Monday Morning Cup of Coffee

Four bank failures pushed the running ’09 total to 57 failures. They pose an estimated cost to the Federal Deposit Insurance Corp.’s (FDIC) deposit insurance fund of a combined $1.09bn. The Office of the Comptroller of the Currency shut down Vineyard Bank, which costs the FDIC an estimated $579m. California Bank & Trust assumes all of its $1.6bn of deposits, except for the bank’s $134m in brokered deposits. California Bank & Trust also entered a loss-sharing agreement with the FDIC on about $1.5bn of the bank’s $1.9bn of assets. The California Department of Financial Institutions shut down Temecula Valley Bank, which will cost the FDIC $391m. First-Citizens Bank and Trust Co. will assume nearly all of the failed bank’s $1.3bn of deposits, save for about $304m in brokered deposits. First-Citizens Bank and Trust Co. entered a loss-sharing agreement with the FDIC on about $1.3bn of the failed bank’s $1.5bn of assets. The South Dakota Division of Banking shut down BankFirst, which will cost the FDIC an estimated $91m. Alerus Financial assumes all of the bank’s $254m of deposits as well as $72m of its $275m of assets. Additionally, Beal Bank Nevada entered an agreement with the FDIC to acquire $177m of the failed bank’s loans. The Georgia Department of Banking and Finance shut down First Piedmont Bank, which will cost the FDIC’s fund an estimated $29m. First American Bank and Trust Co. paid a 1.01% premium to acquire the bank’s $109m of deposits; it also bought $111m of its $115m in assets. Fitch Ratings placed $1.6bn from 13 rated notes across four collateralized debt obligations (CDOs) on rating watch negative. Trust preferred securities, senior and subordinated debt issued by real estate investment trusts, home builders and financial institutions specializing in mortgage lending primarily back the notes. The Taberna Preferred Funding notes being watched now bear ratings anywhere from single-B to triple-B. Of the outlooks taken on the notes, Fitch said:

“These notes have been placed on Watch Negative due to a combination of observed credit deterioration since January 2009 in the form of additional defaults as well as debt exchanges which lowered weighted average spreads and coupons in the portfolios. Deteriorating interest proceeds have resulted in these transactions’ senior interest coverage ratios falling below 100% indicating a heightened risk that transactions may experience interest payment defaults to notes originally structured without features allowing for deferral of interest payments. These payment defaults could occur as soon as their next payment dates scheduled for August 2009.”

First American National Default Title Services unveiled its new National Residential Rental Services Division (NRRS), which aims to address the needs of financial institutions pursuing residential strategies for non-rural, non-seasonal single-family real estate-owned properties. NRRS allows financial institutions to use a loss mitigation strategy to not only generate positive cash flows from otherwise non-perfomring REO assets, but also protect the value of those assets for later disposition. “First American believes a broader adoption of rental-based strategies provides significant macroeconomic and social benefits during these challenging economic times by providing investors and servicers with greater control and flexibility over the supply of competing REO ‘for sale’ properties while also providing a net positive cash flow,” said Wes Mee, president of First American National Default Title Services. The New York Federal Reserve Bank purchased $22.98bn of agency mortgage-backed securities in the week ending July 15; $6.85bn from Freddie Mac [stock FRE][/stock], $11.47bn from Fannie Mae [stock FNM][/stock] and $4.66bn from Ginnie Mae. In the same week, the Fed sold $810m of agency MBS through the so-called “dollar roll” MBS market, when the seller agrees to buy back a security at a later date for an agreed price, thereby providing temporary liquidity for the funding of other securitizations. In the same week, the Fed’s balance sheet swelled by $34.25bn to a total $2.01trn — up $1.12trn from the same time last year, due in part to the $489.06bn of MBS held outright. Write to: Diana Golobay.

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