Seattle Bubble

The last few days have seen a handful of articles in the local press on the subject of the strength (or lack thereof, as it turns out) of local banks. Here’s a brief summary.

First-up is a relatively in-depth look at the status of dozens of banks based in Washington State: Washington’s banks under stress

…several of Washington’s community banks also are clearly straining under the weight of the crisis, a Seattle Times analysis shows.

At least a dozen of the 52 Washington-based banks examined are carrying heavy loads of past-due loans, defaults and foreclosed properties relative to their financial resources. Many of these banks have set aside relatively little cash to cover problem loans, the analysis shows.

And even the relatively healthy banks are under more pressure than they were a year ago.
…
…at most community banks, residential mortgages were a relatively small part of their business. Instead, their troubles are tied directly to their heavy dependence on real-estate loans — mainly loans to local builders and developers.

“Many community banks found that (construction and development loans) was an area in which they could compete effectively against the big banks,” Frontier’s Fahey said.

At Frontier Bank, for example, construction and development loans made up 44.5 percent of all assets at year’s end. City Bank had 53.3 percent of its assets in such loans, and at Seattle Bank (until recently Seattle Savings Bank), they constituted a full 54.2 percent of total assets.

Such loans looked safe and generated big profits during the housing boom. But since the housing market began to crater in late 2007, defaults on such loans have soared industrywide.

We know that it will likely take between two and eight years to work through King County’s housing oversupply. In the mean time, small builders—and by extension the local banks that loaned them money—are going to be experiencing some tough times.

Next up, the Olympian brings news of some even more serious news for Lacey-based Venture Bank: Venture Bank faces financial deadline

Federal regulators have ordered Venture Bank to raise more capital or find a buyer by next month because of concerns about its financial health.

In a letter dated Feb. 13 but disclosed on the Federal Deposit Insurance Corporation’s Web site Friday, the FDIC notified the bank that it has 60 days to raise more money, find a buyer or find a merger partner. The 60-day period ends April 14.

Meanwhile, Federal Home Loan Bank of Seattle reported a loss of $241 million in the fourth quarter 2008: Federal Home Loan Bank of Seattle reports losses

And finally, the Seattle Times front page story today focuses in on the impact of the job losses at WaMu’s former downtown headquarters: Layoff aftershocks hit WaMu neighborhood

So is there any good economic news out there for Seattle and Washington State? Well, not really on the banking front, but Amazon is still pretty profitable, and hey, at least we’re not Cleveland, right?

(Drew DeSilver, Seattle Times, 03.29.2009)
(Rolf Boone, The Olympian, 03.29.2009)
(Seattle Times, 03.30.2009)
(Marc Ramirez, Seattle Times, 03.30.2009)