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Risk News Archives
Credit Risk
Trouble Ahead in Commercial Real Estate?
Fed Survey: Many Expect Loan Quality to Drop in '06
Unwilling Lenders
Getting a Slice of the Commercial Market
Upgrade Potential Across Credit Grades and Sectors Regain Momentum
Diverse Revenue Sources Said to Buffer Yield Curve
As Rates Rise, So Do Banks' Commercial Loan Concerns
When the Spinning Stops
Market Risk
Return of Long Bond Hits All the High Notes
Some Expect 2 Rate Hikes
As Deficits Rise Bond Investors Turn a Blind Eye
U.S.: Bernanke May Have His Work Cut Out for Him
Operational Risk
In Assessing Risk, Don't Ignore Spyware Threat
The Tech Scene: Nat City Tries Its Own Six Sigma Version as a Way to Economize
For IBM, 'Gotta Do' Often Means Compliance-Plus
Fake E-Mail Targets Comerica Customers
Some BofA Clients Find Debit Cards Canceled
Imaging the Future
Enterprise Risk
Staying Away From Dirty Money
What Do Your Employees Need to Learn and What Will It Cost?
Beyond Value-at-Risk
Consumer Lending
Microlending Offers Hand Up Asset Ladder
On the Web: America's Community Bankers
In Brief: Fannie: Multifamily Financing Up 20 Percent
Credit Risk
Trouble Ahead in Commercial Real Estate?
American Banker (02/13/06) ; Cole, Jim
In the last three months of 2005, quite a few of the nation's banking companies posted gains in commercial real estate lending, with several even reporting plans to expand their commercial property units. However, interest-rate worries are growing, as are concerns about relaxed underwriting standards, some condo-conversion markets on the verge of overheating, and some lenders' overexposure. RBC Capital Markets Inc. analyst Gerard Cassidy remarked that commercial real estate lending "is going to be the hot topic of conversation if the economy slows down and if interest rates go higher." If guidelines proposed early last month by the Federal Reserve are enacted--requiring banks with high concentrations in commercial real estate to strengthen their underwriting and risk management policies--Heather Wolf of Merrill Lynch & Co. warned in a report that commercial property and construction loans could be scaled back in 2006. Any bank with commercial property loans at least three times its capital would be deemed "highly concentrated" in commercial real estate.
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Fed Survey: Many Expect Loan Quality to Drop in '06
American Banker (02/09/06) ; Rucker, Patrick
According to a Federal Reserve Board survey of bank lenders, few lenders are expecting credit quality to increase in 2006, and are taking measures to protect themselves against increased credit risk. The expectations of decline in credit quality cut across all asset classes, but were especially pronounced for nontraditional mortgages, with 40 percent of respondents predicting that delinquencies and chargeoffs for such mortgages were likely to increase. Traditional mortgages had a better response, with only 12 percent predicting declines in credit quality, but most other asset classes were expected to have increased risk of delinquency and other problems. Commercial real estate loan and industrial loan delinquencies are also expected by about 30 percent of all lenders on average. However, many lenders said that despite problematic predictions for commercial real estate and industrial loans, they would ease terms for such loans during the upcoming year, especially as they see demand for those loans increase. Overall, the number of lenders easing and tightening their underwriting for commercial real estate loans balanced out.
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Unwilling Lenders
Forbes (02/13/06) Vol. 177, No. 3, P. 56 ; Maiello, Michael
The collapse of Refco has creditors scrambling for a piece of the firm's former clients' assets. Unsecured creditors of Refco, including Wells Fargo and Cargill, contend that Plus-Funds Chairman Christopher Sugrue transferred $312 million in client funds from Refco, which held the assets of those invested in the hedge fund, to accounts at Lehman Brothers. The lenders claim that Sugrue should have waited in line like the rest of the creditors rather than step ahead of the other creditors and influence the transfer of Refco funds to other accounts. On the flip side, the fight over the funds could be moot if it is decided that only the investors of the S&P Managed Futures Index Fund have valid claims on the money.
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Getting a Slice of the Commercial Market
BusinessWeek (02/13/06) ; Farrell, Christopher; Coy, Peter
Commercial real estate investors increasingly are turning their attention to untraded real estate investment trusts because their share prices are guaranteed for a certain amount of time. They also offer higher dividends than public REITs. However, many experts urge investors to avoid untraded REITs because of the high fees, which can be equivalent to nearly 20 cents of every $1 invested. Additionally, untraded REITs are illiquid, making it difficult for investors to withdraw their money. Generally, investors can redeem just 3 percent annually. Tenancy in common arrangements--which enable as many as 35 investors to become joint owners of commercial properties valued at $30 million or more--also have seen a surge in popularity in recent years, serving as replacement assets for investors looking to defer capital gains taxes on a recent property sale. However, TICs often involve overpayments, mainly because investors rushing to secure a replacement asset before the Internal Revenue Service's deadline are not likely to pay close attention to prices. In addition to the risk of losing their equity if the building is sold for less than the mortgage, investors also must pay sales commissions as well as property-acquisition, marketing, and management fees.
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Upgrade Potential Across Credit Grades and Sectors Regain Momentum
Risk Center (02/01/06) ; Silverman, Ellen J.
Standard & Poor's reports that a record 349 entities stand to benefit from potential upgrades in January, up from 335 in December. "Even though credit fundamentals remain benevolent at this late stage of the credit cycle, the roster of issuers expected to benefit from potential upgrades will diminish over time," according to the S&P report. "Factors that are supportive of potential upgrade momentum are weakening from peak levels." The banking, insurance, aerospace, and defense sectors lead the way, and the potential improvement in the credit quality of the industries was reflected in the historic high in the proportion of issuers having a positive bias for each sector. In the banking sector, European banks accounted for 43 percent of the 53 entities in the sector, and in the United States regional banks appear to be best positioned for potential upgrades. The United States had 20 of the 27 issuers in the insurance segment, and favorable bias was spread out among the life/health, property/casualty, and managed health care categories. The business climate continues to look good for commercial aerospace firms, and the defense segments are expected to benefit from continued spending on electronics, surveillance, and intelligence. Banks have had the biggest net increase in the number of potential upgrades with 15 issuers since the last report, followed by capital goods, high technology, and savings and loan entities.
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Diverse Revenue Sources Said to Buffer Yield Curve
American Banker (02/08/06) ; Kulikowski, Laurie
A pair of Standard & Poor's Corp. analyst reports found that a long-term flat yield curve will have a negative impact on revenue growth at most of U.S. banking firms in 2006. Fourth-quarter earnings at the half-dozen biggest banking firms were hurt by three factors--margin pressure, an increase in consumer credit charges from the change in the federal bankruptcy law, and lower trading revenue. In a joint note, three S&P analysts wrote: "The flat yield curve will continue to present revenue challenges . . . which means strong loan growth will be critical to counterbalance compression in the net interest margin." Investors are encouraged to seek banks with diversified revenues to head off spread income from flattening yield curves and adverse effects of the competitive loan market.
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As Rates Rise, So Do Banks' Commercial Loan Concerns