Many people believe that banks and other lenders make a great deal of money at their expense. Generally speaking, they charge high rates for loans, hit customers with all sorts of fees, and offer meager yields on deposit and savings accounts. Combine that with the profit-maximizing multiplier effect associated with fractional reserve banking, which effectively allows lenders to leverage up their balance sheets to a degree that would make many hedge fund managers blush, and it almost seems that these institutions have a license to print endless amounts of money.
Alas, the good times only seem to last so long, and eventually the industry ends up suffering the consequences of myriad bad decisions made when times were good. In "OTS: Number Of Troubled Assets At Thrifts +49% In 2Q," Dow Jones Newswires details the latest round of bad news from the world of credit.
The number of troubled assets among federally regulated thrifts rose rose 49% in the second quarter from 12 months before to the highest level since the savings and loan crisis, the Office of Thrift Supervision reported Tuesday.
The agency also reported that the number of "problem thrifts," or companies rated poorly by regulatory standards, had risen to 10, up from just 4 in the second quarter of 2006.
Still, the regulator said that although the 836 thrifts it regulates are continuing to feel stress from housing and liquidity markets, the overall health of the companies remains strong, based on earnings and capital.
Thrifts are federally regulated banks that originate one out of every four mortgages. The companies largely originate prime or jumbo loans, so their stressed loan portfolios suggest that more loan types - not just subprime mortgages - are under pressure.
The thrift industry had $14.2 billion in troubled loans, which are either noncurrent loans or repossessed assets, the OTS said. That's up from $9.5 billion in the second quarter of 2006. This is the highest level of troubled assets since 1993, though as a percentage of total assets its only the highest level since 1997. Noncurrent loans include mortgage delinquencies, which have grown precipitously as the adjustable-rate mortgages that were very popular during the recent housing boom reset into much higher monthly commitments.
"This is what is keeping us as regulators up at night," James Caton, director of financial monitoring and analysis, said at a press briefing to discuss the data.
The OTS attributed the growth in noncurrent loans to two business lines - one-to-four family mortgages and construction and land loans. For one-to-four family mortgages, 1.26% were considered noncurrent as of June 30, up from 0.78% on June 30, 2006.
For construction and land loans, 1.61% were noncurrent at the end of June, compared with 0.47% on June 30, 2006. Troubled loan levels are expected to continue rising in the third quarter, OTS senior deputy director Scott Polakoff said.
"We recognize what's going on the marketplace," Polakoff said.
Thrifts continued to set aside more money to protect against future losses. In the second quarter, thrifts set aside 0.38% of their assets to protect against future losses, up from 0.20% in the second quarter of 2006.
Thrifts also charged off 0.31% of their assets in the second quarter, up from just 0.18% in the second quarter of 2006.
Total thrift industry assets rose 3.5% in the second quarter compared with the second quarter of 2006 to $1.5 trillion.
Though the OTS wouldn't identify any of the institutions it designated as "problem thrifts," these institutions aren't expected to be any of the larger companies the OTS regulates. The OTS said the 10 problem thrifts only held 0.2% of total industry assets.
The OTS data released Tuesday don't reflect any of the recent pressure on large thrifts such as Countrywide Financial Corp. and Washington Mutual, as many of their problems arose in the third quarter.
Among thrift industry assets, their holdings of mortgage-backed securities jumped 24.4% in the second quarter compared to the first quarter of 2007, showing how thrifts were already beginning to hold more of these assets on their balance sheets before the recent liquidity crunch.
"Liquidity is still under stress and...the demand for these types of securities, whether they are securities or loans, actually, remains quite anemic," said Sharon Stark, senior economic and policy advisor.
(Hat tip to Calculated Risk)
Though the times are rough for investors T-bills with interest rate 1/3 that of the real inflation
everything else leveraged out of sync with common sense
one place is a safe bet gold
by this I mean real gold not gold certificates they are leveraged into the next galaxy too
for the fore seeable future stocks will be thought of as a ponzi scheme where the ppt and the big banks scheme to take your hard earned money
there was a time in this fair land when gold backed the currency sadly today we have a fiat currency and with all fiat currency throughout history it is bound for failure not to worry though the Amero will arrive in the nick of time to save us all or to trap us all into another scheme of things another ponzi fiat
with all the wind bags of Wall street exalting its arrival the ppt and the banksters will tilt the game so that money is easy to come by and stocks will soar
untill once again it is time to sheer the sheep
Posted by: daveDave | August 25, 2007 at 03:03 PM