I learned a few things by reading this interesting article in the New York Times about green banks. These banks aim to help out green (eg. eco-friendly) causes by providing them more attractive banking incentives and loan rates. That is, people and companies that are labeled as environmentally friendly are given financial breaks by these banks.

The Challenges That Green Banks Face

While I think these banks support wonderful causes, they do face a lot of challenges as for-profit entities. Just like those socially conscious and environmental mutual funds, they are expected to encounter more obstacles than your typical run-of-the-mill bank. So what are some of these issues that green banks may have to deal with?

• Diversification matters. Green banks will be screening their customers and naturally, they’ll be limiting and restricting their business to those entities that qualify. With a smaller pool of customers, they’ll automatically have a smaller profit base to support them. If they focus their loans on certain industries, they open themselves up to being much more vulnerable to economic shifts.
• These banks are still startups. Apparently, it takes 3 to 4 years for a typical bank to start making money. Many green banks in business today are very new and are still in startup mode. It doesn’t help that these banks are trying to get their footing during a recession.
• Banks are “specialized”. Again, while the main goal of a green bank is to do good by supporting those who are taking care of the environment, the question here is — just how much money is there in these businesses and in the eco-friendly industry? Saving the environment does not necessarily equate to “making a profit”. Hopefully though, this premise is proven wrong in this case and that green banks prove that they can survive, even as they face restrictive requirements for doing business.
• Operating expenses and costs are higher. Green banks require specialized talent, skills and expertise as well, due to the kind of customers they are servicing. Employees, such as loan officers, need to have additional background and experience in dealing with green businesses and consumers. Plus, giving breaks to such clients via discounted loan rates can eat at their profit margins.

List of Green Banks

If you’re interested in checking out green banks that are in operation right now, here is a list!

• e3Bank in Philadelphia, Pennsylvania
• First Green Bank in Florida
• GreenChoice Bank in Chicago
• ShoreBank Pacific in Houston
• Green Bank in Houston
• New Resource Bank in San Francisco

I appreciate the highly specialized, noble missions that are espoused by these green banks, but are they viable businesses? We’ll have to see how this particular segment of the financial industry develops over time.

Green Banks: Helping Businesses Save The Environment is a post from: Banker, Saver

Does it matter anymore if we are FDIC insured?

Is The Economic Recovery Underway?

According to our government, the recession has now bottomed out, with economic indicators rising for a fourth straight month. I find it ironic that while we’re seeing reports like this proliferate along with the fact that the stock market is at its highest point in so many months (the DJIA is over 9,000 points!), we’re coincidentally seeing stories about troubled banks going under. I’m somehow not entirely convinced that we’re really on our way to economic recovery at this point.

Just recently, Colonial BancGroup went under and had to be closed for good. Because of the continuing bank failures that are occurring, the FDIC (or Federal Deposit Insurance Corporation) is coming up with regulations that are designed to encourage suitors for these troubled banks, hoping to work out partnerships, mergers and acquisitions. And for good reason! The FDIC is watching their bottom line: their goal is to try to keep themselves solvent and to avoid having to pay out funds whenever a bank goes under, unless there’s no other recourse for depositors to get their money back. The FDIC is the last resort for depositors, so if someone else can rescue an ailing bank, they’re off the hook and everyone (supposedly) is happy.

So how is the FDIC planning to make this work? They’re doing a few things:

• On one hand, they are offering to share in the losses of some of these failing institutions so that anyone who steps up to buy them won’t have to bear the brunt of the losses.
• They’re revaluing banks’ toxic assets in order to make it more affordable and cheaper for private equity banks to absorb them.
• The government is also determining whether cheap financing can be offered to those buyers who will be taking over the assets of failed banks.
• They’re working on auctions for loans and assets of failed banks on an ongoing basis.
• The FDIC has been divvying up banks into good and bad pieces, allowing vulture investors to bid on the “bad” while hoping to sell the “good” (or better) assets to traditional buyers using what is called a “loss sharing guarantee” with the FDIC.

The State of the Banking Industry

While job claims are stabilizing and the stock market appears to be picking up, you’d think there’s cause for some mild celebration here. But I’m not all too excited just yet, especially after seeing what state our banking industry is in after all the drama that unfolded last year in the finance world. The fundamentals aren’t that great in some sectors of our economy and by the looks of it, it’ll take time to have these problems unwind through the system before I can feel convinced that we’re out of the woods. Imagine this:

• The FDIC had $52.8 billion a year ago in its coffers. By April of this year, they’re down to $13 billion.
• Many troubled institutions are small banks with large losses so many of them don’t seem all that attractive to bidders.
• Bank buyers aren’t interested in taking on illiquid, toxic assets such as real estate loans that have gone bad.
• In 2009, 77 institutions have failed (vs 25 last year). The FDIC has worked out bank mergers and acquisitions for 69 of those banks.
• More bank failures are on the way, particularly among the smaller banks that are crumbling under the weight of toxic assets and bad real estate loans.

What Happens If The FDIC Runs Out of Money?

Could the FDIC run out of money? It certainly could! Not a pretty picture is it? If banks continue to fail at the current pace, analysts are now saying that the FDIC will soon enough go broke. And what then? Well guess what, the Treasury Department may then have to implement an emergency borrowing program that involves tapping us taxpayers for those funds that will cover any short term loans that the FDIC and government are helping finance. So on top of the TARP bailout funds that the government has used to finance the banking industry, here comes the potential threat that more taxpayer money will be demanded in order to bailout the FDIC. Basically, if the FDIC runs out of money, your pocket will be “raided” next!

The State of the Banking Industry vs Economic Recovery is a post from: Banker, Saver

Once in a while I think back to those days when corporate raiders were chewing up and spitting out large corporations. Like natural selection in the animal kingdom, these raiders sought out those companies that were sick or injured, from which they made a nice profit.

The reality though is that despite changes in our economy, corporate raiders are still alive and well today. They are a little better disguised in most cases, often hiding behind charitable activities or buried within the board of a larger company, but they live on.

On Bank Mergers and Corporate Raiders

Companies are bought and sold quite frequently. Often you don’t hear about such cases because things happen behind the scenes, quietly — say when two companies take part in a merger. A merger is simply the situation wherein two friendly companies come together and form one entity. Often, two small, lesser known companies that are having trouble growing, recognize that by merging, much of the overhead is eliminated and, in turn, saves money. Because most companies that merge aren’t exactly the same size, money often changes hands to make the deal equitable.

Sometimes, high profile mergers take place. AOL and Time Warner merged. Morgan Stanley and Smith Barney have as well. And taking a look at the auto industry of the 90’s will reveal many more.

How A Hostile Takeover Works

A hostile takeover is quite different. Because the target company doesn’t want to be acquired, the modern day corporate raider buys a large interest in the company in the form of stock. As you can imagine, if you own millions of shares in a company, you can amass quite a lot of pull in the price of the stock especially if the company is small or medium sized.

Holding just 5% of the company’s stock can often get you a seat on the board of directors and because you’re a big player and often getting bigger, you can go to other board members and sway their vote for company officers. It works like this:

You buy a huge amount of stock, you then campaign to get either yourself or your company officials on to the board of the target company. You talk to the other board members to try to win their vote. If you are successful and you have a majority of board members who vote in your executive officers, they will vote to accept your takeover offer. The company is now yours.

If you are a small time investor watching all of this play out in the news, you might be kind of happy because often, any kind of takeover will result in the price of the stock going up. The corporate raider goes after a company only when they believe that the stock price is undervalued, so by bumping the price of the shares higher with their takeover bid, the investor and the stockholders end up making money. Be warned though: This is only a short term rise in stock price. When the smoke clears, the common stock holder loses money almost every time.

In corporate America, most takeovers are friendly but some turn hostile, and hostile they are. As a part time investor, it’s often best to steer clear of such battles for one big reason: while there are chances of making some major money, there is also an equally big chance of losing it. If you were a short term investor in Yahoo while Microsoft was fighting for them, you would have noticed just how unstable the share prices were.

 
Contributing Writer: Tim Parker from Elementary Finance

On Bank Mergers and the Hostile Takeover is a post from: Banker, Saver

What it’s like living in a new market environment where the stock market is down and interest rates are low.

I am the cheese, and he is definitely the ham, in more ways than one: I’m talking about myself and my husband. I guess that is why they call us the sandwich generation. We have aging, financially needy parents, two sets of kids, two of which are in university (help!) and two in middle school. And us, we’re just a couple of pigeons stuck in the middle of it all. When I think about our investments and our family situation — well, I wonder if there’s really anything left for us to invest!

Living With Poor Investment Performance

My husband called the other night wondering if there was any new mail. “Yep, your pension statement came,” was my response. “Oh great, how bad is it now?” was Rick’s obvious next question. Happily I can report that his pension is back to where it was a year ago. Celebrations all around! Never mind that most of the money we’re seeing here have been contributions we’ve made over the last 12 months. Frustrating, yes. But, keeping our financial situation in mind, we won’t be touching that nest egg for a long time. This is one of those times when Rick’s attitude of “throw it in some risky, some middle of the road stuff” has been tested the most. I’m always the one pushing for guaranteed stuff.

I am proud of us: so far we haven’t bailed out of anything, tempting though it has been. Maybe that means we have a decently rounded mix of CD’s, stocks and other high risk investments along with a ton of balanced funds. Still though, it has been quite the roller coaster ride. Either that or we were just scared into procrastination.

I remember the “old” days of anxiously waiting for fund and bank statements to arrive. While the markets could have been all over the board, you really didn’t watch your money fluctuating daily. Now with online bank accounts, online brokers and mutual fund sites at our disposal, watching stock prices on websites has got my poor blood pressure going up and down six times a day! (Get a life, I know, I know).

Just when we think things are starting to look up, another few days or weeks come along with the markets deciding to shift direction to the downside. It makes me wonder just how long things can carry on this way. The last few years have been so good, we should have been semi-prepared for a slump/recession, no? I always tell ourselves that, but we always seem to get hit out of the blue and it seems like we’re never prepared enough.

I do feel for some friends who planned to retire in the next couple of years, but with the losses they have sustained this year, they’re thinking of hanging on to their jobs for a while. How heart-wrenching to have saved and planned for years to watch it dwindle and have no control. Having to stay at a job you are really ready to leave can be hard on anyone, including your own employer!

I guess I worry less about the loss/gains in our investment portfolio and more about the work prospects. With our lives revolving around the oil patch, it’s been a pretty scary year. I would be happy if we don’t have to touch our savings to buy the groceries this year.

Living With Low Interest Rates

One good financial thing did happen this year. The mortgage on the condo that my in-laws have been living in came up for renewal. Yippee! Bring it on. Our bank dragged their heels and quoted us a ridiculously high rate, so a’shopping we went. Not surprisingly, the bank across the street was quite happy to vie for our mortgage business. So, with a great low interest rate locked in for 7 more years, we can afford to keep my husband’s parents living in the lap of luxury. OK, it is just a two bedroom condo, but the underground parking is sweet in the winter.

Did the low interest rates encourage us to buy anything this year? Other than celebrating the good mortgage rate, not really. Should we buy a second vehicle? Not yet. Let’s see how that employment thing works out first! 2009 — a little good; a little bad; and hopefully no ugly!

Living With Low Interest Rates and Poor Investment Performance is a post from: Banker, Saver

RealtyTrac Inc. reports 1.3 million properties in the United States were subject to foreclosure during 2007. This is a whopping 79 percent increase from 2006. The real estate bubble, subprime lending and predatory loans have triggered a major financial and mortgage crisis felt the entire world over. So is there anything we can do to cope with the financial tsunami we are experiencing right now?

I’d like to share some ideas for keeping our heads about water. I believe that with prudent spending and careful money management, we can emerge from this tough financial period whole!

4 Ways To Weather The Financial and Mortgage Crisis

1. Prioritize on your mortgage or rent.

Pay your monthly mortgage or rent before you pay any other bills. Once your mortgage is taken care of, make sure you have electricity, utility and groceries covered for the month. Next come less critical utilities such as television, phone and internet services. After your housing and utility costs are paid, make sure insurance premiums are paid for to cover the assets you have. Finally pay your unsecured, personal debt such as credit cards and auto loans. Your credit standing may be significantly affected if you are unable to pay off bills, but as a priority, you’ll want a roof over your head. So make sure that your mortgage or rent is given the utmost priority.

2. Spend less!

It’s not a great idea to go on shopping sprees at this time. Definitely watch your budget and keep an eye on your expenses. In order to avoid getting into further debt, you’ll want to curtail your unnecessary spending, at least while the recession is ongoing and there’s always that risk of job loss around the corner. These days, I no longer eat out or go to the theaters much. I can’t remember the last movie I watched outside of my home! It’s also important to watch your credit standing and to try to pay down your most basic expenses first. If need be, raise some extra money by selling the clutter around your home.

3. Communicate with your bank or mortgage company.

Your bank or mortgage company doesn’t want another foreclosure in their hands, so it’s in their best interest to support you. By communicating with your mortgage lender, you may be able to work out a more comfortable payment schedule — something you can manage more easily. For example, your lender may be able to give you some months off your payment schedule, or extend the life of your loan. They may be able to give you a more affordable interest rate if you commit to paying your mortgage regularly. Do your best to address any financial problems early in order to avoid any negative effects on your credit rating and to avoid the escalation of your situation into possible foreclosure or bankruptcy. Often mortgage companies are so overwhelmed that they may not attend to your issues until you’re actually late with payments. Don’t let that stop you from getting your problem on the record from the beginning.

4. Fight predatory lending by reporting problem lenders.

I know some people who’ve been victims of predatory lending, and falling into this situation is not pretty. In their case, they fell on hard times due to a health crisis in the family . They then tried to refinance their home and consolidate their debt in order to pay off their high interest credit cards. Unfortunately, this new debt was still insufficient for covering some payments on certain cards — their new loan was not optimal for their needs. This loan arrangement was something they suspected to be predatory, so they threatened legal action against their mortgage company unless their concerns were addressed. The good news? The company listened and offered them a reimbursement check for part of their loan’s closing costs. If you find yourself a victim of predatory lending, contact this site for assistance.

Hopefully these tips can offer you some solace during this economic downturn. There are ways to weather the mortgage crisis, so don’t be afraid to take the necessary steps to ensure your financial health during this time!

4 Financial Tips To Weather The Mortgage Crisis is a post from: Banker, Saver

There seems to be some good news with regards to those banks that have received TARP bailout funds. A survey they took reveals that at least 80% of these American banks are now reaping the benefits of the money they’ve borrowed. They’ve been able to increase lending activities even as the economic slump has deepened.

The survey was performed by those overseeing the U.S. Treasury’s Troubled Asset Relief Program (TARP), whose funds currently stand at $700 billion. The survey found that almost 40% of 360 banks that were reviewed have taken steps to better deal with unexpected losses. I found it interesting that about a third of these banks and institutions put some of their borrowed funds into Fannie Mae and Freddie Mac. What do you think of the fact that these banks have decided to invest this money in mortgage backed securities?

So here’s the thing, we all have been wondering what banks have been doing with the bailouts they’ve received so far. After all, the government has a history of having a hard time pinning down how bailouts have been used by these recipient institutions. Remember just how cagey some of these banks have been late last year when the subprime and credit crisis came to a head?

The information we’re gathering from the survey is therefore welcome news to me. I want to know where OUR money (taxpayers’ money) is going. And good thing: this survey obliges. Here are the results of this review:

Banks With TARP Bailout Funds Surveyed: The Results!

• 360 banks were surveyed and 83% of the respondents (or 300) used their bailout funds for lending purposes.
• 104 institutions (29%) applied their funds to residential loans.
• 64 institutions (18%) used their funds for commercial mortgages.
• 61 banks (17%) applied the money to consumer lines of credit, car loans and other personal loans.
• 52 banks (14%) applied TARP money to existing debt.
• 15 banks (4%) used bailout funds for acquisitions; that is, to take over failing banks as recommended by the Federal Deposit Insurance Corp. (FDIC), which is the regulating body that oversees the situation for troubled banks.

And here’s the kicker: most recipient banks mixed TARP funds (that’s our money!) with the rest of their capital and assets. Oh yeah, so that’s why accounting for it has become so tough! What a great excuse.

My Position On Bailing Out Banks

So what do you think of how our banks are managing taxpayers’ money? Are you for or against the bailouts? I’ve always been fiscally conservative, so I’ve always leaned towards being stingy about lending money to these banks. Late last year, as we ordinary citizens received reports of banks beginning to fail and requiring bailouts from the government for their survival, I was one of those people who felt uncomfortable going the bailout route. I wanted the chips to fall where they may, and if a bank was to fail, then so be it. I also had the same conservative stance when it came to the stimulus package. To me, less is generally better — I don’t want our nation to go further into debt if possible.

Looking back though, it seems that our economic situation may have stabilized somewhat, and if things recover from here, or at least stay stable till recovery sometime in the future, then it would appear that the government’s strategy to bail out and to stimulate the economy in the grand ways that it has done has ultimately panned out.

While many economists say that we are now over the biggest humps in this recession, others say that there is more economic pain ahead of us. I suppose it remains to be seen how it all turns out. What do you make of this: as of this writing, the market is inching up again (the DJIA is over 8700) while the unemployment rates in many states are hitting highs. Mixed signals? Could we have bottomed out? I’d love to hear your predictions!

TARP Bailout Funds: How Have Banks Used Taxpayers’ Money? is a post from: Banker, Saver