RSS Feed by Calculated Risk on 10/24/2008 09:23:00 AM
Friday, October 24, 2008
PNC to Acquire National City
Press Release: PNC to Acquire National City
The PNC Financial Services Group, Inc. and National City Corporation today announced that they have signed a definitive agreement for PNC to acquire National City for $2.23 per share, or an aggregate fixed amount of approximately $5.2 billion in PNC stock. Additionally $384 million of cash is payable to certain warrant holders. ...National City was probably the largest regional U.S. bank in serious trouble.
PNC plans to issue to the U.S. Treasury $7.7 billion of preferred stock and related warrants under the TARP Capital Purchase Program subject to standard closing requirements.
Limit Down
by Calculated Risk on 10/24/2008 09:14:00 AM
From MarketWatch: S&P 500 futures contract triggers circuit breaker
The Chicago Mercantile Exchange's circuit-breaker rules went into effect Friday as plunging S&P 500 and Nasdaq 100 futures contracts reached pre-specified limits.This follows a night of cliff diving in Asia and Europe.
The CME limits the S&P 500 futures to a drop of a 60 points and the Nasdaq 100 futures to a drop of 85 points during electronic action.
As an example, the FTSE 100 is off 8.3% as the U.K. economy contracts:
The Office for National Statistics said Friday that the economy contracted a far-bigger-than-expected 0.5% in the third quarter, compared with zero growth in the second quarter. It is the first time the economy has contracted since the second quarter of 1992 and the biggest drop since the fourth quarter of 1990.Should be an interesting day ...
Thursday, October 23, 2008
Fed Marks Down Bear Stearns Assets by $2.7 Billion
by Calculated Risk on 10/23/2008 08:09:00 PM
The Fed has marked down the Bear Stearns assets from $29,526 million to $26,802 million this week. This is a mark down of $2.7 billion or 9.2%. The Fed is now underwater by a little over $2 billion plus lost interest.
Today:
2. Information on Principal Accounts of Maiden Lane LLCLast week:
Millions of dollars
Oct 22, 2008
Net portfolio holdings of Maiden Lane LLC (1) 26,802 Outstanding principal amount of loan extended by the Federal Reserve Bank of New York (2) 28,820 Accrued interest payable to the Federal Reserve Bank of New York (2) 205 Outstanding principal amount and accrued interest on loan payable to JPMorgan Chase & Co. (3) 1,175
2. Information on Principal Accounts of Maiden Lane LLC
Millions of dollars
Oct 15, 2008
Net portfolio holdings of Maiden Lane LLC (1) 29,526 Outstanding principal amount of loan extended by the Federal Reserve Bank of New York (2) 28,820 Accrued interest payable to the Federal Reserve Bank of New York (2) 195 Outstanding principal amount and accrued interest on loan payable to JPMorgan Chase & Co. (3) 1,174
How is Tanta?
by Calculated Risk on 10/23/2008 07:08:00 PM
Whenever Tanta doesn't post for a few days, I receive several emails asking about the health of my good friend and co-blogger. Thanks to everyone for your thoughts and concern.
As long term readers know, Tanta is a former bank officer and mortgage lending specialist who is on extended medical leave recovering from cancer.
Tanta posted earlier today: IndyMac-FDIC Mortgage Modification Plan: Still in the Real World
Tanta's health is a private matter, however in her post she disclosed:
On a personal note: I was in the hospital earlier this week, and I'll be in and out for treatment on an out-patient basis tomorrow and early next week. It's chemo again, unfortunately. Even though I did leave the hospital with better pain pills than I had (yay!), I have no idea when I'll be able to post again. I suspect that if you keep your expectations at or below zero for the next week or so, you're unlikely to be disappointed. And now it's nap time ...I spoke with Tanta yesterday and she was in good spirits and sounded better than she has in some time. Obviously is it bad news that Tanta has to endure chemo again, but I prefer to remember that she suffered through chemo last year and returned as good as ever.
Please no tips. This isn't a cry for sympathy and Tanta has assured me she doesn't need financial help.
Thanks to everyone for your thoughts.
On Greenspan
by Calculated Risk on 10/23/2008 06:10:00 PM
I've received numerous emails concerning Greenspan's testimony today. Greenspan has been criticized for keeping rates too low (see CNN: Culprits of the Collapse), however his far larger mistake was opposing oversight when many people were pointing out the extremely lax lending standards.
So I was happy today that the Q&A focused on this issue ... from the WSJ: Greenspan Admits Some Mistakes Amid Grilling by House Lawmakers
"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief," according to Mr. Greenspan.Greenspan's comments on the economy are also interesting:
The panel chairman, Henry Waxman (D., Calif.) criticized Mr. Greenspan's approach to mortgage regulation while he was Fed chairman. The Fed "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market," Waxman said, but Mr. Greenspan "rejected pleas that he intervene."
...
[W]hen Mr. Waxman pressed "were you wrong" about the benefits of deregulation, Mr. Greenspan responded, "partially." The "flaw" in the assumptions he had over four decades, Mr. Greenspan said, was that lending institutions themselves were best able to protect the interest of their shareholders.
"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Mr. Greenspan said in the text of prepared testimony to the U.S. House Government Oversight and Reform Committee.Greenspan is now saying what many of us were warning about several years ago.
That, in turn, "implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in their 401Ks but in the value of their homes as well," Mr. Greenspan said.
While Mr. Greenspan assured lawmakers that "this crisis will pass" and that the U.S. will end up with a "far sounder financial system," he warned that it won't come quickly.
Mr. Greenspan said a "necessary condition for this crisis to end is a stabilization of home prices in the U.S."
"At a minimum, stabilization of home prices is still many months in the future," he said.
DataQuick: California mortgage default filings
by Calculated Risk on 10/23/2008 05:10:00 PM
DataQuick reports that the new California law that took effect in early September significantly reduced the number of NODs in September. The new law requires lenders to make contact with borrowers at least 30 days before filing a Notice of Default, and the reduction in NODs is probably temporary. Note: according to RealtyTrac, California accounts for about one-third of the nation’s foreclosure activity.
Click on map for larger image.
This graphs shows the NODs by year in California according to DataQuick. NODs for 2008 were estimated with Q4 at the same pace as Q3.
In the early to mid-'90s there was a huge surge in foreclosure activity in California (California had a significant housing correction and recession in the early '90s). That mid-'90s spike in NODs looks almost insignificant now!
Here is the DataQuick report: California mortgage default filings drop amid procedural change
The number of mortgage default notices filed against California homeowners fell last quarter for the first time in three years as a change in the state's formal foreclosure process took effect. If that procedural change hadn't kicked in during early September, indications are that third-quarter default filings would have been about the same as the record number filed in this year's second quarter ...
Mortgage servicers recorded 94,240 "notices of default" on homes during the July-through-September period. That was down 22.5 percent from a revised record of 121,673 in this year's second quarter, and up 29.9 percent from 72,571 in third-quarter 2007, according to MDA DataQuick. The San Diego-based firm's default statistics begin in 1992.
In September the number dropped to 14,995 filings as a new state law took effect early that month. It requires that in many instances lenders must try to contact homeowners delinquent on their mortgage payments, then wait 30 days before filing a default notice.
...
During the first week of September, before the law took effect, roughly 2,000 default notices were filed each business day in California. In the week after the law kicked in, average daily filings plunged to less than 100, then went back up to around 500 daily the final week of September.
"It's unclear just how much foreclosure activity will be time-shifted into future months. We'll know more when we have fourth-quarter numbers. What's interesting is that the surge in activity certainly did level off during the second and third quarters. A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us. Or it may be that those processing the default paperwork are just maxed out," said John Walsh, DataQuick president.
Credit Crisis Indicators: No Progress
by Calculated Risk on 10/23/2008 02:56:00 PM
From MarketWatch: European credit spreads jump to record highs
Gauges that track the risk of European and Asian corporate defaults spiked to record levels Thursday as the outlook for the global economy dimmed and emerging markets came under increased strain.
Credit-default swap indexes compiled by data provider Markit surged through previous record wide levels "amid pessimism over the economic outlook," said Markit vice president Gavan Nolan in a report.
A good sign would be if the daily volatility subsides, and the yield moves up closer to the Fed funds rate, or about 1.25%. Of course the Fed is expected to lower rates next week by anywhere from 25 bps to even 75 bps - so this might be as good as it gets for the 3 month treasury.
Here is a list of SFP sales. No new announcements today, but this will take some time. No Progress.
During a recession, this spread usually increases because the risk of default for lower quality paper increases. However the recent values (over 400 bps) are far in excess of normal. If the credit crisis eases, I'd expect a significant decline in this spread.
Another disappointing day with no progress. Most indicators are slightly worse.
Philly Fed September State Coincident Index
by Calculated Risk on 10/23/2008 02:20:00 PM
Here is the Philadelphia Fed state coincident index release for September.
The indexes increased in 15 states for the month, decreased in 28, and were unchanged in the remaining seven (a one-month diffusion index of -26).
Click on map for larger image.Here is a map of the three month change in the Philly Fed state coincident indicators. Most states are in recession, although a portion of the central U.S. is still growing (from Texas up to Montana).
This is what a recession looks like based on the Philly Fed states indexes.
This is a graph of the monthly Philly Fed data of the number of states with one month increasing activity.Note: the Philly Fed calls some states unchanged with minor changes.
Most of the U.S. was has been in recession since late last year based on this indicator.
IndyMac-FDIC Mortgage Modification Plan: Still in the Real World
by Anonymous on 10/23/2008 01:30:00 PM
I wrote a snotty post at the end of August after Sheila Bair's plan for "affordability modifications" of the former IndyMac loans was announced, the burden of snot wisdom of which was my prediction that Bair was going to discover that it's a lot harder than she thinks to get successful mortgage modifications done on a wide scale in a very short period of time. However, I did express the hope that the Bair plan would prove remarkably successful and indicated my willingness to eat my words should it prove necessary.
Looks like I'll have to stick to my usual dry toast and bananas after all. As Housing Wire reports:
In testimony Thursday on Capitol Hill, Federal Deposit Insurance Corp. chairman Sheila Bair provided the first public update on the FDIC’s loan modification program put into place at IndyMac Federal Bank since it was introduced roughly two months ago. The agency took over IndyMac in July, and announced the loan modification program on Aug. 20; Bair has said that FDIC analysts estimated that 40,000 or so of the 60,000 mortgages more than 60 days in arrears at IndyMac would qualify for a loan modification under the program. . . .So, in two months, just under 40% of borrowers estimated to be eligible have received written mod offers, and of those, just over 20% have responded. We still don't know how many actual modifications that will be, since income verification is still pending on the accepted offers. Nor do we know how many more borrowers have become "eligible" (i.e., 60 days delinquent) since the August estimate.
“Through this week, IndyMac Federal has mailed more than 15,000 loan modification proposals to borrowers, and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures,” she said. “While it is still early in our implementation of the program, over 3,500 borrowers have accepted the offers and many more are being processed.”
Accepting the FDIC’s offer involves signing a modification agreement and mailing in a check for the new payment amount, along with information needed to verify income. It’s unclear how many of the 3,500 that have accepted the offer will ultimately see their loans modified based on verification of their income. Bair did not comment further on the specifics of the modification program in her remarks to the Senate on Thursday.
Certainly 3,500 modifications successfully completed in two months is better than nothing. Then again, I don't think IndyMac's modification rate prior to the FDIC takeover was exactly "nothing," either. Bair doesn't address that, so we still don't know if the FDIC's "expedited" approach has really been measurably better than what IndyMac was already doing. At best, it's probably only marginally better, which wouldn't be so much of a problem if Bair hadn't spent so much time earlier in the year scoring cheap rhetorical points about uncooperative servicers not doing enough to help. In any event, the Bair Plan doesn't seem likely to bring the mortgage crisis to a screeching halt by year-end.
And do note that Bair herself, in her testimony, does not trot out the fashionable line that the delays are all due to securitization rules and red tape:
“Initially, the program was applied only to mortgages either owned by IndyMac Federal or serviced under IndyMac Federal’s pre-existing securitization agreements, which provided sufficient flexibility,” she said in prepared remarks to the Senate Committee on Banking, Housing and Urban Affairs. “However, with their agreement, we are now applying the program to many delinquent loans owned by Freddie Mac, Fannie Mae, and other investors.”That suggests to me it isn't the fact that the loans are securitized that is the major problem. It also suggests that the program is moving out of subprime and well into prime territory in order to find borrowers who can and want to arrive at a 38% mortgage-payment-to-income ratio. I guess that's progress; if you apply the program to borrowers who are, as a class, more likely to be able to afford their mortgages anyway, you do get more successful modifications. But something tells me that's not quite what we all had in mind.
On a personal note: I was in the hospital earlier this week, and I'll be in and out for treatment on an out-patient basis tomorrow and early next week. It's chemo again, unfortunately. Even though I did leave the hospital with better pain pills than I had (yay!), I have no idea when I'll be able to post again. I suspect that if you keep your expectations at or below zero for the next week or so, you're unlikely to be disappointed. And now it's nap time . . .
Roubini: Panic may lead to market shutdown
by Calculated Risk on 10/23/2008 11:56:00 AM
 | Click image for video. This is a 47 minute talk (for those with the time). Note: if clicking on the photo doesn't work, check out the Bloomberg site. |
From Bloomberg: Roubini Says `Panic' May Force Market Shutdown
Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.
``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said.
...
``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.
