Nevada community banks in good shape

I respectfully but strongly object to the conclusions your readers have to draw from the article and headlines appearing in Tuesday’s Review-Journal (“Woes may bring bank failures — Some Nevada institutions could lack capital”).

The offending conclusions were not those drawn by your reporter, rather they came from quoting an analysis report issued by Invictus Consulting Group LLC of New York. Invictus bases its dire prediction of bank capital reductions on their unsupported assumption that “many Nevada residential real estate loans and consumer loans could sour, driving up the need for new capital to cover the bad loans.”

Their “fear factor” analysis, your sensational headlines and your article are all directed at community banks; their study excludes Chase Bank, Wells Fargo Bank, Citibank, U.S. Bank and Bank of America, the large banks that are dominant in Nevada banking but are not Nevada-chartered institutions even though they have residential and consumer loans as core product offerings.

While I’m not attempting to speak for Nevada’s community bankers since they are hesitant to designate me their spokesman, let me point out that the Invictus report lacks validity because:

– Community banks do not carry 30-year residential mortgages on their books, period. This has nothing to do with this type of borrower but rather with the fundamental community bank practice that you don’t fund long-term assets with short-term deposits. In short, a quick review of Nevada community bank balance sheets will show very likely near zero in residential mortgages outstanding.

– Community banks rarely make consumer loans except in modest volume. Quite simply, they’re not staffed to handle the volume to make such lending profitable. The large banks can quite literally process thousands of loans daily. In fact, March 31 federal bank regulatory data reflects that of 16 Las Vegas- and Reno-headquartered community banks, two held from 1 percent to 3.2 percent of their loans as consumer loans, and all others were below 1 percent.

Therefore, it should be clear even to Invictus CEO Kamal Mustafa that banks which have virtually no residential mortgages or consumer loans on their books should not be highlighted as being in jeopardy of serious capital consequences due to an increase in defaults in those areas. His company was irresponsible in its conclusions.

The Review-Journal was wrong in quoting the report as being authoritative when the data show otherwise. Invictus was negligent for not understanding the composition of Nevada charters before issuing such a sensational report — for example, apparently including Nevada credit card operations in their data, companies such as USAA, and ILC entities such as Harley-Davidson and Toyota that are 100 percent centered in consumer loans.

But the greater offense is the Review-Journal taking those conclusions, and also the statements of Mr. Mustafa, and translating that into headlines with the warning “woes may bring bank failures — some Nevada institutions could lack capital.”

If the questions on what the article means that I have received are any indication, you’ve sent another shock wave to the community.

It should be clear that the data available would indicate that no Nevada community bank is even remotely threatened with capital impairment as a result of residential and consumer loans.

William E. Martin

Las Vegas

The writer is vice chairman and CEO of Service 1st Bank of Nevada.