Sandpapered

Washington Mutual reported results that can only be described as being sandpapered. We are now in a strange brew of continued Ponzi finance, combined with steadily worsening credit conditions, and squeezed financial margins. In WM’s case, nonperforming assets increased to 0.69%, from 0.52% a year ago, and 0.62% in June. 30 day plus delinquencies in credit cards popped to 5.53% from 5.23% in June, and 5.18% in March. Moreover the following item was in the footnotes: “Without the impact of the planned sale of $403 million of higher risk accounts, managed receivables at period end and the 30+ day managed delinquency rate would have been approximately $22.32 billion and 5.99 percent“. WM also seems to be motivated to get rid of higher risk credits, although gain on sales generally on $30.24 billion in mortgages securitized was down to only $119 million. More color on credit card conditions was also reported by Capital One,  as delinquencies rose to 3.24% in the quarter, up from 2.92% in June. Charge offs rose a similar amount to 2.36% from 2.01%. Bankamerica cards “held 90 days delinquent”: March: 1.94%, June: 2.37%, Sept: 2.50%.

WM indicated that net interest margins fell to 2.53%, down from 2.65% in June, and 2.75% in March. The cost of their total interest bearing liabilities increased to 4.48% from 4.12%. Time deposit costs at 4.77% (from 4.39%) are finally approaching three month t-bill rates, as the cheap rates on older CDs roll off. WM suggested that margins should stabilize as they are “nicely” positioned to pass higher borrowing rates on to Joe Soccer Mom (JSM).  We were also offered generic clues about employment conditions in the financial sector, as WM has eliminated 9,300 jobs in the last six months. They also sent 3,800 jobs to India.  Not much was offered in the conference call about JSM’s ability to absorb the higher pass through rates, fees, and job losses that are so important to WM’s (and others) strategy. . Clues on that are coming from other sources though, as California home-loans defaults are now the highest in four and a half years. A couple key items in this article:

About 19 percent of homeowners who were in default earlier this year lost their homes to foreclosure in the third quarter. That’s up from 6 percent a year earlier, DataQuick said.  The median age of the home loans that went into default in the third quarter was 14 months. More than half the loans were originated in 2005.

Adding fuel to this sticky wicket, aggressive late cycle debt enabler Accredited Home Lending warns this morning, citing “increasing turbulence in the market for home loans to less-creditworthy buyers”.  A few obvious hints mentioned, and I await with baited breath for the details. A glance at this chart from San Diego County, is starting to look like the early parabolic lift off in housing prices up to a year ago.

More now routine “cows already out of the barn” butt covering commentary from the apparatchiks, in this case John Dugan. I would refer you back to the California foreclosure numbers as to who is in trouble first. Answer: 2005 originations, loans made while Mr. Dugan’s agency and others were “monitoring” the situation, and being lobbied and delayed by Pig Men. 

Dugan told members of the American Bankers Association that a recent underwriting survey showed a “significant easing” in residential mortgage lending standards.  The survey showed lenders are doing the opposite of what regulators would expect them to do in a cooling housing market: allow longer interest-only periods, more piggyback loans, higher loan-to-value ratios, and more reduced-documentation loans.  “Frankly, that concerns me.”

This $19-22 billion mutha IPO out of China, ought to suck a lot of hot money out of the western Godfather racket tonight. Proceeds will largely be used to line the pockets of Chinese, not western plutocrats. Perhaps marks the peak of the financial sphere mania and Bubble? On the general topic of developing a Chinese Pig Man to compete with, and pull their own capital back from the West, Australian Treasurer Costello all but calls for it .

Peter Costello has called on East Asia’s central bankers to “telegraph” their intentions to diversify out of American investments and ensure an orderly adjustment. He said underdeveloped financial markets were to blame for the emerging economies of East Asia sending 94 per cent of outward portfolio investment to “ageing” countries outside the region.