Oct. 2 (Bloomberg) -- U.S. job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, stark reminders of how the worst financial crisis in a generation may undermine consumer spending and economic growth in the months ahead.
The figures from today’s Labor Department report sent stocks tumbling for a fourth day and yields on benchmark 10-year notes to the lowest level since May. The report underscores forecasts for the Federal Reserve to keep its benchmark interest rate near zero through next year, and may spark calls for stronger government efforts to shore up jobs.
“You will see the economy pulling back,” Richard Yamarone, head of economic research at Argus Research Corp. in New York and most accurate forecaster surveyed for the payrolls loss, said in a Bloomberg Television interview. Payrolls may not return to their previous peak for years to come, he added.
Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, today’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low.
The Standard & Poor’s 500 Index dropped 0.8 percent to 1,021.83 as of 9:46 a.m. in New York. Ten-year Treasury yields dipped to 3.15 percent from 3.18 percent late yesterday. The dollar sank 0.9 percent to 88.80 yen.
Bernanke’s Analysis
Fed Chairman Ben S. Bernanke yesterday said the expansion may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies still cutting jobs on concern spending will fade as government stimulus wanes.
“I certainly don’t think we can afford to withdraw the stimulus, without it we’d probably be looking at uglier numbers,” Chris Low, chief economist at FTN Financial in New York, said in a Bloomberg Television interview. “What we are looking at is the lack of small-business job creation that typically marks the beginning of an economic recovery.”
Payrolls were forecast to drop 175,000 in September, according to the median of 84 economists surveyed by Bloomberg News. Estimates ranged from decreases of 260,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949. The September unemployment rate matched the median projection.
Revisions subtracted 13,000 from payroll figures previously reported for August and July.
Deeper Losses
The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. The data currently show a 4.8 million drop in employment during that time.
The projected decrease was three times larger than the historical average, the Labor Department said. Most of the drop occurred in the first quarter of this year, probably due to an increase in business closings, the government said.
September’s losses bring total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.
Today’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. Economists forecast a drop of 52,000. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries.
GM Woes
General Motors Co. this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based automaker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships.
GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown.
Sales of cars and light trucks plunged last month after the $3 billion incentive plan expired in late August. Vehicles sold at a 9.2 million annual pace in September, down from a 14.1 million annual pace in August.
Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls decreased by 38,500 after a 8,800 drop.
Government Jobs
Government payrolls decreased by 53,000 after falling 19,000 the prior month.
Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by late 2009 and average 9.7 percent for all of next year even as the economy expands at an average 2.6 percent pace in the second half of this year and 2.4 percent in 2010.
Fed chief Bernanke told lawmakers in Washington yesterday that he anticipated the jobless rate will hold above 9 percent though 2010.
While acknowledging that “economic activity has picked up,” Fed policy makers on Sept. 23 said household spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
Today’s report also showed the average work week shrank to 33 hours in September, matching a record low, from 33.1 hours in the prior month. Average weekly hours worked by production workers dipped to 39.8 hours from 39.9 hours, while overtime decreased to 2.8 hours from 2.9 hours. That brought the average weekly earnings to $616.11 from $617.65.
Workers’ average hourly wages rose 1 cent, or 0.1 percent, to $18.67 from the prior month. Hourly earnings were 2.5 percent higher than September 2008, the smallest gain since 2005. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from the prior month and a 2.6 percent gain for the 12- month period.
Airlines are also cutting staff. UAL’s United Airlines, the third-biggest U.S. carrier, last month furloughed 290 more pilots under a plan to trim jobs and limit labor costs, while American Airlines said it would furlough 228 flight attendants.
Friday, October 2, 2009
Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doub
Oct. 2 (Bloomberg) -- The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.
Units of Frontier Financial Corp., Towne Bancorp Inc. and Steel Partners Holdings LP are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average -- according to Federal Deposit Insurance Corp. data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.
While regulators may not force firms on the list to close, requiring them to raise capital and curb loans may impede recovery in Florida, Illinois and seven other states. The banks are among the most vulnerable of a larger group of lenders whose failures the FDIC said could cost $100 billion by 2013.
“There are some zombie banks out there,” said Bert Ely, chief executive officer at Ely & Co., a bank consulting firm in Alexandria, Virginia. “Neither the banking industry nor the economy benefits from keeping weak banks in business.”
Ninety-five banks have failed this year at the fastest pace in almost two decades, depleting the FDIC’s insurance fund. The agency proposed on Sept. 29 that financial firms prepay three years of premiums, which would add $45 billion of reserves. The fund sank to $10.4 billion as of June 30, the lowest since 1993. It will run at a deficit starting this quarter, the agency said.
Non-Current Loans
The cost of this year’s failures to the FDIC equals 25 percent of the banks’ assets, according to agency data. Applying the same ratio to the $14.1 billion of assets held by the 26 lenders on SNL’s list means the FDIC could face additional losses of $3.5 billion.
Non-current loans averaged 4.35 percent of the total at U.S. banks as of June 30, the most in 26 years of FDIC data. Regulators typically take notice at 5 percent, according to Walter Mix, a former commissioner of the California Department of Financial Institutions. Corus Bankshares Inc.’s bank unit in Chicago was shut Sept. 11 after 71 percent of its loans soured.
The last time so many banks had 20 percent of their loans more than 90 days overdue was in 1991, near the end of the savings-and-loan crisis, when there were 60, according to an SNL analysis of FDIC data. That year the number of bank failures was less than half those at the peak of the crisis in 1988; this year closings are almost four times what they were in 2008.
For banks with 20 percent of loans overdue, “either they’ve got a massive amount of capital, or the FDIC just hasn’t gotten around to them,” said Jeff Davis, an analyst with FTN Equity Capital Markets in Nashville. Lack of staff and money are slowing shutdowns, he said.
Enforcement Orders
At least 17 of the 26 banks have been hit with civil penalties or enforcement orders that demand improved management and more capital, according to data compiled by Bloomberg. Failure to comply can lead to seizure.
The number of distressed banks is larger, with the FDIC counting 416 companies on its confidential list of “problem” lenders at mid-year.
The data were compiled by Charlottesville, Virginia-based SNL from FDIC records. Institutions that had loans less than 50 percent of assets were excluded, as were those closed since the end of June. The calculation didn’t include restructured loans modified after borrowers couldn’t keep up with the original terms, which have default rates of 40 percent to 60 percent within two months, according to SNL senior analyst Sebastian Hindman. Had such loans been included, the list would have swelled to 49 lenders holding $48.4 billion in assets.
Local Impact
Firms range in size from Frontier Bank in Everett, Washington, with $3.98 billion in assets, to Gordon Bank in Gordon, Georgia, with $35 million in assets. Six of the banks are in Florida and five in Illinois.
“While these aren’t your giant banks, they are the guys your local strip mall and commercial real estate investors get their funds from,” said Joseph Mason, a Louisiana State University banking professor and visiting scholar at the FDIC.
The bank with the highest level of non-current loans, 49 percent, is Community Bank of Lemont in Lemont, Illinois, a town of about 13,000 people 30 miles southwest of Chicago. Bad loans at the bank, about a third of them in construction and development, increased fivefold from a year earlier, according to FDIC data.
In February, the FDIC ordered Lemont, a unit of Oak Park, Illinois-based FBOP Corp., to stop “operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits.” Calls to the bank seeking comment weren’t returned.
’A Surprise’
Another Illinois lender, Benchmark Bank, also had an increase in non-current loans, to 25 percent as of June 30 from about 1 percent a year earlier.
“Everything was so positive for so long in this area, it came as a surprise when it stopped,” said John Medernach, Benchmark’s CEO, who added that a building boom and bust in his region may have wrecked more than just his balance sheet.
“I stop and think of all the rich farmland that has been developed into subdivisions during the boom years,” Medernach said. “It makes you wonder what we’ve been doing.”
Frontier Bank, owned by Frontier Financial, reported a sixfold rise in overdue loans to $764.6 million in the quarter ended June 30 from a year earlier, or 22 percent, according to FDIC data. More than 43 percent of the bank’s delinquent loans were in construction and development, FDIC data show. The bank has 51 branches in northwestern Oregon and western Washington.
Steel Partners
In July, Frontier Financial agreed to be acquired by SP Acquisition Holdings Inc., controlled by CEO Warren Lichtenstein, who heads the New York-based investment firm Steel Partners LLC, according to a presentation on the bank’s Web site. The deal would give Frontier access to about $456 million and create ’’an over-capitalized bank’’ that may consider acquisitions, the presentation said. The stock-swap transaction is scheduled to be completed in the fourth quarter.
Frontier “was a well-run organization for the majority of its history,” said Jeffrey Rulis, a banking analyst at D.A. Davidson & Co. in Lake Oswego, Oregon. The offer by SP Acquisition is “probably not what current shareholders envisioned a couple of years ago.” The company’s stock has dropped 92 percent in the last 12 months, and the bank posted an $84 million loss in the first half.
Patrick Fahey, Frontier’s CEO, said the transaction will resolve the bank’s credit issues. He declined to elaborate while a shareholder vote is pending.
Regulatory Art
Lichtenstein’s Steel Partners Holdings LP controls WebBank, a Salt Lake City lender with $35.5 million in assets and 31 percent of its loans overdue, according to SNL. More than 90 percent of construction and development loans weren’t current as of June 30, according to the FDIC. John McNamara, WebBank’s chairman and a managing director at Steel, declined to comment.
Determining which banks to close is “more of an art than a science,” said William Ruberry, spokesman at the Office of Thrift Supervision, which regulates four of the 26 lenders. “Examiners and the supervisory people have a lot of information that’s not public, and they know the circumstances of an institution and everything that goes into it.”
FDIC spokesman Greg Hernandez said in an e-mail that the agency doesn’t comment on individual institutions. Capital levels, profitability and financial strength of the owners are considered in addition to soured loans when deciding a bank’s fate, Hernandez said.
Sources of Capital
“There may be personal guarantees, there may be other collateral that will more than make up for the impairment on the 20 percent,” said Tom Giallanza, assistant superintendent for the State of Arizona Department of Financial Institutions, in a Sept. 15 interview. One bank on the list, Mesa, Arizona-based Towne Bank of Arizona, is in Giallanza’s state, with 28 percent of its loans non-current. Towne Bancorp CEO Patrick Patrick declined to comment.
H&R Block Bank, with 29 percent of its loans overdue, is dwarfed by the Kansas City, Missouri-based tax preparer that owns it. The bank’s deposits totaled $720.1 million as of June 30; assets at the parent company, H&R Block Inc., included more than $1 billion in cash and cash equivalents on July 31. The lender’s balance sheet is strong enough to be considered “well- capitalized” by regulators, according to FDIC reports.
The bank is a legacy of H&R Block’s subprime home lending that ended with more than $1 billion of losses for the parent company. The unit was kept open because it’s an inexpensive way to fund the company’s financial products, President Russell Smyth said a year ago. Spokeswoman Elizabeth McKinley didn’t respond to requests for comment.
Pace of Closures
Regulators may be pacing themselves on closings because the FDIC fund “is only so big,” there isn’t enough staff to close all the struggling banks at once and customers aren’t staging mass withdrawals that would force action, said Kevin Fitzsimmons, a managing director at Sandler O’Neill & Partners LP, a New York brokerage firm specializing in banks.
While a high level of non-performing assets doesn’t mean a bank can’t survive, “in some cases it creates a hole that’s too deep to climb out of,” Fitzsimmons said.
Units of Frontier Financial Corp., Towne Bancorp Inc. and Steel Partners Holdings LP are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average -- according to Federal Deposit Insurance Corp. data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.
While regulators may not force firms on the list to close, requiring them to raise capital and curb loans may impede recovery in Florida, Illinois and seven other states. The banks are among the most vulnerable of a larger group of lenders whose failures the FDIC said could cost $100 billion by 2013.
“There are some zombie banks out there,” said Bert Ely, chief executive officer at Ely & Co., a bank consulting firm in Alexandria, Virginia. “Neither the banking industry nor the economy benefits from keeping weak banks in business.”
Ninety-five banks have failed this year at the fastest pace in almost two decades, depleting the FDIC’s insurance fund. The agency proposed on Sept. 29 that financial firms prepay three years of premiums, which would add $45 billion of reserves. The fund sank to $10.4 billion as of June 30, the lowest since 1993. It will run at a deficit starting this quarter, the agency said.
Non-Current Loans
The cost of this year’s failures to the FDIC equals 25 percent of the banks’ assets, according to agency data. Applying the same ratio to the $14.1 billion of assets held by the 26 lenders on SNL’s list means the FDIC could face additional losses of $3.5 billion.
Non-current loans averaged 4.35 percent of the total at U.S. banks as of June 30, the most in 26 years of FDIC data. Regulators typically take notice at 5 percent, according to Walter Mix, a former commissioner of the California Department of Financial Institutions. Corus Bankshares Inc.’s bank unit in Chicago was shut Sept. 11 after 71 percent of its loans soured.
The last time so many banks had 20 percent of their loans more than 90 days overdue was in 1991, near the end of the savings-and-loan crisis, when there were 60, according to an SNL analysis of FDIC data. That year the number of bank failures was less than half those at the peak of the crisis in 1988; this year closings are almost four times what they were in 2008.
For banks with 20 percent of loans overdue, “either they’ve got a massive amount of capital, or the FDIC just hasn’t gotten around to them,” said Jeff Davis, an analyst with FTN Equity Capital Markets in Nashville. Lack of staff and money are slowing shutdowns, he said.
Enforcement Orders
At least 17 of the 26 banks have been hit with civil penalties or enforcement orders that demand improved management and more capital, according to data compiled by Bloomberg. Failure to comply can lead to seizure.
The number of distressed banks is larger, with the FDIC counting 416 companies on its confidential list of “problem” lenders at mid-year.
The data were compiled by Charlottesville, Virginia-based SNL from FDIC records. Institutions that had loans less than 50 percent of assets were excluded, as were those closed since the end of June. The calculation didn’t include restructured loans modified after borrowers couldn’t keep up with the original terms, which have default rates of 40 percent to 60 percent within two months, according to SNL senior analyst Sebastian Hindman. Had such loans been included, the list would have swelled to 49 lenders holding $48.4 billion in assets.
Local Impact
Firms range in size from Frontier Bank in Everett, Washington, with $3.98 billion in assets, to Gordon Bank in Gordon, Georgia, with $35 million in assets. Six of the banks are in Florida and five in Illinois.
“While these aren’t your giant banks, they are the guys your local strip mall and commercial real estate investors get their funds from,” said Joseph Mason, a Louisiana State University banking professor and visiting scholar at the FDIC.
The bank with the highest level of non-current loans, 49 percent, is Community Bank of Lemont in Lemont, Illinois, a town of about 13,000 people 30 miles southwest of Chicago. Bad loans at the bank, about a third of them in construction and development, increased fivefold from a year earlier, according to FDIC data.
In February, the FDIC ordered Lemont, a unit of Oak Park, Illinois-based FBOP Corp., to stop “operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits.” Calls to the bank seeking comment weren’t returned.
’A Surprise’
Another Illinois lender, Benchmark Bank, also had an increase in non-current loans, to 25 percent as of June 30 from about 1 percent a year earlier.
“Everything was so positive for so long in this area, it came as a surprise when it stopped,” said John Medernach, Benchmark’s CEO, who added that a building boom and bust in his region may have wrecked more than just his balance sheet.
“I stop and think of all the rich farmland that has been developed into subdivisions during the boom years,” Medernach said. “It makes you wonder what we’ve been doing.”
Frontier Bank, owned by Frontier Financial, reported a sixfold rise in overdue loans to $764.6 million in the quarter ended June 30 from a year earlier, or 22 percent, according to FDIC data. More than 43 percent of the bank’s delinquent loans were in construction and development, FDIC data show. The bank has 51 branches in northwestern Oregon and western Washington.
Steel Partners
In July, Frontier Financial agreed to be acquired by SP Acquisition Holdings Inc., controlled by CEO Warren Lichtenstein, who heads the New York-based investment firm Steel Partners LLC, according to a presentation on the bank’s Web site. The deal would give Frontier access to about $456 million and create ’’an over-capitalized bank’’ that may consider acquisitions, the presentation said. The stock-swap transaction is scheduled to be completed in the fourth quarter.
Frontier “was a well-run organization for the majority of its history,” said Jeffrey Rulis, a banking analyst at D.A. Davidson & Co. in Lake Oswego, Oregon. The offer by SP Acquisition is “probably not what current shareholders envisioned a couple of years ago.” The company’s stock has dropped 92 percent in the last 12 months, and the bank posted an $84 million loss in the first half.
Patrick Fahey, Frontier’s CEO, said the transaction will resolve the bank’s credit issues. He declined to elaborate while a shareholder vote is pending.
Regulatory Art
Lichtenstein’s Steel Partners Holdings LP controls WebBank, a Salt Lake City lender with $35.5 million in assets and 31 percent of its loans overdue, according to SNL. More than 90 percent of construction and development loans weren’t current as of June 30, according to the FDIC. John McNamara, WebBank’s chairman and a managing director at Steel, declined to comment.
Determining which banks to close is “more of an art than a science,” said William Ruberry, spokesman at the Office of Thrift Supervision, which regulates four of the 26 lenders. “Examiners and the supervisory people have a lot of information that’s not public, and they know the circumstances of an institution and everything that goes into it.”
FDIC spokesman Greg Hernandez said in an e-mail that the agency doesn’t comment on individual institutions. Capital levels, profitability and financial strength of the owners are considered in addition to soured loans when deciding a bank’s fate, Hernandez said.
Sources of Capital
“There may be personal guarantees, there may be other collateral that will more than make up for the impairment on the 20 percent,” said Tom Giallanza, assistant superintendent for the State of Arizona Department of Financial Institutions, in a Sept. 15 interview. One bank on the list, Mesa, Arizona-based Towne Bank of Arizona, is in Giallanza’s state, with 28 percent of its loans non-current. Towne Bancorp CEO Patrick Patrick declined to comment.
H&R Block Bank, with 29 percent of its loans overdue, is dwarfed by the Kansas City, Missouri-based tax preparer that owns it. The bank’s deposits totaled $720.1 million as of June 30; assets at the parent company, H&R Block Inc., included more than $1 billion in cash and cash equivalents on July 31. The lender’s balance sheet is strong enough to be considered “well- capitalized” by regulators, according to FDIC reports.
The bank is a legacy of H&R Block’s subprime home lending that ended with more than $1 billion of losses for the parent company. The unit was kept open because it’s an inexpensive way to fund the company’s financial products, President Russell Smyth said a year ago. Spokeswoman Elizabeth McKinley didn’t respond to requests for comment.
Pace of Closures
Regulators may be pacing themselves on closings because the FDIC fund “is only so big,” there isn’t enough staff to close all the struggling banks at once and customers aren’t staging mass withdrawals that would force action, said Kevin Fitzsimmons, a managing director at Sandler O’Neill & Partners LP, a New York brokerage firm specializing in banks.
While a high level of non-performing assets doesn’t mean a bank can’t survive, “in some cases it creates a hole that’s too deep to climb out of,” Fitzsimmons said.
Factory Orders in U.S. Drop 0.8%; Ex-Transport Rises 0.4%
Oct. 2 (Bloomberg) -- Orders placed with U.S. factories fell unexpectedly in August, restrained by long-lasting items such as commercial aircraft, construction machinery and electrical equipment.
Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders rose 0.4 percent.
Today’s report follows others this week that showed manufacturing contracted or slowed in September. With excess capacity close to a record, companies have less reason to ramp up production until they see stronger gains in demand. While the “cash for clunkers” program boosted automakers’ output in August, it’s now expired, pointing to an uneven rebound.
“We could have a choppy recovery,” Benjamin Reitzes, an economist at BMO Capital Markets in Toronto, said before the report. “Employment is still falling, and until that turns around the economy is going to have trouble gaining any momentum.”
Factory orders were forecast to be unchanged, after an originally estimated 1.3 percent gain in June, according to the median of 65 estimates in a Bloomberg News survey. Projections ranged from a decrease of 1.7 percent to an increase of 2.1 percent.
Employers cut more jobs than forecast last month and the unemployment rate rose to a 26-year high, Labor Department data showed today, calling into question the sustainability of the economic recovery.
Durable Goods
The unemployment rate rose to 9.8 percent, the highest since 1983, from 9.7 percent in August. Payrolls fell by 263,000, following a revised 201,000 decline the prior month that was less than previously reported.
Orders for durable goods, which make up 47 percent of total factory demand, fell 2.6 percent, the biggest drop since January. The government last week estimated they had dropped 2.4 percent.
Demand for transportation equipment, which tends to be volatile, fell 9.1 percent, led by a 43 percent decline in commercial aircraft and parts. Autos increased 2 percent.
Ford Motor Co, General Motors Co. and Honda Motor Co. are among automakers that cited the popularity of the cash-for- clunkers plan as they announced production increases for the coming months.
Clunkers Program
The program, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.
Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data. Sales had reached the highest level in more than year a month earlier.
Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 0.9 percent after dropping 1.3 percent in July. Shipments of those goods, used in calculating gross domestic product, decreased 2 percent.
Economists earlier this week said the end of the clunkers incentive may have helped fuel a weaker-than-forecast September reading for the Institute for Supply Management- Chicago’s business survey, which found activity dropped. The Chicago group is not affiliated with the national Institute for Supply Management.
Factory Stockpiles
The Institute for Supply Management yesterday said its factory gauge edged down to 52.6, from 52.9 in August. Readings above 50 signal expansion.
Another Commerce Department report this week showed the record drop in stockpiles in the second quarter was even larger than previously estimated, paving the way for gains in manufacturing in the second half of the year.
Today’s report showed factory stockpiles fell 0.8 percent in August, the smallest drop since May, after falling a revised 0.9 percent a month earlier. Manufacturers had enough goods on hand to last 1.38 months -- the lowest since October -- at the current sales pace, down from 1.39 months in July.
Micron Technology Inc., the biggest U.S. producer of computer-memory chips, this week reported a narrower loss after an industry glut eased and product prices rebounded.
Bankruptcies and factory shutdowns have helped the memory industry pare an oversupply of chips, pushing up prices closer to the cost of production. Micron makes dynamic random access memory, or DRAM, for personal computers, as well as Nand flash chips, which store data in devices such as Apple Inc.’s iPhone.
Job Cuts
Timothy Main, chief executive officer of Jabil Circuit Inc., the Florida electronics manufacturer, said this week that the worst of the recession had likely passed. Even so, the company stepped up a job-cutting program. Jabil now expects to eliminate 4,500 positions, up from the 3,000 already planned.
Today’s factory report showed orders of non-durable goods gained 0.8 percent. The increase may have been influenced by an 8 percent gain in wholesale energy costs in August, according to Labor Department figures released Sept. 15.
Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders rose 0.4 percent.
Today’s report follows others this week that showed manufacturing contracted or slowed in September. With excess capacity close to a record, companies have less reason to ramp up production until they see stronger gains in demand. While the “cash for clunkers” program boosted automakers’ output in August, it’s now expired, pointing to an uneven rebound.
“We could have a choppy recovery,” Benjamin Reitzes, an economist at BMO Capital Markets in Toronto, said before the report. “Employment is still falling, and until that turns around the economy is going to have trouble gaining any momentum.”
Factory orders were forecast to be unchanged, after an originally estimated 1.3 percent gain in June, according to the median of 65 estimates in a Bloomberg News survey. Projections ranged from a decrease of 1.7 percent to an increase of 2.1 percent.
Employers cut more jobs than forecast last month and the unemployment rate rose to a 26-year high, Labor Department data showed today, calling into question the sustainability of the economic recovery.
Durable Goods
The unemployment rate rose to 9.8 percent, the highest since 1983, from 9.7 percent in August. Payrolls fell by 263,000, following a revised 201,000 decline the prior month that was less than previously reported.
Orders for durable goods, which make up 47 percent of total factory demand, fell 2.6 percent, the biggest drop since January. The government last week estimated they had dropped 2.4 percent.
Demand for transportation equipment, which tends to be volatile, fell 9.1 percent, led by a 43 percent decline in commercial aircraft and parts. Autos increased 2 percent.
Ford Motor Co, General Motors Co. and Honda Motor Co. are among automakers that cited the popularity of the cash-for- clunkers plan as they announced production increases for the coming months.
Clunkers Program
The program, which ended Aug. 24, offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan produced almost 700,000 auto sales before it ended, the Transportation Department said Aug. 26.
Auto sales fell 35 percent in September from the previous month to a 9.2 million annual rate, after the clunkers plan expired, according to Bloomberg data. Sales had reached the highest level in more than year a month earlier.
Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, fell 0.9 percent after dropping 1.3 percent in July. Shipments of those goods, used in calculating gross domestic product, decreased 2 percent.
Economists earlier this week said the end of the clunkers incentive may have helped fuel a weaker-than-forecast September reading for the Institute for Supply Management- Chicago’s business survey, which found activity dropped. The Chicago group is not affiliated with the national Institute for Supply Management.
Factory Stockpiles
The Institute for Supply Management yesterday said its factory gauge edged down to 52.6, from 52.9 in August. Readings above 50 signal expansion.
Another Commerce Department report this week showed the record drop in stockpiles in the second quarter was even larger than previously estimated, paving the way for gains in manufacturing in the second half of the year.
Today’s report showed factory stockpiles fell 0.8 percent in August, the smallest drop since May, after falling a revised 0.9 percent a month earlier. Manufacturers had enough goods on hand to last 1.38 months -- the lowest since October -- at the current sales pace, down from 1.39 months in July.
Micron Technology Inc., the biggest U.S. producer of computer-memory chips, this week reported a narrower loss after an industry glut eased and product prices rebounded.
Bankruptcies and factory shutdowns have helped the memory industry pare an oversupply of chips, pushing up prices closer to the cost of production. Micron makes dynamic random access memory, or DRAM, for personal computers, as well as Nand flash chips, which store data in devices such as Apple Inc.’s iPhone.
Job Cuts
Timothy Main, chief executive officer of Jabil Circuit Inc., the Florida electronics manufacturer, said this week that the worst of the recession had likely passed. Even so, the company stepped up a job-cutting program. Jabil now expects to eliminate 4,500 positions, up from the 3,000 already planned.
Today’s factory report showed orders of non-durable goods gained 0.8 percent. The increase may have been influenced by an 8 percent gain in wholesale energy costs in August, according to Labor Department figures released Sept. 15.
Thursday, October 1, 2009
Balance-Sheet Lenders Hold Key to Reigniting Hotel Property Sales
Sep 30, 2009 3:07 PM, By Matt Valley
Securitized lenders were heralded as a driving force in commercial real estate finance during the boom years, but in the down cycle the lenders who’ve held loans on their balance sheets through thick and thin will be the catalyst for establishing a floor on hotel valuations and resuscitating a weak property sales market.
That’s the opinion of Charles Tomb, president and CEO of Integrity Hospitality Advisors based in Stamford, Conn. “Once that first big bank or small regional bank starts to come out and say, ‘OK, here is what we’re doing with our balance sheet,’ the others can’t be criticized,” remarked Tomb last Friday in Phoenix during a panel discussion at the 15th annual Lodging Conference. “The visibility of write-downs against their balance sheets — that’s the catalyst.”
As regulators begin to turn up the heat on banks to clean up their balance sheets, the mark-to-market of assets that will ensue will not only help CMBS special servicers better manage the expectations of bondholders, Tomb believes, but it also will stimulate the commercial real estate financing market. “Right now valuations are all over the place. No one knows the value of anything. These opinions of value coming from brokers are pieces of paper that nobody can hang their hat on.”
But exactly when balance-sheet lenders will bite the bullet and take the write-downs is uncertain. Jerome Cataldo, president of Schaumburg, Ill.-based Hostmark Hospitality Group, says a paralysis of sorts has set in industry-wide stemming from a fear of criticism. “You can apply that to the lender, the buyer, the seller, every aspect of the industry. For example the buyer says, ‘ I don’t want to be the first guy to buy at the wrong price. I want to wait for the bottom.’”
What is more certain is that the level of hotel distress is spreading. There are an estimated 650 hotel loans that are in the hands of CMBS special servicers, according to Bill Linehan, executive vice president and managing director of marketing for Atlanta-based Hodges Ward Elliott, a brokerage and investment banking firm. These special servicers manage loans once they go into default and conduct the workout or foreclosure process.
“The staggering number is the watch list, which has over 1,400 hotels that are in technical default, meaning they are most likely going to have a default on their loan,” says Linehan.
The total delinquency rate for CMBS hotel loans 30 days or more past due rose to 4.9% in August, up from 4.7% in July and 0.3% in September 2008, according to Horsham, Pa.-based Realpoint, which has been tracking delinquencies on securitized loans since 2001.
The researcher forecasts that the lodging sector will likely experience an increase in delinquency as both business and leisure travel slow further, resulting in greater declines in occupancy, revenue per available room and average daily rate.
To bolster their standing with lenders and regain the equity they’ve lost in their hotels due to falling valuations, an increasing number of owners are seeking joint-venture equity partners. For example, a REIT or private equity source might take control of the asset and use its balance sheet to work directly with the bank to either renegotiate the loan or seek an extension of the existing note.
As the economy rebounds, one big challenge facing Cataldo of Hostmark is the underwriting analysis. “Even as demand comes back into the marketplace, where is it going to go first, what type of assets is it going to?”
Cataldo adds that the trickiest part of the analysis is room rate. "How can you underwrite rate returning to a marketplace, and how can you underwrite it returning to an individual asset?"
Manhattan Office Market Eyes Rebound: Third-Quarter Report
Sep 30, 2009 2:49 PM, Staff reporter, NREI
Has the nation’s largest office market finally bottomed out?
It may be too early to call, but fresh research from real estate services firm FirstService Williams indicates that Manhattan office fundamentals may have stabilized during the third quarter.
Several key findings from the report back such a theory. Monthly leasing activity has nearly doubled since the end of May, for example, and this added leasing momentum held the overall availability rate, a measurement of vacancy, in check at 13.4% between the end of the second and third quarters.
On the economic front, the city has benefitted from a buoyant stock market rally in recent weeks plus an increase in New York City payroll employment. These positive economic indicators may be stoking business confidence, which in turn drives leasing demand on behalf of tenants.
To be sure, business confidence can waver unexpectedly at any moment. While it is difficult to predict just how fast the office market will rebound going forward, especially with respect to rental rates, this would mark a far quicker recovery compared with the end of the last recession when Manhattan’s office availability rate continued to rise for another 18 months.
“If the national and city’s recessions both ended around the middle of 2009, this stabilization of the availability rate so soon would be remarkable, especially relative to what happened during the last down cycle in the economy, which occurred in 2001,” said Mark Jaccom, CEO of FirstService Williams, in a prepared statement.
Even though the overall availability rate was flat, asking rents again fell 8.5% during the quarter. Rents have taken a major hit, too: Since peaking at midyear 2008, the overall average asking rent for Manhattan fell by a whopping 32.6% through the end of September, according to Robert L. Freedman, Executive Chairman of FirstService Williams.
Added Freedman: “In both the Midtown North and Midtown South markets, the average asking rent fell around 10% during the third quarter. In the Downtown market, the decline was a bit over 7% for the quarter.”
Additional highlights from FirstService Williams’ third quarter analysis:
Roughly a dozen transactions consisting of more than 50,000 sq. ft. closed each month during the third quarter
Monthly leasing volume posted its highest volume of the year during July and August, approaching Manhattan’s historical monthly average of 2.5 million sq. ft. per month.
The Midtown South availability rate dropped to 11.1% from 11.4%. In the Midtown North submarket, availability increased to 14.9% from 14.8% during the third quarter and the downtown market saw availability rise to 11.6% from 11.4%.
The overall average taking rent for Manhattan is down by 40% since the second quarter of 2008 and the declines were even larger in some of the more upscale districts.
Manhattan office sales volume recovered slightly as total volume for the first nine months of 2009 rose to $1.7 billion with six transactions completed.
Two transactions closed in the third-quarter of 2009: Worldwide Plaza at 825 Eighth Avenue sold for approximately $605 million, or $356 per sq. ft., and the AIG headquarters buildings, at 70 Pine Street and 72 Wall Street, traded for $150 million or $107 per sq. ft.
Has the nation’s largest office market finally bottomed out?
It may be too early to call, but fresh research from real estate services firm FirstService Williams indicates that Manhattan office fundamentals may have stabilized during the third quarter.
Several key findings from the report back such a theory. Monthly leasing activity has nearly doubled since the end of May, for example, and this added leasing momentum held the overall availability rate, a measurement of vacancy, in check at 13.4% between the end of the second and third quarters.
On the economic front, the city has benefitted from a buoyant stock market rally in recent weeks plus an increase in New York City payroll employment. These positive economic indicators may be stoking business confidence, which in turn drives leasing demand on behalf of tenants.
To be sure, business confidence can waver unexpectedly at any moment. While it is difficult to predict just how fast the office market will rebound going forward, especially with respect to rental rates, this would mark a far quicker recovery compared with the end of the last recession when Manhattan’s office availability rate continued to rise for another 18 months.
“If the national and city’s recessions both ended around the middle of 2009, this stabilization of the availability rate so soon would be remarkable, especially relative to what happened during the last down cycle in the economy, which occurred in 2001,” said Mark Jaccom, CEO of FirstService Williams, in a prepared statement.
Even though the overall availability rate was flat, asking rents again fell 8.5% during the quarter. Rents have taken a major hit, too: Since peaking at midyear 2008, the overall average asking rent for Manhattan fell by a whopping 32.6% through the end of September, according to Robert L. Freedman, Executive Chairman of FirstService Williams.
Added Freedman: “In both the Midtown North and Midtown South markets, the average asking rent fell around 10% during the third quarter. In the Downtown market, the decline was a bit over 7% for the quarter.”
Additional highlights from FirstService Williams’ third quarter analysis:
Roughly a dozen transactions consisting of more than 50,000 sq. ft. closed each month during the third quarter
Monthly leasing volume posted its highest volume of the year during July and August, approaching Manhattan’s historical monthly average of 2.5 million sq. ft. per month.
The Midtown South availability rate dropped to 11.1% from 11.4%. In the Midtown North submarket, availability increased to 14.9% from 14.8% during the third quarter and the downtown market saw availability rise to 11.6% from 11.4%.
The overall average taking rent for Manhattan is down by 40% since the second quarter of 2008 and the declines were even larger in some of the more upscale districts.
Manhattan office sales volume recovered slightly as total volume for the first nine months of 2009 rose to $1.7 billion with six transactions completed.
Two transactions closed in the third-quarter of 2009: Worldwide Plaza at 825 Eighth Avenue sold for approximately $605 million, or $356 per sq. ft., and the AIG headquarters buildings, at 70 Pine Street and 72 Wall Street, traded for $150 million or $107 per sq. ft.
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