With the fate of IndyMac unfolding, you might be wondering how the other banks are doing. Well it turns out that all of them aren’t doing too bad.

Wells Fargo

Wells Fargo is one bank that is bucking the trend of bad numbers. They recently reported that their earnings exceeded the market expectations, and even increased their dividend by 10%! I think this was one bit of news which everyone wanted to hear!

On a personal note, Wells Fargo recently reduced a credit limit on a credit card that my business has with them. I was surprised by that, as other card issuers had been, and continue to, raise my credit limits on other cards. Perhaps, like IndyMac tried, Wells Fargo is limiting its exposure to overwhelming debt by reducing limits where they can.

Bank of America

I haven’t heard their earnings report yet, but their ratings have been reduced by a at least one analyst firm (source: Reuters). I think this is partly due to their acquisition of Countrywide - the troubled mortgage lender. On the other hand, Bank of America sold their brokerage to BNP Paribas recently, so I doubt that they are starving for liquidity. Anyway they have vast amounts of depositors, and the success of their “Keep the Change” program is sure to be helping dampen the effects of volatile checking accounts.

JP Morgan Chase

JP Morgan Chase also exceeded market expectations in recently earnings reports. This helped the market rebound after a few days of losses from the bad news bears. JP Morgan Chase was the bank which recently purchased troubled investment bank Bear Stearns at a bargain basement price. I’m glad they did - I shudder to think what would have happened if Bear Stearns collapsed. It was too close as it was!

CIT

CIT is not a household brand, but they are a big institution. They specialize in commercial lending, and unbeknownst to me, they also are involved with mortgage lending. Uh-oh, I said a bad word, right? Yep, if you’re involved in mortgages these days, you’re bound to meet with “Mr. Troubley Troubleson”, and from what I’ve been hearing in the news, CIT has been meeting with Mr. Troubleson regularly for the past several earnings releases. They recently reporting a fifth straight quarterly earnings loss. Ouch! Personally, and please be aware that I’m not closely familiar with CIT’s financials, I think that CIT is a strong company with enough solid business relationships to weather this storm without a problem. I read in a story at Bloomberg.com that they’ve been selling a bunch of assets to free up some cash, which seems like the right thing to do given the situation.

In the few short days since word broke that IndyMac was put into “protective custody” by the FDIC, there has been some serious drama!

Big Bank

While banks have failed before, lots of them in fact, IndyMac is one of the largest to fail in recent history. Given the state of the economy and the price of gas, people just needed a little something more to get them seriously worried about their dough.

The Big Queues

Freaked out customers have been queuing at practically every IndyMac branch to get as much cash out as they can. A branch in California even had to call the police - not due to robbery - but because of customers fighting with each other for their place in line!

The FBI?

Yes, to add more drama to this escapade, Reuters is now reporting that the FBI has mounted an investigation into IndyMac’s failure, looking for fraudulent activities. As Homer Simpson would say: “Doh!”

Ouch! Here’s how it went:
* Countrywide splits off IndyMac, making a separate normal bank
* Subprime mortgages have major problems
* IndyMac has financial problems, lays off 7,200 employees, and removes loan products
* Senator Schumer of New York writes letter questioning viability of IndyMac
* Customers make a run for it, withdrawing an average of $100 million per day
* IndyMac, out of cash, gets seized by the FDIC

The customers who didn’t make a run on the bank will still have their funds insured up to $100,000 by the FDIC, but they won’t be able to get is as quickly as those who made a run on the bank did.

For a good idea of what a “run on the bank” is, check out the classic movie “Its a Wonderful Life”.

And for more details on the IndyMac problem check out this article at the New York Times.

General Electric is selling its Japanese lending business, and Citi is selling its retail banks, according to various news sources.

Seems like a ton of big businesses, are closing branches, merging, filing bankruptcy, or selling off assets, as is the apparent case with GE and Citi.

What does this mean? Well for one, bank are still short on cash. Those with cash are able to buy up some bargains (similar to the gains in housing mortgage applications), and those without… well that’s another story. Recently Bear Stearns faced dire consequences with a shortfall of cash, yet was luckily saved from the furnace by the Fed and JP Morgan. There is now talk about Fannie and Freddie, the biggest mortgage holders in the US, facing a similar situation.

How did things get this bad? And when things are this tough for the big dogs, I can only hope the little scrappers aren’t doing any worse. Hang in there everyone!

Looks like some legislative reform is on the horizon for the credit card industry. This is too bad, as the legislature, while protecting consumers, will likely make some things worse for both consumers and banks.

At issue are some of the more contentious credit card marketing and interest rate practices, like universal default and the “bait and switch” promotional interest rates which end up costing some consumers way more than they anticipated. There are other issues at hand, but these two, when working in concert, seem to be the root of the problem.

The Root of the Problem
Customer gets an offer for a low balance transfer. They accept, without reading the incredibly complex agreement. Everything is fine until the customer is late on a DIFFERENT credit card, and the universal default rate is triggered. The low promotional rate is now extraordinarily high, and the consumer is unable to pay down the balance.

The fact is that this practice makes enough money for the banks which allow them to make such “too good to be true” offers in the first place. Some people (like me, so far) are able to balance things so that the deal works out as intended. Overall, “the house always wins”!