In the most recent bank failure update, Calculated Risk shows the number of banks that have failed in each year since 2007. 205 banks have failed since 2007 and the easy prediction is that more than 140 and less than 534 banks will fail in 2010. We already have a pretty good start this year with 37 failed thus far.
There are still opportunities, both long and short, in the world of small banks, though I think they are certainly beginning to shrink. For this post, I did a screen for banks trading between $3 and $5 per share and with negative earnings. I chose four banks at random from the results and one or two might be good short opportunities.
The banks are WAL, FSBI, UBFO, and HEOP. They are located in Las Vegas, Atlanta, Fresno, and Paso Robles, CA, respectively. Some of the criteria to look at to determine the susceptibility of the bank for further asset and capital level deterioration are the returns on equity and assets, the ratio of noncurrent assets to assets, and the percentage of commercial real estate and construction loans to total loans. In this spreadsheet, I’ve highlighted the problematic areas for these banks and have determined that WAL and HEOP might deserve further scrutiny if one was looking to successfully short a bank into the ground.
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