Some massive things are happening to the banks at the moment. I think perhaps people are so pre-occupied with Greece and national debts (as they should be) that they are not seeing this other drama.
Of course they are not unrelated.
First, bank failures in the US. The fever is getting worse! In ’08 – 26 US banks collapsed. In 09 the body financial coughed up 140 chunks of itself. This year, as of Friday 30th, 65 new cases of bank death have been reported. Averaged over the year it works out at a year total of 198. Sadly this would be a hopeful linear projection.
Diseases, however, are non-linear. Financial ones are no different. Look closer at the data and it shows the death rate has been accelerating. Seven banks died this Friday. 8 breathed their last last week. 7 the week before. Now if this rate of 7 per week were to continue we would have 245 to dispose of this year.
ANd the disposing of dead and rotting banks is an expensive and repulsive business. This Friday alone cost the Deposit Insurance Fund of the FDIC $7.3 Billion IN A DAY! The FDIC already went broke once in ’09. Currently it has a war chest of around $50B which it got by charging the surviving insured banks three years fees IN ADVANCE. At 7 billion this would be gone in seven more weeks.
You might think this is scare mongering and I most certainly hope so. But conditions for the regional banks – which are the ones dying – WILL get worse as the year grows older and meaner. The reason for their deaths is Commercial Real estate collapse. Many of us have talked about how this has been coming but so far has not yet come into focus for that wilfully myopic of human endeavours – News. Seven banks, seven Billion cost – not a whisper on any news channel in the US. Nor on any of the big financial news outlets I have glanced at. Not a peep.
Now, lest, we on this side of the water are tempted to think ‘Comercial real estate collapse is their war’, lets note that Lloyds is forcing £500 Million of commercial properties owned by a single developer, Targetfollow to be sold. HBOS owns the loans and Lloyds has obviously ‘declined’ to extend, roll-over, renew or whatever it is that Targetfollow needs to stay afloat.
The owner of Targetfollow expressed the situation as having ‘had discussions with the lender’ (Lloyds) for some time and now ‘reviewing their funding situation’. Translation – We begged. They said fat chance, where’s our cash. We need it. Get it.
Targetfollow will loose 200 million perhaps. Green shoots there by gum!
And this isn’t a one off for Lloyds. They are also cutting loose industrial units and residential property development. The latter if it becomes a trend and other builders start to get cut off also, will begin to cripple the big builder who will lose heavily on the sales. If I’m right it will have a knock on effect on house prices later in the year. Speculation only at this point. But suggestive, I think.
Lloyds isn’t alone either. RBS is also selling The Grosvenor House Hotel it for £500 Million. Not a good time to be selling. If we were coming out of recession and all was as rosey as experts would have us believe, wny force these sales now? Why not wait for then market to continue its rise?
Or do you think they, a) need cash now to cover debts they know are coming, and b) Think there is a dip coming which means they would rather tatke this loss now than be saddled with a large one later in the year?
What do you think?