Deterioration in our homebuilder portfolio was more rapid than anticipated and we are beginning to see weakness in related sectors. Even so, our overall credit quality remained strong during the quarter relative to peer banks.
Nonperforming assets at March 31, 2008, were $132 million, or 0.23 percent of total assets. This compares with $57 million, or 0.10 percent of total assets, at December 31, 2007, and $42 million, or 0.08 percent of total assets, at March 31, 2007. The increase in nonperforming assets versus year-end was due primarily to a $55 million increase in nonperforming loans in the construction portfolio, virtually all attributable to the homebuilder sector, and an $18 million increase in commercial and industrial nonperforming loans.
Home builders in trouble? hoocodanode?
In first quarter 2008, the total provision for credit losses was $80 million, compared with a total provision for credit losses of $60 million in fourth quarter 2007, and a total provision for credit losses of $5 million in first quarter 2007.
1500% increase in credit loss provision in one year? Wow. All is well....
chickenlittle: and all those bad bonds et al are tied to someone's bottom line.
My parents' monthly pension payments (from a private employer) was cut by $30 this year. How's that for credit squeeze? Higher food, higher gas and lower income. And how is the economy suppose to turn around in few weeks/months?
FirstFed and Downey are the canaries in the coal mine for what's happening under the surface at the mortgage arms of Wachovia, Wells, WaMu, and Countrywide.
The finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that's true for the nation as a whole, a survey of all 50 state fiscal directors concludes.
sum of the parts calc. Need I attend MIT to understand the math?
Wall street may soon want to think about splitting this entity, selling off the junk to, say, bolivia, and re-branding the good stuff. Now, where is the good stuff?
No doubt the market will go up on this news - the clowns at Marketwatch and are even trumpeting the return of financials as things to buy - hahaha! DOW 13,000 next week, barring something unexpected... of course, even an asteriod impact at this point would be seen as a good thing by the market!?
I think my call of the Recession never being announced and people standing in soup lines (or, in the case recently, hoarding food) while the market keeps on going up is looking more and more likely. This may be the first Recession ever where the market completely decouples from reality, which will let The Powers That Be claim that there is no Recession while quietly altering the inflation numbers, hiding the real unemployment figures, etc. It's nice to know that the Big Players in the market will still be able to make their fortunes while everyone else is crushed under rising prices and vanishing jobs. "Trickle down" theory of economics indeed!
So they had a net 217 properties and got rid of 53. Roughly 1/4 of the total inventory. Was it Wachovia that moved 1/2 of the properties ? FED is in a bad environment out there.
It's nice to finally see FED release a report that shows the true nature of their perfromance. Maybe they'll stop their share buyback program now.
FED will go up on the news. It seems in financials that any news, good or bad, causes a rise.
I think what happens is no matter what the news, it's spun as good. It's either things have turned around or they've now disclosed all the bad and only good remains. When there's no news, people have to dig below the headlines for info and they see reality and the financials drift down.
The joke is that much of the over $50 Trillion in U.S. debt was serviced by the creation of more debt. Not by the production of goods and services.
Moreover, the above debt is the foundation of the assets of much of America's balance sheets in financial institutions, pension plans, and individuals retirement accounts.
If the debt isn't being serviced, the debt doesn't have much value.
Now we have to figure out what is the real value of the tens of trillions of mortgages, municipal debt, corporate debt, private equity debt, student loan debt, credit card debt, and on and on....
And think, CR thinks Roubini is too pessimistic. We might be hitting $5 Trillion in defaults before the end of the year at this RATE of deterioration.
The loans under the same terms and conditions were made 2-4 years ago. There has been no major change in employment rates. Therefore, the Allowance models were flawed from inception. The past 2-4 years' financial statements must be restated and the CEO and CFO of every publicly traded lender that has undergone restatement must, under Section 404 of the Sarbanes-Oxley Act, return all incentive pay based on performance.
That is, unless no one in Congress or the White House really gives a crap.
safe_as_apartments writes:
OT: CNN reports that Bush will stimulate the economy at 9:20 this morning. Fasten your seat belts.
I think today os the first of the stimulus checks so Bush will ned to remind people they are for plasma tvs and other junk and the cheques should not be saved, used to pay down debt, stuck up on the wall, etc etc. Gotta keep that economy strong, don't want a recession after all...
How can you sell those calls even for near term their spread bid/ask is horrible.
someone did sell 109 naked 17.5 C for 1.35 calls on the bid when the stock poped to 17.5 but I can not see how can selling spread in this bid/ask diff can work.
I live in Metro DC and about 6 months ago I saw several First Fed branches all advertising 13 month 5.5% CDs. I was like hey, thats a good deal. When I went to open one the branch was now a different bank. Basically, First Fed sold them off to get some cash in light of this info to stop the bleeding. This is no different a situation that Bank United down in South Florida, they went big into NegAmOptARMs and they had one of the most generous online savings rates out there. Now they are completely off the online savings radar screen. Any bank that was hot & heavy into loose mortgage lending, tossed juicey savings/CD rates (IndyMac, 1stFed, CountrySlide, AMTrust etc.). But its just not enough and the smart money realizes the fear/desparation and is not about to put its money there.
High fuel and food prices, coupled with "shrinking" income gains and falling home values pulled down consumer sentiment in April, according to a Friday report. The U.S. consumer sentiment index declined to 62.6 in April -- the lowest level in 26 years -- from 69.5 in March, according to a Friday report from University of Michigan/Reuters. An earlier estimate for April was 63.2. Economists surveyed by MarketWatch were looking for a final April result of 63.0. The expectations index fell to 53.3 - the lowest level since November 1990 -- from 60.1 in March.
I remember seeing somewhere a chart that showed a perfect inverse correlation between consumer sentiment and gas prices. So I wonder what this 26 year-low means other than gas prices are higher than they've ever been.
If the consumer is in massive re-trench mode, and committing less (than an already abysmal amount) to retirement savings to meet increasing cost of basic necessities, where is the demand for stocks coming from?
Looking past the deep valley is easy for the CNBC bubblevisionistas to do but not so much for the masses sinking into deep despair.
Delta Air Lines Inc. CEO Richard Anderson and Northwest Airlines Corp. CEO Douglas Steenland told Congressional committees and other interested parties on Thursday a merger of the two carriers would likely mean roughly 1,000 job cuts at the combined airline's headquarters.
A record low reading for sentiment is BULLISH for stocks, because it can only go up from here. How much worse can it get? See, absolutely everything negative is eternally priced in, way in advance, because the market anticipates sunshine.
I am hoping for more of a short squeeze, maybe up to the 20 dollar range.
I had some 35-45 and 40-50s back when the stock popped from 35 to 40.
I still have the calls I bought at 35 and 45 (they are worthless).
So I will just sell more 20 or 22 calls, when we reach around 20$. These are all Jan 09 calls.
Long enough that any squeezes can happen and the margin man doesn't ask for too much.
If I had to open new positions, I would wait for 20$, can sell 20-30 call spreads. Selling 17-25 call spreads is a wee bit on the risky side. There is a lot of short fuel that needs to cover.
Short term options on FED, DSL or no better than a dice roll. No premium and too much risk. Selling long term near the money call spreads on short covering runs (this stock could go up 5-8$) is probably fairly safe. Limited risk, excellent payoff and high probability that the company actually goes bankrupt. You can't beat that in a regular market.
The volatility we have for the next couple of years will be a real money maker if you can keep your head on.
Anyone who has never worked with options or leverage, my 2cents, don't leverage, you will get killed even if you are right.
lama writes: [... T]he CEO and CFO of every publicly traded lender that has undergone restatement must, under Section 404 of the Sarbanes-Oxley Act, return all incentive pay based on performance.
That is, unless no one in Congress or the White House really gives a crap.
When I lived in SoCal I brokered loans to "First Dread" as I liked to call them. I have cute names for pretty much all of the wholesalers.
They were conservative back in the 90's but I noticed when a client from San Diego was buying property here, she had quite a few loans from First Fed and she was a poor risk if the housing market deflated, which it is currently doing.
She was leery about buying more property (this was in 05) but it seemed like an addiction for her. Many others as well.
She had 3 or 4 loans with First Dread...
I guess they got a little too aggressive during the boom.
Very nice and pithy post Tanta. I'm impressed. Thanks.
Union Bank of California reports, too:
Expired
Deterioration in our homebuilder portfolio was more rapid than anticipated and we are beginning to see weakness in related sectors. Even so, our overall credit quality remained strong during the quarter relative to peer banks.
Nonperforming assets at March 31, 2008, were $132 million, or 0.23 percent of total assets. This compares with $57 million, or 0.10 percent of total assets, at December 31, 2007, and $42 million, or 0.08 percent of total assets, at March 31, 2007. The increase in nonperforming assets versus year-end was due primarily to a $55 million increase in nonperforming loans in the construction portfolio, virtually all attributable to the homebuilder sector, and an $18 million increase in commercial and industrial nonperforming loans.
Home builders in trouble? hoocodanode?
In first quarter 2008, the total provision for credit losses was $80 million, compared with a total provision for credit losses of $60 million in fourth quarter 2007, and a total provision for credit losses of $5 million in first quarter 2007.
1500% increase in credit loss provision in one year? Wow. All is well....
Yum
What is the total mortgage debt in America including HELOCs?
If we assume a 20% default rate, we could be looking at over $2 Trillion dollars of defaults just with mortgages.
Add in municipalities, CRE, private equity, junk corporate debt, student loans, ect.....
The trillions keep getting bigger and bigger.
chickenlittle: and all those bad bonds et al are tied to someone's bottom line.
My parents' monthly pension payments (from a private employer) was cut by $30 this year. How's that for credit squeeze? Higher food, higher gas and lower income. And how is the economy suppose to turn around in few weeks/months?
More correctly, Jeebus.
FirstFed and Downey are the canaries in the coal mine for what's happening under the surface at the mortgage arms of Wachovia, Wells, WaMu, and Countrywide.
The finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that's true for the nation as a whole, a survey of all 50 state fiscal directors concludes.
sum of the parts calc. Need I attend MIT to understand the math?
Wall street may soon want to think about splitting this entity, selling off the junk to, say, bolivia, and re-branding the good stuff. Now, where is the good stuff?
No doubt the market will go up on this news - the clowns at Marketwatch and are even trumpeting the return of financials as things to buy - hahaha! DOW 13,000 next week, barring something unexpected... of course, even an asteriod impact at this point would be seen as a good thing by the market!?
I think my call of the Recession never being announced and people standing in soup lines (or, in the case recently, hoarding food) while the market keeps on going up is looking more and more likely. This may be the first Recession ever where the market completely decouples from reality, which will let The Powers That Be claim that there is no Recession while quietly altering the inflation numbers, hiding the real unemployment figures, etc. It's nice to know that the Big Players in the market will still be able to make their fortunes while everyone else is crushed under rising prices and vanishing jobs. "Trickle down" theory of economics indeed!
So they had a net 217 properties and got rid of 53. Roughly 1/4 of the total inventory. Was it Wachovia that moved 1/2 of the properties ? FED is in a bad environment out there.
It's nice to finally see FED release a report that shows the true nature of their perfromance. Maybe they'll stop their share buyback program now.
FED will go up on the news. It seems in financials that any news, good or bad, causes a rise.
I think what happens is no matter what the news, it's spun as good. It's either things have turned around or they've now disclosed all the bad and only good remains. When there's no news, people have to dig below the headlines for info and they see reality and the financials drift down.
The joke is that much of the over $50 Trillion in U.S. debt was serviced by the creation of more debt. Not by the production of goods and services.
Moreover, the above debt is the foundation of the assets of much of America's balance sheets in financial institutions, pension plans, and individuals retirement accounts.
If the debt isn't being serviced, the debt doesn't have much value.
Now we have to figure out what is the real value of the tens of trillions of mortgages, municipal debt, corporate debt, private equity debt, student loan debt, credit card debt, and on and on....
And think, CR thinks Roubini is too pessimistic. We might be hitting $5 Trillion in defaults before the end of the year at this RATE of deterioration.
The loans under the same terms and conditions were made 2-4 years ago. There has been no major change in employment rates. Therefore, the Allowance models were flawed from inception. The past 2-4 years' financial statements must be restated and the CEO and CFO of every publicly traded lender that has undergone restatement must, under Section 404 of the Sarbanes-Oxley Act, return all incentive pay based on performance.
That is, unless no one in Congress or the White House really gives a crap.
OT:
CNN reports that Bush will stimulate the economy at 9:20 this morning. Fasten your seat belts.
As Tanta says, "We Are All Subprime."
safe_as_apartments writes:
OT: CNN reports that Bush will stimulate the economy at 9:20 this morning. Fasten your seat belts.
I think today os the first of the stimulus checks so Bush will ned to remind people they are for plasma tvs and other junk and the cheques should not be saved, used to pay down debt, stuck up on the wall, etc etc. Gotta keep that economy strong, don't want a recession after all...
CNN reports that Bush will stimulate the economy at 9:20 this morning. Fasten your seat belts.
safe_as_apartments
I'm betting it will involve financial lubrication.
Cattle prods?
Bring me a nice pop in FED so that I can sell some more call spreads.
Come on, squeeze, squeeze, squeeze. Selfish me.
This stock has literally collapsed on no news since their last earnings, now that the bad news is out in this one, it should go up.
This stock has literally collapsed on no news since their last earnings, now that the bad news is out in this one, it should go up.
Your wish has been granted. Now, excuse me while I buy some puts for cheaper.
The stock market is a forward indicator.
But don't all these foreclosures and losses tell us something about the future also?
The stock market must be looking out 5 years into the future, if it thinks things will be OK. Shorter term, 1 to 3 years.....YIKES!
FED is up something like 20% on the wonderful news that they reported record losses. Whay am I not surprised?
Stuck in R:
How can you sell those calls even for near term their spread bid/ask is horrible.
someone did sell 109 naked 17.5 C for 1.35 calls on the bid when the stock poped to 17.5 but I can not see how can selling spread in this bid/ask diff can work.
FED is up something like 20% on the wonderful news that they reported record losses. Whay am I not surprised?
Cause all of the financials have been trading under one of two scenarios in the past two weeks:
bad news = it can't get worse. stocks roars up.
good news = they did much better than expected. stocks roar up.
Gee, what if the consumer is just beginning to tank?
Consumer Sentiment Index in U.S. Decreased to 62.6 in April
Short and to the point, from Tanta. Like it!
I live in Metro DC and about 6 months ago I saw several First Fed branches all advertising 13 month 5.5% CDs. I was like hey, thats a good deal. When I went to open one the branch was now a different bank. Basically, First Fed sold them off to get some cash in light of this info to stop the bleeding. This is no different a situation that Bank United down in South Florida, they went big into NegAmOptARMs and they had one of the most generous online savings rates out there. Now they are completely off the online savings radar screen. Any bank that was hot & heavy into loose mortgage lending, tossed juicey savings/CD rates (IndyMac, 1stFed, CountrySlide, AMTrust etc.). But its just not enough and the smart money realizes the fear/desparation and is not about to put its money there.
The consumer sentiment number is a 26 year low:
High fuel and food prices, coupled with "shrinking" income gains and falling home values pulled down consumer sentiment in April, according to a Friday report. The U.S. consumer sentiment index declined to 62.6 in April -- the lowest level in 26 years -- from 69.5 in March, according to a Friday report from University of Michigan/Reuters. An earlier estimate for April was 63.2. Economists surveyed by MarketWatch were looking for a final April result of 63.0. The expectations index fell to 53.3 - the lowest level since November 1990 -- from 60.1 in March.
The stock market is a forward indicator.
It anticipates the future amount of suckers and easy money.
I remember seeing somewhere a chart that showed a perfect inverse correlation between consumer sentiment and gas prices. So I wonder what this 26 year-low means other than gas prices are higher than they've ever been.
If the consumer is in massive re-trench mode, and committing less (than an already abysmal amount) to retirement savings to meet increasing cost of basic necessities, where is the demand for stocks coming from?
Looking past the deep valley is easy for the CNBC bubblevisionistas to do but not so much for the masses sinking into deep despair.
Delta Air Lines Inc. CEO Richard Anderson and Northwest Airlines Corp. CEO Douglas Steenland told Congressional committees and other interested parties on Thursday a merger of the two carriers would likely mean roughly 1,000 job cuts at the combined airline's headquarters.
Delta, Northwest warn Congress of job cuts - Triangle Business Journal:
................................
I'm amazed half the airline companies are still in business...
A record low reading for sentiment is BULLISH for stocks, because it can only go up from here. How much worse can it get? See, absolutely everything negative is eternally priced in, way in advance, because the market anticipates sunshine.
A record low reading for sentiment, now watch the dollar rally hard... PPT
I am hoping for more of a short squeeze, maybe up to the 20 dollar range.
I had some 35-45 and 40-50s back when the stock popped from 35 to 40.
I still have the calls I bought at 35 and 45 (they are worthless).
So I will just sell more 20 or 22 calls, when we reach around 20$. These are all Jan 09 calls.
Long enough that any squeezes can happen and the margin man doesn't ask for too much.
If I had to open new positions, I would wait for 20$, can sell 20-30 call spreads. Selling 17-25 call spreads is a wee bit on the risky side. There is a lot of short fuel that needs to cover.
Short term options on FED, DSL or no better than a dice roll. No premium and too much risk. Selling long term near the money call spreads on short covering runs (this stock could go up 5-8$) is probably fairly safe. Limited risk, excellent payoff and high probability that the company actually goes bankrupt. You can't beat that in a regular market.
The volatility we have for the next couple of years will be a real money maker if you can keep your head on.
Anyone who has never worked with options or leverage, my 2cents, don't leverage, you will get killed even if you are right.
Captain the dilithium crystals canna take the strain!
Slosh = $250.2 B (TOMO, TAF, TIO - but not including PDCF - in the 'old days' was ~$50 B)
TED Spread = 1.64 (before August ran ~0.5)
CP 30 day spread = 107 bps 5 day MA and trending up ATM (before August was ~12 bps)
Anyone know what the old record is for TIO in the Slosh? It is $46.4 B as of today.
Anyone who is more of monetary hotshot please weigh in, but this just seems like on of the old boilers that is right on the edge of its tolerances...
Oups:
I still have the calls I bought at 35 and 45 (they are worthless).
This should have read:
I still have the 45 and 50 calls I bought.
lama writes: [... T]he CEO and CFO of every publicly traded lender that has undergone restatement must, under Section 404 of the Sarbanes-Oxley Act, return all incentive pay based on performance.
That is, unless no one in Congress or the White House really gives a crap.
BING! We have a prizewinner. lama wins the pony.
When I lived in SoCal I brokered loans to "First Dread" as I liked to call them. I have cute names for pretty much all of the wholesalers.
They were conservative back in the 90's but I noticed when a client from San Diego was buying property here, she had quite a few loans from First Fed and she was a poor risk if the housing market deflated, which it is currently doing.
She was leery about buying more property (this was in 05) but it seemed like an addiction for her. Many others as well.
She had 3 or 4 loans with First Dread...
I guess they got a little too aggressive during the boom.