Update On The Banking Industry


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understanding the banking industry to help you find the credit needed to cash flow your business

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  • Good evening. Thank you for having me tonight. Back in October 2008, Charlie Rose interviewed Warren Buffet as the financial rescue package was being signed. Mr. Buffet said that a great athlete (The US economy) was on the floor in cardiac arrest. Many of us in the financial markets didn’t see this coming or if we saw it coming it certainly didn’t think it would be this bad. It has caused me to go back and try to understand what was going in the economy to create this financial crisis. What I hope to convey is an understand that there was somewhat of a perfect storm of circumstances some of which have been going for some time, that led to our current crisis
  • In 1999, for example, Fannie Mae, the nation’s biggest underwriter of home mortgages, announced it was easing the credit requirements on loans that it would purchase from banks and other lenders. The purpose was to help increase home ownership among minorities and others whose incomes, credit ratings and savings were too low to qualify for conventional loans. Of course, Fannie Mae was taking on more risk. But Fannie Mae also was being pressured by the Clinton administration to help working-class home buyers. And the entire lending industry was being pressured to ease up on its consideration of income, credit history, down payment and closing costs in determining the creditworthiness of customers. Conservatives now want to place blame for today’s Wall Street collapse in former President Bill Clinton’s lap. Yet President George Bush also embraced the expansion of higher-risk home loans and in 2003 called for “the entire housing industry to help at least 5.5 million minority families become homeowners by the end of this decade.”
  • The volatility in housing markets and expansion of mortgage credit since 2000 - and the subsequent rise in delinquencies and foreclosures - undoubtedly explains a significant portion of the total rise in consumer debt. Home mortgages accounted for 69 percent of total household debt in 2000; at the start of 2009, the figure has risen to 76 percent. It would be impossible to completely extricate housing debt from the debt equation that American consumers are facing today. But even if we discount the great expansion of mortgage debt since 2000, the growth of non-mortgage consumer debt over the same period has still outpaced the growth of inflation, as well as the growth in consumer prices for food, housing, energy, and medical expenses. Credit card debt is at a historic high. Payday loan operations are flourishing. Students are acquiring high levels of debt well before they face the prospect of owning a house.
  • Update On The Banking Industry

    1. 1. State of the Banking Industry 2011, When is the Dust Going to Settle? Bill McDermott McDermott Financial Solutions, LLC
    2. 2. Presentation Outline-The 3 Things <ul><li>I . The Past-TARP </li></ul><ul><li>  </li></ul><ul><li>Banks had a liquidity and leverage crisis, US bailout of the banking industry </li></ul><ul><li>The Present-What You Need to Know Now About The Banking Industry  </li></ul><ul><li>Which banks are Healthy, Which Ones Aren’t </li></ul><ul><li>  </li></ul><ul><li>III. The Future-It’s a Long Road to Recovery, But We’re on the Path. Tight Credit Will Continue </li></ul>
    3. 3. What happened… <ul><li>In 1999, Fannie Mae, the nation’s biggest underwriter of home mortgages, announced… </li></ul><ul><li>The Clinton Administration pressured Fannie Mae to help working- class home buyers… </li></ul><ul><li>The Bush administration called for the entire housing industry to help 5.5 million minority families to become homeowners… </li></ul><ul><li>The entire lending industry was being pressured to ease up on lending requirements… </li></ul>
    4. 4. We’ve become …
    5. 5. So, What Do You Need to Know Now About the Banking Industry?? <ul><li>Which banks are healthy??? </li></ul><ul><li>Bank failures will continue… </li></ul><ul><li>www.fdic.gov , Google Alerts </li></ul><ul><li>SBA Lending Programs…… </li></ul>
    6. 6. Some Banks are healthy, Some are not…. <ul><li>SunTrust TARP exit bolsters hope AJC 5/15/11 </li></ul><ul><li>RBC on the block? Charlotte Business Journal 5/11/11 </li></ul><ul><li>Brand Bank Complete $200 Million Capital Raise PR Newswire 5/4/11 </li></ul><ul><li>United Community Bank Reports 1 st Qtr loss of $142.5 Million </li></ul><ul><li>Two Georgia Banks Fail Atlanta Business Chronicle 4/29/11 </li></ul>
    7. 7. Consolidation will continue.. It is estimated that another 50-60 banks will fail in Georgia over the next 2-3 years
    8. 8. How do I keep up with all of this? Texas Ratio Report, www.fdic.gov and Google Alerts
    9. 9. Texas Ratio <ul><li>To calculate the Texas Ratio, you divide a bank's bad debt on the books by the amount of money it has to absorb the bad debt. (shareholder equity) </li></ul><ul><li>Bad debt/ net worth plus loan loss reserves </li></ul><ul><li>>100% could be a problem </li></ul>
    10. 10. www.fdic.gov <ul><li>Quick links-bankers, institution directory, bank find </li></ul><ul><li>Type in the bank name </li></ul><ul><li>Performance and condition ratios </li></ul><ul><li>Capital to asset ratio (between 8%-12%) </li></ul><ul><li>Profitable/unprofitable? </li></ul><ul><li>Asset quality (non performers %) </li></ul>
    11. 11. Google Alerts <ul><li>If you have a Google profile </li></ul><ul><li>Type in a name/topic </li></ul><ul><li>Google will send all relevant information once a day or more often via email or text </li></ul><ul><li>I follow 30 different banks with Google Alerts to get up to date information on each institution </li></ul>
    12. 12. SBA Loans <ul><li>SBA Business Express loans are smaller loans up to $350,000 with less documentation required and faster approval time </li></ul><ul><li>Patriot Express loans are for former veterans that are looking to fund their business up to $500,000 for eligible purposes </li></ul>
    13. 13. SBA Loans (continued) <ul><li>The SBA 7a program has a wide variety of uses from expansion to business acquisition to companies that export to companies that do business in rural areas </li></ul><ul><li>The SBA 504 program provides 90% purchase financing or refinancing on owner occupied real estate (50% bank loan 40% SBA bond with a 20 year fixed rate) </li></ul>
    14. 14. Help yourself by becoming familiar with these programs. A large amount of current bank lending is through these programs
    15. 15. The Future…. <ul><li>It’s a long road to recovery, but we’re on the right path </li></ul><ul><li>Tight credit will continue </li></ul><ul><li>Many banks remain over leveraged and are forced by regulators or market forces to raise capital or reduce the overall size of their balance sheet </li></ul><ul><li>A bank reduces the overall size of their balance sheet by selling off loans not making new ones. </li></ul>
    16. 16. Look for Banks that are … <ul><li>Raising capital or paying off TARP money </li></ul><ul><li>Brand Bank Complete $200 Million Capital Raise PR Newswire 5/4/11 </li></ul><ul><li>SunTrust TARP exit bolsters hope AJC 5/15/11 </li></ul>
    17. 17. SBA programs can become… <ul><li>An excellent way to help you with cash flow issues </li></ul><ul><li>Success stories, mfg/distribution company $3.2 million mortgage and line of credit, </li></ul><ul><li>concrete/paving contractor $400,000 mortgage and working capital loan, </li></ul><ul><li>distributor of LCD displays $800,000 inventory loan </li></ul><ul><li>CPA practice buyout $250,000 </li></ul>
    18. 18. What types of loans?? <ul><li>Residential construction and development </li></ul><ul><li>(when ______ freezes over) </li></ul><ul><li>Other real estate (owner occupied, yes/SBA 504 Investor loans, no) </li></ul><ul><li>Working capital, equipment and acquisition loans, yes/SBA </li></ul>
    19. 19. An update on the banking industry… <ul><li>Past, TARP, the banking industry needs capital </li></ul><ul><li>Present, use fdic.gov and google alerts to find healthy banks </li></ul><ul><li>Future, tight credit will continue, SBA programs can help </li></ul>
    20. 20. Questions??? <ul><li>Call me at 678-597-8184 or email [email_address] </li></ul><ul><li>Subscribe to our blog “Inside the Vault” www.bankingsolved.com </li></ul><ul><li>Follow our updates on Facebook, McDermott Financial Solutions </li></ul>