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:
- Downey Financial (13.9%)
- Corus Bankshares (13.2%)
- Doral Financial (12.8%)
- IndyMac Bancorp (10.5%)
- FirstFed Financial (6.7%)
- Oriental Financial Group (6.12%)
- Bank United Financial (5.4%).
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:
- IndyMac at 146.2%
- Downey Financial
- Doral Financial
- BFC Financial
- BankUnited Financial
- Corus Bankshares
- FirstFed Financial
- Flagstar Bancorp
- Santander BanCorp
- Washington Mutual at 40.6%
- 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.
- 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.
- A low level of asset quality
- Low levels of equity. Hard to withstand a run on the bank if #1 and #2 above leave.
- 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.
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You are not being compensated for the extra risk of bank failure to have more than the FDIC limit for accounts.