by Calculated Risk on 7/31/2009 09:24:00 PM

From the WSJ: Colonial Financing Pact Collapses

Colonial BancGroup Inc.'s second-quarter loss widened on big charges and a key financing deal fell through, pushing the company out of compliance with Alabama capital requirements and causing doubts about the company's ability to remain a going concern.
...
In June, the Colonial Bank unit agreed to oversight by the Federal Deposit Insurance Corp. and Alabama Banking Department and to other steps ... a $26 billion institution.

From the SEC 8-K filed today:

Going Concern Assessment
As a result of the above described regulatory actions and the current uncertainties associated with Colonial’s ability to increase its capital levels to meet regulatory requirements, management has concluded that there is substantial doubt about Colonial’s ability to continue as a going concern. The Company expects to update its 2008 financial statements contained in the Company’s Annual Report on Form 10-K, prior to filing its June 30, 2009 Form 10-Q. The Company is working to implement the Capital Action Plan described above which includes strategies to increase capital or to sell the Company in order to address the uncertainties giving rise to the going concern assessment.

Something for another BFF.

by Calculated Risk on 7/31/2009 08:16:00 PM

Mutual Failure
Our oversight, their ethics
We should demand more
by Soylent Green is People
From the FDIC:

Mutual Bank, Harvey, Illinois, was closed today by the Illinois Department of Financial Professional Regulation - Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of July 16, 2009, Mutual Bank had total assets of $1.6 billion and total deposits of approximately $1.6 billion.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $696 million. ... Mutual Bank is the 69th FDIC-insured institution to fail in the nation this year, and the thirteenth in Illinois. The last FDIC-insured institution to be closed in the state was First National Bank of Danville, Danville, on July 2, 2009.

That makes five today ...

by Calculated Risk on 7/31/2009 06:16:00 PM

Bair's Cash for Clunkers
Hasn't run out of money
Four traded so far.
by Soylent Green is People
From the FDIC: Herring Bank, Amarillo, Texas, Assumes All of the Deposits of First State Bank of Altus, Altus, Oklahoma

First State Bank of Altus, Altus, Oklahoma, was closed today by the Oklahoma State Banking Department, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of June 19, 2009, First State Bank of Altus had total assets of $103.4 million and deposits of approximately $98.2 million. In addition assuming all of the deposits of the failed bank, Herring Bank will purchase approximately $64.4 million in assets. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $25.2 million.... First State Bank of Altus is the 65th FDIC-insured institution to fail in the nation this year, and the first in Oklahoma. The last FDIC-insured institution to be closed in the state was American Bank of Commerce, Oklahoma City, on March 26, 1992.

From the FDIC: Stonegate Bank, Fort Lauderdale, Florida, Assumes All of the Deposits of Integrity Bank, Jupiter, Florida

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

As of June 5, 2009, Integrity Bank had total assets of $119 million and total deposits of approximately $102 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $46 million. ... Integrity Bank is the 66th FDIC-insured institution to fail in the nation this year, and the fourth in Florida. The last FDIC-insured institution to be closed in the state was BankUnited, FSB, Coral Gables, on May 21, 2009.

From the FDIC: First Financial Bank, National Association, Hamilton, Ohio, Assumes All of the Deposits of Peoples Community Bank, West Chester, Ohio

Peoples Community Bank, West Chester, Ohio, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of March 31, 2009, Peoples Community Bank had total assets of $705.8 million and total deposits of approximately $598.2 million. ...

The FDIC and First Financial Bank, N.A. entered into a loss-share transaction on approximately $657.6 million of Peoples Community Bank's assets....

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $129.5 million. ... Peoples Community Bank is the 67th FDIC-insured institution to fail in the nation this year, and the first in Ohio. The last FDIC-insured institution to be closed in the state was Miami Valley Bank, Lakeview, October 4, 2007.

From the FDIC: Crown Bank, Brick, New Jersey, Assumes All of The Deposits of First Bankamericano, Elizabeth, New Jersey

First BankAmericano, Elizabeth, New Jersey, was closed today by the New Jersey Department of Banking and Insurance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of July 16, 2009, First BankAmericano had total assets of $166 million and total deposits of approximately $157 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $15 million. ... First BankAmericano is the 68th FDIC-insured institution to fail in the nation this year, and the second in New Jersey. The last FDIC-insured institution to be closed in the state was Citizens Community Bank, Ridgewood, May 1, 2009.

That is four so far ...

by Calculated Risk on 7/31/2009 03:55:00 PM

As we wait for the first bank failure today, let me start with a comment on house prices:

Tech Ticker has a story on house prices today: Housing Bottom? No, the Mother of All Head Fakes. The house price issue is worth some thought this weekend. Although the seasonal adjustment for Case-Shiller appears insufficient, I checked it with some models, and I think it is calculated correctly. I'll post some thoughts on house prices this weekend.

And on vacant CRE, it is hard to beat this, from the WSJ: Giant Warehouses Dot Phoenix Desert Awaiting Imports That Never Came

Along a 15-mile stretch of desert, amid strip malls and unfinished subdivisions, nearly a dozen giant warehouses sit silent and empty. They are relics of this city's dream of becoming a national warehouse hub ...

Today, an empty, half-mile-long warehouse lingers from that vision. The building's 1.2 million square feet could fit 193 full-size copies of the Statue of Liberty. Its parking lot has room for 292 tractor trailers. But on a recent morning the only signs of life were a security guard's trailer, golf cart and bicycle.
...
"It's not a pretty story," says developer Jonathan Tratt ... Mr. Tratt's warehouse is one of 11 storage complexes completed in southwest Phoenix in 2008, with two more set to be finished this year. Those 13 properties combined will have eight million square feet and are now 86% empty ...

And this is a corollary to bank failures, from the Seattle Times: Frontier Financial to be bought by takeover firm (ht Mark)

Frontier Financial and SP Acquisition Holdings announced this morning a deal that will give Frontier shareholders 2.5 million SPAH shares ...

In March, Everett-based Frontier Financial had agreed to submit to tighter supervision by regulators over the way it lends money and manages its operations.

On Wednesday, the company with $4 billion in assets reported a second-quarter loss of $50 million ... Nonperforming assets accounted for 20.5 percent of the company's total assets at the end of June, up from 3 percent a year ago ...

Probably a number of weaker banks will be acquired this year. It is better than being seized by the FDIC.

Click on graph for larger image in new window.

And finally 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.

by Calculated Risk on 7/31/2009 02:57:00 PM

From NY Times: House Votes for $2 Billion Fund to Extend ‘Clunker’ Plan (ht Paul)

The House of Representatives voted to provide an emergency $2 billion for the “cash for clunkers” program on Friday, and the White House declared the program very much alive, even though car buyers appear to have already snapped up the $1 billion that Congress originally appropriated.
...
The Senate, which will be in session next week, will take up the program then.
...
“If you were planning on going to buy a car this weekend using this program, the program continues to run,” [Robert Gibbs, the chief White House spokesman] said. “If you meet the requirements of the program, the certificates will be honored.”

by Calculated Risk on 7/31/2009 01:10:00 PM

From an SEC 8-K filed this morning:

As of June 30, 2009, Corus’ subsidiary, Corus Bank N.A. (the “Bank”) had preliminary Tier 1 capital of negative $157 million with a ratio of (2.1)%, and preliminary Tier 1 risk-based capital and total risk-based capital of negative $157 million with a ratio of (3.1)%, as reported in its June 30, 2009 Report of Condition and Income (“Call Report”) filed on July 30, 2009. As of June 30, 2009, the Bank was considered “critically undercapitalized” under the regulatory framework for prompt corrective action (“PCA”).
...
Under the FDI Act, depository institutions that are “critically undercapitalized” must be placed into conservatorship or receivership within 90 days of becoming critically undercapitalized, unless the institution’s primary Federal regulatory authority (here, the OCC) and the Federal Deposit Insurance Corporation (“FDIC”) determine and document that “other action” would better achieve the purposes of PCA.
...
At this point in time ... the Company believes that it is highly unlikely that it will be able to obtain additional outside capital that does not include the provision of substantial assistance by the FDIC or other Federal governmental authorities.
emphasis added

Just a matter of when ...

Also, from the WSJ: Regulators Are Getting Tougher on Banks

Federal regulators have escalated the number of wounded banks they have essentially put on probation ... The Federal Reserve and the Office of the Comptroller of the Currency, two of the primary U.S. banking regulators, have issued more of the so-called memorandums of understanding so far this year than they did for all of 2008, according to data obtained from the agencies under Freedom of Information Act requests.

At the current rate of at least 285 so far, the Fed, OCC and Federal Deposit Insurance Corp. are on track to issue nearly 600 of the secret agreements for the full year, compared with 399 last year. Memorandums of understanding can force financial institutions to increase their capital, overhaul management or take other major steps.

And the FDIC this morning announced twenty-seven cease and desist orders for June.

Consider this your preview for BFF.

by Calculated Risk on 7/31/2009 10:10:00 AM

Note: Any reading below 100 shows contraction for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain In June as Restaurant Performance Index Declined for Second Consecutive Month

The restaurant industry’s economic challenges continued to persist in June, as the National Restaurant Association’s comprehensive index of restaurant activity declined for the second consecutive month. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.8 in June, down 0.5 percent from May and its 20th consecutive month below 100.

“While there are signs that suggest an improvement may be on the horizon, the latest figures indicate that the restaurant industry’s recovery has yet to gain a firm foothold,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators continued to report declines in same-store sales and customer traffic in June, and their outlook for sales growth in the months ahead remains mixed.”
...
Restaurant operators also reported negative customer traffic levels in June, marking the 22nd consecutive month of traffic declines.
emphasis added

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

The restaurant business is still contracting, and although not contracting as fast as late last year, the pace of contraction has picked up over the last two months.

Someone must have eaten the green shoots.

by Calculated Risk on 7/31/2009 08:53:00 AM

The investment slump continued in Q2 ...

Click on graph for larger image in new window.

Residential investment (RI) has been declining for 14 consecutive quarters, and the decline in Q2 was still very large - a 29.3% annual rate in Q2.

This puts RI as a percent of GDP at 2.4%, by far the lowest level since WWII.

The second graph shows non-residential investment as a percent of GDP. All areas of investment are declining.

Business investment in equipment and software was off 9.0% (annualized) and has declined for 6 consecutive quarters. Investment in non-residential structures was only off 8.9% (annualized) and will probably fall sharply over the next year or so.

The third graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures. The graph shows the rolling 4 quarters for each investment category.

This is important to follow because residential tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

Residential investment (red) has been a huge drag on the economy for the last three and a half years. The good news is the drag on GDP will probably end soon. The bad news is any rebound in residential investment will probably be small because of the huge overhang of existing inventory.

As expected, nonresidential investment - both structures (blue), and equipment and software (green) - declined in Q2. If there is a surprise it is how well nonresidential investment in structures held up in Q2 (although we could see this in the construction spending data). This investment will decline sharply soon as many major projects are completed, and few new projects are started.

In previous downturns the economy recovered long before nonresidential investment in structures recovered - and that will probably be true again this time.

As always, residential investment is the most important investment area to follow - and I expect it to turn slightly positive in the second half of 2009.

by Calculated Risk on 7/31/2009 08:30:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2009 (Advance)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.
...
Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first. ...

Real nonresidential fixed investment decreased 8.9 percent in the second quarter, compared with a decrease of 39.2 percent in the first. Nonresidential structures decreased 8.9 percent, compared with a decrease of 43.6 percent. Equipment and software decreased 9.0 percent, compared with a decrease of 36.4 percent. Real residential fixed investment decreased 29.3 percent, compared with a decrease of 38.2 percent.

So PCE decreased (as expected), and the investment slump continued.

Exports and government spending were the positives.

For the stress tests, the baseline scenario for Q2 was minus 1.2%, and the more adverse scenario was minus 4.3%, so, before revisions, Q2 is tracking close to the baseline scenario.

This is the fourth consecutive quarterly decline in GDP; the first time that has happened since the government started keeping quarterly records in 1947.

More to come ...

by Calculated Risk on 7/30/2009 11:15:00 PM

Update as a response to some emails I've received: the "half off" is a running joke and not meant to be an exact amount - as I noted this deal was bought at auction by the lender for less than half the amount owed. And as we've discussed before, CRE loans sometimes have personal guarantees - so the lender could pursue the previous owner (it's hard to add all the caveats to every post). best to all

Actually more than half off of the loan amount ...

From Silicon Valley / San Jose Business Journal: Lender takes Palo Alto's Bordeaux Centre in auction (ht Ross)

Note: the building is actually in Sunnyvale.

California Bavarian Corp.’s Bordeaux Centre has been sold at auction to its lender Wrightwood Capital for less than $15 million.

Developer Mark Mordell, president of Cal Bavarian, ... said he was told the campus sold for less than half the $34 million debt owed on the never-occupied, 124,000-square-foot project begun by Cal Bavarian in 2007 and finished in 2008

This is another never occupied commercial building - like the ones Jim the Realtor showed us in San Diego last night.

by Calculated Risk on 7/30/2009 07:52:00 PM

From the Detroit Free Press: Cash-for-clunkers program to be suspended (ht Basel Too)

The U.S. government will suspend the popular cash-for-clunkers program after less than four days in business, telling Congress that the plan would burn through its $950-million budget by midnight, several sources told the Free Press. ... auto dealers may have already arranged the sale of more than the 250,000 vehicles that federal officials expected the plan to generate.

Sources tell me (no link) that showroom traffic jumped by about 33% at auto dealers over the last week to about the levels of last September. See the following graph:

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

Light vehicle sales last September (before the collapse in October) were at a 12.46 million SAAR. Of course this is just one week of July at that sales rate ... and the program is now suspended. But that means July sales will probably be over 10 million SAAR for the first time this year.

by Calculated Risk on 7/30/2009 04:45:00 PM

The DOL report this morning showed seasonally adjusted insured unemployment at 6.2 million, down from a peak of about 6.9 million. This raises the question (and frequent emails) of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and those workers have exhausted their regular unemployment benefits (and maybe even the extended benefits). So here is a graph ...

Click on graph for larger image in new window.

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are almost 4.4 million workers who have been unemployed for more than 26 weeks (and still want a job). This is 2.8% of the civilian workforce.

Notice the peak happens after a recession ends, and the of long term unemployed peaked about 18 months after the end of the last two recessions (because of the jobless recovery). This suggests that even if the current recession officially ended this month, the number of long term unemployed would probably continue to rise through the end of 2010.

by Calculated Risk on 7/30/2009 04:00:00 PM

Keeping with the recent theme of an end of market day mishmash ... first from the Daily Show (link here if embedded video loads slow)

And from the News-press.com: Downtown Fort Myers condo has 32 stories, and one lonely tale

Victor Vangelakos lives in a luxury condominium tower on the Caloosahatchee River. He never has to worry about the neighbors making too much noise.

There are no neighbors.

Click on graph for larger image in new window.

The first graph shows the S&P 500 since 1990.

The dashed line is the closing price today.

The S&P 500 is up 45.8% from the bottom (310 points), and still off 37% from the peak (578 points below the max).

The S&P 500 first hit this level in Feb 1998; over 11 years ago.

The second 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.

by Calculated Risk on 7/30/2009 03:26:00 PM

Hope Now released the Q2 Mortgage Loss Mitigation Statistics today.

Most of the data concerns modifications, but here are couple of graphs on delinquencies and foreclosures.

Click on graph for larger image in new window.

There are now more than 3 million mortgage loans 60+ delinquent based on the Hope Now statistics. This covers approximately 85% of the total industry.

There are far more prime loans delinquent than subprime, although a much higher percentage of subprime (18.4%) vs prime (4.24%).

The second graph shows foreclosure starts and completions.

Foreclosure starts are above 250 thousand per month, and completions close to 100 thousand per month. There is a lag between start and completion, and a number of loans cure or are modified - but it does appear completions will increase in the 2nd half of 2009 based on the surge in starts at the beginning of the year.

Just some data for everyone ...

by Calculated Risk on 7/30/2009 01:51:00 PM

From the WSJ: GSEs Unlikely to Repay U.S. in Full

... "My view is that some assets in the senior preferred will have to be left behind as they come out of conservatorship," Federal Housing Finance Agency Director James B. Lockhart said Thursday in response to a question at a panel discussion in Washington. "That will mean that some of the losses will never be repaid."

The Treasury has agreed to pump $200 billion into each company in order to keep them solvent. In exchange, the government receives senior preferred stock that pays a 10% dividend. So far, it has injected $85 billion in total into the companies, but Lockhart said that figure was likely to rise in the coming months.

Fannie and Freddie together own or guarantee $5.4 trillion in mortgages. ...

Mr. Lockhart said Fannie and Freddie would likely see their reserves continue to decline next year, but could return to strong profits in two to three years.

I'm shocked!

by Calculated Risk on 7/30/2009 12:26:00 PM

The Star Tribune has a series on small banks in trouble: Lenders Gone Wild

There are three parts:

Part 1: Minnesota’s small banks on the brink

In Minnesota, regulators have seized and closed two banks since 2008 and have ordered 16 others to clean up their balance sheets. Another 65 of the state's 430 banks and thrifts are on a secret watch list, and state banking officials expect more to fail as they are pulled down by bad real estate loans.
...
Foresight Analytics estimates that the nation's 8,000 community banks will suffer losses of $60 billion related to commercial real estate in the next two to three years, and that about 713 banks across the country will fail. Under that scenario, about 19 banks in Minnesota will fail and commercial real estate losses could total more than $2 billion.

That is more than the rumored (and denied) comment about 500 bank failures attributed to FDIC Chairman Bair.

And this is a great warning:

Bank consultant Robert Viering, principal of River Point Group Inc. in Monticello, had that lesson drilled into him when he was a regional credit officer at the former Norwest Bank. A credit manual, circa 1990, warned him and his colleagues: "The pivotal issue in CRE lending is knowing when to stop. Restraint must be initiated by bankers because historically borrowers have been unable to recognize the warning signs. Commercial real estate lending should not be viewed as the cornerstone of a loan portfolio."

Absolutely. The CRE developers just go crazy at the end of every boom; restraint must be initiated by bankers.

Part 2: Credit unions: where the credit flowed too freely

And Part 3 tomorrow: As loans grew, regulators shrank

by Calculated Risk on 7/30/2009 10:28:00 AM

From HotelNewsNow.com: STR reports US performance for week ending 18 July 2009

In year-over-year measurements, the industry’s occupancy fell 7.9 percent to end the week at 67.0 percent. Average daily rate dropped 9.1 percent to finish the week at US$98.13. Revenue per available room for the week decreased 16.3 percent to finish at US$65.77.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 8.7% from the same period in 2008.

The average daily rate is down 9.1%, and RevPAR is off 16.3% from the same week last year.

Comments: This is a multi-year slump. Although the occupancy rate was off 7.9 percent compared to last year, the occupancy rate is off about 12 percent compared to the same week in 2006 and 2007.

Also, business travel is off much more than leisure travel - so the summer months are not as weak as other times of the year. September will be the real test for business travel.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/30/2009 08:30:00 AM

Note: Earlier this month, the seasonally adjusted weekly claims were distorted by changes in the patterns of auto layoffs this year. That is now over.

The DOL reports on weekly unemployment insurance claims:

In the week ending July 25, the advance figure for seasonally adjusted initial claims was 584,000, an increase of 25,000 from the previous week's revised figure of 559,000. The 4-week moving average was 559,000, a decrease of 8,250 from the previous week's revised average of 567,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 18 was 6,197,000, a decrease of 54,000 from the preceding week's revised level of 6,251,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 8,250, and is now 99,750 below the peak of 16 weeks ago. It appears that initial weekly claims have peaked for this cycle.

The level of initial claims has fallen fairly quickly - but is still very high (over 580K), indicating significant weakness in the job market.

Just a reminder ... after earlier recessions (like '81), weekly claims fell quickly, but in the two most recent recessions, weekly claims declined a little and then stayed elevated for some time. I expect weekly claims to stay elevated following the current recession too.

by Calculated Risk on 7/30/2009 12:37:00 AM

by Calculated Risk on 7/29/2009 09:07:00 PM

Think Corus and Guaranty (Texas) ...

From the WSJ: FDIC Poised to Split Banks to Lure Buyers (ht jb)

The Federal Deposit Insurance Corp. ... is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers.

The strategy ... is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.

"We want banks to participate in the resolution process, but we know it's a tough time for banks to participate in the resolution process," said Joseph Jiampietro, a senior adviser to FDIC Chairman Sheila Bair. ... "There are certain situations when assets are so distressed and make up a significant percentage of the balance sheet that strategic buyers are hesitant to participate in the process," said Mr. Jiampietro.

The article quotes Jiampietro as saying the process is "pretty far along" and that a transaction could happen soon. As I said, think Corus and Guaranty Financial. Both will probably be seized as soon as bidders can be found.

This suggests an RTC type entity might also be formed. Interesting times.