Regulators Seize Corus Bank
By NICK TIMIRAOS and JESSICA HOLZER
Federal regulators seized Chicago-based Corus Bank on Friday, marking the first major bank to be undone by deteriorating construction and commercial real-estate loans during the current downturn.
The branches and deposits of Corus will be assumed by MB Financial Inc., which has more than $8 billion in assets and over 70 branches in Chicago and its suburbs. MB Financial earlier this month took over the assets, branches and assets of InBank, a small bank based in Oak Forest, Ill.
But the status of Corus' prize assets is still unclear. The company's delinquent condo and commercial real estate loans backed by 111 developments will likely be sold by the FDIC in upcoming weeks. A number of real estate companies and private equity firms have been vying to take those assets over in recent months.
Among those in competition for the condo assets is a venture of Related Cos., Lubert-Adler Partners LP and other investors; a venture of Miami-based developer Crescent Heights and Dallas-based investor Lone Star Funds; Colony Capital LLC and iStar Financial Inc. and Starwood Capital Group.
With total assets of $7 billion, Corus is the third-biggest bank to go bust this year. The FDIC estimates the failed bank will cost its insurance fund $1.7 billion.
The FDIC this year has brokered sales to private investors, including at IndyMac Bancorp and BankUnited. As more private buyers bid on bank assets, regulators have wrestled in recent months over how much control private equity firms should have over banks.
Corus's failure is the latest sign that banks, particularly small and midsize regional lenders, face a new round of pain beyond deteriorating home mortgages. Construction loans accounted for 88% of its outstanding loans at the end of the first quarter, the largest share among any U.S. bank with more than $100 million in loans, according to Foresight Analytics.
Corus, which was owned by holding company Corus Bankshares Inc., concentrated heavily on condo construction lending in South Florida and other overheated housing markets. More than half of the bank's $3.9 billion in condo construction loans were in nonaccrual or foreclosure in April.
Other commercial real estate sectors are also beginning to get clobbered by the recession as evidenced by the recent bankruptcy filings including General Growth Properties Inc. and the Extended Stay Hotels chain. Commercial real-estate loans could trigger another $100 billion in losses at more than 900 small and midsize banks if the economy deteriorates further, according to an analysis conducted earlier this year by The Wall Street Journal.
The bank's failure doesn't come as a big surprise. Federal regulators imposed higher reserve requirements in February, giving the condo lender until mid-June to raise cash or find a buyer. But the bank's sale dragged out as bidders worked over how to value its sprawling and troubled condo assets.
Most of the company's top managers have departed over the past year, including Robert Glickman, the company's longtime chief executive whose father bought the small Minnesota lender in 1966. Mr. Glickman and his father, who last year held about half of the company's stock, have steadily dumped most of their shares for pennies on the dollar since leaving the company in April.
Corus shifted from a student loan and mortgage lender 10 years ago, aggressively ramping up its commercial real-estate lending, first on hotels and office buildings, and later on condos. Even as other lenders pulled back in 2006 and 2007 amid worries about a bubble, Corus plunged ahead.
Many investors questioned that strategy and made bets that a condo bubble would burst by shorting Corus's stock.
Minnesota regulators also shut Brickwell Community Bank, of Woodbury, Minnesota on Friday. CorTrust Bank, N.A., of Mitchell, South Dakota, agreed to assume all of the bank's deposits. The FDIC was appointed receiver.
Write to Nick Timiraos at nick.timiraos@wsj.com and Jessica Holzer at jessica.holzer@dowjones.com
end.
*The large specs increased their longs by 44,409 contracts and increased short by 4734.
*The commercials increased their longs by 688 contracts, yet increased their shorts by an astonishing 56,893 contracts.
*The small specs loaded the boat too by increasing longs by 15,117 contracts. They increased shorts by 1,203 contracts.
The silver COT was similar with the large specs piling into the metal and the commercials supplying the stuff.
*The large specs increased their longs by 44,409 contracts and increased short by 4734.
*The commercials increased their longs by 688 contracts, yet increased their shorts by an astonishing 56,893 contracts.
*The small specs loaded the boat too by increasing longs by 15,117 contracts. They increased shorts by 1,203 contracts.
With Barrick Gold announcing to the world that they were exiting gold hedging this week, and also Anglo Gold dramatically reducing their hedge book,
who on the planet is supplying the gold to these commercials or is this move by the commercials purely speculative?
I feel the CFTC should make a statement on this issue forthwith.
sincerely
Harvey B Organ.
The yield on the 10 yr T note is 3.33%.
The dollar fell .13 to 76.68. The euro was down .0005 to 1.4577. The pound was up a bit to 1.6670. THE YEN soared to 90.65.
Crude oil was nailed, falling $2.65 cents per barrel to $69.79.
The CRB fell 3.36 to 251.82.
end.
WASHINGTON, Sept 11 (Reuters) - U.S. import prices spiked 2 percent in August as the cost of oil rose, the Labor Department said on Friday,
The increase, twice what analysts polled by Reuters had expected, was the fifth rise in the last six months. It followed a July drop of 0.7 percent.
Excluding petroleum, import prices increased a much milder 0.4 percent in August after falling 0.3 percent in July. Petroleum prices were up 10.5 percent and fuel import costs
were up 9.8 percent -- both the sixth increases in the past seven months.
Overall import prices dropped 15 percent from August 2008, and non-petroleum imports were down 6.5 percent.
Exports prices rose 0.7 percent in August, compared to falling 0.3 percent in July. Exports, excluding agricultural goods, rose 0.8 percent, the largest increase since July 2008.
09:55 Univ. of Michigan Confidence preliminary Sep reading 70.2 vs. consensus 67.5
The final Aug reading was 65.7.
* * * * *
US consumer sentiment rises in September - survey
NEW YORK, Sept 11 (Reuters) - U.S. consumer sentiment rose in early September to the strongest in three months with growing expectations the economy will improve, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for September rose to 70.2, the highest since June, from 65.7 in August. This was above economists' median expectation of a reading of 67.3, according to a Reuters poll.
The index of consumer expectations climbed to 69.2 in early September, up from 65.0 in August.
"Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time," the Reuters/University of Michigan Surveys of Consumers said in a statement.
Within the survey, the 12-month economic outlook index rose to 79, the highest since September 2007, from 69 in August. The 1-year inflation expectation eased to 2.6, the lowest since March, and down from 2.8 in August.
The index of consumer expectations rose to 69.2 in early September from 65.0 in August.
* * * * *
WASHINGTON, Sept 11 (Reuters) - Inventories at U.S. wholesalers in July fell to their lowest level in nearly three years, declining for the 11th straight month after sharp drops in furniture and metals stocks, government data showed on Friday,
The Commerce Department said total wholesale inventories dropped 1.4 percent to $387.2 billion, the lowest level since September 2006, after a revised 2.1 percent decline in June, previously reported as a 1.7 percent slump.
Economists polled by Reuters had expected a 1 percent drop in July from June. Compared to the same period a year ago, inventories fell 12.8 percent.
Companies have been slashing accumulated stockpiles of goods as the economy reels from the worst recession in seven decades. Furniture inventories fell 2.7 percent, while stocks of unsold metal declined 4.4 percent in July.
Wholesale sales rose 0.5 percent in July, the biggest advance since June 2008, after rising by a revised 0.3 percent the previous month. June sales were previously reported as 0.4 percent higher.
That left the inventory-to-sales ratio, a measure of how long it would take to sell stocks at the current sales pace, at 1.23 months' worth from June's 1.25 months.
WASHINGTON, Sept 11 (Reuters) - The U.S. government posted a $111.40 billion budget deficit in August, slightly smaller than a year ago due largely to calendar shifts and matching a record period of 11 straight monthly deficits, the Treasury Department said on Friday.
The August budget gap was well below the forecasts of analysts polled by Reuters, who predicted a $152.0 billion deficit for the month. The year-ago deficit was $111.91 billion.
DALIAN, China (Reuters) - It makes sense for China to diversify its huge stockpile of foreign exchange reserves, the U.S. Treasury's economic and financial emissary to China said on Friday.
China's forex reserves, the world's biggest stockpile, stood at $2.13 trillion at the end of June.
China has expressed concerns in the past about the value of its holdings of U.S. Treasuries, as massive U.S. debt offerings pose the risk of eroding the value of dollar assets.
"The general issue is that China has a huge amount of reserves and it makes some sense to diversify what you put these reserves (into)," David Dollar told a meeting of the World Economic Forum in the northeast Chinese city of Dalian.
"It's healthy to have a wide and different type of reserve currencies," he said.
The composition of China's foreign exchange reserves is a state secret. Analysts estimate that up to 70 percent of the stockpile is invested in dollar-denominated assets, mainly in U.S. government debt.
Bill H:
Exit Strategy?
To all; the Fed (both Greenspan and Bernanke) have said for years that they cannot spot a bubble while in progress, they can only recognize a bubble once it has burst. Of course their response to any and all burst bubbles is to throw money at it and thus lay the foundation for the next one. If the Fed were a car, say a '71 Hemi Charger with close to 500 hp, the original brakes would still be in good shape because other than "tapping" on the brake they don't use them (except for Paul Volcker back in 1980-82). The brakes aren't ever used because the Fed politically can't use them. If the Fed were to really step on the brakes the "joy riding" populace would start screaming "go faster". Of course our elected politicians want to "go faster" because they always have another election just around the corner.
What I am getting at here is that the Fed has no chance at all of taking ANYTHING off the table that has already been served. The economy is literally on life support and if the Fed were to unplug anything, cardiac arrest would be almost immediate. The Fed can't stop absorbing crappy assets from busted balance sheets. They can't tighten up on money supply, they can't stop buying MBS nor Treasuries, they have only one pedal and that's the gas pedal.
The last 18 months of crisis has forced the Treasury to put their balance sheet on the line. As you know, $ trillions have been borrowed and the Fed is monetizing some (maybe alot more than "some") of this debt. Rather than allow rates to go where the market clearing level is, the Fed has been leaning on rates to keep them as low as possible. THEY have and are actively and knowingly creating and pumping the biggest and most stupid bubble of all time.
Stupid? Yes, stupid! Think about this for a moment, what investor with an IQ over 80 would buy a 10 year Treasury with a yield of 3.29% in a depreciating currency? How is it possible to actually gain purchasing power or even break even over 10 years by lending to a bankrupt entity that cannot "pay their bills" without borrowing more? How can this be a good investment if going into it you already know that bond prices are artificially high and yields low because of Fed purchases? WHO could be this stupid? Not foreigners anymore, the US public surely doesn't have the money and apparently neither Yale nor Harvard have the muscle to fund the Treasury bubble.
The only entity that has enough muscle to keep pumping the Treasury bubble is the Fed. BUT, the world has figured out that the Fed is no Atlas, rather they are more like a 96 year old Jack Lalanne (no offense meant to Mr. Lalanne!) who is about 50 years past his prime. This Treasury bubble will blow up in the Fed's face and take everything paper with it. Dollar bills, Treasuries, corp. debt, bank accounts, insurance policy balances etc.. What good is having $10,000,000 if a daily newspaper and a cup of coffee cost $20 million?
Think of it this way, if the Fed ends up as the last and only buyer of Treasuries, who will they "sell" to? There is not and cannot be an "exit strategy" once you begin to monetize. A topic of conversation this week was whether the Fed will extend their Treasury purchases past October. Can you guess what the answer is? Duh? They will do whatever, however, legal or not until they can't or until the ROW stops them (which the ROW is in the process of now).
$1,000 Gold tells you the world is voting no, it tells you the Treasury/Fed "strong Dollar" plan is not working. If they could get Gold below $200 per ounce they would but they can't. $1,000 Gold and 3% 10 year Treasury do not go hand in hand. One market is right and one is wrong, can you guess which one? The Wall Street saying has always been "don't bet against the Fed", this has been incorrect for the last 10 years. If you haven't yet placed your bet against the Fed, the betting windows are about to close, HURRY! Regards and have a nice weekend, Bill H.
P.S. If printing more Dollars is truly the answer to everything, why doesn't the Fed just call in all Dollars in circulation and then print more and keep them themselves? They could be masters of the Universe and have every morsel of wealth on the planet!
Bill,
As always with Barrick they use deception. In 2007 they were using language that sounded like they had eliminated all hedges as they announced the elimination of all corporate hedges…but in the fine print was all the project hedges. In this news release they have a headline of “Barrick Announces Plan to Eliminate Gold Hedges”. From the table below you can see this is not true as 2.7B$ of hedges remain.
It appears they will buyback or produce gold to eliminate the 3Mozs of gold hedges and pay-off in dollars 1B$ against the floating contracts because they say “The obligation under the Floating Contracts is economically similar to a fixed US dollar obligation. No activity in the gold market is required to settle the Floating Contracts”. So my question is why in the accounting summary table above is any of the 1.9B$ of the proceeds of the equity sale booked against the gold hedges?? Why not book 2.9 B$ against the floating contracts and leave the gold hedges to be produced into. In fact they have made a later news release that they are raining 4.5B$. This would allow the elimination of all the floating rate contracts so if these can be paid in dollars as they claim why not show these contracts will be eliminated and the gold hedges will be paid out of production which would represent about 3 months of production? Things are never what they seem with Barrick! In my view the reason for them putting 1.9B$ against the gold hedges is that they are being paid off in dollars…ie a default. The rest of the hedges are being partially paid off in dollars (seems that this is allowed under the contracts) and then they are going to raise more money to pay off the balance also in dollars. I conclude JPM is going to get mostly fiat dollars and not much gold!
Cheers
Adrian
