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  • chip.tilley chip.tilley Jan 12, 2011 7:08 PM Flag

    someone with access to WSJ to summarize story, please?

    "Four Horsemen of the Housing Bust Saddled with Homes"

    Thanks.

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    • Bbt has been growing their loans showing some nice gains in c&i, auto, specialized lending and mortgage. As I recall, the bank grew loans last qtr 7% annualized excluding adc loans.

      I'm confident that bbt will continue to show nice loan growth in the 4th qtr.

      It's time for the blood bath in the adc and commercial land sector to be over. I really hope King takes the final hit in this area this Friday instead of moving it out into 2011. Maybe the blood bath in this sector was over last qtr because King said in December that charge-offs in the 4th qtr of 2010 will be down "substantially" from the 3rd qtr. In any event, I do not want to see any dirty underwear carrrying over into 2011 so anything of questionable valve, King need to take the big mark in the 4th qtr. 2010. This includes any valuation adjustments on existing reos. This can't continue in 2011.

      Bbt normalized charge-offs historically have averaged around 50 bsp. It does not take a financial genius to realize that this amounts to $125 million per qtr or $500 million per year on their $100 billion portfolio. Translate that into eps and it's a huge #. On top of that the bank has an ALL of $2.5 billion which I believe is very much bloated. If charge-offs in 2011 drop to say 100 bsp, the current ALL represents 2.5 years of charge-offs which is super conservative and is closer to an ALL balance under gain on sale accounting
      versus portfolio accounting.

      Friday will be an interesting day. I believe Kelly King is going to pleasantly surprise us.

    • Norm, I am long BBT and generally bullish on the stock. I wish to comment on your post, which was thoughtful and timely.

      I believe the loan losses will be closely examined, but the more important story is the growth in loans. If loans show good growth, then we should see the stock price hold or rise a little. If not, I see a drop. Either way, I do not think a big increase is in the cards as a previous poster said, as the price has run up quite a bit already. We could see a flat or lower price even if the news is all good (like M&T Friday). Anyway, 40 will be a stretch in the next year or two, but I could see 35.

    • PNC is a good bank. I traded it several times last qtr. Look at their provision for the last qtr.
      What do you think their normalized provision will be and how much will that increase eps vs. last qtr? PNC may run to $70 but I think the bank will be fully valued at that price.

      Bbt release will not be about eps. It will be about new non-performers and how much bad stuff they sold off and their marks. I think King will have good news to report in this area. Even a novice should be able to look at bbt 12/31/10 financial condition and see the future.

    • Four Horsemen of the Housing Bust Saddled with Homes
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      By DAVID REILLY

      In the old days, banks gave away toasters to lure checking-account customers. Now, at least one is offering a big-screen TV for taking foreclosed homes off its hands.

      What's more, Sterling Savings Bank, a unit of Spokane, Wash.-based Sterling Financial, also will knock 4% off the purchase price, up to $20,000, for buyers who close by Feb. 15. While most lenders aren't going to such lengths, their holdings of distressed properties remain a burden, even with foreclosure activity slowing since the fall.

      Given concerns about a housing double-dip in 2011, the issue of banks retaining individual properties on their balance sheets could become more pronounced as foreclosures pick up again. That could happen as problems associated with the "robo signing" scandal and questions over the ownership of loans sold to investors are resolved. The latter could even force them to repurchase more soured mortgages and take on extra distressed properties.

      On top of possible capital losses, costs associated with foreclosed property represents yet another way banks' core businesses are pinched. They already are under pressure thanks to regulatory changes limiting fees charged to consumers as well as reduced volume and higher costs within residential-lending units.

      Last week, Bank of America said it would take a $2 billion charge in the fourth quarter to write down goodwill for its housing and insurance businesses to reflect that lower profitability. This related in part, CFO Charles Noski told analysts, to higher expenses for the bank's business of servicing home loans.

      Holdings of foreclosed residential real estate at the four biggest banks—BofA, Citigroup, J.P. Morgan Chase and Wells Fargo—grew 33% in the first nine months of the year to $6.8 billion. The swelling size of foreclosed-property holdings is even more pronounced at Fannie Mae and Freddie Mac. At the end of the third quarter, the mortgage giants held $24.4 billion of foreclosed property, double the amount at the end of 2009.

      While foreclosed assets are a small part of big banks' balance sheets, they can cause pain. Banks carry the holdings at written-down values. But more losses may ensue if prices fall further—a growing danger given some forecasts that home prices could slide 5% to 10% in 2011.

      That risk is amplified by the glut of distressed properties that Standard & Poor's recently said it expects will take up to 3½ years to clear.

      Foreclosed properties also have to be maintained, resulting in additional costs. At BB&T, foreclosure expenses totaled $585 million during the first nine months of 2010, more than the $453 million cost of BB&T's own property and equipment.

      The longer it takes to unload properties, the greater the risk banks are in effect doubling down on housing.

      Write to David Reilly at david.reilly@wsj.com

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      • 1 Reply to normlasky
      • "Foreclosed properties also have to be maintained, resulting in additional costs. At BB&T, foreclosure expenses totaled $585 million during the first nine months of 2010, more than the $453 million cost of BB&T's own property and equipment."

        Most of the $585 million reference in the wsj article is negative valuation adjustment. It has nothing to do with maintenance expense. The wsj author is off base.

 
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