by Calculated Risk on 5/18/2009 09:12:00 PM

From the WSJ: Local Banks Face Big Losses

Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal.
...
Total losses at those banks could surpass $200 billion over that period ...

The WSJ analyzed 940 small and midsized banks, using the Federal Reserve's "more adverse" stress test scenario. The WSJ analysis showed that about two-thirds of the banks, under the "more adverse" scenario, will be below the "level considered comfortable by regulators" without raising additional capital.

The FDIC will be very busy ...

Note: There are about 8,300 FDIC insured institutions. The WSJ analyzed bank holding companies that filed financial reports with the Federal Reserve for the year ended Dec. 31.

by Calculated Risk on 5/18/2009 05:07:00 PM

The Federal Reserve reports that delinquency rates rose sharply in Q1 in all categories.

Click on graph for larger image in new window.

This graph shows the delinquency rates at the commercial banks for residential real estate, commercial real estate and consumer credit cards.

Commercial real estate delinquencies (6.4%) are rising rapidly, and are at the highest rate since the early '90s (as delinquency rates declined following the S&L crisis).

Residential real estate (7.91%) and consumer credit card (6.5%) delinquencies are at the highest levels since the Fed started tracking the data (since Q1 '91).

Although there is credit deterioration everywhere, the rise in these three categories is especially significant. There was also a significant increase in C&I delinquencies (commerical & industrial).

Note: The Fed defines commercial as "construction and land development loans, loans secured by multifamily residences, and loans secured by nonfarm, nonresidential real estate", and many of the problems are probably in the C&D loans. These are the loans that will probably lead to the closure of many regional banks.

Also check out the charge-off rates. The charge-off rate for residential real estate increased from 1.58% to 1.8, and for consumer credit cards from 6.33% to 7.49%.

Just more evidence of severe credit problems at the commercial banks.

by Calculated Risk on 5/18/2009 04:56:00 PM

From Bloomberg: Goldman, JPMorgan, Morgan Stanley Said to Apply for TARP Exit

Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to repay the combined $45 billion they received in October from the government’s Troubled Asset Relief Program, said people familiar with the matter.

The three New York-based banks need approval from the Federal Reserve ...

The refunds would be the first by the biggest banks that participated in the program. As of May 15, 14 of the smaller banks that received capital under the program had already repaid it ...

Selling non-guaranteed debt is a prerequisite for repaying TARP money. ... The banks will also have to decide whether to try to buy back the warrants that the government received as part of the TARP investments.

This will separate the strong banks from the weak.

by Calculated Risk on 5/18/2009 03:44:00 PM

From Bloomberg: FASB Rule Will Force Banks to Move Assets Onto Books

Citigroup Inc. and JPMorgan Chase & Co. will be required starting next year to add billions of dollars of assets and liabilities to their balance sheets under rules approved by the Financial Accounting Standards Board.

The rules [are] effective for annual reporting periods after Nov. 15 ... U.S. regulators said the 19 lenders subjected to stress tests completed this month would have to bring about $900 billion of assets onto their balance sheets because of the FASB changes ...

Note: the stress tests included off-balance sheet commitments.

And from the WaPo: Board to Ban Accounting Practice That Helped Lending Proliferate (ht Michael)

by Calculated Risk on 5/18/2009 01:00:00 PM

Click on graph for larger image in new window.

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) increased to 16 in May from 14 in April from. The record low was 8 set in January.

The increase in April and May followed five consecutive months at either 8 or 9.

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

Press release from the NAHB (added): Builder Confidence Continues To Rise In May

“The fact that the May HMI continued to tick up from April's five-point increase provides confirming evidence that the improved confidence level was no fluke,” added NAHB Chief Economist David Crowe. “This continued increase indicates that home builders feel we’re at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves.”
...
Two out of three of the HMI’s component indexes rose in May. The index gauging current sales conditions rose two points to 14, while the index gauging sales expectations for the next six months rose three points to 27. The index gauging traffic of prospective buyers remained unchanged, at 13.

Regionally, the Northeast posted a three-point gain in its HMI score, to 18, while the South posted a one-point gain to 18, the West rose four points to 12, and the Midwest held even at 14.

by Calculated Risk on 5/18/2009 11:51:00 AM

From Bloomberg: Dollar Libor Drops Most in Two Months as Markets Thaw

The London interbank offered rate, or Libor, for three- month loans slid four basis points to 79 basis points today, the biggest decline since March 19, according to British Bankers’ Association data. It decreased for the past 34 days, including a drop of 11 basis points last week, the most since January.

Anyone with a LIBOR ARM is happy right now.

And a couple of other credit indicators:

There has been improvement in the A2P2 spread. This has declined to 0.47. This is far below the record (for this cycle) of 5.86 after Thanksgiving, and only slightly above the normal spread.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

Meanwhile the TED spread has decreased further over the last week, and is now at 61.97. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.

Last week, FDIC Sheila Bair said "the liquidity crisis is over for good". That might be a little optimistic (some ARS markets are still frozen), but it does appear the Fed has eased the liquidity crisis for now. The Treasury is still working on the solvency issues.

by Calculated Risk on 5/18/2009 10:17:00 AM

From Matt Padilla at the O.C. Register: County absorbs first wave of foreclosures

Banks have seized homes in Orange County at a pace that dwarfs the darkest days of the housing downturn in the 1990s. Yet eager buyers have grabbed those properties, keeping the county's foreclosure inventory in check, according to a special report from MDA DataQuick.

Hold the sigh of relief.

Some economists see a second wave of foreclosures coming.

Click on photo for larger image in new window.

This graphic from the O.C. Register shows where foreclosures are selling - and where they are not selling.

In the low priced areas, first time homebuyers and cash flow investors are buying the foreclosures. But in the high priced areas, there are far fewer buyers - especially since there are few move up buyers.

[F]oreclosure sales appear to be lagging on the coast.

Laguna Beach's 92651 had the highest ratio of unsold foreclosures at 53.8 percent – out of 52 foreclosures, just 24 had sold by April 10. San Clemente's 92672 is right behind with an unsold ratio of 43.9 percent, followed by Laguna Woods' 92637 at 42.9 percent.

Kerry Vandell, finance professor and director of UCI's real estate center, said high prices along the coast cause properties to sell slowly, whether foreclosure or not. For one thing, mortgage rates are higher on bigger loans, he said.

Rates are higher because government-backed mortgages are limited to about $730,000. Anything over that limit is also harder to get.

Laura Pephens, a San Clemente-based banking consultant and director with the California Mortgage Bankers Association, said there is another reason why coastal foreclosures are slower to sell. Banks are more reluctant to lower their asking prices, because the loan balances are bigger.

Here comes the second wave of foreclosures - mostly in mid-to-high priced areas. And these foreclosures will be much harder to sell.

For more:
From the San Francisco Chronicle: More high-end properties sitting on the market

House Price Puzzle: Mid-to-High End and Home Sales: One and Done

by Calculated Risk on 5/18/2009 08:41:00 AM

Press Release: Lowe's Reports First Quarter Sales and Earnings Results

"The economic pressures on consumers remain intense, and bigger ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely," [Robert A. Niblock, Lowe's chairman and CEO said] "But, as spring arrived, we saw relative strength in smaller, outdoor projects."

From the WSJ: Lowe's Earnings Slide 22%, Narrows Revenue Outlook

[Lowe's] now sees [fiscal-year] revenue ranging from down 2% to up 1%, from February's view of down 2% to up 2%. It still sees same-store sales down 4% to 8%.

A 4% to 8% decline in same store sales is a very difficult environment and indicates that home improvement remains very weak.

by Calculated Risk on 5/18/2009 12:04:00 AM

SoCal is shaken, but not stirred. (Magnitude 5.0 quake in LA)

The Housing Market Index will be released on Monday, and housing starts on Tuesday.

The U.S. futures are off tonight:

CBOT mini-sized Dow

Futures from barchart.com

CME Globex Flash Quotes

And the Asian markets. The Asian markets are mostly off tonight (Nikkei off 2.6%)

Best to all.

by Calculated Risk on 5/17/2009 08:59:00 PM

From the Financial Times: Smaller US banks need additional $24bn

Small and medium-sized US banks must raise some $24bn to meet the capital standards set by the government in its stress tests of large institutions, research for the Financial Times shows.

News of the potential capital shortfall could increase pressure on many of the 7,900 US banks that form the backbone of the US financial system.

As many as 500 more banks could close, according to investment bank Sandler O’Neill ... The government’s stress-case would result in capital shortfalls for 38 per cent of the 200 banks below the 19 largest financial institutions ...

Unlike the large banks, it appears these banks will be forced to merge or allowed to fail (and taken over by the FDIC).