by Calculated Risk on 11/15/2009 11:29:00 AM

This will be a busy week for key economic news starting with October Retail sales on Monday, Industrial Production and Capacity Utilization on Tuesday, and Housing Starts and CPI on Wednesday.

Also on Monday, at noon ET, Fed Chairman Ben Bernanke will speak at the Economic Club of New York.

Last week started with several key Fed speeches:

From Atlanta Fed President Dennis Lockhart: Economic Recovery, Small Business, and the Challenge of Commercial Real Estate

I am concerned about the potential impact of CRE on the broader economy. ... there could be an impact resulting from small banks' impaired ability to support the small business sector—a sector I expect will be critically important to job creation.

... A lot of the CRE exposure is concentrated at smaller institutions (banks with total assets under $10 billion). These smaller banks account for only 20 percent of total commercial banking assets in the United States but carry almost half of total CRE loans (based on Bank Call Report data).

Many small businesses rely on these smaller banks for credit. ... Moreover, small firms' reliance on banks with heavy CRE exposure is substantial. Banks with the highest CRE exposure (CRE loan books that are more than three times their tier 1 capital) account for almost 40 percent of all small business loans.

Later in the week, Atlanta Fed Vice President and Senior Economist John Robertson added some more thoughts: Small businesses, small banks, big problems?

Today, the number one challenge for small businesses remains poor sales rather than access to credit. But tomorrow, it will be important that small businesses also have access to funding if they are going to play their traditional role as an engine of growth.

From San Francisco Fed President Dr. Yellen: The Outlook for the Economy and Real Estate

When the weakness of the commercial property market is combined with the muted outlook for housing and consumer spending, you can see why I believe that the overall economic recovery is likely to be gradual and remain vulnerable to shocks. ... it would look something like an “L” with a gradual upward tilt of the base. With such a slow rebound, unemployment could well stay high for several years to come.

From Dallas Fed President Richard Fisher: The Current State of the Economy and a Look to the Future

[L]ooking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued.

And economic data:

Fed: Lending Standards Tighten, Loan Demand Weakens

The U.S. trade deficit increased in September.

Click on graph for larger image.

This graph shows the monthly U.S. exports and imports in dollars through September 2009.

Imports and exports increased in September. On a year-over-year basis, exports are off 13% and imports are off 21%.

The major contributors to the increase in the trade deficit were the increase in oil prices, and more imports from China. Also - the deficit is higher than expected, suggesting a downward revision to Q3 GDP.

And there were three more bank failures on Friday taking the total to 123 in 2009:

For the second week in a row, the TARP lost money on a bank failure.

An amazing story: Orion Bank CEO Had a Plan ...

Unofficial Problem Bank List increases to 507

And some other stories of interest:

Counterparty Risk: The Mortgage Insurers

From David Streitfeld at the NY Times: Housing Agency Says Cash Reserves Are Down Sharply

FHA on DAPs: "Too many homeowners not equipped for home ownership"

And a couple of comments from your humble blogger:

Loan Modifications: Key Numbers not Released

Economic Outlook: Possible Upside Surprises, Downside Risks

Best wishes to all.

by Calculated Risk on 11/15/2009 09:20:00 AM

From Bloomberg: China’s Liu Says U.S. Rates Cause Dollar Speculation

“The continuous depreciation in the dollar, and the U.S. government’s indication, that in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” [Liu Mingkang, chairman of the China Banking Regulatory Commission said] ...

Liu said this has “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.”

President Obama will be in China today, and there will probably be some dicussion of China's exchange rate policy.

by Calculated Risk on 11/14/2009 10:55:00 PM

In his comments with the Unofficial Problem Bank list, surferdude808 noted that the Federal Reserve issued a Prompt Corrective Action order against Orion Bank on Thursday. Orion was seized the following day by the FDIC.

The PCA order makes for interesting reading (Note: Stephen at FUMU Finance wrote to me about this - here is Stephen's post with some background details: Orion Bank - Management's master plan!). From the PCA:

In order to improve its management, the Bank must dismiss Jerry Williams (“Williams”), its current chief executive officer, president, and chairman of its board of directors, from office and as a member of the board of directors, based on the following:

(a) Prior to June 2009, the Bank reached its legal lending limit under Florida law with respect to the aggregate loans outstanding to a borrower and his related interests. In June 2009, Williams permitted the Bank to make loans of an additional approximately $60 million to straw borrowers who were related interests of the borrower referred to above in continuing violation of the Florida legal lending limit statute (the “June 2009 loans”);

(b) the June 2009 loans referred to above, which were made to enable the borrowers to purchase certain low quality assets from the Bank, were underwritten in an unsafe and unsound manner. The loans were made without adequate analysis of the borrowers’ creditworthiness, capacity for repayment, and valuation of collateral offered in support of the loans. Further, the loans were structured in a manner to make it appear that the Bank was reducing its level of classified assets;

(c) the Bank needed additional capital as of June 30, 2009, to avoid being less than well-capitalized. Williams had knowledge that $15 million of loan proceeds from the June 2009 loans referred to above were to be used to purchase common and preferred stock issued by Orion Bancorp, Inc., Naples, Florida (“Bancorp”), the parent holding company for the Bank, and Williams took steps to ensure that the $15 million was promptly used to purchase the holding company stock;

(d) in early July 2009, in response to inquiries from the Federal Reserve Bank of Atlanta (the “Reserve Bank”), Williams stated orally and in writing that the $15 million in capital referred to above was raised “without any financing” provided by the Bank. This statement was false because Williams had information available to him to demonstrate that the Bank intended that the loan proceeds be used as the source of the stock purchase;

(e) as a result of the actions set forth in (a) through (d), above, the Bank, with Williams’ active participation, filed materially inaccurate regulatory reports, made false statements to the Federal Reserve, has suffered additional loan losses, and has failed to comply with provisions of an outstanding Written Agreement designed to require that the Bank properly address its asset quality problems. These actions show that the management of the Bank would be improved without Williams’ service as a senior executive officer or director of the Bank.
emphasis added

Pretty amazing.

by Calculated Risk on 11/14/2009 07:18:00 PM

Gretchen Morgenson at the NY Times writes about the tax loss carry-back¹ "gift" for home builders in the recently signed "Worker, Homeownership and Business Assistance Act of 2009": Home Builders (You Heard That Right) Get a Gift

The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. ... Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.

Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.

That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.

That is quite a Return on Lobbying (ROL), although some of the money went to lobbying for the inefficient homebuyer tax credit.

And, oh, this "gift" will create few if any jobs.

¹ UPDATE: This is really a tax loss carry back to the profitable years.

by Calculated Risk on 11/14/2009 04:52:00 PM

From Barron's: Sam Zell: Too Soon for Dancing

Sam Zell ... said ... that the time isn't ripe because owners of office, retail and warehouse properties and their lenders are living in a dream world, believing that property prices will recover and vacancies will drop. ...

"Everybody is waiting for the Grave Dancer to come in, but at this point property owners won't tango," he told a gathering of prominent investors in downtown Chicago .

When Zell does start buying, he said, hotels are where he plans to play first ...

Zell has bought and sold CRE at the right time before.

However last year at the Milken Conference in Los Angeles, Zell thought CRE would be fine - from my notes:

Sam Zell started by saying we need to separate commercial from residential. Commercial will be fine in his view (not my view). ... Zell isn't talking about new construction (CRE), rather he is talking about prices for existing CRE. He feels there is too much global demand ("liquidity") for prices to fall too far - especially for Class-A buildings.

Watch what he does, not what he says!