FDIC list of troubled banks leaps higher.
Wednesday, February 24, 2010. 9:15 am.
The Federal Deposit Insurance Corp reports that at the end of the December quarter there were 702 banks on its ‘troubled banks’ list. That was a big increase from 552 that were on the list at the end of the third quarter, and the highest number since 1993 (at the tail end of the S&L and banking collapse of the early 1990’s).
Last year 140 banks failed and were taken over by the FDIC. Banking analysts have been estimating that 500 to 700 banks will fail over the next few years. It’s looking like they were right.
The FDIC report comes just two weeks after the bi-partisan Congressional Oversight Panel released a 183 page report that says 2,988 small U.S. banks are about to “get hit by a tidal wave of commercial-real estate loan failures”. That’s approximately 38% of the 8,000 banks in the U.S.
Concerns about commercial loan losses being the next shoe to drop have been growing for a number of months. The panel used information provided by the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corp (FDIC).
The potential problems for the economy are not just the losses for the financial institutions and their stock-holders, but banks could be forced to cut back even further on the already tight availability of commercial loans needed to sustain the economic recovery.
Speaking of which:
U.S. bank lending plunged to lowest level since 1942!
In the same report, the FDIC says banks turned in their biggest decline in total loans in 67 years for 2009. The report said the decline in loans showed up in all types of loans except credit cards. That is, in home mortgages, commercial loans, and construction loans. The FDIC says the problems are most pressing in the banks that already have high levels of bad loans on their books. Banks claim a big part of the problem is that there are few applicants with the necessary credit quality due to the effect of the recession on small businesses and consumers. Banks wrote off $53 billion in loan losses in the December quarter, the largest amount in the 26 years the FDIC has been compiling the data.
The FDIC explained that commercial real-estate loans take longer to go into default than home mortgages, and so will continue after the economy has recovered.
Home price declines vary wildly!
The Case-Shiller Home Price Index, based on its measurements of home prices in 20 cities across the country, seems to move only single-digit percent points one way or the other.
However, in some areas including Las Vegas, Florida, Georgia, etc., where overbuilding got out of control in the boom years, the prices changes have been jaw-dropping.
Want to buy a condo in central Florida in an upper class, gated, golf community for just $62,925, down from $312,000 in 2008? How about a lot in an exclusive area in a previous ‘Street of Dreams Showcase’ where house lots sold for $360,000 in 2004, soared to more than $1 million in 2006, and are now priced at $125,000 – with few takers? You’ll have to live in an under-developed area, with many foreclosed homes, and join the struggling country club, with memberships starting at $40,000. One builder lamented that “I bought this lot in 2007 for $700,000. Now I can buy the one next door for $25,000”.
In another community, planned for 4,000 homes, near the LPGA development in east Volusia county, homes that sold for $440,000 in 2007 are now selling for $162,000 to $222,000. Only 8 houses and 25 townhouses have been built.
Those are a few of the pricing situations in an article in the Orlando Sentinel yesterday.
But be careful. Many of the houses and condos that have been sold, many out of foreclosure, were damaged by departing home-owners, and were bought all the way down by investors who thought they had caught the bottom when able to buy at 20% lower prices, then 30%, only to see prices fall as much as 70% from those in 2006 and 2007.
Yesterday in the U.S. Market.
It was all to the downside yesterday, with the market closing about on its low.
Yesterday’s intraday chart:
The Dow closed down 100 points, or 1.0%. The S&P 500 closed down 1.2%. The NYSE Composite closed down 1.5%. The Nasdaq closed down 1.3%. The Russell 2000 closed down 1.1%. The DJ Transportation Avg. closed down 0.6%.
Asian markets were also down last night.
The DJ Asia-Pacific Index closed down 1.1%.
Among individual countries:
Australia closed down 1.4%. China closed up 1.3%. Hong Kong closed down 0.8%. India closed down 0.2%. Indonesia closed down 0.2%. Japan closed down 1.5%. Singapore closed down 0.7%. South Korea closed down 1.0%. Taiwan closed down 0.9%.
If you’d like to see a three-month chart of these indexes and others, click here, and then click on any of the markets in the list at the left side of the page it takes you to.
Markets this Morning.
European markets are up fractionally after big declines yesterday, up on average of about 0.2%.
Oil is up $.39 a barrel at $79.25.
Gold is down $7 an ounce at $1,096 at the moment.
Markets in the U.S.
In the U.S., a number of important economic reports will be coming out this week, mostly from the middle to end of the week, including consumer confidence, new home sales, existing home sales, etc.
To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.
Yesterday’s report that the Conference Board’s Consumer Confidence Index plunged sharply to 46 in February from 56.5 in January spooked the markets, as another sign that economic growth may falter over coming quarters.
Today’s important report will be New Home Sales to be released at 10 a.m.
Fed Chairman Bernanke’s testimony is being debated, although I can’t imagine why anyone thinks he will say anything other than that the Discount Rate hike last week was not a tightening move, but just a ‘normalizing’ move and that interest rates will remain low for some time to come.
Our pre-open indicators are fractionally positive, pointing to the Dow being up 15 points or so in the early going, not meaningful as to direction.
Stock Market Patterns.
This is the week after the month’s options expirations, and tends to be negative, particularly when the options expirations week was more positive than usual.
Interesting Charts of the Morning.
A few interesting charts of the 85 U.S. market sectors we follow.
Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.
To read my weekend newspaper column ‘Why Talk of Re-Regulation of Wall Street is Just Talk!’ click here!
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