Bad Banks 2009 Q1: Preview

The last few call reports have come in and I have taken a look at the 10 largest banks (by Tier 1 capital) on the 2008 Q4 list:

- I really do not know why Corus Bank, Frontier Bank and BankUnited have not been closed. They either have or are approaching negative equity and are exposed to the hardest hit geographic locations.

- I don't understand how the bank's domiciled in Puerto Rico are hanging on. They have small branch networks and are supported by mainly brokered deposits. R-G Premier, WesternBank and Doral Bank are not improving to put it mildly.

- AmTrust is not long for this world either. Despite a few run-ins with regulators, capital adequacy continues to fall.

Charge-Offs & Delinquencies

The Fed published the first quarter's stats today:

- Delinquency rate for all real estate loans hit 7.88%

- Delinquency rate for all consumer loans hit 4.91%

How does this translate to losses? The above graph tracks actual net charge offs since 1985 and projections for the next 5 quarters. The model is a simple regression of 3 quarter lagging delinquencies versus charge offs. The model is not robust, but it is statistically significant. It also has predicted a lower amount of charge-offs than were realized for the last few quarters. I am trying to find another variable to capture the difference.

Anyway, based on the data, I would be hesitant to say the worst of marking to market is over.

Up or Down For BAC ?

BAC turned in a nice trading session today on the back of mixed news:

- Goldman Sachs Upgrades BAC Shares

http://blogs.wsj.com/marketbeat/2009/05/18/goldman-sachs-says-buy-bank-of-america/


- Temasek Sells Stake in BAC

http://www.nytimes.com/2009/05/15/business/15bank.html


- Fitch Downgrades Certain BAC Issues

http://www.fitchratings.com/corporate/events/press_releases_detail.cfm?pr_id=475816

Economic Data This Week

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
May 19	8:30 AM	Building Permits	Apr	-	NA	530K	516K	-
May 19	8:30 AM	Housing Starts	Apr	-	NA	527K	510K	-
May 20	10:30 AM	Crude Inventories	05/15	-	NA	NA	-4.63M	-
May 20	10:35 AM	Crude Inventories	05/15	-	NA	NA	NA	-
May 20	2:00 PM	FOMC Minutes	04/29	-	NA	NA	NA	-
May 21	8:30 AM	Initial Claims	05/16	-	NA	NA	610K	-
May 21	10:00 AM	Leading Indicators	Apr	-	NA	0.6%	-0.3%	-
May 21	10:00 AM	Philadelphia Fed	May	-	NA	-18.0	NA	-

More On Prices: CPI

Most measures in today's CPI report were either slightly higher or flat versus the previous month.

A note about the above graph: for CPI, the headline number is not seasonally adjusted. For PPI, the headline number is seasonally adjusted. Therefore, I have been tracking seasonally adjusted for both measures.

On that basis:

- The year over year change has been negative for the PPI for the last five months

- The year over year change has been negative for the CPI for four of the last five months

Full report:

http://www.bls.gov/news.release/pdf/cpi.pdf

Jobless Claims & PPI

Initial jobless claims moved higher form the previous report: 605,000 was the revised number for 5/2/09 and 637,000 was the number for 5/9/09. Several pundits claimed that the previous report marked the bottom in claims. This is a volatile series, but in any case, one month does not a trend make. Not even three months can always be trusted to mark a new direction.

This was the first report to include idled Chrysler workers, expect more in the next few weeks. In addition, a GM bankruptcy is all but certain.

Continuing claims skyrocketed over 6.5 million and he IUR rose to 4.9%, the job market is still sick. As I mentioned last week, it is possible that initial claims will taper off. However, job GROWTH is non-existent.




PPI rose month over month, but are still 3.5% lower than they were 12 months ago. Already, the press is claiming that this ends the deflation discussion. When will they learn?

JIM CRAMER KNOWS NOTHING, HE KNOWS NOTHING

I HEARD THAT JIM CRAMER RECOMMENDED BUYING HUNTINGTON BANCSHARES (HBAN) BECAUSE OF THEIR NEW MANAGEMENT TEAM. ANOTHER NEW MANAGEMENT TEAM.

I DON'T CARE IF THEY DUG UP BEN FRANKLIN, KING SOLOMON, CONFUCIUS AND PLATO TO RUN THE BANK.

PLEASE EXERCISE CAUTION WHEN ACTING ON WHAT THIS GUY SAYS.

Foreclosures March On

Realtytrac's numbers came out this morning: April was another 300k+ month.

Too many homes were built, it is that simple.  If home building outstrips net household creation, this is what you get.

Retail Sales

Retail sales for April came in lower than expected. The market consensus was a drop of 0.1% from March, the actual drop was 0.37%.

Whether by force or by choice, the individual is doing the right thing. It is the "wrong" thing for the economy, in the short run. The improving savings rate will fortify consumer balance sheets so the next expansion, probably another year away, will have legs.

The numbers are staggering. Retail sales for 2008 decreased by 0.72% from 2007. That doesn't look like a large drop, but:

- this is a nominal number, unadjusted for inflation

- the average growth rate from 1992 - 2007 was about 5.13%

2009 is running about 9.17% below 2008. Although I only have data going back to 1992, I can't imagine a similar run occurring during anything other than a depression.

Freddie Mac "Earnings"

Freddie lost another $9.85 billion in the first quarter.  As a result, the company had a negative net worth on 3/31/2009.  No problem, the taxpayers are willing to pay for it.  The FHFA submitted its request for another $6.1 billion from the Treasury.

Home Prices Drop in Q1

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKkPN8keugMw&refer=home

http://www.realtor.org/files/research/8f65e2804c8e3c9aabaeaf2e4ec772bd/rel09q1t.pdf


No new information here, but the second link has some interesting information about specific locations.

News Briefs

http://www.nytimes.com/2009/05/13/business/global/13yuan.html?_r=1&hp

Chinese Exports Weaker Than Expected


http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_FhoI2A4ZsM

Lender Halts Credit Card Program


http://www.ft.com/cms/s/05a02882-3eeb-11de-ae4f-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F05a02882-3eeb-11de-ae4f-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus

German Bad Bank Plan

U.S. Federal Budget Update

The Obama Administration put forth the revised 2010 budget today. Please click on the above tables and graph for a review. No real surprise, the projected deficit grew larger. The forecasts were all taken from the Budget.

It is interesting to note the anticipated Fannie & Freddie preferred stock draw-downs. To review:

3rd Quarter 2008: Freddie issues $13.8 billion in stock to the Treasury

4th Quarter 2008: Freddie issues $30.8 billion in stock to the Treasury

4th Quarter 2008: Fannie issues $15.2 billion in stock to the Treasury

May 8, 1009: Fannie requests $19 billion in stock be issued to the Treasury

Each time, the stock was issued to cover negative net worth.

The Budget includes the following:

$27.1 billion more in 2009 issuance

$41.3 billion more in 2010 issuance

$23.7 billion more in 2011 issuance

.......and the real estate market has found bottom ?

More on GMAC

http://dealbook.blogs.nytimes.com/2009/05/11/gmac-could-get-75-billion-from-us-report-says/


Update on GMAC's capital raising.

Economic Data Calendar

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
May 12	8:30 AM	Trade Balance	Mar	-	-$29.5B	-$29.2B	-$26.0B	-
May 12	2:00 PM	Treasury Budget	Apr	-	NA	-$63.0B	$159.3B	-
May 13	8:30 AM	Export Prices ex-ag.	Apr	-	NA	NA	0.1%	-
May 13	8:30 AM	Import Prices ex-oil	Apr	-	NA	NA	-0.6%	-
May 13	8:30 AM	Retail Sales	Apr	-	-0.2%	-0.1%	-1.2%	-
May 13	8:30 AM	Retail Sales ex-auto	Apr	-	0.0%	0.0%	-1.0%	-
May 13	10:00 AM	Business Inventories	Mar	-	-1.0%	-1.1%	-1.3%	-
May 13	10:30 AM	Crude Inventories	05/08	-	NA	NA	+605K	-
May 13	10:35 AM	Crude Inventories	05/08	-	NA	NA	NA	-
May 14	8:30 AM	Core PPI	Apr	-	0.0%	0.1%	0.0%	-
May 14	8:30 AM	Initial Claims	05/09	-	580k	NA	601K	-
May 14	8:30 AM	PPI	Apr	-	0.2%	0.1%	-1.2%	-
May 15	8:30 AM	Core CPI	Apr	-	0.1%	0.1%	0.2%	-
May 15	8:30 AM	CPI	Apr	-	0.0%	0.0%	-0.1%	-
May 15	8:30 AM	Empire Manufacturing	May	-	-14.0	-15.0	-14.65	-
May 15	9:00 AM	Net Long-Term TIC Flows	-	-	NA	NA	$22.0B	-
May 15	9:15 AM	Capacity Utilization	Apr	-	69.1%	68.9%	69.3%	-
May 15	9:15 AM	Industrial Production	Apr	-	-0.4%	-0.6%	-1.5%	-
May 15	9:55 AM	Mich Sentiment-Prel	May	-	65.2	65.0	65.1	-

*** This is also option expiration week. ***

Also, BankUnited saga should be resolved. Regulator's extension expires this week.

Other fun:

http://www.telegraph.co.uk/finance/economics/5307345/China-suffers-defaltion-for-third-month-in-a-row.html

China Deflation Continues


http://www.reuters.com/article/marketsnews/idINPEK5258120090511?rpc=33

Krugman is Fearful