I noticed recently that AmTrust has significantly lowered its rates to the point that it has fallen off most of the rate tables. Then I received word of an email they were sending out. Now, it turns out they are being monitored by the OTS.
For awhile several years ago AmTrust was a leader in savings rates and in certain certificate of deposit terms. But recently, they have fallen off the charts. Two days ago, I was forwarded an email that one of our readers received from AmTrust providing them with an opportunity to redeem their CD. In essence AmTrust was doing a voluntary recall of some of its high yield deposits. It set off warning bells since this is generally not a normal bank business activity. The email read in part:
"A special offer for our AmTrust Direct customers: With the holiday season approaching, AmTrust Direct is offering a limited time opportunity to our customers. Until December 5, 2008, you can close your CD without an early withdrawal penalty."
Then today I saw an article on BankDeals that points out the bank received a cease and desist order from the Office of Thrift Supvervision. The order specifies that AmTrust must raise its capital ratios, not provide certain types of loans, limit golden parachutes, and also "shall not solicit deposits by offering interest rates more than 75 basis points over the local rates in the association's normal market area."
This explains AmTrusts's behavior. The bank is taking steps to comply with the OTS provisions and to raise its ratios and soundness. This includes calling back high yield certificates of deposit and lowering rates on new accounts. For the moment, AmTrust is done competing in the high yield arena, although many would argue it hasn't been a credible competitor for some time. Many customers were turned off by its 3 month bonus rates and the creation of new account types that paid high interest while leaving older accounts to earn less.
One has to wonder though if these actions will precipitate deposit withdrawals and impair its liquidity, the very thing the OTS is trying to prevent.
AmTrust is FDIC insured so if you have an account or money with them, you are covered up to $250,000 until December 31, 2009, at which point FDIC insurance drops back to $100,000 per account per person.
Etrade is offering $25 to open a Max-Rate Savings Account. The account currently pays 3.3% APY which is competitive.
Etrade is offering $25 to open a Max-Rate Savings Account. To get the $25 you only need to fund the account with $1. Payments are made within 30 days of account opening. The offer is good until December 12, 2008. As with these types of offers, if you already have an account with Etrade, you're out of luck. The bonus is for new customers and new money only.
The Etrade application is very easy and you can open it electronically and then fund it via their Quick Transfer capability. This is basically a simple process for requesting an ACH transacation to and from other financial institutions.
As a company, Etrade has experienced its share of problems. It's currently trading at $.85, down from a 52-week high of $6.00. It's forays into mortgages ended badly. Bauer Financial gives it two starts (poor) for safety and soundess. Deposits in Etrade are insured by the FDIC.
Citigroup received the government bailout today that everyone knew was coming. The question is will this be enough and will Citi be back on the hot seat in a couple of months?
Citigroup today received the government bailout we all knew was coming. The bank had long been tagged as too big to fail and as a result the government package was no surprise. Taxpayers gave Citi:
$20 billion dollars in additional capital from the TARP.
The goverment will guarantee approximately $306 billion of Citi assets. Citi must absorb the first $29 billion of losses and 10% of anything beyond that while the Treasuery will absorb the next $5 billion and the FDIC the next $10 billion. The Fed will take anything beyond that.
Citi will provide the government with $7 billlion of preferred stock that pays an 8% dividend as compensation for the guarantee.
Citi will also issue warrants to the Treasury and the FDIC for some 254 million common shares at a strike price of $10.61.
The government has veto power over executive compensation.
Effective the next dividend period, Citi's dividend was reduced to .01$ per share for the next three years.
The Federal government is now the largest shareholder in Citigroup, owning a 7.8% stake in Citigroup, according to Chief Financial Officer Gary Crittenden.
So, will this be enough?
Citi now has over $70 billion dollars of equity at its disposal. But even that huge amount is relatively small compared to the $2 trillion in assets on and off Citi's balance sheet. And the biggest problem is that Citi has a huge exposure in developing economies. Many of those economies have been hard hit by the banking crisis, are in recession, and could face significant bankruptcies and failures over the next year. Combine that with the domestic US economy that continues to spiral downward, and it's not hard to envision that capital being depleted rather quickly.
At some point, the government will not be able to bail out every industry and we will see more company failures. This will impact the banks that lent to them. Citi was the largest bank in the world with more loans then any other bank so it's hard to see that it won't take additional hits. Many see the commercial real estate marketing weakening and several developers and mall operators have already gone under.
Unless the economy improves or stabilizes over the next couple of months, Citi may find itself in a similar position.
