by Calculated Risk on 5/13/2008 10:43:00 AM

Retail sales in April (ex-auto) were decent. However, in real terms - inflation adjusted - retail sales are now below the year ago level.

This graph shows the year-over-year change in nominal and real retail sales since 1993.

Click on graph for larger image.

To calculate the real change, the monthly PCE price index from the BEA was used (April PCE prices were estimated based on the increases for the last 3 months).

Although the Census Bureau reported that nominal retail sales increased 1.8% year-over-year (retail and food services increased 2.0%), real retail sales declined 1.3% (on a YoY basis).

This is a recessionary level for real retail sales.

by Calculated Risk on 5/13/2008 09:35:00 AM

From Bloomberg: Bank of America Sees Higher Losses on Home Equity

[BofA] expects losses to top 2.5 percent of its $118 billion in loans linked to home values ... The bank [last month] projected a loss rate of between 2 percent and 2.5 percent.

And on credit cards:

[BofA] is also seeing a ``recent sharp increase'' in spending on necessities by its credit-card customers. That has curbed retail, travel and entertainment purchases...

Credit cards spending is probably part of the reason retail sales (ex-autos) are holding up a little better than expected. See the WSJ: Weak Autos Push Down Retail Sales

Excluding the gas sector and the auto sector, demand at other retailers last month increased 0.6%.

by Anonymous on 5/13/2008 08:08:00 AM

Bloomberg reports:

May 13 (Bloomberg) -- The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs.

For the first time since 1998, the British Bankers' Association is considering changing the way it sets the London interbank offered rate, according to Chief Executive Officer Angela Knight, who appeared before a parliamentary committee in London today. ``We've put Libor under review,'' Knight said in an interview yesterday. While she declined to discuss specifics, the BBA will announce changes May 30, she said. . . .

While the BBA set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.

``The Libor numbers that banks reported to the BBA were a lie,'' said Tim Bond, head of global asset allocation at Barclays Capital in London. ``They had been all the way along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers.'' . . .

Libor rates jumped after the BBA said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, its biggest gain since November.

For your information, the vast majority of subprime and Alt-A hybrid ARMs--plus a significant number of prime hybrid ARMs--are indexed to the 6-month LIBOR. Option ARMs are frequently indexed to one-month money, and as far as I know are roughly split between the one-month LIBOR and the MTA index (Moving Treasury Average or Monthly Treasury Average, depending on whom you ask. You will also see it called the MAT index. I just work here.) In any event, spikes in short LIBOR rates will most immediately be felt by Option ARM borrowers.

Style sheet question, for those of you in the reportorial class: when did LIBOR get to be "Libor" in the USA?

by Calculated Risk on 5/12/2008 07:00:00 PM

From Bloomberg: JPMorgan to Cut 1 Million Square Feet of Office Space

``We've already identified a million feet that will be eliminated,'' [CEO] Dimon said. ``The other small piece of good news here is that it stops us from having to spend $3 billion to build an investment banking headquarters downtown.''
...
Manhattan office vacancies rose to 6.1 percent in the first quarter, the highest in more than a year as financial firms were beset by mortgage losses cut jobs, Cushman & Wakefield Inc. said in a report last month.

This should help the vacancy rate in New York!

by Calculated Risk on 5/12/2008 05:00:00 PM

Note: reposted at new time. This is an excellent 1 hour radio show!

Here is an outstanding show on This American Life: 355: The Giant Pool of Money

A special program about the housing crisis. We explain it all to you. What does the housing crisis have to do with the collapse of the investment bank Bear Stearns? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.

Tanta and I sincerely appreciate the mention! (in the credits at 58:00)

by Calculated Risk on 5/12/2008 04:05:00 PM

Just like AMBAC, MBIA has forensic experts reviewing individual loans, and they believe they have a "case for material financial compensation". From the conference call:

"The loss of numbers assume zero recovery from any type of remediation. I do not believe that will be the result. For those of you aware of our remediation history, we intend to remediate the deals as vigorously [as we have in the past] -- we have had teams of forensic experts reviewing loans examining whether they should have qualified to have been included in the insured exposure in the first place. We have a case for material financial compensation based upon the diligence we have performed so far."

Other comments (from reader Brian):

"They spent a lot of time on their home equity line of credit (HELOC) and closed-end second-lien (CES) residential mortgage-backed securities (RMBS) portfolio. Of $18.8B portfolio (77% of which was originated in 06/07), 57% or $11.B have loss reserves associated with it. These RMBS deals have cumulative loss expectations generally in the range of 15-35% with a few outliers of 40-60%. They have taken $1.1 B in reserves to date. The originators for their book were Countrywide 55%, Rescap 28% and IndyMac 6% - pretty much a murderer's row of mortgage underwriters!

They also disclosed in the Q&A that they have $50MM of exposure to Vallejo, CA just to put the icing on the cake."

by Calculated Risk on 5/12/2008 01:17:00 PM

Update: from Reuters: Long slump may follow crunch: JPMorgan CEO

Chase & Co Chairman and Chief Executive Jamie Dimon on Monday told bank investors ... the economy may face a longer-term challenge even as financial markets begin to function again, the "slower burn" of a recession that may rival the severity of the 1982 contraction, he said.

These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last through next year and into 2010, he said.

Earlier: Just some headlines from CEO Jamie Dimon on the wire for now.

by Calculated Risk on 5/12/2008 11:01:00 AM

From the Radian conference call this morning:

“We continue to see the poorest relative performance in our Alt-A book and California and Florida continue to heavily influence overall portfolio performance. 60% of the increase in defaults in Q1 was attributable to Alt-A loans and 50% of the additional 1st lien reserves can be attributed to California and Florida . We estimate the peak to trough national price declines in a range between 8-13% using the OFHEO index. That would be in line with the Case Shiller approximated range of 16-26%. We could clearly see declines in areas of California and Florida that are twice the national rate.”

by Calculated Risk on 5/12/2008 09:59:00 AM

From the New York Post: Trouble in Paradise (hat tip blogenfreude)

In the first three months of this year, banks have launched preliminary foreclosure actions - known as lis pendens proceedings - against a record 120 borrowers in East Hampton and Southampton towns.
...
"This problem didn't even exist before," said John Brady, a broker with Coldwell Banker in East Hampton. "They used to pop up once in a while, and you wouldn't even pay attention. Now you expect to see new ones every week."

The Atlanta Journal-Constitution: Tax assessors boggled by housing dip (hat tip James)

For less than the price of a decent used car, you can buy a home in Atlanta today.

Actually, real estate agents list a dozen choices for $10,000 or less.

Step up in price to $20,000 and your choices expand 10 fold.

The prices seem absurd but they are part of a real estate market suffering with rampant foreclosures, mortgage fraud, abandoned investor properties, a collapsing mortgage industry and other ills.
...
Wayne Flanagan, a RE/MAX agent who sells bank-owned properties, said in zip codes like 30310 and 30315 values have taken a nosedive faster than public officials can account for.

"There are some price ranges like $20,000-$80,000 where 90 percent of the properties on the market are foreclosures," Flanagan said. "You've got one bank competing against another. It's a spiraling situation, downward."

Let me know when houses in the Hamptons are selling for the price of used car! The foreclosure problem is everywhere.

by Calculated Risk on 5/12/2008 09:39:00 AM

From Bloomberg: MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens

MBIA Inc. ... posted a net loss of $2.4 billion as the slump in mortgage securities deepened.

The beat goes on.