I hope you realize that is all very depressing data. Your numbers for the period point to a net 2.8B increase in residential lending against a $160B balance sheet with +/-$30B in cash and equivalents. That is embarrasing. And the year in question had an element of euphoria to it...as most of the "new" loans were from existing "qualified borrowers", who were just taking advantage of lower rates. There is a very small pool of such borrowers and that pond has been fished out. The pace of loan growth has stymied. In short, Norm, they are only lending to a small group of borrowers (who probably dont need the money - the best clients for BB&T) and the only movment you will see in this subset is another round of refinancings if the market drops the 30 year rate to 3.5%. The real problem continues to persist. And as long as the bank has $30B in cash, they dont have to address it.
king admitted on CNBC that his marginal cost of funds is 0%...if that cost changes, they will be forced to put money to work. As long as it remains zero, then they can get the o.6% ROA by buying treasuries and other paper.
Bbt residential mortgages are classified into 4 categories : prime, alt A, permanent/construction and subprime.
Here's the data by category at 6/30/10 vs. 6/30/11. The trends are obvious and bbt should return to a "normalized charge-off level" in 2012:
1. Prime - Loan balance has increased from $12.2 billion to $15.8 billion. Nonaccruals have dropped from %1.64% to 1.14% reaching a peak of around 3.5% in 2009. 100% of loans are covered by 1st mtg. Refreshed fico score is 727. LTV has been reduced to 74%.
2. Alt A - Loan balance has dropped from $2.3 billion to $1.8 billion. Nonaccruals have dropped from 4.65% to 3.21%. Runoff mode.
3. Construction - Loan balance has dropped from $.6 billion to $.4 billiion Nonaccruals have decreased from 9.8% to 7.16%. Runoff mode.
4. Subprime - Loan balance has dropped from $.5 billion to $.4 billion. Nonaccruals have increased from 6.05% to 7.95%.
Prime loans is comprise 85% of portfolio and are likely to increase to 90% plus in 2012. If you assume the default rate remains at current level of 1.14%, chargeoffs will be around 30 bsp points assuming a loss severity rate of 25%. 74% ltv and 100% 1st mortgage ensure loss severity rate will not be excessive.
Delinquency data for total residential mtgs is trending is the right direction. Last 5 qtrs for 30 to 89 day deliquencies (millions of dollars) starting with 6/30/10 are: 519, 551, 532, 444, 426.
Actually I voted for Reagan. And he is spinning in his grave at what has become the cabal of bankers, treasury officers, and fed regulators. And I dont know what you are reading but the residential mortgage market and exsiting home sales have come to a grinding halt.
Bankers themselves state that the residential home crisis will persist for half a generation.
"Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday. The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would. The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.
In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months. Only 15 percent of respondents expect mortgage delinquencies to decline during that period.
“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation,” said Andrew Jennings, chief analytics officer at FICO.
Bankers concerns spread beyond the housing market. A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans.
Small businesses are expected to continue face a challenging credit environment. More than one-third of respondents forecast an increase in delinquencies on small business loans.
Bankers also appear to be pessimistic about recovery in consumer spending, with 64 percent of respondents expecting credit card usage to remain below pre-recession levels for at least five more years. Half of the respondents expect credit card balances to increase over the next six months, due to higher spending by some households and smaller monthly payments by others.
So Norm, I guess if the Fed says things are getting better, I should breathe easier (what else are they going to report, that executing the US dollar was a bad idea?). And while we are sweating the next nine years I am sure it will be important to debate how BB&T invests its $25B of cash and marketable securities.
Life's a b****, unless you're a bank.
"Net lending is anemic...and will continue to be so. Mortgage growth is "showing some nice increases"? you're kidding right? Have you seen the data. No one is lending into a market that is predicted to maintain a default horizon for another five years (thanks to there being no credit extended - hurrah for BB&T) and home prices are not predicted to recover for 10 years (again thanks banking industry)."
You're entitled to your opinion but you're not entitled to make up your own facts. Fed data shows that closed end residential mortgages have been increasing in the 3rd qtr. 2011 apparently due to refinancing which has more than offset charge-offs on bad loans.
You sound like some government official out of Atlas Shrugged. I think you would do well to advise Senator Durbin on how to make Dodd Frank even more costly to the American consumer.
"The worse medicine is lending money out to folks who are already financial strapped primarily because they made bad financial decisions in the past." What about the banks who made the loans? Oops, I forgot, they got a mulligan paid for by my grandkids.
Sorry Norm, you often are long on "facts" but short on the underlying meaning...like the case of Loan Loss Reserves, which are simply a way for a bank to smooth earnings or Tangible Book Value, which assumes the assets are worth what the banks say they are worth (which no one does - except for Norm).
As for Tarp, we can certainly discuss the strategic impact of this to BB&T, the taxpayers, the unwarranted safety net it provided, the ultimate dilution to its shareholders. The idea that Mgmt has a commitment to it shareholders rather than the "economy" is an odd argument given that bb&t raised 3B in new equity at 1998 prices, delivering a death blow to the then current shareholder base and the div...(want to know why the stock trades so low...I just told you) but that decision to screw the shareholders was ok (it certainly paved the way for some nice fat comp for KK) but now making a decision to loosen credit standards would be "Bad" for the shareholders...too risky I guess, but the crummy loans they made previously? Again, I guess that was ok..?.No way could BB&T make a credit mistake, huh? Hey did you get a bailout Norm?
Net lending is anemic...and will continue to be so. Mortgage growth is "showing some nice increases"? you're kidding right? Have you seen the data. No one is lending into a market that is predicted to maintain a default horizon for another five years (thanks to there being no credit extended - hurrah for BB&T) and home prices are not predicted to recover for 10 years (again thanks banking industry).
Bbt paid the gov't around $170 million for the use of the $3.1 billion of tarp money for a period of around 9 months. Very expensive. Bbt did not need the tarp money nor did they request it. They do not securitize their loans. Nor did they buy or sell cdos or do any crazy derivatives. Their capital was very adequate.
The trust plan would dramatically increase the prices of homes. Get the foreclosed and short sale properties off the market and existing home prices would increase nicely. This is great medicine for our economy. The worse medicine is lending money out to folks who are already financial strapped primarily because they made bad financial decisions in the past.
Bbt has been making loans. Their c&i loans are up nicely. Their specialized lending business is doing very well. Prime mtgs are doing ok with the balances showing some nice increases. Auto loans are up.
Real estate loans outside of prime residential are down a lot. The demand is extraordinarily weak in most cases - adc, commercial construction, lot loans and home equity loans and lines. Also, the bank is bleeding off alt A and residential subprime loans.
I think many of the comments you make nobankerplease are factually incorrect. I think you should spend more time educating yourself on the subject matter.
=>"...and the treasury slowly recoups the $750B we gave the lenders."
I must have missed something in the last couple of years. This $750B you're referring to is TARP, correct? I won't quible with the amount that was actually given to the banks (a substantial portion went to the auto companies, fannie & freddie, AIG and not spent at all) but have I not read that a good portion of what the banks received has been paid back with interest?
One more time...
1) What constitutes a qualifed borrower? Answer: A borrwer is qualifed if a bank says he, she, or it is qualifed. If the banks did not have taxpayer money as the basis for their financial health, I would not care how they define it, but since I bailed out the banking system when they were nationalized in 2008, I should have a say in how a the word "qualified" is defined.
2):"Borrowers are not well capitalized and collteral values are too low?" OK, how do you propose to get borrwers to a position to being capitalized enough to borrow? No one has any capital right now. See #1 above.
3) Alternate Plan. Your trust idea simply pushes the problem out five years..it does not solve it. This is precisely the type of logic that prolonged the Great Depression with endless screwball ideas from the FDR Admin. Here is a better plan: reverse the bad decisions in 2008. All regulated banks take a ratio of cash and marketable securities to total asset value. Banks will be required to lower that ratio every quarter for the next 2 years (and they cannot pay down their own debt, buyback stock, or retire preferred). If they dont lower the ratio they get fined, and the treasury slowly recoups the $750B we gave the lenders.
"The cash on BB&T's balance sheet belongs to my grandchildren and I would like BB&T to give it back...now...in the form of loans. "
Simply a bizarre statement.
But setting that aside, I do agree that several million homeowners should be able to refinance but are unable to because the foreclosure situation in this country has greatly depressed home values- I think something like 40% of the existing home sales involved either foreclosed properties or short sales. The condition of many of the foreclosed properties are terrible - copper wiring ripped out of the wall, missing ac units, fixtures removed etc. Nevertheless, they are calculated into the home values used by appraisers.
I think the solution to this problem is a public-private trust which buys up distressed properties from fannie, freddie and the banks at firesale prices and rent them out over say 5 years. Of course, the trust would have to spend some money to fix them up. Their are millions in the US who do not qualify for a mortgage and need to rent. George Bush's goal to increase home ownership to 70% was a major factor which got us into this mess. So was Alan Greenspan encouraging homeowners to take out short term ARMS. Then there was Carl Levin who permitted freddie and fannie to purchase toxic cdo/cdo squared stuff and let folks use their home equity as an atm machine. The housing problem was not created by Wall Street soley. It's primary origin was Washington DC - wall street simply helped carried out the mission. Michael Moore and his cohorts are misguided. Define the problem - then maybe you will come up with a solution.
Obama finally propose a public-private ownership trust designed to improved home values but I think it has fallen on deaf ears. John Allison I believe, proposed this 3 years ago.
Kelly King has a responsibility to protect bbt shareholder value. Refinancing homes which have less than 20% equity even if home prices are "artificially depressed" is not responsible banking. Nor is lending money to investors to purchase adc speculator loans or small businesses which are not properly capitalized. America has greatly reduced their indebtedness and is in the process of recovering. Adding more debt is not part of the solution.
OK, that was a fair response. But let me now ask you this...What constitutes a qualified borrower? Second, the Tarp money, whether it was a welcome injection or not, was not designed to help the banks..its purpose was to free up credit, the theory being that if banks' balance sheets were sufficiently relieved of near term stress, they would then lend the money given to them. Yes, it WAS to help out the US economy. Precisely. That did not happen...what did happen was the ubiquitous "I got mine" and the banks have simply been sweating the rest of America, while they have bullet proofed their balance sheets. Now, as you brought up the issue of qualified borrowers, you can be fully assured that banks find this statement (and I have heard it many times from bank CEOs) to be a moving target. And as long as it is a seller's market for credit, banks will continue to move the bar....they will never get enough spread, enough collateral security, enough guarantees, or enough covenants. There is some really ugly greed at work here...long term relationships have been destroyed where customers of banks have now simply become debtors and guarantors...oddly it was John Allison who complained that the fed and the treasury dept were in bed with the US financial system. And he was right. It is ugly and unamerican. The cash on BB&T's balance sheet belongs to my grandchildren and I would like BB&T to give it back...now...in the form of loans. This whole process is not going to end well, not for the banks and not for borrowers. 2008 was simply the tip of the iceberg. By the way, to answer my first question...there are no qualified borrowers, that is the problem. And until credit flows, nothing will change, unless you want Harry and Nancy to just give everybody more free money (maybe not a bad idea since they already gave BB&T a lot of monopoly money, maybe its somebody else's turn). You want BB&t to go to $45...lend the cash.