On Monday, the BizTimes Daily published a news story about a report from Weiss Ratings that claimed 97 Wisconsin banks are among 2,259 U.S. banks that are still vulnerable to financial difficulties or even possible failure.
The same report about America’s “weak” banks also was carried by several other prominent online news sources, including Forbes.com, Bloomberg.com and FoxBusiness.com.
"Major U.S. banks continue to be plagued by toxic assets and an inability to raise capital," said Martin Weiss, chairman of Jupiter, Fla.-based Weiss Ratings. "Despite the federal government’s help, we’ve witnessed 73 bank failures so far in 2010, more than double last year’s pace – a pattern that is bound to continue as further loan deterioration and regulatory reform take their toll on already-shaky banks. Although most vulnerable banks will not ultimately fail, the failure rate could rise sharply if the U.S. experiences any further economic or financial adversity."
The BizTimes story listed the Wisconsin banks that were rated by Weiss as “vulnerable” with a “D+” grade or worse in the national report, based on statistical analysis of each bank’s capital, asset quality, earnings and other factors.
The story created considerable reaction from the Wisconsin banking industry. As a follow-up today, we’re going to just step out of the way and let people speak their minds about the report.
BizTimes received the following statement by Kurt Bauer, president and chief executive officer of the Wisconsin Bankers Association (WBA):
“The public and media should not place any credibility in ratings of federally insured depository institutions prepared by private companies. The only accurate ratings for financial institutions are issued by government regulatory agencies, and they are not made public out of fear that they could unnecessarily alarm depositors. The private company ratings use arbitrary and often simplistic formulas based solely on information that is publicly available, which provides a narrow snapshot rather than a complete picture of the institution in question. The ratings may also be influenced by the business interests of whoever is calculating them. That is why these ratings are flawed and misleading at best, and dangerous and irresponsible at worst. Use of these ratings by the media is sensational and a disservice to the public.”
In response to the WBA’s criticism, Weiss Ratings issued the following statement:
“Banks and banking associations sometimes request that the media refrain from publishing the ratings and opinions of private rating agencies, such as Weiss Ratings. However, Weiss Ratings believes that any attempt to discourage publication of responsible ratings and opinions can represent a disservice to the public. Weiss Ratings has been issuing ratings on financial institutions since 1987 and has a stellar track record in identifying, in advance, the weakness of institutions that subsequently failed. (See http://www.weissratings.com/weiss-ratings-history.php.) Weiss Ratings accepts no compensation for its ratings from the institutions it rates. It is strictly an independent research organization with the mission of helping consumers make more informed decisions. Overall, rating agencies that are independent of the companies or issuers they cover, such as BankRate.com, BauerFinancial, TheStreet.com, Weiss Ratings and others play a vital role in educating the public and helping individuals discriminate rationally between weak and strong institutions, based on the wealth of data provided by the banking regulators on each banking institution. In addition, independent rating agencies help fill an important information void, inasmuch as government regulatory agencies, such as the Federal Depositors Insurance Corporation (FDIC) do rate banking institutions but do not reveal those ratings to the public. As documented in a white paper submitted to Congress on March 19, 2009, (www.moneyandmarkets.com/files/documents/banking-white-paper.pdf) authored by Weiss Ratings president, Martin D. Weiss, Ph.D., during the recent banking crisis, the total assets of the failed banks greatly exceeded the total assets of banks on the FDIC’s list of problem banks. Thus, the FDIC’s ratings evidently failed to warn regulators themselves of major U.S. bank failures in 2008-2009. Given this failure, independent analysis and opinions provided by private research organizations can also contribute to the mission of regulators in helping to prevent future bank failures. Most important, in the absence of publicly available ratings, bank customers would be more likely to base their decisions on partial information, rumor and innuendo, potentially making the banking system as a whole more vulnerable to random fears and even panic. In conclusion, Weiss Ratings believes that full disclosure of accurate financial information – along with a diversity of responsible, independent opinions based on that information – is in the public’s best interest; while any attempts to discourage that diversity can be detrimental.”
Jay Mack, president and chief executive officer of Town Bank in Hartland, provided this response to the report:
“The Weiss Ratings fail to mention that Town Bank is a wholly-owned subsidiary of Wintrust Financial Corporation, a $14 billion publically-traded (NASDAQ) financial services company with 15 individually chartered banks. Most of the other banks on the list don’t have the support of a larger holding company. Because Town Bank is part of Wintrust, earnings, reserves, capital, etc. are dictated in part by parent-company directives. Therefore, you can’t look at Town Bank’s numbers without also taking into consideration Wintrust’s numbers. And you certainly can’t compare Town Bank to banks that aren’t part of a larger multi-charter bank holding company structure. Unlike many other banking companies, Wintrust reported record earnings in 2009. By virtually all industry and regulatory standards, Wintrust and Town Bank are well-capitalized institutions with strong reserves and low levels of problem loans compared to peer banks. This is all public information.”
Steve Jagler is executive editor of BizTimes Milwaukee.