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NEW YORK (Fortune) — Bank regulators have a Texas-sized problem on their hands — though it’s easy to see much of the trouble resides farther west.Guaranty Bank, an Austin-based savings institution with 13.5 billion in assets, is expected to be seized by the FDIC by the end of the week. According to multiple reports late Wednesday, Spanish bank Banco Bilbao Vizcaya (BBV) has won the bidding for Guaranty. Representatives for the FDIC and Guaranty were not immediately available for comment.A private equity group led by investor Gerald Ford — who got a federal bank charter in November so he could buy failed banks — also reportedly made a bid for Guaranty. Other banks said to have expressed interest were JPMorgan Chase (JPM, Fortune 500) and Toronto Dominion (TD), which made a failed bid for Florida’s BankUnited when that bank was auctioned by the FDIC in May. Guaranty’s (GFG) closing would mark the second-biggest bank failure of 2009, after last week’s collapse of Alabama’s Colonial Bank, which was seized by the FDIC and sold to regional bank BB&T (BBT, Fortune 500). Guaranty reiterated Monday that it doesn’t expect to survive following its failure to raise new capital. The bank lost 174 million in the second quarter, according to its latest quarterly report to the Office of Thrift Supervision.Shares of Guaranty, which counts corporate raider Carl Icahn and hotel mogul Robert Rowling as prominent investors, have plunged more than 95% in the past year. Guaranty would be just the fourth Texas bank failure since the financial crisis started in earnest two years ago. But like so many of the biggest bank failures in this cycle — including Washington Mutual and IndyMac — Guaranty owes many of its problems to the excesses in the frothy California housing market. Option adjustable rate mortgages make up almost a third of Guaranty’s single family mortgage portfolio, according to investor presentations on Guaranty’s Web site. Option ARMs figured prominently in the WaMu and IndyMac failures as well.Guaranty also had 1.2 billion of loans to homebuilders, primarily in the overbuilt California market. Guaranty made some headlines this spring when it bulldozed 16 houses in foreclosure in an abandoned development in Victorville, Calif. Guaranty’s failure would be the second-biggest ever in Texas, according to Federal Deposit Insurance Corp. data — trailing only the July 1988 collapse of First Republic Bank of Dallas, which had 17.1 billion in assets. But as big as Guaranty’s failure would be, it’s still a far cry from the bad old days of the 1980s, when Texas banks failed by the score after a construction boom fueled by surging energy prices went bust. Between 1980 and 1994, 599 Texas banking institutions failed. In 1989 alone, 223 Texas banks or thrifts were closed — an average of four a week. “We in Texas should have fewer problems than other states this time around, and of course it’s nothing compared to the 1980s,” said Dick Evans, CEO of Cullen/Frost Bankers (CFI), the San Antonio-based parent of Frost Bank, a 15 billion institution that acquired some failed banks during that period. While Texas bore the brunt of the savings and loan crisis, it has escaped the worst of the current financial meltdown, in part because its housing market never got as bubbly as those in California and Florida. The state ranks right in the middle of the pack in terms of foreclosures, with the 26th highest foreclosure rate in the nation, according to RealtyTrac.com. The top five are the housing bubble states of Nevada, California, Arizona, Florida and Utah.What’s more, the Federal Housing Finance Agency said this spring that Texas house prices dropped only 0.6% over the past year. But while the Texas banking industry’s problems pale next to those two decades ago, few are expecting a sharp recovery, either. “It will turn at some point,” Evans said. “But I don’t see a lot of growth, and we’ve still got a lot of confusion out there. We could use a little bit of confidence.”

LONDON (Reuters) — British inflation will be well below the 2% target in two years if interest rates rise in the first quarter, the Bank of England said on Wednesday, suggesting markets are pricing in rate hikes too early.In its quarterly Inflation Report, BoE projections showed CPI inflation at around 1.4% in two years’ time if rates follow the path implied by market expectations — rising to 0.7% in the first quarter of 2010 and going up thereafter.But assuming interest rates stay at a record low of 0.5% and the BoE reaches its 175 billion pound quantitative easing target, “the risks of inflation being above or below the 2% target at the two year horizon are broadly balanced, albeit that the path of inflation is rising.”The latest forecasts are likely to raise expectations that the Bank will keep interest rates where they are for some time to come or even have to further expand its quantitative easing program to get the economy growing strongly again.While the inflation profile was similar to that published in May, the outlook for growth was “somewhat stronger” given the extra stimulus penciled in.The BoE charts show growth returning at the turn of the year and getting close to a rate of 3% in two years’ time.”The stimulus should lead to a slow recovery in economic activity, but the timing and strength of that recovery remains highly uncertain,” the BoE said.

Source:CNN

WASHINGTON (Reuters) — Disagreement within the Obama administration over reshaping U.S. financial regulation flared Tuesday, with top bank regulators defending their turf against key parts of a broad bank supervision overhaul plan.The officials’ defiance, voiced before the Senate Banking Committee, came despite a stern warning from Treasury Secretary Timothy Geithner Friday about the need for administration officials to line up behind White House priorities.In expletive-laced remarks at a private meeting, Geithner urged regulators to end turf battles and support President Barack Obama’s plan, said a person familiar with the matter.But that seemed to make little impact on the regulators, who took issue with administration proposals for consolidating bank supervision and taking other steps to tighten oversight of banks and markets amid the worst financial crisis in decades.With the economy in deep recession, the Obama plan is aimed at updating a system largely set up in the 1930s and simplifying a structure which has duties spread across many agencies. But the reforms have met widespread resistance.”Some might argue there’s a bit of turf protection here. That’s natural,” said Democratic Senator Charles Schumer.Both Schumer and Senate banking committee chairman Christopher Dodd said Congress and the administration must look at the big picture.”Our job here is not to protect regulators,” Dodd said.But Senator Richard Shelby, the committee’s top Republican, said he hoped the regulators would not be swayed by Geithner’s “tirade … Your honesty and your candor are very important.”The Obama plan calls for creating a national bank supervisor by merging the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).Some lawmakers eye statesIt leaves state bank supervision to the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve, although some lawmakers are discussing changes in this area, as well.”Do we really need three federal agencies to regulate banks?” asked Dodd, for instance.Schumer said he sees potential benefits from a single, consolidated bank regulator.The White House plan would also create a Consumer Financial Protection Agency (CFPA) and give the Fed the job of monitoring systemic risk in the economy, both major regulatory changes.But John Bowman, acting director of the OTS, refused to support the Obama administration’s proposal.”We do not support the administration’s proposal to establish a new agency, the National Bank Supervisor (NBS), by eliminating the Office of the Comptroller of the Currency … and the OTS,” Bowman said.He added, “The OTS does not support the provision in the administration’s proposal to eliminate the thrift charter.”Such comments marked a stiffening of regulators’ opposition to portions of Obama’s plan, which still must undergo many more months of debate in Congress.FDIC Chairman Sheila Bair said her agency supports a merger of OCC and OTS, but resisted more centralization of bank oversight.”There is a profound risk of regulatory capture if you collapse it all into one agency,” Bair said. “We think having multiple voices can actually strengthen regulation.”John Dugan, comptroller of the currency, warned lawmakers the existing plan would wrongly give the Fed the right to ‘override’ the views of other regulators when it came to supervising very large banks.Such a move would “undermine the authority — and the accountability — of the banking supervisor” he said.Dugan said his office supports merging OTS and OCC.Tarullo defends Fed powersFederal Reserve Board Governor Daniel Tarullo argued for preserving the Fed’s bank oversight powers, with enhancements.”It is essential both to refocus the regulation and supervision of banking institutions under existing authorities and to augment those,” he said.He added that splitting bank supervision and monetary policy did not work in the United Kingdom and would be a bad idea in the United States.At a tense, hour-long meeting Friday, Geithner told Bair, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Mary Schapiro to end recent public criticism of the administration’s plan and stop airing concerns over their potential loss of authority.Treasury spokesman Andrew Williams said, “We planned this meeting as a venue to deliver a tough message to regulators that we should work together to get reform done, and focus less on protecting turf.”

Source:CNN

HONG KONG/NEW YORK (Reuters) — Bank of America Corp. plans to set up a wholly owned subsidiary in China to expand in the world’s fastest-growing major economy, people briefed on the plan said.The largest U.S. bank plans to build up its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.Bank of America (BAC, Fortune 500) has set up a special internal workforce to complete the plans and it will likely formally apply to a Chinese banking regulator for a local incorporation license in the next few months, the people said.A Bank of America spokesman declined to comment.It is unclear how much Bank of America, which acquired investment bank and brokerage Merrill Lynch & Co on Jan. 1, will invest in its China incorporation.HSBC Holdings Plc. (HBC), among the first foreign banks to win Beijing approval to incorporate locally, invested 1.17 billion in its China incorporation as registered capital in early 2007.0:00
/1:39China: The next big wine marketThe U.S. government has injected 45 billion into the Charlotte, North Carolina-based Bank of America, which has struggled with rising credit losses and the Merrill purchase.Earlier this year, a government order that the bank add 33.9 billion of capital prompted the bank to sell one-third of its stake in China Construction Bank.”I’m sure they were not happy to do that,” said Stuart Plesser, equity analyst at Standard & Poor’s in New York.”If you’re in the investment banking business, you want to have connections in China” in part to help diversify, he said. Last year, before Bank of America acquired Merrill, just 7% of the bank’s net revenue came from foreign sources.Bank of America shares rose 2.7% to 13.89 on the New York Stock Exchange late Thursday afternoon.Next stop: ChinaIncorporating in China can allow foreign banks to operate the same range of businesses as domestic counterparts. Chinese regulators may then grant approvals to open new branches or offer new products more quickly.But under Chinese securities rules, Bank of America still needs to find a local partner for a joint venture to handle high-profit investment banking businesses such as underwriting shares and bonds for local companies in domestic markets.Rivals such as Morgan Stanley (MS, Fortune 500) and UBS AG (UBS) have taken such a step in the past few years.Bank of America’s retail expansion in China is restricted by the CCB stake, which prevents it from competing directly with that company’s retail bank.Instead, Bank of America will probably focus on providing wealth management services under the Merrill brand to rich Chinese customers, according to the people briefed on the plan.Foreign banks’ rush to expand into China has waned amid the recession. Lenders such as Belgium’s KBC Groep NV have canceled or delayed plans to incorporate locally.Earlier this week, Bank of America said it planned to shrink its 6,109-branch U.S. network modestly over the next three to five years.

Source:CNN

NEW YORK: Bank of America Corp. is planning to shrink its branch network by about 10%, according to a report published Tuesday.Kenneth Lewis, Bank of America’s chief executive, told investors last week that the company’s 6,100-branch network would be reduced by about 10%, according to the Wall Street Journal. The newspaper, citing people familiar with the matter, said Lewis made the comments at a meeting last Thursday in Charlotte, N.C. Lewis did not say when the closures would occur.The move comes after two decades of expansion and was prompted by a shift in customer habits as online and mobile services take business away from brick-and-mortar banks, according to the report. A Bank of America (BAC, Fortune 500) spokesman was not immediately available for comment. The company’s shares were down 1% in premarket trading.

Source:CNN

NEW YORK: New York state regulators shut down a small regional bank Friday, the Federal Deposit Insurance Corporation said, marking the 58th bank in the United States to fail in 2009.Waterford Village Bank, of Clarence, N.Y., was shut down, and the FDIC was named the receiver. Evans Bank, N.A., headquartered in Angola, N.Y., took over all of the deposits of the failed bank. The last time an FDIC-insured institution was closed in New York state was more than five years ago. As of March 31, Waterford Village Bank had total assets of 61.4 million and total deposits of 58 million. The single branch of the failed bank will reopen Monday as a branch of Evans Bank, N.A. and customers will automatically be transferred over. Friday’s closure will cost the FDIC fund 5.6 million, bringing the total cost for failed banks to 13.41 billion this year. That compares with 17.6 billion in all of 2008. The number of bank failures so far in 2009 has more than doubled last year’s total of 25.Smaller regional banks have been especially hard hit during the recession. Many collapsed as local residents and commercial real estate developers that took out loans have been unable to pay them back.

Source:CNN

NEW YORK (Fortune) — Bank of New York Mellon is not a name familiar to retail customers, but its role in the financial system is important enough that it was one of the first nine banks persuaded to accept billions of dollars last October from the Troubled Asset Relief Program — in Bank of New York Mellon’s case, 3 billion. The company is the world’s largest custodial bank, handling more than 20 trillion in assets for other banks and investors. In February, federal regulators stress-tested the nation’s 19 largest banks and found only three institutions will be profitable in 2010 if the economy gets much worse. Bank of New York Mellon (BK, Fortune 500) would lead that pack, ahead of American Express (AXP, Fortune 500) and Goldman Sachs (GS, Fortune 500). In a recent interview with Fortune’s editors, CEO Robert P. Kelly has more praise than criticism for the government’s interventions. Excerpts:Tell us how things are going in banking.Infinitely better than last fall. Until January or February, many observers thought that the entire banking system was insolvent. After the stress tests, [we saw] that the capital hole wasn’t nearly as great as people had feared and that the underlying earnings power of the banks is fairly high. That’s why bank stocks rallied as much as they did this spring.What happened during the stress tests?It was breathtaking. It culminated in joint sessions of the various regulatory bodies on our premises including the FSA [Financial Services Authority] from the U.K. and the Canadian regulators. Our regulators wanted loan-loss forecasts for the rest of this year and next year using two scenarios: what they expect and then an “adverse case,” which was actually, in many ways, worse than the Great Depression. Then they applied haircuts to our revenue estimates and raised expenses to imply capital ratios.Do you think it was a reasonable test?Yes. It was materially more conservative than what we expect. Based on our analysis of the 19 firms, in the adverse case, only three would make money, including us.0:00
/8:33Transparency? Not so much …We were surprised to see you on the TARP list.It was explained in the [Oct. 13] meeting. They felt we are important to the infrastructure of the payments system of the United States and did not want there to be any questions about our financial viability. We had custody of 23 trillion of the world’s securities, and a one-third market share of corporate-trustee activity. We clear over half the securities of the U.S. government. We’re important to the overall infrastructure of the financial markets, not just in the U.S. but also around the world.They very much wanted all the major banks to be part of the program. I understand the U.K. government [had] tried to do essentially the same thing with their banks. Some U.K. banks started to back away from it, and it morphed from an industry shoring up or a “recapitalization” plan to a “rescue” plan. I expect the U.S. did not want that to happen here.What are you concerned about going forward?Well, we still have some weak securities on our balance sheet, which were all triple-A when we bought them but some of which turned out to be triple-C in reality. It’s manageable, though. We’ve been profitable for the last six quarters, and we are very liquid with nearly half of our assets in cash and short-term securities. The banks that disappeared lacked liquidity. They were lending long and borrowing short. Later this year, I expect we’ll get new proposed standards for capital and liquidity.Will the required ratio make you less profitable?I don’t think so. There are two key capital ratios: Tier 1 Capital and Tier 1 Common. We have roughly twice the minimum of Tier 1 and Tier 1 Common.Is Tier 1 Common a new standard?It’s basically common equity divided by risk-weighted assets, which better indicates one’s ability to absorb losses. The problem with TARP is that it is preferred equity. It can’t absorb losses, because it’s debt with a coupon. However, I think it had huge benefits, for a short period of time. We were in a liquidity crisis not seen in almost 100 years in the United States. And so to come out and say, “Here are our biggest financial institutions and we are telling you, United States and the rest of the world, these guys aren’t going down,” that’s very powerful. Particularly outside of the U.S., people said, “Finally, we know who the survivors are.” We quickly picked up a lot of deposits and new business. I think people will look back on this five or ten years from now and say that TARP did its job. It helped avert a global calamity.Have you paid back your TARP money?Yes. We raised 1.5 billion in uninsured debt, at a much lower rate than TARP and common equity of 1.4 billion, proving that we could access the capital markets. We reduced our dividend, which provided us with another 750 million per year. The sum of those three things is more valuable than having 3 billion of preferred [equity]. Our balance sheet is stronger today than at the time of receiving TARP.You were pretty impressed with how Washington handled the crisis in the fall. Have you continued to be impressed?Yes. I was negative initially on the stress test, because going public with it created downward pressure on the stock prices for several months. But in the end, the numbers spoke for themselves and the markets responded.It seems like one reason why the Public-Private Investment Partnership isn’t going forward is because the gulf is too wide between what investors want to pay and what the banks want to sell for.There’s zero liquidity in many of these instruments. If, for example, you own a 100 [mortgage-backed] security and think you’re going to get 95 back, it probably trades at 40. The bid-offer spread is huge between what people would be willing to buy and sell at.But both sides agree on the actual value?There are accepted ways of determining the expected cash flows on individual securities, which depend upon the default rate and the severity, with generally available data.You said in your annual report that you’ve written down 1.6 billion of securities, but you actually thought the loss would be 535 million. Is that still what you think?Roughly. In the first quarter, we cumulatively had 7.5 billion pre-tax write-downs on marked-to-market securities, which was charged through our capital account. That’s why so many financial institutions were capital-short. The accounting has changed. Under the new rules, if a dollar is going to return 99 cents, you only take one cent through the income statement. You still do the other things to the capital account.I’m a former trader, so I love mark-to-market accounting for traded instruments. But in the banking business, you’re holding loans and securities to maturity. You should disclose what the mark-to-market is, so investors are aware, but not through the capital account.How [else] should the rules be changed?We are in a global economy. We need global accounting standards. FASB [Financial Accounting Standards Board] should be merged with the International Accounting Standards Board. We need to change the policies that have been major problems in this recession. In good times, we need to be able to build credit reserves. When things are good, the FDIC should be building up premiums too. Finally, we need to consolidate the number of regulators overseeing our industry. There’s a lack of accountability, and it is out of line with the rest of the world.

Source:CNN

NEW YORK: A regional bank in Illinois closed its doors Thursday, bringing the total number of failed banks in the United States to 46 so far in 2009, according to the Federal Deposit Insurance Corporation.Local banks have been dropping like flies as plummeting home values devalued mortgage-backed assets and rising unemployment rates caused an increasing number of consumers to default on their loans. Larger financial institutions have been helped along with government bailouts, but smaller regional banks continue to struggle.0:00
/1:07Citi rapped by JapanState regulators shuttered John Warner Bank, based in Clinton, Ill., and named the FDIC the receiver. The State Bank of Lincoln, based in Lincoln, Ill., will assume all of the deposits of the failed bank.As of April 30, the failed bank had total assets of 70 million and total deposits of approximately 64 million.The three offices of John Warner will reopen on Friday as branches of State Bank of Lincoln. Customers of the shuttered bank will automatically become depositors of State Bank of Lincoln. John Warner was the seventh bank to fail in Illinois so far this year. The total cost of Thursday’s bank failure to the FDIC is 10 million, bringing the FDIC fund’s total cost for failed banks to 11.95 billion this year. That compares with 17.6 billion in all of 2008.The number of bank failures so far this year has already far exceeded last year’s total of 25.The FDIC, which is funded primarily by fees paid by banks, insures individual deposits up to 250,000. The amount was increased from 100,000 late last year in response to concerns about the stability of the nation’s banks.

Source:CNN

NEW YORK: Community Bank of West Georgia was closed Friday by state regulators, bringing the total number of failed banks this year to 41, according to the Federal Deposit Insurance Corporation. The FDIC said the bank had roughly 1.1 million in deposits that exceeded its 250,000 insurance limit for individual accounts. However, this amount is expected to change as the agency obtains more information from uninsured customers, the FDIC said. The FDIC will mail checks to insured depositors for their funds on Monday morning. As of mid-May, the failed bank had total assets of 199.4 million and total deposits of 182.5 million, according to the FDIC.Direct deposits from the federal government, such as Social Security and Veterans’ payments, will be transferred to United Community Bank of Blairsville.Community Bank of West Georgia operated two branches, one in Villa Rica and another in Kennesaw. It was the eighth bank to fail in Georgia this year. The total cost of Friday’s bank failure to the FDIC is 85 million, bringing the total for this year to 11.6 billion. That compares with 17.6 billion in all of 2008.The number of bank failures so far this year has already exceeded last year’s total of 25, with an average of nearly 7 failures per month.Over the next 5 years, the FDIC expects roughly 70 billion in losses due to the failures of insured institutions.The FDIC, which is funded primarily by fees paid by banks, insures individual deposits up to 250,000. The amount was increased from 100,000 late last year in response to concerns about the stability of the nation’s banks.

Source:CNN

NEW YORK (Reuters) — Bank of America Corp. was sued on Thursday in a federal lawsuit in New York, accusing the largest U.S. bank of discriminating against female brokers at the former Merrill Lynch & Co. by offering them lower retention bonuses than their male counterparts.The lawsuit seeks class-action status, and contends that women brokers were typically eligible for lower bonuses because of gender bias at Merrill, including the brokerage’s practice of steering wealthier clients to male brokers.Because bonuses were based on “production,” or fees earned on client assets, the payout practice authorized by Bank of America “disproportionately disadvantages women and advantages white men as favored employees,” the complaint said.The case was brought in Manhattan federal court by Jaime Goodman, who said she worked as a Merrill broker for 16 years prior to the Jan. 1, 2009 merger.According to the complaint, Goodman was a top-quintile performer at Merrill, having been “a 1 million producer for nearly a decade,” but would have fared even better and gotten a higher retention bonus absent discrimination.Bank of America (BAC, Fortune 500) did not immediately return requests for comment.The plaintiff is seeking compensatory damages including the value of all compensation and benefits lost because of the alleged bias, as well as punitive damages and other remedies.

Source:CNN