Displaying items by tag: Banks

First, a quick news scan:

• Dubai Debt Delays Revive Fear of Financial Crisis
• US Markets Bracing for Selloff on Dubai Debt Worries
• Stocks Fall as Treasuries, Yen, Swaps Rise on Dubai Attempt to Delay Debt
• Yen Strengthens to 14-Year High, Prompting Speculation Japan to Intervene
• Fujii Says Japan May Contact U.S., Europe After Yen's Jump to 14-Year High
• Abu Dhabi Commercial Bank Is Said to Be Owed $1.9 Billion by Dubai World 
• Treasuries Jump on Demand for Safer Assets After Dubai Asks to Delay Debt
• Sony, Toyota, Japanese Exporters Brace for `Breaking Point' as Yen Surges
• Japan's Hirano Says Rapid Currency Moves Are `Undesirable' as Yen Rallies (you betcha, reference the JPM links which highlight interest rate and currency exposure for JPM below)

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

First, a quick news scan:

• Dubai Debt Delays Revive Fear of Financial Crisis
• US Markets Bracing for Selloff on Dubai Debt Worries
• Stocks Fall as Treasuries, Yen, Swaps Rise on Dubai Attempt to Delay Debt
• Yen Strengthens to 14-Year High, Prompting Speculation Japan to Intervene
• Fujii Says Japan May Contact U.S., Europe After Yen's Jump to 14-Year High
• Abu Dhabi Commercial Bank Is Said to Be Owed $1.9 Billion by Dubai World 
• Treasuries Jump on Demand for Safer Assets After Dubai Asks to Delay Debt
• Sony, Toyota, Japanese Exporters Brace for `Breaking Point' as Yen Surges
• Japan's Hirano Says Rapid Currency Moves Are `Undesirable' as Yen Rallies (you betcha, reference the JPM links which highlight interest rate and currency exposure for JPM below)

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

In 2007 I put out a lot of research and opinion on the home builders and attempted to portray them in a light that the sell side analyst community and apparently the buy side investors failed to notice. See

• Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth (I believe this was the first time anyone ever called the homebuilders on their off balance sheet debt through unconsolidated JVs),
• Lennar Insolvent: Enron redux??? Lennar, Voodoo & the Year of the Living Dead! 
• Now, a "Realistic" View of Lennar's Solvency
• Bubble, Banks and Builders - Pt III: Do or Die BedStuy

In December of 2007 I predicted that they will compete in a losing battle with the soon to be larger residential home and land owners looking to move properties at highly discounted prices: the banks sitting on foreclosed properties - Bubbles, Banks and Builders.

Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms - You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link.  There are properties repossessed this year by the FDIC that were actually also repossessed during the S&L Crisis. Talk about not learning your lesson!

In 2007 I put out a lot of research and opinion on the home builders and attempted to portray them in a light that the sell side analyst community and apparently the buy side investors failed to notice. See

• Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth (I believe this was the first time anyone ever called the homebuilders on their off balance sheet debt through unconsolidated JVs),
• Lennar Insolvent: Enron redux??? Lennar, Voodoo & the Year of the Living Dead! 
• Now, a "Realistic" View of Lennar's Solvency
• Bubble, Banks and Builders - Pt III: Do or Die BedStuy

In December of 2007 I predicted that they will compete in a losing battle with the soon to be larger residential home and land owners looking to move properties at highly discounted prices: the banks sitting on foreclosed properties - Bubbles, Banks and Builders.

Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms - You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link.  There are properties repossessed this year by the FDIC that were actually also repossessed during the S&L Crisis. Talk about not learning your lesson!

In Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their, the impairment game was discussed as a method of hiding losses on builders' balance sheets by taking impairments on what could be considered exaggerated book values. The exaggeration may not be that hard considering how far, how fast, and potentially how long property and land values can continue to fall.

Again, I refer to the comparative chart that shows the appreciation rate of Japan's major city real property values as their GDP started to ramp up and out of a major recession:

In Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their, the impairment game was discussed as a method of hiding losses on builders' balance sheets by taking impairments on what could be considered exaggerated book values. The exaggeration may not be that hard considering how far, how fast, and potentially how long property and land values can continue to fall.

Again, I refer to the comparative chart that shows the appreciation rate of Japan's major city real property values as their GDP started to ramp up and out of a major recession:

Are we in consecutive back to back bubbles or what?

From Bloomberg:

KKR Puts Higher Valuation on Dollar General Than Walmart in IPO Offering: Wasn't the private equity/LBO biz dead just a year ago?

Wall Street Faces `Live Ammo' as Congress Tries to Dismantle Biggest Banks: So all of that posting about busting up the big banks didn't go to waste! See Any objective review shows that the big banks are simply too big for the safety of this country, Big Bank (and the Treasury) vs. Little Bank: Whose risking your tax dollars?, The Next Step in the Bank Implosion Cycle??? and the very important JPM Public Excerpt of Forensic Analysis Subscription (1878) 

Japan Credit Default Swaps Seen Unraveling as Aiful Defers Payment on Debt: The Japanese version! See The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath!, Reggie Middleton says the CDS market represents a "Clear and Present Danger"!, CDS stands for Credit Default Suckers... and Will this be the first domino in the CDS collapse? .  

Spanish Economy Contracts for a Sixth Quarter, Slowing European Rebound: BBVA may be seen as more viable than it actually is. See  Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-02-23 09:05:09 439.80 Kb 

And from my friends over at Calculated Risk: Fannie, Freddie, Counterparty Risk and More - excerpt from Freddie Mac's 10-Q:

We believe that several of our mortgage insurance counterparties are at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory actions that could threaten our ability to receive future claims payments, and negatively impact our access to mortgage insurance for high LTV loans.

Those that follow me know how bearish I have been on the mortgage insurers for two years running now. I pretty much promised my readers that Ambac and MBIA were insolvent back in 2007:

• A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton 
• Download a "Window" into Ambac's Problems 
• Fitch finally found my blog and cut Ambac's rating, So what's next... 
• The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath! 
• A personal email on the monolines, pt. deux 
• Is MBIA About to Pull the Wool Over the Market's Eyes? 
• Reggie Middleton on Assured Guaranty 
• It looks like Ambac is about to go. Trading down 75% in the first 17 minutes of the day 
• Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility.

It's bound to happen if regulators don't stop playing hide the sausage and don't start forcing banks to take their medicine. First, a quick recap of the nonsense currently taking place. This post is designed to convince banks that they are considerably better off taking their medicine now than going on with the government endorsed plan of pretending your not sick and risking major surgery, plus chemo and radiation just a year or two later. My next post will be a selection of REITs that didn't make my shortlist, followed by a new REIT report for subscribers that will explicitly show property values of each and every property in said REITs portfolio (and potentially the lender or CMBS/mortgagee pool collateralized by said properties - that's right, someone may be called out).

After dealing with European banks during my work with GGP, I have come to the conclusion that most regional, community and even global banks have no where near the capacity and/or expertise to properly evaluate and value the projects/assets that they have invested in. Well, if that is the case, this is your chance to rectify that problem - on the cheap, at least on a relative basis. So if you are in an appropriate position in your bank, fund or lender - read this evidence that supports the proactive behavior of snatching the big crumbs off the table before there is a mad dash for the micro-specs of bread that may or may not be left if one were to wait it out while playing "hide the sausage games". I'll give you the tools to make a convincing argument, trust me. Here is the broader macro argument for lenders pulling bad debt from under the REIT and CRE industry, thus supporting a bearish thesis for said players.

First: A picture is worth a thousand words...

Instance asset gains and market value stemming from just a small tweak of truth. Financial stocks fly, moving farther and farther from their fundamental values.

Second: We have the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!). Zerohedge speculates "Is Goldman Preparing To Upgrade The REIT Sector?" 

Third: We have government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

Fouth: We have a false sense of security that nearly everybody believes should make us insecure, yet somehow we have those long in the markets feelng warm and fuzzy. See You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?.

Now, for those of you who believe that the government's "pretend and extend" policy has any chance in hell of working, or better yet, that we are not following in the footsteps of Japan, let's take a pictorial trip through recent history. There are nearly no Japanese banks in the top 20 bank category on  global basis by 2003 - NONE (save potentially Nomura, which arguably survived in name, alone). As you can see, they literally dominated 90% of the space in 1990!

Click to enlarge...

Source: Cap Gemini Banking M&A

I want the banks that read my upcoming real estate analysis to take heed to history. It truly does tend to repeat itself. If you are an officer in a bank with CRE exposure, reach out to me from your work email and I will supply you with an abbreviated copy of one of the recent reports, gratis. This should  whet your appetite to subscribe for more. 

Well, are we following the Japanese "Lost Path". Notwithstanding the damning evidence of hide the truth and hide amongst lies linked to above, ponder the following rather dated, but still quite poignant data... 

I just received this email and thought my readers may find this of interest.  DDR is the company that was featured in the "bailout" post (Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!), a must read if you haven't done so already:

I am in the premium xxxxxx business and own a retail store in metro Atlanta.  The area that I lease is in a diverse affluent part of town.  I believe that this is considered a class A shopping center.  DDR is the current owner and this is one of the 28 shopping centers that was put up as collateral for GS in exchange for a 400 million dollar loan that they are going to try to roll up into TALF.  To the best of my knowledge DDR acquired this shopping center from Inland a little over 2 years ago.

Are we in consecutive back to back bubbles or what?

From Bloomberg:

KKR Puts Higher Valuation on Dollar General Than Walmart in IPO Offering: Wasn't the private equity/LBO biz dead just a year ago?

Wall Street Faces `Live Ammo' as Congress Tries to Dismantle Biggest Banks: So all of that posting about busting up the big banks didn't go to waste! See Any objective review shows that the big banks are simply too big for the safety of this country, Big Bank (and the Treasury) vs. Little Bank: Whose risking your tax dollars?, The Next Step in the Bank Implosion Cycle??? and the very important JPM Public Excerpt of Forensic Analysis Subscription (1878) 

Japan Credit Default Swaps Seen Unraveling as Aiful Defers Payment on Debt: The Japanese version! See The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath!, Reggie Middleton says the CDS market represents a "Clear and Present Danger"!, CDS stands for Credit Default Suckers... and Will this be the first domino in the CDS collapse? .  

Spanish Economy Contracts for a Sixth Quarter, Slowing European Rebound: BBVA may be seen as more viable than it actually is. See  Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-02-23 09:05:09 439.80 Kb 

And from my friends over at Calculated Risk: Fannie, Freddie, Counterparty Risk and More - excerpt from Freddie Mac's 10-Q:

We believe that several of our mortgage insurance counterparties are at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory actions that could threaten our ability to receive future claims payments, and negatively impact our access to mortgage insurance for high LTV loans.

Those that follow me know how bearish I have been on the mortgage insurers for two years running now. I pretty much promised my readers that Ambac and MBIA were insolvent back in 2007:

• A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton 
• Download a "Window" into Ambac's Problems 
• Fitch finally found my blog and cut Ambac's rating, So what's next... 
• The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath! 
• A personal email on the monolines, pt. deux 
• Is MBIA About to Pull the Wool Over the Market's Eyes? 
• Reggie Middleton on Assured Guaranty 
• It looks like Ambac is about to go. Trading down 75% in the first 17 minutes of the day 
• Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility.