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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.


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.


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.

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