• Why do we have an Office of Thrift Supervision? Of the 8,494 FDIC-insured institutions, only 831 are OTS regulated savings institutions. That’s less then 10%. Also, we tend to think the OCC as a tougher regulator than the OTS. Had the OCC continued to regulate Countrywide, we don’t think they’d have allowed the situation to get so dire.

• Publicly traded American Mortgage Acceptance Co. announced that their CEO is retiring. Guess what he’s going to be doing? No, it’s not to ”pursue other interests” and no, it’s not so he can “spend more time with his family.” In fact, it wasn’t any of the typical reasons given when CEOs abruptly leave a company. According to an 8-K filed with the SEC, it was to attend divinity school. For some reason we can’t explain, that strikes us as funny.

• Here’s a bank in Pittsburgh whose name we like: The Iron and Glass Bank. It has $431 million in assets, trades under the symbol IRGB, and it has a nice, masculine sound to it.

• Who was the better power hitter, Willie Mays, Mickey Mantle, or Hank Aaron? Surprise. Mantle and Mays had identical slugging percentages (.557), with Aaron right there with .555. It seems statistically impossible that they could be this close, doesn’t it?

• And speaking of great outfielders, something that really caught our eye was that Joe DiMaggio stole only 30 bases in his entire career. He was thrown out nine times trying.

• Sixty day or greater delinquency rates at Thornburg jumped 21 bps to 65 bps, but even at 65 bps, that’s a very low number. Thornburg has its challenges, but it doesn’t look like credit quality is one of them. A tip of the hat to their credit culture.

• We were just reading about a bank (Whitney National Bank) that bought another bank in Louisiana, paying a deposit premium of roughly 16% on core deposits. We tend to look at things like PE ratios or price-to-book ratios and usually forget to look at premiums on deposits, but it always fascinates us. If this is unfamiliar to you, it’s very simple: Using this as an example, if there were $100 million of core deposits, it means they paid $16 million for the entire bank.

• Do you remember the so-called Texas Ratio from the late 1980’s? It was a formula that was meant to be predictive of serious bank problems and, possibly, of a bank’s likelihood of failing. The formula is calculated by taking total nonperforming assets, including loans 90 or more days delinquent, and dividing them by tangible total equity plus loan loss reserves. If the number is over 100%, it means, essentially, that problem loans exceed capital, and the higher the number, the more troubled the institution. Highly respected data-base publisher SNL published a list this week of those banks with the highest ratios, and Colorado Federal Savings Bank topped the list with a Texas Ratio of 709. Wow. A simple way to look at it is that if the Ratio is 700, that mean that for every $1 of capital + reserves, the bank would have $7 of bad loans.

• Will a high Texas Ratio be really predictive of a bank’s failure? Probably, if the ratio is high enough, but it’s a lot different this time around. In the late 80’s and early 90’s, there just wasn’t that much capital available to banks. Today, it seems like at least once a day, some bank is announcing the raising of new capital. There is a whole lot of money available this time around. A whole lot.

• Every mortgage banker needs to research outsourcing and off-shoring. We’ve seen many clients do little things (like have their docs done in India) that have huge paybacks. Having now said that, we have an excuse to mention the world’s greatest off-shoring story, so here goes: Estonia is probably the greatest success story among all the former soviet republics. They have a flat tax, a booming economy, and an entrepreneurial spirit that seems almost American. In any case, this small country of only 1.1 million people realized that although they have a Navy and an Army, they couldn’t afford to have an Air Force, so they contracted it out to Sweden. We’re not kidding. They pay the Swedish Air Force to fly planes that patrol their borders, along with some other typical Air Force functions. They have actually out-sourced and off-shored part of their national defense! Don’t you love it?

• There is lots of talk about potential bank failures, and this year we’ve already had four of them. For all the hand wringing, what we’re faced with is nothing like what we’ve in our lifetimes. In 1989, a total of 534 institutions failed. That’s ten failures a week, or two a day. Can you imagine?

• This Day in History may have changed everything. On June 12, 1987, exactly 19 years ago, President Ronald Reagan challenged Soviet leader Gorbachev to tear down the Berlin Wall. Two years later, portions of the wall began to fall, and within a year, the entire Soviet empire was in shambles. The State Dept. and all his advisors struggled to get Reagan to leave out that phrase “Mr. Gorbachev, tear down this wall.” There was huge pressure on him to say something less provocative, literally in the limo driving him to the speech that day. But Reagan knew what he wanted to say, and the world has never been the same.

* A sad day. Irv Robbins has died at 90. Robbins founded Baskin-Robbins in 1945 right after graduating from the University of Washington, and today there are more than 5,800 Baskin-Robbins stores in 34 countries. Despite all those exotic flavors he came up, with there’s still nothing like a cold chocolate ice cream on these hot summer days and nights. So long, Irv

• And how about 82-year old Chuck Berry? We just looked at his 2008 tour calendar and aside from touring the U.S., he’s also playing in Germany, France, England, Amsterdam, Moscow, Helsinki, Ireland, Switzerland, Spain, Brazil, and Croatia. How does he do it at 82? And why? Here’s to you, Chuck. You really are Johnny B. Good.

• And thanks to Chris M. in British Columbia for the photo below. We think it’s funnier than any of the cartoons we normally run. Hey, Dick, relax. Loosen the tie. Or even take it off.

  

Joe Garrett and Corky Watts

Garrett, Watts & Co.

• We also read the Inspector General’s report on the failure of Net Bank. The main criticism was the lack of a coherent plan, as the company flailed about, trying different lending programs based on wrong assumptions, never really executing on anything, and unable to control costs. What struck us was their lack of focus on a single, well-thought out business plan.

• Here’s one of those oddities: Freddie Mac’s retained portfolio of mortgages is $737 billion, and FNMA’s is $728 billion. Kind of interesting that after all these years, they’re so close in size.

• N.J.-based Freedom Bank opened for business in April after raising $13 million from 250 investors. That’s not such a big deal. What impressed us was that the bank brought in $12 million in deposits during its first month of operation. Bringing in core deposits is how you build value in as bank, not typically from the loans.

• In a move that was both smart and inevitable, Provident Funding owner Craig Pica has filed an application to buy a $44 million savings & loan in Colorado. While being regulated has its moments, it’s worth every single bit of aggravation.

With so much talk about the housing bubble, we thought it might be interesting to walk down the memory lane of the tech bubble of ten years ago. Here are six stories that still give us the heebie jeebies:

• Netscape goes public at $28 but the shares closed at $58.25 the first day of trading. (August 1995). Didn’t they sell for stock in AOL, which subsequently lost 80% of its value?

• TheGlobe.com went public at $9 and closed the first day at $63.50. The company has long since gone out of business. ( November 1998 )

• VA Linux went public at $30, got as high as $320 the 1^st day, and closed at $239. Where are they now? (December 1999)

• Global Crossing went public at $9.50 and moved up quickly to $64. In February of 2000 it had a market cap of $47 billion. Less than two years later, it filed for bankruptcy.

• Sycamore Networks went public in 1999 with annual sales of only $11 million. At the close of the first day of trading, it had a market cap of $13 billion. Unbelievable.

• Corvis Corp. went public in 2000, having never generated one single dollar of sales. Still, the IPO valued it at $28 billion after one day of trading. Within months the stock had dropped to 47 cents, a decline of 99.6%.

Okay, that was fun, but back to mortgage stuff. Our latest cause is to make certain that when our clients really push retail, that they really make money on it. That’s another way of saying we don’t like seeing commission splits getting out of hand in favor of the loan officer. We’ll back off a bit on this, and if you want to pay some people 80-20 splits, we’ll go along with it, although reluctantly. But you must calculate your company’s average commission split on a monthly basis and year-to-date basis. In other words, it’s okay to pay certain producers 75-25 or 80-20, as long as the average for all loan officers is something more reasonable. We think you’ll learn something if you start tracking this.

Interesting quote from Peter Lynch, in Beating the Street (1993): “As a place to invest, I’ll take a lousy industry over a great industry anytime. In a lousy industry, one that’s growing slowly if at all, the weak drop out and the survivors get a bigger share of the market. A company that can capture ever-increasing share of a stagnant market is a lot better off than one that has to struggle to protect a dwindling share of an exciting market.” Does this sound applicable?

How bad has the thrift industry been hurt? Here are some indices for the industry showing stock performed over the past 52 weeks:

-44.3% SNL Thrift Index

-49.7% Thrifts w/assets > $5.0 billion

-52.1% Thrifts in the Southwest

-60.1% Thrifts in the Southeast

-76.7% Thrifts in the West

It’s almost as ugly as the tech blow-out of 2000, isn’t it? Banks have done poorly, but not as poorly. The SNL bank index is down 35% and the worst sector is the Southeast banks which are down 40.1%. New England bank stocks are off only 2.4%. Interesting.