by Calculated Risk on 3/05/2009 09:56:00 AM

In the Treasury White Paper on the Capital Assistance Program, the Treasury announced that the 19 largest bank are current undergoing stress tests:

Examinations will be conducted across the 19 banking organization with assets in excess of $100 billion, as measured according to the data reported for 2008Q4 in the Board of Governors of the Federal Reserve System Consolidated Financial Statements for Bank Holding Companies.

Paul Kiel at ProPublica has compiled a list of the likely 19 banks by total assets: GMAC, MetLife Among Banks Undergoing Stress Tests

Name	Total Assets (Billions)
1. JPMorgan Chase	2,175
2. Citigroup	1,947
3. Bank of America (1)	1,822
4. Wells Fargo	1,310
5. Goldman Sachs	885
6. Morgan Stanley	659
7. MetLife	502
8. PNC Financial Services	291
9. U.S. Bancorp	267
10. Bank of New York Mellon	238
11. GMAC	189
12. SunTrust	189
13. State Street	177
14. Capital One Financial Corp.	166
15. BB&T	152
16. Regions Financial Corp.	146
17. American Express	126
18. Fifth Third Bancorp	120
19. KeyCorp	105

This shows that the assets are concentrated in just a few large banks.

(1) Note: Data as of Q4 2008. Merrill is not included in the BofA asset numbers. IF added, BofA would have almost $2.5 trillion in assets (ht Evan).

by Calculated Risk on 3/05/2009 08:30:00 AM

Note: Weekly claims is historically a noisy series. So, for initial claims, most analysts use the 4-week moving average - and that increased again this week.

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 28, the advance figure for seasonally adjusted initial claims was 639,000, a decrease of 31,000 from the previous week's revised figure of 670,000. The 4-week moving average was 641,750, an increase of 2,000 from the previous week's revised average of 639,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending Feb. 21 was 5,106,000, a decrease of 14,000 from the preceding week's revised level of 5,120,000. The 4-week moving average was 5,011,000, an increase of 76,750 from the preceding week's revised average of 4,934,250.

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 641,750 the highest since 1982.

Continued claims are now at 5.11 million - just below the record set last week - and 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 initial claims report ...

by Calculated Risk on 3/04/2009 11:59:00 PM

By popular request, an open thread and a few sources for futures and the foreign markets. Hopefully the comments are working better ...

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/04/2009 09:30:00 PM

There was a strong downward revision in non-residential structure investment in the Q4 GDP report. The CRE investment bust is here - and will get much worse based on the Fed's recent Senior Loan Officer Opinion Survey and the Architecture Billings Index.

Click on graph for larger image in new window.

This graph shows investment in lodging (based on data from the BEA) as a percent of GDP. The recent boom in lodging investment has been stunning. Lodging investment is now at 0.33% of GDP - slightly below the all time high set in Q3 2008 - and preparing to cliff dive!

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

Investment in multimerchandise shopping structures (malls) decreased in Q4 2008 to .21% of GDP, after peaking in Q4 2007 at .25% of GDP. This is a pretty steep decline, but now it appears that new mall construction is about to almost stop.

As David Simon, Chief Executive Officer or Simon Property Group, the largest U.S. shopping mall owner said a few weeks ago:

"The new development business is dead for a decade. Maybe it’s eight years. Maybe it’s not completely dead. Maybe I’m over-dramatizing it for effect."

The third graph shows office investment as a percent of GDP since 1972. Office investment decreased slightly in Q4 2008. With the office vacancy rate rising sharply, office investment will probably decline all this year.

Note: In 1997, the Bureau of Economic Analysis changed the office category. In the earlier years, offices included medical offices. After '97, medical offices were not included (The BEA presented the data both ways in '97).

Investment in all three categories - malls, lodging and offices - will decline sharply in 2009.

by Calculated Risk on 3/04/2009 08:04:00 PM

From Atlanta Fed President Dennis Lockhart: On Real Estate and Other Risks to the Economic Outlook A few excerpts. First on the rental market:

I should also comment on the weakening multifamily residential real estate picture. No two rental markets are exactly alike. But to generalize, those markets trending the worst probably share one or more characteristics. They had excessive condo construction or condo conversion activity. Such markets are seeing unsold units return as rentals. They had very high home price appreciation in the years 2004—07 with large amounts of speculative house construction activity. Today, in several markets, houses compete with apartments as rentals. And they have been experiencing high and rising foreclosure rates.

Although Lockhart mentioned that houses are competing with apartments as rentals, he doesn't mention that this is happening for two reasons: 1) homeowners who can't sell their homes (or are "waiting for a better market") are renting their homes, and 2) many REOs are being purchased by cash flow investors as rentals helping to increase rental supply and push down rents.

And on Commercial real estate (CRE):

While historically smaller than residential real estate, commercial real estate (or nonresidential structures) accounts for a not-insignificant portion of the American economy—at least 4 percent of GDP directly and perhaps more, depending on estimates. ...

There are currently some $2.5 trillion of commercial property loans on the balance sheets of financial institutions and in commercial mortgage-backed securities (CMBS) markets. In contrast, residential mortgage debt amounts to about $11 trillion.

Some 25 percent of commercial real estate debt is securitized, compared with 60 percent of outstanding home mortgage debt. The volume of CMBS has more than doubled since 2003, a bit faster than the growth of overall commercial real estate debt.

This is good data. Although the CRE bust will be significant, it will not be as large an impact as the residential bust.

There are several subsectors of commercial real estate: retail, office, hotel, and industrial. All are facing problems.

There is a growing imbalance of retail space for several reasons. A lot of new retail space was added in areas that saw a high level of home construction, much of which has not been absorbed.

This imbalance is aggravated by general weakness in the retail industry. Established retail centers are seeing rising vacancy rates. When an anchor tenant leaves a shopping center, or overall occupancy falls below a threshold level, other tenants are often free to cancel their leases. Industry data indicate that abandoned retail store expansions and store closings have reached levels not seen since the recession and real estate slump of 1991–92.

The hotel subsector is facing excess supply in the face of soft demand. Occupancy rates declined about 8 percentage points in the fourth quarter of 2008, according to industry sources. Summer tourism was hurt by high gas prices, and now business travel is declining as companies scale back in a weak economy.

Also, with the decline in the economy and rising unemployment, office and industrial vacancies have been rising. In virtually all segments of commercial real estate, there is downward pressure on property values because of new construction coming on stream—construction started before the recession fully set in—coupled with the effects of the economic downturn.

Interestingly, the only property type currently withstanding downward pressures is warehouse. This seems to be, perversely, at least partly because of the back-up of inventories resulting from weak consumer spending and adverse retail and manufacturing conditions.

This gives me an excuse, in the next post, to update the graphs of office, mall and hotel investment based on the revisions to Q4 GDP.