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Mister Money Man’s stock pick of the week.
Recent defaults on five commercial mortgages with balances of more than $100 million caused the CMBS delinquency rate to increase 23-basis points in August to 8.48%, according to a new report from Fitch Ratings. But the rating agency believes that recent loan resolutions are tempering the number somewhat, noting that $2.1 billion of commercial mortgages were “resolved or liquidated last month.” Fitch senior director Adam Fox said that although specialty servicers “are working out loans at an increased rate, the volume of new delinquencies has not yet subsided.” He added that, “Highly levered loans originated at the market’s peak continue to default as borrowers seek modifications or hand back the keys to underperforming assets.” Earlier in the week Trepp LLC, New York, said the delinquency rate on commercial mortgages contained in CMBS increased by 21 basis points in August (from July) to 8.92%. Late payments on commercial mortgages are about 100 basis points lower than the delinquency rate for residential loans. In August, three Fitch-rated loans in excess of $100 million became newly delinquent due to performance issues, including a $140 million mortgage on the Hyatt Regency in Bethesda, Md., which is just outside one of the healthier hotel markets in the nation: Washington, D.C.
• IPO for BankUnited: After being closed by regulators in May of 2009, recapitalized by Blackstone, Carlyle and WL Ross, BankUnited ($11.2B, FL) is now ready to go public in an effort to raise more than $500mm. Last quarter’s ROE was over 20% and it is now ranked in the top 10% of all banks in the country in terms of 2010 performance. • Prepayment Oddity: A rare occurrence is happening in the mortgage markets whereby lower coupons (5% and 5.5%s) are prepaying faster than higher ones (6% and 6.5%). The reason is a combination of vintage (when the loan was originated) and credit quality (lower coupons have more ability to refi). • Consumer Perceptions: A survey by the ABA asked people what effect various institutions had on society is sobering for bankers. In it, the top ranked institution was small businesses, which 71% of people felt contributed positively to society. That was followed by technology companies (68%), religious organizations (63%), the administration (45%), labor unions (32%) and the entertainment industry (33%). Well down the list, only 22% felt banks contributed positively to society vs. 69% that felt such contribution was negative. Clearly bankers need to continue to ramp up the marketing message. • Confidence Wanes: Discover reports its Small Business Confidence had its largest 1 month decline in June, as 62% of small business owners said the economy is getting worse. In addition, a record 55% of owners said they expect economic conditions to be unfavorable in the next …Continue Reading
China Moves to Retaliate Against U.S. Tire Tariff By KEITH BRADSHER Published: September 13, 2009 HONG KONG — China unexpectedly increased pressure Sunday on the United States in a widening trade dispute, taking the first steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires from China. Skip to next paragraph Enlarge This Image John Loomis for The New York Times China may move against new U.S. tariffs on tires with duties on chickens and car parts. Above, a chicken farm in Arkansas. Enlarge This Image Andy Wong/Associated Press A woman passed by a tire store in Beijing, China. The Chinese government’s strong countermove followed a weekend of nationalistic vitriol against the United States on Chinese Web sites in response to the tire tariff. “The U.S. is shameless!” said one posting, while another called on the Chinese government to sell all of its huge holdings of Treasury bonds. The impact of the dispute extends well beyond tires, chickens and cars. Both governments are facing domestic pressure to take a tougher stand against the other on economic issues. But the trade battle increases political tensions between the two nations even as they try to work together to revive the global economy and combat mutual security threats, like the nuclear ambitions of Iran and North Korea. Mr. Obama’s decision to impose a tariff of up to 35 percent on Chinese tires is a signal that …Continue Reading
The IRS issued a draft form for businesses to use in figuring and claiming the new small business health insurance credit, starting this year. Draft Form 8941, Credit for Small Employer Health Insurance Premiums, leads taxpayers through the steps of determining the number of full-time equivalent employees, average annual wages and eligible premiums paid, and then determining the amount of the credit. Small businesses claiming the credit will include it as part of the general business credit on their tax returns. Tax-exempt small employers, who do not normally file income tax returns, will attach Form 8941 to their Form 990-T, Exempt Organization Business Income Tax Return, which will be revised for the 2011 filing season to enable eligible tax-exempt organizations to claim the credit. The small business health care credit was created by the Patient Protection and Affordable Care Act, PL 111-148. In 2011, small businesses—defined as businesses with 25 or fewer employees and average annual wages of less than $50,000—are eligible for a credit of up to 35% of nonelective contributions the business makes on behalf of its employees for insurance premiums (new IRC § 45R). Tax-exempt organizations would get a 25% credit against payroll taxes. After 2013, the maximum credit will increase to 50% of the employer’s eligible premium expense (35% for tax-exempt employers), and it will be available for a maximum of two consecutive years, beginning with the first year the employer offers a qualified plan through a state insurance exchange (IRC § 45R(e)(2)). Employers with …Continue Reading
To understand the current economy one must understand the functions of inflation and deflation. An item purchased today will always be more expensive tomorrow or the day after. In order for purchasing power to remain consistent with inflation wages rise just as rapidly. Getting price increases to offset inflation in costs has been the typical problem—but not lately. Price increases are rare and price decreases are common. (Disinflation) As a business owner you must realize that competitors will be lowering their prices on good to make a sale. Your job as a business owner must be to arrest the decline of prices and to reduce costs to match the decline. If costs do not decrease at equal rate to decline of price the deficiency will be seen through profitability. Inflation Most people understand inflation. It occurs when more money is created than there is tangible value to support it. With the massive government spending surge and money supply growth in the past year or two, inflation should be a concern. Right now, it isn’t, which is surprising. The reason that inflation remains tamed is that there is too much idle capacity, chasing an too little demand. When the rate of inflation keeps dropping, as it has lately, that is called disinflation. It is troubling at times, but also manageable if costs can be reduced. Disinflation is not to be confused with deflation. Deflation Deflation is a different and more dangerous phenomenon than disinflation. It has rarely been seen (except in …Continue Reading
Pre-FY2006 Goaling Strategy SBA negotiated annual procurement preference goals with each Federal agency. Each agency submitted a proposed goal to SBA. The SBA adjusted the goals accordingly to reach the minimum 23% statutory government-wide goal. Scorecards were not used to grade performance. FY 2006/FY2007 Goaling Strategy FY2006/FY2007 goals were released on February 6, 2006 with a few changes in philosophy on the SBA’s part. For the Small Business, 8(a), and SDB goals, SBA did not accept a goal lower than the previous year’s goal (absent a compelling reason). For Women, HUBZone, and Service-Disabled Vets, SBA did not accept a goal that was lower than the statutory level. Therefore, any changes made by SBA were to increase the goals either to the FY 2005 level, or to the statutory level. The first scorecard was issued in August 2007. FY2008/FY2009 Goaling Strategy SBA’s goaling strategy for FY 2008 and FY 2009 is based on trend analysis, prior year goal achievement, and ultimate impact on the national average. Goaling options and scenarios were prepared by SBA and presented to the Small Business Procurement Advisory Council’s (SBPAC) Goaling Executive Committee, an interdepartmental working group that includes the Office of Federal Procurement Policy, Procurement Advisory Committee members and Chief Acquisition Officers for review and recommendation. Through this consultative process, SBA concluded that the best approach for the majority of the 86 goaled agencies would be to compare each agency’s FY 2006 goal achievement with its 3-year average achievement, using the greater number to formulate the …Continue Reading
SBA Lending and the future.
BANK NEWS: • Helpful Change: Community bankers will be very interested to know that the Dodd-Frank Act includes a provision that raises the threshold triggering a material loss review (MLR) to$200mm from the current $25mm or 2% of assets. MLRs are conducted when a bank fails and investigators try and explain why it failed and where examiners went wrong. The problem with MLRs is that they also tend to increase fear, change behavior and lead to second-guessing. • No Value: Both the ICBA & ABA are calling on FASB to with draw its exposure draft and not proceed with proposed fair value accounting changes. If passed, the proposal would require banks to record all financial assets (including loans)and liabilities at fair value on the balance sheet. • Ugly Autos: The world’s 3 largest automakers reported the biggest monthly sales decline in 28Ys yesterday, as US consumers pulled back sharply on big-ticket purchases. Toyota reported a 34% drop in deliveries, General Motors slid 25% and Ford dropped 11%. All were much worse than projected. • Clear And Focused: Dallas FRB President Fisher (alternate voting FOMC member) said that while he did not have a specific position on whether Congress should launch any new spending programs, if any were to surface they should “be focused on providing incentives for job creation.” • Office Stress: Analysis by CBRE Econometrics Advisors finds vacancy rates for office in the 2Q climbed to 16.7%, the 11th consecutive quarter of vacancy growth.
