Tuesday, October 20, 2009

FDIC Nets 27 Cents On The Dollar From Liquidation OF New Frontier Bank

The Colorado bank was largely holding agricultural-based loans, however, at $500 million in assets, it was a small liquidation.  Imagine how much lower the overall salvage value would have been if this had been a few billion in loans?  One package of loans sold for 2 cents on the dollar.  Here's the link:  Bank Liquidation at 27 Cents

The point is that this is a market-based piece of data that can be used to measure the market value - real value, that is - of the so-called Level 3 assets that banks are now marking up on paper and creating paper income from. 

I have to imagine that agricultural-based assets possess some intrinsic value and income generation characteristics that are unique vs. empty housing and commercial real estate developments.  And this was a relatively small bundle of assets that were liquidated.  What happens to the prices when a bank with several billion in assets is liquidated?  I can assure everyone that less than 27 cents on the dollar will be achieved.

If we go through the exercise of applying actual price data from asset sales like New Frontier to the balance sheets of the too-big-to-fail banks, what will that do the capital ratios and book values of these mega-banks? Why aren't the regulators and policy-makers in the White House enforcing reality on these banks instead of letting the officers pay themselves millions in bonuses based on fantasy accounting?

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