HSBC Extends 3.50% APY on Online Savings Account

I just got an email from HSBC Direct saying they extended their 3.50% APY special Online Savings rate.

Dear KIRK,

Customers like you have told us how much they love our big fat rate. And as far as our customers are concerned, we can’t give them too much of a good thing. So that’s exactly what we’re going to do.

* You’ll keep earning 3.50% APY* on all balances in your Online Savings Account.
* That’s 9x the national savings average.±
* Deposit more now to take full advantage of our great rate extension.

Now’s the time to watch your savings grow. So deposit more today.

More at HSBC Bank Online Savings

*Special Online Savings 3.50% Annual Percentage Yield (APY) is accurate through 09/15/2008. Minimum deposit to open is $1.00. HSBC reserves the right to change or terminate this promotion at any time. Any change or termination will not affect existing customers who took advantage of the promotion. After promotion period, interest rate and APY are variable and subject to change.

Dick Bove's List of Banks In Danger of Failing

Richard (Dick) Bove or Landenburg Thalmann has compiled a list of banks he considers "in the danger zone" for failure. He started with a list of 107 banks with assets over $5 billion which represents about 79% of total industry assets at nearly 8,500 US thrifts and banks.

First Bove looked at nonperforming assets as a percentage of its loans at the end of the first quarter. Nonperforming assets include nonperforming loans, foreclosed assets and loans that are more than 90 days past due. Dick Bove said a ratio over 5% "represents danger."

According to the SF Chronicle the banks on this list and their ratios were:

1. Downey Financial (13.9%)
2. Corus Bankshares (13.2%)
3. Doral Financial (12.8%)
4. IndyMac Bancorp (10.5%)
5. FirstFed Financial (6.7%)
6. Oriental Financial Group (6.12%)
7. Bank United Financial (5.4%).

Washington Mutual was #12 on the list and one of the largest banks in the country, was number twelve on the list with a 3.9% ratio.

Next Bove looked at non performing assets as a percentage of equity. A ratio over 40% is in the danger zone vai Bove's method and eleven companies made the list:

1. IndyMac at 146.2%
2. Downey Financial
3. Doral Financial
4. BFC Financial
5. BankUnited Financial
6. Corus Bankshares
7. FirstBanCorp.
8. FirstFed Financial
9. Flagstar Bancorp
10. Santander BanCorp
11. Washington Mutual at 40.6%

Other signs of trouble, according to James Abbott, a regional-bank analyst with Friedman Billings Ramsey are:

1. Offering above-average yields to attract deposits. This often gets "hot money" that can flee at the first sign of trouble or move elsewhere to get better rates.
2. A relatively high level of uninsured deposits. Now that IndyMac bank has failed, these folks should be cashing in now before their bank gets hit.
3. A low level of asset quality
4. Low levels of equity. Hard to withstand a run on the bank if #1 and #2 above leave.
   

I can't say this enough: We recommend you have all your CDs in banks have FDIC insurance:

• DO NOT EXCEED FDIC limits to get the top rate.

• If you have more than the FDIC limit, then spread your money between many banks and accept a lower return so that each separate account at each bank has FDIC insurance.
  

==>Survey Highest Yield CDs with FDIC <==

You are not being compensated for the extra risk of bank failure to have more than the FDIC limit for accounts.

Banks in the Danger Of Failing Says Landenburg Thalmann's Bove

Richard (Dick) Bove or Landenburg Thalmann has compiled a list of banks he considers "in the danger zone" for failure. He started with a list of 107 banks with assets over $5 billion which represents about 79% of total industry assets at nearly 8,500 US thrifts and banks.

Here is Dick Bove's List of Banks In Danger of Failing

Somehow I deleted my list that I wrote down while watching CNBC. I rewrote the article here when I found the list elsewhere.

I can't say this enough: We recommend you have all your CDs in banks have FDIC insurance:

• DO NOT EXCEED FDIC limits to get the top rate.

• If you have more than the FDIC limit, then spread your money between many banks and accept a lower return so that each separate account at each bank has FDIC insurance.
  

==>Survey Highest Yield CDs with FDIC <==

You are not being compensated for the extra risk of bank failure to have more than the FDIC limit for accounts.

Indymac Bank Fails - List of Major Bank Failures

Friday we learned Indymac bank of Pasadena, CA failed. (See FDIC Failed Bank information for Indymac Bank.) The Federal Deposit Insurance Corp. said Indymac will reopen today as IndyMac Federal Bank. The FDIC has a "problem list" with about 90 banks they worry about but Indymac was not on this list!

The FDIC estimates it will cost $4B ti $8B to make FDIC insured Indymac depositors whole.

According to DowJones Marketwatch, Indymac bank, with $32 billion in total assets, is the fifth bank to fail so far this year and one of the largest bank failures ever. Chris Thornberg, of Beacon Economics, says many banks books don't yet fully reflect all the problem loans. RBC capital says as many as 300 banks may fail.

Indymac Statistics:

• Indymac founded in 1985
• $19B in deposits
• $1B in uninsured deposits

Major Historical Bank Failures:

1	Continental Illinois	1984	$40B
2	IndyMac Bank	2008	$32B
3	Bank of New England	1991	$21.7B
4	American S&L	1988	$5.4B
5	First Republic Bank	1988	$4B

It is a lesson why we recommend you have all your CDs in banks have FDIC insurance:

• DO NOT EXCEED FDIC limits to get the top rate.

• If you have more than the FDIC limit, then spread your money between many banks and accept a lower return so that each separate account at each bank has FDIC insurance.
  

==>Survey Highest Yield CDs with FDIC <==

You are not being compensated for the extra risk of bank failure to have more than the FDIC limit for accounts.


If anyone has a good, reliable source for a "list of bank failures by asset size" then please post it in the comments section or send it to me via email.

Troubles at Indymac Bank

Note: This should have zero effect on your CDs at Indymac Bank as long as they are insured by the FDIC. If you have CDs above the FDIC limits, then you may want to consider cashing them out and moving them to a bank that is not having "operating liquidity" issues. (Personally, I would NEVER have CDs without FDIC insurance. There are better options for fixed income without FDIC that I list on page 9 of Kirk Lindstrom's Investment Newsletter.)

Michael Perry, CEO at Indymac Bank, explained in paragraph four of his Monday blog post:

In addition to needing to shrink our assets to improve our capital ratios, we also need to do so to ensure that we maintain prudent operating liquidity. A consequence of falling below well-capitalized is that we are no longer permitted to accept new brokered deposits or renew or roll over existing ones, unless we get a waiver from the FDIC. While we have submitted a waiver application, it is uncertain as to whether such a waiver will be granted.

Translation:

• Losses from making bad loans in the subprime market are so large that they are below FDIC capitalization requirements to issue new CDs that get FDIC insurance!
  

In a May 12, 2008 financial update, Indymac Bank said it was working with investment bankers to raise capital. On Monday, July 7 Indymac announced it has not been successful raising capital at terms good for shareholders. In addition, continued losses in the housing market has caused their capital ratios to decline to the point operating liquidity is threatened. As a result, Indymack has stopped accupting new loan applications and is looking to sell their loan portfolio.

Michael Perry, CEO at Indymac Bank, explained in a blog post Monday their decision. Here is the key paragraph:

... (We) have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and "feed" growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital.

Translation

• Indymac is not accepting new loan applications.
• If you have submitted an application and have a rate lock, then they will fund your loan. (I expect they will look extra hard to see if there were any errors or untruths to allow them to cancel the loan compared to the "old bubble days" when you got loans even if you lied as long as you could fog a mirror with your breath.)
• Since this part of their business is losing money, they will look to sell the loans to a third party rather than try to raise capital that would dilute shareholder value.

This should have zero effect on you if you have CDs at Indymac Bank as long as they are insured by the FDIC and you are not over the FDIC limits.

Indymac Bank has been near the top of our CD Rate Survey as they have tried to raise capital at the retail level rather than from investors who often want better terms since they do not get FDIC insurance. I expect Indymac Bank will lower their rates when they have sold assets and have enough capital to meet reserve requirements.

Remember: This should have zero effect on your CDs at Indymac Bank as long as they are insured by the FDIC. If you have CDs above the FDIC limits, then you may want to consider cashing them out and moving them to a bank that is not having "operating liquidity" issues. (Personally, I would NEVER have CDs without FDIC insurance. There are better options for fixed income without FDIC that I list on page 9 of Kirk Lindstrom's Investment Newsletter.)

Current Indymac Bank CD Rates

Discuss the article at our "Investing for the Long Term" Facebook forum called "Best CD Rates"

PenFed CU: Pentagon Federal Credit Union Rates

The top rates at Pentagon Federal Credit Union (PenFed CU) is 4.60%. Here is a list of rates and terms:

Term	Dividend Rate	APY
6-Month	2.74%	2.75%
1-Year	2.95%	2.99%
2-Year	3.20%	3.25%
3-Year	3.93%	4.01%
4-Year	3.93%	4.01%
5-Year	4.50%	4.60%
7-Year	4.50%	4.60%

PenFed CU "Money Market Certificates" are the same as CDs except they are backed by the NCUA (See below) instead of the FDIC.

• $1,000 minimum deposit
• Rates are accurate as of 7/8/2008
• APY = Annual Percentage Yield

NCUA: National Credit Union Administration, a U.S. Government agency. Your savings federally insured to at least $100,000 and backed by the full faith and credit of the United States Government. Traditional and Roth IRAs (Individual Retirement Accounts) are insured to at least $250,000. The National Credit Union Administration is a U.S. Government agency.

Rates are current as of July 2008 unless otherwise noted and are subject to change.

More Info ==> Pentagon Federal Credit Union