by Calculated Risk on 7/30/2009 12:26:00 PM

The Star Tribune has a series on small banks in trouble: Lenders Gone Wild

There are three parts:

Part 1: Minnesota’s small banks on the brink

In Minnesota, regulators have seized and closed two banks since 2008 and have ordered 16 others to clean up their balance sheets. Another 65 of the state's 430 banks and thrifts are on a secret watch list, and state banking officials expect more to fail as they are pulled down by bad real estate loans.
...
Foresight Analytics estimates that the nation's 8,000 community banks will suffer losses of $60 billion related to commercial real estate in the next two to three years, and that about 713 banks across the country will fail. Under that scenario, about 19 banks in Minnesota will fail and commercial real estate losses could total more than $2 billion.

That is more than the rumored (and denied) comment about 500 bank failures attributed to FDIC Chairman Bair.

And this is a great warning:

Bank consultant Robert Viering, principal of River Point Group Inc. in Monticello, had that lesson drilled into him when he was a regional credit officer at the former Norwest Bank. A credit manual, circa 1990, warned him and his colleagues: "The pivotal issue in CRE lending is knowing when to stop. Restraint must be initiated by bankers because historically borrowers have been unable to recognize the warning signs. Commercial real estate lending should not be viewed as the cornerstone of a loan portfolio."

Absolutely. The CRE developers just go crazy at the end of every boom; restraint must be initiated by bankers.

Part 2: Credit unions: where the credit flowed too freely

And Part 3 tomorrow: As loans grew, regulators shrank

by Calculated Risk on 7/30/2009 10:28:00 AM

From HotelNewsNow.com: STR reports US performance for week ending 18 July 2009

In year-over-year measurements, the industry’s occupancy fell 7.9 percent to end the week at 67.0 percent. Average daily rate dropped 9.1 percent to finish the week at US$98.13. Revenue per available room for the week decreased 16.3 percent to finish at US$65.77.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 8.7% from the same period in 2008.

The average daily rate is down 9.1%, and RevPAR is off 16.3% from the same week last year.

Comments: This is a multi-year slump. Although the occupancy rate was off 7.9 percent compared to last year, the occupancy rate is off about 12 percent compared to the same week in 2006 and 2007.

Also, business travel is off much more than leisure travel - so the summer months are not as weak as other times of the year. September will be the real test for business travel.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

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

Note: Earlier this month, the seasonally adjusted weekly claims were distorted by changes in the patterns of auto layoffs this year. That is now over.

The DOL reports on weekly unemployment insurance claims:

In the week ending July 25, the advance figure for seasonally adjusted initial claims was 584,000, an increase of 25,000 from the previous week's revised figure of 559,000. The 4-week moving average was 559,000, a decrease of 8,250 from the previous week's revised average of 567,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 18 was 6,197,000, a decrease of 54,000 from the preceding week's revised level of 6,251,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 8,250, and is now 99,750 below the peak of 16 weeks ago. It appears that initial weekly claims have peaked for this cycle.

The level of initial claims has fallen fairly quickly - but is still very high (over 580K), indicating significant weakness in the job market.

Just a reminder ... after earlier recessions (like '81), weekly claims fell quickly, but in the two most recent recessions, weekly claims declined a little and then stayed elevated for some time. I expect weekly claims to stay elevated following the current recession too.

by Calculated Risk on 7/30/2009 12:37:00 AM

by Calculated Risk on 7/29/2009 09:07:00 PM

Think Corus and Guaranty (Texas) ...

From the WSJ: FDIC Poised to Split Banks to Lure Buyers (ht jb)

The Federal Deposit Insurance Corp. ... is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers.

The strategy ... is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.

"We want banks to participate in the resolution process, but we know it's a tough time for banks to participate in the resolution process," said Joseph Jiampietro, a senior adviser to FDIC Chairman Sheila Bair. ... "There are certain situations when assets are so distressed and make up a significant percentage of the balance sheet that strategic buyers are hesitant to participate in the process," said Mr. Jiampietro.

The article quotes Jiampietro as saying the process is "pretty far along" and that a transaction could happen soon. As I said, think Corus and Guaranty Financial. Both will probably be seized as soon as bidders can be found.

This suggests an RTC type entity might also be formed. Interesting times.