US bank regulators closed two more banks at the weekend, taking the number of failures so far this year to 16.
The announcement marks the seventh consecutive Friday evening announcement from federal or State regulators of bank closures across America.
This time it was a small local bank in Nevada and a rare closure in Illinois in the Midwest. Both were sold to nearby competitors.
Unlike Citigroup, which was bailed out for a third time on Friday, with the US Government now controlling it with a 36% stake (on which the Government is losing tens of billions of dollars), these small banks were deemed inconsequential and were forcibly closed and sold.
Citi is still too big for that sort of treatment, and yet its looking increasingly like that the only credible option is for something like that to happen at the hands of the Obama Government.
It has already nationalised and then broken down and sold off IndyBank of California last year. It was one of the 25 banks that failed in 2008.
Now the lead US banking regulator, the Federal Deposit Insurance Corporation, says 252 banks were on its watch list at the end of December.
The FDIC said Friday that US bank failures could cost it at least $US65 billion by 2013 in meeting the cost of losses from insuring deposits up to $US250,000 each.
The figure was mentioned in an open board meeting that saw the regulator impose an emergency fee on all US banks to raise up to $US27 billion more to help meet the cost of the expanding rate of collapse.
On Friday, the US government injected billions more into Citi (as did other shareholders): up to $US25 billion more by converting some of existing $45 billion in preferred shares into ordinary shares. That’s up to $US70 billion so far, plus billions more from other big holders from previous rescues. It’s more than the projected losses to the FDIC over the next five years!
Citi shares plunged by 37% after the Government deal was announced an at the close was valued at just $US9 billion, or $US1.50 a share; despite having $US1.6 trillion in assets and tens of billions of dollars in fresh capital.
The government will convert up to $US25 billion of its $US45 billion worth of preferred stock into shares at $US3.25 per share and other preferred shareholders, including the Government of Singapore Investment Corporation and Saudi Arabia’s Prince Alwaleed, will convert up to $US27.5 billion of their holdings at the same price.
But Citi is not the only bank recap going on. Lloyds Bank is arguing with the UK Government over 120 million pounds of bonuses for staff after revealing Friday that its HBOS subsidiary (taken over last year at Government behest) suffered a 10.8 billion pound loss in 2008.
But the big news is the impending mega issue from the huge HSBC, one of the soundest banks left standing in Europe and Asia, but not the US, where tens of billions of dollars have been lost in subprime mortgages and other poor lending decisions in a subsidiary centred on the subprime financier, HFC (Household Finance Corporation), which was taken over several years ago.
So crippling have been the losses that London and New York reports say HSBC will tonight reveal another set of huge write-downs, the closure of HFC and billions of pounds of losses. It is looking to raise up to 13 billion pounds in an issue to shareholders at a humiliating 40% discount to market, so desperate is its need for fresh capital.
The reports say HSBC will stop making personal loans and writing mortgages in the Us, so great have been its losses.
The news came a day after banks in eastern Europe were thrown a $US31 billion lifeline by a group of European-based institutions.
The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank, announced the support package in London and apparently hope the move will encourage the international banking groups (mostly from Western Europe and Scandinavia) that control most of the region’s banks to support their subsidiaries.
The program will be coordinated with the International Monetary Fund, which has already made emergency loans to Hungary, Latvia and Ukraine.