Checking up on local banks

Bank shares took an especially heavy beating in Monday’s stock market sell-off, and no wonder. Despite billions of taxpayer dollars spent on bailouts, financial institutions are failing at a pretty fast clip this year.

According to a report in Monday’s The Wall Street Journal, citing the FDIC, 77 banks have failed this year – five of them last Friday – and some 300 more are viewed by federal regulators as at risk.

And last week, the Congressional Oversight Panel supervising TARP bailout funds released this report warning that many banks are still holding troubled assets on their books.

The problem is particularly acute for smaller banks, the report says, because they hold more commercial loans, with a high default risk, and more whole loans, which also can be wiped out by default faster than a pool of securitized loans. Meanwhile, smaller banks don’t have the same access to capital as larger institutions.

“Given the ongoing uncertainty, vigilance is essential,” the report urges. They’re speaking to federal regulators, but as a journalist you should take this as a sign that your local banking institutions deserve a second look.

It’s not an easy task – banking and finance are complex disciplines with confusing and arcane accounting conventions, terminology, you name. Because they don’t produce ‘stuff’ or provide tangible services like hair cuts or computer repair, they record their numbers differently than those in other sectors.

For starters, here’s a very good article from Investopedia.com about analyzing a banking institution’s income statements, complete with explanatory graphics.

It explains how banks derive income – basically by taking deposits and lending the money out to others at a profitable interest rate. Major risks are that the borrower will default or that interest rates will fall and the bank be obligated to pay out more than it actually earns on loans.

Get to know the regulators at your state level; the National Association of State Credit Union Supervisors and the Conference of State Bank Supervisors can point you in the right direction.

Federal regulatory sites abound and you’ll need to dig to determine who’s in charge of specific companies in your market. The Web sites of the 12 Federal Reserve banks, as well as the federal Comptroller of the Currency, Office of Thrift Supervision and the Federal Deposit Insurance Corp. all offer other educational materials online.

One interesting place to start is this FDIC database; you can run a report by county or other parameters showing each financial institution ranked by market share of deposits. It’s a fast and convenient way to find out which institutions your readers trust the most with their cash.

Then, check those banks against the American University’s Investigative Reporting Workshop’s BankTracker database. In addition to detailing how much TARP money specific banks received, the database – a synthesis of FDIC reports on thousands of banks -- depicts each institution’s ‘troubled asset ratio’ compared to its capital and loan-loss reserves. The closer those two figures, the riskier the bank’s situation and the numbers provide an excellent opening for interviews with local bank execs.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Car Stories that Sell

Automotive dealers got the final rules and regulations for the “cash for clunkers” program Friday, and already over the weekend hastily-produced local TV ads were exhorting buyers to take advantage of the deal.

In a nutshell, the federally sponsored “Car Allowance Rebate System,” as it’s formally known, offers credits of up to $4,500 to people who trade in older cars and trucks for more fuel-efficient new models. The credit applies to purchases, and even to auto leases of at least five years. Trade-ins can be foreign or domestic as long they’re less than 25 years old, be drivable, and average 18 miles to the gallon or less.

To ward off “flippers,” the new law also requires that trade-ins be registered to the new-car buyer for the past year. The program will be in effect until Nov. 1 or until the federal funding is exhausted. Complete details about the program are available at the CARS program Web site.

In a year where auto sales so far are hovering around a three-decade low and major domestic manufacturers are closing thousands of dealers, any jump start to car buying is noteworthy.

You might approach this from a dealer perspective and marry it with an update (and infographic) about the status of car retailers in your area. The National Automobile Dealers Association, a trade and lobbying group, also offers commentary, statistics and updates at its site. An interactive map purports to outline the economic impact of auto sales in each state; it’s worth a look.

Or, you could run a consumer affairs or personal finance story instead. There are a couple of caveats in the fine print of the CARS rules worth pointing out:

• Since the new law – predicated on fuel-mileage concerns -- requires the traded-in gas guzzlers to be crushed and scrapped rather than resold, consumers likely won’t get the standard trade-in allowance for their old cars. They’ll want to weigh the lost value against whatever level of CARS credit they’re eligible for.

• The credited amount might not be exempt from sales tax; depends on the laws in your state so worth a call to the treasury department.

• Many older cars – including the 1997 purple Ford Escort sitting in my driveway – won’t make the cut for the credit because they still get make pretty decent miles per gallon. Consumers can look up their car’s eligibility by using this calculator. It’s rather ironic that those of us responsibly driving fuel-sippers all along won’t be able to cash in on the credit, isn’t it?

• The credit must be applied against a new vehicle costing less than $45,000 – so luxury auto dealers probably aren’t going to yield the best CARS color for your story.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Credit Reports Score Big

Aside from spot news, earnings season is a good opportunity to revisit companies, industries and issues you sometimes neglect to cover or might not have time to explore.

For example, firms posting financial results tomorrow include two credit-reporting giants, Equifax Inc. and Fair Isaac Corp. Fair Isaac, more commonly known as FICO, is the Minneapolis company that develops credit-scoring formula and related business services. Atlanta-based Equifax is one of the Big Three consumer credit reporting agencies. The other are Dublin, Ireland-based Experian and privately held TransUnion LLC, which is headquartered in Chicago.

Credit reporting is a huge, multi-faceted industry with substantial ramifications for your readers. These three agencies, along with myriad local and regional bureaus, keep track of how promptly consumers pay their bills, how much available credit they use and other financial behavior that purports to assest risk. They repackage and sell this information in a variety of ways to diverse clients.

Business is brisk – Equifax alone posted sales of $453 million in the first quarter of the year, though its profits dipped to less than $55 million. These companies often are demonized as the results of their analyses encroach further into consumers’ lives, affecting not only transactions with lenders but sometimes with employers, insurers and prospective landlords. Mistakes aside, though, they’re only slicing and dicing information that already exists based on our own behavior. While it may be galling to have giant corporations make money off of re-selling our bill-paying habits, there is no turning back now.

In writing about credit reporting for your readers, knowledge is power, and the corporate Web sites are a gold mine of information about industry issues, concerns and trends. Poke around to find story angles of special pertinence to conditions in your region. More insight is available on the Web site of the National Credit Reporting Organization, The trade group currently, for example, trumpets a membership drive aimed at resident-screening services – the businesses that check applicants’ credit for landlords and property management services. If you cover territory known for a tight rental market or housing hardships for low-income people, you could spin a new angle by talking to local resident-screening firms.

Amusingly, the agencies used to guard the results of credit scoring tenaciously, forbidding lenders from disclosing the proprietary results of their complicated algorithms. Then, a decade or so ago, the collective light bulb went on and the agencies realized they could reap even more sales by offering consumers’ own rating back to them – for a fee. Products like ‘credit monitoring’ also came into vogue over the last decade as identity theft became a much-hyped fear and now are aggressively marketed through television, the Internet and direct-mail.

If you’re covering a personal finance angle, be sure to use links or an info box to let your audience know about the Federal Trade Commission’s oversight of credit reporting and scoring, and the laws that protect individuals – such as the one requiring the credit reporting agencies to provide one free report each year. And despite the ubiquitous TV ads with the losers in the pirate hats, that’s not the site you want to endorse. The real free one is here.

Be sure also to alert your audience to the federal laws that protect them. The Fair Credit Reporting Act provides recourse them to consumers who spot errors or mix-ups on their reports.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.