More Banks Threatened: FDIC 'Watch List' Tops 250

February 26, 2009 4:09 PM

ABC News’ Daniel Arnall, Matt Jaffe and Charles Herman report: The Federal Deposit Insurance Corp. reports that commercial banks and savings institutions insured by the FDIC lost $26.2 billion in the fourth quarter of 2008, the first quarterly loss for FDIC-insured banks since 1990. For all of last year, the banking industry earned $16.1 billion, the smallest annual profit since 1990.

The FDIC said that 252 banks (3 percent of the banks it covers) are on its “watch list.” That’s an increase of 47 percent from the previous quarter. On average, about 13 percent of the banks on the watch list eventually fail.

The FDIC insurance fund -- money collected from banks to pay to insure your deposits should a bank fail -- was $18.9 billion as of Dec. 31, 2008, a drop of 45 percent in just 90 days.

"The unprecedented size was a result of large losses at a few institutions," FDIC chair Sheila Bair said today.

For the full year, the insurance fund fell by $33.5 billion, or 64 percent, because of more than $40 billion spent on bank closings. The fund is quickly being used, which is why the FDIC is expected to propose on Friday more than doubling the amount banks have to pay for the deposit insurance. Currently, it is 6.3 cents for every $100 insured. The proposed increase would be to 13.5 cents.

The FDIC also has a $30 billion direct line of credit with the Treasury Department. Recently the agency asked Congress to increase that line of credit to $100 billion. And if the fund were ever completely depleted, the FDIC has the support of the federal government.

Last year, 25 banks were shut down, the highest number since 1993. In just the first seven weeks of this year, 14 banks have been shut down.

One positive note: As people have pulled their money out of risky stock investments, it appears they are putting what money they do have in the bank. Literally. For all of 2008, total domestic deposits increased by 8.4 percent. And in the last three months of 2008, when the market was at its worst, total deposits increase by $307.9 billion, an increase of 3.8 percent, the fastest quarterly growth in nine years.

Commercial banks and saving institutions include everything from Citigroup, Bank of America and Wells Fargo. There are more than 8,305 of these institutions. As of Dec. 31, 2008, they had $13.8 trillion in assets (loans, etc.) and $9.0 trillion in deposits.

February 26, 2009 | Permalink | User Comments (14) | TrackBack (0)

From 'Smash-Me' Madoff to Monopoly: Toys Tackle the Recession

February 18, 2009 12:26 PM

ABC News’ Alice Gomstyn reports: In a tough economy, at least one toymaker has gone right for the jugular. Phoenix-based ModelWorks has made a Smash-Me Bernie doll -- a doll-sized doppelganger of disgraced investor Bernard Madoff, who stands accused of running the largest Ponzi scheme in history and losing tens of billions of his clients’ dollars. Incensed Madoff clients may find the $99.95 toy especially soothing -- it comes equipped with a hammer that players can use to whack the doll silly.

Smash-Me Bernie was just one of about 100,000 toys on display at the 106th annual Toy Fair, held this week in New York. ModelWorks wasn’t the only vendor paying homage to today’s economic crisis, though other exhibitors were more subtle.

We met with Hasbro, which is marketing “family game nights” with board games that cost less than $20 and new versions of its classic Monopoly game, including Monopoly City. It sells for $34.99 and allows players to build cities right on the board.

“In today’s day and age, where the economy is front and center to many families, Monopoly’s a great game because it allows people to play and negotiate and for young kids to understand what it’s all about,” said John Frascotti, Hasbro’s chief marketing officer.

There’s a limit, of course, to exactly how much the real estate-based board game will teach kids about today’s economic problems. Asked whether game play includes mortgage-backed securities, Frascotti laughed.

“No,” he said, adding the company wanted “to keep it simple.”

In other make-believe real estate news, Mattel told us that Barbie’s iconic pink Dreamhouse -- known today as the Barbie Dream Townhouse -- has undergone some nifty renovations: The home’s bathroom now includes a toilet that makes flushing noises as well as a (fake) pop-up flat-screen TV. The house sells for $149.99.

Economic slump or not, Barbie isn’t losing any of her style, promised Richard Dickson, the general manager and senior vice president of Mattel’s of Barbie Worldwide division.

“What you can’t lose when you’re dealing with today’s times, particularly in a fashion brand like Barbie, is that you can’t lose the eye candy,” Dickson said.

“What we just have to do is make sure we present the utmost best product to them that excites them at reasonable and realistic price points,” he said.

So what does Mattel consider realistic? Most of the dolls on display ranged in price from about $10 to $50.

“Barbie is all about fashion, and today it’s got to be fashion at a price,” Dickson said. “I don’t think that’s any different than any fashion brand is dealing with.”

With reports from Charles Herman and The Associated Press.

February 18, 2009 | Permalink | User Comments (5) | TrackBack (3)

"Wall Street" - Not Michael Douglas, But Michael Moore

February 12, 2009 8:59 AM

ABC News' Charles Herman reports:  Documentary filmmaker Michael Moore has tackled a range of subjects in his films, from the auto industry to Columbine to health care . Next up? Wait for it. ...  It’s Wall Street!   

Moore, known as much for his baseball cap as for his trenchant and at times controversial documentaries, is beseeching workers on Wall Street to “come forward and share” what they know on his web site. 

“I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history,” he writes, before turning  to patriotism. “The important thing here is for you to step up as an American and do your duty of shedding some light on this financial collapse.”

During a hearing on Capitol Hill Wednesday in which CEOs from eight of the largest banks were grilled about how they are using billions of taxpayer dollars, John Stumpf, president and CEO of Wells Fargo, said, “We're Americans first and bankers second.”

Highly doubtful he’ll “spill the beans” to Moore.

February 12, 2009 | Permalink | User Comments (10) | TrackBack (0)

TARP, RIP

February 10, 2009 11:30 AM

ABC News' Betsy Stark reports: Today the Obama administration unveils the financial stability plan, leg  No. 2 of the three-legged stool  the president says  he is building to rescue the economy.

Leg  No.  1 is the stimulus plan working its way through Congress. Leg  No. 3 is a plan to stabilize the housing market, TBA. The goals here are daunting:  to "fix" the nation's banks and to unfreeze the nation's credit markets.

As Treasury Secretary Timothy Geithner is expected to say today, and as Obama has said before, the economy cannot function with dysfunctional banks and credit markets.

This is both an overhaul and an expansion of the Bush administration's TARP, which was successful at preventing the wholesale collapse of the financial system but has been criticized for its ad hoc approach, its failure to revive lending to businesses and consumers and for an embarrassing lack of accountability of how the taxpayers' money was spent.

Here are some fuller explanations of the key features:

1. STRESS TEST for Participating Banks:  The administration plans to evaluate the financial health of banks the taxpayer is supporting.  How much cash do they have?  How many toxic assets do they hold?  How many performing and nonperforming loans?

2. MORE CAPITAL INJECTIONS : Money will be available to those banks whose balance sheets need more cushion to continue lending to their customers.

3. EXPANDED ROLE FOR FEDERAL RESERVE SYSTEM:  As private investors have disappeared from the credit markets, the Federal Reserve has attempted to flood these markets with liquidity by using its  ability to "print money" as the nation's lender of last resort.  The Fed will get more seed money from the remaining TARP funds, which it can leverage into a far greater amount. It will then use that money to try to restart the purchase of loans that are backed by assets ranging from cars to credit cards to student loans to commercial real estate.  These "asset-backed" loan markets are critical and they are largely frozen.

4. ‘BAD BANK’ : This idea goes back to the original intent of the Bush TARP  program -- to use the bailout money to buy toxic assets from banks in order to cleanse their balance sheets and restore public confidence in their health.  But the Obama administration hopes to limit the taxpayers' exposure to these risky assets by making the purchase of these assets a partnership with the private sector.  The devil will be in the details here.  How do you price these assets that no one wants to buy?  How do you incentivize the private sector to participate?

5. HELP FOR HOMEOWNERS:  Using TARP money to help prevent foreclosures was only a vague requirement in the TARP program.  The quid pro quo will now be more explicit:  If a bank wants help from the federal government, it has to help homeowners.  The new administration will try to come up with some "national" rules for loan modifications and is expected to advocate to allow bankruptcy court judges to alter terms. 

6. TRANSPARENCY:  We should all be able to view the results of these efforts on a Web site the Treasury Department plans to set up to monitor how banks are using taxpayer funds.

February 10, 2009 | Permalink | User Comments (23) | TrackBack (3)

SEC Enforcer Leaves Agency After 14 Years

February 09, 2009 5:55 PM

ABC News’ Matthew Jaffe reports: As the Securities and Exchange Commission continues to come under fire for failing to stop Bernie Madoff's alleged $50 billion Ponzi scheme, the leader of the agency's enforcement division is leaving her post to return to the private sector.

The SEC announced today that Linda Chatman Thomsen, the director of the Division of Enforcement, is leaving after 14 years at the agency.

The SEC has been hit by an avalanche of criticism in recent weeks from people who say it failed to adequately protect investors from Madoff's alleged Ponzi scheme. Just last week, a whistleblower and lawmakers alike blasted agency officials at a congressional hearing.

"You couldn't find your backside with two hands if the lights were on," Rep. Gary Ackerman, D-N.Y., told SEC officials.

But today, the new head of the SEC had nothing but praise for Thomsen, saying she led a historic period of SEC law enforcement and noting that, in the last two years, the agency has brought the second- and third-highest number of enforcement actions in its history.

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," SEC chairwoman Mary Schapiro said in a statement. "Linda has distinguished herself in public service through her keen intellect, profound understanding of our securities laws, and relentless pursuit of wrongdoers. While Linda's wisdom, judgment, integrity, and humor will be sorely missed by all of her colleagues, the agency and the investors we serve will always be grateful for Linda's service."

Thomsen had been at the SEC since 1995. She called her time at the SEC "an extraordinary privilege."

"For nearly 14 years, I have been surrounded by smart, hardworking, creative, wonderful colleagues who have been devoted to public service, this agency, and its essential mission of investor protection," Thomsen said. "There is no higher honor than to serve the public and I am grateful to have had the opportunity to do so during my time at the commission."

February 9, 2009 | Permalink | User Comments (14) | TrackBack (0)

Pay Hikes Not Just for the Corner Office; Boardroom, Too.

February 09, 2009 11:36 AM

ABC News' Daniel Arnall reports: The Corporate Library -- an independent research firm that tracks executive compensation of publicly traded companies -- says that members of boards of directors enjoyed a healthy pay increase last year.

The median bump for board members was 11 percent last year, according to the group's study of corporate filings. CEO pay went up a median 7.5 percent during the same period,  according to a previously released report.

If you’re lucky enough to get one (or more) of these board seats at an S&P 500 company, you’re likely to get about $200,000 a year in compensation for attending meetings and helping direct the company in major decisions from time to time.

For comparison, median CEO pay in the Corporate Library’s 2008 report was a little more than $2 million. Interestingly, those pay hikes for executives were decided upon by members of boards.

February 9, 2009 | Permalink | User Comments (5) | TrackBack (0)

TARP: What's in a Name?

February 04, 2009 11:38 AM

ABC News' Charles Herman reports:  Newly appointed Treasury Secretary Timothy Geithner continues to meet with other administration officials and members of Congress to decide how to use the second half of the $700 billion financial rescue package known as the TARP in order to fix the banks and get credit flowing again.

But there’s one issue about the TARP, something I have been reporting on for months, that has been driving me nuts and I hold out hope to have a definitive answer when Geithner announces the new direction for the program.

What exactly is the name of the TARP?  Is it the Troubled Asset Relief Program,  as it is most widely called? 

Or is it the Troubled Assets Relief Program, where “assets” is plural?

Here’s the actual bill.  And I quote, “TITLE I—TROUBLED ASSETS RELIEF  PROGRAM.” 

Plural.

But then just a few lines down, the bill says, “The Secretary is authorized to establish the Troubled Asset Relief Program (or 'TARP') to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution.” 

Singular.

Before the previous administration left office, the Treasury Department told me, “At some point, we decided it was supposed to be assets plural, so that’s the best to use.

But look here and here and here.  Singular.

In the haste to write the bill in October, did Congress forget to get an editor to review the text?

More important, why should we care?  Because this little issue actually speaks to the larger problem with the TARP.  The bill was written so fast and approved so quickly that now, four months later, we are faced with a situation in which the new administration, Democrats and Republicans in Congress and the U.S. taxpayer are deeply dissatisfied with the results of the TARP.  The Government Accountability Office even questions how effective the TARP has been in stabilizing the financial markets (GAO says singular).

If, on a small scale, the very name of the program isn’t clear, is it surprising that so many now doubt how effective the program is in the broader sense?  Next week, the treasury secretary is expected to announce how the TARP will operate going forward.  With so many tough decisions to make, perhaps the easiest is deciding what the acronym stands for.

I have asked the new press office at the Treasury Department for its  thoughts on this matter.  What’s yours?

February 4, 2009 | Permalink | User Comments (17) | TrackBack (0)

Wells Fargo 'Reconsiders' Vegas Event

February 03, 2009 9:12 PM

ABC News' Zunaira Zaki reports: Within a few hours, a planned Wells Fargo junket was reported by the media, defended by the bank and then apparently canceled after the bank sent out a statement saying it had been "reconsidered."

The bank, which received $25 billion in TARP funds, planned to hold a reportedly swanky event in Las Vegas, according to an Associated Press story that put the bank on the defensive.

When first asked about the event, a bank spokesperson seemed to defend it, citing the fact that Wells Fargo planned to pay Treasury a dividend of $371.5 million on the TARP investment. In a statement, the bank also said the Las Vegas event was not a "junket," as reported by the AP, but, in fact, a "four-day business meeting and recognition event for hard-working team members who made homeownership achievable and sustainable for borrowers across the nation."

It should be noted that Wells Fargo was among the few banks that did not desperately need government help. It is one of the three largest banks in the U.S., as measured by deposits, making it one of the most important banks in the U.S. today.

But not important enough to have a fancy party, it seems. This is the latest statement from the bank:

"You can disregard the statement; we have reconsidered holding the event and a follow-up statement will be forthcoming."

February 3, 2009 | Permalink | User Comments (33) | TrackBack (3)

FDIC Wants Credit Line Increase to $100 Billion

February 03, 2009 8:45 PM

ABC News' Charlie Herman & Matt Jaffe report: The regulator charged with insuring your checking and savings accounts at your local bank wants Congress to more than triple the line of credit it has with the Treasury Department.

Testifying before Congress today, John Bovenzi, the chief operating officer for the Federal Deposit Insurance Corp., asked that the agency’s credit line be increased from $30 billion to $100 billion. The request comes a week before an expected announcement from Treasury Secretary Tim Geithner about the use of the second half of the TARP funds that could involve an enlarged role for the FDIC in managing the toxic assets held by struggling banks.

"The FDIC recommends that Congress provide additional support for our deposit insurance guarantee by increasing our existing $30 billion statutory line of credit to $100 billion," Bovenzi said at this afternoon's hearing. "Assets in the banking industry have tripled since 1991, the last time our borrowing authority was adjusted. We believe it would be appropriate to adjust the line of credit proportionally to ensure that the public has no confusion or doubt about the government’s continued commitment to protect their insured deposits." 

Asked committee chairman Barney Frank minutes later, "Is there any imminent crisis?"

"No," Bovenzi replied. "We do not expect to use the money, but at the same time we believe it's just prudent contingency planning. Nobody knows the future in its entirety and it's been many years since that borrowing authority has been increased."

Bovenzi also stated that bank failures will cost them more than the previous estimate of $40 billion in losses through 2013, forecasting that "our losses over an extended period will be higher."

The FDIC insurance fund, as of September 30, 2008, had $34.6 billion. This money covers insured deposits, currently up to $250,000. If the insurance fund were to be depleted, the FDIC can use the line of credit it has with the Treasury. And if that were to be used up completely, the FDIC has the backing of the federal government.

So far this year, six banks have failed and 25 banks failed in 2008.

February 3, 2009 | Permalink | User Comments (5) | TrackBack (1)

LinkedIn Snafu: The Peter Lynch Hoax

February 03, 2009 1:56 PM

Author's note:  So here's the situation: the other day, I received what I thought was an invitation to connect on LinkedIn from Peter Lynch. Yes, the investment guru Peter Lynch, with whom I had never met or corresponded  with  before.

Well, it turns out even the best of us can be scammed. Shortly after posting the blog below on ABCNews.com, Adam Banker of Fidelity Investments Media Relations contacted me. Here's what he had to say:

Dan,

The email that you received is fake. It is not from nor related to Peter Lynch in any way. Peter Lynch does not have a profile on LinkedIn and has never used LinkedIn. While these matters are difficult to prevent, we contacted LinkedIn about this matter and they removed the fake profile.

Regards,

Adam Banker

So I'm sure that had I accepted the fake invite from the fake Peter Lynch, the status of my nest egg perhaps would have suffered even a bit more than it already has.

For now, the main debt I owe would be an apology to Peter Lynch for my misperception -- and a note to our graphics department to see if they can add a bit of red to my photo here.

But for your reference -- and perhaps as a warning against believing every profile you see on LinkedIn -- the full text of the original blog is below.

---

ABC News’ Dan Childs reports: My account on the professional networking site LinkedIn has 66 connections to date -- a collection made up mainly of journalists, marketers and public relations professionals. It’s a formidable group of folks, in my humble opinion, though none are too famous yet.

So imagine my surprise when I get an InMail in my account inbox from Peter Lynch requesting that I accept his invitation to join his professional network.

Naturally, I was honored. Could it be that legendary investor Peter Lynch of Fidelity Magellan Fund fame wanted me in his professional network?

I clicked the link to his profile, and it checked out. Yes, this was the Peter Lynch. Perhaps this prolific author of financial books including "One Up on Wall Street" and "Beating the Street" hoped to reach out and consult me on my extensive knowledge of ... well, nothing at all financial. But hey, you don’t get to be worth $352 million by mixing only with the country-club crowd, right?

Or maybe you do. As I was about to click the “Accept” button, I realized that perhaps he might be trying to get in touch with someone else. A quick search on LinkedIn revealed a different Dan Childs who actually worked in the financial services industry. So rather than joining Mr. Lynch’s network right away, here was my reply to his invitation:

Hello Mr. Lynch,

It's a pleasure to make your acquaintance; thank you very much for your invitation to connect on LinkedIn. I'm happy to accept your gracious offer, but I couldn't help but wonder whether you meant to send it to me, the Dan Childs who works for ABC News, or this other Dan Childs, who appears to work with a hedge fund group in the U.K. (whose career seems more related to your line of work).

That being said, I do have an account with Fidelity and have been very pleased thus far with the management of my (modest) nest egg.

Have a great day,
Dan

A few days later I check my LinkedIn account again to find that Peter Lynch withdrew his invitation to connect. No personal reply, no further explanation.

So now it’s a bit awkward with Peter and me, because I really don’t know whether I hurt his feelings or he hurt mine.

Maybe at some point, however implausible, we were introduced. Admittedly, I’m terrible with faces. And he, like me, is a Bostonian. So perhaps he decided to reach out after some recent meeting that I can’t quite recall, and instead he was rebuffed with a message saying that he must have me confused with someone else by the same name. That could sting, I thought.

But then I reminded myself that I reached out quite politely (if not entirely honestly; my 401 (k) with Fidelity lost 44 percent of its value last year ... so no, Peter, I’ve not been very pleased so far with the management of my nest egg).

The most wrenching possibility is that my use of the word “modest” to describe my retirement savings led Lynch to believe that not only was I unworthy as a professional contact, but that I was also undeserving of a friendly note in return.

Bearing in mind that the recession has possibly been tough on his portfolio as well, there is that chance that we are closer in net worth now than we were at this time last year. Still, the truth remains that while 44 percent of my nest egg might purchase, say, a decent bottle of Scotch, 44 percent of his nest egg could probably buy and sell this particular journalist a thousand times over.

And from this point of view, if the market has been as unkind to Lynch as it has to many of the rest of us, it’s difficult to fault him for his silence. One would think that the gloomy economic news may be enough to make one dash out a quick InMail to a certain hedge fund manager across the ocean that reads, “Hey Dan, how about swinging by in the jet and we catch a quick Scotch or three?”

February 3, 2009 | Permalink | User Comments (3) | TrackBack (0)