matisse capital management

Ireland Transfers First Assets to Its 'Bad Bank' (AIB, IRE)

€16 billion will be transferred to NAMA.  Ireland was the first EU country to adopt the "bad bank" strategy pioneered by Sweden in the early 1990s.  Troubled real estate loans, some €90 billion worth, are being transferred to the National Asset Management Agency (NAMA) to improve the balance sheets of several major banks.  They will be bought by  issuing government bonds; however, the loans will be acquired at a discount from book value.  Two years ago the projection was for a 15% discount from book value, then it was 30%.  Here are the final discount numbers (for the first tranche of loan transfers only) from the Irish Times:

   AIB, €3.29 billion (43%);

   Anglo Irish Bank, €10 billion (50%);

   Bank of Ireland, €1.93 billion, (35%);

   Irish Nationwide, €670 million (58%);

   EBS, €140 million (37%).

As you can see from the NAMA chart above, this is only a small portion of the assets that will have to be transferred. The first tranche was 65% commercial property, 15% land, and 9% hotels. Even so, this news was dwarfed by Anglo Irish Bank's report today that it had a pretax loss of €12.7 billion, for the 15 months ending December 2009.  This loss included a write down of €15.1 billion in bad real estate loans.

S&P's Case Shiller Data for January Released

A home price decline from January to February.  Seasonally unadjusted, the Case Shiller 20-city index was down 0.4% and the 10-city index down 0.2%.  With seasonal adjustments the 20-city index was up 0.3%.  From "peak to date," the 20-city index is down 29.6%.  January 2009 to January 2010, the 20 city index is down 0.7%.  In January, the only city to have a price gain was Los Angeles.  From S&P:

Warren on the State of Commercial Real Estate

2010 will be a tough year.  Elizabeth Warren, head of Congressional oversight for TARP, as quoted in the NYT:  “'By the end of the year, about half of all commercial real estate loans are gonna be underwater, and they are concentrated in the midsize banks...We now have 2,988 banks that have these dangerous concentrations of commercial real estate lending.'  (This) would have two upshots: 1)...already suffering since the subprime crisis, their stability might be affected; and 2) the midsize banks 'are the banks that are supposed to be doing small business lending, and when they’re getting a sock in the teeth over over commercial real estate loans, they’re not in a position to be lending to small business.'"

Companies Raising Dividends - 3/29

   COP, Conoco Phillips, from $0.50 to $0.55, quarterly; yield = 4.3%; +10.0%

   CSBK, Clifton Savings, from $0.05 to $0.06, quarterly; yield = 2.6%; +20.0%

   EAT, Brinker International, from $0.11 to $0.14, quarterly; yield = 2.9%; +27.3%

   HIFS, Hingham Inst. for Savings, from $0.22 to $0.23, yield = 2.8%: +4.5%

   NPBP.OB, North Penn Bancorp, from $0.03 to $0.04, yield = 1.7%; +33.3%

   O, Realty Income Corp., from $0.143 to $0.1433125, monthly; yield = 6.1%; +2.1%

   RTN, Raytheon Corp., from $0.31 to $0.375, quarterly; yield = 2.6%: +21.0%

   TOD, Todd Shipyards, from $0.05 to $0.075, quarterly; yield = 1.8%; +50.0%

   VLGEA, Village Supermkts., from $0.24 to $0.25, quarterly; yield = 3.5%: +4.2%

   WAYN, Wayne Savings, from $0.05 to $0.06, quarterly; yield = 1.4%; +20.0%

The top dividend growers of this group?  Village Supermarkets has increased its dividend at a compound annual rate of 45.2% over the last eight years (the time it has paid a dividend).  Raytheon has increased its dividend at an annual compound rate of 15.3% over the last 10 years, while Conoco has raised its dividend at an annual compound rate of 12.5% over the last 10 years.

Raytheon (RTN) Announces Stock Repurchase Plan

Up to $2 billion worth.  The buyback does not have a timetable and this amount equals 9.2% of the company's outstanding shares at the current price of $57.29.  In addition, Raytheon has raised its quarterly dividend from $0.31 to $0.375, an increase of 21%.  The company's yield is 2.6% based on the new dividend.  Raytheon is a defense contractor and shares currently trades at P/E ratio of 11.9.  RTN's net income was up 15.7% from 2008 to 2009.  Click one year chart, left, to enlarge.

The Highest Dividend Payers of the 2010 Aristocrats

Ranked by dividend yield.  Standard & Poor's compiles the Dividend Aristocrats list, defining the constituents as "large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years."  As of 2010, there are only 42 Dividend Aristocrats.  Here are the top 20 companies on the list by yield:

    1.   CTL, CenturyTel Inc., 8.3%

    2.   PBI, Pitney Bowes, 6.1%

    3.   TEG, Integrys Energy Group, 5.9%

    4.   CINF, Cincinnati Financial, 5.6%

    5.   ED, Consolidated Edison, 5.5%

    6.   LLY, Eli Lilly, 5.4%

    7.   LEG, Leggett & Platt, 4.8%

    8.   KMB, Kimberly-Clark, 4.2%

    9.   MCD, McDonald's Corp., 3.3%

    10. PPG, PPG Industries, 3.3%

Is Principal Reduction a Reality?

A new government plan to be unveiled tomorrow.  I've often argued that resetting principal balances to fair market value (FMV) would be an obvious way to get the market (and the economy) moving.  There would be no need for strategic walk aways and people in financial trouble would be able to sell their homes before foreclosure becomes a reality.  It now looks like a possibility, but as always, the devil is in the details:

From the Washington Post: "In addition to mortgage relief for unemployed borrowers, the program features several other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth.  Underwater borrowers now make up about a quarter of all households, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles."

"For one, the government will for the first time provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if it this amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years as long as the homeowner remains current on the loan."

Starbucks (SBUX) Announces Buyback, Initiates Dividend

Up to 15 million shares.  This amount is in addition to 6.3 million shares remaining from the previous buyback plan.  Combined, this would be about 2.9% of the company's outstanding shares.  In addition, SBUX has initiated a quarterly dividend of $0.10, equal to a 1.6% yield based on today's share price of $25.41.  Starbucks just reported record earnings in its first fiscal quarter, 2010.  Shares currently trades at P/E ratio of 33.6 and the company went public in 1992.  Click one year chart, left, to enlarge.

B of A (BAC) May Reduce Principal on Underwater Mortgages

Up to 30% over five years.  From Reuters: "...Bank of America pledged to offer an 'earned principal forgiveness' of up to 30 percent in two stages. The lender will first offer an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their payments...The forgiveness can allow a homeowner to bring the loan value back down to 100 percent of the home's value over five years, according to the plan, confirmed by sources close to the matter."  Reportedly the plan would begin in May.  More here.

Update:  Per the WSJ, the program will be limited to those:  "who are at least 60 days overdue on payments, who can demonstrate that a financial hardship prevents them from making payments at the  current level and whose loan balance is at least 120% of the estimated home value."  The program will be offered to "struggling borrowers who have subprime or so-called option adjustable-rate mortgages."  Per the WSJ: "Bank of America said the program might eventually be extended to other types of loans."  In my opinion, this program will not make a substantive difference until it is expanded to all types of residential loans.

 

Japan's Commerical Land Prices at Record Low

Prices declined 6.1% in 2009.  And in 2008, they fell 4.7%.  According to the Ministry of Land, Infrastructure, Transport and Tourism, in a recent report, and as reported in BusinessWeek, "Values are at their lowest since the ministry began collecting comparable data in 1974."  Part of the trouble is that credit markets are tighter and Japan is still in recession.  But as BusinessWeek notes, commercial land prices "are about a third of what they were in 1991 after Japan’s bubble economy peaked."  You can read about Japan's banking crisis and its aftermath here.  Perhaps part of the price problem is deflation?  Below is a chart of Japan's Urban Land Price Index, produced by the Japan Real Estate Institute. The base year is 2000, when the index was set at 100 (where the three lines cross).  It plots the percentage change in nominal prices. The top line is commercial land, the middle residential and the dashed line industrial.