Thursday, December 17, 2009

Bank CEO Expects Prompt Corrective Action

by Bill McBride on 12/17/2009 09:26:00 PM

Just a Bank Failure Friday warm up post ... first, the CEO of Barnes Bank is expecting a PCA:

From Paul Beebe at the Salt Lake Tribune: Beleaguered Barnes Bank to brief shareholders

Barnes Bank, under orders to shore up its capital and fix other financial problems, will tell shareholders in a special meeting Friday how much headway it's making.
Asked if Barnes is healthy, [Curtis Harris, president and CEO] said, "I probably wouldn't make a comment on that right now."
"We understand that a PCA (prompt corrective action order) may be coming. We are looking for that to be coming," Harris said.
I'm not sure I've ever heard a bank CEO say he expects a PCA. Basically PCAs are Hail Mary passes with a low probability of success. Note: It is common for banks to be seized without a PCA ever being issued.

Barnes had $827 million in assets at the end of Q3. They have been operating under a written agreement since May 13th with a 60 day period for compliance (sounds like they didn't meet that deadline!).

Also - earlier this week - the FDIC announced plans to hire over 1,600 temporary employees in 2010 to assist with bank closings: FDIC Board Approves 2010 Operating Budget
The 2010 operating budget will increase more than $1.4 billion (55%) from 2009, primarily due to the cyclical nature of bank failures. The receivership funding component of the 2010 budget, the vast majority of which is funded by receiverships, will be $2.5 billion, up from $1.3 billion in 2009. This includes funding for the continuing work associated with bank failures that have occurred over the past two years. The budget also contains contingency funding for the possible continuation of an elevated number of bank failures in 2010. The 2010 budget increase also is partially attributable to increased supervisory activity related to the rising number of troubled banks which the FDIC oversees.

In conjunction with its approval of the 2010 operating budget, the Board also approved an authorized 2010 staffing level of 8,653 employees, up from 7,010 in 2009. Almost all the additional staff will be hired on a temporary basis. They will be hired primarily to assist with bank closings; to perform follow-on work related to the management and sale of failed bank assets; and to conduct bank examinations and perform other bank supervisory activities.
Friday afternoons will be busy in 2010.