From today’s Everett Herald: Housing slump hits local banks hard
Low interest rates, the loss of the home construction boom and investor pessimism all are weighing down on bank stocks, dealing a big blow to all three of the local banks traded on Wall Street.
Lynnwood’s City Bank, along with Frontier Financial and Cascade Financial — both Everett-based banking firms — have seen their share prices decline by more than half in the past year.
They’re not alone. The nation’s biggest banks and thrifts also are suffering. Shares of Seattle-based Washington Mutual, one of the hardest hit by the mortgage meltdown, have plummeted 90 percent from their peak in 2007. The Standard & Poor’s Bank Index, which includes such national names as US Bancorp, Keycorp and Wells Fargo, has tumbled 50 percent in the past year.
Note that unlike Washington Mutual, the difficulties these local banks are experiencing can’t be blamed on making subprime loans in California. It’s all local.
Sara Hasan, banking analyst at Seattle’s McAdams Wright Ragen Inc., said the local banks are seen as vulnerable to the downturn in housing, as a substantial number of their loans have been to the construction industry.
“In the Northwest especially, it seems like we’re seeing the first wave of difficulties with the housing market,” Hasan said. “Bankers are nervous, and their investors are nervous, too.”
It seems to me that they have good reason to be nervous.
In related news, WaMu replaces president of branch network.
Washington Mutual said today it has replaced James Corcoran, president of its vast retail branch network.
Stephen Rotella, WaMu’s president and CEO, will assume Corcoran’s duties until a permanent successor is named.
(Eric Fetters, Everett Herald, 06.30.2008)
(Times Staff, Seattle Times, 06.30.2008)
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30 responses so far ↓
1
deejayoh
// Jun 30, 2008 at 10:53 am
Tim - you are on it! I saw this article on Friday that was very related from the Atlanta Journal-Constitution.
It seems our local banks are way up the list in terms of how concentrated they are on construction lending!
2
vboring
// Jun 30, 2008 at 12:08 pm
deejoyah,
i was gonna post that same list.
but, who are the local banks and does anyone really care if they fail?
WaMu failing will matter, but Frontier? City Bank?
or is this info being shared as evidence that the local commercial RE market is worse than many think?
commercial RE loans are often used to build condos, btw, not just strip malls and office buildings.
does anyone know if townhouse farm construction is funded through residential or commercial loans?
3
deejayoh
// Jun 30, 2008 at 12:29 pm
I think i t is evidence of exposure if/when things do hit the fan. As a lone data point the % of assets in C&D is pretty much meaningless - could be a good thing if the market is strong - but generally lack of diversification will hit you badly in a downturn.
FWIW - I think includes commercial and residential construction. I know some small builders and they all moved to open commercial credit lines pretty quickly after they did their first few deals.
4
deejayoh
// Jun 30, 2008 at 12:32 pm
oh - and they build townhouse-farms
5
tacomarenter
// Jun 30, 2008 at 12:32 pm
Local bank failures will make it much harder for local businesses to get loans of any type, not just construction. This is a huge deal for the local economy.
6
jon
// Jun 30, 2008 at 12:41 pm
I agree with deejayoh that in isolation the ranking is meaningless. It just means those regions are experiencing growth, and the way banks are supposed to make is to lend to people who need it, to build buildings for example. Obviously the ratio of commercial RE loans to other loans will be lower in regions that are not growing. But that ranking is not even that, it is the more nebulous ratio of CRE to core capital. It almost seems like the reporter found two sets of numbers to divide by each other to look alarming in the hopes of selling more newspapers. Perhaps the newspaper industry wouldn’t be in as bad shape nationwide as the housing industry if they improved their reporting standards. Fortunately we have the blogging industry to fill in the details when the print industry drops the ball, again and again.
7
Ubersalad, Ph.D
// Jun 30, 2008 at 1:32 pm
http://mrmortgage.ml-implode.com/2008/06/30/alert-wachovia-cries-uncle-on-the-pay-option-arm/
8
softwarengineer
// Jun 30, 2008 at 1:37 pm
MORE LOCAL BANK LAYOFFS TOO
The banks are butcher axing Seattle jobs faster than Boeing and MSFT can rebuild part of their lost jobs from 2003.
I hear Boeing’s military programs are butcher axing jobs lately too due to defense budget cuts under Bush, imagine what it will be like under Obama.
MSFT announced no more new computers with XP, VISTA only now. That’s like shooting themselves in the foot too, no wonder Gates retired.
9
deejayoh
// Jun 30, 2008 at 3:10 pm
Soda just came out my nose when I read that…
10
deejayoh
// Jun 30, 2008 at 3:29 pm
Last 3 Bush Budgets for Defense: 2009 = + 7.5%, 2008 = + 11%, and 2007 = + 6.9%. That’s over 25% increase in 3 years. And I am sure someone will correct me here if I am mistaken - but I don’t believe this includes the cost of combat operations in Iraq and Afghanistan.
2009: Bush Delivers $515.4 Billion Defense Budget Request to Congress
2008: Bush’s Defense Budget Biggest Since Reagan Era
2007: Bush’s 2007 Budget Wants Boost in Defense Spending
11
NoMoreWork
// Jun 30, 2008 at 3:41 pm
President Bush Approves Funds for 15 Additional C-17s
“Approximately $3.6 billion of the $162 billion bill will go toward the production of the 15 C-17 Globemaster airlifters. Boeing manufactures 15 C-17 s per year and will complete an order of 190 of them by August 2009.
The next 15 will take Boeing’s C-17 production until August 2010. The company is hopeful that Congress will put an additional order for 15 C-17 s in its budget for the fiscal year 2009. That budget, with or without the C-17 order, likely will not be passed until the fall.”
http://www.presstelegram.com/news/ci_9723206
Cut defense spending? I think not. These might be made in Long Beach but I still don’t see any cuts…
12
Scotsman
// Jun 30, 2008 at 5:34 pm
The killer for the banks is that it’s almost impossible for them to improve their situation under the current circumstances. Without the opportunity to restore decent margins their financial health just continues to deteriorate as the defaults roll in. There’s no substitute for adequate capitalization and reserves coupled with realistic lending standards. Unfortunately, many banks let all three criteria slip over the years, and now face a slow but certain death. Their demise will be just one more complicating factor in any attempted recovery as we go forward.
13
Ira Sacharoff
// Jun 30, 2008 at 6:17 pm
In the past, when a bank was going under, there would be an arrangement where they would be taken over by another bank, but with all the banks suffering, how many banks are in a position to do the taking over? And if lending standards have tightened, wouldn’t less banks around worsen that situation?
14
davidB
// Jun 30, 2008 at 6:44 pm
Consumers are increasingly living on credit cards. It will get worse for the banks when consumers start defaulting on their credit cards and car loans.
15
mikal
// Jun 30, 2008 at 6:57 pm
This is off topic, but there was someone on MSNBC today that stated that he believed that all the jobs that went overseas over the last thirty years would now be starting to return. It seems that shipping costs have increased due to fuel costs that is now cheaper to have it done in the US. He thinks that it could save this country. I don’t think he meant anything about the current recession. He was speaking about the future in the US.
16
Civil Servant
// Jun 30, 2008 at 7:38 pm
Banks are defending what they can; consumers may not be living off their credit cards for long. Banks are slashing people’s credit limits even as they send out an oh-by-the-way letter to that effect. I was talking to the cashier at QFC this weekend and she said that four times last week people in her line have butted up against apparently new limits and had their cards declined. I don’t know how long she’d worked there, but she said she’d never seen it before.
17
mike2
// Jun 30, 2008 at 7:41 pm
mikal
This is off topic, but there was someone on MSNBC today that stated that he believed that all the jobs that went overseas over the last thirty years would now be starting to return.
Certain industries were completely gutted due to offshoring. Anything that requires capital investment needs to become significantly cheaper here to justify moving back. US wages are still too high.
Couple that with falling US demand, and I don’t see it penciling out for some time. Invest in the US? Who would be so bold?
The ultimate irony is that offshoring of manufacturing ramped up speed just few years before the dollar started its plunge. How efficient is that? Move everything out just in time to re-balance the dollar with global demand.
18
matthew
// Jun 30, 2008 at 7:52 pm
30 years of off shoring is going to start returning to the US? Wow, some people can really attempt to pull a silver lining out of a hurricane.
19
jon
// Jun 30, 2008 at 7:58 pm
Any production that comes back to the US would be processes that are highly automated. That’s good news for software engineers, but those will probably be imported also.
20![[troll]'s avatar](http://www.gravatar.com/avatar.php?gravatar_id=53faab72e8e5ccd40442f1fc00c033a0&default=http://seattlebubble.com/blog/wp-content/uploads/default_gravatar.jpg&size=50 "[troll]'s avatar")
[troll]
// Jun 30, 2008 at 8:42 pm
ny prdctn tht cms bck t th S wld b prcsss tht r hghly tmtd. Tht’s gd nws fr sftwr ngnrs, bt ths wll prbbly b mprtd ls.
……………………………….
Thy wld hv t mprt smrt wrkrs.
Dffclt t wrk wth tttds lk mtthw nd s clld sftwrngnr tht dsn’t knw hw t s scrll br n pll.
H y’ll
21
Scotsman
// Jun 30, 2008 at 9:03 pm
I’ve long thought that eventually, as education levels and capital distribution around the world equalized, shipping costs and raw resource distribution would become the predominant determinants of where goods were made. Production returning to the U.S. is a long way off, but will probably happen to some extent as labor and energy costs increase in other countries. Right now, even with expensive oil and shipping, it’s hard to compete with China on wages/labor costs. And their lack of environmental controls and associated costs give them an additional advantage. Even with a (temporary) falling dollar, it’s impossible to make it at home for less.
22
mikal
// Jun 30, 2008 at 9:12 pm
RAL, Also of interest is the negative mindset. Some of you seem to sit and hope that this country will fall apart. I have no idea if the manufacturing base will return. I personally think that once a country becomes a power in finance and makes nothing it is historically doomed (Netherlands and Britain come to mind).
23
singliac
// Jun 30, 2008 at 10:19 pm
RAL, you’ve returned! Oh how we’ve missed you.
24
Alan
// Jun 30, 2008 at 10:38 pm
Grammar is important too!
25
Alan
// Jun 30, 2008 at 10:40 pm
I think manufacturing infrastructure is going to be the next big wave of investment (not bubble) in the US.
I think farmland is going to be the next bubble.
26
shawn
// Jul 1, 2008 at 12:13 am
I think oil is the bubble that is brewing.
Oil creating ‘overnight millionaires’ in N.D.
“It’s the easiest money we’ve ever made,” said Lorene Stohler, …
http://www.msnbc.msn.com/id/25466382?GT1=43001
27
unearthly
// Jul 1, 2008 at 12:58 am
Those wells pump 150-200 barrels of oil a day.Typically the land owner gets 50% of the sales. These landowners are still getting a million dollars a year in revenue if oil is at $40/barrel. And you won’t be seeing $40 oil ever again…
28
what goes up comes down
// Jul 1, 2008 at 7:29 am
swe: “I hear Boeing’s military programs are butcher axing jobs lately too due to defense budget cuts under Bush, imagine what it will be like under Obama.”
You must be smoking something — I work for Boeing and we on the military side of the house just like the commercial side are doing mandatory O.T. You need to check what you are hearing.
29
what goes up comes down
// Jul 1, 2008 at 7:32 am
RAL, why did you come back after making such a big deal about leaving — maybe, just maybe, you have seen the light or should I say the increased number of for sale signs.
30
softwarengineer
// Jul 1, 2008 at 8:25 am
I AGREE THE WAR BILL IS HIGH DURING BUSH
But defense programs are getting butcher axed in Seattle, i.e., FCS.
See the proof:
http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=defense&id=news/HASC050808.xml&headline=HASC+Proposes+Additional+C-17s,+FCS+Cuts
Seattle’s F-22 is cut too:
See the proof:
http://govexec.com/dailyfed/0208/022708cdpm2.htm
Seattle’s P-8 program butcher axed from 251 to 108 units, and its on schedule to. the article explains why in part:
“…further reduction in numbers is likely as the cost of the land-based war on terror continues to suck the JP out of the rest of the defense budget…”
See the proof:
http://navlog.org/p-8_may07.html
Yes, we’re spending money like crazy on defense, but during the Clinton years we cut back on maintenance and retrofit….add Iraq war in and everything’s falling apart and needs rebuilding and replacing…not Seattle work unfortunately.
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