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Some Ponzi Unit Takeaways

I’m looking for financial institutions coming clean on non-performing loans. Some early takeaways:


National City set aside $73 million for bad loans, up 30 percent. Net charge-offs rose 41 percent to $117 million, including $10 million of “fraud-related mortgage loan losses,” while nonperforming assets rose 16 percent to $689 million, in part because of real estate foreclosures.


Fortunately, for this particular Pig Man, they’ve been collecting higher “fees” to “offset” this. Does this mean if you can’t make your payments, the bank just ignores loan performance, but reports more robust numbers because they charge through the kazoo for your late payment? What kind of a circular Ponzi scam business is that? Do they provide loans for the late fees too?


Third-quarter profit rose 15 percent, as higher fees and improved mortgage results offset an increase in bad loans.


Wachovia showed an increase on foreclosures from $99 million to $181 million, and an increase in accruing loans past 90 days from 624 million to 666 million, yet their reserve for unfunded lending committments fell from $165 million to $159 million.


Next we have Downey Financial adding a provision for credit losses of $9.6 million in the third quarter of 2006. Non performing assets were up $27 million to $67 million in the quarter, and delinquencies have increased 79.9% since year end to $101.16 billion, yet only $26.4 million in loss provisions were made.  These Boyz appear well behind the disclosure curve?


NON-PERFORMING ASSETS
Non-performing assets increased during the quarter by $27 million to $67 million and represented 0.39% of total assets, compared with 0.21% at year-end 2005.


Next we have Corus, all but admitting that the reason they didn’t have more problems, was because their more flakey Ponzi unit customers seemed to have Ponzi backers willing to throw good money after bad. I’d say there is an epidemic of this behavior out there:


The slowdown in the housing market is also impacting Corus in terms of credit quality of loans already on our books. We have seen various projects that are experiencing slower sales of condominium units and/or lower prices than the developer or we would like. While construction projects are clearly not immune to the forces of the slowdown, conversion projects presently seem to be displaying more obvious signs of weakness. So far, we can report that we have only one condominium conversion loan which is nonaccrual and one additional loan listed as a Potential Problem Loan. However, we have had numerous other loans that have experienced meaningful problems, but in these cases, the borrowers or their financial backers have stepped up to the plate and invested additional dollars, signed financial guarantees or taken other actions that have strengthened the loan from our perspective.


In this piece small banks worry that the Ponzi finance spiggot may get turned off. And John Dugan, chairman of the Comptroller of the Currency, provides color on the industry, namely that 35 percent of the banks it oversees exceed the new 300 percent real estate exposure guideline. Stifel Nicholaus downgraded subprimers NEW and LEND today, estimating that 20-50% of borrowers would not qualify under the new underwriting standards that NEW adopted last week. 


Is that what Hyman Minsky wrote about here? If it walks like a Ponzi unit, talks like a Ponzi unit, and looks like a Ponzi unit, it probably is a Ponzi unit. Am I the only one who feels like Alice?


“Ponzi? finance units must increase its outstanding debt in order to meet its financial obligations.?


Minsky

alice

Where and Who has the Rotting Fish?

Looking at the early fallout from the New Jersey Bust is this excellent piece of journalism. Key takeaways,


When Kara Homes filed for bankruptcy this month, Amboy National Bank of Old Bridge was listed as the largest creditor with $58.2 million in loans. When local real estate mogul Solomon Dwek’s $400 million empire was frozen by a judge following charges of bank fraud, Amboy was again the largest creditor ? for $49.7 million.


Next the article looked at New Jersey banks exceeding the new Federal guidelines, and found 47 percent of the 95 national- and state-chartered banks are already over the proposed guideline (no more than three times capital in commercial real estate loans). In effect, this means there is a regulatory tightening underway.


Banks in 10 other states have an even greater investment in commercial real estate, the Press’ analysis showed. In Arizona and Washington, more than seven of every 10 banks have more than three times their capital wrapped up in commercial real estate loans.


For the record, two quotes;


– Are we alarmed or very concerned? The short answer is no,” said Steve Fritts, an associate director at the Federal Deposit Insurance Corp.


– It’s a disaster waiting to happen out there,” said Gerard Cassidy, bank analyst for RBC Capital Markets.


Also initial signs that credit conditions are tightening for mortgage purveyors seeking to raise capital. This site also tracks credit swap premiums. Lower levels as seen of late in the A and BBB tranches suggest higher “insurance premiums” necessary for hedging against default.


swaps


Banks begin reporting third quarter results this week, and will see how they treat or ignore rising delinquencies and negative surprises. We also continue see a pattern of some black box transactions going awry, as Credit Suisse actually owns up to some losses. A reminder of what bank loan loss reverses now look like.


BankLoanLossReserves


Finally, a reader, Lee Adler of the Wall Street Examiner points out that there is a footnote in the recent Fed H8 data, that suggests the big surge in real estate and HELOC lending I reported on may be an outlier, caused by the merger of a non-bank player into a reporting bank player. This of course makes the conclusion of my Saturday blog more cloudy, although intuitively I feel the surge in retail sales is fueled by new debt, as we still have the MBAA refi index data showing a boomlet.

Koyaanisqatsi-Life Out of Balance

Following on the heals September’s Koyaanisqatsi retail report, comes this week’s Fed’s H8 data. This gives us direct evidence on how the consumer did it. As mentioned in yesterday’s blog, there was a $20.8 billion yoy increase in retail sales, or 0.6% excluding gasoline. At first glance I was prepared to dismiss this as just another bogus report. This is especially true given the clear and hard to dispute slippage since late spring in state sales tax collections. But the new H8 data to me suggests that September consumer activity was a very real Hail Mary, and perhaps a last Hurrah.


statetax


Bottom line: there has been an absolute orgy of new consumer borrowing over the last three weeks.  Almost unfathomable behavior, given the actual declines routinely seen in housing prices of late. Guess the Ministry of Truth convinced folks that because they had saved $2.3 billion on gasoline, that they should go on a major binge? Interestingly, the consumer reaction has been so strangely lopsided, that even a complete stooge and sycophant like George “One Trick Pony”  Bush felt compelled to exercise some rare cautionary comments on this Koyaanisqatsi environment.

Even the higher interest expense and sure to leave a hangover home equity lines of credit (HELOCs) are being revived. In three weeks Joe Soccer Mom added $17.3 billion new debt to the whopping $2.3 billion saved on gasoline. Do the math, and you pretty much have your $20.8 billion retail increase figure for Sept.

But that wasn’t all. Although real estate borrowing in the Fed data also picks up commercial borrowing, we also got confirmation from the MBAA refi index that a borrowing boomlet took place in the house as ATM realm. Conclusion, even with declining house equity, consumers mustered at minimum, equity extraction along the lines seen in the last several years. At least some will have more Ponzi finance to make house payments at least for awhile. Will they also have enough to go wild for XMAS? With rates back up some, watching the refi index going forward should give us clues. 

HELOC:
Sept. 13: 447.0
Oct. 4: 464.3

That’s 67% annualized!

Real Estate:

Sept. 13: 3,104.7
Oct. 4: 3,158.8

29.5% annualized!

Bank credit:

Sept. 13: 8.003.4
Oct. 4: 8.065.4

13.35% annualized, Houston we have a problem! So much for the rate cut theory, and explains why five Fed governors brought out the hose in their comments of late.


mew