by Calculated Risk on 5/16/2009 02:14:00 PM

From the Boston Globe: Sovereign Bancorp reports $817.3m loss

Sovereign Bancorp ... lost $817.3 million in the quarter, compared with a net income of $100.1 million in the same period a year ago. It also reported that it set aside $505 million for bad loans, up from $135 million a year ago. The Philadelphia-based holding company owns Sovereign Bank and was acquired in January by Spain's Banco Santander.

The bank's total allowance for loan losses was $1.3 billion at the end of the quarter. Sovereign also has a large exposure to soured investments: nearly $1 billion in unrealized losses on investment securities - losses it could have to write down as permanent in the future.

It had total assets of $78.1 billion ...

Soverign Bancorp wasn't one of the 19 stress test banks (assets are less than $100 billion) and they are now owned by Banco Santander. But this is an example of the next tier of banks - and of more losses coming.

Click on graph for larger image in new window.

This pie chart shows the breakdown of loans by category that are held for investment ($53.7 billion) from Sovereign Bancorp's 10-Q SEC filing.

If we use the indicative loss rates from the Federal Reserve (more adverse scenario) for each loan category, this would suggest $4.0 to $5.3 billion in losses over the next two years. Note: this doesn't include losses on investment securities.

As an example, the two year indicative loss rate for CRE, nonfarm, non-residential are 7% to 9%. Sovereign Bancorp shows $10.4 billion in assets in this category (excluding C&D), and that suggests two years indicative losses of $730 to $940 million. Soverign might do better or worse depending on their portfolio, but this suggests there are more losses to come.

by Calculated Risk on 5/16/2009 09:06:00 AM

From The Times: Home repossessions jump as downturn continues to put pressure on borrowers

Home repossessions jumped by more than 50 per cent between January and March as the recession continued to take a heavy toll of borrowers.
...
About 12,800 homeowners lost their properties because they could not keep up with repayments in the first three months of the year, up from 8,500 in the same period last year, [Council of Mortgage Lenders (CML)] figures show.
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[I]ncreasing numbers of homeowners are struggling with the burden of their mortgage. About 265,000 borrowers had missed three or more monthly payments between January and March, up from 135,800 in the first quarter of last year, the CML said.
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“We fear a second, more devastating tidal wave of repossessions is coming as unemployment continues to rise, the recession continues and at some point interest rates begin to climb again.” [Shelter, the housing charity, said]

The UK is working through a rule change that required lenders "to prove that they have examined all alternatives to keep borrowers in their homes before seeking a court order" - and that has probably skewed the data. But just like in the U.S., it appears there is a second wave of foreclosures coming.

by Calculated Risk on 5/16/2009 12:35:00 AM

From CNBC: Economic Recovery Still Months Away: Roubini, Rogoff

"People talk about a bottom of the recession in June, but I see it more like six to nine months from now," Roubini said. "The green shoots everyone talks about are more like yellow weeds to me."
...
"I see slow growth for the next couple of years," Roubini said, "even if there is a recovery. Large budget deficits will push out growth."
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"I think there will be a bounce in the second half of the year from the massive stimulus package," [Kenneth Rogoff, professor at Harvard University's Department of Economics] said. "But I think the longer run trend is very slow, so we're vulnerable to dipping down again sometime in the next couple of years, like Japan."

by Calculated Risk on 5/15/2009 07:11:00 PM

Home Depot (Tuesday) and Lowes (Monday) announce results next week, and this might be something to watch!

Residential investment, according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

In Q4 - for the first time - investment in home improvements exceeded investment in new single family structures. This continued into Q1 2009.

Click on graph for larger image in new window.

This graph shows the various components of RI as a percent of GDP for the last 50 years. The most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $162.3 billion Seasonally Adjusted Annual Rate (SAAR) in Q1, significantly above investment in single family structures of $113.7 billion (SAAR).

Let's take a closer look at these two key components of RI:

As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales.

Currently investment in single family structures is at 0.8% of GDP, significantly below the average of the last 50 years of 2.35% - and also below the previous record low in 1982 of 1.20%.

But what about home improvement?

The third graph shows home improvement investment as a percent of GDP.

Home improvement is at 1.15% of GDP, off the high of 1.30% in Q4 2005 - but still above the average of the last 50 years of 1.07%.

This would seem to suggest there remains significant downside risk to home improvement spending.

NOTE: Home improvement is a rough estimate by the BEA - and could be lower. Also, there could be changes in spending patterns leading to a higher percentage of GDP on home improvement.

by Calculated Risk on 5/15/2009 03:55:00 PM

Click on graph for larger image in new window.

This 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.

And while we wait for the FDIC on BFF ...

From the NY Times: G.M. Notifying 1,100 Dealers That They Will Be Dropped

General Motors is telling about 1,100 dealers on Friday that they will lose their franchises by late next year.
...
“They’re dealerships that are in most cases hurting, losing money and in danger of going out of business anyway,” Mark LaNeve, G.M.’s vice president for sales, service and marketing, said in a conference call. “It’s a move that people could argue should have been taken years ago ...”

Why didn't they drop these dealerships earlier? Another example of weak management.

And from CNBC: Goldman, JPMorgan May Be First to Repay TARP

Goldman Sachs and JPMorgan Chase may receive government permission as early as next week to pay back the billions in TARP money they received last fall, sources close to both banks told CNBC.

These are not the first banks to repay TARP funds (several smaller banks have already paid the money back). Goldman received $10 billion in TARP funds, and JPMorgan received $25 billion.