CONSUMER WATCH: Bank failure need not catch you by surprise - Columnists

CONSUMER WATCH: Bank failure need not catch you by surprise

Sunday, Aug 03, 2008 - 12:06 AM

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By IRIS TAYLOR

TIMES-DISPATCH COLUMNIST

You don't have to be blindsided by a bank failure like customers of IndyMac Bank and others that failed in the past month.

True, you may get at least some, and maybe all, of your money sooner or later if the institution is insured by the Federal Deposit Insurance Corp.

But do you want your hard-earned money parked in a bank that has to be propped up by the federal government or sold in a fire sale? Do you want to wait and hope to get 100 percent access to your money in time to pay the bills?

While regulators say the overall banking system is sound, eight banks -- none in Virginia -- have failed since January, compared with three last year. More failures are likely, experts say.

The government will not tell you if your bank is in trouble. But you can try to find out for yourself:

Check out 10-K, 10-Q and 8-K filings. These documents disclose the company's business and financial information or announce major events that impact earnings and operations.

Read them free in the EDGAR database at the Securities and Exchange Commission site (www.sec.gov).

Click the "Search Company Filings" box, then click "Companies and Other Filers." Type in the name of your banking institution.

Look for red flags. Jaime Peters, a senior stock analyst at Chicago-based MorningStar, an investment research company, cited the following symptoms of a stressed bank: It posts losses, is undercapitalized and in the market raising money to offset mortgage loan losses because it does not have enough in reserve to cover the losses.

It is cutting dividends. Its earnings per share are lower than its dividend. Or its portfolio is heavily weighted with home construction loans, home equity loans and mortgages.

Look for these red flags on your bank's financial statements and read the management analysis.

Big banks can recover from several symptoms with enough capital, Peters said. The ones in the most trouble likely are fairly new, smaller banks with too many bad loans.

Let an expert tell you how your bank is doing. If you don't feel up to self-analyzing your bank's financial condition, let an expert help.

At www.morningstar.com, for example, you can see its rating of your bank plus analyst reports on a 14-day free trial basis. In the upper left quote box, type your bank's name, then click to its page and read the information.

If MorningStar does not follow your bank, try a different rating service, such as Moody's Investors Service or Standard & Poor's.

See if any serious enforcement action has been taken against your bank. Go to the Comptroller of the Currency's Web site at http://www.occ.treas.gov/EnforcementActions/.

See if all your money is insured. A money market mutual fund at your bank is not insured. The FDIC does not insure money invested in stocks, bonds, mutual funds, life-insurance policies, annuities or municipal securities. Nor does it insure U.S. Treasury bills, bonds or notes.

Individual Retirement Accounts are insured up to $250,000. To see if all your money is insured, use the FDIC's online calculator at www.fdic.gov/edie.

. . .

If you do your homework and learn that your bank is floundering, should you automatically withdraw your money and deposit it in a different bank?

"Not necessarily," Peters said. "No. 1, as long as you're under the FDIC limit [$100,000 per insured bank], your deposits are safe. No. 2, just because they have symptoms doesn't mean they have the disease."

Contact Iris Taylor at (804) 649-6349 or itaylor@timesdispatch.com.