Weiss Ratings: Regulatory Reform: Too Late To Shore Up Weak Banking System

Bank of America, Citibank, Wells Fargo and Many Others Still Vulnerable

JUPITER, Florida (July 28, 2010) — The financial regulatory reform signed into law by President Obama last week may be too late to shore up a banking system that has already been severely weakened by excessive risk-taking and inadequate capital, according to new ratings just released by Weiss Ratings on the nation’s banks and thrifts.

Among 7,851 institutions reviewed by Weiss, only 911 merited a rating of B+ (good) or better, qualifying them for Weiss Ratings’ “strongest” list, while 2,331 received a rating of D+ (weak) or lower, the criteria for inclusion in Weiss’ “weakest” list.

Moreover, of the industry’s $13.3 trillion in total assets, the weakest banks and thrifts hold the lion’s share—$7 trillion, or 52.9 percent. In contrast, the strongest institutions hold assets of only $491.7 billion, or 3.7 percent of the total, based on first quarter data.

Previously, based on year-end 2009 data, Weiss’ “weakest” list included 2,259 banks and thrifts, holding 43.8 percent of the industry’s assets, while the “strongest” included 962 institutions, which, as now, was 3.7 percent of the total assets.

Martin D. Weiss, president and founder of Weiss Ratings, commented: “Our ratings not only reflect continuing weakness in the wake of the debt crisis, but also indicate a further deterioration since 2009. This trend is confirmed by the large number of bank failures, totaling 103 banks so far this year, compared to 64 this time last year.”

“Looking ahead, if the economy suffers a double-dip recession, we could see further loan losses from mortgages and high-risk derivatives, threatening a return of the debt crisis, regardless of the new regulatory reform law. Some of the reform’s provisions,” Weiss concludes, “are positive first steps toward helping to reduce risk-taking by financial institutions in some future boom cycle, but they do very little to avert another round of the current debt crisis.”

The Weiss “weakest” list—based on an analysis of each bank’s capital, earnings, loan portfolio, liquidity and other factors—includes many of the nation’s largest institutions (with $25 billion or more in assets), as shown in the table below:

U.S. Banks and Thrifts Considered Vulnerable
(with a Weiss Rating of D+ or lower and assets of $25 billion or more; 3/31/10 data)
Institution City
State
Weiss
Rating
Assets
($bil)
Bank of America NA Charlotte
NC
D
1,496.3
Citibank NA Las Vegas
NV
D
1,171.1
Wells Fargo Bank NA Sioux Falls
SD
D
1,065.9
US Bank NA Cincinnati
OH
D
277.5
PNC Bank NA Wilmington
DE
D+
254.5
HSBC Bank USA NC McLean
VA
D+
183.6
Suntrust Bank Atlanta
GA
D-
161.0
Regions Bank Birmingham
AL
D-
133.2
Capitol One NA McLean
VA
D+
123.0
RBS Citizens NA Providence
RI
D-
114.5
KeyBank NA Cleveland
OH
D-
92.0
ING Bank FSB Wilmington
DE
D
91.3
Union Bank NA San Francisco
CA
D+
85.1
Sovereign Bank Wyomissing
PA
D-
73.4
Compass Bank Birmingham
AL
D-
65.1
Huntington National Bank Columbus
OH
D-
51.4
M&I Marshall & Ilsley Bank Milwaukee
WI
D-
50.1
E*Trade Bank Arlington
VA
D-
44.3
Wells Fargo Bank South Central Houston
TX
D
37.7
Bank of America California NA San Francisco
CA
D+
26.7
RBC Bank (USA) Raleigh
NC
D-
26.1
First Tennessee Bank NA Memphis
TN
D
25.7
Weiss Ratings Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak. Plus sign=top third of grade range; minus sign=bottom third. According to a 1994 GAO study of Weiss Ratings scale, a Weiss Rating of D+ or lower is considered “vulnerable.”

 

However, Weiss believes consumers and investors can still find a safe place for their money by choosing one of the 911 banks and thrifts on Weiss’ “strongest” list, among which the largest (with $2 billion or more in assets) are below:

U.S. Banks and Thrifts Considered Strong
(with a Weiss Rating of B+ or higher and assets of $2 billion or more; 3/31/10 data)
Institution City
State
Weiss
Rating
Assets
($bil)
State Street Bank & Trust Co. Boston
MA
B+
149.6
Goldman Sachs Bank USA New York
NY
B+
89.7
Silicon Valley Bank Santa Clara
CA
B+
13.4
GE Capital Financial Inc Salt Lake City
UT
A
9.2
International Bank of Commerce Laredo
TX
B+
8.9
Sallie Mae Bank Murray
UT
B+
7.5
World Financial Network NA Columbus
OH
A
4.8
Farmers & Merchants Bank Long Beach Long Beach
CA
B+
4.1
Nationwide Bank Columbus
OH
A-
3.4
Woodforest National Bank The Woodlands
TX
A
3.2
Liberty Bank Middletown
CT
B+
3.2
Bank of the Ozarks Little Rock
AR
A-
3.0
World’s Foremost Bank Sidney
NE
A
2.9
First National Bank Alaska Anchorage
AK
B+
2.7
City National Bank of West Virginia Cross Lanes
WV
B+
2.6
American State Bank Lubbock
TX
A-
2.5
First Financial Bank NA Terre Haute
IN
B+
2.4
Broadway National Bank San Antonio
TX
A-
2.2
BankPlus Belzoni
MS
B+
2.2
Burke & Herbert Bank & Trust Co Alexandria
VA
A-
2.1
Bank of NY Mellon Trust NA Los Angeles
CA
B+
2.0
Weiss Ratings Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak. Plus sign=top third of grade range; minus sign=bottom third. According to a 1994 GAO study of Weiss Ratings scale, a Weiss Rating of D+ or lower is considered “vulnerable.”

 

Even if a bank is bailed out or taken over by the FDIC and sold to another institution, consumers can miss out on promised interest income, lose access to lines of credit and suffer other serious inconveniences. Therefore, Weiss recommends that consumers seriously consider avoiding banks with a Weiss Rating of D+ or lower, while seeking to do most of their business with banks meriting a rating of B+ or higher.

To help consumers avoid the weakest institutions and find the strongest in their state, Weiss Ratings has released its list of 2,331 weakest and 911 strongest banks to the public. Consumers can receive the free lists by providing their email address at www.weissratings.com/banklists.

About Weiss Ratings

Weiss Ratings accepts no payments for its ratings from rated institutions. It is among the nation’s leading providers of independent ratings on 8,000 U.S. banks and S&Ls and the only provider of independent ratings on the nation’s 4,200 insurance companies. Weiss Ratings also distributes independent ratings on the shares of thousands of publicly traded companies, mutual funds, closed-end funds and ETFs.

Weiss identified, in advance, nearly all major banks that failed or required a federal bailout in the 2008-2009 debt crisis. (See Weiss Warnings of Financial Failures in Debt Crisis of 2008-2009.)

Separately, Weiss outperformed Standard and Poor’s, Moody’s, A.M. Best and Duff & Phelps (now Fitch) in warning of future life and health insurance company failures according to a landmark study by the U.S. Government Accountability Office (GAO), while also outperforming its competitors in identifying the strongest insurers, according to its follow-up study using the GAO’s research methodology. According to a leading consumer publication’s May 2009 study of life insurance ratings by Fitch, Moody’s, S&P, A.M Best and Weiss Ratings, Weiss Ratings (formerly TheStreet.com Ratings) “was the toughest grader with independent and objective ratings.”

Thanks to its strong track record and independence, The New York Times wrote that Weiss was “the first to see the dangers and say so unambiguously;” Barron’s wrote that Weiss is “the leader in identifying vulnerable companies;” and Esquire concluded that Weiss Ratings is “the one company [that] … provides financial grades free of any conflicts of interest.”

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