Greater interest in bank rating services
THE BIRMINGHAM NEWS
Wednesday, September 17, 2008
Roy L. Williams,
News staff writer
The woes of Wall Street investment banks don't directly affect banks on Main
Street, but financial experts expect troubles in the nation's financial center
to elevate consumer interest in the financial health of local banks.
Coral Gables, Fla.-based Bauer Financial has seen a dramatic increase in
requests for its quarterly bank ratings over the past year, especially since
California-based IndyMac failed and was taken over by the federal government on
July 12, Bauer President Karen Dorway said Tuesday.
She expects that interest to surge in the wake of Lehman Brothers Holdings
Inc.'s bankruptcy and Merrill Lynch & Co.'s shotgun marriage to Bank of America
Bauer's second-quarter bank ratings, released this month, found that 400 U.S.
banks, including three based in metro Birmingham, received two stars or less, a
classification considered problematic. Bauer gave CapitalSouth, Nexity Bank and
New South Federal two stars. Such ratings are rising.
"That's up from just 100 banks getting such low grades two years ago," Dorway
said. "But people need to keep in mind the majority of banks are still doing
well. Only 400 of the 8,500 banks in the U.S. are considered problematic." Most
area banks measured by Bauer and Bankrate.com, another Florida research firm,
received good marks. Two of the smallest - Alamerica Bank on Birmingham's
Southside and Central State Bank in Calera - received perfect five star ratings
from both research firms.
Growing interest in ratings of bank safety and soundness is hardly surprising
given the turmoil roiling financial markets, said Maureen Gleason, vice
president of operations at American Behavioral, a Birmingham-based employee
services provider that assists companies in all 50 states. She said her company
has seen a 25 percent increase in requests for financial counseling by employees
"It used to be that people came looking for help dealing with their own
finances," Gleason said. "Now people are worried about the financial condition
of the banks they do business with."
A survey released this week by Birmingham-based Compass Bank found that
financial woes are starting to affect consumer behavior. It found that over the
past year, 14 percent of consumers have changed banks to save money and 38
percent have lost sleep due to finance worries.
Bauer and Bankrate examine factors such as capital, asset quality, management,
earnings and liquidity in putting together their rankings. But they don't always
see eye to eye. The three Birmingham banks receiving two stars from Bauer -
CapitalSouth, New South Federal and Nexity - all received one star from Bankrate.
Bauer doesn't release reports on the banks, charging $10. Bankrate's reports are
on its Web site.
Efforts to reach officials at the banks were unsuccessful Tuesday. CapitalSouth
and New South officials both said in August, when Bankrate.com's first quarter
reports gave them low marks, that their reports aren't always accurate. Both
said they were financially solid despite problem loans.
Andreas Rauterkus, an assistant professor of finance at the University of
Alabama at Birmingham, said while consumers ought to check the ratings of their
banks, they need to be careful not to read too much into the findings. The
ratings are subject to personal interpretation of bank regulatory findings, he
said, adding that the research firms are not privy to the private information
banks have about their loan portfolios.
That is why rating agencies can reach far different conclusions, Rauterkus said.
"People need to remember these rating agencies don't know exactly how banks are
affected by exposure to bad loans," he said.
Rauterkus said he isn't surprised to see small banks get higher ratings that big
banks, especially those hit by subprime mortgage losses.
"The smaller banks are more vigilant and in tune with their customers," he said.
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