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Money and Markets: Investing Insights

12 Giant U.S. Banks Vulnerable to Disaster!

Martin D. Weiss, Ph.D. | Monday, September 26, 2011 at 7:30 am


Martin D. Weiss, Ph.D.

Imagine this scenario …

The largest economy in the world is on the brink of a financial meltdown that could make the debt debacle of 2008 seem small by comparison.

Its giant banks are buried in bad loans and vulnerable to failure.

Its central government is paralyzed.

Chaos looms.

A Desperate Meeting

One weekend, in a last-ditch attempt to avoid disaster, top finance officials — representing 117 countries and six billion souls — come together and meet.

The officials engage in intense — sometimes frantic — debate. They explore every possible solution known to modern man, plus some that are still not known.

But they’re stumped. They come up with no new ideas.

That’s when the highest finance official of the world’s second-largest economy speaks.

He can barely mask his frustration — and fear — as he calls for massive, unprecedented steps to stem a domino-like series of defaults.

He cites words such as “cascading default, bank runs, and catastrophic risk.” And he bluntly tells the group that time is running out!

But when the meeting adjourns, nothing has been done; no decisions have been made. Instead, the finance officials fly home to the far corners of the globe. They go home to their families. And secretly, they pray the financial collapse does not destroy modern society as we know it.

Unbelievable? Then Consider This …

This was not a fictional scenario. It actually happened EXACTLY as I just described — THIS past weekend!

The economy on the brink of financial meltdown is the European Union. With a GDP nearly $2 trillion larger than the GDP of the United States, it is clearly the biggest economy in the world.

The giant European banks buried in bad loans include France’s Crédit Agricole and Société Générale. With $3.6 trillion in assets between them, they are the largest in the world.

And the high finance official who issued the doomsday warning is none other than U.S. Treasury Secretary Timothy Geithner.

Speaking before the delegates to the IMF/World Bank meeting in Washington, D.C., this past Saturday, his warnings were shocking. So they merit repeating:

→ Cascading default

→ Bank runs

→ Catastrophic risk

→ Running out of time!

Why was he so blunt? What does he fear that average citizens are just beginning to comprehend?

Is it the recent panic in the global markets — investors dumping sovereign bonds, banks recoiling from interbank lending, global money markets freezing up?

Is it the utter fragility of the U.S. economy, still struggling to recover from its own debt nightmare?

Or is it the chronic vulnerability of America’s largest banks, still loaded with bad mortgages, still taking massive risks with derivatives, and still directly vulnerable to Europe’s debt disaster?

The answer: All of the above! But of greatest concern is …

The Fragility of America’s Largest Banks

Many investors seemed shocked when Moody’s downgraded Bank of America’s long-term debt from A2 to Baa1 last week.

But even with the downgrade, we believe Moody’s is being overly generous to Bank of America. The bank has …

  • $421.7 billion tied up in mortgages — more than any other bank on the planet!
  • $52.5 trillion in high-risk derivatives — more than 36 times larger than its total assets and nearly 341 times bigger than its risk-based capital!
  • Massive exposure to the possibility that some of its trading partners in the U.S., Europe, or elsewhere might default — to the tune of 182% of its capital, according to the Comptroller of the Currency.

And it’s not alone! Other major U.S. banks are in a similar predicament.

Candidates for Disaster

It’s because of these kinds of dangers that, one month ago, I warned Bank of America was a candidate for bankruptcy.

And it’s also because of these dangers that I’m publishing here our latest list of the nation’s weakest large banks, based the latest second-quarter data recently released by the FDIC.

.

Bank of America merits a Weiss Rating of D (weak). But it’s clearly not the only one. Also getting a D grade are two other giants — JPMorgan Chase and Wells Fargo.

Nor is this weakness restricted to the nation’s largest banks. Major regional institutions — SunTrust Bank, Regions Bank, Compass Bank, Huntington National Bank, and others — are also vulnerable.

All told, 2,553 U.S. banks and thrifts now get a Weiss Rating of D+ (weak) or lower, implying widespread vulnerability to the consequences of sovereign debt defaults in Europe and to a double-dip recession in the U.S.

How Could This Impact You?

In too many ways!

First, if you own bank stocks, you’re bound to lose a lot of money. Their shares are already plunging, and the experience of 2008-2009 tells us they could fall a lot more.

Second, banks and other financial institutions are the heartbeat of the entire economy. If they go down, so does business.

Third, if you have money in a weak bank, it could be in jeopardy. Yes, the U.S. government may come to the rescue. But because of scarce government resources and new, stricter bailout laws, this time around, any bailouts are bound to be more painful — to the bank, its shareholders, AND its creditors.

My recommendation:

1. Get your money to safety. If you must use a bank, do most of your business with those meriting a Weiss Rating of B+ or higher.

2. Never allow your deposits to exceed the FDIC protection limit.

3. For added safety and liquidity, seriously consider moving a big chunk of your cash from bank deposits and checking accounts to

  • 3-month Treasury bills (which you can buy through your broker or directly from the Treasury) or …
  • A money market fund that invests exclusively in short-term Treasuries.

Yes, I recognize that Uncle Sam’s finances are also shaky — a factor that could impact the price of medium- and long-term Treasuries. But short-term Treasuries are still safe. For cash you must keep away from market declines, they remain the best option.

Good luck and God bless!

Martin

Martin D. Weiss, Ph.D.

Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.

{ 14 comments }

Jim Hyde Monday, September 26, 2011 at 12:34 pm

Dear Sir,
I really do appreciate your warning. At the present time I have an account with Regions bank in
Bristol, Va but I am trying to find a good bank in Wytheville, va near where I live. I have looked over your good and bad list of banks but none of the good banks listed near where I live. Can you tell me if any of the banks in Wytheville, va are good banks. I can send you a list if necessary. There is one bank in Wytheville and other Virginia towns called B B & T. Do you know anything about this bank. Thank you for your help.

Sincerely,
Jim Hyde
jchyde1@centurylink.net

howard dimond Tuesday, September 27, 2011 at 6:46 am

Hi Martin’

We are facing difficult circumstances with a worldwide cronic lack of real leadership. Consumers in their many millions are watching this moral and financial colapse get worse than it has to. The consumers are running for cover and I will make plenty of money thanks in part to you and your team of researchers. There is a moral dimension to this as both big banks, stock holders and the defenseless poor will suffer. I’ve never lived through such a preplanned mess that this is. Regards Howard

Dilip Kumar Tuesday, September 27, 2011 at 1:52 pm

Martin,

Thanks a lot for the update.

I will appreciate very much if you provide ratings on RBC Royal Bank (http://www.rbc.com/canada.html) and Bank of Montreal (http://www.bmo.com/home), the two prominent Canadian banks. Their US counterparts are in terrible shape per your ratings. However, no ratings are available from you for their Canadian main units. Your insight on the health of these Canadian banks would do a great service to us in Canada.

Jerry Tuesday, September 27, 2011 at 11:42 pm

What about gold or gold stocks for safey? Will gold stocks go down with the rest of the market or up in a case like this one?

pankaj Friday, September 30, 2011 at 5:43 am

what about buying gold and silver

Dilip shah Friday, September 30, 2011 at 6:27 am

I want free subscripition of your research data.

Ellie Farkas Friday, September 30, 2011 at 9:42 am

Thank you for the free updates!

Judith Saturday, October 1, 2011 at 12:46 pm

I see that our bank has a D rating. Where can we see the list of banks in the Tucson AZ area that are B+ or higher?

Seife-Michael Zewde Wednesday, December 21, 2011 at 4:45 am

Need answer to the same question.

Thank you.

SMZ

JPF Sunday, October 9, 2011 at 9:00 am

And so Warren Buffet, the single most successful investor was willing to lose $5 billion (not million, billion), knowing that the U.S. government will let BOA go down… I don’t think so.

I could be wrong, but if so, so is the most influencial and profitable investor in the history of the stock market.

jack olantern Saturday, October 22, 2011 at 11:50 pm

Buffet wont lose a dime because he bought PREFERRED shares. when BAC goes down the crapper, the COOMMON shareholders will get wiped out, NOT WARREN BUFFET. This was a headline to get suckers like you to buy the bank stock and help capitalize the bank by the public. You took it hook, line and sinker.

M SMITH Wednesday, October 19, 2011 at 1:14 pm

How will this efffect credit cards? Should I take up the offer by Citi for a 21 month 0% interest on all balance transfers and pay off my debt a lot faster? I am on a fixed income & have put all my Hard Assets in my daughters safe. I could sell a few PM’s & pay off these debts but do not want to lose any of my insurance!

jack olantern Saturday, October 22, 2011 at 11:51 pm

hell no, why would you payoff debt to a bank that is going to go bankrupt-lol

George Philipp Monday, December 19, 2011 at 9:14 am

Could you tell me where to find banks with ratings of either A or B?

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