Crain's Detroit Business - December 19, 2011 - (Page 19)

December 19, 2011 CRAIN’S DETROIT BUSINESS Page 19 Area banks lag nation in recovery BY TOM HENDERSON CRAIN’S DETROIT BUSINESS Cuts not likely to give Detroit enough cash BY NANCY KAFFER CRAIN’S DETROIT BUSINESS Metro Detroit banks continue to recover from the recession at a slower pace than their national counterparts, according to the latest quarterly rankings by BauerFinancial Inc., a Fort Lauderdale, Fla.-based ratings service. Nationally, more than 42 percent of banks got the top rating of five stars, the highest percentage in four years. And more than 63 percent got either five or four stars. Of 25 banks in Southeast Michigan, only 24 percent got five stars and 40 percent got five or four stars. Nationally, less than 11 percent of banks got two stars or fewer. In Southeast Michigan, that figure was 28 percent. The ratings are based on an analysis of quarterly reports for the period ending Sept. 30 that banks filed with the U.S. Federal Deposit Insurance Corp. A sixth local bank, Huron Valley State Bank, joined the ranks of those getting the highest rating. The other five top-rated banks remained the same: Ann Arbor State Bank, Troy-based Crestmark Bank, Farmington Hills-based Level One Bank, Novi-based Lotus Bank and Troy-based Talmer Bank and Trust. The local banks getting zero stars remained unchanged from the previous quarter: Dearborn-based Fidelity Bank, First National Bank in Howell, Ann Arbor-based Michigan Commerce Bank and Oxford Bank. But there is some good news at the bottom. Two of those four made money in the quarter, with Oxford reporting net income of $2.8 million and Fidelity net income of $1.5 million, compared to the net loss of $427,000 by First National and the $19.2 million in net losses by Michigan Commerce Bank. Here are ratings for other Michigan banks: Four stars: Dearborn-based Auto Club Trust FSB, the Bank of Ann Arbor and the Bank of Birmingham. Three and a half stars: Dearborn Federal Savings Bank, St. Clair Shores-based First State Bank. Three stars: Citizens Bank of Flint, First Independence Bank of Detroit, Flagstar Bank of Troy, Main Street Bank of Bingham Farms, Sterling Bank and Trust of Southfield, University Bank of Ann Arbor and United Bank and Trust of Ann Arbor. Two stars: Farmington Hillsbased Bank of Michigan, Chelsea State Bank and Monroe Bank and Trust. Of the 131 banks statewide, 25 (19.1 percent ) got five stars. There was only one other zero-star bank in the state, Community Shores Bank of Muskegon. BauerFinancial evaluates capitalto-debt ratios, delinquent loans and write-offs, liquidity, repossessed assets, community reinvestment ratings and market versus book value. Some bankers say the ratings are superficial and don’t always accurately reflect a bank’s health. Tom Henderson: (313) 446-0337, thenderson@crain.com. Twitter: @tomhenderson2 A thousand layoffs in February, cuts to vendors, changes to union benefits — all proposed by Detroit Mayor Dave Bing to avert the city’s coming cash crisis, and all, critics say, unlikely to do the job. If it follows the statutory timeline, a state review of the city’s finances could result in the appointment of an emergency financial manager by March, but it’s unclear whether even an emergency manager, who could break union contracts, could make cuts deep and fast enough to stop the city from running out of cash in April, as predicted by an Ernst & Young report. “My best guess, given the recent article of the vendors now being worked hard to save cash, is the city runs out of cash sooner than later,” Oakland County Deputy Executive Robert Daddow said by email. “When these types of matters unbundle, they do so very fast. Just given the sizable deficits quoted in the media of recent, Daddow it is highly likely that the point where cash can no longer cover payrolls would be circa February, no later.” Detroit City Council President Pro Tem Gary Brown said the first question is, how accurate is the Ernst & Young report? Reports that the city isn’t paying its vendors have made him question the accuracy of any financial forecasting. “The reason we’re making payroll is we’re not paying our bills,” he said. “When those bills are not entered into our system, even Ernst & Young can’t judge. So you’re in this triage mode. It’s difficult to come up with a date when we’re going to run out of cash. Ernst & Young says April, but you can’t come up with a date because of bills in the hopper, so to speak.” There’s another problem: Ernst & Young’s report doesn’t seem to take into account $24 million in revenue Bing proposed to bring in by raising taxes on the city’s three casinos. Though state Rep. Rashida Tlaib introduced a bill to increase taxes, it hasn’t moved through the Legislature. Bing’s budget relies on the casino tax revenue as of Jan. 1, 2012. “It’s hard to say exactly what that date (that cuts must take effect) is. Anybody can throw that number out, but unfortunately, we really don’t know,” said council member James Tate. In part, he said, that’s because the cash flow fluctuates based on the city’s financial commitments. Still, he said, “I’m being told that by February we have to have whatever plan well into effect.” Then there’s the question of when the savings from cuts will materialize. Tate says he’s hopeful that the unions will ratify new contracts before Christmas. “Many of the cuts the city’s discussing right now probably won’t have a major impact on immediate cash flow,” said Edward Rago, who served as budget director first under former Mayor Coleman A. Young and then under former Mayor Dennis Archer. “When you’re talking about changing health care percentages and pensions to a defined contribution plan and so forth, those things will be of great help” in addressing the city’s long-term overspending. The Detroit City Council’s top financial analyst says that for the past three years, the city has spent $100 million more each year than it’s taken in. But, Rago said, “in the old days, when we had to save money, we did layoffs. That’s what did it, but it was ugly.” Layoffs don’t result in immediate savings, he said. Each union contract likely contains different provisions that govern how long after layoff notices are issued workers will still be paid. And even then, there’s a price tag. “I’m sure that in 30 days you can get people off the payroll,” he said. “One of the problems with that is that as workers are thrown off the payroll, they get to collect accumulated benefits like vacation and sick time. … You can’t just look at a guy’s salary and say, ‘OK, I’m going to start saving this on Friday.’ You have to pay off a chunk of cash as he goes out the door.” Bing’s communications team didn’t provide by press time an estimate of the benefits payout that the February layoffs cost. The city doesn’t have to hit zero to hit the crisis, Daddow said. “You can’t get there unless the city is knowingly releasing checks without the cash to back them,” he wrote. “Folks go to jail for this — it’s called ‘passing a bad check.’ When the book cash gets down to the $40 million range or so, the reality of timing differences between book and bank will take hold.” Nancy Kaffer: (313) 446-0412, nkaffer@crain.com. 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Table of Contents for the Digital Edition of Crain's Detroit Business - December 19, 2011

Crain's Detroit Business - December 19, 2011