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Tags: Banks | Risk | Failing

Over 750 Banks at Risk of Failing in Next Two Years, Stress-Tester Invictus Warns

By    |   Friday, 03 February 2012 01:04 PM EST

While last year's 92 bank failures seemed like progress when compared to the 157 that closed their doors in 2010, there's more trouble ahead. At least 758 lending institutions are at risk of failure over the next two years,
a stress-tester has warned.

Invictus Consulting Group, which conducts stress and sustainability tests on all FDIC-insured banks for regulators, banks and investors, said that based on all publicly available data on banks for the third quarter ended Sept. 30, 2011,  the 758 banks are unlikely to remain viable.

The chief culprit is the weak recovery, which could trigger a new wave of loan defaults. Approximately 200 of these banks are subsidiaries of publicly-traded bank holding companies.

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"While any possibility of a bank failure is serious, what makes this situation even more dire is that the demise of any of these banks would adversely affect their local communities, especially smaller business people and those seeking to buy or improve their homes," said Kamal Mustafa, chairman and CEO of Invictus, in a prepared statement.

"Compounding the problem is the fact that larger national banks are starting to close down their smaller branches, so these communities will have even fewer lending resources."

Where is the vulnerability greatest? The state of Florida has the largest number (72) and highest share (31 percent) of vulnerable banks among its institutions.

The 72 have average assets of $539 million and represent almost 25 percent of Florida's total bank assets of $158 billion.

Other states with large numbers of at-risk banks include Illinois, Georgia, Minnesota, Missouri and Tennessee. The only states with no banks rated 5 (most vulnerable) by Invictus are Alaska, Hawaii, New Hampshire and South Dakota.

It's not only small banks that look weak.

For example, New Jersey's 23 troublesome banks have an average asset size of $1.8 billion, Louisiana has 10 banks at risk with $2 billion in assets on average, and in New York, there are 11 banks with an average of $1.3 billion in assets.

Without a big economic turnaround, the outlook is bleak. "Borrowers will simply run out of time and resources," said Mustafa.

"The banks' earnings will be insufficient to sustain capital and many banks will be unable to raise enough capital. We believe there needs to be significant capital-raising for those that can, or they must engage in mergers and acquisitions."

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Friday, 03 February 2012 01:04 PM
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