Failure Edition: Banker, Regulator, Leverager, Stimulus

"More banks have failed in 2009 than any year since 1992," reports the Wall Street Journal. That figure now includes the sixth largest failure in U.S. history, Colonial Bank (CNB) of Montgomery, Ala., with assets of $25 billion. To deal with the surge in failures, "federal officials are discussing ways to relieve banks of some of their bad assets, such as troubled real estate loans. One plan under discussion, referred to within the government as "Spinco," would allow banks to spin off bad assets into a separate entity." The New York Times notes Colonial's acquirer, BB&T Bank (BBT), is "a regional bank that has emerged from the financial crisis as one of the industry's strongest players."

The Journal noted Colonial had gone regulator-shopping, moving in 2008 from the federal Office of the Comptroller of the Currency to Alabama state regulation after the former "began raising concerns about the bank's commercial-real-estate portfolio." That's something President Obama is attempting to make "impossible" under his proposed regulatory reform. Also under that reform, Obama plans to, "hike the fees big financial firms pay for federal oversight while easing the burden for smaller ones," according to the Washington Post. Also, "unregulated consumer financial firms, such as mortgage lenders, would have to pay for their oversight for the first time," says the story.

Citigroup (C) is attempting to take its $100 million man out of the government's hands altogether. For weeks newspapers have followed Andrew Hall, a fantastically successful energy trader for the bank, who is owed that sum as a bonus based on performance. But the Times writes that Citi told Treasury "Hall, due $98 million, was exempt from federal review." That leaves the government's paymaster, Kenneth Feinberg, the options of either issuing a nonbinding wrist slap or silence. Both, as the paper details, are political minefields.

Personal bankruptcies are "up 34 percent from the year before, as Americans continued to grapple with debt, unemployment and devalued homes," reports the Post. The paper notes the figure is climbing back up because people are running out of ways to stay afloat, despite stricter bankruptcy laws that went into effect in 2006.

The corporate home of musical acts including Pink Floyd, Coldplay, and Radiohead is trying to stave off a default, reports the Journal. EMI, bought in a leveraged deal by British moneyman Guy Hands in 2007, is choking under the debt load placed on the company, as the music industry continues to struggle. Hands is cost-cutting and leveraging EMI's digital assets, but he will almost surely need to put up more cash to service its $1.5 billion Citigroup loan, and to protect his own $300 million investment in the troubled business.

The securitization of commercial property loans has forced some hotel owners to  walk away, says the Journal. Those securities, CMBS's, have "scores of investors owning those bonds," making it "extremely hard to cut a new deal to keep the hotel in owners' hands." Compared with past real estate downturns, the hotels are higher end and the owners are public, making these forfeitures more visible in the business press. Again, it's leverage that has pushed many owners to give up. The paper says the delinquency rate on CMBS loans tied to hotel mortgages "will jump to between 10% and 15% by year end." Banks, though, are appointing receivers to keep the properties, and any hope of generating cash flow to service the busted loans, alive.