Wanna buy a failed bank?

Some investors stay away from bad banks, even with help from the government

By Kim Peterson Dec 1, 2009 2:43PM
Banker © Radius Images/Jupiterimages Banks are collapsing just about every week, it seems. And they're such financial train wrecks that some potential buyers are staying away -- even after the government promises to cover the losses on any bad loans, according to The Wall Street Journal.

The problem goes beyond bad loans. Many of these banks don't have much in the way of assets. They're tiny, and don't hold much hope of growth. They have expensive deposits.

Nearly 125 banks have failed so far in 2009, and experts tell the Journal that many of them "are of very poor quality."

It's too bad, because people complain on this site and others about the ill treatment they get from Bank of America (BAC) and other megabanks.

It would seem like a perfect time for small banks and local credit unions to take advantage of that anger and attract new customers.

The Federal Deposit Insurance Corp. has the unfortunate job of covering the losses at failed banks, and its fund to protect depositors is now in the red, the Journal reports.

One lawyer told the Journal that the FDIC may have to bundle small banks together to make them more attractive to buyers.

But even though some investors think the pickings are slim, most failed banks do end up getting sold. They just aren't getting a lot of bids.

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