by Calculated Risk on 7/31/2009 01:10:00 PM

From an SEC 8-K filed this morning:

As of June 30, 2009, Corus’ subsidiary, Corus Bank N.A. (the “Bank”) had preliminary Tier 1 capital of negative $157 million with a ratio of (2.1)%, and preliminary Tier 1 risk-based capital and total risk-based capital of negative $157 million with a ratio of (3.1)%, as reported in its June 30, 2009 Report of Condition and Income (“Call Report”) filed on July 30, 2009. As of June 30, 2009, the Bank was considered “critically undercapitalized” under the regulatory framework for prompt corrective action (“PCA”).
...
Under the FDI Act, depository institutions that are “critically undercapitalized” must be placed into conservatorship or receivership within 90 days of becoming critically undercapitalized, unless the institution’s primary Federal regulatory authority (here, the OCC) and the Federal Deposit Insurance Corporation (“FDIC”) determine and document that “other action” would better achieve the purposes of PCA.
...
At this point in time ... the Company believes that it is highly unlikely that it will be able to obtain additional outside capital that does not include the provision of substantial assistance by the FDIC or other Federal governmental authorities.
emphasis added

Just a matter of when ...

Also, from the WSJ: Regulators Are Getting Tougher on Banks

Federal regulators have escalated the number of wounded banks they have essentially put on probation ... The Federal Reserve and the Office of the Comptroller of the Currency, two of the primary U.S. banking regulators, have issued more of the so-called memorandums of understanding so far this year than they did for all of 2008, according to data obtained from the agencies under Freedom of Information Act requests.

At the current rate of at least 285 so far, the Fed, OCC and Federal Deposit Insurance Corp. are on track to issue nearly 600 of the secret agreements for the full year, compared with 399 last year. Memorandums of understanding can force financial institutions to increase their capital, overhaul management or take other major steps.

And the FDIC this morning announced twenty-seven cease and desist orders for June.

Consider this your preview for BFF.

by Calculated Risk on 7/31/2009 10:10:00 AM

Note: Any reading below 100 shows contraction for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain In June as Restaurant Performance Index Declined for Second Consecutive Month

The restaurant industry’s economic challenges continued to persist in June, as the National Restaurant Association’s comprehensive index of restaurant activity declined for the second consecutive month. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.8 in June, down 0.5 percent from May and its 20th consecutive month below 100.

“While there are signs that suggest an improvement may be on the horizon, the latest figures indicate that the restaurant industry’s recovery has yet to gain a firm foothold,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators continued to report declines in same-store sales and customer traffic in June, and their outlook for sales growth in the months ahead remains mixed.”
...
Restaurant operators also reported negative customer traffic levels in June, marking the 22nd consecutive month of traffic declines.
emphasis added

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

The restaurant business is still contracting, and although not contracting as fast as late last year, the pace of contraction has picked up over the last two months.

Someone must have eaten the green shoots.

by Calculated Risk on 7/31/2009 08:53:00 AM

The investment slump continued in Q2 ...

Click on graph for larger image in new window.

Residential investment (RI) has been declining for 14 consecutive quarters, and the decline in Q2 was still very large - a 29.3% annual rate in Q2.

This puts RI as a percent of GDP at 2.4%, by far the lowest level since WWII.

The second graph shows non-residential investment as a percent of GDP. All areas of investment are declining.

Business investment in equipment and software was off 9.0% (annualized) and has declined for 6 consecutive quarters. Investment in non-residential structures was only off 8.9% (annualized) and will probably fall sharply over the next year or so.

The third graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures. The graph shows the rolling 4 quarters for each investment category.

This is important to follow because residential tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

Residential investment (red) has been a huge drag on the economy for the last three and a half years. The good news is the drag on GDP will probably end soon. The bad news is any rebound in residential investment will probably be small because of the huge overhang of existing inventory.

As expected, nonresidential investment - both structures (blue), and equipment and software (green) - declined in Q2. If there is a surprise it is how well nonresidential investment in structures held up in Q2 (although we could see this in the construction spending data). This investment will decline sharply soon as many major projects are completed, and few new projects are started.

In previous downturns the economy recovered long before nonresidential investment in structures recovered - and that will probably be true again this time.

As always, residential investment is the most important investment area to follow - and I expect it to turn slightly positive in the second half of 2009.

by Calculated Risk on 7/31/2009 08:30:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2009 (Advance)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.
...
Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first. ...

Real nonresidential fixed investment decreased 8.9 percent in the second quarter, compared with a decrease of 39.2 percent in the first. Nonresidential structures decreased 8.9 percent, compared with a decrease of 43.6 percent. Equipment and software decreased 9.0 percent, compared with a decrease of 36.4 percent. Real residential fixed investment decreased 29.3 percent, compared with a decrease of 38.2 percent.

So PCE decreased (as expected), and the investment slump continued.

Exports and government spending were the positives.

For the stress tests, the baseline scenario for Q2 was minus 1.2%, and the more adverse scenario was minus 4.3%, so, before revisions, Q2 is tracking close to the baseline scenario.

This is the fourth consecutive quarterly decline in GDP; the first time that has happened since the government started keeping quarterly records in 1947.

More to come ...

by Calculated Risk on 7/30/2009 11:15:00 PM

Update as a response to some emails I've received: the "half off" is a running joke and not meant to be an exact amount - as I noted this deal was bought at auction by the lender for less than half the amount owed. And as we've discussed before, CRE loans sometimes have personal guarantees - so the lender could pursue the previous owner (it's hard to add all the caveats to every post). best to all

Actually more than half off of the loan amount ...

From Silicon Valley / San Jose Business Journal: Lender takes Palo Alto's Bordeaux Centre in auction (ht Ross)

Note: the building is actually in Sunnyvale.

California Bavarian Corp.’s Bordeaux Centre has been sold at auction to its lender Wrightwood Capital for less than $15 million.

Developer Mark Mordell, president of Cal Bavarian, ... said he was told the campus sold for less than half the $34 million debt owed on the never-occupied, 124,000-square-foot project begun by Cal Bavarian in 2007 and finished in 2008

This is another never occupied commercial building - like the ones Jim the Realtor showed us in San Diego last night.

by Calculated Risk on 7/30/2009 07:52:00 PM

From the Detroit Free Press: Cash-for-clunkers program to be suspended (ht Basel Too)

The U.S. government will suspend the popular cash-for-clunkers program after less than four days in business, telling Congress that the plan would burn through its $950-million budget by midnight, several sources told the Free Press. ... auto dealers may have already arranged the sale of more than the 250,000 vehicles that federal officials expected the plan to generate.

Sources tell me (no link) that showroom traffic jumped by about 33% at auto dealers over the last week to about the levels of last September. See the following graph:

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

Light vehicle sales last September (before the collapse in October) were at a 12.46 million SAAR. Of course this is just one week of July at that sales rate ... and the program is now suspended. But that means July sales will probably be over 10 million SAAR for the first time this year.

by Calculated Risk on 7/30/2009 04:45:00 PM

The DOL report this morning showed seasonally adjusted insured unemployment at 6.2 million, down from a peak of about 6.9 million. This raises the question (and frequent emails) of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and those workers have exhausted their regular unemployment benefits (and maybe even the extended benefits). So here is a graph ...

Click on graph for larger image in new window.

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are almost 4.4 million workers who have been unemployed for more than 26 weeks (and still want a job). This is 2.8% of the civilian workforce.

Notice the peak happens after a recession ends, and the of long term unemployed peaked about 18 months after the end of the last two recessions (because of the jobless recovery). This suggests that even if the current recession officially ended this month, the number of long term unemployed would probably continue to rise through the end of 2010.

by Calculated Risk on 7/30/2009 04:00:00 PM

Keeping with the recent theme of an end of market day mishmash ... first from the Daily Show (link here if embedded video loads slow)

And from the News-press.com: Downtown Fort Myers condo has 32 stories, and one lonely tale

Victor Vangelakos lives in a luxury condominium tower on the Caloosahatchee River. He never has to worry about the neighbors making too much noise.

There are no neighbors.

Click on graph for larger image in new window.

The first graph shows the S&P 500 since 1990.

The dashed line is the closing price today.

The S&P 500 is up 45.8% from the bottom (310 points), and still off 37% from the peak (578 points below the max).

The S&P 500 first hit this level in Feb 1998; over 11 years ago.

The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 7/30/2009 03:26:00 PM

Hope Now released the Q2 Mortgage Loss Mitigation Statistics today.

Most of the data concerns modifications, but here are couple of graphs on delinquencies and foreclosures.

Click on graph for larger image in new window.

There are now more than 3 million mortgage loans 60+ delinquent based on the Hope Now statistics. This covers approximately 85% of the total industry.

There are far more prime loans delinquent than subprime, although a much higher percentage of subprime (18.4%) vs prime (4.24%).

The second graph shows foreclosure starts and completions.

Foreclosure starts are above 250 thousand per month, and completions close to 100 thousand per month. There is a lag between start and completion, and a number of loans cure or are modified - but it does appear completions will increase in the 2nd half of 2009 based on the surge in starts at the beginning of the year.

Just some data for everyone ...

by Calculated Risk on 7/30/2009 01:51:00 PM

From the WSJ: GSEs Unlikely to Repay U.S. in Full

... "My view is that some assets in the senior preferred will have to be left behind as they come out of conservatorship," Federal Housing Finance Agency Director James B. Lockhart said Thursday in response to a question at a panel discussion in Washington. "That will mean that some of the losses will never be repaid."

The Treasury has agreed to pump $200 billion into each company in order to keep them solvent. In exchange, the government receives senior preferred stock that pays a 10% dividend. So far, it has injected $85 billion in total into the companies, but Lockhart said that figure was likely to rise in the coming months.

Fannie and Freddie together own or guarantee $5.4 trillion in mortgages. ...

Mr. Lockhart said Fannie and Freddie would likely see their reserves continue to decline next year, but could return to strong profits in two to three years.

I'm shocked!