May 27, 2010

Johnson Bank rated 'weak' despite posting state's highest 1Q profit

Johnson Bank was the most profitable bank in Wisconsin last quarter, but it still made a "watchlist" of banks that are potentially in trouble.

The Racine-based bank received a "D+," or "weak," rating from Weiss Associates, a private company that researches U.S. banks. Weiss' list is spreading around the Internet and raising the public's concerns about the stability of hundreds of banks nationwide.

Weiss' list drew a strong response from Kurt Bauer, president/CEO of the Wisconsin Bankers Association.

“The public and media should not place any credibility in ratings of federally insured depository institutions prepared by private companies," Bauer said. "The only accurate ratings for financial institutions are issued by government regulatory agencies, and they are not made public out of fear that they could unnecessarily alarm depositors."

Johnson Bank's rating should be put in context. The J-S reported last week that Johnson Bank reported a profit of $5 million last quarter, which was the highest in the state. The $5 million in profit is a pittance compared to the bank's $5.6 billion in deposits, but many other banks lost money last quarter.

M&I Bank, which has $50.25 billion in deposits and lost $116 million in the first three months of the year, received a "D" rating on the Weiss list. Kenosha's Southport Bank, which has $425 million in deposits, received a rating of "E-," which was the list's lowest rating aside form failure. Associated Bank, of Green Bay, which had $22.6 billion in deposits, received a "D" rating. 

The list has spread across the Internet this week as Weiss's list of 2,259 U.S. banks that are weak or near failing was released. Ninety-eight Wisconsin banks made the "watchlist." Weiss also released a list of "strong" banks, which included 30 from Wisconsin. None of the strong banks were in Racine County.

Nationally, it's been a rough year on the banking industry. Thousands of bank have lost money and 73 banks have failed this year

Johnson Bank referred comment on Weiss's watchlist list to a prepared statement by Bauer. Speaking for the industry, he called the private list "sensational." 
"The private company ratings use arbitrary and often simplistic formulas based solely on information that is publicly available, which provides a narrow snapshot rather than a complete picture of the institution in question," Bauer said.
"The ratings may also be influenced by the business interests of whoever is calculating them. That is why these ratings are flawed and misleading at best, and dangerous and irresponsible at worst."
"Use of these ratings by the media is sensational and a disservice to the public,” Bauer said.
Another banking insider pointed out that the FDIC does not make its "troubled bank list" public. The public lists are created by private agencies that are the same ones that were praising Lehman Brothers and Goldman Sachs before the crash.

The private agencies now seem to have swung in the other direction, the insider said.