(Bloomberg) -- Workers at Kinross Farm defended its hens against the worst wildfires in Australian history while their own homes burned. Now the birds may return the favor by protecting humans from swine flu.
The hens, housed in air-conditioned sheds and kept in shape with a vitamin-rich diet, blood tests and doctors’ visits, lay eggs critical to the creation of a new vaccine. It’s needed to foil the flu virus that may prompt the World Health Organization to declare the first pandemic since 1968.
Seasonal flu causes 250,000 to 500,000 deaths a year globally, and a pandemic strain might kill millions, according to WHO officials. The hens are essential because the most common way of making a protective vaccine involves growing viruses in the chickens’ eggs, said Philip Szepe, the owner of Kinross.
“These are very pampered birds, very important birds,” said Szepe, whose farm is in Kinglake, a town about 70 kilometers (44 miles) northeast of Melbourne. “It’s as close as you would get in the poultry world to a Hilton.”
CSL Ltd., a Kinross customer in Melbourne, is counting on eggs with the size, shape and shell thickness needed to grow the virus crucial to making vaccines. Egg suppliers around the world are standing by to send shipments to vaccine makers. All await word on whether world health officials will formally endorse the production of a shot against swine flu.
Black Saturday
Kinross’s birds, a mix of Hy-Line Brown and Hisex Brown breeds, almost went up in smoke in January during the Black Saturday fires, which killed 173 people in Victoria, the state that includes Kinglake. Two Kinross workers were fighting flames at the 620-acre (251-hectare) property, unaware that their own homes were among those burning, Szepe said.
The farm declines to disclose how many of its 600,000 hens make eggs for vaccines and thus get coddling not given others. Szepe, who also wouldn’t discuss egg prices, said the farm produces about 1 million eggs annually for vaccine, including 800,000 for CSL.
Under current global capacity, vaccine makers would be capable of producing 2.5 billion shots within 12 months of receiving a pandemic virus strain, requiring four years to meet global demand, according to a best-case scenario published in a February report by Oliver Wyman, a management consulting company based in New York.
Demand for vaccine will outstrip availability when a pandemic starts, and alternative technologies that don’t require ramping up supplies of chickens and eggs aren’t being embraced rapidly enough, said David Fedson, a former vaccine developer for Paris-based Sanofi Aventis SA.
‘In a Bind’
“We’re going to be in a bind,” said Fedson, now an independent specialist in pandemic preparedness. “People who have been talking about the potential for using inactivated vaccines for the world simply haven’t done their arithmetic.”
So-called inactivated vaccines contain viruses that have been killed, yet contain parts of the pathogen that prompt the body to mount an immune response.
Fedson urges the use of so-called live attenuated vaccines, such as MedImmune Inc.’s Flumist, which contain weakened forms of the live virus. These require less virus to achieve the same effect, so production is faster, he said.
There have been 5,728 laboratory-confirmed swine flu cases, in 33 countries, according to WHO data posted today. The death toll stood at 61, including 56 in Mexico.
1931 Breakthrough
In 1931, the scientists Ernest William Goodpasture and Alice Miles Woodruff invented methods for using eggs to cultivate viruses. Fertilized eggs are injected with a virus, which needs a living cell to grow. The virus is then extracted, purified and killed -- for jabbing into humans, where it can boost the immune system without causing disease.
One egg can produce roughly one shot, said Hiroshi Hashimoto, a spokesman for Kitasato Institute Research Center for Biologicals, in Saitama, Japan. Eggs are heated for two days at 37 degrees Celsius (97 degrees Fahrenheit) for culturing after a virus gets injected in 11-day-old eggs at a laboratory at Kitasato.
While production methods have since been developed that entail neither eggs nor live virus, CSL is relying on the old technology.
“It’s the cheapest, safest and most effective way to respond in an emergency,” said Rachel David, a CSL spokeswoman.
Read more here
Wednesday, May 13, 2009
Tuesday, May 12, 2009
Greenspan sees "seeds of bottoming" for U.S. housing
(Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Tuesday that "the seeds of a bottoming" in plunging U.S. home markets were becoming visible.
Speaking to a National Association of Realtors summit, Greenspan said there were reasons to believe that bulging inventories of unsold homes were dwindling and that should bring some stability to prices.
"It looks to me, judging from the balancing of household formation on one hand, conversions, mergers, demolitions...that we're at the edge of a major liquidation in that excess of inventories which I suspect and I hope will be of such a pace that it will stabilize prices," the former Fed chief said.
Read more here
Speaking to a National Association of Realtors summit, Greenspan said there were reasons to believe that bulging inventories of unsold homes were dwindling and that should bring some stability to prices.
"It looks to me, judging from the balancing of household formation on one hand, conversions, mergers, demolitions...that we're at the edge of a major liquidation in that excess of inventories which I suspect and I hope will be of such a pace that it will stabilize prices," the former Fed chief said.
Read more here
Monday, May 11, 2009
Microsoft sells its first U.S. corporate bond
(Reuters) - Microsoft Corp (MSFT.O) on Monday sold a $3.75 billion debt issue in its first foray into the U.S. corporate bond market, joining a spate of companies taking advantage of beneficial borrowing conditions.
The cash-rich, "triple-A" rated Microsoft announced its first debt authorization last September, allowing it to issue up to $6 billion in debt. Monday's bond sale attracted well over $10 billion in demand, market sources said.
The sale included $2 billion of five-year notes yielding about 95 basis points over comparable U.S. Treasuries, $1 billion of 10-year notes yielding about 105 basis points over Treasuries and $750 million of 30-year bonds yielding about 105 basis points over Treasuries, according to IFR, a Thomson Reuters service.
Microsoft, the world's largest software maker, has already issued about a third of its $6 billion debt authorization in the commercial paper market.
It says it does not need financing, but will use the proceeds for general corporate purposes, including working capital and buying back stock, according to a spokesman.
The company decided to take advantage of "good market conditions and Microsoft's great credit rating," a spokesman said. The software giant is one of only a handful of U.S. companies still rated 'AAA' by both Moody's Investor Service and Standard & Poor's.
Fitch rates it one notch lower at 'AA-plus'.
"I think people thought it might be the only shot in a lifetime to lend money to Microsoft," said Robert Bishop, portfolio manager at SCM Advisors in San Francisco. "When a company is borrowing and they don't really need the money, you don't know when you're going to get another shot at them."
As of the end of March, Microsoft reportedly had cash and short-term investments worth $25.3 billion.
The sale did well because "Microsoft is a great credit and everybody's got a place in their portfolio for a few high quality credits," Bishop added. Still, he declined to participate because yields being offered "didn't seem like great value."
The bond sale benefited from massive investor cash flowing into corporate bonds as tentative signs of economic recovery improve investors' appetite for risk.
"An awful lot of people want to pile into the credit markets now," Bishop said. "They think things are better but the problem is, I think they probably don't realize how much spreads have tightened over the course of the last two months."
Corporate bonds started attracting demand when their yield spreads hit a record 656 basis points over Treasuries last December. As the market rallied, spreads have narrowed to just 444 basis points, according to Merrill Lynch data.
But companies are taking advantage of the falling yield spreads, with more than $26 billion of U.S. corporate bonds sold in just the first six business days of the month, according to Thomson Reuters data.
"It seems to me that there's almost an urgent need for issuers to announce a deal as quickly as they can to catch the market before it does turn the other way," said Richard Lee, head of fixed income at New York broker-dealer Wall Street Access.
The corporate bond market appeared to already be softening on Monday, with spreads suffering their first widening in weeks under the spate of heavy supply.
Read more here
The cash-rich, "triple-A" rated Microsoft announced its first debt authorization last September, allowing it to issue up to $6 billion in debt. Monday's bond sale attracted well over $10 billion in demand, market sources said.
The sale included $2 billion of five-year notes yielding about 95 basis points over comparable U.S. Treasuries, $1 billion of 10-year notes yielding about 105 basis points over Treasuries and $750 million of 30-year bonds yielding about 105 basis points over Treasuries, according to IFR, a Thomson Reuters service.
Microsoft, the world's largest software maker, has already issued about a third of its $6 billion debt authorization in the commercial paper market.
It says it does not need financing, but will use the proceeds for general corporate purposes, including working capital and buying back stock, according to a spokesman.
The company decided to take advantage of "good market conditions and Microsoft's great credit rating," a spokesman said. The software giant is one of only a handful of U.S. companies still rated 'AAA' by both Moody's Investor Service and Standard & Poor's.
Fitch rates it one notch lower at 'AA-plus'.
"I think people thought it might be the only shot in a lifetime to lend money to Microsoft," said Robert Bishop, portfolio manager at SCM Advisors in San Francisco. "When a company is borrowing and they don't really need the money, you don't know when you're going to get another shot at them."
As of the end of March, Microsoft reportedly had cash and short-term investments worth $25.3 billion.
The sale did well because "Microsoft is a great credit and everybody's got a place in their portfolio for a few high quality credits," Bishop added. Still, he declined to participate because yields being offered "didn't seem like great value."
The bond sale benefited from massive investor cash flowing into corporate bonds as tentative signs of economic recovery improve investors' appetite for risk.
"An awful lot of people want to pile into the credit markets now," Bishop said. "They think things are better but the problem is, I think they probably don't realize how much spreads have tightened over the course of the last two months."
Corporate bonds started attracting demand when their yield spreads hit a record 656 basis points over Treasuries last December. As the market rallied, spreads have narrowed to just 444 basis points, according to Merrill Lynch data.
But companies are taking advantage of the falling yield spreads, with more than $26 billion of U.S. corporate bonds sold in just the first six business days of the month, according to Thomson Reuters data.
"It seems to me that there's almost an urgent need for issuers to announce a deal as quickly as they can to catch the market before it does turn the other way," said Richard Lee, head of fixed income at New York broker-dealer Wall Street Access.
The corporate bond market appeared to already be softening on Monday, with spreads suffering their first widening in weeks under the spate of heavy supply.
Read more here
Thursday, May 7, 2009
DBS Profit Beats Estimates on Trading Increase
(Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s biggest bank, became the third Singaporean lender to report first-quarter profit that beat analysts’ estimates as trading revenue surged and staff costs declined.
Net income fell 28 percent from a year earlier to S$433 million ($294 million), the bank said today in a statement. That exceeded the S$353 million mean estimate of seven analysts surveyed by Bloomberg.
DBS rose 10 percent in Singapore trading over the past two days after its two local rivals reported better-than-estimated first-quarter profits, spurring optimism that the credit freeze is easing. Goldman Sachs Group Inc. analyst David Ng on May 6 raised his rating on the stock to “buy,” saying DBS’s S$4 billion share sale in December gave it the resources to expand market share at home and in China.
“They’ve averted the worst case scenario,” David Lum, an analyst at Daiwa Institute of Research in Singapore, said in an interview. “But their non-performing loan ratio actually went up quite a bit, and this suggests Singapore’s banks may not be totally out of the woods yet.”
DBS fell 1 percent to S$11.88 at 9:28 a.m. in Singapore. The shares have risen 41 percent this year, while United Overseas Bank Ltd., the city’s second-largest bank, has jumped 17 percent. Oversea-Chinese Banking Corp., which owns Singapore’s biggest insurer, has advanced 41 percent.
First-quarter profit was curbed by rising impairment losses, which jumped to S$414 million from a year earlier. The non- performing loan ratio rose to 2 percent at the end of March from 1.5 percent at the end of 2008.
New CEO Sought
Non-interest income jumped 16 percent to S$586 million, bolstered by S$150 million in trading income. Net interest income rose 2 percent to S$1.08 billion and fee income slipped 10 percent to S$317 million, DBS said.
DBS is expanding in mainland China and in Southeast Asia. The bank will focus on “organic growth” in existing markets, Chairman Koh Boon Hwee said in February.
“Given continuing uncertainties over how protracted the downturn will be, we remain vigilant in managing our balance sheet and ensuring that the franchise is in a solid position to capture future growth opportunities,” Koh said in today’s statement.
The bank is seeking a replacement for former Chief Executive Officer Richard Stanley, who died last month after being diagnosed with leukemia in January. Koh is overseeing management until a replacement is found.
DBS, which posted its biggest profit drop in more than three years in the fourth quarter, and competitors are contending with a deepening recession. The city-state’s economy may shrink as much as 9 percent this year, the most since independence in 1965, the trade ministry predicted on April 14.
Read more here
Net income fell 28 percent from a year earlier to S$433 million ($294 million), the bank said today in a statement. That exceeded the S$353 million mean estimate of seven analysts surveyed by Bloomberg.
DBS rose 10 percent in Singapore trading over the past two days after its two local rivals reported better-than-estimated first-quarter profits, spurring optimism that the credit freeze is easing. Goldman Sachs Group Inc. analyst David Ng on May 6 raised his rating on the stock to “buy,” saying DBS’s S$4 billion share sale in December gave it the resources to expand market share at home and in China.
“They’ve averted the worst case scenario,” David Lum, an analyst at Daiwa Institute of Research in Singapore, said in an interview. “But their non-performing loan ratio actually went up quite a bit, and this suggests Singapore’s banks may not be totally out of the woods yet.”
DBS fell 1 percent to S$11.88 at 9:28 a.m. in Singapore. The shares have risen 41 percent this year, while United Overseas Bank Ltd., the city’s second-largest bank, has jumped 17 percent. Oversea-Chinese Banking Corp., which owns Singapore’s biggest insurer, has advanced 41 percent.
First-quarter profit was curbed by rising impairment losses, which jumped to S$414 million from a year earlier. The non- performing loan ratio rose to 2 percent at the end of March from 1.5 percent at the end of 2008.
New CEO Sought
Non-interest income jumped 16 percent to S$586 million, bolstered by S$150 million in trading income. Net interest income rose 2 percent to S$1.08 billion and fee income slipped 10 percent to S$317 million, DBS said.
DBS is expanding in mainland China and in Southeast Asia. The bank will focus on “organic growth” in existing markets, Chairman Koh Boon Hwee said in February.
“Given continuing uncertainties over how protracted the downturn will be, we remain vigilant in managing our balance sheet and ensuring that the franchise is in a solid position to capture future growth opportunities,” Koh said in today’s statement.
The bank is seeking a replacement for former Chief Executive Officer Richard Stanley, who died last month after being diagnosed with leukemia in January. Koh is overseeing management until a replacement is found.
DBS, which posted its biggest profit drop in more than three years in the fourth quarter, and competitors are contending with a deepening recession. The city-state’s economy may shrink as much as 9 percent this year, the most since independence in 1965, the trade ministry predicted on April 14.
Read more here
Wednesday, May 6, 2009
Regulators put bank CEOs on notice
(Fortune) -- Banks that need more capital under the stress tests will have a month to present regulators with a fundraising plan, federal officials said Wednesday.
The banks will have six months to raise the funds, according to a statement from the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
The banks will also have to review their management and board within a month, "to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment," the bank regulators said in a statement Wednesday afternoon.
The announcement comes just a day before the results of regulators' Supervisory Capital Assessment Program, which covers the 19 biggest bank holding companies in the U.S., are due to be released to the public.
Wall Street has been eagerly awaiting the results since the government unveiled the stress test plan in February. The results of the tests were initially scheduled for release earlier this week, but the announcement was rescheduled for Thursday afternoon to allow banks a chance to review the findings.
But results of the tests have already started to leak out in the past few days. Bank of America (BAC, Fortune 500) is reportedly being told to raise $34 billion, while Wells Fargo (WFC, Fortune 500) is expected to be told to raise $15 billion.
Meanwhile other institutions, such as American Express (AXP, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), are not expected to have to raise additional capital, according to published reports.
Also Wednesday, President Obama's top spokesman indicated that the government might lean on companies whose boards and managers aren't seen as up to snuff.
"The government has...weighed in on changes at the CEO level and at the board of directors level to ensure that...the management was in place to...ensure long-term viability without continued government assistance," Robert Gibbs said at a White House press briefing Wednesday.
The Obama administration forced former General Motors CEO Rick Wagoner to step down in late March after finding that the company did not have a long-term plan for viability.
Gibbs' comment comes just a week after Bank of America shareholders denied CEO Ken Lewis' bid for another term as the bank's chairman. BofA has already received $45 billion in federal capital, in addition to $118 billion of asset guarantees.
Regulators are focusing the test on the size of a bank's common stockholdings, according to the paper released Wednesday by Treasury Secretary Tim Geithner, Fed chief Ben Bernanke, FDIC chairman Sheila Bair and Comptroller John Dugan.
The paper says bank holding companies are being expected to have at least a 6% Tier 1 risk ratio and a 4% Tier 1 common risk ratio as of the end of 2010.
Read more here
The banks will have six months to raise the funds, according to a statement from the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
The banks will also have to review their management and board within a month, "to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment," the bank regulators said in a statement Wednesday afternoon.
The announcement comes just a day before the results of regulators' Supervisory Capital Assessment Program, which covers the 19 biggest bank holding companies in the U.S., are due to be released to the public.
Wall Street has been eagerly awaiting the results since the government unveiled the stress test plan in February. The results of the tests were initially scheduled for release earlier this week, but the announcement was rescheduled for Thursday afternoon to allow banks a chance to review the findings.
But results of the tests have already started to leak out in the past few days. Bank of America (BAC, Fortune 500) is reportedly being told to raise $34 billion, while Wells Fargo (WFC, Fortune 500) is expected to be told to raise $15 billion.
Meanwhile other institutions, such as American Express (AXP, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), are not expected to have to raise additional capital, according to published reports.
Also Wednesday, President Obama's top spokesman indicated that the government might lean on companies whose boards and managers aren't seen as up to snuff.
"The government has...weighed in on changes at the CEO level and at the board of directors level to ensure that...the management was in place to...ensure long-term viability without continued government assistance," Robert Gibbs said at a White House press briefing Wednesday.
The Obama administration forced former General Motors CEO Rick Wagoner to step down in late March after finding that the company did not have a long-term plan for viability.
Gibbs' comment comes just a week after Bank of America shareholders denied CEO Ken Lewis' bid for another term as the bank's chairman. BofA has already received $45 billion in federal capital, in addition to $118 billion of asset guarantees.
Regulators are focusing the test on the size of a bank's common stockholdings, according to the paper released Wednesday by Treasury Secretary Tim Geithner, Fed chief Ben Bernanke, FDIC chairman Sheila Bair and Comptroller John Dugan.
The paper says bank holding companies are being expected to have at least a 6% Tier 1 risk ratio and a 4% Tier 1 common risk ratio as of the end of 2010.
Read more here
Tuesday, May 5, 2009
Schwab Cuts Fund Fees Big-Time
Well, Schwab can’t do anything about the stock market, but the the financial services company can make it cheaper for people to invest. This morning, the mutual fund operation of Charles Schwab made deep cuts in the expense ratios of its equity index funds and lowered costs throughout its fund family for individual investors.
The news comes only one month after Morningstar forecast that mutual fund expense ratios will rise in 2009.
Under its new pricing, Schwab is giving all investors in a given fund the same expense ratio, whether they’re making the minimum initial investment of $100 or investing a larger amount. For example, expenses for a small investment in Schwab’s popular Dividend Equity fund will drop from 1.04% to 0.89%, a ratio previously available only to people with a minimum investment of $50,000. Ratios on other funds will have higher drops: For small investments in the Schwab Fundamental U.S. Large Company Index fund will go from 0.59% to 0.35%.
Playing a game of expense-ratio limbo with other brand-name mutual fund giants–and with ETFs, such as the SPDR S&P 500, that are stealing dollars from index mutual funds–Schwab is claiming the industry’s lowest expenses in three categories of index mutual funds: the S&P 500, the total US stock market, and small-cap stocks. For example, Schwab’s S&P 500 Index fund, which used to have an expense ratio of 0.36% for small accounts, now has an expense ratio of 0.09%. The expense ratio for the Vanguard 500 Index fund, which has a minimum initial investment of $3,000, is 0.15% for most individuals, while the Fidelity Spartan 500 Index–a $10,000-minimum fund–has an expense ratio of 0.10%.
“This is not a promotional offer or anything like that,” said Schwab’s Peter Crawford, senior v.p. of investment management services, at a press conference Tuesday morning. “These are permanent reductions.”
Granted, Schwab’s index fund expenses may not have the absolutely lowest expense ratios out there. If you’re lucky enough to have at least $100,000 to invest, your Vanguard 500 Index Admiral Shares will have a ratio of 0.07%. The SPDR S&P 500, by the way, has an expense ratio of 0.0945%, but you’ll have to pay brokerage commissions on any transactions.
Read more here
The news comes only one month after Morningstar forecast that mutual fund expense ratios will rise in 2009.
Under its new pricing, Schwab is giving all investors in a given fund the same expense ratio, whether they’re making the minimum initial investment of $100 or investing a larger amount. For example, expenses for a small investment in Schwab’s popular Dividend Equity fund will drop from 1.04% to 0.89%, a ratio previously available only to people with a minimum investment of $50,000. Ratios on other funds will have higher drops: For small investments in the Schwab Fundamental U.S. Large Company Index fund will go from 0.59% to 0.35%.
Playing a game of expense-ratio limbo with other brand-name mutual fund giants–and with ETFs, such as the SPDR S&P 500, that are stealing dollars from index mutual funds–Schwab is claiming the industry’s lowest expenses in three categories of index mutual funds: the S&P 500, the total US stock market, and small-cap stocks. For example, Schwab’s S&P 500 Index fund, which used to have an expense ratio of 0.36% for small accounts, now has an expense ratio of 0.09%. The expense ratio for the Vanguard 500 Index fund, which has a minimum initial investment of $3,000, is 0.15% for most individuals, while the Fidelity Spartan 500 Index–a $10,000-minimum fund–has an expense ratio of 0.10%.
“This is not a promotional offer or anything like that,” said Schwab’s Peter Crawford, senior v.p. of investment management services, at a press conference Tuesday morning. “These are permanent reductions.”
Granted, Schwab’s index fund expenses may not have the absolutely lowest expense ratios out there. If you’re lucky enough to have at least $100,000 to invest, your Vanguard 500 Index Admiral Shares will have a ratio of 0.07%. The SPDR S&P 500, by the way, has an expense ratio of 0.0945%, but you’ll have to pay brokerage commissions on any transactions.
Read more here
Monday, May 4, 2009
Three more banks fail
(CNNMoney.com) -- Three more banks shut their doors Friday, according to the federal government, bringing the total number of failures up to 32 in 2009.
The first failure was a wholesale banking operator that served 1,400 other lenders across the country and was the fifth biggest bank failure during the current recession in terms of assets.
Georgia "bankers' bank": The Federal Deposit Insurance Corp. said in a statement that it created a bridge bank to take over the operations of Silverton Bank, National Bank, headquartered in Atlanta.
Unlike the other 30 banks that have failed so far in 2009, Silverton Bank did not take deposits directly from the general public or make loans to consumers. Instead, it was a "bankers' bank," offering a wide variety of services, such as foreign wire transfers, as well as clearing and cash management, to other banks.
Silverton was cooperatively owned by community banks throughout the Southeast and was heavily invested in loans to real estate developments in Florida, Georgia, and other parts of the Southeast, according to Christopher Marinac, managing principal of financial firm FIG Partners LLC based out of Atlanta, Ga.
When real estate values sank in the current downturn, the assets backing those properties also lost their value. The Southeast has seen numerous regional banks topple as the housing bubble burst.
At the time of its closing, Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which are expected to be within the FDIC's insurance limits.
The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion, making it the fourth costliest bank failure since the start of the recession. "It is a bigger hit to the insurance fund than they have seen in the last couple weeks," Marinac said. "This is a bigger issue than we have seen in awhile."
Silverton served banks in 44 states and operated six regional offices. The FDIC created a bridge bank to take over the assets of the institution and has contracted The Independent Bankers Bank, out of Irving, Texas, to assist. The FDIC does not expect to see any significant impact to the bank's clients, at least in the near term.
However, the bridge bank only plans to be operational for 60 days, with a possible 30-day extension. When the bridge bank services terminate, the banks that were serviced by the cooperatively owned bank will have to go out and find another institution to take care of those services.
"There is no clear cut answer on a situation like this," said Marinac. "This is a little bit more complex and therefore there are more uncertainties about how this will unfold."
Thus far, the FDIC has not been able to find another wholesale bank to agree to take over Silverton's operations. The FDIC will attempt to sell off the assets, but it could pose a challenge to find a buyer for risky commercial loans. However, the FDIC could try to find a buyer by discounting the debt. "Everything has a price," said Marinac.
Read more here
The first failure was a wholesale banking operator that served 1,400 other lenders across the country and was the fifth biggest bank failure during the current recession in terms of assets.
Georgia "bankers' bank": The Federal Deposit Insurance Corp. said in a statement that it created a bridge bank to take over the operations of Silverton Bank, National Bank, headquartered in Atlanta.
Unlike the other 30 banks that have failed so far in 2009, Silverton Bank did not take deposits directly from the general public or make loans to consumers. Instead, it was a "bankers' bank," offering a wide variety of services, such as foreign wire transfers, as well as clearing and cash management, to other banks.
Silverton was cooperatively owned by community banks throughout the Southeast and was heavily invested in loans to real estate developments in Florida, Georgia, and other parts of the Southeast, according to Christopher Marinac, managing principal of financial firm FIG Partners LLC based out of Atlanta, Ga.
When real estate values sank in the current downturn, the assets backing those properties also lost their value. The Southeast has seen numerous regional banks topple as the housing bubble burst.
At the time of its closing, Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which are expected to be within the FDIC's insurance limits.
The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion, making it the fourth costliest bank failure since the start of the recession. "It is a bigger hit to the insurance fund than they have seen in the last couple weeks," Marinac said. "This is a bigger issue than we have seen in awhile."
Silverton served banks in 44 states and operated six regional offices. The FDIC created a bridge bank to take over the assets of the institution and has contracted The Independent Bankers Bank, out of Irving, Texas, to assist. The FDIC does not expect to see any significant impact to the bank's clients, at least in the near term.
However, the bridge bank only plans to be operational for 60 days, with a possible 30-day extension. When the bridge bank services terminate, the banks that were serviced by the cooperatively owned bank will have to go out and find another institution to take care of those services.
"There is no clear cut answer on a situation like this," said Marinac. "This is a little bit more complex and therefore there are more uncertainties about how this will unfold."
Thus far, the FDIC has not been able to find another wholesale bank to agree to take over Silverton's operations. The FDIC will attempt to sell off the assets, but it could pose a challenge to find a buyer for risky commercial loans. However, the FDIC could try to find a buyer by discounting the debt. "Everything has a price," said Marinac.
Read more here
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