Soured Loans To Other Banks

Just one more example how banks have marked numerous assets on their balance sheets..... ;-)

Ein weiterer Beleg wie marktgerecht die einzelnen Positionen der Bankenbilanzen bewertet sind..... ;-)


WSJ
After slogging through quarters of losses from disastrous bets on the Arizona and Florida housing markets, Milwaukee-based Marshall & IlsleyCorp. is facing a new source of pain: bad loans to other banks.

The bank said Tuesday it expects to post a larger third-quarter loss than analysts had expected, in part because it will set aside $185 million for loans to other banks that have abruptly gone bad.

In fact, the bank said 75% of the now-troubled loans to other lenders were current just seven days ago on Sept. 30.

Here comes another example.......... This time it´s CRE......

Hier ein weiterer Beleg für die "überragende" Bilanzqualität wenn es um die Risikovorsorge bei gewerblichen Immobilien geht.....

Fed Frets About Commercial Real Estate WSJ

In another sign that many U.S. financial institutions are inadequately protected against potential losses on commercial real-estate loans, banks with heavy exposure to such loans set aside just 38 cents in reserves during the second quarter for every $1 in bad loans, according to an analysis of regulatory filings by The Wall Street Journal. That is a sharp decline from $1.58 in reserves for every $1 in bad loans from the beginning of 2007.

Make sure you visit the comment section for another stunning CRE story leading to the highest per-square-foot price paid for a Birmingham office property since 2001, easily topping the 2008 mark........

Empfehle zudem einen Besuch in den Comments für ein weiteres Bespiel aus der "Wunderwelt" der gewerblichen Immobilien die erzählt mit welcher Finanzierung es auch jetzt noch möglich die Quadratmeterpreise aus dem Jahr 2008 locker zu toppen .....

ECB: Record 442 billion Euros “Stimulus by Stealth”

HT to Alea for the excellent headline. After reading the latest ECB "Instability" Report....... & the almost irresistable conditions ( despite news like this ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) it is no surprise to see such a huge number. .......A no brainer...... I can imagine Trichet is already praying that this will work.....I have some serious doubts......Liquidity is & was not the issue..... Core problems ( impaired bank balance sheets, not enough creditworthy borrowers ) are still unsolved and are getting worse on a daily basis..... Update : Spanish banks to get €90 billion bailout

Dank an Alea für die sehr treffende Überschrift. Nachdem ich den letzten ECB "Instability" Report....... gelesen habe und wenn man die unwiderstehlichen Konditionen ( trotz leicht verschärfter Bedingungen / siehe ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) berücksichtigt dürfte die Höhe nicht wirklich überraschen. Eine echte Lizenz zum Gelddrucken.....Kann mir bildlich vorstellen wie Trichet & Co beten, das dieser Kraftakt endlich dazu führt, das die Kreditmärkte wieder wie gewünscht funktionieren ( Update Banken tragen Milliarden zurück zur EZB ).... Ich denke das auch dieser Versuch maximal etwas Linderung in Form von geringeren Spreads verschaffen wird..... Dummerweise ist mangelnde Liquidität nicht das Problem. Solange die Problematik der bilanztechnisch insolventen Banken nicht gelöst wird und man anerkennt das es im Angesicht einer lang anhaltenden Rezession einfach zu wenig kreditwürdige Unternehmen gibt, dürfte sich die Lage weiter verschlechtern. Wenn man so will handeln die Banken aus Ihrer Sicht ironischerweise momentan das erste Mal nach Jahren der "Trunkenheit" richtig. Tragisch aus deutscher Sicht ist vor allem das unser Bankensystem trotz fehlender eigener Blase dank der desaströsen Exzesse besonders der Landesbanken ( folgerichtig kommen die Sparkassen als Anteilseigner dank massivster Wertberichtigungen auf Ihre LB Anteile in ernste Schieflagen, was das besonders für den Mittelstand bedeutet kann man leicht erahnen..... ) eher einen bzw. den Spitzenplatz der Problemliste belegt..... Updadte: EZB pumpt Rekordbetrag in den Markt FTD & Spanish banks to get €90 billion bailout


ECB pumps €442bn into banking system FT
The European Central Bank on Wednesday pumped hundreds of billions of euros in one-year loans into the eurozone’s weakened banking system, making record amounts of emergency finance available in a bid to unlock credit markets and revive the region’s economies.

In a dramatic step dubbed “stimulus by stealth” in financial markets, the ECB lent €442.2bn for 12 months to more than 1,100 banks at its current benchmark interest rate of 1 per cent.

The high demand for the funds, in what was the ECB’s first ever auction for one-year loans, reflected a growing realisation by the banks that emergency funding may not be available again on such favour-able terms.

The central bank’s action could boost the eurozone’s recovery prospects by lowering market interest rates and creating more scope for banks to lend to the private sector.

The ECB action, which attracted 1,121 bidders – more than usual in ECB operations – had an immediate impact in driving down overnight and longer-term market interest rates, though the full effects are still to feed through.

Don Smith, economist at inter-dealer broker Icap, said: “The massive scale and undoubted success of this tender almost entirely reflects the cheapness of the funds on offer.”

The previous largest amount injected in a single ECB operation was €348.6bn in December 2007.

The economic impact will depend on whether demand for liquidity in future ECB market operations is reduced as a result of Wednesday’s action, as well as whether banks step up lending.

“They must pass it along,” Lorenzo Bini Smaghi, an ECB executive board member, said in Rome.

> "...must pass it along" This kind of rhetoric will only be working in China ( see Number Of The Day "Credit Explosion In China" & todays must see Borrowed in China from FT Alphaville ). Probably ( after FT Alphavilles update DEFINITELY ) the NPL from the not so distant future...... Smaghi probably one of the ECB members pressing for "quantitive easing" ( despite intense discussions among the ECB members so far almost non existent ).......

> "...must pass it along" Wird wohl ein Wunschgedanke bleiben..... In China sieht das momentan ganz anders aus ( siehe Number Of The Day "Credit Explosion In China" sowie die aktuellen Daten für Juni Borrowed in China WAHNSINN!). Da wird solchen Wünschen wenn Sie von der richtigen Stelle geäußert werden "bedingungslos" Folge geleistet. Die Chancen das es sich um die faulen Kredite von morgen handelt sind nicht zu unterschätzen ( nach dem Update von FT Alphaville eine "leichte" Untertreibung )...... Unschwer zu erkennen das Smaghi eher dem Camp innerhalb der EZB angehört die PRO "Quantitive Easing" ( bisher trotz intensiver Diskussionen praktisch kaum vorhanden ) sind......

WSJ

By promising a full allocation of all bids on Wednesday, the ECB has effectively passed responsibility for any easing of policy to the banks themselves, giving license to any institution that thinks it can lend the money profitably into the real economy.

AJ via Alea

“If I were a bank I would be gathering up all the furniture to use as collateral to take part.” said Erik Nielsen, European economist at Goldman Sachs.

AMEN!

Not Only Homeowners Are Having Refinancing Problems.......

It is really no wonder that investors are demanding a much higher risk premium for bank debt.... It will be interesting to see how the central bank balance sheets will look like in 2009/2010....

Wenig verwunderlich das die Investoren zukünftig eine ansprechende Risikoverzinsung verlangen..... Bin gespannt wie die Bilanzen der Zentralbanken im Jahre 2009/2010 aussehen werden.....

New Credit Hurdle Looms for Banks WSJ
U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.

via Bloomberg U.S. Says Banks on `Problem List' Rose 30% in Quarter

The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased [to] 117 ``problem'' banks as of June 30, up from 90 in the first quarter and the highest since mid 2003 ... FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the ame quarter a year ago.

> It seems to me that even the spread of 200 basispoints for lots of banks is not quite "rich"...... Especially when you add the lousy quality of their balance sheets..... Just take a look the another main sector besides residential is showing some kind of "stress"...... Hat Tip EconompicData

> Wenn man sich diese Meldung ansieht können einige Banken noch froh sein das die Spreads nur 200 Basispunkte betragen.... Ganz zu schweigen von der ansonsten oft sehr dürftigen Bilanzqualität...... Man muß sich nur einen zweiten Eckpfeiler neben dem privaten Immobiliensektor ansehen um zu erahnen das die Luft "dünner" wird..... Dank an EconompicData

As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.

via Bloomberg Merrill, Wachovia Hit With Record Refinancing Bill

The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.

Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years.

The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.

The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.

Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.

At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.

Central Banks' Role
All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.

On this topic..... Buy Freddie Paper With Fed Leverage via Dealbraker Hat Tip FT Alphaville

We don't know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the ecision to bid relatively easy. That's because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.

Here's how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed's Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).

At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.

via Real Time Economics

But there is growing concern banks have become over-reliant on ECB funding, or may be abusing the situation. The ECB says it is monitoring developments and will, if necessary, adjust funding rules. Some financial institutions may have started to treat the ECB’s financing window as a substitute for a well-functioning structured finance market that has been largely shut since last August.

The share of asset-backed securities — or notes backed by repayments on debt such as mortgages or credit card loans — in the total collateral held with the national central banks in the 15-nation euro zone has risen to around 20%, from around 4% in 2004. At the same time, the share of government bonds has fallen sharply.

> Here the Fed´s balance sheet..... Hardly AAA.....

> Hier das grausige Bild der Fed Bilanzkomposition..........Sieht mir nicht mehr nach AAA aus.....

Mish has also something to say and is offering this must see chart Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Scary.....

Mish trifft mit seiner Aussage den Nagel mal wieder auf den Kopf und liefert gleichzeitig einen Blick auf die detaillierte Ansicht der Fed Bilanz. Nicht verpassen! Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Fuchteinflösend.....

"A the current pace, the Fed runs out of treasuries about a year from now. Things are about to get very interesting."

via Telepgraph Bank borrowing from ECB is out of control

One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.

"Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks," said the source.

This "soft bail-out" is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.

The latest data from the Bank of Spain shows that the country's banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.

Got gold......?

Investors Hit $10bn Loss In US Financials

Never catch a falling knife.......It remains to be seen if the Sovereign Wealth Funds won´t double down..... :-) Just watch todays news on Barclays....... It seems like they still havn´t lost enough..... At least they bought into a strong currency..... ;-)

Greife nie in ein fallendes Messer..... Bin wirklich gespannt ob sich die staatlich kontrollierten Fonds wirklich ernsthaft zurückhalten. Das Beispiel Barclays zeigt momentan noch ein anderes Bild. Mann könnte auch sarkastisch sagen das hier der "Anfängerfehler" gemacht wird und die Positionen "verbilligt" werden..... :-). Die Verluste sind anscheinend noch nicht schmerzhaft genug..... Immerhin haben Sie sich dank der "gelungenen" Investment in eine "starke" Währung eingekauft ...... ;-) Investors hit $10bn loss in US financials FT
Investors who backed US financial companies’ drive to raise much-needed capital are sitting on nearly $10bn in paper losses amid a continued slump in the sector’s shares, a Financial Times analysis shows.

The negative returns suffered by investors are likely to make it more difficult and expensive for US financial groups to tap equity markets if, as expected, the credit crunch forces them to raise more capital.

“Raising funds from equity investors is becoming increasingly complicated because the performance of financial stocks during and after the spate of fund-raisings has been so abysmal,” said a Wall Street banker who advises institutions.

The setbacks suffered by equity investors come as sovereign wealth funds – a rich source of capital at the beginning of the crisis – have moved to the sidelines after seeing the value of investments fall in companies such as Citigroup, Merrill Lynch and Morgan Stanley.

Investors who bought the $65bn-plus in common and convertible shares issued by large US financial institutions since last October have seen their total investments fall by more than $9.7bn – a negative return of about 15 per cent – according to an FT analysis of Dealogic data.

> I doubt that all of the SWF were as smart as the following....

> Glaube kaum das alle SWF ähnlich weitsichtig wie der nachfolgende agiert haben.....

FT Abu Dhabi’s Adia, meanwhile, had structured its November investment in Citi in a way that gave it the right to go back and strike better terms on its deal, heightening its downside protection to match the terms GIC and Kia struck with Citi.

> Lets hope for them that this kind of term is still in place during the next few capital raising attempts from Citi.... :-)

> Bleibt zu hoffen das diese Kalusel auch noch nach der 3. und 4. Runde von Kapitalerhöhungen bei Citi in Kraft ist...... :-)

Those who took part in the $1.2bn recapitalisation of the bond insurer Ambac last March are nursing paper losses of more than 70 per cent. And fund managers who backed a $1.2bn capital raising by fellow monoline insurer MBIA have seen their investment shrink by 60 per cent.

Shareholders in Citigroup who thought that the sharp fall in the stock made last month’s $4bn share issuance a buying opportunity face a 24 per cent loss.

Of the 20-plus fund raisings by US banks and insurers since the onset of the crisis, only two – by the student loan provider Sallie Mae and the regional lender Sovereign Bancorp – show a small positive return

Bank Data Reveals Stretched System / Minyanville

I´m pretty sure that the endgame will hit the "experts" with surprise and will shock the markets in the future at least for one week until the Fed steps in....... ;-)

Nach meinen Erfahrungen dürfte das Ende vom Lied mal wieder alle "Experten" überraschen und die Märkte in ferner Zukunft für maximal eine Woche in einen Schockzustand versetzen bis die Fed zur Rettung eilt....... ;-)

" Well, I´d better go now. I´m almost at the wall..."

Thanks to The New Yorker

Minyan Peter / Bank Data Reveals Stretched System
On Friday, several pieces of key bank data were reported by the Federal Reserve:

First, for August, non-mortgage consumer debt rose at an annual rate of 5.9%, up from 4.7% in July. The bulk of the increase came from revolving debt, principally credit cards, which rose at 8.1% versus 7.5% in July.

To frame the revolving credit figure, here is some historical data:

Year	Annual Growth Rate
2003	2.3%
2004	3.8%
2005	3.1%
2006	6.3%
June 2007	7.1%
July 2007	7.5%
August 2007	8.1%

That credit card debt growth is accelerating at a time when retail sales growth is slowing suggests that more consumers are turning to their cards to finance their basic monthly cash flow. As I have said previously, it appears that the credit card banks have become the consumer lender of last resort. How long this can continue, particularly with the slowdown in personal income growth, (from 0.9% monthly income growth in January to 0.3% in August) remains to be seen.

Second, the weekly report on system-wide bank balance sheets showed a surprising $100 bln increase in bank assets for the week following the Fed Funds rate cut. I, and others, had expected to see a decline in bank balance sheet assets, figuring that the rate cut would have paved the way for banks to move some more liquid loans or securities off their balance sheets and into the secondary market. That this did not happen suggests that either corporate borrowers are hoarding liquidity by drawing down credit lines or the secondary markets have not fully responded to the rate decline. At the same time, system-wide net assets (a proxy for capital) showed a $15 bln decline for the week.

For the record, since May, when it peaked, net assets (again, a proxy for capital) for large U.S. banks has dropped by $55 bln - or 7% (from $740 bln to $685 bln), while over the same period, total assets for large banks has grown by $228 bln - or 4% (from $5.607 trln to $5.835 trln). Furthermore, substantially all of this growth was funded through non-deposit debt sources.

To return large bank capital ratios to their peak May levels would require either an $85 bln increase to capital or a $640 bln reduction in assets.

While the “all clear” whistle may have blown for the stock market, the growth in system-wide bank balance sheets, particularly credit card balances, coupled with a meaningful decline in large bank capital levels indicates to me that our banking system is being stretched.