by Calculated Risk on 11/27/2009 06:29:00 PM

James Pressler at Northern Trust provides an overview of the Dubai situation: Dubai’s Latest Mega-project – A Massive Default? (pdf) A few excerpts:

The complexities of the UAE’s governmental structure make the situation difficult to grasp at first glance, but the problem can be captured by a few basic points. First, Dubai is the second-largest emirate in the UAE next to Abu Dhabi, but Abu Dhabi is also the power of the national government and has been challenged by Dubai’s meteoric rise. Next, the UAE has a sovereign wealth fund estimated at one half-trillion dollars in case of emergency, so money is clearly available at the national level to bail out Dubai if that route is chosen. Lastly, the national government wants to emerge from this situation with international markets assured that a state-run entity has the backing of the government and will be subsequently subject to reform and accountability. Taken together, these points plus an appreciation of the politicial undercurrents suggest a scenario that avoids outright default.

This suggests that Abu Dhabi will bailout Dubai, but that isn't certain:

The first sign of things to come could be as early as the first week in December, when Gulf markets re-open from the Eid al-Adha holiday (Dubai World announcing its debt postponement plans just before Eid celebrations was in all likelihood not a coincidence). This will mark the first chance for officials to state positions and make confidence-building claims, with the further interest of calming international markets. Between that time and the December 14 due date for Dubai World’s next debt payment, we expect to see a concrete plan laid out for bailing out the conglomerate and some pressure taken off the credit markets. However, if no settlement can be reached, it would not surprise us if another major entity started talking about restructuring or a debt freeze before year-end – and not necessarily a company in the UAE.

And from the Financial Times: Abu Dhabi expected to prop up smaller brother

[W]ith Dubai raising the possibility that one of its flagship entities may default, attention is now focusing on just how far Abu Dhabi is willing to go to bail out its smaller brother. Underlying the uncertainty, it is thought that Abu Dhabi officials were caught unaware by Dubai World’s dramatic statement ... Ultimately, though, there is consensus that Abu Dhabi will not see it fail.
excerpted with permission

Should be an interesting couple of weeks.

by Calculated Risk on 11/27/2009 03:07:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Changes and comments from surferdude808:

The FDIC finally released its enforcement actions for October today, which led to a large increase in the number of institutions on the Unofficial Problem Bank List.

This week the list changed by a net 30 institutions to 543 from 513 while aggregate assets increased by $10 billion to $312 billion.

For the 33 institutions added, their average asset size is $321 million. The largest include Hillcrest Bank, Overland Park, Kansas ($1.9 billion); Charter Bank, Santa Fe, New Mexico ($1.3 billion), and Severn Savings Bank, Annapolis, Maryland ($990 million). Geographic highlights include the addition of five Illinois-based institutions and four each in Georgia and Texas.

The FDIC issued a Prompt Corrective Action Order against Rockbridge Commercial Bank, Atlanta, Georgia ($294 million), and LibertyPointe Bank, New York, New York ($212 million); LibertyPointe has been operating under a Cease & Desist Order since July 2009.

The deletions this week include Commerce Bank of Southwest Florida, which failed last Friday, and First Independent Bank, where the FDIC terminated the enforcement action during October 2009.

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.

Note: The FDIC announced there were 552 bank on the official Problem Bank list at the end of Q3. The difference is a mostly a matter of timing - some enforcement actions haven't been announced yet, and others may be pending.

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:

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

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".

by Calculated Risk on 11/27/2009 01:00:00 PM

Click on graph for larger image in new window.

First, since the markets closed early ...

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Krugman suggests there are three views on the Dubai situation: 1) the beginning of a wave of sovereign defaults, 2) an extension of the CRE bust, and 3) Dubai as sui generis. Krugman believes it is some combination of two and three.

I agree. Dubai seems like an extreme example of the CRE bust. "Vegas on steroids" as Nanoo-Nanoo wrote in the comments to an earlier post.

It is the state-controlled Dubai World that might delay payments - and both Moody's and Standard & Poor’s have said they may consider delaying payments a default - and it is unclear if oil rich Abu Dhabi will help out Dubai. So the situation is confusing ... but it does seem that Dubai is the most overbuilt city in the world.

Here is a repeat of a video on the Dubai real estate crash I posted in February:

Some photos of Dubai from the Boston Globe last year.

Also from February, an article on "skips" - expatriates fleeing home rather than risk jail for defaulting on loans: Driven down by debt, Dubai expats give new meaning to long-stay car park

And from the NY Times in February: Laid-Off Foreigners Flee as Dubai Spirals Down

by Calculated Risk on 11/27/2009 10:53:00 AM

From Donna St. George at the WaPo: The $698,000 mistake

[A]ll of this began in the heady days of the mortgage boom ... [Ms. White] only knew that there seemed to be possibilities, even to those with little means such as herself, which is how a woman who had never paid more than $700 a month in rent and who had relied in recent years on Section 8 housing vouchers suddenly owned a house.

A four-bedroom house.

With 3 1/2 bathrooms. And walk-in closets, black granite countertops and a fireplace.

You can already tell how this story will end.

On settlement day, reality bore down.
...
Papers were read and presented, most of which White did not try to decipher. ... White's papers cited income of $163,320 a year, even though she says her 2005 income-tax earnings were less than $15,000 and she relied at times on food stamps.
...
White signed papers while waiting for the one she cared most about: her monthly payment. ... "Please let this be something I can afford," she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month.

To get White to sign, the sellers - who were real estate agents - agreed to make the first two mortgage payments for Ms. White. According to the article, White received $40,000 in cash out at closing - and the seller made over $200,000 on the house. Naturally it went into foreclosure and Ms. White is back living in an apartment.

by Calculated Risk on 11/27/2009 08:33:00 AM

A little more Dubai news ...

From Bloomberg: Dubai Debt May Be Higher Than $80 Billion, UBS Analysts Say

Dubai... may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

And more: RBS Led Dubai World Lenders, HSBC May Have Most at Stake in UAE

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report today .... HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008, JPMorgan said ...

by Calculated Risk on 11/26/2009 09:39:00 PM

Some Turkey Night reports and futures ...

From The Times: Dubai in deep water as ripples from debt crisis spread

Fears of a dangerous new phase in the economic crisis swept around the globe yesterday ... Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.
...
Although the scale of Dubai’s debts is comparatively modest at $80 billion (£48 billion), the uncertainty spooked the markets ... The FTSE 100 plunged by 171 points to 5,194 — its biggest one-day fall in eight months ...

The French CAC-40 was down 3.4% and the German DAX index was down 3.3%.

In Asia, the Hang Seng is off about 3%, and Nikkei is off 1.8%.

In the U.S, the S&P futures are off about 25 points (Dow futures off 200). Some sources:

Bloomberg Futures.

CNBC Futures

Best to all.

by Calculated Risk on 11/26/2009 05:55:00 PM

From Jon Lansner at the O.C. Register: How banks may lose $430 billion more

Banks are projected to lose $430 billion on commercial real estate loans in the next two to three years [said] Stan Mullin, an associate with California Real Estate Receiverships in Newport Beach
...
Highlight’s of Mullin’s talk:

•$1.4 trillion in commercial loans are coming due in the next five years.
•That’s equal to the same amount that came due in the last 15 years.
•Lenders could take massive losses on their real estate portfolios from 2010-2013.

This is similar to the recent presentation by Dr. Randall Zisler, CEO of Zisler Capital Partners:

A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults).

And from the WSJ in October:

Commercial real-estate loans are the second-largest loan type after home mortgages. More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks.

The Fed presentation states that the most "toxic" loans on bank books are so-called interest-only loans, which require borrowers to repay interest but no principal. Those loans "get no benefit from amortization," the report states.

"Today, most of the borrowers are paying because interest rates are so low, but the question is whether the loans will get paid off when they come due," said Michael Straneva, global head of Ernst & Young's transaction real-estate practice.

And of course this is why the FDIC released the recent Policy Statement on Prudent Commercial Real Estate Loan Workouts

This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined.

And the "value of the underlying collateral" had definitely declined - by 43% on average according to Moody's.

In the end, the size and timing of the losses really depends on the success of the workouts, and I expect the terms on many of these loans will be extended for a number of years - taking advantage of the very low interest rates and hoping property values eventually rebound.

by Calculated Risk on 11/26/2009 02:45:00 PM

Happy Thanksgiving! Make sure to check out the previous post on Dubai.

by Calculated Risk on 11/26/2009 11:01:00 AM

No one saw this coming ...

From Bloomberg: Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Dubai is shaking investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.
...
Moody’s Investors Service and Standard & Poor’s cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World’s plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom ...

And a few articles from the WSJ: Dubai Starts to Untangle Dubai World Fallout

And European Banks Seen Exposed To Dubai World

Most banks on Thursday said their exposure to Dubai and Dubai World is small or declined to comment, but Credit Suisse analysts estimate European banks have about $40 billion in exposure to debt issued by various Dubai city-state entities, including Dubai World.

And from December 2008: Citi Voices Upbeat View on Dubai (ht jb)

With questions about Dubai's looming debt obligations swirling, Citigroup Inc. said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

Citigroup Chairman Win Bischoff was quoted in the bank's statement Monday as saying Citigroup continues to see Dubai as among its "most significant markets."

When there are bad loans to be made, apparently Citi never sleeps.

UPDATES: Brad DeLong suggests it might be Time to Reread the History of Austria's Creditanstalt in 1931...

Interesting time. In Europe, the Creditanstalt's bankruptcy and what followed was what turned the recession into the European Great Depression...

And DeLong excerpts from a Financial Times article by Roula Khalaf: The emirate has a lot of explaining to do

And from Izabella Kaminska at the FT Alphaville: Barclays Capital ‘change their view’ on Dubai

My, my, what a difference a few weeks make.

Earlier this month — when all still seemed relatively well in the UAE emirate of Dubai — Barclays Capital was among those touting Dubai-related debt as a decent investment for clients. The bank even confidently predicted the repayment of the now infamous Nakheel sukuk.

In fact on November 4 — the day Moody’s slashed its ratings on five Dubai government related entities — BarCap analysts wrote:

We expect several developments to act as positive catalysts for Dubai’s sovereign spreads. First, the likely repayment of the Nakheel sukuk in December. Second, Dubai’s ability to raise the second USD10bn tranche with the support of Abu Dhabi. Third, a successful conclusion of the merger between Emaar and Dubai Holding, as well as a solution allowing mortgage providers Amlak and Tamweel to resume lending.

On that basis, we recommend a long position in Dubai sovereign credit and see today’s negative price actions as an opportunity to buy.

There is much more at the link.

by Calculated Risk on 11/26/2009 08:53:00 AM

One of the keys to the housing market is the success of the modification programs. The Treasury Department is expected to release a key measurement next month: the number of permanent modifications for the Making Home Affordable program.

Scott Reckard at the LA Times has an overview: Few mortgages have been permanently modified

Loan-modification limbo is of high concern these days ... even after reporting this month that trial modifications had topped 650,000, the government still hasn't said how many of those loans have been permanently restructured. ...

"You can't claim victory at 500,000 trial modifications and then have half of them drop out," said Paul Leonard, California director for the Center for Responsible Lending, a Durham, N.C.-based advocacy group.
...
Exactly what is holding up the conversions depends on whom you talk to.

"Getting these loans to the finish line is tough" for loan servicers, Chase Home Lending Senior Vice President Douglas Potolsky said ... The main obstacle, he and other bankers said, is borrowers who don't properly complete their paperwork.
...
Getting income documentation is a major problem now that the era of "low doc" and "no doc" loans is long gone, [Sam Khater, an economist with mortgage data firm First American CoreLogic] said in an interview.

We will know more in December, but it might not have been a great idea to loan the money first, and then qualify the borrowers.