Weekend Woe: Bank of Wyoming, We Hardly Knew Ye

Shed no tears for Bank of Wyoming. Bearing the cheery URL myfriendlybank.com and located in the hot springs town of Thermopolis (America's Adventure Spa) since 1978, Bank of Wyoming Friday became the 53rd bank to be liquidated this year by the Federal Deposit Insurance Corporation.

FDIC reports that as of June 30, the bank had "total assets of $70 million and total deposits of approximately $67 million." If those figures draw from the same database as this May 18 fact sheet from ibanknet.com, that means Somebody's Friendly Bank saw an outflow of about $13 million in deposits, along with a $24 million decline in measurable asset values, over a 43-day period.

Consider this, however: That fact sheet suggests (and as always, if you see me making an error, please correct me in the rudest possible manner) that Bank of Wyoming's balance sheet in May was in very bad shape but comparable, at a much smaller scale, to some of the Big 19 banks.* better than Wells Fargo's in December. Bank of Wyoming in May had $5 million in bank equity capital, which in the absence of a line item for cash I'm assuming translates into "cash and cash equivalents." With this fraction, Bank of Wyoming in May was servicing $94 million in total assets and $89 million in total liabilities. Wells Fargo in December had $23 billion in cash, with total assets of $1.3 trillion and total liabilities of $1.2 trillion.

It's jarring to see who is small enough to fail. Bank of Wyoming, the cached remnants of its site indicate, was a plain smalltime bank, offering NOW Accounts, "Carefree Checking," modest commercial and real estate loans (for "our ever growing and changing community") and similar vanilla products. This is not to get misty over a bank that mismanaged its business, and I'm sure it would be a hoot to find out what that item was that generated negative $190,000 in "non-interest income." (Really, what would that be in a pop. 3,200 town in the Equality State? Big stake in a water park maybe?) But is there an ethical defense for keeping Dick Kovacevich on his throne while letting Bank of Wyoming go under? (I know the practical argument is that the FDIC can't afford to liquidate a bank that big, though you could solve that one by giving $700 billion to the FDIC instead of giving it to the Office of Financial Stability.)

Calculated Risk does a nice Haiku from Soylent Green Is People whenever it makes a new bank failure announcement. If you're a Haiku fan, there you go.

* Updated: Please see discussion in comments, especially the comments from Amakaduri and Jonathan Green, whose input I greatly appreciate.

Comments

[the innominate one]

"...(and as always, if you see me making an error, please correct me in the rudest possible manner)..."

well, OK, if you insist, Tim

😛

[Art-P.O.G.]

Heh heh, TC noticed.

[Art-P.O.G.]

But it makes me worry what Steve Chapman must think when he reads the comments below his articles.

[Andrew Bissell]

I read Hit 'n' Run five times as often now that Tim Cavanaugh is posting here. Please let this blogging badassery continue.

[Amakudari]

Bank of Wyoming in May had $5 million in bank equity capital, which in the absence of a line item for cash I'm assuming translates into "cash and cash equivalents."

It really, really doesn't. Cash says nothing about capital position. If my balance sheet just reads

Cash $5
Debt $10

then equity capital is -$5 and an equity stake is worthless. If I used the cash to buy a $5 book, I'd still have -$5 equity. Cash tells you about liquidity and the ability to pay debts as they come due. Bank of Wyoming had at most $1.2 billion in cash and cash equivalents (first line of the B/S).

There are a lot of other nasty things in Bank of Wyoming's statements. For example, the majority of their funding was from CDs. The interest expense on time deposits implies a rate of around 3.60% for Q1, which meant they had to have matched the most inane offers from Wachovia and GMAC last year. And they had a ton of brokered deposits. That means BoW (or whatever their acronym is) had to pay top-of-the-market rates to bring in and retain money.

And to invest in what? Apparently a ton of bad commercial, farm and multifamily loans. A lot of them show maturities of less than one year, which means most are probably adjustable. Commercial loans tend to be priced off short rates, like 1-month or 3-month LIBOR (0.3% and 0.5%, respectively) plus a margin.

And in Q1 they declared an additional $5 million (5% of the B/S) of loans entered nonaccrual status. They only had a $2 million loss reserve, and they charged off more than $2 million in Q2 (effectively stating that losses will decrease).

So, they're funding themselves in the mid-3% range, collecting interest off the collapsed short end of the market, writing off huge numbers of loans and fudging loss estimates. Q2 was probably worse than Q1, too. My favorite number is an ROE of -200%. This bank's financials were pure ugly.

And frankly, if you compare those Q1 results to Wells', it's night and day. And Wells will post another huge profit in Q2 because they have a powerful mortgage engine, and mortgage yields didn't start backing up until the end of last quarter.

If there's a problem with Wells' balance sheet, it's TARP money and the TCE (tangible common equity) ratio. But you could just as easily argue that WFC's capital ratios are low because of its choice of accounting methodology when it acquired Wachovia. Namely, Wells recognized all expected losses upfront in accordance with SOP 03-3, and they did so aggressively. So credit write-downs will be modest going forward, but the capital hit was immediate. The reality is that Wells has a ridiculous interest margin and gets an enormous benefit from mortgage refis, so it's definitely solvent, although it obviously needs to raise capital to get out of TARP.

If you want banks with really nasty financials, look at Citi, Bank of America or GMAC, especially absent government guarantees for the former.

With this fraction, Bank of Wyoming in May was servicing $94 million in total assets and $89 million in total liabilities.

You don't "service" assets and liabilities with cash.

[ShutterGeek]

The argument isn't that the FDIC can't afford to liquidate Wells Fargo, it's that it doesn't have the time.

A hundred FDIC employees will work through the weekend to assure that Bank of Wyoming is transferred to new management and insured assets are available to customers by start of business on Monday morning. There will be no regular business time during which assets are unavailable. It is a remarkably efficient process.

There is no way, logistically, to accomplish the same thing with a bank the size of Wells Fargo, no matter how much money or manpower you throw at the problem. That is, in FDIC land, the definition of "too big to fail"...whether the bank can be transferred in a weekend.

[Tricky Prickears]

For taking over and resolving financial institutions, Bair said the FDIC is well equipped to do so. She suggested Congress could give the agency the authority to resolve bank holding companies like Citigroup or Bank of America - now under the supervision of the Fed. The FDIC now can take over and resolve only the subsidiaries of bank holding companies that take federally insured deposits.

Ms. Bair's been busy. I know she would love to be able to go into BOA, Citi etc.

[franz kafka]

I didn't know they had banks in wy much less stoplights and the like.

[Sal Manners]

Somehow I have a feeling they will get over it!

ER
http://www.anonymize.tk

[alan]

Little OT, but not by much. Obama earlier this 24-Cycle told an audience in Ghana:

"No business wants to invest in a place where the government skims 20 percent off the top".

[Insert gratuitous sarcastic comment here, -->] Obama's defenders, roll up your sleeves and get busy, you've getting paid double over time this weekend [but it isn't really necessary.]

[alan]

you've

Damn 'v's and 'r's look so much a like and are separated only by one one letter between three columns on a standard keyboard.

[dbcooper]

An update on our good friend Ward Churchill:

http://chronicle.com/free/2009/07/21690n.htm

A state court judge on Tuesday not only denied Ward Churchill everything he sought in his long-running battle with the University of Colorado system, but also negated the one victory the controversial scholar had won so far: a jury verdict holding that system officials had violated his First Amendment rights by firing him from a job as a tenured ethnic-studies professor in response to statements he had made.

Having presided over the four-week trial that led to the jury's April 2 decision that the university had illegally fired Mr. Churchill for academic misconduct, Judge Larry J. Naves decided to vacate the jury verdict on the grounds that the university officials named in his lawsuit were immune from such litigation.

Moreover, Judge Naves held, he could not appropriately order Mr. Churchill's reinstatement on the flagship campus, in Boulder, because the jury had found the professor undeserving of any significant compensation for damages-as reflected by its awarding him just $1 for economic losses-and because the university system's lawyers had successfully made the case that returning Mr. Churchill to his old job would damage the university, its faculty members, and its students.

"I conclude that reinstating Professor Churchill would entangle the judiciary excessively in matters that are more appropriate for academic professionals," Judge Naves wrote.

[Pravin]

Bank of Wyoming was the 78th bank to fail since 2008 and 53rd this year.
Wyoming gets added to the list of bank failing states.

Check the list of all the failed banks at :
http://portalseven.com/Failed-Banks-2009

And on google map see where the banks are failing at :
http://portalseven.com/finance/Failed_Banks_Map_2009.jsp

[Jonathan Green]

I'm a reporter at the small weekly newspaper in Thermopolis.

Bank of Wyoming did offer the vanilla products you refer to, but they had some other dealings, as well. They recently sold their sole branch in Casper, rumored at a $3 million loss. A conman in Texas swindled the bank out of about $200,000 several years ago. The former president of the bank, Brian Yarrington, filed suit against the bank alleging more or less wrongful termination and breach of contract. A former security officer and VP recently (reportedly) settled with BoW after alleging he, too, was wrongly canned after bringing "irregularities" to the attention of regulators.

The bank that is purchasing most of BoW's accounts, about $55 million worth, has said the stuff they're not interested in is a bundle of risky out of state participation loans on risky real estate ventures.

I'm not a financial expert, just a small town reporter in rural Wyoming. But I have been spending a lot of ink writing about problems BoW has been having over the last year or so. At any rate, there's more to this than that.

[hmm]

...the stuff they're not interested in is a bundle of risky out of state participation loans on risky real estate ventures.

That statement covers 99% of US banks if they go under. Small banks trying to geographically diversify, a bit of a fallacy as far as diversification goes with banks, through loans for out of state ventures. It looks like a great idea when the bubble is going up, a not so good idea on the other side of the curve.

It sounds like they have more problems than they need.

[hmm]

The out of state investments are probably the huge write offs in the financials and mentioned above.

If you can't have one of your employees or you can't drive by it on a Saturday, don't invest in it.

[hmm]

Completely off topic:
(cause I have no idea who to send this to, sorry imatard)

Jesus Christ, social engineering anyone? It's a bit of a passive way to support or admit to supporting social engineering by the federal government. The comment immediately after seems like a cover up or punt. She admits that she thought, and didn't raise an objection to, the idea of the federal government influencing and funding people having an abortion to slow a particular population growth. Then she punts it with the cover all that government shouldn't be making the choice. Condemnation of any government interference as long as the government is willing to pay. You know for undesirable population control.

Am I reading that wrong?

Q: Let me ask you about the fight you waged for the courts to understand that pregnancy discrimination is a form of sex discrimination.

JUSTICE GINSBURG: I wrote about it a number of times. I litigated Captain Struck's case about reproductive choice. [In 1972, Ginsburg represented Capt. Susan Struck, who became pregnant during her service in the Air Force. At the time, the Air Force automatically discharged any woman who became pregnant and told Captain Struck that she should have an abortion if she wanted to keep her job. The government changed the regulation before the Supreme Court could decide the case.] If the court could have seen Susan Struck's case - this was the U.S. government, a U.S. Air Force post, offering abortions, in 1971, two years before Roe.

Q: And suggesting an abortion as the solution to Struck's problem.

JUSTICE GINSBURG: Yes. Not only that, but it was available to her on the base.

Q: The case ties together themes of women's equality and reproductive freedom. The court split those themes apart in Roe v. Wade. Do you see, as part of a future feminist legal wish list, repositioning Roe so that the right to abortion is rooted in the constitutional promise of sex equality?

JUSTICE GINSBURG: Oh, yes. I think it will be.

Q: If you were a lawyer again, what would you want to accomplish as a future feminist legal agenda?

JUSTICE GINSBURG: Reproductive choice has to be straightened out. There will never be a woman of means without choice anymore. That just seems to me so obvious. The states that had changed their abortion laws before Roe [to make abortion legal] are not going to change back. So we have a policy that affects only poor women, and it can never be otherwise, and I don't know why this hasn't been said more often.

Q: Are you talking about the distances women have to travel because in parts of the country, abortion is essentially unavailable, because there are so few doctors and clinics that do the procedure? And also, the lack of Medicaid for abortions for poor women?

JUSTICE GINSBURG: Yes, the ruling about that surprised me. [Harris v. McRae - in 1980 the court upheld the Hyde Amendment, which forbids the use of Medicaid for abortions.] Frankly I had thought that at the time Roe was decided, there was concern about population growth and particularly growth in populations that we don't want to have too many of. So that Roe was going to be then set up for Medicaid funding for abortion. Which some people felt would risk coercing women into having abortions when they didn't really want them. But when the court decided McRae, the case came out the other way. And then I realized that my perception of it had been altogether wrong.

Q: When you say that reproductive rights need to be straightened out, what do you mean?

JUSTICE GINSBURG: The basic thing is that the government has no business making that choice for a woman.

[Tim Cavanaugh]

Thanks a lot, Amakaduri, for the correction. I agree WFC did an efficient job with the Wachovia purchase, and that they're far better off than BoA and Citi. But they were one of the bottom performers in the stress test (though I understand that doesn't amount to much, and I'm certainly doing my part to enrich them through those ridiculous interest margins you mention).

Thanks also to Jonathan Green, even if you did ruin my narrative of simple heartland folk left to face ruin by an unfeeling Washington colossus. (But maybe we can do something with that slickster from Texas? Was he wearing a string tie?)

It's interesting to hear that BoW got hammered for those out of state loans on risky real estate ventures. I thought it was local loans going bad. Once again, the culprit is the national real estate madness. It's like The Joker: responsible for every crime.

Thermopolis looks like a place that might agree with me. Any work out there?

[Paul]

Thermopolis looks like a place that might agree with me. Any work out there?

It's too fast for you, old man.

[Jonathan Green]

There is always a place for enterprising people here. There is very little room for slack. But to come here means displacing someone else; there are no open positions.

Sorry to wee on your narrative. The Texan, so far as I know, was not wearing a bolo. But his is certainly a story worth telling.

[Paul]

There is very little room for slack. But to come here means displacing someone else; there are no open positions.

My associate, Mr. Cavanaugh, will make one.

[Jonathan Green]

Let me know! I'm always looking for mobility.

[alan]

btw, ever wonder, gee, Wachovia, that is an odd name for a bank that originates from the Piedmont region of North Carolina. Among early European settlers to this region were a large influx of Moravians, and that name originates with them.

[alan]

Imagine the last sentence not being tagged with italics and I promise you all will be right with the world.

[the innominate one]

Amakaduri and Jonathan Green: that wasn't rude at all! You guys have a lot to learn about posting on HnR.

[Ron]

Related to the employee's of the BofW, take a look at this:

http://www.theycg.com/index.html

[wizard of oz books]

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