Deutsche Bank Takes Bit of a Hit

Germany’s biggest bank will take a $3.9 billion write down related to (surprise, surprise) asset backed securities and loans.  According to a statement from the bank“Conditions have become significantly more challenging during the last few weeks.”  Perhaps that is an understatement from the bank.  Of course the Deutsche Bank mark down is downright paltry compared to the $19 billion hit that UBS announced today.  Anyone keeping a tally? I have lost track of the total losses related to the mortgage meltdown.

UBS May Have to Raise Capital

Shares of UBS fell after reports circulated that the Swiss bank may have to raise capital because of mortgage related losses.   According to Bloomberg, shares dropped as much as 4.8 percent after Merrill Lynch reported that the bank may need to raise $15 billion in new capital to cover writedowns of as much as $21 billion.

FGIC Exceeds Legal Risk Limits

According to a Reuters article published on nytimes.com, the bond insurer FGIC has disclosed that its mortgage exposure exceeds legal risk limits. As a result, FGIC may need to raise $2 billion in equity. Rob Haines, a senior insurance analyst at CreditSights is quoted in the article as saying “This is a bombshell. They are actually in violation of New York insurance law. If they don’t remediate this, the state has the ability to take control of the company.”

Why Some Homeowners Won’t Cut the Price

David Leonhardt writes an article in the NY Times about the illogic of some homeowners who refuse to accept reality when selling their house. Despite ample evidence everywhere that most real estate isn’t worth as much as it was during the peak, some people refuse to budge on the price.

This is even the case in my neck of the woods with some houses on the market for nearly a year. The reason is clear. The owner believes that home values alway appreciate and they now refuse to accept the harsh reality that this isn’t true.

Stolen Houses

Indictments charge 19 individuals in an alleged scheme to illegally obtain title to more than 100 homes. According to the Los Angeles Times, the defendants have been charged with mail fraud and conspiracy to commit money laundering. The alleged scam involved foreclosure rescue and equity stripping.

More Condo Woes

This shouldn’t come as much of a surprise, but according to the WSJ the condo situation is about to get worse. Another 10,000 units are due to hit the market in South Florida and 4,000 new condos are expected in both Atlanta and Phoenix. And while the DFW market isn’t mentioned in the article, I am wondering who is supposed to buy all the condo units under construction in the downtown Dallas area.

Full article

BofA Loan Loss Provision

According to Bloomberg article this morning, Punk Zeigel and Co. analyst Richard Bove writes that Bank of American may take a record $6.5 billion loan loss provision in the first quarter to cover a possible increase in bad debts. However, he does believe that the bank will remain profitable.

Debt Party Coming to an End in the U.K?

According to this article in the New York Times, British consumers are realizing that they are more in debt than even U.S. consumers. And that says a lot.

The average British adult has 2.8 credit or debit cards, more than any other country in Europe. A growing number are borrowing to pay for vacations, furniture, even plastic surgery. As a result, Britons are spending more than they earn, racking up a household debt-to-income ratio of 1.62 compared with 1.42 in the United States and 1.09 in Germany.

It sounds like a heck of a party! And now here comes the hangover.

 

The Domino

Falling home prices are not just bad for the homeowner. Falling real estate prices also result in falling property tax revenue. As reported in the LA Times, tax officials in SoCal are now seeing lower property assessments, which will result in lower taxes. While the lower value assessment may provide some relief to homeowner it will probably won’t last long. The local government will end up with a budget shortfall. And governments usually find a way to make up for lost income.

Maybe We Can Bring Back the WIN Button.

The Financial Times reports on fears that the efforts by the Fed to address the current market turmoil will stoke inflation. The Fed’s current path will likely result in negative real interest rates.

The term “stagflation” is being kicked around a lot. Most people assumed that stagflation, along with swine flu and disco, were relics of the 70’s. Who knows. Maybe there is still a box of those WIN buttons down in the White House basement.