Banking

Local, state leaders: Don't panic; banks in N.C. are fine

Bank stocks on a wild ride. Government aid for mortgage giants Fannie Mae and Freddie Mac. Testy customers lining up at the doors of a failed lender in California.

The credit crisis slamming the financial industry is the all-too-real fallout from the nation's burst housing bubble, and it's greater than some recent upheavals, experts said Tuesday. The feeling of uncertainty isn't being helped by general economic angst and an electronic media world that blares that unsettling news 24-7, they said.

On Tuesday, President Bush and Federal Reserve Chairman Ben Bernanke made bids to soothe the waters. Charlotte-based Wachovia issued a statement that it was “strong and stable,” and the N.C. Bankers Association held a news conference to say the state's banks entered the latest downturn with stockpiles of capital.

“As painful as the low points of every economic cycle may be, and we are certainly at or near such a low point, each such valley has always been followed by the ascension to new heights,” association president Thad Woodard said in a statement.

The problems in the economy are very real, said U.S. Rep. Mel Watt, the Charlotte Democrat on the House Financial Services Committee. Watt decided against a trip to the mountains last weekend because of high gas prices. However, he said in an interview Tuesday, “Runs on banks are unjustified.”

Analysts are increasingly comparing the current troubles to the 1990-1991 recession, although that period was beset by a much larger rash of bank failures.

James Cox, law professor at Duke University, says this collapse feels worse than the 2001-2002 downturn as well as the savings and loan crisis of the 1980s and 1990s. That's because the Sarbanes-Oxley law helped promote market confidence after scandals at Enron and WorldCom early this decade, and the S&L collapse seemed more contained to just that sector.

The antidote to the current situation isn't readily apparent, said Cox, who specializes in corporate and securities law. “The stiff upper-lip of Bernanke and (Treasury Secretary Henry) Paulson may be all that's left,” he said.

Rumor, speculation spread fast

The markets on Tuesday reflected the whiplash feel of today's financial landscape. Wachovia shares fell as much as 20 percent, rallied to positive territory and then ended down nearly 8 percent for the day. Bank of America shares also slumped 8 percent after an up-and-down ride.

Watt, who is hopeful Congress can soon push through a major housing bill, cautioned against over-reacting.

“Don't panic,” he said. “Don't do irrational things. … But don't go hog-wild again and start borrowing a bunch of money. That's what caused the problem in the first place.”

Crises today can feel more intense because technology enables rapid sharing of news as well as rumor and speculation. Blogs, text messages and online news stories, forwarded with individual comments, can spread word of trouble at lightning speed.

Information, repeated over and over, becomes embedded. People lose track of whether they're recalling well-reported facts or speculation, said Paul Leonardi, a Northwestern University professor.

“All of a sudden, Company X is doomed for failure tomorrow,” said Leonardi, who teaches in Northwestern's communication and engineering programs.

He and other experts said the communication challenge for regulators, lawmakers and company executives is to provide enough information that people don't feel ignored and ramp up the speculation. But don't further overload people already wearied by a deluge of information.

“There's a confluence of business stories right now that are not very good,” said James Gentry, a professor at the University of Kansas School of Journalism and Mass Communications. “That makes the argument for me, as a consumer, to really do some reading and pay attention.”

Some banks are not suffering

Not everyone is reeling from a drumbeat of negative news. Tuesday afternoon, uptown workers generally said they were not very worried about the safety of their deposits and the banks.

“We're just going to struggle for a while,” said Blerim Meta, who is 28 and moved to the U.S. from Kosovo eight years ago. As general manager of the Aquavina restaurant, he faces rising food costs, but worries that raising prices will send customers to the competition.

At its press conference, the N.C. Bankers Association emphasized that the Federal Deposit Insurance Corp. insures up to $100,000 per depositor per bank and up to $250,000 for retirement accounts. Fashioned the right way, a family of four can attain FDIC protection for up $1.4 million at a single institution.

And two smaller area banks on Tuesday reported positive earnings. Charlotte-based Bank of Commerce, which opened in 2006, posted a second-quarter profit of $94,000 compared to a loss a year ago. It noted it has no past-due loans. And Columbia, S.C.-based SCBT Financial, which owns Charlotte's Scottish Bank, said it disclosed a record $6.1 million second-quarter profit two days early to get out some positive news.

“I think we really need to restore confidence among people,” Scottish Bank president John Stedman Jr. said. “It's time for a little sugar.” Staff writers Melissa Caron and Lauren Berry contributed.

Bank stocks on a wild ride. Government aid for mortgage giants Fannie Mae and Freddie Mac. Testy customers lining up at the doors of a failed lender in California.

The credit crisis slamming the financial industry is the all-too-real fallout from the nation's burst housing bubble, and it's greater than some recent upheavals, experts said Tuesday. The feeling of uncertainty isn't being helped by general economic angst and an electronic media world that blares that unsettling news 24-7, they said.

On Tuesday, President Bush and Federal Reserve Chairman Ben Bernanke made bids to soothe the waters. Charlotte-based Wachovia issued a statement that it was “strong and stable,” and the N.C. Bankers Association held a news conference to say the state's banks entered the latest downturn with stockpiles of capital.

“As painful as the low points of every economic cycle may be, and we are certainly at or near such a low point, each such valley has always been followed by the ascension to new heights,” association president Thad Woodard said in a statement.

The problems in the economy are very real, said U.S. Rep. Mel Watt, the Charlotte Democrat on the House Financial Services Committee. Watt decided against a trip to the mountains last weekend because of high gas prices. However, he said in an interview Tuesday, “Runs on banks are unjustified.”

Analysts are increasingly comparing the current troubles to the 1990-1991 recession, although that period was beset by a much larger rash of bank failures.

James Cox, law professor at Duke University, says this collapse feels worse than the 2001-2002 downturn as well as the savings and loan crisis of the 1980s and 1990s. That's because the Sarbanes-Oxley law helped promote market confidence after scandals at Enron and WorldCom early this decade, and the S&L collapse seemed more contained to just that sector.

The antidote to the current situation isn't readily apparent, said Cox, who specializes in corporate and securities law. “The stiff upper-lip of Bernanke and (Treasury Secretary Henry) Paulson may be all that's left,” he said.

Rumor, speculation spread fast

The markets on Tuesday reflected the whiplash feel of today's financial landscape. Wachovia shares fell as much as 20 percent, rallied to positive territory and then ended down nearly 8 percent for the day. Bank of America shares also slumped 8 percent after an up-and-down ride.

Watt, who is hopeful Congress can soon push through a major housing bill, cautioned against over-reacting.

“Don't panic,” he said. “Don't do irrational things. … But don't go hog-wild again and start borrowing a bunch of money. That's what caused the problem in the first place.”

Crises today can feel more intense because technology enables rapid sharing of news as well as rumor and speculation. Blogs, text messages and online news stories, forwarded with individual comments, can spread word of trouble at lightning speed.

Information, repeated over and over, becomes embedded. People lose track of whether they're recalling well-reported facts or speculation, said Paul Leonardi, a Northwestern University professor.

“All of a sudden, Company X is doomed for failure tomorrow,” said Leonardi, who teaches in Northwestern's communication and engineering programs.

He and other experts said the communication challenge for regulators, lawmakers and company executives is to provide enough information that people don't feel ignored and ramp up the speculation. But don't further overload people already wearied by a deluge of information.

“There's a confluence of business stories right now that are not very good,” said James Gentry, a professor at the University of Kansas School of Journalism and Mass Communications. “That makes the argument for me, as a consumer, to really do some reading and pay attention.”

Some banks are not suffering

Not everyone is reeling from a drumbeat of negative news. Tuesday afternoon, uptown workers generally said they were not very worried about the safety of their deposits and the banks.

“We're just going to struggle for a while,” said Blerim Meta, who is 28 and moved to the U.S. from Kosovo eight years ago. As general manager of the Aquavina restaurant, he faces rising food costs, but worries that raising prices will send customers to the competition.

At its press conference, the N.C. Bankers Association emphasized that the Federal Deposit Insurance Corp. insures up to $100,000 per depositor per bank and up to $250,000 for retirement accounts. Fashioned the right way, a family of four can attain FDIC protection for up $1.4 million at a single institution.

And two smaller area banks on Tuesday reported positive earnings. Charlotte-based Bank of Commerce, which opened in 2006, posted a second-quarter profit of $94,000 compared to a loss a year ago. It noted it has no past-due loans. And Columbia, S.C.-based SCBT Financial, which owns Charlotte's Scottish Bank, said it disclosed a record $6.1 million second-quarter profit two days early to get out some positive news.

“I think we really need to restore confidence among people,” Scottish Bank president John Stedman Jr. said. “It's time for a little sugar.” Staff writers Melissa Caron and Lauren Berry contributed.

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