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TheStreet Open House

Bank Failures Likely to Continue

Stocks in this article: CBACJPMCBCSTSAABCWHAFC

NEW YORK ( TheStreet) -- Despite signs of improving credit quality in the banking industry the accelerated pace of bank failures is likely to continue.

Based on preliminary second-quarter regulatory data supplied by SNL Financial for roughly 98% of the nation's 7,800 banks and savings and loan associations, 158 were undercapitalized, according to the regulatory guidelines that apply to most institutions. Click the link below to see the full list:

>>>Bank Watch List

The number of undercapitalized institutions is up slightly from last quarter, even though 41 banks have failed since the first-quarter list was pulled on May 11.

The list for the second quarter will likely grow once a complete set of data for the industry becomes available. It is also very important to point out that any capital raised by banking institutions during the third quarter of 2010 will not be reflected.

Most banks and thrifts need to maintain Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 5%, 6% and 10% to be considered well-capitalized under regulatory guidelines. Some trust banks carry lower capital requirements. The ratios need to be at least 4%, 4%, and 8% for most to be considered adequately capitalized.

Capitol Bancorp

Capitol Bancorp (CBC) of Lansing, Mich. is the only bank-holding company with multiple subsidiaries on the list. The holding company had 64 separately-charted bank subsidiaries in 17 states at the end of 2009 and is aiming to reduce the number of subsidiaries to 26 this year through sales of some subsidiary banks and mergers. Last Tuesday, Capitol Bancorp announced that three Georgia subsidiary banks had been consolidated. On July 30, the company announced it had completed the sale of Community Bank of Lincoln, Neb.

On July 23 Capitol announced it was extending its offer to exchange its trust-preferred shares for common shares until Aug. 31. The offer is for two common shares for "each $10.00 liquidation amount of the trust preferred securities that Capitol accepts in the exchange offer." That would have worked out to less than 27 cents to the dollar as of Thursday's market close. Little wonder that only 6% of the trust-preferreds had been tendered under the exchange offer as of July 22.

Sterling Savings

The largest undercapitalized bank on the list remains Sterling Savings Bank of Spokane, Wash, which had $9.2 billion in total assets as of June 30 and is held by Sterling Financial (STSA).

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