Soundings (8/4/09)

Bucks in the Bay

• Matt Rose missed meeting while at Lake Chelan;
• Stan Dyer said Dan Moore's wife is recovering from illness;
• Gerald Baron for many missed meetings, 36 wedding anniversary, proud bucks for "Food Inc." which his son worked on;
• John Templeton's daughter returning to Bham from LA, Matt Groenig would like to return to Bellingham too if anyone has a job for him;
• Tonja survived first two weeks of Shakespeare bliss;
• Stephanie Sadler missed meetings while traveling;
• Patti Imhof missed meetings, also hosted Harvard MBA group (?) in and around San Juan Islands;
• Frank Chmelik water-skiing stories, disappointed that NOAA chose Newport, OR over Bellingham.

Sergeant at Arms by Frank Chmelik
Fines for bankers, Stew Ellison, healthcare people, Dick Stark, cash for clunkers (cars not wives).

Program
Stew Ellison introduced guest speaker Bruce Clawsen who will talk about "The State of the Washington Banking Industry".  Bruce is a senior VP for Banner Bank (based in Walla Walla), a UCLA grad, serves on many boards, and a Rotarian.  He's been a controller and CFO of private companies too.  Bruce said this is the best time EVER to be a banker:  Lots of attention from customers, for one thing!

How did the crisis happen?
By 2000 lots of integration between Wall Steet and banking industry (in hindsight accompanied by lack of oversight).  Subprime meltdown started the crisis in motion.  The financial industry and banks (and government) underestimated the risk.  That statrted an avalanche (banks, bailouts, auto industry, states, even international).  Called the "Great Recession".  "Too big to fail" bailouts like AIG.  By mid 2009 we are now in the second phase of the crisis (a good sign), some emergency programs were terminated, stocks start to rally, fed agenda starts to move to other things... 

Banking 101 - What is a bank?
-special charter;
-accepts deposits;
-loans funds;
-under govt regulation;
-highly leveraged.
Many flavors of banks, big and small.
The old math of banking:  When the bank loans $100, they borrow $90 from feds (so only $10 is their own money).  They make money on the spread and the fee. 
The new math of banking:  If only 3-5% of these loans go bad, then the bank loses 30-50% of its capital! The feds are now telling banks "Get more capital, or go out of business."
TARP (troubled Asset Relief  Program):  The first $300B of the $700B authorized by Congress.  It's mostly for the biggest 20 US banks; smaller banks needed to be approved for these funds.  In theory it will be a good deal for us (US citizen taxpayers) if it works. 

Condition of banks in WA State
Real Estate is a big factor here.  There are 16 banks in Whatcom County, perhaps too many, mostly regional, relatively healthy, BUT heavy reliance on real estate lending (construction).  Why?  Historically RE lending is highly profititable and very "community oriented / visible"; ALSO because WA banks got pushed out of many other traditional lending areas.  Govt regulation now dictates that local banks DECREASE their share of real estate lending in the portfolio.  Big "conduit lenders" lent $3B in WA State in 2007, but in 2008 they lent NOTHING and ceased all operations, leaving local banks holding the bag. 

Some words of optimism
-cycles always happen. 
-US economy resilient;
-stock market rally;
-govt intervention;
-consumers paying off debt, etc.

Respectfully submitted,
Stowe Talbot