RSS Feed by Calculated Risk on 11/15/2009 11:29:00 AM
Sunday, November 15, 2009
Summary and a Look Ahead
This will be a busy week for key economic news starting with October Retail sales on Monday, Industrial Production and Capacity Utilization on Tuesday, and Housing Starts and CPI on Wednesday.
Also on Monday, at noon ET, Fed Chairman Ben Bernanke will speak at the Economic Club of New York.
Last week started with several key Fed speeches:
I am concerned about the potential impact of CRE on the broader economy. ... there could be an impact resulting from small banks' impaired ability to support the small business sector—a sector I expect will be critically important to job creation.
... A lot of the CRE exposure is concentrated at smaller institutions (banks with total assets under $10 billion). These smaller banks account for only 20 percent of total commercial banking assets in the United States but carry almost half of total CRE loans (based on Bank Call Report data).
Many small businesses rely on these smaller banks for credit. ... Moreover, small firms' reliance on banks with heavy CRE exposure is substantial. Banks with the highest CRE exposure (CRE loan books that are more than three times their tier 1 capital) account for almost 40 percent of all small business loans.
Today, the number one challenge for small businesses remains poor sales rather than access to credit. But tomorrow, it will be important that small businesses also have access to funding if they are going to play their traditional role as an engine of growth.
When the weakness of the commercial property market is combined with the muted outlook for housing and consumer spending, you can see why I believe that the overall economic recovery is likely to be gradual and remain vulnerable to shocks. ... it would look something like an “L” with a gradual upward tilt of the base. With such a slow rebound, unemployment could well stay high for several years to come.
[L]ooking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued.And economic data:
Click on graph for larger image.This 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 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.
And there were three more bank failures on Friday taking the total to 123 in 2009:
And some other stories of interest:
And a couple of comments from your humble blogger:
Best wishes to all.
China Banking Regulator: U.S. Policy Fueling Asset Speculation
by Calculated Risk on 11/15/2009 09:20:00 AM
From Bloomberg: China’s Liu Says U.S. Rates Cause Dollar Speculation
“The continuous depreciation in the dollar, and the U.S. government’s indication, that in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” [Liu Mingkang, chairman of the China Banking Regulatory Commission said] ...President Obama will be in China today, and there will probably be some dicussion of China's exchange rate policy.
Liu said this has “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.”
Saturday, November 14, 2009
Orion Bank CEO Had a Plan ...
by Calculated Risk on 11/14/2009 10:55:00 PM
In his comments with the Unofficial Problem Bank list, surferdude808 noted that the Federal Reserve issued a Prompt Corrective Action order against Orion Bank on Thursday. Orion was seized the following day by the FDIC.
The PCA order makes for interesting reading (Note: Stephen at FUMU Finance wrote to me about this - here is Stephen's post with some background details: Orion Bank - Management's master plan!). From the PCA:
In order to improve its management, the Bank must dismiss Jerry Williams (“Williams”), its current chief executive officer, president, and chairman of its board of directors, from office and as a member of the board of directors, based on the following:Pretty amazing.
(a) Prior to June 2009, the Bank reached its legal lending limit under Florida law with respect to the aggregate loans outstanding to a borrower and his related interests. In June 2009, Williams permitted the Bank to make loans of an additional approximately $60 million to straw borrowers who were related interests of the borrower referred to above in continuing violation of the Florida legal lending limit statute (the “June 2009 loans”);
(b) the June 2009 loans referred to above, which were made to enable the borrowers to purchase certain low quality assets from the Bank, were underwritten in an unsafe and unsound manner. The loans were made without adequate analysis of the borrowers’ creditworthiness, capacity for repayment, and valuation of collateral offered in support of the loans. Further, the loans were structured in a manner to make it appear that the Bank was reducing its level of classified assets;
(c) the Bank needed additional capital as of June 30, 2009, to avoid being less than well-capitalized. Williams had knowledge that $15 million of loan proceeds from the June 2009 loans referred to above were to be used to purchase common and preferred stock issued by Orion Bancorp, Inc., Naples, Florida (“Bancorp”), the parent holding company for the Bank, and Williams took steps to ensure that the $15 million was promptly used to purchase the holding company stock;
(d) in early July 2009, in response to inquiries from the Federal Reserve Bank of Atlanta (the “Reserve Bank”), Williams stated orally and in writing that the $15 million in capital referred to above was raised “without any financing” provided by the Bank. This statement was false because Williams had information available to him to demonstrate that the Bank intended that the loan proceeds be used as the source of the stock purchase;
(e) as a result of the actions set forth in (a) through (d), above, the Bank, with Williams’ active participation, filed materially inaccurate regulatory reports, made false statements to the Federal Reserve, has suffered additional loan losses, and has failed to comply with provisions of an outstanding Written Agreement designed to require that the Bank properly address its asset quality problems. These actions show that the management of the Bank would be improved without Williams’ service as a senior executive officer or director of the Bank.
emphasis added
Home Builder's Return on Lobbying
by Calculated Risk on 11/14/2009 07:18:00 PM
Gretchen Morgenson at the NY Times writes about the tax loss carry-back1 "gift" for home builders in the recently signed "Worker, Homeownership and Business Assistance Act of 2009": Home Builders (You Heard That Right) Get a Gift
The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. ... Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.That is quite a Return on Lobbying (ROL), although some of the money went to lobbying for the inefficient homebuyer tax credit.
Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.
That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.
And, oh, this "gift" will create few if any jobs.
1 UPDATE: This is really a tax loss carry back to the profitable years.
Zell on CRE: Too Soon for Grave Dancing
by Calculated Risk on 11/14/2009 04:52:00 PM
From Barron's: Sam Zell: Too Soon for Dancing
Sam Zell ... said ... that the time isn't ripe because owners of office, retail and warehouse properties and their lenders are living in a dream world, believing that property prices will recover and vacancies will drop. ...Zell has bought and sold CRE at the right time before.
"Everybody is waiting for the Grave Dancer to come in, but at this point property owners won't tango," he told a gathering of prominent investors in downtown Chicago .
When Zell does start buying, he said, hotels are where he plans to play first ...
However last year at the Milken Conference in Los Angeles, Zell thought CRE would be fine - from my notes:
Sam Zell started by saying we need to separate commercial from residential. Commercial will be fine in his view (not my view). ... Zell isn't talking about new construction (CRE), rather he is talking about prices for existing CRE. He feels there is too much global demand ("liquidity") for prices to fall too far - especially for Class-A buildings.Watch what he does, not what he says!
Pension Benefit Guaranty Corporation Deficit Increases
by Calculated Risk on 11/14/2009 11:58:00 AM
The Pension Benefit Guaranty Corporation (PBGC) is the federal agency that guarantees pensions for 44 million Americans. The PBGC deficit doubled over the last six months to $22 billion ... but this is only just the beginning as the agency's potential exposure to future losses increased sharply.
From the Pension Benefit Guaranty Corporation (PBGC): PBGC Releases Annual Management Report for Fiscal Year 2009
The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency's Annual Management Report submitted to Congress today. The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008.With companies moving away from defined benefit plans, there will be fewer companies paying for insurance in the future - and the "long-term solution" will probably involve some sort of bailout.
...
The Annual Management Report classified 27 large pension plans with total underfunding of $1.64 billion as probable losses on the PBGC balance sheet. The report also shows that the agency's potential exposure to future pension losses from financially weak companies increased to about $168 billion from the $47 billion booked in fiscal year 2008.
"Exposure to possible future terminations means that we could face much higher deficits in the future," said Acting Director Vincent K. Snowbarger. "We won't fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program."
emphasis added
U.K. Mortgage Lenders: Don't Treat Us like "Drug Dealers"
by Calculated Risk on 11/14/2009 08:55:00 AM
This is amusing ...
From the Telegraph: FSA treats mortgage lenders like 'drug dealers', says CML chief
Hitting back at the idea that lenders are “evil” and reckless, [Council of Mortgage Lenders (CML) chief] Matthew Wyles said the industry should be allowed to treat its customers as adults, respecting their right to make their own decisions.There is nothing in the FSA proposals that would make borrowing "risk-free". That is absurd. And the consumers would still be responsible for all their own decisions.
He said: “I have a sneaking suspicion that it’s the way that regulators see consumers – as wanton children who have a tendency to want what isn’t necessarily good for them, and for whom Nanny knows best.
“Increasingly, I also have the feeling that regulators see lenders and intermediaries as the sweetshop owners – or worse, the drug-dealers at the school gates – of the mortgage market, enticing innocent consumers in and then getting them hooked, for their own evil profit-driven purposes.”
Speaking at the CML’s conference, he said the FSA was at risk of creating “the kind of moral hazard it wishes to avoid”, by making consumers feel they need to take no responsibility for their own decisions.
Mr Wyles added that the purpose of regulation should be to provide a sensible operating framework between businesses and their customers.
“It should not attempt to wrap consumers in cotton wool and make borrowing risk-free. That is not the nature of lending, and it is not the nature of borrowing,” he said.
The proposals are aimed at full disclosure, and to protect consumers from, uh, "drug dealers".
More Losses for TARP
by Calculated Risk on 11/14/2009 12:23:00 AM
When Pacific National Bank of San Clemente was closed by regulators Friday, the TARP lost $4.12 million (ht Matt Padilla). Last week the TARP lost $298.7 million when San Francisco-based United Commercial Bank (UCBH Holdings) failed.
It looks like TARP losses are becoming a trend ... and, oh, the cost to the FDIC Deposit Insurance Fund (DIF) for the three bank failures today is estimated to be almost $1 billion.
"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."
Friday, November 13, 2009
Unofficial Problem Bank List increases to 507
by Calculated Risk on 11/13/2009 09:30:00 PM
Note: This was before the three FDIC bank seizures today.
This is an unofficial list of Problem Banks.
Changes and comments from surferdude808:
The Unofficial Problem Bank List changed by a net two institutions this week to 507.The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.
Seven institutions with assets of $1.6 billion were added to the list. The largest addition is First Federal Bank of North Florida, Palatka, FL ($444 million). The OCC did not release its actions for October today so we will look for those additions next week.
Assets on the list fell substantially from $330 billion to $304 billion as $13.2 billion of the decline came from the three failures last week -- United Commercial Bank ($12.8 billion), Prosperan Bank ($197 million), and Home Federal Savings Bank ($14 million) – and 2 banks that underwent unassisted mergers during July -- Discovery Bank ($151 million), and Southern Bank of Commerce ($30 million).
The list has been updated to include asset figures for the third quarter of 2009, which accounted for $14.5 billion of the decline in assets from last week. The largest decline in assets during the quarter occurred at AmTrust Bank (down $1.7 billion) and Woodlands Commercial Bank (down $1 billion). The average decline in assets during the quarter was $29 million but the median decline was only $4.5 million.
Positively, 368 institutions reduced their asset size during the quarter.
The only other changes to the list are the issuance of Prompt Corrective Action orders against three institutions that are already under a formal enforcement action. These PCA order were issued against Evergreen Bank, New South Federal Savings Bank, and Orion Bank (CR Note: Orion failed today!).
See description below table for Class and Cert (and a link to FDIC ID system).
For a full screen version of the table click here.
The table is wide - use scroll bars to see all information!
NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)
Class: from FDIC
The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".N National chartered commercial bank supervised by the Office of the Comptroller of the Currency SM State charter Fed member commercial bank supervised by the Federal Reserve NM State charter Fed nonmember commercial bank supervised by the FDIC SA State or federal charter savings association supervised by the Office of Thrift Supervision SB State charter savings bank supervised by the FDIC
Bank Failure #123 in 2009: Pacific Coast National Bank, San Clemente, CA
by Calculated Risk on 11/13/2009 08:08:00 PM
Sun sets on Pacific Coast
A bank, drowned by debt
by Soylent Green is People
From the FDIC: Sunwest Bank, Tustin, California, Assumes All of the Deposits of Pacific Coast National Bank, San Clemente, California
Pacific Coast National Bank, San Clemente, California, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...That makes three today ...
As of August 31, 2009, Pacific Coast National Bank had total assets of $134.4 million and total deposits of approximately $130.9 million. ...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $27.4 million. ... Pacific Coast National Bank is the 123rd FDIC-insured institution to fail in the nation this year, and the fifteenth in California. The last FDIC-insured institution closed in the state was United Commercial Bank, San Francisco, on November 6, 2009.
