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Jennifer A. Johnson

Jennifer A. Johnson is a freelance business reporter. Most recently, she was the banking and finance reporter for the Phoenix Business Journal. Her work has appeared in the print and Web pages of Bloomberg News, the Commercial Appeal, the Arizona Republic, the Arizona Capitol Times, the Fiscal Times, the St. Louis Business Journal, the Houston Business Journal, and many others. Prior to her work as a reporter, Jennifer worked as a political assistant at the European Union Parliament. She holds a master's degree in business journalism from the Walter Cronkite School of Journalism and Mass Communication at Arizona State University. She is based in Memphis.

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Tips for reporting on the push to court the unbanked

paydaySome 51 million Americans hold a bank account, but also rely on alternative financial services like payday lending, pawn shops, tax refund shops, rent-to-own agreements, and other services with fees that are considered high, according to a survey by the Federal Deposit Insurance Corp. released in Sept. 2012. Another 17 million U.S. adults don’t have access to any traditional banking services.

Within that segment of the population, there are plenty of angles and ground for reporters to cover.

In more than 70 cities across the U.S., officials have partnered with banks and nonprofit partners to offer low-cost or no-cost banking services to unbanked consumers through the Bank On movement. Regulators also have encouraged banks to court the unbanked in recent years, but most efforts have fallen short. Most Bank On movements also focus on financial literacy outreach.

The FDIC, The Federal Reserve and other government agencies have thrown their weight behind the movement because families with access to traditional financial services are better able to save for the future, conduct financial transactions and access credit on fair and affordable terms. There’s a plethora of available data here.

A great place to start is to check the most recent FDIC Survey of Unbanked and Underbanked Households to find local data on how many consumers have access to traditional banking services in your community (See Appendix D –MSA Tables). The report is also full of detailed demographic data, including regional information.

What’s going on in your community? Is there an active Bank On movement? If it’s a newer movement, it’s a great idea to track the movement’s progress going forward. If the movement’s been around for several years, reporters have an opportunity to take a look at the program’s impact thus far.

Erin Williams, a producer with St. Louis Public Radio, recently reported on the city’s newly launched Bank On program. She says reporters should move beyond common stereotypes and beliefs about the unbanked.

The reasons that households don’t have bank accounts can vary widely. Some households feel that they don’t have enough money to open an account, while others have a poor credit history and may have trouble re-entering the financial system. Consumers from abroad may be leery of banks if they’ve emigrated from a country with an unstable banking system.

Williams also suggests reporting on the Bank On movement through the stories of consumers who have successfully opened accounts and tracking their household balance sheets over a period of time. Has the family rebuilt their savings? Is the account affordable? How has it changed their financial habits? Has having a banking account changed the household’s access to affordable credit products?

“You can find out if people are really taking  the advice to heart,” she said. “The idea is that they are trying to curb people from going to check-cashing services with the hope that they can build something greater.”

Another angle to explore is that as more banks roll out fees for checking accounts, it’s become increasingly costly for some low-income households to keep their accounts open.

Reporters also should take a close look at which banks are reaching out to those without bank accounts in their communities. Many Bank On programs have official partner banks. What products and services are those banks offering consumers who don’t have access to traditional checking and savings products? Are they also offering credit products like payday loans or overdraft checking to Bank On customers? Are the products affordable and fair to consumers that are entering the banking system for the first time, or that have struggled with banking services in the past?

Some consumer advocacy groups like the Center for Responsible Lending have expressed alarm that some banks, are rolling out payday lending services to court the unbanked. Wells Fargo, US Bank, Regions Financial, Fifth Third, GuarantyBank and Bank of Oklahoma all offer payday-type products.

By Flicker user Tax Credits

Payday advances are typically unsecured, shorter-term loans under $500 that are due on a borrower’s next payday. The average fee is about $15 per $100 borrowed over a repayment period of 2 to 4 weeks. But payday borrowersoften can’t repay the loans and take out new loans to pay off the old loans, or roll the loans from payday to payday. A $100 payday loan with a $15 fee can quickly balloon into more than $390 in fees over a one-year repayment period.

The FDIC and the Consumer Financial Protection Bureau also are taking a closer look at these payday-style credit services. Reporters taking a look at the unbanked market can scrutinize the banks offering payday-style loans in their markets.

Most larger banks aren’t offering payday products, but they are pushing into lines of business traditionally offered by alternative financial services providers. Many are rolling out pre-paid debit cards, check cashing services and wire transfers to court the unbanked. What products are the banks in your area offering?

Don’t forget to check out non-bank players like Walmart. The retail giant also offers a line of products marketed to those without access to traditional banking services.

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FDIC ramps up lawsuits against bankers: Dig inside the cases

fdic

By Flickr user Adam Fagen

The spate of 452 bank failures since 2007 left bankers from failed institutions more vulnerable to being sued by regulators than since the Savings & Loan Crisis of the 1980s and early 1990s.  Covering FDIC civil lawsuits can be tricky and complex, but very rewarding for reporters who want to dig into the details. While there have been few criminal cases, there are likely to be quite a few civil cases in the works.

The Federal Deposit Insurance Corp. sued directors and officers from about 24 percent of failed banks from 1985 to 1992. This time around, the agency has sued bankers from 32 collapsed institutions and approved lawsuits against a total of 73 banks, naming 617 former directors and officers as of August 14. Many more suits could be in the pipeline. The first step for reporters eager to dig into this area: check the FDIC’s list of authorized lawsuits to find local cases.

Philip van Doorn, a member of The Street’s banking and finance team, said most of the lawsuits will try to prove directors and officers are guilty of actual malfeasance rather than bad business judgment. “It’s a fine line,” he said.

As the agency responsible for insuring bank deposits up to $250,000 and managing the Deposit Insurance Fund, the FDIC has a mandate to recover money for the fund, van Doorn said. And bank closures are very costly — by some estimates the Deposit Insurance Fund lost nearly $90 billion from 2008 to 2011 on some 400 bank failures. The FDIC issued press release when a bank fails usually includes an estimate of how much the institution’s collapse will cost the Deposit Insurance Fund.

The Deposit Insurance Fund is financed by premiums banks pay for coverage, the profit it makes on investments in U.S. Treasuries, liquidating assets from lenders that have closed and by suing the former directors and officers of failed institutions. With so many bank failures, regulators are facing pressure to recover as much money as possible to build reserves for future closures. Van Doorn said the agency will try to recoup money in a cost-effective way. That means the agency will attempt to settle cases rather than going to trial.

It is unlikely most bankers will pay the civil fines out of their own pockets, he said. Instead, regulators are targeting the bankers directors’ and officers’ insurance policies. Bank directors and officers are required to have insurance to protect them from lawsuits tied to their performance, sort of like malpractice insurance for doctors. The policies also tend to have deeper pockets than individual directors and officers from failed banks.

When a bank failure costs the Deposit Insurance Fund more than $200 million, the Office of the Inspector General writes a report to determine causes of the bank’s failure.  The investigation also analyzes if regulators adequately worked to prevent the failure and the cost of the collapse. (Failures that occurred prior to January 2010 had a threshold of $25 million, rather than $200.) The OIG also writes a report on any failure it considers unusual or suspicious. These material loss reviews can provide great clues on whether a lawsuit may be authorized in the future.

Van Doorn said there has been a renewed focus on the quality of regulators’ appraisals , both going forward and in the years leading up to the financial crisis. “You can get a bank failure through no dishonest activity taking place,” said van Doorn, making it more difficult for regulators to separate bankers that were deliberately negligent from those that just made bad business decisions.

fdic headquarters

FDIC headquarters in Washinton D.C. Photo by FDIC.

There can be significant lag from the time a bank fails, the OIG report is written, and a lawsuit is eventually filed. That’s because as a receiver for failed banks, the FDIC has three years for civil claims and six years for breach-of-contract lawsuits from the time a bank is closed. Some states even have a longer statute of limitation on civil lawsuits.

If a lawsuit has been filed, reporters can find court documents by registering for an account with the Public Access to Court Electronic Records system. The court documents will often include exhibits that provide great clues for tracking down other sources. When I wrote a series on the FDIC lawsuit against former executives from First National Bank Holding Co. in Scottsdale, Ariz., I tracked down several sources using old newsletters and internal emails that were in the court exhibits. There were lots of rich details, like the fact that FNB had once advertised itself as the “Home of Alt-A Mortgage Lending.”

Contacting the lawyers involved in the case and the bankers named on the lawsuit is another good starting point. They’ll be listed on the court documents, along with their contact information. Reporters also will want to track down the directors’ and officers’ D&O insurance carrier to figure out how big the policy was at the time the bank failed. In a few cases, the FDIC has also sued D&O insurance carriers that refuse to pay out on their policies. These lawsuits can provide another window into the causes of the bank failure and sometimes have colorful details about the bank executives.

Academics who follow the FDIC, lawyers, and former employees can also make great sources. LinkedIn can be a great tool for tracking down former employees and co-workers. Filing public records requests with the Office of the Comptroller of the Currency, the FDIC, and the Federal Reserve to determine if the bankers had a past regulatory trail is a good plan if you’ve decided you want to pursue a longer enterprise story. Requesting past emails, private settlement agreements, and old letters are all possible ideas.

Sometimes, bankers will face separate civil fines and orders from the OCC that prohibit the bankers from working for any FDIC-insured institution for life. The orders are available to the public. Many of the bankers named in the lawsuits still are working in the industry — some at very high-level institutions.  Even bankers that have been banned from working for FDIC-insured institutions still can work in the mortgage industry and a broad swath of other finance-related companies.

What professionals named in FDIC-lawsuits and OCC orders are still working in the finance industry in your community? That could lead to other interesting angles for reporters to pursue in their own backyards.

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Banks under pressure: Tips for digging inside M&A banking activity

local bank

By Flickr user Earl R. Shumaker

It’s an exciting time to be a banking reporter. The financial crisis brought sweeping industry changes, leaving plenty of ground for business reporters to cover. While the full implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act are still being fully understood, one thing is sure: banks face pressure on a number of fronts. For reporters, this conflict presents an opportunity to identify and report on a variety of stories.

Jane Yu, a finance reporter for the Orange County Business Journal, thinks more banks will seek partners given the increased compliance costs and capital requirements they face going forward. New regulatory rules require banks to both boost capital and loan loss reserves. That’s proving to be a tall order for many community banks, which have fewer options for raising funds than larger institutions.

Yu said it’s tough for reporters to get advance notice of bank mergers and acquisitions, but sometimes a bank will offer a reporter a sneak peek of the announcement. This advanced look often comes with an agreement from the reporter to keep the information embargoed until the official announcement. In most cases, the news release announcing the deal is the best starting point.

The press release typically contains the nuts and bolts of the deal: What’s the value of the bid? Is the entire bank being acquired, or are only segments of the overall business up for bid? How is the buyer paying for the deal? Is the buyer using cash, stock, or both? If both cash and stock are on the table, what’s the percentage split? What’s the overall impact on earnings and when will the impact be realized for shareholders?

But the release is just a starting point, Yu said. If at least one of the banks involved in the deal bank is publicly traded, she usually begins by checking the stock price. It’s a great way to gauge how satisfied investors are with the bid price. It’s usually trickier to report on banks that aren’t publicly-traded so Yu relies on local consulting firms that specialize in community banking for commentary.

Valuation is an important consideration for both bank sellers and the buyers. “Companies that are selling don’t want to be sold too cheaply,” Yu said. Usually, one bank is buying the other bank even if the banks try to spin the news as a merger of equals. A good way to determine which bank is the buyer and which is the seller is to figure out which shareholders are being compensated for agreeing to the merger.

Focusing on the people involved in the deal, and not just the numbers is a great way to add depth to a story about M&A activity, according to Yu. What does the deal say about the success, failure and ambitions of the chief executives of both banks?

Reporters also often overlook what the offer means for the bank that survives going forward. Who will lead the newly-merged bank if the offer is accepted? Executives often change and new positions are created after an acquisition. “These changes that occur alongside M&A tend to be overlooked,” Yu said. Reporters should always try to score an interview with sources from both the acquiring bank and the seller. Executives, members of the board, their consultants and advisers are all possible sources of information for developing the story and delving beyond the initial release, Yu said.

Analysts who closely follow the banks involved in the transaction can also provide colorful commentary on a transaction. Securities firms and investment bank analysts can tell you why they are recommending buying or selling the stock, Yu said. Have they changed their estimates and recommendations because of the announced deal? Why? Reporters should remember analysts often own stock in the companies they cover. This detail should be disclosed to the reader.

It’s also important to look at the background of the acquiring bank. “There are some banks that are very acquisitive in nature, and that’s their style,” Yu said. “At some point, that calls for a deeper look.” Banks that are serial acquirers can run into trouble if they attempt to grow too quickly. “Where are they getting all of this capital?” she said. Are they borrowing the money? If so, that could mean the bank is taking on too much leverage.

Sign promoting local banks

Local banks have tried to distance themselves from troubles in the industry. Photo by Flickr user Gino

It’s important for reporters to remember that just because a deal is announced, doesn’t mean it will go through. Banking deals often face regulatory and shareholder approval.

Reporters interested in writing enterprise stories on the M&A market in their geographic region may want to reach out to firms like financial information provider SNL Financial  and Keefe, Bruyette & Woods Inc., an investment bank focused on the financial services industry.  Both are a great resource for getting local and regional data on M&A activity.

Don’t despair if your local market lacks activity. When SNL Financial crunched the numbers and told me that Memphis (my local market) hadn’t had a single banking deal since 2004,  I dug a little, and found local banks have been slow to mark their loans down to the current real estate market. That led to a story on why the local market hasn’t had any banking M&A activity since 2004.

Acquisitions can be a lot of fun to cover because they are usually one of the most important events in the life of a company. But taking a step back, and looking at the market from a broader perspective can also lead to great enterprise reporting like this story from American Banker on how M&A is reshaping the banking landscape of the Southeast.