Which bank rating service is reliable?

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switters's picture
switters
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Which bank rating service is reliable?

I have a small amount of money in Bank of America - just enough to pay bills - that I've been ready to move out for some time now.  They're #2 on the derivatives exposure list and after buying Merrill Lynch and Countrywide I don't think they can weather this storm. 

So I went over to bankrate.com and thestreet.com to find an "A" rated bank to switch my money into.  Bankrate is a joke.  As of a couple of days ago, they gave Citigroup five stars and Bank of America four stars!  What's that about?  Obviously their ratings are not trustworthy and not current.

TheStreet.com seems a little bit better, but I still don't completely trust their ratings.  

Who has reliable bank ratings?  Veribanc?  I haven't tried them yet since they're a paid service, but I'd happily fork over the money if I knew I'd actually be getting reliable ratings.

pwoody82's picture
pwoody82
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Re: Which bank rating service is reliable?

I went to www.bankrate.com and could find nothing that gave any kind of rating for any bank. lots of links to various places, but certainly nothing about bank safety ratings. What gives?

 

pwoody

pwoody82's picture
pwoody82
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Re: Which bank rating service is reliable?

An interesting thing happened here. I entered the link manually on the address line and got one web site page and then clicked on the link above and went to a different page in the site! The first page I went to was not the home page and there was no home link on that page either. So if you get sent off into the boonies, try a different method of access. I was finally able to find the link to the 'star' ratings of my bank.

 

Also, the link rated my bank as 4 star. My bank company has 14 billion in assets and 2.5% in debt and no CDO type of debt at all and yet is only rated 4 stars. Makes me wonder.

 

pwoody

switters's picture
switters
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Re: Which bank rating service is reliable?

Look for the "Safe and Sound" ratings box/link about halfway down the page in the middle on bankrate.com.

But as I said, their ratings seem to be completely unreliable.  Five stars for Citigroup?  That's embarrassing.  I guess they've been taking ratings lessons from Moody's and the other big ratings firms! :) 

lundsta's picture
lundsta
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Re: Which bank rating service is reliable?

Bankrate is decent. I just looked up the Citigroup and it was 3 stars. This data is based off info from Sept 22 2008. Some larger banks have many different parts. Make sure you are looking at Citibank N.A. This will be true for Wells Fargo, Bank of America, WAMU, Wachovia...etc. (Wells Fargo Bank N.A.) The problem with all of these sites is they based the Sep 22 2008 rate from previous quarter performance/review. This site is great to show who will struggle down the road. A rating of 3 is simply saying "You will see us struggling in a few months". Banks have internal information about the health of other banks. The information is updated daily. I would not count on the bank giving current information to the public. They are terrified and delinquency rates are increasing rapidly. In a couple years bankrate may have nothing to rate.

Please let me know if you have more questions.....I work for a major bank and can point you in the right direction.

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joe2baba
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Re: Which bank rating service is reliable?

my sense is that boa is now too big to fail. there is a new algorithim in these ratings ...........it is called the tarp.

it factors in the liklihood that the government ie. us will bail them out. robert rubin was one of obama's financial advisors. so i think citi is a safe bet. boa bought merrill and countrywide knowing they would get the money for the bad debt from us. the fix has been in for quite awhile any appearance of chaos is just that............. appearance

switters's picture
switters
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Re: Which bank rating service is reliable?
lundsta wrote:

Bankrate is decent. I just looked up the Citigroup and it was 3 stars. This data is based off info from Sept 22 2008. Some larger banks have many different parts. Make sure you are looking at Citibank N.A. This will be true for Wells Fargo, Bank of America, WAMU, Wachovia...etc. (Wells Fargo Bank N.A.) The problem with all of these sites is they based the Sep 22 2008 rate from previous quarter performance/review. This site is great to show who will struggle down the road. A rating of 3 is simply saying "You will see us struggling in a few months". Banks have internal information about the health of other banks. The information is updated daily. I would not count on the bank giving current information to the public. They are terrified and delinquency rates are increasing rapidly. In a couple years bankrate may have nothing to rate.

Please let me know if you have more questions.....I work for a major bank and can point you in the right direction.

Thanks for clarifying this for me.  Bank of America California gets a 4 star rating as of June 30, 2008.  That's quite a while ago and a lot has happened since then.  

In any event, I agree that it seems likely B of A is "too big to fail" and would get the same type of bailout Citigroup just got if it came to that.  I don't have a lot of money in there anyways, so perhaps it's not worth the hassle of getting my money out of there, changing all of online bill pay info, etc. etc. 

lundsta's picture
lundsta
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Re: Which bank rating service is reliable?

I would think all remaining banks (JP Morgan, Wells Fargo, B of A, Citigroup, and U.S bankcorp) are now all "to big to fail". If any one of those were to fail the others would fail as well. They rely on each other. One aspect that worries me that has not been brought up alot is what happens when we run out of buyers for these firms? JP and Wells cannot buy forever they are getting hit harder everyday. So eventually they will have to let some banks fail. When that happens FDIC insurance would be irrelevent. Are they trying to create a superbank? I can't even imagine what the fees would look like at the "With-the-gov-help-we-killed-all-the-other-banks" Bank. 

Woodman's picture
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Re: Which bank rating service is reliable?

Are bank ratings any less reliable for a non publically traded company like USAA Federal Savings Bank, which is currently has top ratings?

lundsta's picture
lundsta
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Re: Which bank rating service is reliable?

The bank ratings will be the same for publically traded and non-publically traded firms. Just remember the information is a few months old. Alot has happened since September.

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hazeleyes
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Re: Which bank rating service is reliable?

I've just been looking at Bauer and Veribanc, both offer paid ratings.

I didn't go far enough into the programs to find out what the cost was, but since I've lost about 50% of my investments (and I am very conservative), I would think that avoiding losing my CD to a failing institution would be worth a few bucks.

Bankrate.com does not rate my local banks, and using their Safe/Sound program means that the cities they choose to use in my state aren't any that are close to me. So that leaves me with choosing five-star banks, and I don't think they're up to date -- confirmation from postings at this site confirm that may be true. So I don't know if that's because my local banks are sound or not or if Bankrate isn't flexible enough or up-to-date enough. I would guess the latter (because I want reliable up-to-date data), but BR may be as reliable as it's possible to be. It's the old GIGO problem.

I'm feeling very suspicious of all investments because the little light in my head flashed on yesterday as I realized that the teasers regarding 'more bank failures' probably means that regulators do not want to close more banks and are letting them tremble instead of protecting the public. Guess protecting the public would start runs on banks and gosh we can't have that, it's better to let depositors lose their money than to close weak banks.

I think I'll empty my money market fund, switch my IRA to the most conservative thing I can find (not bonds since Treasury is busted), and just sit on the cash I have left. That'll set investment-hawkers' hair on fire but I've lost all trust in "the system". At some point we all have to begin protecting our assets in the best way we know how, and I think now is the time.

cmartenson's picture
cmartenson
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Picking a safe bank

Hi everyone.

This is always a popular topic and one that I spend a fair amount of time thinking about and managing for my own financial affairs.

Here's what I wrote on September 11, 2008

Okay, so you are worried that your bank may be in a spot of trouble, or maybe you just want your money in the safest bank in town. How do you pick one?

One thing you should absolutely do is obtain a $35 report from Veribanc.com called the Blue Ribbon report. You select the report that covers the region in which you live, and then you only consider banks on that list.

You then cross-check the Blue Ribbon list with the Weiss Ratings (now owned by TheStreet.com), found here. I only consider banks with a B+ or higher rating to be sound in this environment.

There's a pretty good chance you won't find your bank on both lists, because their coverage is not universal. I feel better if the bank in question is highly rated on both systems, okay if it is highly rated in one but missing from the other, not so good if it is ranked on the Blue Ribbon report but below B+ on the other, and terrible if it is missing from the blue ribbon report and ranked below B+.

Now that you have assembled a list of candidates, it is time to go and check their stock prices. Why? Because the bank ratings are not infallible; they tend to rate based on how certain bank characteristics have fared historically (and these are unprecedented times), and the ratings are assembled relatively infrequently, meaning that if something changes for the worse, the stock price is going to be your best early indicator of health.

Here are a few banks I would most assuredly exclude, based on their stock charts. Note that I could put many, many more here...

The caveat I would update all of this advice with concerns the impact of deteriorating commercial loans on regional banks.  For the most part smaller, regional banks have mostly scored higher in the rating services for obvious reasons...many of them are sporting a LOT less loan leverage than the big boyz.  

But now?  Now I am slightly less sure if the rating services are sampling the new territory rapidly enough to capture the shifting fortunes of the smaller banks.  Think about loans made to car dealers, small developers doing the next strip mall, or the expansion at the once-popular restaurant on Main Street.

For this reason I also strongly advise taking the time to talk to your bank.  If your local bank manager (or president) develops a slight eye twitch when you ask about their loan loss ratio on a yr/yr basis or their loan loss reserve ratios, then  perhaps it's time to ask around....

Ray Hewitt's picture
Ray Hewitt
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Re: Which bank rating service is reliable?

I wouldn't rule out a systemic failure or a banking holiday. The other megabanks are just as insolvent as Citibank or even worse. It's only a matter of time that they can maintain a facade. Their accounting systems are fraudulent and their ratings are not to be trusted. Any one can trigger a cascade of failures. This is how I deal with it.

I keep my long term savings in silver and enough cash for two months basic expenses. I keep no more cash in my bank than I need to pay bills and my checks are timed to go out the day after payday. For insurance keep a credit card balance above my maximum account balance. If they default; I default. If my bank goes under, it will be no more than a nuisance.

These banksters are not above robbing savings, CDs, 401Ks and pensions to keep themselves afloat. I think that has been proved beyond all doubt.

Wise1's picture
Wise1
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Re: Which bank rating service is reliable?

I've used all these rating services. I started with Bauer and Bankrate because they were FREE but then one day I was watching a program on TV and found that the "FREE" sites are flawed. In order for these rating firms to do ratings they need to pay for the information from the Federal Regulators (Dont even get me started on that one!!). Anyway, then the interviewer asked the same question I had, How do they stay in business if they give this info for free? Are the a charity? A public Group? Nope they arent. Instead they get their money from the banks they list on their website. For instance, Bauer, they have clickable links on their website and when you click you go to that banks website! HUH?!?! How can they be reliable? Then I did something else, totally by accident! I wanted to see all ratings for CA and I noticed they had some for free and some charge?!?!? Bankrate was the same, so I went to Veribanc and yes they charge but they also publish their track record!!! HOLY COW! They admit their mistakes?!!? Thats Reliable to me! Hope this helps you ppl! I know it helps me, I check every qtr with Veribanc for my ratings, and btw, I pulled my money out of Indymac last December, whew dodged a huge Problem on that one!

Grace31's picture
Grace31
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Re: Which bank rating service is reliable?

You can find the ratings for you bank also at http://www.bank-ratings.net

switters's picture
switters
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Re: Picking a safe bank

There's a pretty good chance you won't find your bank on both lists, because their coverage is not universal. I feel better if the bank in question is highly rated on both systems, okay if it is highly rated in one but missing from the other, not so good if it is ranked on the Blue Ribbon report but below B+ on the other, and terrible if it is missing from the blue ribbon report and ranked below B+.

I've done some more research and I can tell you that out here in California it's very difficult to find a bank that meets these criteria.

I live in Oakland, CA and there is only ONE bank within 15 miles of my home that gets a rating of B+ or above on TheStreet.com.  I have not yet purchased the Blue Ribbon Report, so I'm not sure if that bank appears on it or not.  Even if it does, this is a very small bank with few services that isn't even in my local community.  If it doesn't, then there isn't a single bank anywhere nearby that meets these criteria.

I did find a "B" rated bank on TheStreet that isn't too far away (Mechanics Bank).  Here is a copy of their report.  I will buy the Blue Ribbon report to see if they're on it.  This might be the best of the worst, so to speak.

 

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hucklejohn
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Alternative to a bank

I have found an alternative to using a normal bank account.  I use a money market account with a low minimum for writing checks.  In my case the minimum check must be $100.  I also use a local bank with a decent rating for writing checks below $100, keeping a low balance.   Now in a normal bank checking account my funds are on deposit and I am a creditor of the bank.  In contrast, money market funds are held by the money market fund's bank but are in a custodial account -- legally a bailment -- and if the bank were to close I would still have my funds.  I got this idea from Martin Weiss over at http://www.moneyandmarkets.com/.   This is at least some level of protection although I recognize if society were in total chaos we could not depend upon such legal protections.

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