Archive for July, 2009
Branch Banking and Trust’s (BBT: 26.95 -0.33%) Q209 profits were 50% lower than in Q208, after the bank became one of the first lenders allowed to repay the federal funds it received from the Troubled Asset Relief Program (TARP).
BB&T reported profits of $208m, or $0.20 per share, down from $428m in Q208.
The bank repurchased the preferred stock it sold to the Treasury Department for $3.134bn, and also made an additional $14m dividend payment.
In its report, BB&T also said it has reached an agreement to repurchase the warrant it issued to the Treasury in connection with the TARP investment for $67m cash. That transaction will be recorded in the firm’s Q309 report.
“Our successful results in the government's stress test and our ability to repay the government's TARP investment are significant achievements for BB&T," BB&T president and CEO Kelly King said in a statement. "Removing this distraction frees our company to focus on serving our clients and strengthening our franchise for the opportunities that will be available as the economy improves. We are also very pleased to have reached a settlement with the Treasury on the warrant.”
BB&T said it originated $8.5bn in new mortgages, a record for the firm. However, it said its portfolio of non-performing assets, including consumer real estate, increased 27 bps as a percentage of total assets since Q109. The firm added delinquencies of 30 to 89 days were down in most portfolios, and 90 or more day delinquencies were down in all portfolios.
The bank also increased its loan loss fund to $701m, more than double the $330m it had in Q208. The increase is in anticipation of continued housing-related credit losses, which BB&T said are concentrated in Georgia, Florida and metro Washington, DC.
Write to Austin Kilgore.
Fitch Ratings downgraded the insurer financial strength (IFS) rating of Mortgage Guaranty Insurance Corp. (MGIC) to triple-B minus from triple-B after the company reported a $339.8m loss for Q209.
The long-term debt and senior debt ratings of its parent company MGIC Investment Corp. landed on Fitch’s Rating Watch Negative, but the insurance giant down-streamed $500m of capital to a new subsidiary, MGIC Indemnity, with the goal of continuing to write mortgage insurance, according to a release from Fitch.
“The capital restructuring allows the company to continue to operate and seek to earn a higher return on a portion of its capital than would otherwise be the case,” according to the release.
The Wisconsin Office of the Commissioner of Insurance (WI OCI), MGIC’s main regulator, approved the restructuring as an alternative to ceasing operations, according to the release.
Curt Culver, the CEO of MGIC Investment Corp. said a corporate statement that “the company's financial results continue to be adversely impacted by increased delinquencies, which are occurring due to a weakened economy, increased unemployment and lower home prices.”
According to Fitch’s report, the diversion of capital into MG Indemnity places “MGIC’s existing legacy book of business into de facto runoff.”
Fitch claimed that the MGIC group will need to perform on MGIC’s claims to protect MG Idemnity’s value. The restructuring is still pending approval from government-sponsored entities – the main beneficiaries of MGIC’s insurance.
“Positively, the restructuring allows the MGIC group to avoid a risk-to-capital driven cessation of operations, and to underwrite potentially high quality business at attractive rates,” according to Fitch’s release.
Write to Jon Prior.
Bank of America (BAC: 7.29 -0.14%) reported a $3.2bn profit in Q209, or about $0.33 per share.
BofA’s profits Q209 revenue was bolstered by the sale of its merchant processing business and shares in the China Construction Bank, but high credit costs, and increasing its loan loss reserve kept overall profit below the $3.4bn profit level earned in Q208.
The bank extended $211bn in credit, up from $183bn in Q109, with $111 billion of that going toward mortgage originations.
“Our goals during this difficult time have been to enhance the strength of our balance sheet and capital position and to continue to improve our earning power while dealing with the credit issues facing our industry due to the recession,” president and CEO Kenneth Lewis said in a release. “Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010.”
BofA said it funded $110.6bn in first lien mortgages for nearly 500,000 new home purchases or refinance loans. The bank said that included $24.3bn in mortgages for 154,000 low- and moderate-income borrowers. About 29% of all mortgages were for home purchases.
Nonperforming assets were $31bn in Q209, up from $25.6bn in Q109, and BofA added $4.7bn to its credit loss reserve. The bank’s Tier 1 capital ratio was 11.93%, an increase by nearly $40bn from Q109.
BofA said it performed 150,000 mortgage modifications in the first six months of 2009, and an additional 80,000 customers are in the three-month trial period for modification sponsored by the federal government’s Making Home Affordable modification program, which provides incentives to servicers who modify distressed homeowners’ loans.
Write to Austin Kilgore.
Home buiders' confidence in the single-family new home market edged upward in July after builders started construction on 14.4% more units in June than in May.
The US housing construction industry started single-family housing units at an annualized rate of 470,000 units in June, 14.4% more than May's rate, according to a joint release by the US Department of Housing and Urban Development and the Department of Commerce.
Single-family home building permits, an indicator of future construction, authorized in June cam in at a seasonally adjusted annual rate of 430,000, 5.9% above May's rate, while the industry completed single-family units at an annual rate of 538,000 units in the month, 8.9% above May's figure.
On the heels of these figures, builder confidence in the market for new single-family homes edged upward in July to its highest level since September 2008, although the six-month outlook remained flat, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
The HMI, composed of three calculations, posted a slight rise in builder confidence in current sales conditions, while confidence in traffic of prospective buyers inched upward. Meanwhile, the element of the HPI gauging sales expectations for the next six months remained flat for the fourth consecutive month.
“Builders recognize the recovery is going to be a slow one and that we are facing a number of substantial negative forces,” said NAHB chief economist David Crowe.
The South posted the largest HMI gain as confidence remains strong in the region, while the Northeast slipped and the Midwest and West remained flat.
“A true recovery in the housing market and overall economy cannot take place until the continuing foreclosure crisis is abated and a decent flow of credit is restored to housing production," said NAHB chairman Joe Robson. "Meanwhile, the stalled jobs market is a major concern to builders and potential home buyers alike.”
Write to Diana Golobay.
On the back of the sale of Smith Barney brokerage unit, Citigroup (C: 30.87 +1.61%) posted a $4.3bn Q209 profit, or $0.49 per share.
Citi completed its sale of Smith Barney to Morgan Stanley (MS: 18.56 +2.26%) on June 1, earlier than the original estimated close in Q309. That deal earned the bank $11.1bn pre-tax, $6.7bn after taxes.
Citi's quarterly profit shows an improvement from a $2.5bn loss in Q208. The banking giant reported total revenue of $30bn in Q209, up $12.4bn from Q208, but that included the one-time sale of Smith Barney.
Citi increased its loan loss reserve to improve its ability to absorb residential mortgage-related and other losses. That, along with higher net credit and other losses brought Citi’s credit costs to $8bn this quarter, up 65% from Q208.
“Our most significant challenge now remains consumer credit,” Citi CEO Vikram Pandit said in a release. “Losses in our consumer businesses have been growing for some time, but we see some positive signs of moderation in those loss trends.”
Consumer lending revenues were $3.9bn, down 37% from Q208. Citi said the higher credit costs and lower loan volumes contributed to that decline.
In its report, Citi said it has since 2007 helped about 625,000 distressed homeowners avoid foreclosure on mortgages totaling more than $67bn.
Citi’s capital position improved, as Tier 1 capital ratio increased to 12.7%, up from 11.9% in Q109 and 8.7% in Q208.
The Morgan Stanley Smith Barney joint venture created a firm with 20,000 financial advisers, $1.7trn in assets, $14.9bn in combined revenues and $2.8bn in combined pre-tax profit. It also signaled the breaking off of Citigroup into two business segments.
The Q209 report is the first time Citi has reported its financial results in the firm’s two operating units — Citicorp, the divisions Citi wants to keep and grow, and Citi Holdings, units set to dissolve or be sold.
On its own, Citicorp made a net income of $3.1bn, down 10% from Q208, while Citi Holdings made a profit of $1.4bn, which included the Smith Barney deal. Without that sale, Citi Holdings would have posted a $5.3bn loss, the same amount Citi Holdings reported losing in Q208.
Write to Austin Kilgore.
Improvements in mortgage availability and the belief that prices have hit rock bottom has buyers moving in the Southern California and the San Diego Bay area, according to La Jolla-based data analyzer MDA DataQuick.
In So Cal, buyers are responding to price cuts on mid- to high-end homes and the availability of credit for pricier homes. There were a 23,262 total new and existing homes and condo sales completed in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties in June, up 12% from May.
While foreclosures are still having an impact on the SoCal market, the effect is weakening. Foreclosure sales made up 45.3% of resales in June, down from 49.7% in May and the February peak of 56.7%.
Fewer foreclosure sales meant resale of homes priced $500,000 and above rose to represent nearly 20% of all sales in the SoCal region. It’s the first time that segment of the market made up more than 19% of all sales since October 2008, and comes after that figure had dipped to a low of 13.4% in January.
The increase in pricier home sales helped increase the median sales price for the second consecutive month to $265,000, up 6.4% from $249,000 in May.
DataQuick president John Walsh said the numbers should be viewed with cautious optimism.
“The rising median should still be viewed mainly as a sign the market’s moving back toward a more normal distribution of sales across the home price spectrum," he said in a press release. "Sales in many higher-cost neighborhoods couldn’t have gotten much lower, so this recent uptick in activity should come as no surprise.”
Walsh added: “The recession and problem mortgages are fueling more high-end distress, hence more high-end ‘bargains.’ What’s missing, still, is a wide-open financing spigot for the would-be buyers of these more expensive homes.”
In the nine-county San Diego Bay area, sales were up 16.1% from 7,447 in May to 8,644 in June. The median price paid for those homes and condos was $352,000 last month, up 3.1 percent from $341,500 in May, the highest since the median was $375,000 in October 2008.
The percentage of foreclosure sales dropped to 37.3% in June, down from 40.5% in May, and is at its lowest point since August 2008 when foreclosure sales made up 36% of all transactions.
Write to Austin Kilgore.
An impending bankruptcy or other "credit event" of besieged lender CIT Group could hurt the flow of goods between manufacturers and retailers, but according to Fitch Ratings, would have a minimal impact on investment-grade ratings of synthetic collateralized debt obligations (CDOs).
Fitch announced it downgraded CIT to single-C Thursday, after the lender learned late Wednesday it would not receive a second bailout from the federal bailout.
Fitch downgraded CIT to single-C earlier today, and the 1m small and medium businesses that rely on CIT for short-term loans face the possibility of not having their lines of credit available to them to make payroll.
Fitch’s report would seem to substantiate the belief that CIT was not “too big to fail,” and the lender’s bankruptcy would not trigger the sort of cataclysmic financial meltdown regulators feared would happen if the large banks were allowed to fail during the onset of the credit crisis.
Fitch conducted sensitivity analysis of its rated synthetic CDOs and found while CIT is referenced in 53% of its rated synthetic CDOs, investment-grade tranches will be able to absorb a potential loss without being downgraded.
However, Fitch believes some B-rated tranches could be vulnerable to downgrades resulting from diminished credit enhancement from potential CIT losses.
Write to Austin Kilgore.
Default technology provider Sterling Technology Solutions launched its flagship loss mitigation system, which facilitates loan modifications and other retention strategies, scalable even up to high-volume servicing.
The Web-based platform, TouchPoint, delivers modification solutions both through the Treasury Department's Home Affordable Modification Program (HAMP) and through customized investor loan modification solutions. Although officially launched only recently, the platform has for months offered modification processing solutions to 20 major servicers and investors.
“The vast majority of technology solutions out there were not designed to deal with the volume and complexity of today’s default crisis,” Sterling CEO Ron Morgan said in a company statement. “Unlike other systems, hastily cobbled together to fulfill the Obama Plan, TouchPoint is the industry’s first Web-based solution already driving exceptional, scalable results on HMP to give servicers instant relief."
Write to Diana Golobay.
Ocwen Financial (OCN: 13.96 +1.53%) tapped US Department of Housing and Urban Development veteran Steven Nesmith to serve as senior vice president and assistant general counsel for strategic and government initiatives at the company.
The West Palm Beach-based asset manager and subprime mortgage servicer hired Nesmith to work out of its Washington, DC office, bringing a colorful background of working alongside — and within — government agencies.
He comes to Ocwen Financial from Holland & Knight, where he served in affordable housing. At Holland & Knight, Nesmith led the firm's US and global efforts to help corporate clients navigate the heightened regulatory environment, legislation reforms and government contract opportunities related to the Treasury Department's TARP program, the Federal Reserve, Federal Deposit Insurance Corp., HUD and other agencies.
From 2003 to 2005, he served as assistant secretary of HUD, where he was responsible for Congressional, intergovernmental and industry relations.
"Steven Nesmith has a deep understanding of the mortgage crisis — and of Ocwen's unique ability and commitment to help homeowners avoid foreclosure while also providing the best possible returns for investors in an exceptionally challenging environment," said Paul Koches, Ocwen's executive vice president and general counsel. "That understanding, plus his significant experience in housing issues and governmental relations, make him a tremendous asset as we pursue revenue-generating opportunities in both the private and public sectors."
Write to Diana Golobay.
It would make for an interesting episode of "Judge Judy."
Wells Fargo (WFC: 29.60 +1.89%), the holder of both first and second mortgages on a Florida condominium, finds itself in an unusual position in a lawsuit over a foreclosure dispute: as both the plaintiff and defendant.
It's a bit of news sweeping the financial blogs that sheds some light on the absurdity of some legal proceedings in the financial market.
Procedure requires that Wells Fargo, acting as first lien holder, sue all second lien holders in the case — which, of course, includes itself. And you'd better believe Wells Fargo intends to defend itself vigorously against all of its own claims.
The banking giant hired an attorney to represent its interests as first lien holder, and a separate attorney to defend itself in the position of second lien holder and to deny allegations of Wells Fargo's complaint.
Here's to your TARP money hard at work.
Posted in Commentary, Miscellaneous | No Comments »