskier customers are being turned away. At the same time, banks that overextended are now forced to turn away even good customers. The challenge for Chain Bridge, he said, is identifying the worthwhile customers. The bank has plenty of money to make good loans, he said.

more: http://www.iterapi.com/dccode.html

[BlooInBloo]

1. Also, they can scavenge for droppings left from the big bank failures....

As can smaller insurance companies.


EDIT: Subject typo.

[RainDog]

2. butbutbut the sky is falling if we don't bail out the greedy fuckers!

someone on du told me so. without any substance to back it up. or any clue as to whether or not the bail out will actually stop the financial crisis among those who are already insolvent.

I'm just too naive, or selfish, or stupid if I doubt the sagacity of this bailout, too.

[Zhade]

16. The enablers of economic terrorism here on DU have me LIVID.

NT!

[SammyWinstonJack]

33. !

:thumbsup: Maybe those enablers have some vested interest in the rest of us getting screwed? :evilgrin:

[girl gone mad]

3. This is the end of the world as we know it.

The institutions that created these problems are the only ones that can save us from their failures. We just need to rush a massive bailout through congress ASAP. Don't think! Act now!! DO IT!!!1!1!

[WestWingEmpty]

4. I am removing all of my money from large institutions as we write.

And I am putting them into my local Credit Union.

[Alcibiades]

15. Credit unions have to meet tighter regulatory standards

Strangely, it's the bank lobbyists that force them to have to do so, as they think this makes them less competitive. That may be true--but we may find it will also make them more solvent.

[lostnotforgotten]

5. So - Contrary To Opinion Here - There Is No Crisis - Thought So!

eom

[napi21]

6. I haven't dealt with a LARGE bank for over 20 years! They got BIG

and they got very arrogant! They didn't really WANT the $$ of the small depositors, and I didn't need to deal with their BS! I've moved 3 times in that 20 years, and in every new place, I sought out the community bank, and have never been sorry. I think they are reaping what they've sewn, and that's fine with me. I don't think we'll ever see them really come back in the form they were.

[Hekate]

23. We finally ended up at a local bank a few years back. Our big bank kept merging...

... until no one knew who the hell we were anymore. The fact that our whole family had accounts there--pffft. In many ways they let us know that our life savings was small potatoes. We left.

Los Padres Bank suits us fine. We know the manager, and he's never too busy to answer questions, move our money around, or just say hi.

Hekate

[MercutioATC]

7. My credit union is doing fine.

The only losses it's taking are economy-based (people losing their jobs and not paying auto loans, etc).

They do write mortgages, but they hold them all so they're selective about who they finance.

[girl gone mad]

8. Wells Fargo is also doing very well.

They were smart and stayed away from the subprime mess.

[Zynx]

9. Wells, PNC, and U.S. Bancorp are doing quite well.

[madrchsod]

20. not in my area....

[girl gone mad]

21. Wells Fargo in your area is not doing well?

[madrchsod]

29. well i guess they are ok ..it`s the home owners that are losing...

at least 50 foreclosures in my area are wells fargo . most of them are between 50-75 thousand dollars.

[RainDog]

10. k&r

this bailout is act III of an old play, the bush ponzi scheme.

[chill_wind]

12. thanx. n/t

[chill_wind]

17. Could anyone have ever seriously believed

they wouldn't try to do the biggest smash and grab they could get as a final act on their way out?
We were ruled by mad men for 8 years. Why would they leave in any sane way? All they knew, with the writing on the wall, is that under Obama, the good times for them would be OVER. You are right.

[RainDog]

18. and Greenspan enabled the Iraq war by selling the housing bubble

here are a few Greenspan greatest hits-

http://www.slate.com/id/2096313/

in 2004, with interest rates low, Greenspan talked up arms - arms, of course, let people buy more house than they can actually afford because they operate under the assumption that interest rates will fall and that their incomes will rise. then there are those who took out arms with bubbles.

here's Greenspan in action (you have to click on the "Greenspan: Friend or Foe" link within this link-
http://moneycentral.msn.com/content/P73977.asp

On the 1973 recession... I'd like to start off with a quote from Jan. 7, 1973. "It is very rare that you can be unqualifiedly bullish as you can be now," Greenspan commented to the New York Times when he was president of Townsend Greenspan. That was two days after the 1973 stock market peak, when the market was on its way to declining 50 percent over two years, and we endured the worst recession since the Great Depression.

On the S&L industry... Ed Gray, who was the Federal Home Loan Bank board chairman..."received a letter from respected economist Alan Greenspan telling him he should stop worrying so much. Greenspan wrote that deregulation was working just as planned, and he named 17 thrifts that had reported record profits and were prospering under the new rules. Greenspan wrote the letter while he was a paid consultant for Lincoln Savings & Loan of Irvine, CA, owned by a Charles Keating, Jr., company. Four years after Greenspan wrote the letter to Gray, 15 of the 17 thrifts he'd cited would be out of business and would cost the FSLIC $3 billion in losses."

In addition, in 1985, Greenspan pronounced specifically that the management of the Keating thrift enterprise was "seasoned and expert" with a "record of outstanding success in making sound and profitable direct investments."...

"It was not until October 1991 that the phrase `economic headwinds' entered the Greenspan repertory. He used the metaphor to describe the unprosperous gusts that were buffeting the aircraft GNP, the source of which he identified as the debt predicament. However, it was a historic observation rather than a predictive one. Bank stocks had reached low ebb fully one year before Greenspan favored a Rhode Island audience with this apercu; the stock market-assisted recapitalization of the banking system was already long under way. In the midst of the overbuilding of real estate and the overleveraging of corporate balance sheets in 1988-90, Greenspan had been inclined not to dwell on the issue of credit, possibly because it had not yet, to him, become an issue. In remarks titled `Innovation and Regulation of Banks in the 1990s' before the American Bankers Association in October 1988, for example, he did not mention the excessive lending against real estate that was being carried out by members of his audience even as he spoke to them, and that would be featured as one of the great regulatory issues in the decade under examination.

1994. `But such imbalances and dislocations as we see in the economy today probably do not suggest anything more than a temporary hesitation in the continuing expansion of the economy,' he wound up in that 1990 appearance. The messy default by Washington Bancorp on its unrated commercial paper came only one week after a pronouncement by the Federal Reserve Board, also based in Washington, D.C., that no generalized credit contraction was under way."

"printing money should not be confused with knowing what you are doing."

http://www.salon.com/tech/htww/2008/04/08/alan_greenspan_s_legacy/

WSJ: You've always maintained that counter-party surveillance is superior to government regulation. Yet investors appear to have exercised little due diligence of the complex mortgage-backed securities they bought, resulting in dramatically higher defaults than anticipated. Does that change your view?

Mr. Greenspan: There were far more failures here than I expected. I've been chagrined at how badly some of the judgments of very sophisticated investors have been with respect to risks, because my fundamental view is that counter-party surveillance is critical for global finance. There are no realistic alternatives. largely because of human euphoria: If you have a lot of bids under anything, one perceives a liquid market. The argument, therefore, is not to discard counter-party surveillance, but, essentially, to patch it back together and improve it.

[SammyWinstonJack]

34. The BFEE LOVES other peoples' money! They have stolen their way into wealth from the start.

[shadowknows69]

11. I said this the other day. Our local banks are booming

The local businesses borrow there. I think some of Wall Street's troubles maybe coming from the fact that people are losing faith in the big financial institutions and going to homespun banks. It wasn't hard to see the last 8 years that Bush was going to drive the economy into the ground.

[RainDog]

13. local is the future

locally grown food vs. huge expenditures on transportation of corporate foodstuff. local-grown biodiversity to protect the health of the earth and avoid famine b/c of a lack of diversity.

energy co-ops that can sell to other businesses.

I'm no granola and never have been. Such a view is simply about quality of life and sustainable economics.

[scarletwoman]

28. Exactly! That's the world I want to see. It's the only thing that makes sense. (nt)

[Raksha]

30. Local and sustainable is definitely the future.

Our local organic produce co-op here in the Inland Empore (SoCal) has grown from 10 members to over 450 in one year! There are a lot of reasons for that, but I think a big part of it is that people don't want to be at the mercy of agribusiness. That was one of my reasons for joining, along with the desire to support local agriculture.

[RainDog]

31. local also bypasses much of the corruption

we have a thriving farmer's mkt and food co-op where I live.

I see it like the micro-loans to women in corrupt third world nations made in order to bypass the large-scale corruption and the cultural misogyny.

those areas of the nation that "get" this early on will be the ones in better shape for the future, imo. where I live, we have hybrid buses and soy-powered buses too.

little steps, over time, make a big journey.

[ContinentalOp]

26. This makes me think of a question I asked the other day.

if the government gave ME $700 billion couldn't I figure out a way to hire the right people, make good loans and reap huge profits while providing "liquidity" to the system? Why does the solution have to revolve around the huge banks that caused this mess? If the government is handing out money to make sure credit is available, can't anyone basically give those loans?

[RagAss]

14. If you act now, I'll throw in the pocket fisherman for just $19.99....

[madrchsod]

19. my local bank has one foreclosure

out of the 150 or so in the last few months. most of the foreclosures in the two counties in my area are wells fargo,deutsch bank,and other national institutions. roughly 80% are under 75 thousand. i`ve seen about 4 that are over 150 thousand

[chill_wind]

22. ?? pffft :-) --- link edit

Here's the actual link. oy!

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504155_pf.html

[scarletwoman]

24. I've banked at nothing but credit unions for 20 years now. My parents have ALWAYS only used a

credit union, and I've talked my sisters and kids into doing the same.

I've never understood why anyone would want to deal with the giant mega-banks, who do nothing but raise fees and create new ones.

sw

[ContinentalOp]

25. Wow, I keep trying to learn more about this mess but for some reason I always stick to GD:P

Then tonight I made my way over here and discovered where all of the sane people reside. ;)

[TexasObserver]

27. This is true. Smaller banks were not caught up in this madness.

[chill_wind]

32. Small banks move in to fill the gap on Wall Street (IHT/Reuters)

"This environment is a perfect pitch for the business model," said Peter Weinberg, a partner at Perella Weinberg Partners and a former Goldman investment banker. "In times of stress independence is really prized."

Lazard is by far the largest of the pure play investment banks, those involved in only one line of business. That bank, led by Bruce Wasserstein, ranks 10th so far this year for providing merger and acquisition advice, according to Dealogic, a financial services information provider. Lazard operates in 23 countries and is providing advice to Lehman Brothers on its bankruptcy filing.


Small banks move in to fill the gap on Wall Street
By Louise Story
Published: September 24, 2008


Even as the giants of Wall Street fall, a corps of small investment banks is hoping to carve a lucrative niche in the new financial landscape.

Jefferies & Co., Lazard and Evercore Partners compete with Morgan Stanley, Merrill Lynch and Goldman Sachs to provide services like merger and acquisition advice to companies.

In many ways, these small and midsize companies look like the Wall Street of old, before firms took on large amounts of leverage - or borrowed money - and began trading aggressively. The small companies have run into less trouble during the downturn because they did not become tangled in the mortgage mess.

But even as they benefit from some of the turmoil, executives at the smaller banks are quick to say they feel bad for their peers.

"I don't take any comfort from the pain that the rest of the industry is feeling," said Stephen Crawford, a former co-president of Morgan Stanley who, along with others, founded a boutique advisory firm in 2006 called Centerview Partners.

It will be many months before the winners and losers of this cycle emerge. But industry analysts say that smaller companies may benefit as the larger players consolidate. The smaller firms may be more appealing places for top workers in the industry and may prove more nimble in their advice.

"The goliaths will be so enormous that they won't be able to provide the agility, the nimbleness and the elite service that the boutiques can do," said Roger Altman, chief executive of Evercore.

(more)

http://www.iht.com/articles/2008/09/23/business/streets.php

[Dover]

35. I wonder how the redistribution of assets over $100K FDIC is affecting smaller banks?

If someone has $300K sitting in Citibank and has to redistribute that in order to be covered
by FDIC, it seems that two other banks are going to benefit from it.

[RainDog]

37. if someone has 300k sitting in Citibank, that person is a fool.

there's more than one bank in most cities of the U.S., as far as I know.

[Dover]

39. Of COURSE they would be fools..now. So they would have to redistribute it to at least 2 other banks

to be covered by FDIC and I'm wondering how these redistributions of funds across the board are impacting the banking
industry. Seems like it would spread it around and level the playing field if enough
people were doing it.

[bikebloke]

36. I prefer small local banks, but have had bad luck.

First it was Riggs, which a bushovic ran into the ground. I left for another local bank, but they've jumped on the expansion bandwagon. Now their rating has dropped. I suspect they waded too deep into the mortgage scams. So I'm looking into another two. One is very local and very sound. But they only have a few branches, so getting to a cash machine may be a hassle. The other is larger but fairly sound. Only they ate up a bank I used that was real shite.(They gave me wrong info that caused me some trouble. When I complained, they snarkily said they didn't have a recording of the conversation, so too bad. I closed my account the next day.) So they might have the same personnel.

[RainDog]

38. Riggs bank was the one laundering money for Pinochet

I would suggest a credit union.

[OakCliffDem]

40. Good business practices can succeed

But the high rollers who get greedy and take too many risks need the Government to guarantee their profits