Subprime: Not All Bad News About Smaller Banks [Housing Tracker]

 |  Includes: BAC, C, CORS, GNW, JPM, ZION
by: Judy Weil

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

Quote of the Day

“Of course, it involves a departure from established policies and ideals, but we cannot stand by when a house is on fire to engage in lengthy debates over the methods to be employed in extinguishing the fire. In such a situation we instinctively seize upon and utilize whatever method is most available and offers assurance of speediest success.” - Henry Steagall, chairman of the House Banking and Currency Committee, in 1932.  (Tim Price in Seeking Alpha, Oct. 1)

Banking Subprime Fallout

As Big Banks Converge, Depositors Find Deals at Smaller Institutions. “A huge chunk of consumer deposits are now consolidated in three banking behemoths – Citigroup (NYSE:C), Bank of America (NYSE:BAC) and J.P. Morgan Chase (NYSE:JPM) -- not known for wooing consumers with high interest rates and low fees. But there are plenty of options for rate-sensitive depositors and borrowers, from smaller community banks and online institutions to credit unions and brokerage firms. The Internet makes it easy to shop around for the best rates… Many of the higher rates are typically offered by smaller regional banks, such as Corus Bankshares Inc.'s  (CORS) Corus Bank in Chicago and Zions Bancorp's Zions Bank (NASDAQ:ZION) in Salt Lake City, or by online banks, such as AmTrust Bank's (NASDAQ:AFSI) AmTrust Direct and Lydian Trust Co.'s VirtualBank.” (Yahoo Finance, Oct. 2)

John Paulson’s Hedge Funds Return 19% in a Down Market. “Hedge funds run by US manager John Paulson, one of last year’s best performers and a short- seller of UK banks, have bucked a trend of worldwide hedge fund losses by making returns of more than 19% this year. One fund generated 589.62%… Paulson & Co. as a whole managed $35bn at the end of June, making it one of the largest 10 hedge fund managers. Last week it disclosed short positions in HBOS, Lloyds TSB, Barclays and Royal Bank of Scotland. Its short positions… ranged from 0.9% to 1.8% of each bank’s market capitalization.” (WSJ, Oct. 1)

Genworth Faces A Downgrade. “Moody's Investors Service has placed on review for possible downgrade the debt ratings of Genworth Financial Inc. (NYSE:GNW) following the insurer's announcement that it is exploring strategic alternatives related to its domestic mortgage insurance operations. The ratings agency also is reviewing the insurance financial strength ratings of Genworth's primary life insurance and mortgage insurance operating subsidiaries and its supported affiliates in the U.S. and Europe.” (CNN Money, Oct. 1)

Construction Loan Performance Not as Bad for Smaller Banks. “Credit rating firm A.M. Best Company: For smaller banks, the construction loan sector comprises a greater portion of business than it does for lending institutions with assets over $50B.  The numbers break down to an average 15.14% and 4.73%, respectively. Banks of all sizes… have taken a hit in the construction loan sector. [But] during Q1’08, the average rate of construction loan net charge-offs for banks with less than $1B in assets was 0.16%, compared to 0.28% for the group of lenders with assets exceeding $50B. The rate of non-current construction loans for the smaller banks was 4.21%, while the figure reached 4.40% for the largest banks.” (Commercial Property News, Sept. 29) 

How Risk Aversion Is Evolving. “A year ago, risk-averse investors would have been very attracted to principal protected notes, where you pay a bank an insurance fee for guaranteeing that your investment won't fall in value. Today, risk-averse investors would not… since in the event the bank were to fail, they could be wiped out.... Many investors have lost so much money right now that losing a little more is no longer their biggest fear. [Losing everything is.] We [must now] transform financial-sector securities so that they go from carrying a small risk of a large loss to carrying a larger risk of a small loss… They're looking cheap enough right now… that we might actually see some substantial inflows into the sector.” (Felix Salmon in Seeking Alpha, Sept. 29)


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