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Reggie Middleton's Boom Bust Blog
A digital diary of my global economic outlook combined with a focus on fundamental and forensic analysis
Tag >> Heard on the Street
Heard on the street...
This is unconfirmed, but word is that Ameribank should be one of the next banks to be siezed... the Feds sent out term sheets this week for deposit purchase. If anyone can confirm this, feel free to reach out to me. 
From CNBC , that bastion of financial news stuffs:
Pimco’s legendary bond investor Bill Gross said during “Street Signs” Thursday that his firm would be staying out of any and all bank offerings for the foreseeable future.
Banks the world over have raised $400 billion in capital, Gross said, and may need to raise much more. The problem, though, as yesterday’s $1.5 billion preferred offering at Wells Fargo showed, is that the institutional buyers are full, leaving only small investors to pick up the slack.
As Gross said, “There’s only so many billion and a half small investor bank capital deals that can be done from this point forward.”
Don't say I didn't warn you about Wells Fargo (no wonder why they're raising capital) - see my Wells Fargo work: drill down, the forensic analysis and the Q2 highlights.
Main Bank of China Is in Need of Capital
HONG KONG — China’s central bank is in a bind.
It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.
Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.
Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People’s Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China.
This is actually an interesting article and I urge you to read the rest . As you know, I have been bearish on the Asian nations and the chickens are finally coming home to roost. See my China macro update .
These are highlights from an email I received recently from a RE professional in California. I thought the readership would find it interesting:
It seems like some banks are too swamped to even start the
foreclosure process, according to this article in our local (North Carolina) paper:
Housing: Banks waiting longer to foreclose
http://www.nctimes.com/articles/2008/08/30/business/zad421415c27f7dbb882574b3007c50a5.txt
I've
been negotiating about 20 REO sales over the past week. I
noticed a couple of things.
1. There is still
a good amount of demand, or as I like to call it "ability" to buy. I have had several of properties that had
multiple good offers submitted on them.
At least that helps us slow down the free fall.
2. Rents ratios
are getting close to making sense. Still
not right yet but close. Many of the
condos in the toughest markets are being pushed down to basically the
cost-per-door that they would have been if they were still part of a make-sense
apartment building.
3. My daughter is
attempting to buy in the San Fernando Valley area of Los Angeles and has had
just brutal competition in the under $400,000 range. One house she looked at for $380,000 had been
previously encumbered for over $600,000.
4. I spoke to 2
reporters this week and they were both sniffing out an angle on more of the
higher end markets and homeowners that were now facing foreclosure or walking
away from their houses. My REO research
department that does Broker Price Opinions (BPO’s) confirmed that they are
doing a lot more in the affluent area of San Diego County, places like La
Jolla, Carmel Valley and Encinitas. One
reporter was from a local source - Voice of San Diego, but the other was from
Bloomberg!.
5. Fannie Mae is
really pushing a financing program with PHH called Express Path Mortgage (aka
Insta Close). On qualifying properties
buyers can buy with 100% financing, no Mortgage Insurance.
Just over 700 FICO's and combined debt-to-income of no more than 40%
at competitive rates. Believe it or not,
they will even let investors buy with 100% financing (on selected
properties). My take on it is that they
would rather churn a non-performing asset into a performing asset. 100% investor loans are not available in CA, FL, NV or AZ
I found this article interesting about your local market,
I don't think they interviewed you
before writing it.
New York Housing Shines for now
http://money.cnn.com/2008/08/28/news/big.apple.fortune/index.htm?
But it appears as of the traders have not thought this through:
A partial answer to a question: http://www.emediaworld.com/press_release/release_detail.php?id=152954
They
are heavily encumbering their properties in an effort to dig out of
this hole. A pertinent question would be the actual terms of this
latest funding and how much the terms differ from the debt that it is
refinancing (we all know the answer: much more expensive and more
restrictive)? They still have significantly more debt to refinance this
year, and the year is almost over. Where is the money coming from
(exactly) and when is it the money coming? At what terms and how will
those terms differ from the loans being refinanced?
It
appeared to be a rough ride this year in terms of funding. What is the
game plan for refinancing debt in ’09 and ’10? Do you plan on
encumbering even more properties than this year? Are you now accepting
recourse in the terms of your new loans? What brought about that
decision? How do you think it effects the value of your organization?
Financing and foreclosure:
At
the end of 2007, GGP needed to get refinanced $2.62 bn of its total
debt in 2008. However after six months in 2008, GGP debt due for
refinance stood at $2.55 bn (as of June 30, 2008). Since GGP last
reported results in June 2008, GGP had repaid only $391 mn of mortgage
loans as per its September 5,
2008
press release ( or just 15% of the loan). With such slow progress
towards refinancing, what is GGP's plan for financing the remainder
$2.16 bn of its debt due in 2008?
In
addition to huge debt liabilities for 2008, the company has $3.3 bn,
$4.5 bn, $8.3 bn and $46 bn debt due for repayment in 2009, 2010, 2011
and 2012, respectively. How is the company planning to refinance/repay
these debt liabilities? Also looking at the current credit market
conditions where financing is difficult, we would like to know if
company has alternative plans to raise finance including that from sale
or foreclosure of its properties.
From Bloomberg: UBS, Credit Suisse Face Leverage Cap, Regulator Says
Sept. 2 (Bloomberg) -- UBS AG
and Credit Suisse Group AG will have to hold more capital in reserve
against their assets following subprime-related losses, the head of
Switzerland's Federal Banking Commission said.
``We plan to introduce the new rules by the end of the year at the latest,'' Chairman Eugen Haltiner
said in an interview at a conference in Zurich today. The commission
received the banks' replies to its proposal and is discussing details
of the plan, he said. ``We are going ahead with the leverage ratio.''
Switzerland's two largest banks may have to cancel dividends, stop
share buybacks, shrink balance sheets and raise fresh capital to
satisfy new requirements, analysts including Morgan Stanley's Huw van Steenis have estimated. Credit Suisse has said a leverage cap will make Swiss banks less competitive.No
it won't at least on a relative basis, since the US and the UK
regulators will be doing the same thing to their banks momentarily. As
I have been cooing for some time, the giddy days of big bonus
investment banking funded by imprudent leverage and the eyeing of
accounting earnings that ignore economic risk are over - at least until
the next boom. See Banks, Brokers, & Bullsh1+ part 1, Banks, Brokers, & Bullsh1+ part 2 ... and Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street.
That's right, ita Oh My God, Its FDIC Friday Again. From the WSJ : State regulators shut down Columbian Bank and Trust Co. of Topeka, Kan. on Friday, the ninth bank to fail this year and fifth since July 11. The Federal Deposit Insurance Corp. estimated the failure would cost its deposit insurance fund $60 million. Columbian Bank and Trust had $752 million of assets and $622 million of deposits as of June 30, the FDIC said. The FDIC sold to Citizens Bank and Trust of Chillicothe, Mo., the insured deposits of the failed bank, which had nine branches. In addition, Citizens Bank and Trust agreed to buy $85.5 million of Columbian Bank and Trust's assets, which are mostly cash, cash equivalents and securities. The FDIC said Citizens Bank and Trust did not purchase roughly $268 million of brokered deposits at the failed
The initial quote that was attributed to me sounds a bit callous, and that was not my intention. I truly believe that GGP has some serious issues, but I did not intent to make light of them or belittle them. Just want to make my perspective clear.
Excerpts rom downtownexpress.com:
General shrinking? Critics warn Seaport firm has no dough
The
stock of General Growth Properties fell nearly 50 percent in the past
year, and the company has $18.4 billion in debt coming due in the next
3½ years, according to the Wall Street Journal. Earlier this month, Bob
Michaels, G.G.P.’s president and C.O.O., was forced to sell half his
shares in the company because of the dropping stock price, the Journal
reported...
General Growth hopes to demolish the
touristy mall on Pier 17 and replace it with low-rise retail, a
boutique hotel and a public plaza. They also hope to build a 495-foot
condo-hotel tower just north of the pier (Hey New Yorkers, that's just what our dear city has been lacking, more condo towers - talk about massive demand and no supply in a strong macro environment!), and they want to move the
landmarked Tin Building to the pier’s tip...
“They’re
dead broke and in extreme financial hardship,” said Reggie Middleton... “I
can’t see them doing [a new project]…. They definitely can’t afford a
redevelopment of this size.” This doesn't quite read how I intended, but the gist is accurate. They are currently paying a dividend that has been funded through stock sales and mortgage refinancing in a slowing equity, debt and CRE market while they have massive amounts of debt to refi that is looking to be quite troublesome. I think its fair to say they have problems. See
GGP and the type of investigative analysis you will not get from your brokerage house
for more on thier trials and tribulations.
Middleton traced
General Growth’s expansion over the last decade, in which the company
aggressively acquired property around the country, riding the top of
the credit bubble. In 2004, General Growth bought the Rouse Company,
the former owner of the Seaport mall. Then the credit bubble popped,
and Middleton thinks General Growth won’t be able to refinance its debt
and will have to either sell off properties or foreclose on them.
Earlier
this month, the Las Vegas Review-Journal reported (I was quoted in that article as well) that General Growth
is backing out of a deal to co-develop a $4.8 billion resort on the
strip, called Echelon. General Growth is also delaying development of a
1.4 million-square-foot mixed-use project in Las Vegas called the Shops
at Summerlin Centre, the Review-Journal reported.
Middleton sees these Las Vegas delays as an indication of what could happen at the Seaport.
General
Growth executives declined interview requests for this article (But, of course they did), but the
firm released a statement defending its ability to complete the Seaport
project and indirectly addressing the Las Vegas delays.
From the Dealbreaker site:
Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market's assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices....
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