by Calculated Risk on 11/13/2009 06:08:00 PM

Suited Bureaucrats
Waiting for critical mass
Century flames out

What is that white light?
Orion Supernovas
Hot money burns bright
by Soylent Green is People
From the FDIC: IBERIABANK, Lafayette, Louisiana, Assumes All of the Deposits of Century Bank, Federal Savings Bank, Sarasota, Florida

Century Bank, Federal Savings Bank, Sarasota, Florida, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of October 31, 2009, Century Bank, FSB had total assets of $728 million and total deposits of approximately $631 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $344 million. ... Century Bank, FSB is the 121st FDIC-insured institution to fail in the nation this year, and the tenth in Florida. The last FDIC-insured institution closed in the state was Flagship National Bank, Bradenton, on November 6, 2009.

From the FDIC: IBERIABANK, Lafayette, Louisiana, Assumes All of the Deposits of Orion Bank, Naples, Florida

Orion Bank, Naples, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of October 31, 2009, Orion Bank had total assets of $2.7 billion and total deposits of approximately $2.1 billion. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $615 million. ... Orion Bank is the 122nd FDIC-insured institution to fail in the nation this year, and the eleventh in Florida. The last FDIC-insured institution closed in the state was Century Bank, Sarasota, FL, earlier today.

by Calculated Risk on 11/13/2009 05:07:00 PM

From the WSJ: State Finance Directors Warn of More Trouble Ahead

"I looked as hard as I could at how states could declare bankruptcy," said Michael Genest, director of the California Department of Finance who is stepping down at the end of the year. "I literally looked at the federal constitution to see if there was a way for states to return to territory status."

And on banks:

From the Chicago Tribune: Amcore says regulators reject plan to raise capital (ht Doug)

Last month, Amcore ... disclosed it was "undercapitalized or significantly undercapitalized under some regulatory capital standards."

On Nov. 6, the Federal Reserve Bank of Chicago also notified Amcore that it found its capital plan unacceptable.

Amcore said it's continuing to work with its financial and professional advisors in seeking outside capital, and in complying with the regulators' orders, but "there can be no assurance that these actions will be successful."

It also conceded that it could get seized by regulators.

"Failure to submit an acceptable capital restoration plan or disposition plan or to restore capital levels may result in additional enforcement actions by the regulators, including the appointment of a receiver," it said.

Amcore has $4.9 billion in assets.

And there is plenty of noise down in Florida tonight, from the Florida Business Journal BankUnited CEO: Big deal is coming

BankUnited CEO John Kanas told members of the Greater Miami Chamber of Commerce during a luncheon Tuesday that they should expect a big deal by his bank in the next week.

And also: Texas billionaire Beal seeks failed Florida bank (ht Stephen)

Federal regulators have granted Texas billionaire and financial executive Andrew Beal approval to form a bank that could acquire a failed or failing Florida bank.
...
All of these players have plenty of problem banks from which to choose. On June 30, there were 15 undercapitalized banks in Florida, including Fort Pierce-based Riverside National Bank, Naples-based Orion Bank, Panama City-based Peoples First Community Bank, Immokalee-based Florida Community Bank and Sarasota-based Century Bank.

by Calculated Risk on 11/13/2009 03:32:00 PM

A couple of banks in trouble ...

From Reuters: US credit card issuer Advanta files for bankruptcy (ht jb)

The company also said its Advanta Bank's capital is below regulatory requirements and that the bank could turned over to a Federal Deposit Insurance Corp receivership.

Advanta said it decided not to fund the bank's capital shortfall to preserve value for other stakeholders.
emphasis added

Advanta bank has just under $3 billion in assets.

And from SignonSanDiego: Imperial Capital hits deadline to raise capital

The regulator-imposed deadline has passed for La Jolla's Imperial Capital Bank to raise additional capital, putting into question the future of the long-struggling institution.
...
Federal regulators first placed Imperial Capital under a cease-and-desist order in February. As part of that, the bank was required to submit a plan to raise additional capital.

The bank submitted its plan in August, but regulators rejected it and set yesterday as a deadline for the bank to sell stock to raise money or find a buyer.

Inperial has about $4.2 billion in assets, and has also received a Prompt Corrective Action from the FDIC:

On October 15, 2009, Imperial Capital Bank (the "Bank"), a wholly owned subsidiary of Imperial Capital Bancorp, Inc. (the "Company"), received a Supervisory Prompt Corrective Action Directive (the "Directive") from the Federal Deposit Insurance Corporation (the "FDIC").

A Prompt Corrective Action Directive is basically a "Hail Mary pass" and frequently means failure is imminent (though not always).

by Calculated Risk on 11/13/2009 12:54:00 PM

This is an update to an earlier post. As I've noted for some time, housing leads the economy and is the best leading indicator for the economy - both into and out of recessions.

Update: Employment tends to be a coincident indicator into recessions, and used to be coincident coming out of recessions. Employment has lagged the economy after the previous two recessions (and appears to be lagging again).

Employment lags housing, and the following graph shows the relationship between starts and unemployment.

The graph is based on a talk by Jon Fisher, a professor at the University of San Francisco School of Business.

Click on graph for larger image in new window.

This graph shows housing starts (both total and single unit) and unemployment (inverted).

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

This suggests unemployment might peak in Spring 2010.

Professor Fisher argued that unemployment will rise to about 10.4% and then fall rapidly. He is now projecting unemployment will decline to 8% by the end of 2010.

He is basing the rapid decline in unemployment on a "V shaped" housing recovery similar to previous recessions. I disagree with that point.

In most earlier recessions, the slumps were caused by the Fed raising interest rates to fight inflation. When the Fed cut rates, housing bounced back sharply (V shaped).

Although this recession was led by a housing bust - and that makes it look similar to some previous periods - this recession was not engineered by the Fed raising rates, rather it was the busting of the credit and housing bubbles, and all the related problems that led the economy into recession. Since there is still far too much existing home inventory, a sharp bounce back in housing starts is unlikely, so I think Fisher's forecast for a rapid decline in unemployment is also unlikely.

by Calculated Risk on 11/13/2009 11:19:00 AM

From the NY Times: Euro Zone Officially Out of Recession

... [T]he euro area emerged from recession during the third quarter, helped largely by export growth and improved industrial production in its largest economy, Germany.

The European Union’s statistics agency, Eurostat, reported Friday that gross domestic product for the 16 countries using the single currency expanded by 0.4 percent from the second quarter, following five quarters of contraction. Against a year earlier, G.D.P. was still 4.1 percent lower.

Analysts said the outlook remained patchy, particularly because unemployment is still climbing, wages are stagnant and consumption and lending are being propped up by government programs that will not be renewed indefinitely.

Note: the 0.4% is the quarterly rate (1.6% annualized when comparing to reporting in the U.S.).

Here is the Eurostat report: Euro area GDP up by 0.4% and EU27 GDP up by 0.2% with a breakdown by country.

by Calculated Risk on 11/13/2009 08:37:00 AM

The Census Bureau reports:

The ... total September exports of $132.0 billion and imports of $168.4 billion resulted in a goods and services deficit of $36.5 billion, up from $30.8 billion in August, revised. September exports were $3.7 billion more than August exports of $128.3 billion. September imports were $9.3 billion more than August imports of $159.1 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through September 2009.

Imports and exports increased in September. On a year-over-year basis, exports are off 13% and imports are off 21%.

The second graph shows the U.S. trade deficit, with and without petroleum, through September.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased to $68.17 in September - up more than 50% from the prices in February (at $39.22) - and the seventh monthly increase in a row. Import oil prices will probably rise further in October.

The major contributors to the increase in the trade deficit were the increase in oil prices, and more imports from China. Also - the deficit is higher than expected, suggesting a downward revision to Q3 GDP.

by Calculated Risk on 11/13/2009 12:30:00 AM

Earlier this week I mentioned a possible "upside surprise" for GDP in 2010:

With unemployment above 10%, there will be significant political pressure for another stimulus package - especially if the economy starts to slow in the first half of 2010. This next package could be several hundred billion (maybe $500 billion) and could increase GDP growth in 2010 above my forecast.

From The Hill: Senator Reid tees up 2010 jobs bill

Senate Democrats will take up a new job-creation bill in the wake of the 10.2 percent unemployment rate, Majority Leader Harry Reid told his colleagues Tuesday.

And from the LA Times: Obama announces forum -- a brainstorming session on job creation

Next month, Obama said he would gather chief executives, small-business owners, economists, labor leaders and others to discuss ways to create jobs and grow the economy.

It appears the idea of another stimulus package is gaining momentum ...

by Calculated Risk on 11/12/2009 08:17:00 PM

From Bloomberg: Barofsky Says TARP ‘Almost Certainly’ Will Bring Loss (ht jb)

Neil Barofsky ... said the [TARP] will “almost certainly” result in a loss to U.S. taxpayers.
...
“Tens of billions of dollars are likely to be lost on the automotive bailout,” Barofsky said. In addition, some banks that received TARP money are failing, so the aid they received will be wiped out.

The TARP lost $2.33 billion on CIT and another $299 b million on the failure of UCBH Holdings (United Commercial Bank) last week.

And there are a growing number of banks not paying their TARP dividends (33 banks as of August - not all will fail, but that is a bad sign).

And this is the quote of the day:

“When I first took office, I can’t tell you how many times I’d be having a sit-down and warning about potential fraud in the program and I would hear a response basically saying, ‘Oh, they’re bankers, and they wouldn’t put their reputations at risk by committing fraud,’” he said.

“I think we’ve done a good job of instilling a greater degree of skepticism that what comes from Wall Street isn’t necessarily the Holy Grail,” he said.

by Calculated Risk on 11/12/2009 05:56:00 PM

Update: Title corrected to October.

From the Association of American Railroads: Rail Time Indicators

In October 2009, U.S. freight railroads originated 1,100,714 carloads, an average of 275,179 carloads per week. That’s down 15.3% from October 2008 (when the weekly average was 324,836 carloads) and down 0.3% from September 2009 (when the weekly average was 276,137 carloads). Average weekly carloads have now declined for two straight months.

The following graph from the AAR shows average weekly carloads in the U.S.

Click on graph for larger image in new window.

Rail traffic fell off a cliff at the end of 2008, and it appears traffic has stabilized at a lower level.

Traffic will probably decline in November and December (the normal seasonal pattern).

The second graph shows the year-over-year change for rail traffic.

This is now a two year slump (like for the hotel occupancy rate), so the year-over-year decline will be significantly less in November and December.

The AAR report has a number of other graphs for various sectors like autos and housing. As an example they compare U.S. Housing Starts with U.S. and Canadian Rail Carloads
of Lumber, Wood & Forest Products.

For additional rail traffic, and a break down by carriers, see the Railfax report (ht Bob_in_MA)

by Calculated Risk on 11/12/2009 03:11:00 PM

The FHA commented on the damage caused by the Downpayment Assistance Programs (DAPs) today. These DAPs circumvented the FHA down payment requirements by having the seller funnel the "down payment" to the buyer through a "charity" (for a small fee of course). The FHA attempted to stop this practice, but thanks to Congress, the DAPs led to billions of losses:

FHA was also adversely selected from 2000 through 2008 because it was the only guarantor willing to accept loans using seller-funded downpayments. Such downpayments were channeled through nonprofit organizations in order to meet FHA requirements on direct sources of funds. Those facilities created too many homeowners in the FHA portfolio that were not equipped for the financial responsibilities of home ownership. Indeed, the FY 2009 MMI Fund actuarial study for single-family loans notes that, if FHA had not insured any loans with seller-funded downpayment assistance, the net capital ratio today would still be above the statutory required two percent. FHA’s estimated economic net worth would be $10.4 billion higher today were it not for those loans. ... Their claim rates have consistently been between 2.5 and three times those of other FHA-insured home purchase loans.
emphasis added

This is still important today. The DAPs have been banned, but the first-time home buyer tax credit has probably created another group of "homeowners not equipped for the financial responsibilities of home ownership". Oh well ...

And some FHA stats ...

"86 percent of homebuyers relying upon FHA mortgage insurance in FY 2009 had downpayments of less than five percent."

"79 percent of FHA’s purchase-loan borrowers were first-time homebuyers."

Click on graph for larger image in new window.

This graph shows the recent boom in FHA originations. The MBA estimates that there will be about $2 trillion in orginations this year, so the FHA insured loans were probably just under 20% of originations.

The second graph shows delinquencies by year.

Overall 17.71% of FHA insured loans are delinquent, and 8.52% seriously delinquent. Note: Seriously delinquent "Includes all loans 90-days past due plus all in-bankruptcy and in-foreclosure cases."

The 2009 vintage is just getting started, but the FHA has tightened standards (higher FICO scores), and DAPs were banned at the end of 2008 - and that will help. Also the stabilization in house prices is helping with fewer delinquencies.

However many of these recent homebuyers probably aren't ready to be homeowners, and the delinquency rate will probably rise sharply - especially if house prices start falling again.