Both of Little Saigon’s community banks are under financial stress, as a key indicator for both of them exceed the likely-to-fail mark, according to the OC Business Journal here.
Both First Vietnamese-American Bank and Saigon National Bank have distressingly high “Texas ratio” – an index that you want to be really low, and that anything above 100 indicates a likelihood to fail. The numbers were calculated by Carpenter & Co., a banking industry consulting company based in Irvine.
First Vietnamese-American’s Texas ratio stands at 234, and Saigon National’s is 117.
The OCBJ was unable to reach Saigon National Bank’s president. The president of FVAB declined to comment.
A Texas ratio above 100 means that if all the non-performing assets – those expected to go bad – actually do go bad, the bank will be unable to cover it and the FDIC will have to step in.
FVAB, located at the corner of Magnolia and Westminster, has a diverse group of shareholders that come from a variety of ethnic background, most prominently Korean. Saigon National Bank, whose office is on Brookhurst near McFadden, has almost all Vietnamese-American investors.
The Texas ratio was created and coined by Gerard Cassidy at RBC Capital Markets. It’s an index that uses numbers publicly available from the FDIC, and is equal to:
100 x ((Non performing loans – U.S. guaranteed loans) + Real estate owned) / (Loss Reserves + Stockholder’s equity)
In other words, it looks at the ratio between all non-performing assets, on the one hand, and reserves and equity on the other hand. The numerator equals things that are failing; the denominator equals things the bank can use to cover for those things that do fail.
The name came about because Cassidy noted that the Texas S&Ls that failed in the 1980s tend to have this ratio at 100 or greater. And then in 1990s when banks in New England went under, same thing.
Since banks can’t do anything about the numerator, what happens when their Texas ratio go up is that banks try to raise funds, shore up the stockholder’s equity in the denominator.
I m not surprised. The operation managemnent of the FVAB bank are run by some inexperienced businessman
No bailout for the shady and shitty business people.
The Texas ratio is really just a proxy for the other ratings which various regulatory agencies hand out. I don’t know much about these two banks but based off what I do know (i.e., that they are both basically small state banks) I’m going to guess that neither are state member (of the Fed) banks. With that said, they will come under the watch and ruling of the FDIC, which has fairly broad discretion over whether to go forward with an enforcement action. CAMELS ratings are the main ratings here. They’re not widely heard outside of banking and law because they’re highly confidential; it’s a federal offense to disclose these but the banking sector’s regulatory agencies rely on them to discern the health of the banks.
If the banks are just undercapitalized, they might just run into a few fines and ultimately go into receivership (i.e., get taken over, basically) if they fail to improve. However, if there’s been some wrong doing, there will be a few other agencies on their backs with heavy fines and even criminal prosecution.
As for the FVAB, it and its BoD have more to worry about than the bank’s failings. Don’t be surprised if you hear of an SEC/DoJ investigation done on the bank’s activities in the near future.
i have a checking and saving accounts with saigon bank.
i just close both of them today.
If you’ve never heard of FVAB, you’re excused. The bank has just one branch and shares the same building (in picture) with law offices on upper floors. It’s a kind of a symbol of Viet community pride and offers personal relationships with many of its Viet customers. The bank has not been profitable since its opening in 2005, under new management in 2007, and recently had to play Texas hold’em on some of its foreclosures, hoping for a housing rebound.
The Texas ratio is an early warning system that might not be accurate for many California banks, considering many of those banks in question have seen their REO portfolios recently increased by foreclosures.
If you’re happy with a personal relationship with a banker, then stick with the bank.
Of course, not for me.
I’d like to invest in where I can make some real money, like Fidelity high yield bond mutual fund with last year annual return of 39%.
And I don’t care about the Texas ratio or FDIC insured.