As the continuing turmoil in the financial sector and a mind boggling trillion $ bailout are together contributing to the general feeling of economic gloom and doom across the nation, the distressing news of a big bank failure last Thursday made it worse. The Office of Thrift Supervision (OTS), announced that it had closed Washington Mutual (WaMu), a big bank with over 45,000 employees, more than $300 billion in assets, 2,200 branches in 15 states with over $100 billion in deposits. Billed as one of the largest bank failures in the U.S. history, WaMu was taken into receivership by FDIC (Federal Deposit Insurance Corp), the federal regulatory agency and promptly sold to the highest bidder, JP Morgan & Chase Co for as little as $2 billion.

According to OTS, WaMu, one of the largest savings banks in the country, became unsafe after deposits of more than $16 billions left the bank in just last two weeks. WaMu, which specialized as a mortgage bank was the latest victim after IndyMac, of the combined crises of downturn in housing sector, subprime and credit crunch. FDIC maintains an ongoing list of 100 risky banks. However, this is a secret list that will never become public and neither is the process by which such a list is created.

So we at FortiusOne decided to create our own list the 100 banks based on the level of their exposure to risky/bad loans on their books. For this analysis, risky loans are computed as the sum of the total value of loans on foreclosed residential properties and mortgage defaults (30 plus and 90 plus days late mortgage payments as well as the residential properties that have stopped paying mortgages but have not been foreclosed yet.) The data for the 2nd quarters of 2008, 2007, 2006, 2005 and 2004 was downloaded from the FDIC website and then geocoded. Only those commercial banks who specialize in real-estate mortgage business were selected and then ranked according to the level of risky loans. The top 100 banks for each of these quarters were combined into one single file, then sorted by the value of the risky loans for the 2nd quarter of 2008. The map below shows only those banks that have risky loans for each of the 2nd quarters, the pie-charts represent risky loans by the 2nd quarters between 2004 to 2008.

Pie-Chart Legend: Red = 2nd qtr 2008, Orange = 2nd qtr 2007, Yellow = 2nd qtr 2006, Green = 2nd qtr 2005 and Purple = 2nd qtr 2004

So how exposed was WaMu to risky lending practices? A lot, according to our analysis of FDIC’s banking statistics for last several quarters. See the cartogram version of the data below where the size of the pie represents the total value of the risky loans. Clearly, WaMu tops in the risky loan business for each of these quarters spanning the pre- and post-housing bubble. WaMu’s bad loans for the 2nd quarters for each of the years between 2004 and 2008 range in value from just a $2.32 billion (2004), $2.63 billion (2005), $4.76 billion (2006), $6.7 billion (2007) to $15.8 billion (2008).

Pie-Chart Legend: Red = 2nd qtr 2008, Orange = 2nd qtr 2007, Yellow = 2nd qtr 2006, Green = 2nd qtr 2005 and Purple = 2nd qtr 2004

However, what is scary is that Wachovia, Countrywide, E-trade and few others are not that far behind. Does that mean, they are the next in line to fail? Not necessary, because exposure to risky loans may just be one of the factors involved in a bank’s failure. Search for a more comprehensive bank data for all quarters between 2004 and 2008 on the Finder! with key word “FDIC” and its analysis in the near future. In the meanwhile browse for the data discussed in this blog here:

Risky bank loans 2nd quarter 2008
Risky bank loans 2nd quarter 2007
Risky bank loans 2nd quarter 2006
Risky bank loans 2nd quarter 2005
Risky bank loans 2nd quarter 2004

Popularity: 24% [?]