by Calculated Risk on 2/26/2009 12:59:00 PM

From CNBC: Troubled Banks Could Get $250 Billion More in Budget

President Barack Obama penciled into his budget on Thursday the possibility that he may request an additional $250 billion to help fix the troubled U.S. financial system.

The figure, described as a "placeholder" and not a specific funding request, would support asset purchases of $750 billion via government financial stabilization programs, administration officials said.

Any additional request to Congress would come on top of the $700 billion financial bailout program enacted last year ...

"Additional action is likely to be necessary to stabilize the financial system and thereby facilitate economic growth," the White House said in budget documents released on Thursday.

What a surprise ...

by Calculated Risk on 2/26/2009 11:59:00 AM

I'm not talking about Cape Fear Bank, although they just entered into a written agreement with the Fed. Another bank to watch for on Friday afternoons ...

I'm more concerned with the stress tests, and I fear they will be inadequate.

Bloomberg reported today: Moody’s May Downgrade More Subprime-Mortgage Debt

Moody’s Investors Service said it’s reviewing all 2005, 2006 and 2007 subprime-mortgage bonds for credit-rating downgrades, covering debt with $680 billion in original balances.

The review reflects an increase in Moody’s expected losses on the underlying loan pools, the New York-based company said in a statement today. Losses for such mortgages backing 2006 securities will probably reach 28 percent to 32 percent, up from a previous projection of 22 percent, Moody’s said.

The ratings firm said that it boosted expected losses based on “the continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates, and progressively diminishing prepayment rates.”

This is extremely timely.

I can understand Krugman's Feelings of despair

... Obama and Geithner say things like,

If you underestimate the problem; if you do too little, too late; if you don’t move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis.

But what they’re actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost.

by Calculated Risk on 2/26/2009 11:24:00 AM

From the FDIC: FDIC Closes on a $1.45 Billion Structured Sale of Distressed Loans

The Federal Deposit Insurance Corporation (FDIC) today announced the conclusion of the sale of $1.45 billion of performing and nonperforming residential and commercial construction loans in distressed markets through the use of two private/public partnership transactions. ...

In the two recent transactions, the FDIC placed the loans, which were exclusively from the failed First National Bank of Nevada, into a limited liability corporation (LLC). The FDIC retained an 80 percent interest in the assets with the winning bidder picking up an initial 20 percent stake. Once certain performance thresholds are met, the FDIC's interest drops to 60 percent. The future expenses and income will be shared on the percentage ownership of the purchaser and the FDIC.
...
The successful bidders on the two transactions were Diversified Business Strategies and Stearns Bank NA. ...

The closure of this sale brings the total amount of assets sold utilizing private/public partnership transactions to approximately $3.2 billion over the last year, in five separate transactions.

Although this press release doesn't provide all the details, there is clearly a market for these assets (the FDIC received 30 bids) - so these bids could help value assets at the 19 largest banks. Unfortunately I doubt they will use these prices ...

by Calculated Risk on 2/26/2009 10:00:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate of 309 thousand. This is the lowest sales rate the Census Bureau has ever recorded (starting in 1963).

Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Note the Red column for January 2009. This is the lowest sales for January since the Census Bureau started tracking sales in 1963. (NSA, 23 thousand new homes were sold in January 2009).

As the graph indicates, sales in January 2009 are substantially worse than the previous years.

The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.

Sales of new one-family houses in January 2009 were at a seasonally adjusted annual rate of 309,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 10.2 percent (±15.4%)* below the revised December rate of 344,000 and is 48.2 percent (±6.8%) below the January 2008 estimate of 597,000.

And one more long term graph - this one for New Home Months of Supply.

The months of supply is at an ALL TIME RECORD 13.3 months in January (this is seasonally adjusted)!

The seasonally adjusted estimate of new houses for sale at the end of January was 342,000. This represents a supply of 13.3 months at the current sales rate.

The final graph shows new home inventory. For new homes, both sales and inventory are falling quickly - since starts have fallen off a cliff.

Note that new home inventory does not include many condos (especially high rise condos), and areas with significant condo construction will have much higher inventory levels.

This is a another extremely weak report. Record low sales. Record high months of supply. More Cliff Diving. I'll have more on new home sales later today ...

by Calculated Risk on 2/26/2009 09:10:00 AM

Another step towards a second bailout or bankruptcy ...

From the WSJ: GM Posts $9.6 Billion Loss, Burns Through $6.2 Billion in Cash

GM's revenue fell as the worsening economic malaise drove most of GM's four regions into the red. The company burned through $6.2 billion in cash in the quarter, less than the $6.9 billion in the three months to Sept. 30.
...
The nation's biggest domestic auto maker said Thursday it lost $30.9 billion for the full year and expects an opinion from its auditors as to whether the company remains a "going concern" when its annual report is issued in March.
...
GM has lost more than $70 billion since 2005 ... The company has relied heavily in emerging markets, especially Latin America, Eastern Europe and Asia, to offset losses at home. But as the economic troubles that began with the mortgage meltdown and banking crisis in the U.S. spread around the globe, GM's is facing losses most everywhere it operates.

by Calculated Risk on 2/26/2009 08:37:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 21, the advance figure for seasonally adjusted initial claims was 667,000, an increase of 36,000 from the previous week's revised figure of 631,000. The 4-week moving average was 639,000, an increase of 19,000 from the previous week's revised average of 620,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending Feb. 14 was 5,112,000, an increase of 114,000 from the preceding week's revised level of 4,998,000.

Click on graph for larger image in new window.

The first graph shows weekly claims and continued claims since 1971.

The four week moving average is at 639,000 the highest since 1982.

Continued claims are now at 5.11 million - another new record - above the previous all time peak of 4.71 million in 1982.

The second graph shows the 4-week average of initial weekly unemployment claims (blue, right scale), and total insured unemployed (red, left scale), both as a percent of covered employment.

This normalizes the data for changes in insured employment.

Another weak unemployment claims report ...

by Calculated Risk on 2/26/2009 01:09:00 AM

From the Financial Times: AIG considers break-up in bid to stay afloat

AIG and the US authorities are in advanced discussions over a radical restructuring that would split the stricken insurer into at least three government-controlled divisions in an attempt to keep it afloat...

Under the plan, the government would swap its current 80 per cent holding in the insurer for large stakes in three units – AIG’s Asian operations, its international life insurance business and the US personal lines business. A fourth unit, comprised of AIG’s other businesses and troubled assets, could also be formed.

In return, the authorities would relax the terms, or even cancel a large portion, of a $60bn five-year loan to AIG and convert $40bn-worth of preferred stock into shares...

AIG was on track to announce the overhaul on Monday, when it is expected to report a $60bn loss with its fourth-quarter results. The board is due to meet on Sunday.

Citi and AIG are keeping us waiting.

by Calculated Risk on 2/25/2009 11:06:00 PM

Another summary post and open thread (for discussion).

Existing home sales in January 2009 (4.49 million SAAR) were 5.4% lower than last month, and were 8.6% lower than January 2008 (4.91 million SAAR). See link for graphs of sales and inventory.

The Treasury announced the Capital Assistance Program today. The detail can be found on the Treasury site: http://www.financialstability.gov/. This included the stress test economic scenarios. Here is the table of the scenarios and graphs of what this means in terms of house prices.

Bernanke testified before the House Financial Services Committee today. Basically he repeated his Senate testimony, but he did argue that progress has been made. Here are some Credit Crisis indicators that suggest that is correct.

And oh yeah, the WSJ is reporting the Citi Deal Is Imminent.

by Calculated Risk on 2/25/2009 08:49:00 PM

Here is our daily "Citi deal is imminent" story.

From the WSJ: Citi Is Near Deal to Boost U.S.'s Stake by Up to 40%

Citigroup Inc. is closing in on an agreement to boost the federal government's stake in the company to as much as 40%, according to people familiar with the situation. A deal could be announced as soon as Thursday.

This could raise some interesting problems in foreign countries:

For example, a Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. As a result, some Citigroup executives are worried that an increased U.S. stake might subject the bank to pressure to relinquish some or all of its ownership of Grupo Financiero Banamex ...

UPDATE: This happened twice today. One government release says one thing, another says something different. I noted that the Treasury White Paper on the Capital Assistance Program said:

These shares can convert at the firm’s discretion (with the approval of their regulator) into common equity if needed to preserve lending in worse-than-expected economic environment at a conversion price set at a 10% discount from the prevailing level of the institution’s stock price as of February 9, 2009.

Nemo notes that the Term Sheet says:

Conversion price is 90% of the average closing price for the common stock for the 20 trading day period ending February 9, 2009, subject to customary anti-dilution adjustments.

One release from the FDIC called the program the "Capital Assessment Program" (and I labeled a couple of charts with that name), but the real name is the "Capital Assistance Program".

by Calculated Risk on 2/25/2009 06:15:00 PM

Form Bloomberg: Lewis Says Merrill, Countrywide Are ‘Stars’ This Year

Bank of America Corp. Chief Executive Officer Kenneth Lewis said Merrill Lynch & Co. and Countrywide Financial Corp., the acquisitions that some analysts say helped push down the bank’s share price, have been “stars” so far this year.

At first glance this seems absurd. One analyst is quoted in the story saying "I almost fell off my chair". However if you separate the acquired toxic assets from the ongoing performance, I can understand Lewis' comments. Countrywide is benefiting from the refinance boom. Most (if not all) of these loans are being sold to Fannie and Freddie (or guaranteed by them).

The key question is how toxic are the toxic assets BofA acquired with Merrill and Countrywide? Oh well, the Capital Assistance Program is here to help.