by Calculated Risk on 9/15/2007 04:39:00 PM

From the Telegraph: Customers outside a Northern Rock branch in Kingston Upon Thames.

From the Telegraph: Police help to disperse Northern Rock queues (hat tip DannyHSDad)

Northern Rock has apologised to customers who spent a second day queuing to withdraw money after the company asked the Bank of England for emergency funding.

A spokesman has asked customers to remain calm and repeated assurances that money is available.

The bank's website had crashed but is currently running with a message asking users to be patient and claiming that transactions will be dealt with.

Long lines formed at 72 branches across the country even before counters opened this morning.

Here is a Bloomberg article: Northern Rock Experiences Second Day of Withdrawals (hat tip energyecon)

A key question is: Does the UK have something similar to the U.S. FDIC insurance?

I've found this: the Financial Services Compensation Scheme

1. I have my money in a joint account in a High Street bank. How would FSCS pay compensation if the bank failed?

The compensation limit of £31,700 applies to each depositor for the total of their deposits with an organisation, regardless of how many accounts they hold or whether they are a single or joint account holder. In the case of a joint account FSCS will assume that the money in that account is split equally between account holders, unless evidence shows otherwise.

This means that each account holder in a joint account would be eligible for compensation up to the maximum limit.

by Anonymous on 9/15/2007 12:05:00 PM

Because I got up this morning and the first thing I fished out of my inbox involved a review of Easy Al Greenspan's new book, that's why.

If you can think of a better response to that, fire away in the comments. I'm just going to dance.

by Calculated Risk on 9/14/2007 08:35:00 PM

From the FWDailyNews: Midwest commercial real estate index tanks (hat tip vader)

The Midwest led the biggest-ever drop in the national quarterly commercial real-estate index compiled by the Society of Industrial and Office Realtors.

The national index dropped nearly 4.5 points, to 113.7, for the summer of 2007. That is the weakest score since SIOR began compiling the index nearly two years ago.
...
Nationally, the weakness was broad-based, with all 10 components measured in the index down from the spring. The industrial market was the hardest hit, scoring 112.3, down about 7 points. The office market dipped less than 1 point, scoring 114.9.

This article is referring to the August survey. The SIOR puts out a CRE report every quarter (the Q3 report isn't on their website yet), but here is the Q2 report. SIOR is the Society of Industrial and Office Realtors®.

This index might be worth watching.

by Calculated Risk on 9/14/2007 07:27:00 PM

From the Dow Jones: Morgan Stanley Doesn't Like Revised Reddy Ice Deal (hat tip idoc)

Reddy Ice Holdings Inc.'s (FRZ) path to completing its $1.1 billion buyout by GSO Capital Partners LP looks rocky, after the company revealed in a filing that Morgan Stanley, the bank that has agreed to provide financing for the deal, disagrees with amended terms of its merger agreement.

This deal is small compared to many of the other deals in the pipeline, but I think it shows the investment banks are looking for any reason to exit from these LBO deals. I'm not sure Morgan Stanley is objecting to the amended terms - the amendments do not appear detrimental to Morgan Stanley - instead they appear to be arguing that the deal is off simply because they didn't consent to the amended terms. Here is the Reddy Ice SEC Schedule 14A:

Following the execution of the amendment to the merger agreement, GSO informed Morgan Stanley that the amendment had been executed. Morgan Stanley then informed GSO that Morgan Stanley believed that by entering into the amendment without Morgan Stanley's consent, the Buyers had disabled themselves from satisfying certain conditions to Morgan Stanley's commitment to provide the debt financing pursuant to the debt financing commitment letters, and, furthermore, that Morgan Stanley was reserving its rights with respect thereto. In response, GSO reiterated its position to Morgan Stanley—that Morgan Stanley's consent was not required in order to enter into the amendment, and that the Buyers had not disabled themselves in any manner from satisfying all of the conditions to Morgan Stanley's commitment. GSO promptly notified the Company of Morgan Stanley's position and GSO's response to Morgan Stanley.

More work for the lawyers.

by Calculated Risk on 9/14/2007 04:36:00 PM

More on potential 'pier loans' ... (bridge loans by investment banks that stay on the balance sheet, aka 'bridges to nowhere').

From Bloomberg: First Data Bankers Reduce Buyout Loan, Offer Discount

Kohlberg Kravis Roberts & Co.'s bankers, struggling to find investors to finance the purchase of First Data Corp., reduced the loan sale to $5 billion and are offering the debt at a discount...

Credit Suisse, which is leading the financing, will meet with investors Sept. 17 to seek buyers for a seven-year loan at 96 cents on the dollar ... The loans will be offered at 2.75 percentage points more than the London interbank offered rate. Credit Suisse is also offering to lend some investors money to help them buy the debt ...
...
``It's a good sign that they were able to agree to a package to bring to investors,'' said Robert L. Lee, the analyst who covers First Data for KDP Investment Advisors Inc. in Montpelier, Vermont. ``It sounds like the terms are firm.''

Even if this goes through, the banks will still be stuck with substantial pier loans. The total financing consists of $16 billion in loans and another $8 billion of junk bonds.

by Calculated Risk on 9/14/2007 04:07:00 PM

Some background: back in June, Finish Line agreed to acquire Genesco for $1.5 Billion. See: Finish Line to acquire Genesco for $1.5 billion in cash

From Finish Line: Finish Line Receives Letters from UBS Regarding Genesco Transaction (hat tip Brian)

In its September 11, 2007 letter, UBS states, among other things,

"We hereby notify you that we reserve all rights with respect to our obligation to complete the financings as outlined under the commitment letter. While we will continue to pursue this matter in good faith, we are extremely concerned about the apparent deteriorating financial position of [Genesco]. We are continuing to actively monitor this situation, and look forward to your continued cooperation."

In reviewing its concerns regarding Genesco's financial performance, UBS states, among other things, in its September 13, 2007 letter that:

"[O]ur agreement to perform under the Commitment Letter may be terminated if a Material Adverse Effect has occurred with respect to Genesco. As of today, we are not yet satisfied that Genesco has not experienced a Material Adverse Effect."

This is one way to avoid a pier loan.

by Anonymous on 9/14/2007 03:11:00 PM

Maybe readers of this blog will knock out the Federal Reserve's server. We are nerds.

Some highlights:

On consolidation and concentrations in the industry:

For both the 2004 and 2005 HMDA data, nearly 80 percent of the reporting institutions were depositories (commercial banks, savings associations, or credit unions); independent mortgage companies or mortgage companies affiliated with banking institutions or their holding companies accounted for the rest. Although mortgage companies represented only 22 percent of the reporting institutions, they submitted information on more than 60 percent of all the reported loans and applications.

Most lenders reported relatively little home lending. The most active lenders (those providing information on 5,000 or more loans or applications) accounted for about 5 percent of the reporting institutions and nearly 90 percent of all the reported loans and applications.

On the composition of 2006 originations:

For 2006, lenders covered by HMDA reported information on 27.5 million applications for home loans. Almost all the applications were for loans to be secured by one- to four-family (so-called single-family) houses, as follows: 10.9 million applications to purchase a home, 2.5 million to make home improvements, and 14.0 million to refinance an existing home loan. The balance (about 0.1 million) was for loans secured by multifamily dwellings—those for five or more families (table 1 [tables appear after main text]). These applications resulted in nearly 14 million loan extensions. Lenders also reported information on 6.2 million loans they purchased from other institutions and on 411,000 requests for pre-approvals of home purchase loans; the pre-approval requests either were turned down by the lender at the time the pre-approval was sought or (not shown in table) were granted but not acted on by the applicant.

The total number of reported applications and purchased loans fell 2.3 million, or 6 percent, from 2005; most of the decline was for refinancings. The number of applications for loans to refinance an existing loan fell 1.9 million, or about 12 percent; the number declined most likely because short-term interest rates increased from the end of 2005 through much of 2006 and thereby reduced the number of existing loans that could be refinanced at a lower rate. Slower house-price appreciation and, in some areas, outright declines in property values also likely diminished the attractiveness of refinancing or the borrower’s ability to refinance.

On denial rates:

The HMDA data for 2006, like those from earlier years, indicate that lenders approve most of the applications they receive, although the proportion approved or denied varies by loan purpose, type of loan and property, and lien status. In general, denial rates are higher for refinancings and for home-improvement loans than for home-purchase loans, perhaps because of the prequalification and financial counseling activities that many prospective borrowers go through before purchasing a home (table 4). Denial rates are lower for government-backed loans than for conventional loans but are especially high for loans to purchase manufactured homes. Overall, the denial rate for all home loans in 2006 was 29 percent, compared with 27 percent in 2005.

On loan size:

For 2006, about 90 percent of conventional loans for purchase and likewise for refinancing, whether higher-priced or not, were within the conforming loan limit (table 6). Higher-priced loans tended to be somewhat smaller than others; for example, among conventional home-purchase loans, the mean size of higher-priced mortgages was $209,000, compared with $246,000 for others. . . . Among those obtaining conventional home-purchase mortgages, the mean income of individuals [Tanta: I believe this means the total income of all borrowers on an individual loan] with a conforming loan was $82,400, versus a mean income of $258,000 for those with a jumbo loan. And, again among borrowers using conventional loans, those using higher-priced loans either to purchase a home or to refinance had a mean income about 20 percent lower than borrowers not paying higher prices.

On owner occupancy:

After declining in the early 1990s, the share of non-owner-occupant lending among first-lien loans to purchase one- to four-family site-built homes began rising in 1994, and it has risen in every year between 1996 (when it was 6.4 percent) and 2005, when it reached 17.3 percent (table 8). For 2006, the share fell somewhat, to 16.5 percent. Further, in line with the experience for home purchase loans to owner-occupants, the number of conventional first-lien loans to purchase homes by non-owner-occupants fell about 17 percent from 2005.

There's a great deal more in here, including a lot of information on high-priced lending and minority/low-income lending patterns which needs to be digested by your intrepid blogger. But if you don't have a date lined up for tonight, there's 77 pages of HMDA data analysis waiting for you in the Nerd Cave . . .

by Calculated Risk on 9/14/2007 01:52:00 PM

From BusinessWeek: A New Risk to the Credit Markets

The shaky U.S. credit markets will face a critical test over the next few weeks, as companies try to find buyers for hundreds of billions of dollars in short-term debt that is set to expire. Corporate borrowers are expected to struggle in refinancing their debts, and the repercussions may go far beyond the companies in question. ...

The tightest squeeze may come in what's known as the asset-backed commercial paper market. ... About $417 billion worth of asset-backed commercial paper is scheduled to come due during the weeks of Sept. 10 and Sept. 17, or about half of the $959 billion market, according to Sherif Hamid, an investment-grade credit strategist at Lehman Brothers.

For reference, here is the Fed page tracking commercial paper and a couple of charts from the Fed.

by Calculated Risk on 9/14/2007 11:42:00 AM

From MarketWatch: Autos boost August's retail sales

Retail sales rose 0.3% in August, led by a 2.8% increase in auto sales, the Commerce Department said Friday. Excluding motor vehicles, sales fell 0.4%, the biggest decline since last September.

Sales were slightly weaker than expected, but an upward revision to July's figures -- to a 0.5% increase -- put the level of sales closer to expectations.

The ex-auto number is concerning, but overall this report shows sluggish - but not recessionary - consumer spending. If there is an impact from declining mortgage equity withdrawal (MEW), it is still not significant. Hopefully the Q2 MEW numbers will be available next week. I expect MEW to have increased slightly in Q2.

by Calculated Risk on 9/14/2007 09:01:00 AM

UPDATE: From Paul in London. Northern Rock branch in Hounsditch, City of London 3.12pm today.

Photo from the Guardian, credit Sang Tan/AP.

From Bloomberg: Northern Rock Customers Crowd London Branches, Withdraw Money

Hundreds of Northern Rock Plc customers crowded into branches in London today to pull out their savings after the mortgage-loan provider sought emergency funding from the Bank of England ...

2nd Photo from BBC.

The Bank of England said it will provide emergency cash to Northern Rock, Britain's third-largest mortgage provider, in the nation's biggest bailout of a financial institution in 30 years. The rising cost of credit left the lender unable to make new loans and stoked concern among customers about their money.

It looks like the older customers stand in the queue; there is probably an online bank run too.