An alarming article written by David Enrich and Gregory Zuckerman in the Wall Street Journal stunned the financial industry today with their announcement that 3 large banks (originally chosen by the US Treasury Department as strong banks in late fall 2008) could no longer repay their debt to the government . As a matter of fact, one of those banks, Pacific Capital Bankcorp of Santa Barbara, California, has posted a net loss of $49.7M. This is after receiving $180.6 Million in late fall or early December 2008.
The cash-strapped banks the Wall Street Journal refers to are:
· Pacific Capital Bankcorp – Santa Barbara, California (original loan $180.6M)
· Midwest Banc Holdings – Melrose, IL (original loan $84.8M)
· Seacoast Banking Corporation – Stuart, FL (original loan $50M)
$200 Billion in total went to 600 banks across the US by the TARP’s Capital Purchase Program in the months of October, November, and December 2008; and similar to the automotive industry...it only bought them more time. The concern flooding every financial site today is the possibility that many more will follow suit. Additional alarmist fear more credit tightening in an already stagnant credit market.
CMI answers those concerns with the following question: Really? Does someone know of any bank lending money right now?
We are grateful to our dedicated research team for firming up relationships with lenders and investors outside the banking world. I suppose some banks have allowed a few government backed products…such as the SBA loan. That is of course if your client doesn’t mind completing the 70+page application and the 120-160 day waiting period to see if the loan is rejected or approved (and most likely rejected)…and if approved, everything but the client’s last born child will have a lien against it. Under those circumstances, then I guess some banks may be lending - but not many.
It all sounded good when banks were receiving funds to ease up the credit crisis, but the reality is those banks are still strapped with troubled delinquent loans in residential and commercial markets. The commercial market has not hit its all time low according to most reports. Two years ago absolutely no one expected the Commercial Industry to run into trouble. I remember the highly respected Deutsche Bank "conference call" less than two years ago; set up specifically to steady concerns regarding Commercial Paper and the possibility of it following the same road as the Sub-Prime mortgage market. “Not going to happen,” was the response from their experts quoting, "LTV, cash flow, and debt service strengths". No one predicted our current crisis in respect to Commercial Paper…No One.
In the world of Financial Analysts, Consultants, Commercial Brokers, and Investment Bankers, this is the time to take advantage and work diligently with the few streams of revenue sources that you now have. It was announced yesterday, that new Hedge Funds are reopening every day with big backers…including the Roc backed by Deutsche Bank to open in July-2009. We all need to be more creative and appreciate every funding source we have!
It is our opportunity; use it wisely.
