It's When, Not If, Next Bank Fails

As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail during the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation's banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail during the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

"Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there," said Richard X. Bove, banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. "And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?"

Many investors are on edge after federal regulators seized IndyMac Bank, one of the nation's largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of Countrywide Financial Corp., was the biggest American lender to fail in more than two decades.

Time may be running out, too, for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors.

Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corp. listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

Analysts are circulating their own lists of banks they think are in trouble, and short sellers - investors who bet against stocks - are piling on. In recent weeks, the share prices of some regional banks, such as BankUnited Financial Corp., which has branches in the Tampa Bay area, and Downey Financial Corp. in California, have stumbled hard amid concern about their financial health. A BankUnited spokeswoman said the lender had largely avoided risky subprime loans.

Also, analysts think regional banks in areas hardest-hit by the real estate downturn are also at risk for failure. Some of the most bandied about names include Washington Mutual Inc., National City Corp. and Fifth Third Bancorp.