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A congressional watchdog panel warned on Thursday that mounting commercial real estate losses could endanger the banking system and thwart economic recovery.
A total of $1.4 trillion in commercial real estate loans will require refinancing in the next four years, the Congressional Oversight Panel said in a report. More than half of those loans are underwater, written for properties whose value has dropped like a rock.
The expected losses when loans go bad could hit between $200 billion to $300 billion and threaten 3,000 small and mid-size banks with a disproportionate share of commercial real estate assets on their books, according to the panel.
The report is intended to "wave a red flag" to the White House and Congress that the commercial real estate loan market is going to get a lot worse before it gets better.
"We’re at a point where even as TARP is ramping down another major challenge in our economy is ramping up," said Elizabeth Warren, the oversight panel’s chairwoman. "We need to start now, before the system is on the brink of collapse to figure out a plan," she added.
The panel’s research found that 2,988 banks are heavily invested — with more than three times their assets tied up — in commercial real estate loans. Of that number, 2,500 banks each have less than $1 billion in assets.
Indeed, many such smaller banks have already failed. Small bank failures"will intensify sharply over the next few years," Warren said.
"When commercial properties fail, the result is a downward spiral of economic contraction, as these are the same small banks that create jobs and boost economic activity," she said Business Card Holders.
Solutions: The panel offers a number of possible solutions for policymakers to head off a commercial real estate crisis. For example, it says the Treasury Department should "stress test" banks that are concentrated in commercial real estate loans.
Treasury Secretary Tim Geithner said at a congressional hearing last fall that "it is not realistic or feasible" to review such a large number of banks in a detailed level.
The oversight panel also suggested that the federal government should consider other remedies, including injecting capital into these small banks, buying their toxic assets or guaranteeing loans.
Bank regulators could also simply allow banks to extend underwater loans rather than requiring them to recognize losses, but the panel worries that such a move could delay a rebound in bank lending. But the panel also worries that massive writedowns throughout the banking system could stymie lending and create a "negative bubble."
"There’s a need for a nuanced response," Warren said. She said that banks should recognize some commercial real estate losses, but that regulators should monitor them closely to ensure that losses don’t spiral downward and drag down the larger economy.
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Florida is among a handful of states that posted the largest monthly gains in the number of online job postings, which were up by 25,500 in January, according to The Conference Board’s Help Wanted OnLine Data Series. Only California, with a 67,600 jump, had more.
"The last three months have shown a sharp upturn in employer demand for workers," said Gad Levanon, associate director of macroeconomic research at The Conference Board, in a news release. "These increases have brought us back near the labor demand levels that existed in November 2008, just prior to the huge losses resulting from the financial turmoil in the last quarter of 2008. This is very good news since these seasonally adjusted increases come in two months, when we normally see employers cut back on advertising for workers."
And, while that’s good news, the number of unemployed continues to exceed the number of advertised vacancies in all 52 of the metropolitan areas The Conference Board looks at.
In Miami, there were nine unemployed people for every five vacancies posted in November 2009, the latest month for which unemployment data was available.
Among the 10 occupation groups with the largest number of online advertised vacancies nationwide, office and administrative support occupations posted the largest January gain, up 74,100.
Demand for health care support workers has remained relatively steady throughout the recession, although the number of unemployed seeking work in this field has remained relatively high, The Conference Board noted.
Appliance World stores in the Denver area have been closed in the wake of the chain’s parent company filing for bankruptcy protection three months ago.
"Effective immediately, Appliance World stores are permanently closed," a notice on the retailer’s website said Thursday.
The chain has five metro-area stores, in Denver, Arvada, Aurora, Littleton and Highlands Ranch, plus one in Colorado Springs, according to the website.
On Oct. 20, Denver-based GCF Holdings LLC, which owns Appliance World, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Tampa, Fla. The company listed between $1 million and $10 million in both assets and liabilities, and said it had between 100 and 199 creditors.
In addition to Appliance World, the company had subsidiaries in Florida and New Mexico, according to the filing and news reports.
Riverview Ventures Inc. of Bradenton, Fla., did business as DeSears Appliance & Home Entertainment. Four DeSears stores in Florida were closed Dec. 2, the Bradenton Herald newspaper reported.
Another GCF subsidiary, DCE New Mexico LLC, operated a pair of electronics and appliance stores under the Baillio’s name in Albuquerque and Santa Fe. The Baillio family, which had sold the stores to the Denver company, resumed ownership after the Chapter 11 filing, the Santa Fe New Mexican newspaper reported.
The Appliance World website notice said that customers who already have been notified their appliance order is in "may pick up on Tuesday February 2 at our Denver warehouse located at 320 S. Lipan."
It said others with existing orders should "please continue to visit our website for ongoing information on receiving your product or a refund."
As the first decade of the 21st century comes to a close, the Denver Business Journal is revisiting some of the biggest business-news stories of the last 10 years.
Here, we look at Joseph Nacchio, the one-time hard-charging CEO of Qwest Communications International Inc. who is now serving a prison term following his 2007 conviction on 19 felony counts related to insider trading.
The story: Nacchio was an AT&T executive when Qwest — a telecom founded by Denver billionaire Philip Anschutz — named him CEO in 1996. He was granted millions of shares of Qwest stock in 1997.
In 2000, under Nacchio’s leadership, Qwest acquire the baby Bell U S West and became of the nation’s largest phone companies.
In 2001, Nacchio began selling off his shares before a write-down pushed the stock price downward. In August 2001, a class-action lawsuit was filed in federal court, accusing Nacchio and others of issuing "false and misleading" statements about the company’s financial state that had kept the stock price artificially high. Later, the Securities and Exchange Commission and the Justice Department launched probes.
In June 2002, after Qwest stock cratered, Nacchio resigned, and the company later was forced to restate three years’ worth of earnings.
Nacchio was indicted on 42 insider-trading counts in December 2005. His federal-court trial in March 2007 garnered worldwide attention.
Following his conviction and a string of unsuccessful appeals all the way to the U.S. Supreme Court, Nacchio reported to prison in Pennsylvania in April of this year.
Today: Nacchio remains behind bars while he awaits a resentencing on his original conviction, a date for which has not been set.
Click here for a roundup of DBJ coverage of this key story of the decade.
Regulators closed regional banks in three U.S. states Friday, bringing the total number of failed banks this year to 133, the Federal Deposit Insurance Corp. said.
Customers of the failed banks are protected. The FDIC, which has insured bank deposits since the Great Depression, currently covers accounts up to $250,000.
In Florida, the Office of the Comptroller of the Currency (OCC) closed Republic Federal Bank, NA, and the FDIC was named receiver.
The four offices of the Miami-based bank will reopen Monday as branches of 1st United Bank, which is based in Boca Raton, Fla.
1st United will acquire all of the failed bank’s $352.7 million deposits. It will also buy $267.1 million of the $433 million worth of assets Republic Federal had on its books as of late September.
Elsewhere, state regulators in Kansas closed the six branches of SolutionsBank, which is based in Overland Park.
Arvest Bank, of Fayetteville, Ark., will assume all of the failed bank’s $421.3 million worth of deposits and will purchase all of its $511.1 million in assets. SolutionsBank branches will reopen Monday as branches of Arvest Bank.
The sole branch of Mesa, Ariz.-based Valley Capital Bank, NA, was closed by the OCC. Its roughly $41 million in deposits and $40 million in assets will be assumed by Enterprise Bank & Trust, of Clayton, Miss one hour payday loan.
The FDIC said customers of the failed banks can access their money over the weekend by writing checks or using ATMs or debit cards. Checks will continue to be processed, and borrowers should make mortgage and loan payments as usual.
An average of 11 banks have failed per month this year, and the FDIC’s deposit insurance fund has slipped into the red for the first time since 1991.
As of the end of September, the fund was $8.2 billion in the hole. But that figure includes $21.7 billion the agency has earmarked for future bank failures.
Friday’s failures of the three banks will cost the FDIC an estimated $252.1 million.
The fund is expected to move back into the black by 2012 as banks repay their insurance premiums over the next three years, which the FDIC says could raise $45 billion.
This year’s tally of bank failures is the highest number since 1992, when 181 banks failed. But the total is far from 1989’s record high of 534 closures which took place during the savings and loan crisis, when the insurance fund also carried a negative balance.
Prime Minister Yukio Hatoyama will probably unveil his first stimulus package today amid growing signs that the recovery in the world’s second-largest economy is losing momentum.
Hatoyama, who took office in September pledging to transform the economy by emphasizing quality of life over growth, is grappling with a slide in prices and a surging yen. His approval ratings have slumped, hurting the Democratic Party of Japan’s momentum ahead of upper house elections in July 2010.
He may propose spending of as much as 4 trillion yen ($46 billion) in this year’s extra budget, Finance Ministry officials familiar with the matter said. The package would come three days after the Bank of Japan offered to pump 10 trillion yen ($113 billion) into the banking system, accommodating government calls for it to do more to fight declining prices.
“Right now, the biggest threat for the economy is the strengthening yen, while deflation also poses a very severe risk,” said Yoshimasa Maruyama, senior economist at Itochu Corp. in Tokyo. “The government is mindful of next year’s election and will want to spur employment because that’s what matters to voters the most.”
The yen climbed to 84.83 against the dollar on Nov. 27, the highest since 1995, and has gained more than 5 percent in the past three months. It traded at 88.10 as of 1:18 p.m. in Tokyo from 88.26 late yesterday. The Nikkei 225 Stock Average fell 0.3 percent and has lost 3.1 percent since Hatoyama took power on Sept. 16.
Workers, Environment
The stimulus plan is about “95 percent complete,” Deputy Prime Minister Naoto Kan said at a news conference in Tokyo today. The package is likely to focus on helping small and medium-sized businesses, employment aid, and incentives to buy environment-friendly goods.
Most of the funding for spending will probably come from the 2.7 trillion yen frozen from the previous administration’s extra budget. The remainder will be tapped from reserves in so- called special accounts, or money set aside and used at the discretion of bureaucrats, Jiji Press reported this week, citing unidentified ruling party officials.
Finance Minister Hirohisa Fujii said this week that funding for the package wouldn’t come from bond sales, assuring investors that the measures won’t exacerbate a public debt burden that’s the largest in the industrialized world.
The yield on the benchmark 10-year bond fell to 1.19 percent on Dec. 1, the lowest since January. It was unchanged at 1.27 percent today.
Support for Policies
While Hatoyama’s popularity has slipped, it remains high enough to win support for his policies, and he benefits from voter disgust with the way the Liberal Democratic Party managed the economy before its ouster in August, said Jeff Kingston, director of Asian Studies at Temple University in Tokyo payday loan.
“People are well aware that the DPJ was handed the poisoned chalice of an imploding economy and the mother of all fiscal messes,” Kingston said. “The shifting of stimulus spending away from roads and bridges to nowhere to social welfare spending, environmentally friendly products and child subsidies, plays very well here.”
Hatoyama’s approval ratings fell five percentage points from the previous month to 68 percent, according to a Nov. 30 survey by Nikkei Inc. and TV Tokyo Corp. The poll didn’t provide a margin of error.
Slower Growth
Gross domestic product expanded for a second quarter in the three months ended Sept. 30 after four quarters of contraction. Economists say the government will revise down last quarter’s growth from an annual 4.8 percent pace after a report yesterday showed companies cut spending a record 25.7 percent in the period.
Other figures this week showed the expansion may be weakening. Industrial production advanced at the slowest pace in eight months in October, and wages slid for a 17th month, extending their longest losing streak in six years.
Japan’s economy will probably shrink 5.4 percent this year, more than a 4.2 percent contraction in the euro area and a 2.7 percent drop in the U.S., the International Monetary Fund forecast in October.
Japanese policy makers are adding stimulus programs just their counterparts around the world consider how to withdraw them as the global economy recovers.
The Bank of Japan’s lending program will offer three-month loans at 0.1 percent interest. In a meeting with central bank Governor Masaaki Shirakawa two days ago, Hatoyama applauded the move and refrained from pushing for further monetary easing.
Revive Demand
Economist Akiyoshi Takumori says those measures won’t spur growth unless the government does more to revive demand.
“There needs to be support for the private sector,” said Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The BOJ’s new 10 trillion yen program will be useless unless companies want to invest in plant and equipment.”
Businesses and workers have called for government action. Fujio Mitarai, head of the country’s largest business lobby, said last week that Japan needs to take “urgent steps” against the yen’s advance. Nobuaki Koga, head of the Japanese Trade Union Confederation, met Hatoyama on Dec. 2 to ask for “bold and aggressive” measures.
All three working-age generations – Boomers, Generation X and Generation Y – agree that the youngest ones are more difficult to manage than other generations, a Conference Board of Canada analysis has revealed.
The two older generations, the board’s November study found, believed Gen Y workers "require more close supervision, are less likely to follow procedures and are less results-driven than other generations."
On the other hand, Gen-Y – people aged 18 to 29 – "may not understand why their Boomer or Gen-X colleagues fail to recognize how busy their lives can be," the report found.
The board did their own national workplace survey and analyzed other data about the consequences of a new wave of multigenerational angst sweeping Canadian workplaces.
Two factors were exacerbating the angst, the board said: an ever-aging workforce and a wrenching shift "away from hierarchical structures" that Boomers are comfortable with to "a more team-based approach" in workplaces that suits Gen-X and Gen-Y more.
"No longer are younger workers largely dependent on the older generations for information and knowledge," the board said. "Younger workers can now access information online and many are often the most expert person at a given skill or task."
Hence, the conflict is "arguably now even greater than before."
Statistics Canada data show that while 14.1 per cent of the Canadian workforce in 2001 was nearing retirement age, 16.9 per cent was by 2006 and more than 20 per cent will be by 2016.
Bosses have the delicate task of getting these three generations to cooperate at work and adapting the environment to get the best work out of each, the board said.
Standing in the way are ingrained myths and perceptions on all sides, which its study attempted to explode. The Conference Board warned against "managing by stereotype."
Boomers were defined as people age 45 to 64 and Gen-X as 30 to 44. For both, the world they grew up in shaped them, be it Sixties idealism or skepticism wrought by corporate downsizing and the political upheaval of 1989, the board said.
All three generations agreed Boomers are "less comfortable with technology, less open to change and less accepting of diversity." The difference was in the degree.
Among the Gen-Y myths the study exploded was their over-confidence. The results showed the youngest workers were more cautious than their older co-workers gave them credit for.
Gen-Y employees told the survey they "strive to have a life that will make them happy." They agreed they are "less willing to work hard and feel they are owed more." They admitted they "seem to have a negative effect on productivity but a positive effect on morale because they are younger, full of energy and complain less than other generations."
They know they’re "often unreliable, tend to do things their own way and do not always follow the rules," the study found. But there’s a good reason for that, Gen-Yers told the board: "One group strictly wants to follow processes while the other wants to get stuff done."
Another challenge for bosses, the study said, is to temper the perceptions each generation has of the other. Among them:
Gen-Y found Gen-X "annoying and aggressive."
Gen-X said Boomers are "have difficulty giving up control," while Gen-Y said Boomers "live to work rather than work to live."
Boomers described Gen-X as "loners" who "lack patience."
And Gen-X contended Gen-Y "think they know everything."
In particular, the study found, Gen-Y workers said they like someone to review their tasks, while Boomers absolutely don’t.
And while Boomers were uncomfortable with the other two generations’ reliance on emails to communicate, the study found the perception of younger generations as careless with spelling and grammar wasn’t true. While 88 per cent of boomers felt it was important to be careful with grammar and spelling, 83 per cent of Gen-Xers and 85 per cent of Gen-Yers agreed.
Similarly, 87 per cent of Boomers said they were careful with details, as did 81 per cent of Gen-X and 79 per cent of Gen-Y.
Porsche SE is headed for a second consecutive annual loss in the billions of euros, as the hangover lingers from ex-Chief Executive Wendelin Wiedeking’s failed takeover of Volkswagen AG.
The indebted automotive holding company created as a vehicle for the acquisition will stay deeply in the red as it is forced to deconsolidate its Volkswagen stake and much of its Porsche AG sports car business, officials said on Wednesday.
The complex untangling at Porsche — now set to merge in 2011 with its 51-percent owned Volkswagen unit — cemented its reputation as a financial black box that scarcely resembles its roots as a maker of sports cars such as the 911 Turbo.
As its debt mounted just as car markets collapsed, Porsche was forced to drop its takeover and agree a merger with Volkswagen. The first step is selling to VW a 49.9 percent stake in the Porsche AG sports car business by the end of this year.
“To take into account the rather unlikely possibility that the merger does not take place after all, the parties concerned have incorporated a put/call structure into the transaction concept,” said Hans Dieter Poetsch, finance chief of both Porsche SE and Volkswagen.
This includes transferring the remaining 50.1 percent of Porsche AG to Volkswagen by no later than 2014, he added fast cash advance loan.
Poetsch warned on Wednesday that the deconsolidation loss in the fiscal year to July would be triggered if VW’s home state of Lower Saxony once again gets the right to appoint two members to VW’s supervisory board at the next annual meeting.
According to International Financial Reporting Standards, this would mean Porsche would have to book its VW stake at market value, he told Porsche’s annual news conference.
“This would give rise to a considerable loss based on the current market price,” Poetsch said.
Including the sale of the minority stake in the sports car business, the structural changes in its consolidated statements would lead to a loss “in the low single-digit billion euro range.”
Porsche SE posted a group net loss of about 3.6 billion euros ($5.37 billion) for the fiscal 2008/09 year. Net debt at the end of its fiscal year on July 31 was 11.4 billion euros.
Porsche shares were barely changed by 1306 GMT while the DJ Stoxx European car sector index dipped 0.2 percent.
(Editing by David Holmes)
($1=.6708 Euro)
Big St. Louis hotels that depend on corporate meetings and charity events for much of their business will face a lean winter and are unlikely to recover fully until 2011, a hotel analyst said Monday.
Among them is the Chase Park Plaza, the Central West End landmark that is falling short of income projections made in 2006, when real estate investment trust Behringer Harvard took over as majority owner. The $180-million deal included $95 million for an ongoing renovation.
In a conference call script attached to a quarterly financial filing last week, Behringer Harvard’s chief accounting officer Bryan Sinclair said the firm had "recognized" a $5 million reserve for an unpaid rent balance from its 5 percent partner, Kingsdell LP, which runs the Chase Park Plaza.
Kingsdell’s owner, Jim Smith, said Monday that hotel revenue is short of the projections but added that Behringer Harvard’s action is no indication the Chase Park Plaza is in financial trouble.
"The lease payments are just internal cash flow," he said. "We are 100 percent current on our debt payments. We pay all our taxes."
The complex at Kingshighway and Lindell Boulevard is comprised of 350 hotel rooms, 51 corporate apartments, 86 condominiums, meeting rooms, restaurants and a movie theater. The $4.5 million penthouse condo remains unsold but 65 percent of the condos have been purchased, Smith said.
He would not provide hotel occupancy rates but said the economic downturn and renovation of some hotel rooms had pushed down the rate. But Smith added that next year the owners will pay off the construction loan on the condo portion of the complex and "significantly pay down" the hotel loan.
Hotel analyst Gary Andreas, a partner at H&H Financial in Chesterfield, said the Chase Park Plaza is among area hotels hurting from reductions in corporate meetings.
"And a lot of charitable groups have cut back on fancy functions," he added.
Andreas said big hotels are unlikely to see a significant turnaround until late next year. Hotels in most cities, including St. Louis, look to return to normal in 2011. Chase Park Plaza appears to be performing as well as its competitors, he added.
"I’ve not heard any rumbling that they’re in trouble," Andreas said.
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