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March 22, 2010 – Seven Banks Fall; another 74 Defer TARP Dividend Payment

Seven Community Banks get closed by the FDIC on Bank Failure Friday. We now have 74
Deadbeat banks that did not make dividend payments due on February 16th. The FDIC is
sending the wrong message with regard to the banking system. Yields are on my key pivot as
we enter a week of heavy supply of US Treasury auctions. Today I look at the daily and weekly
charts for the Dow Industrial Average.
The FDIC seized seven banks on Bank Failure Friday. All but one were overexposed to C&D and
CRE and that one was credit card company Advanta Bank Corp (ADVNA). This bank had $1.6 billion in
assets and the FDIC did not have a suitable bank to take them over. The insured deposits will be
mailed to depositors on Monday, which could have some folks stock without cash until these funds are
set up by the consumer in another bank account. I hope customers of Advanta had their current
mailing addresses on file?
The other six closures has their assets transferred to another bank and only one was publicly traded;
Appalachian Community Bank (APAB), and yes, this bank was on the ValuEngine List of Problem
Banks with overexposures to C&D loans at 847% and 1234% to CRE loans. Remember that the
regulatory guidelines are 100% for C&D and 300% for CRE, so are banking regulators were extremely
lax in the fiduciary responsibilities.
The Bank Failure Scorecard – 37 bank failures for 2010 brings the total since the end of 2007 to 202.
My predictions remain – 150 to 200 failures this year and 500 to 800 into 2013.
The Deposit Insurance Fund (DIF) has now been tapped for $6.2 billion in 2010, bringing the DIF
deficit to $27 billion excluding the prepaid $46 billion that sits on the sideline for 2010 through 2012.
Another prediction still stands is that the FDIC will tap its $500 billion temporary line of credit with the
US Treasury this year as the net balance for the DIF is just $19 billion.
While the US Treasury touts the successes of the TARP, 74 banks have decided not to make their
dividend payments due on February 16th. In August there were 33 deadbeat banks, and then there was
55 in November. Of the 74 deadbeat banks 25 reneged for the first time in February.
Some say this is no big deal since these 74 banks only received $3.4 billion in TARP bucks. In some
cases it’s the state bank regulators that are telling banks not to pay dividends if their earnings are
below a certain threshold. I say that many of these banks should have not received TARP because of
their overexposures to C&D and CRE loans and I will discuss this in my April FDIC Report update,
which is available to subscribers only.
The FDIC sends America the wrong theme on Housing and Banking.
Noncurrent loans among FDIC-insured financial institutions reached a record high of 5.4% at the end of
2009. FDIC Chair Sheila Bair still says that “The Great Credit Crunch” began on Wall Street and is now
mostly felt on Main Street, and says that poor credit performance is a lagging indicator.
Sheila Bair is totally wrong; “The Great Credit Crunch” began on Main Street with risky real estate
lending by community and regional banks. Our regulators chose to bail out Wall Street’s “too big to fail”
banks leaving Main Street community banks to fend for themselves. The FDIC Quarterly Banking
Profile has been my leading economic indicator since 2006. Noncurrent loans at a record high is a
leading indicator that “The Great Credit Crunch” will have more chapters in its saga.
10-Year Note – This week’s support is 3.734 with my semiannual pivot at 3.675 and monthly resistance
at 3.477. The US Treasury auctions $44 billion 2-Year notes on Tuesday, $42 billion 5-Year notes
on Wednesday and $32 billion 7-Year notes on Thursday.

Courtesy of Thomson / Reuters

Dow Daily Chart – Annual support is 10,379 with a weekly pivot at 10,623 and today’s resistance at
10,798. The 21-day and 50-day simple moving averages are supports at 10,514 and 10,400. Note the
extreme overbought condition.
 Courtesy of Thomson / Reuters

Dow Weekly Chart – The weekly chart is positive and the upside is to annual and semiannual
resistances at 11,235 and 11,442, not 11,500. With stocks overvalued my prediction remains, “Dow
8,500 before 11,500.”

Courtesy of Thomson / Reuters

That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at
1:30 PM. The next broadcast is Monday, March 8, 2010.
http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp
Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
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“I Hold No Positions in the Stocks I Cover.”