- Joined
- 6 September 2008
- Posts
- 7,676
- Reactions
- 68
From Crikey -
The next big problem for US banks
by Glenn Dyer
Judging by their latest results, the next big problem for major US banks appears to be their interests in the commercial property sector: all $US6.7 trillion of it. This is while their problems with home mortgages, foreclosures and bad corporate loans show no sign of improving.
Some of America’s major banks, including Morgan Stanley, Well Fargo, Key Corp, Bank of New York Mellon, Regions Bank and US Bancorp have sent unwanted messages to American investors, markets and regulators that the commercial property sector is tanking quickly.
Money centre giants Morgan Stanley (which lost $US159 million in the second quarter overall) and Well Fargo (a $US3.17 billion profit) confirmed the mounting pressures on the US commercial property market when they reported large losses and surging bad loans in their second quarter reports.
US banks have already lost tens of billions of dollars in home mortgages and corporate loans (and been brought to their knees and saved by the US Government). Now poor quarterly figures for two of the largest lenders and investors in office, retail and industrial property across the US suggest that commercial real estate will be the next front in the financial crisis after the collapse of the housing market. And results from other banks support the notion of a commercial property implosion.
Shopping centres, office blocks and commercial industrial property are selling for huge discounts. General Growth, American’s second largest shopping centre operator is in bankruptcy and the John Hancock Building in Boston was earlier this year sold in a bankruptcy auction for $US660 million, half its purchase price three years ago.
Late last week, in a move little noticed by the markets, Macquarie CountryWide trust sold 75%% of its US holding of 86 retail properties for $US1.3 billion, or around 24% less than it had paid for them in 2005. Its exposure to the US has been cut from 70% to around 25% of its assets.
In recent events:
•Morgan Stanley reported a $US700 million cut on its $US17 billion commercial property portfolio in the second quarter.
•Well Fargo saw its non-performing loans in commercial real estate soar 69%, from $US4.5 bullion to $US7.6 billion in the second quarter.
•Regions Bank, a big regional institution based in the Alabama, saw a $US1.7 billion jump in new problem loans and a $US977 million, or 60% jump in non-performing loans in the second quarter.
•Keycorp reported rising commercial real estate loan losses: it set aside 31% more in provisions for bad loans.
•US Bancorp, based in Minneapolis, said profit fell 76% to $US221 million and its set aside and charge-off for bad loans more than doubled in the quarter.
•SunTrust, based in Atlanta, had a second quarter loss of $US164.4 million, compared with a year-earlier profit of $US530 million and non- performing loans were $US5.5 billion of loans, or a worrying 4.48% of all loans.
Earlier this month the Federal Reserve’s Associate Director of Banking Supervision and Regulation Jon Greenlee said, “…at the end of the first quarter [of 2009], about seven percent of commercial real estate loans on banks’ books were considered delinquent. This was almost double from the level a year earlier.”
Greenlee said there is about $US3.5 trillion of outstanding debt associated with commercial real estate, and banks had about $US1.8 trillion of that in their loan books. That means around $US126 billion of delinquent commercial mortgages on the banks’ books, so far. He said an additional $US900 billion represented collateral for securitised home loans through what’s called Collaterised Mortgage Backed Securities.
“The pace of property sales has slowed dramatically since peaking in 2007, from quarterly sales of roughly $195 billion to about $20 billion in the first quarter of 2009,” he said.
And on Tuesday, the softening commercial property market was a big focus of the questioning of Fed Chairman, Ben Bernanke in his Capitol Hill appearance.
Bernanke warned that a continued deterioration in commercial property, where prices have fallen by about 35% since the market’s peak and defaults have been rising sharply, would present a “difficult” challenge for the economy. He added that one of the main problems was that the market for securities backed by commercial mortgages had “completely shut down”, as it has for home mortgages.
I'm hearing US "commercial mortgage", “alt-A” and “prime” mortgages are hitting record default levels. Will it be big enough to start the next leg down?
Or is the current spin enough to maintain more sideways action?
We may also keep going higher. Many on this thread, and others, talk as if the next leg down is a guarantee.
Many have been doing so for months.
Where is this sideways action you speak of?
Higher on what though? The world was a different place pre crash and at some point all this new debt has to affect the economy negatively. And there is still plenty of bad news.
Drop two horizontal lines on a daily djia chart at roughly 8080 and 9180. Apart from the low (and subsequently V reversal to waterline) I would say at this time the market is still pretty indecisive. The coming weeks might change that if this rally takes a hold.
Higher on improving sentiment and economic statistics.
"End of the world" prices were priced in on the legs down, reality hits, prices rally based on oversold conditions and expected upcoming results ( Earnings and Economic ), results exceed expectations
That is what we are higher on.
It makes no difference if there is bad news, as long as the bad news isn't as bad as what it is expected to be. If it continues to improve on expectations, we will continue to rally.
However if it starts to not meet expectations on a regular basis, we head lower.
Yes, that's exactly the point - a bunch of 'analysts' estimates driving the market because, on average, they low balled the earnings estimates, and now, as Gomer Pile would say, 'surprise, surprise' all can now say those familiar words 'better-than-expected'.
It still belies the fact that earnings are simply abysmal, on average down between 30-35%. So, when do they start pricing in reality of how to pay for stimulis debt and the still growing unemployed?
Check out the earnings figures, for those that actually bother to look past the fluff?
Welcome back Whiskers, from wherever you have been
--------------
And now for something completely different - reality
Hey dude, where's my earnings????
Hi uncle, where does Casey Research get that data from? Personally i would take it with a grain of salt as I do not believe earnings have dropped by such a magnitude.
McDonalds selling big macs for 20c? Nope.
Exxon mobil selling oil for $5/Barrel? Nope.
Windows 7 freeware? Nope.
Wollies giving out cheap veggies? NEVER.
etc etc.
Welcome back Whiskers, from wherever you have been
China Construction Bank Corp. President Zhang Jianguo said yesterday that the nation’s second-largest bank will cut new lending by about 70 percent in the second half to avert a surge in bad debt. Construction Bank plans to extend about 200 billion yuan ($29 billion) of loans, down from 708.5 billion yuan in the preceding six months. The company’s new lending through June 30 was 42 percent more than for all of 2008.
“We noticed that some loans didn’t go into the real economy,” Zhang, 54, said in an interview at the bank’s headquarters in Beijing. “I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast.”
Harry Schultz newsletter
Conclusion: Stand by for a possible bank run & bank holiday on Aug 26th, after the news breaks on the 25th. (FDIC 2nd Qtr. Report)
This is in line with the HSL prediction of a US bank holiday in Aug/Sept.
If you live in the US, get 3 to 6 months household expense money out of banks now.
Could there be a bit of contagion here if there is truth in it and what impact on the markets if money freezes. --------------
explod, could you explain your post a bit more thanks.
There is discussion around Wall Street that the money puored in by the Fed and Government is still short of that required to hold the US banking system afloat. That date is around where some predict (On thier rekoning of the figures) that money will freeze, and like Argentina (I think about 20 years ago, and the UK almost a year or so back) the banks will shut the doors.
Only a rumour mind.
Could there be a bit of contagion here if there is truth in it and what impact on the markets if money freezes. --------------
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?