Andy Obermueller of Investing Answers has come up with a list of banks throughout the country that could be in trouble.
The FDIC only gives the number of banks in trouble: 437.
It doesn’t provide identities.
Obemueller says, “In a typical year, a bank should expect to lose about 32 cents for every $100 it lends. Right now, however, banks are losing $2.64 on $100 in loans.”
So how does he figure out which banks are in how much trouble?
“(By) using a special ratio that measures a bank’s problem loans (the precursor to the loans that are eventually charged off), investors can determine with a high degree of accuracy whether their bank is safe.
“It’s called the ‘Texas ratio.’ It was developed by a financial wizard at RBC Capital Markets named Gerard Cassidy, who used it to correctly predict bank failures in Texas during the 1980s recession, and again in New England in the recession of the early 1990s.
“The Texas ratio is determined by dividing the bank’s non-performing assets by its tangible common equity and loan-loss reserves. Tangible common is equity capital less goodwill and intangibles. As the ratio approaches 1.0, the bank’s risk of failure rises.
“With only 3 exceptions, every bank that has failed in the second or third quarter has had a Texas ratio greater than 0.90. “