Riding Out the Storm

Life has been good to commercial banks in the Northwestif, of course, you ignore the last eight months when the waves of the subprime fiasco finally broke over Washington state. Still, many local banks that have identified their problems have remained relatively healthy amid this falls financial crisis.

According to J.D. Delafield, founder of Seattle investment bank and asset manager Delafield Hambrecht, many well-capitalized community banks, such as Sterling Bank, Banner Bank, Horizon Bank and City Bank, have significantly increased their reserves and cut their dividends. Despite the collapse of the housing market, Delafield says that these banks (all of which he used to invest in) expect to have sufficient pre-tax income to withstand the expected losses they will incur.

These reserves will be meaningful, Delafield says, adding that each of these banks is well capitalized and has substantial funds, yet all have been trading well below tangible book value. The point is, if you can buy dollars for 50 cents, and they remain dollars, youre going to make money, he notes.

Other banks havent done as well. Spokanes AmericanWest Bancorporation reported a net loss of $6.2 million in second-quarter earnings for 2008, prompting the resignation of its president and CEO, Robert Daugherty, at the boards request. Much of the blame, however, went to the bad loans written by Far West Bank of Provo, Utah, which AmericanWest bought last year for $150 million.

AmericanWest, which has centers in Central and Eastern Washington, as well as Northern Idaho and Utah, has been trading between $1 and $2 a share since the summer and is now raising capital, but because of the lackluster economy, is facing terrible prices.

Patrick Rusnak has taken over as president at AmericanWest and said he is looking for new investments that will bring the bank a well-capitalized rating.

Meanwhile, national investment banks such as Citibank are sending thousands of middle-of-the-office jobs to India, a significant change from the days when just back-office jobs were outsourced. The banking consulting firm Celent says that by 2009, banks in the United States will cut about 200,000 positionssome will go to India, some will go altogether.

The market is heavily over-banked, and most of the jobs youre reading about are all over the map, Delafield agrees. Some of the most affected areas have been in institutional equities, sales trading and research, which has been a losers game for at least 10 years.

Technology and new regulations have made it easier to gather information, so these banks, Delafield adds, have diminished the role of investment middlemen.