Commentaries
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from Rolfe Winkler:
CRE cliff-diving continues
Moody's/REAL released September data for their commercial real estate price index. Month over month drops have been fast and furious this year.
(Click chart to enlarge in new window)
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-8.6% Mar to Apr
-7.6% May
-1.0% June
-5.1% July
-3.0% Aug
-3.9% Sept
Since the peak in October 2007, CRE prices are down 43%.
Residential real estate has been coming back lately, according to the Case-Shiller index. The composite 20 index rose 1.2% in August, after rising 1.7% the month before and 1.4% the month before that. Again these are month over month changes. The index is still down 11% compared to last year.
There's a lot of skepticism that this indicates we've reached the bottom. Real estate agents will no doubt tell you they have. I doubt many are aware that the GSEs now guarantee a super-majority of all mortgages and that the Fed is printing money to put most of those on its balance sheet. Also ask what they think will happen when the homebuyer tax credit finally goes away next year. Without government support, the housing market wold be a ways down from where we are right now.
Triple-A rated tripe from the ratings agencies
How the ratings agencies must love Stephen Lewis, the lugubrious economics guru from Monument Securities. He’s spotted that two views make a market, even in the whacky world of these bodies who must judge how creditworthy borrowers really are.
Lewis points out that on November 3, a Fitch analyst fretted about China’s property bubble and the risks to its banks. Six days later, rival agency Moody’s decided to raise China’s sovereign debt rating from stable to positive.
What did rating agencies know about AIG?
It’s time to start asking the big credit rating agencies just when they realized that American International Group might pose a systemic risk to the global financial system.
And what, if anything, did the rating agencies do to warn financial regulators of the global crisis that might ensue, if AIG’s debt ratings were suddenly slashed.
from Rolfe Winkler:
Moody’s: CRE prices resume descent
Last month commercial real estate prices took a bit of a breather, falling just 1% after seeing prices fall 9% from March to April and an additional 8% from April to May. Those are fairly stunning rates of decline. In July, the descent picked up steam again, falling 5.1% compared to June.
Commercial real estate prices...renewed steep declines and low transaction volume in July... The [Moody's/REAL Commercial Property Price Index] was down 5.1% from June after having declined by only 1% the prior month. It is now 30.8% below what it was a year earlier and 38.7% below the peak measured in October of 2007.
UBS’ days of wine and CDOs
Expensive wines and toxic assets are rarely mentioned in the same breath.
But that was the talk at UBS during the summer of 2007, when the Swiss banking giant sold some $35 million in soon-to-be rotten collateralized debt obligations to Pursuit Partners, a Connecticut hedge fund, which is now suing the bank.
Last week, a Connecticut judge ruled that Pursuit had presented sufficient evidence that UBS sold the CDOs even though the bank had confidential information that Moody’s Investors Service was planning to slash its credit ratings on those subprime-backed securities.
from Rolfe Winkler:
Chart of the day: CMBS delinquencies
The delinquency rate for commercial mortgage-backed securities continues to rise.
(Click chart to enlarge in new window)
From Moody's (no link):
Moody's ... latest CMBS Delinquency Tracker (DQT) records the aggregate rate of delinquencies among US CMBS conduit and fusion loans at 3.23%, based on data through the end of August...
from Neil Unmack:
Accountants to the rescue
Moody's has published some interesting research on how European companies’ pension deficits have emerged from the last few months of financial mayhem, and the impact of accounting practices on calculating their current deficits.
Top of the list for investment nous comes Rolls Royce, whose pension assets gained eight percent in 2008 after the company reduced exposure to equities in 2007. Bottom of Moody’s 20-strong sample was Shell, whose pension assets tumbled 29 percent, according to the rating company's estimates. The average decline was 14 percent.
This decline means that European companies’ pension obligations are on average 93 percent funded -- more or less in line with the agency’s forecasts, and far ahead of their U.S. counterparts.
But let’s not get too jubilant just yet.
Moody’s notes that the results have been boosted by accounting rules that allow European companies to discount their pension obligations at a rate derived from high-quality corporate bond spreads—very handy given the spike in yields last year. This crops up as an actuarial gain in the pension footnote.
One European company booked a reduction in its pension deficit of between 15 and 20 percent as a result of actuarial gains, Moody’s notes, while 14 of the 20-strong sample booked reductions of 5 percent or more. (Actuarial gains, of course, aren’t limited to changes in the discount rate, Moody’s stresses).Â
Nonetheless, the concern is that falling real bond yields, if not matched by rising asset prices, will cause companies' pension funding levels to fall further—forcing them to record larger deficits and stump up more cash.
World Bank, Moody’s fighting for hearts and minds of stocks
Has it really come to this? Reuters is reporting that U.S. stock futures point to strong start to the day due to ratings firm Moody’s Investors Service affirmation of the U.S. AAA rating. This comes just one day after the World Bank’s call for a 2.9% decline in global output this year had stocks go splat around the world.
When the World Bank is the main catalyst for the downside and Moody’s affirming the US AAA rating – something few expect the three major ratings firms to change anytime soon – it’s safe to say that that something else is going on.
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