An analysis of the nation’s FDIC-insured banks has identified 758 banks at risk of failure over the next two years. Invictus Consulting Group, which stress-tests the banks through a model that looks at data including the age of assets by loan type, says the nation’s most vulnerable banks will have to raise capital or pursue a merger strategy to avoid joining the 389 bank and thrift failures over the past two years.
The vulnerable banks tend to be smaller institutions, with average assets totaling $580 million. But Invictus’ list includes larger banks as well, particularly in New Jersey, whose 23 vulnerable institutions, a fifth of the Garden State’s banks, average $1.8 billion in assets. Louisiana’s 10 at-risk institutions are similarly large.
While the vulnerable financial institutions are geographically dispersed, Florida accounts for the lion’s share, with 72 weak banks representing about a third of the Sunshine State’s institutions. Illinois and Georgia shared the dubious distinction of overrepresentation on Invictus’ list, with 69 and 66 weak banks and thrifts, respectively. None of the banks in Alaska, Hawaii, New Hampshire or South Dakota rated as most vulnerable.
A copy of the report was unavailable at press time, but in a news release Invictus CEO Kamal Mustafa attributed the large proportion of endangered institutions to the absence of economic recovery. “As old assets roll off, they are not being replaced at the same pace by new assets coming on, which puts bank earnings and capital construction under a great deal of pressure,” he is quoted as saying.
Mustafa foresees failures occurring as borrowers exhaust their financial resources, at which point “banks’ earnings will be insufficient to sustain capital and many banks will be unable to raise enough capital. We believe there needs to be significant capital-raising for those that can, or they must engage in mergers and acquisitions.”