The Garrett, Watts Report (December 7, 2009)

To Our Clients, Colleagues and Friends, 

• We normally stay at the Olympic Hotel in Seattle , but this time, our assistant booked us into the Monaco , just a block away.  We liked it and we’ll probably stay there again.  It’s just as elegant as the Olympic but not as stuffy.
• The Texas Ratio is a pretty good predictor of bank failure, and a number over 100% means things are pretty grim.  These days, anything under maybe 20% is pretty good. Maybe even under 40%. Here are a few California banks and their Texas Ratios, chosen mainly because we know them or figure you would:

A few others are WestAmerica Bank (32%), Bank of the West (28%), Bank of Marin (5%), and Union Bank (17%).  We counted 17 banks with a 0% ratio, but they were all pretty small.

• The state of Washington has eight banks with a ratio over 200%, while one out of every four banks there is above 100%.  Uh oh.
• In college many years ago, we took introductory Physics from Edward Teller, a Nobel Laureate and the Father of the Hydrogen Bomb. He hated having to deal with undergraduates, and his politics didn’t exactly lend themselves to Berkeley at the time.  He showed up for the first few lectures, announced that he didn’t want to be there anymore than we did, and told us we were a bunch of unkempt, spoiled, and ungrateful unpatriotic brats who would be fighting communism in the rice paddies of Vietnam if we truly loved our country.  He then disappeared for the rest of the semester, with the lectures given by a graduate student who didn’t speak English. 
  Anyway, Teller once told us all that “When you get to the end of all the light you know and it’s time to step into the darkness of the unknown, faith is knowing that one of two things will happen: either you will be given something solid to stand on, or you will be taught to fly.”  That was pretty inspiring, especially from someone so uninspiring.  Ten years later, he became an advisor to President Reagan and came up with the idea for Star Wars.  He also thought we should launch a pre-emptive nuclear strike against Russia and bring them to their knees.   He won the Nobel Prize but was a crummy teacher and kind of a nutcase as well.
• Did you know that this is the 75^th anniversary of the FDIC?  Roosevelt pushed it through Congress in the darkest days of 1934 with the Great Depression at its worst.  That year, unemployment was a horrific 25%.
• You know how an opened coke or diet coke tastes flat the next day, even if you chill it?  We just discovered that this isn’t the case with Cherry Coke or Cherry Coke Zero.  Next time you have an open can sitting around for a day or two, put it in the freezer for 15 minutes and it will still taste good.
• Remember in 9^th grade when you thought that you’d get drunk if you drank coke and swallowed an aspirin at the same time?  Aren’t you glad you’re no longer in 9^th grade?
• Forty years ago today on December 5, 1969, Greg Noll surfed a 65-foot wave on the North Shore of Oahu, still the highest wave ever recorded. And today is Tyra Banks’ 36^th birthday.  If you have a teenage daughter, you’ve probably seen her on America’s Next Top Model, and they don’t come any prettier.
• A great video of a French stuntman.   http://glumbert.com/media/stuntman
• The San Francisco Chronicle noted yesterday that if the ice at both poles melted, the ocean level would reach the road deck on the Golden Gated Bridge .  And not to be an alarmist, but we’ve seen those photos from satellites of the North Pole, now and 20 years ago, and it sure appears to be shrinking and doing so rapidly.
• The Class of 2004 California de novos is celebrating its fifth birthday.  The excellent Findley Report points out that of these eleven banks, the biggest has grown to $262 million (Santa Cruz County Bank) and the smallest is only $62 million (Mother Lode Bank).  With an average of $192 million, that’s not a whole lot of growth over five years.
• It’s shocking to read that six months after mortgage loans have been modified, half of them are in default again!  There’s a new verb, with borrowers re-defaulting.
  
• The Pontiac Silverdome was where the Detroit Lions played for years. It was sold last week for $583,000.  You’d think someone would have paid more if only to get their hands on the 127 acres. But the 80,000 seat stadium, built thirty years ago for $56 million, went for less than a one room condo in New York City .
  
  The same week a Macau casino was the winning bid for Michael Jackson’s white rhinestone glove.  They paid $350,000.
• In 1960, 50% of all working-age adults hadn’t graduated from high school.  That’s kind of stunning, isn’t it?  Today, only 8% don’t graduate from high school.
• Regulators think that brokered CDs always lead to bad loans, but isn’t it really the opposite? Aren’t banks that are chasing poor quality loans the precise ones that then chase brokered CD’s? Better regulate inferior lending and you’ll go along way to eliminating brokered CD’s.
• But wait a minute.  Check in the Wall Street Journal, and a lot of the brokered CD’s have rates that are lower than your local rates.  In cases like this, aren’t brokered CD’s good for you, bringing down your cost of funds?
• A few thoughts on blogs, social networking sites, and all that….stuff.  So many people and businesses are using them now, but are they really effective?  It seems that the more blogs exist and the faster they grow, the fewer people will visit them. Their growth leads to an oversupply, and when there are just way too many of them, the overkill may overwhelm people and numb them.  Kind of the Law of Diminishing Returns, where their very growth and success might lead to their very failure.  We   met the head of corporate communications for a $2 billion bank which is now twittering (or tweeting).  It sounded like no one was reading it. Anyway, we may be totally wrong.  But we still wonder.
• Remember when Orange County ( John Wayne Airport ) and Ontario were funky little airports where you walked out on the tarmac to the plane? We kind of miss them, Burbank ’s airport ( Bob Hope Airport ) may be one of the last of that type.  Old, tired, no fancy bars or white tablecloth restaurants, small and uncrowded. And we like it.
• And what’s with this naming of airports after people like Bob Hope or John Wayne?  If someone’s going to do that, why not name the airport nearest Queens the Joey Ramone Airport , and Memphis can be renamed Elvis Presley Airport . Actually, there was an attempt to rename the San Francisco airport Joe DiMaggio International. It died when people learned what a jerk he’d been. A great ballplayer but a real arrogant and unpleasant person.
• One of the pleasures of our job is to meet and work with people with extraordinary courage, and these are people like Jack Choi (Commonwealth Business Bank, CA), Bill Valerian (Liberty Bank, Ohio) Joe Adams, (1^st Security Bank, Washington), and Donn Costa (Golf Savings, Washington). These four are Presidents of their banks, and no matter how well their bank is doing, it takes great courage, undaunted courage to run even the healthiest of banks in this period of intense regulatory scrutiny.  Hemingway defined courage as “Grace under pressure”, and all four of these bankers fit that definition. 
  

And a few thoughts for today:  Be responsible for your own actions,  demonstrate perseverance, don’t complain, keep your promises, be a good listener, don’t hold grudges, be tolerant, show compassion, study the lives of great people, try new things, and have fun.
Garrett, Watts & Co.  Check out:  Laws of Lending    and   Board DecisionsHelping mortgage lenders increase revenues, control costs, and better manage risk.

• Joe Garrett ([email protected])
• Mike McAuley      ([email protected])
• Corky Watts ([email protected])