by Calculated Risk on 2/06/2009 10:31:00 PM

From San Francisco Fed President Janet Yellen: The Economic Outlook for 2009 and Community Banks. A few excerpt on a common topic: CRE and non-residential investment:

Nonresidential construction declined modestly at the end of last year but, surprisingly enough, has not yet shown the steep declines that have been expected for some time. However, such declines are almost surely imminent. With business activity slowing and new buildings coming on line, vacancy rates on office, industrial, and retail space are all on the rise. For developers, financing is indeed extremely hard to get. The market for commercial mortgage-backed securities has all but dried up. Banks and other traditional lenders have also become less willing to extend funding. It’s no wonder that my contacts are talking about substantial cutbacks on new projects and planned capital improvements on existing buildings.
...
Many community banks have significant commercial real estate concentrations, and these loans are a particular concern in the current environment. At present, the performance of such loans has deteriorated only mildly. But, as I suggested earlier, we can’t count on that situation to continue, since the downturn in commercial real estate construction is just getting started and is likely to be quite challenging.

by Calculated Risk on 2/06/2009 08:11:00 PM

From the WSJ: Senate Leaders Reach Compromise on Stimulus Plan

Senate Democrats have struck a deal on a $767 billion economic stimulus package, several senators said Friday.

The deal is expected to bring on enough Republicans to ensure support of passage in the Senate, which will likely require 60 votes. Sen. Sherrod Brown (D., Ohio) told reporters late Friday, "We have a deal."
...
The size of the package has been reduced to around $767 billion from the original $885 billion plan the Senate brought to the floor on Monday, Sen. Kent Conrad (D., N.D.), the chairman of the Senate Banking Committee said.

The spending side has been reduced from $349 billion to $263 billion, while the tax credits have been reduced from $342 billion to $324 billion, Conrad said.

It sounds like the ill-conceived homebuyer tax credit made the cut, as CNBC reports:

Senator Kent Conrad, a Democrat from North Dakota, said measures including a homebuyer tax credit and auto tax credit would remain in the final package.

We need to see the details, but it sounds like they made the package smaller and the composition worse.

by Calculated Risk on 2/06/2009 07:51:00 PM

From the FDIC: California Bank and Trust, San Diego, CA, Acquires All of the Deposits of Alliance Bank, Culver City, CA

Alliance Bank, Culver City, California, was closed today by the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with California Bank & Trust, San Diego, California, to assume all of the deposits of Alliance Bank.
...
As of December 31, 2008, Alliance Bank had total assets of approximately $1.14 billion and total deposits of $951 million. In addition to assuming all of the deposits of the failed bank, including those from brokers, California Bank & Trust agreed to purchase approximately $1.12 billion in assets at a discount of $9.9 million. The FDIC will retain the remaining assets for later disposition.

The FDIC and California Bank & Trust entered into a loss-share transaction. California Bank & Trust will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers as they will maintain a banking relationship.
...
The FDIC estimates that the cost to the Deposit Insurance Fund will be $206.0 million. California Bank & Trust's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Alliance Bank is the eighth to fail in the nation this year, and the second in California. The last bank to fail in the state was 1st Centennial Bank, Redlands, on January 23.

The FDIC goes for two this week ...


Update: Haiku from Soylent Green is People:

Alliance? With Whom?
F.D.I.C., plus U.S.
Eight In Oh Nine Now.

by Calculated Risk on 2/06/2009 05:47:00 PM

From the FDIC: Regions Bank, Birmingham, AL, Acquires All the Deposits of FirstBank Financial Services, McDonough, GA

FirstBank Financial Services, McDonough, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Regions Bank, Birmingham, Alabama, to assume all of the deposits of FirstBank Financial Services.
...
As of December 31, 2008, FirstBank had total assets of approximately $337 million and total deposits of $279 million. In addition to assuming all of the failed bank's deposits, including those from brokers, Regions agreed to purchase approximately $17 million in assets. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to the Deposit Insurance Fund will be $111 million. Regions Bank's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. FirstBank is the seventh bank to fail in the nation this year. The last bank to fail in Georgia was Haven Trust Bank, Duluth, on December 12, 2008.

Now you know it is Friday!

Update: Haiku from Soylent Green is People:

Georgia on my mind...
First Bank, number seven gone
Still no end in sight.

by Calculated Risk on 2/06/2009 04:49:00 PM

From Bloomberg: Wells Fargo May Cut Loans for Some Wachovia Customers

Wells Fargo ... offered to cut mortgage balances for some Wachovia Corp. customers by 20 percent ... Wells Fargo mailed letters to those borrowers, asking for proof of current income and a 2007 income-tax statement, bank spokeswoman Debora Blume said today in an e-mail. ...

“We are encouraged by the response we are getting to our outreach efforts, as it means we will be able to help more people with a solution that works,” Blume wrote.

... San Francisco-based Wells Fargo inherited billions of dollars in future losses when it bought Wachovia for $12.7 billion. Wells Fargo said last week that Wachovia’s option adjustable-rate mortgage portfolio has close to $60 billion of impaired loans.

The real cost of the Wachovia purchase was the pending losses on the Wachovia loan portfolio - and most of those losses will come from the $118.7 billion portfolio of “Pick-a-Pay” option ARMs Wachovia acquired in the Golden West Financial acquisition in 2006.

The Wells offer is probably mostly to ex-Golden West borrowers. We can be pretty sure that Wells thinks this will minimize their losses on these loans. Remember Wells is also receiving favorable tax treatment that makes this more palatable (a somewhat hidden bailout from the taxpayers).

by Calculated Risk on 2/06/2009 03:37:00 PM

From CNBC: Treasury's Geithner To Unveil Financial Plan Monday

The Treasury Department Friday said Secretary Timothy Geithner Monday would announce a "comprehensive plan" to stabilize the financial system.

In a noon news conference, Geithner will lay out a "strategy to strengthen our economy by getting credit flowing again to families and businesses," the statement said.

We know when, but not exactly what yet - although the article has more details, and I'm sure more will leak out over the weekend.

To build confidence, this should not only be the first Obama administration bailout of the banks, but also the last. Let us hope they know what the word "comprehensive" means.

by Calculated Risk on 2/06/2009 01:46:00 PM

From CNBC: BofA CEO Lewis: Bank Will Not Need More TARP Funds

Bank of America won't need any more bailout money from the government and hopes to pay back the $45 billion it's already received within three years, CEO Ken Lewis told CNBC.

... Lewis also dismissed speculation of a possible government nationalization of BofA as "absurd" and said the controversial acquisition of Merrill Lynch last year will "turn out to be a good investment over time."
...
"We're going to get on with doing business," he said. "And frankly, we had a pretty good January."

We will see.

by Calculated Risk on 2/06/2009 11:04:00 AM

In January, job losses were large and widespread across nearly all major industry sectors.
BLS, January Employment Report

Here is a look at how "widespread" the job losses are ...

Click on graph for larger image in new window.

This graph shows the cumulative changes in employment starting in August 2007 (red line is total nonfarm employment). Total employment peaked in December 2007, but the graph starts earlier to show the three key areas - construction, retail and manufacturing - that all saw earlier job losses.

Until a few months ago, the total job losses were far less than the combined losses in construction, retail and manufacturing, suggesting other areas of the economy were doing OK.

However starting in September 2008, job losses in other areas of the economy started increasing rapidly. Still these three industries have been hit hard:

Industry	Job Losses	Percent of Industry
Construction	857,000	6.2%
Manufacturing	1,113,000	14.6%
Retail	512,000	3.3%
Total	3,572,000	2.6%

The employment diffusion index from the BLS tells the same story.

A diffusion index is a measure of the dispersion of change. This gives a feel for how widespread job gains and losses are across industries. The closer to 50, the more narrow the changes in employment.

Before September, the all industries employment diffusion index was close to 40, suggesting that job losses were limited to a few industries. However starting in September the diffusion index plummeted. As of January the index is at 25.3, suggesting job losses are now widespread.

The manufacturing diffusion index has fallen even further, from 40 in May 2008 to just 7.8 in January 2009. Although construction employment has been hit hard (and will see further jobs in 2009 with the CRE bust), manufacturing is now the hardest hit industry.

by Calculated Risk on 2/06/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 598,00 in January, and the annual revision reduced employment by another 311,000 in 2008. The economy has lost almost 2.5 million jobs over the last 5 months!

The unemployment rate rose to 7.6 percent; the highest level since June 1992.

Year over year employment is now strongly negative (there were 3.5 million fewer Americans employed in Jan 2008 than in Jan 2007). This is another extremely weak employment report ...

by Calculated Risk on 2/06/2009 01:04:00 AM

From the WSJ: Bailout Talks Turn to More Equity Stakes

The Obama administration's financial-rescue plan is shaping up to include capital injections with tougher terms than the first round and an expansion of an existing Federal Reserve lending facility that could potentially buy up toxic assets ...

Instead of buying preferred shares, as it did before, the government is discussing taking convertible preferred stakes that automatically convert into common shares in seven years.
...
To deal with the toxic assets at the heart of the financial crisis, the administration is considering expanding the Fed's consumer-lending facility, known as the Term Asset-Backed-Securities Loan Facility.

It is pretty amazing how the plan keeps shifting. I think they realize the bad bank is unworkable, but they can't take the next step and preprivatize the insolvent banks.