To Our Clients, Colleagues and Friends,  

• The Taylor , Bean bankruptcy filing shows assets of $734 million and liabilities of $3.9 billion. That’s a negative $3.1 billion net worth.  The biggest creditor is Colonial Bank, which is owed $1.74 billion, and we assume it’s the FDIC that will take the loss.
• Bank of America has agreed to sell First Republic Bank, the San Francisco-based bank they acquired when they bought Merrill Lynch.  First Republic has been known for super-jumbos and a very high level of personalized service.  The private equity firm that’s buying them intends to keep top management, so we doubt the bank will change much.

• With Halloween coming up, we thought you’d enjoy this carving of an apple.  How can people be that clever?

• We asked one of the major hedging advisory services what their clients have been seeing as a pick-up going from best efforts to mandatory, and they told us it’s been about 55 bps this year.  That’s about what the other hedging advisors tell us. If you’re doing, say, $50 million a month, that’s $275,000 a month or $3.3 million a year you’re leaving on the table.  We’ve helped a number of firms make the move to mandatories over the years, and they all wish they’d switched sooner.
• We’re getting a good response to our Client Appreciation Dinner in San Francisco next month.  We have clients flying in from as far North as Washington State and as far East as Maryland .
• One reason why Wells Fargo isn’t going to have too much trouble with consumer debt problems is that their credit card portfolio is only 3% of their total assets.  We’ll have to find out what it is for Citigroup and BofA.  Anyone?
• We just looked at the 42 government-assisted bank failures for the third quarter. The average cost to the FDIC was $332 million per failure. 
• The average premium-to-deposits on these failed bank acquisitions was only 0.7%.  Isn’t that shockingly low?  For those who aren’t bankers, that means that if you acquire $100 million of deposits, you’d pay only $700,000.  Let’s assume that half the deposits of these failed banks were brokered deposits, jumbo CDs and other deposits with no value.  Even if we exclude them, that’s only 1.4% for the good deposits.  A total steal.
• We just saw the musical production of American Idiot.  A smash-hit, and if you liked the Greenday album by that name, you’ll love the musical.  Great music from the album, of course, along with terrific choreography and a surprise plot.  It’s not quite My Fair Lady, but it’s fun seeing all the teenagers in the audience singing along to every song.  Watchhttp://www.berkeleyrep.org/multimedia/ai_trailer.asp   It’s 50 seconds of the high-energy singing and dancing and will give you a real flavor of the show.
• Very few mortgage banking companies have functioning Boards of Directors, and even fewer have Boards with outside Directors. Invariably, though, the companies we see who have real Boards with outside Directors tend to be much better run than the rest of their peers.  And generally more profitable.
• If Howard Cosell were announcing the Ali-Frazier fight and if it were held today, he’d probably announce it as “Frazier is down!  Frazier is down!  Joe Frazier falls faster than Lehman Brothers or Bear Stearns.” All said, of course, in that funny, staccato way of talking he had.
• It was a sad passing when Soupy Sales died last week. At the peak of his fame in the 1950’s and 60s, he was one of the best-known faces in the nation. The Soupy Sales Show was ostensibly for children, but his hyper-manic, improvisational style attracted college students as well as pre-teens, all of whom loved his pie throwing antics. He threw over 20,000 cream pies into guests faces or had them thrown into his.  His big mistake was tossing a huge cream pie into Frank Sinatra’s face, a major no-no.  Sinatra apparently threatened to have him whacked right there in the studio.

He was once suspended from television after telling his young audience to empty their mothers’ purses and mail him all the pieces of green paper bearing pictures of Presidents.  He also asked his young viewers “What begins with an ‘F’ and ends with ‘UCK’, and then told them it was a FIRETRUCK.  He drove TV executives crazy, but subversive 10-year olds loved this sort of thing.

• Many of those 10-year Soupy Sales fans grew up and grew long hair, listened to music their parents hated, and generally flaunted authority when the late 60’s came along.  Someday sociologists may explain the sixties by looking no further than Soupy Sales.  And maybe Mad Magazine.
• Risk management is a big part of your business, so it’s important that everyone in your senior management ranks has a similar understanding of the risks your particular company faces.  When we’re doing a FOCIS or FOCIS-plus Review, we ask senior people what they deem to be the biggest areas of risk their company faces. While each person will have his own perspective, a part of the company culture should be having everyone viewing risk pretty much the same way.

• Did you notice we didn’t have any baseball stuff this week? Aren’t you glad?
• Most of our clients do pretty thorough background checks before hiring AE’s or LO’s.  We think you should also do periodic and random checks on them after they’re hired.  Getting a credit report once a year or so might tell you a lot.  A person whose finances have gone downhill and who’s carrying too much debt just might be tempted to do something improper.  And that includes all employees, not just those in sales.
• When the Golden Gate Bridge was first built, the Navy wanted it painted black with yellow stripes so that it cold be more visible in the heavy fog.  Aren’t you glad the Navy was overruled.
• We believe that TARP and most of  the other bail-out programs were vitally necessary to prevent our economy from sliding into a Depression, but someday very soon we need to return to Clinton-era budget discipline and surpluses.  Today, Monday, we have Treasury auctions of $66 billion, and the total scheduled for the week is going to be $182 billion.  Of this, $123 billion is for 2-7 years in maturity, and what happens when this debt is rolled over down the road at rates that will be higher than today’s rates, probably significantly higher?  The President needs to make a balanced budget one of his 2-3 top priorities.

All good writing starts with having a very clear idea of what the piece is all about, its beginning where you state the premise, the middle part in which you explain your premise, and an end where you tie it all up.  The genius of good writers is only in part the inspiration and magic that pours out of their minds and into their fingertips.  A well-written piece starts with an outline of what you want to convey.  The greatness of a Frank Lloyd Wright house didn’t belong to the contractor who built it, but to the architect who first outlined what he wanted it to look like.  Good writing will take you far in life. Okay, see you soon.  We’re going to try to get back to doing these only twice a week. Three times in seven days seems a bit much.  Of course, if everyone reading this paid us, say, $50 a year, well, we’d definitely do three a week. Garrett, Watts & Co.  -  “Helping mortgage lenders increase revenues, control costs, and better manage risk.” Newsletter by Joe Garrett - 510-469-8633