Commentaries

Commercial real estate loans grow more distressed

August 24, 2009

Realpoint, the ratings firm that specializes in bonds backed by commercial real estate properties, is out with its July delinquency report on loans in CMBS deals and it has lots of great data tidbits on the building pressure on distressed loans.

Commercial real estate and small banks

August 18, 2009

A couple more data points for the commercial real estate and the banks that plowed into the sector during the go-go years earlier this decade. It’s a mess and one that smaller banks and the FDIC will be left to clean up.

Fun commercial real estate figures and charts

August 13, 2009

I just came across this research from the Cleveland Fed that has some scary numbers and charts on commercial real estate. They underscore why the Fed and the FDIC are so worried, particularly about construction and development loans, which are seeing the most stress.

Less can be more

August 10, 2009

It’s good news when a bank reports a decline in the percentage of problem assets on its balance sheet. 

Commercial real estate death watch

August 10, 2009

It’s no wonder that the Federal Reserve has a watchful eye on commercial real estate. Lending hasn’t come back, prices are plummeting and those that poured funds into the sector during real estate boom are getting killed by high vacancy rates and falling rents.

Credit Suisse toxic bonus pool not that hot

August 7, 2009

The 17% return on the Credit Suisse toxic bonus pool so far this year, as reported by the Wall Street Journal, surely soothed hard feelings among bankers who were outraged in December when the bank told 2,000 of them that  bonuses would be linked to the performance of risky leveraged loans and commercial mortgage-backed  securities dumped into a pool called the partner asset facility.

Goldman’s commercial junk pile

August 5, 2009

Goldman Sachs, as I’ve pointed out before, has done a good job reducing its exposure to commerical mortgages by selling off potentially troublesome loans well ahead of the curve.

from Margaret Doyle:

Lloyds calls bottom of loss cycle – early?

August 5, 2009

Lloyds Banking Group's outgoing chairman, Victor Blank, foretold "exciting prospects [and] long-term success" as the bank wrote off 13.4 billion pounds in bad debts, contributing to an overall 4 billion pound loss. The group's assertion that its loan impairments have peaked -- well ahead of when historical precedent suggests -- may also prove a hostage to fortune.
Blank's remarks and chief executive Eric Daniels' thanks to him for his "significant contribution" had an air of surrealism about them. Blank, after all, cooked up the hasty takeover of HBOS that scuppered the formerly cautious Lloyds last autumn, forcing it into government arms. Daniels did nothing to stop him.
Blank is bowing out after losing the confidence of UK Financial Investments, the body that looks after the government's 43 percent stake in the bank. However, UKFI's boss, John Kingman. still defends Daniels, whose old-style banking skills are seen as key to digging Lloyds out of this mess.
The extent of the damage of the HBOS deal is evident from the numbers. No less than 80 percent of the impairments come from its book, which was laden with overvalued real estate, both commercial and residential. Indeed, the cost of bad HBOS loans in the first six months of the year exceeds the amount it spent buying the bank.
In Lloyds' defence, it is dealing aggressively with Blank's unfortunate legacy. It is working through the loan book and identifying the real dross that will go into the Government Asset Protection Scheme (GAPS). Three quarters of the assets affected by the impairment charge are ear-marked for the GAPS.
Moreover, all of the group's new lending (which is significant -- gross mortgage lending, for example, is 18 billion pounds, maintaining its market share at 27 percent), is now done under Lloyds stricter criteria. The group is winding down the "specialist", e.g. self certified, and buy-to-let mortgage categories that proved so tempting to amateur property barons.
Lloyds is also crunching through the integration at top speed. It has always been known for being tight on costs. Indeed, it is a bitter joke in the industry that it drip-feeds job losses -- rather than declaring its target for cuts -- in an effort to avoid political fall-out. Staff numbers fell by 2,619 in the first half, to 118,207. More are surely to come with the group targeting an annual improvement of a full 2 percentage points in its cost income ratio for the next few years.
On the funding side, Lloyds is increasing the maturity of its funding -- despite the higher costs -- though are still concerns the enlarged bank remains overly dependent on wholesale funding which is currently being supplied by central banks and
government guarantees.
So far, each of these initiatives has been dwarfed by the sheer scale of HBOS losses. Normally banking losses peak a year or so after the trough of the recession, which suggests any turning point is at least twelve months away.
Lloyds reckons that the property focus of the HBOS books means that losses have peaked much earlier than they would otherwise have done. The GAPS should also help shield Lloyds from mounting losses.
However, general corporate defaults are likely to rise, as are nemployment-related defaults on unsecured debt. If Lloyds' prediction proves correct, it will have taken a step towards rebuilding its battered credibility. Who knows? Daniels may be able to keep his job after all.

Another wrinkle in the TALF CMBS saga

August 4, 2009

The New Fed has released some modifications on its CMBS TALF program that could be telling as to why one of the CMBS legacy bonds put up as collateral was rejected during the inaugural round.

A commercial real estate horror story

July 29, 2009

The photos speak for themselves in this blog post about the economic devastation in south Florida. Vacant storefront after vacant storefront.