Public traded companies with non performing loans

Bloomberg was running an article about the non performing loans on the bankbooks. You can find the article here.
Remember: US lenders that own non performing loans that equal 5 percent or more of their holdings are in danger of being shut down, because this level is considered as critical for the survival of a financial institution.

Nonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. In addition, Chicago-based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut

Well, Colonial BancGroup was shut on Friday.
Even better: another 150 public traded companies seem to be in danger.

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The Latvian pressure cooker

The Latvian pressure cooker is still on the stove.
We know the story: Latvia, the former Eastern European tiger, pegged his currency to the euro in order to speed up growth a little. Than the financial crisis came and Latvia found itself badly caught out. Credit was needed but the attempt to issue 100 million LAT-denominated bonds resulted in no takers. In normal times and countires you devalue the currency. But that will cause trouble in Europe. For starters: Swedish banks lent heavily to Latvia and once the devaluation cascade starts, these banks will be forced to take big losses. Than there is the fact that nobody knows what will happen to neighbor countries and farther south once the currency peg will be broken up.
The Swedish Central Bank borrowed this morning 3 bln EUR from the ECB. The Riksbanken has already a swap agreement in place with the ECB of 10 bln EUR. Now why do they do this?

Now, let’s have a closer look to European banks. Total lending to emerging markets is now some 4.7 trln USD. 74% of that came from European banks. The Netherlands and Austria are the countries lending more than 50% of their GDP to these emerging countries.

We read this morning

IMF director Dominique Strauss-Khan said that Mexico, Colombia and Poland face challenging financing deficits that if not corrected soon, could put them at risk of defaulting. The external financing needs of Mexico and Colombia have been met for 2009. In this regard, the comments of Strauss- Khan seem strange and could add noise to the markets. . . .
The comments of IMF’s Strauss- Khan are particularly inopportune but should not be taken seriously. The IMF hasn’t published a formal press release confirming the fund’s view. Mexico is still investment grade and it is very unlikely that any of the three major rating agencies decide to lower it to junk.
Mauro Leos from Moodys said a couple of weeks ago that “it was far fetched to believe that Mexico would lose its invest grade category any time soon”. The view of the rating agencies has been that Mexico needs to pass structural reforms to avoid a downgrade. Shelly Shetty from Fitch commented recently that Mexico would need a plan “B” in case Congress fails to approve a fiscal reform after the July elections in order avoid a downgrade. This amounts to sort of running in order to stand still.
But the prospects for comprehensive fiscal reform are very slim. In fact, the two major political parties: the centre left PAN and centre-left PRI have both said that they are not at all interested in passing a fiscal reform package. While no party is expected to publicly say that it favors increasing taxes particularly before the congressional elections of July, the political climate does not support the passing of any reform.
Mexico will be downgraded by one notch on the back of deteriorating fiscal revenues as the economy contracts to between -5.5% and -7.5% this year. Still the comments of Strauss- Khan add noise to the market. . . .

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Credit cards

Some statements are really worth quoting. Take this one from the Pragmatic Captialist:

It is not the banks that I am so concerned about, but the consumer. As much as the bankers want you to believe this is a crisis about them - it’s not. It’s a crisis about you - the consumer. The banks simply exacerbated the problems. The credit card issue gets to the real heart of the issue and the troubles that the U.S. consumer is likely to face for years to come.

To illustrate this, we found a chart in The Economist about the credit card return on assets (in %). It is not getting any better.

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Conditions for corporates are getting worse

Could it be that the worst of the financial crisis is over, but that the worst of the economic crisis has yet to come?
Markit Research is out with their latest credit conditions survey and the results show that conditions now are tighter than they were a year ago except for Germany.
Look out for Spain and Russia.

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A regulated CDS market

Did you read it too?

The Obama administration on Wednesday unveiled a sweeping plan to regulate OTC derivatives in a move to increase transparency and reduce risk in a largely unregulated market worth more than $680,000bn. The new rules would force “standardised” OTC derivatives to be cleared through central clearinghouses to reduce the risk of investors being over-exposed to a single counterparty. The plan could force banks and other big corporate users of derivatives to set aside more capital to cover potential losses.

680.000 billion USD is 680 trln USD. That’s notional value. Real market value of the derivatives contracts is estimated around 13 to 15 trln USD. However: you’re never sure these days. Another thing with these contracts is that it is a zero sum game. For every buyer, there’s a seller. What these contracts actually do is transferring wealth between parties. And they can destroy the market for particular bonds or sectors, because sometimes CDS amounts are a multiple of the underlying bond issue they covering.
So yes indeed, if this market is regulated in an intelligent way, it will clean one of the biggest threats of the financial crisis.
Aaargggh – finance and intelligence don’t work well together. Greed, theft, GS on the contrary ….

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Dead man walking

Rating agencies are one of the main culprits of this mess.
However, recently they took up a new job.
They are ‘rating’ companies, instead of ‘selling AAA ratings for cash’
Moody's, which has long been criticized for sleeping through the credit bubble and, by many accounts, causing it in the first place, just came out with an attempt at absolution.
In a quarterly publication called the "Bottom Rung", the rating agency list 283 companies which it believes are the most likely to default.
Among the sectors most represented are media, automotive, retail, manufacturing, gaming and consumer products. Moody's dedication manifests in the 126 new companies added to the "death list" compared to last year's 157.
So in total there are 283 companies doing a dead men walking.
Investors: take your losses and run for the hills.

New on the list are: Eastman Kodak, MGM Mirage, Unisys, Dana Holding Corp and many others.

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More bleeding

Where stock markets are victim of hedge funds and leveraged ETF's, credit markets are less impacted by this kind of manipulations, but both markets go down the same way: deep south.

The cost of protecting European debt becomes more and more expensive. This cost is measured by the iTraxx-indices.
The Markit iTraxx Crossover index of mostly junk-rated corporates widened to 1123 basis points, meaning it costs €1,123,000 annually to purchase five years of protection on a notional amount of €10m. A premium which have to be paid every year.

The iTraxx Europe index of mostly investment grade names - seen as a useful indicator of credit sentiment towards the continent’s banks - widened by 4.2bp to 193bp.

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