It pays to be a savvy bank customer

In the newspaper industry, a new phrase has crept into the lingo.

The “death watch” patrol — it begins every Friday as we watch for the latest bank to fail.

That’s not meant to be flippant, it’s just a reflection on the reality of the times. So far this year there have been 122 bank failures — 22 in Florida. Yet that number should really be 250, according to Bill Bartmann, publisher of the Bartmann Bank Monitor Report, which analyzes and evaluates nonperforming banks.

Bartmann says the number of banks the FDIC is “nervous” about is 808. Yet the agency has only shut down 122. He blames that on politics and being in the midst of an election year. “They (FDIC) are waiting until November to drop the other shoe,” he said.

The real blood letting, though. will come in 2011, he says.

“We project a total of 500 banks will fail in 2011,” he said.

The image of that is horrific, especially when you consider the reverberating effects that will have on an economy that is barely limping along.

Florida ranks No. 2 on the “ugly contest” list according to Bartmann, when you consider the financial stability of the nation’s banking system.

Florida is unique because of the aggressive approach many of the banks here took in the boom years of the mid-2000s when residential loans were made fast and furious to many who didn’t qualify. And now the same fate is facing the state’s commercial real estate industry.

“These defaults radiate through whole communities,” Bartmann said. “All the visions of sugarplums dancing in their heads and bankers thinking ‘I can make some money.’ But they didn’t look beyond the end of their billfolds.”

Part of the failout has hugely impacted small businesses that are finding such tight credit rules they can sometimes no longer survive.

There have been some reports that credit lines are loosening. But minus an economic miracle, Bartmann sees banks “shivering in their boots, worried about the bad loans they’ve made and the loans that haven’t gone bad but will if the economy doesn’t improve.”

The bottom line is that unless the economy significantly improves, the banks won’t improve, he says.

And it seems as if each week brings more and more depressing indicators that point to a stagnant economy and talk of a double-dip recession. Two different regional Federal Reserve governors have said a double dip is likely.

“It’s scary because we as citizens are saying, ‘what is next?’,” Bartmann said. “We have become so frightened about what has occurred, we are finally saving.”

Sixty-four banks remain on the FDIC troubled list in Florida. Bartmann ranks the Top Ten Most Troubled Banks and our own Horizon Bank made the list. The Bradenton-based bank has recently hired a firm to raise an additional $7.5 million to try and stave off any regulatory action, but next month things might come to a head as the Fed watches to see whether a deadline to raise more capital is met.

Bartmann offers some tips to consumers who also are part of the death watch, maybe for their own banks.

“They should begin an open financial relationship down the street,” he advises. Don’t panic, just develop other banking relationships so if your bank fails, you already have a foot in the door somewhere else.

If your bank does fail, then ask questions, Bartmann says. The bank staff will have received special training on how to answer questions and usually an FDIC representative will be available for the first couple of days after a failure.

Don’t worry. Your deposits are safe. It is business as usual, he says. If there is $250,000 or less in an account it is all insured. The insured portion of the deposit will be transferred to the new bank and is available immediately to you under the same terms as the agreement with the old bank. The uninsured portion of the deposit is an unsecured nonpriority claim, Bartmann says. As the FDIC liquidates the assets, the deposition will receive whatever the other general creditors get. The historical average is 46 cents on the dollar, he says.

In most cases, the transition to the new bank is seamless. Lots of things are happening, but almost none of them you will be able to notice.