Federal Reserve examiners last week sounded the all clear on MidSouth Bank about 21 months after ordering its directors and managers to boost capital and improve their operational oversight. Since mid-2010, MidSouth Chairman and CEO Lee Moss and President and COO Dallas Caudle have overseen a 20 percent cut in the $240 million bank's loan portfolio and boosted its total risk-based capital ratio by almost 3 percentage points to more than 17 percent. And even though past-due loan levels remain high, MidSouth in 2011 posted a profit of more than $1 million.
SEE ALSO: Details of the Fed's August 2010 order
Stephen Gandel at Fortune reports that some analysts are questioning whether Regions Financial and Utah-based Zions Bancorp were given a pass of sorts during the Federal Reserve's recent stress test. Todd Hagerman at Sterne Agee tells Gandel the government is more focused on getting those two lenders out of the TARP program.
The overall loan loss projection for Regions, which is one of the nation's 19 largest banks, was in line with the average for other banks. But much of the bank's loan portfolio is concentrated in the Southeast, which has been hit hard by the housing bust, and where analysts expect loan losses to be higher than average.
Investors, who have pushed up Regions shares since the stress test news, don't seem to care much about Gandel's report. The stock (Ticker: RF) was up more than 2 percent heading into the last hour of Wednesday trading. They're up more than 50 percent year to date.
SEE ALSO: Regions preps TARP payoff
First Tennessee Bank was the recipient of more than $45 billion of emergency loans during the darkest days of the financial crisis that reached its peak in the fall of 2008. That's the biggest Tennessee data point in public-interest journalism group ProPublica's compilation of thousands of documents released last week by the Federal Reserve after Bloomberg won an open-records court case centered on the agency's issuance of secret loans. Another lender active in the Nashville area that also features on the list is The Bank of Nashville, which received a single $25 million shot in the arm.
The Bloomberg report on "the largest bailout in U.S. history" is available here and discusses how borrowings under the so-called Term Auction Facility and other programs helped keep afloat hundreds of lenders — the leaders of which didn't disclose the scale of the help they were getting.
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
Click here for the full and searchable data set from ProPublica
Midsized and large businesses are applying for more loans than late last year and more banks are liking their applications, according to a new Federal Reserve survey. And it appears the optimism is filtering its way into parts of the consumer lending arena, too.
“Regarding changes in standards and terms on loans to households, several large banks eased lending policies on credit card and auto loans, and the net fraction of banks that reported having become more willing to make consumer installment loans rose to its highest level since the first half of 1994,” the Fed said.
The Fed’s adverse economic scenario included a 1.5 percent decline in gross domestic product from the fourth quarter of last year through the end of 2011, said the people, who declined to be named because the Fed hasn’t made the details of the review public. The scenario assumed growth resumes, with output rising 4 percent over the fourth-quarter 2010 level by the end of 2013. Unemployment would peak at more than 11 percent by the first quarter of 2012 and drop back to 9.5 percent by the end of 2013.
"In a recovery period, you have to pick the right moment to begin … taking away the punch bowl," Bernanke said, referring to the famous central bank line about raising interest rates when the economy gathers steam. "We are committed to making sure that we do it at the right time." Even so, there has been increasing concern voiced recently, including from some Fed policymakers, about the risks of the central bank's latest program to buy $600 billion of Treasury bonds through June, especially given indications that the U.S. economic growth is accelerating. And as in some corners of the financial world, some lawmakers Wednesday responded to Bernanke's assurances with skepticism. "My fear is, you're going to catch it before the cow is out of the barn, you're going to see inflation before it is already launched," said Rep. Paul D. Ryan (R-Wis.), the new chairman of the House Budget Committee. Ryan noted, for example, that bond yields in recent days had surged, which is seen as reflecting rising expectation of higher inflation down the road. Bernanke said that those movements indicated investors' stronger confidence in the economic recovery, not worries about inflation, which has been running well below the Fed's target of 2%.Bernanke also discussed the drop in unemployment.
The latter would be a concern, specially considering aggregate debt levels in the country have not fallen that much from the peak a few years ago. It could be a host of unemployed turning to their last source of funds as their 99 weeks of unemployment run out. Or, since it happened in December, credit cards could just be a way more people funded their gift shopping. Whatever the case, shorter term it is a boost to an economy that is 70% dependent on consumption – longer term, we’ll have to see a few quarters from now if default rates begin to jump again.
“We’re starting to see loan demand turn up, and that’s a very important indication that the financial system is healing and the commercial banking system is getting stronger,” said Michael Darda, chief economist and chief market strategist for MKM Partners in Stamford, Connecticut. “When that happens you usually see a step up in job creation as well.”Alphaville's take includes the duly-noted comment that M&A activity's role in demand for credit doesn't necessarily mean good things for the unemployment rate.
Even so, mounting foreclosures and unemployment above 9 percent help explain why Federal Reserve policy makers today are expected to press ahead with a $600 billion stimulus. “This is consistent with a gradual path of recovery,” said Drew Matus, an economist at UBS Securities LLC in Stamford, Connecticut. “Housing is going to remain a weak spot for some time. The stabilization in the economy has to be encouraging for the Fed, but it’s still not a rip-roaring economy, so they are not going to alter” policy today, he said.
The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans. “The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”
- ALEX B FRUIN INHERITANCE TRUST; CANDACE F STEFANSIC INHERITANCE TRUST; CANDANCE F STEFANSIC INHERITANCE TRUST; FRUIN, ALEX B TRUSTEE; FRUIN ALEX B INHERITANCE TRUST; STEFANSIC, CANDACE F TRUSTEE; STEFANSIC CANDACE F INHERITANCE TRUST; STEFANSIC CANDANCE F INHERITANCE TRUST
- ROSS, BRIDGETT D
- COOKE, ETHEN LANYARD TRUSTEE; COOKE, ETHEN LEWIS ESTATE
- JACOBS, JESSICA ALEXANDRA; JACOBS, ERIKA BESS