Last week, in the wake of the collapse and FDIC takeover of California-based IndyMac Bank, the Wisconsin Bankers Association put out a press release, worded as an opinion column. This public release was attributed to Kurt R. Bauer, the organization’s president and CEO, who shared his thoughts on the relative safety and stability of Wisconsin’s banking industry.

A few interesting snippets from the WBA’s optimistic release are copied below:

"There is little risk of a Wisconsin bank suffering the same fate as IndyMac."

"Wisconsin banks did not engage in risky mortgage lending."

"Wisconsin banks outperformed their peers nationally. That is due to the Wisconsin banking industry’s historic conservative lending culture, as well as to experienced management teams, solid industry capitalization, low loan losses and almost nonexistent subprime exposure."

Little risk of failure. No risky mortgage lending. A conservative lending culture. To be sure, the WBA release shows no lack of confidence in the financial stability of its own industry. But the reality of the situation tells a different story for some of Wisconsin’s largest banks.

Bauer’s press release was sent to the media on Tuesday, July 15. The next morning, Marshall & Ilsley Corp., Wisconsin’s largest bank, reported $393 million in losses during the second quarter of 2008, resulting from a provision of $886 million taken to offset loan and lease losses. This provision represented an increase of more than 500 percent over the company’s first quarter loan losses of $146 million, and crushed the company’s stock to multiyear lows.

Oops. Literally overnight, the WBA found itself in a position not unlike that of Green Bay Packers general manager Ted Thompson in the wake of Brett Favre’s July surprise - overexposed by reality, with a damaged reputation squarely in tow.

The WBA press release, which was echoed almost word for word by print news outlets around the state of Wisconsin, contains patently false and misleading statements. A reported $886 million loan loss from Wisconsin’s largest bank undeniably demonstrates risky mortgage lending by a bank in the state of Wisconsin. And since we are on the topic of poor word choice, a $393 million quarterly loss indicates neither a conservative lending culture nor an experienced management team.

The WBA claim, "Wisconsin banks did not engage in risky mortgage lending," is demonstrably false. Wisconsin’s largest bank took a huge provision to account for loan losses, accelerated by the continued slide in the national housing market. M&I’s mortgage losses were based around the company’s real estate development presence in Arizona and Florida. But this type of broad geographical exposure is not uncommon among regional banks, many of which have a presence in Wisconsin. This reality makes the generalized language in the WBA release especially perplexing.

Associated Banc-Corp, the Green Bay-based parent of Associated Bank, also took a large loan loss in the second quarter, claiming $59 million in losses from bad loans. This represents a quarterly increase of more than 150 percent over the company’s first quarter loan losses of $23 million. Both M&I and Associated predicted additional loan loss provisions throughout the remainder of 2008.

For all of the necessary criticism, the WBA press release was not entirely without truth. For many of Wisconsin’s small, community-oriented banks, the mortgage crisis may be entirely avoided. As stated by the WBA, Wisconsin banks on the whole have outperformed their peers from other parts of the country. However, in this era of ongoing chaos in the financial and housing markets, that is not a difficult achievement.

Our nation’s banking industry is in the middle of a nearly unprecedented crisis. Last week’s FDIC bailout of IndyMac account holders burned through approximately 10 percent of a $53 billion fund available to bail out account holders of failed banks. With the list of problem banks still growing, Wisconsin bank account holders and investors deserve full disclosure regarding the nature and severity of the financial problem, not misleading press releases from Wisconsin’s banking industry.

Is it likely that a Wisconsin-based bank will suffer the same fate as IndyMac? Perhaps not. But nearly unprecedented times can lead to unpredictable outcomes. Blatant dishonesty from industry press releases echoed verbatim by Wisconsin newspapers is not a recipe for informed consumers.