Playing High Stakes 1 Vs. 100

Barry Ritholtz flags this story down about smaller TARP banks now on the edge of survival.

The WSJ reports today that nearly 100 U.S. banks that got TARP funds from the federal government in Q4 2008 are in danger of going bankrupt.

So far, 7 bailout recipients have failed, resulting in more than $2.7 billion in lost TARP funds. The balance of the remaining potential failures relatively small banks — the median size was $439 million in assets, and the median TARP infusion was $10 million apiece.

People forget that TARP helped a lot of smaller regional and community banks too.  While the big banks that got the most largess turned it around, the smaller banks got only what they needed to survive at the time.  The problem is the commercial real estate market (the bread and butter of smaller community banks) is still in deep crap.

The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.

When TARP was created in the heat of the financial crisis, government officials said it would help only healthy banks. The depth of today’s problems for some of the institutions, however, suggests that a number of them were in parlous shape from the beginning.

Nobody could have guessed, etc.  You know, except for anyone who was paying attention to this mess, and the fact that it would lead to bank consolidation by attrition, as I've been saying for 18 months now.  Commercial vacancy rates are expected to peak this spring, but that's cold comfort to the smaller banks right now.

2011 is going to be an ugly year for smaller banks.