Tag Archives: markets
A Slowdown In US Lending Or A Ramp Up In Shadow Banking?
April 30, 2013 12:26 PM We’ve received a number of emails pointing to what looks like a slowdown in lending by US-chartered banks. The amount of loans and leases on balance sheets of US banks has stopped growing. As in 2009 and 2011, some people are upset to see record levels of bank excess reserves that are not being turned into loans. These are deposits at the Fed earning 25bp and people are asking why banks are not lending more of this capital out. But what exactly caused the loan growth on banks’ balance sheets to stall? More precisely, what types of loan balances are no longer growing? It turns out that while commercial and industrial loans continue to grow – in fact accelerating – the growth in retail mortgage balances has stalled. And that’s the explanation for the flat-lining of the overall loan balances (the first chart above). Fixed maturity mortgages on US banks’ balance sheets (source: FRB; not seasonally adjusted) “Aha”, some economists would say. Banks are not extending as much credit in the mortgage space as they should, which is slowing down the economy. Those evil zombie banks… The real answer however has to do with the wonderful world of “shadow banking”. Why would banks want to keep all these mortgages on their books when they can blow them out to Freddie and Fannie, who in turn sell them to the market in the form of agency MBS (mortgage backed securities). And who are the buyers? The usual suspects of course – insurance firms, mutual funds, etc., and of course the biggest buyer of them all – the Fed. In fact the holdings of MBS on Fed’s balance sheet just hit a record. Mortgages are simply making their way from banks’ balance sheets onto the Fed’s balance sheet in the form of MBS. Source: FRB The data from Freddie and Fannie confirms this trend, with the first quarter of this year showing the largest MBS issuance volume in two years. As much as people don’t like to think about it this way, Freddie and Fannie are the biggest “shadow banks” around. The last time we had a spike in MBS issuance in early 2011, mortgage balances at banks declined, as banks did some “spring cleaning”. But what about loans that are not Freddie and Fannie eligible? Those should still be sitting on banks’ balance sheets, right? Not exactly. The private side of shadow banking is now kicking into gear, particularly in the so-called jumbo loans (mortgages too large to qualify for the GSEs). Inside Mortgage Finance: – The private-label market is “showing new signs of life,” according to Standard & Poor’s, which predicted that banks are likely to increase their securitization of jumbo mortgages. In a report released late last week, S&P projected $14 billion in non-agency jumbo MBS in 2013. Redwood alone set a goal of issuing $7 billion in non-agency MBS this year and is on pace to exceed that volume, helped by a pending $425 million deal, its sixth of the year. PennyMac Mortgage Investment Trust is also aiming to issue a non-agency jumbo MBS in the Redwood mold in the third quarter of 2013. The demand for fixed income product has manifested itself in the so-called “private-label” MBS, allowing banks to securitize mortgages that don’t qualify for Freddie and Fannie. Once again, it’s not about lending less – which is how some economists are reading the first chart above. It’s about originating product, collecting fees, and then selling into the hot securitization market – public or private. And taking those loans off the balance sheet creates room to do it all over again (the “recycling” of capital.) As one banker put it, “I want to be in the origination and fee business, not in long-term warehousing …” Continue reading
Investment: Czechs Reap Benefits Of Poland’s Slowing Economy
http://www.ft.com/cms/s/0/c8812ae2-8666-11e2-ad73-00144feabdc0.html#ixzz2Rx5WNGO8 By Katka Krosnar In recent years Poland has attracted most of the commercial property investment in central Europe, accounting for more than 75 per cent of the total volume in some years. This is partly because of the size of the market compared with its counterparts and its success at avoiding recession. Poland has become a core investment market for some western European property funds. Over the past few months, however, there has been a shift, with the Czech Republic gaining popularity as Poland’s market becomes static and concerns grow that some sections of the Polish property market may have overheated, says James Chapman, a partner at Cushman & Wakefield in Prague. The total investment volume in the Czech market is expected to double this year compared with 2012 and will reach €1bn, according to Cushman & Wakefield’s statistics. While total investment in central Europe’s property is forecast to rise this year, Poland’s share is expected to fall slightly, from €2.8bn to €2.5bn. Hungary is expected to see about €300m of investment while Slovakia should receive some €140m, less than elsewhere but a big improvement on last year’s mere €17m. “The current development in Prague of four city centre projects that had not been pre-leased before the launch of construction is an important indication of current confidence in the market,” says Omar Sattar, managing director at property brokerage Colliers International in Prague. After a sluggish 2012, caused by lingering fears about the eurozone crisis and uncertainty after the closure of some German open-ended funds, commercial property is expected to pick up significantly in 2013, with several large office transactions set to close in the first half. The Czech Republic has always been popular with international investors, who consider it a stable market and a “nice place to do business”, adds Mr Chapman. One key to its popularity is a dynamic capital city, in which many wealthy people are making property investments, says Mr Chapman. According to Colliers, Prague accounted for almost half of the value of domestic transactions in 2012. For example, CPI, the Czech investor, acquired 18 retail properties in 2012, while CTP, a Czech Republic-based business park developer, bought Belgium company WDP’s Czech portfolio and the Honeywell facility in Brno. While western Europeans, particularly the Germans and UK-managed funds, continue to be core investors, the region has attracted money from Qatar, South Korea, the US and Canada. Investors have focused on prime assets since the crisis. At the 2007 peak, many were happy to buy new buildings in almost any location but now projects have to be in a good location or be top quality to attract investment. In recent months there has been a noticeable shift, with investors showing interest in higher-risk assets, such as those needing reconstruction, says Kinga Barchon, leader of the property team at PwC in Warsaw. Strong macroeconomic indicators and the availability of good-quality assets will still attract investors to Poland, says Ms Barchon. As in other markets, limited access to credit has narrowed the field of investors and developers. Often only those who can fund early stage construction themselves, and find credit later, can start projects that are not pre-leased, Mr Sattar of Colliers says. Office developments accounted for 61 per cent of the total value of investment transactions in the Czech Republic and almost 40 per cent in Poland. These have focused mainly on capital cities, accounting for 90 per cent or more of commercial property investment. In the first three months of this year, some €646m was invested in office developments, with significant transactions including the purchase of New City in Warsaw by Hines, which has its base in Texas. Ms Barchon says Polish cities Wroclaw, Krakow, Gdansk and Poznan are attracting a lot of developer interest. However, residential property investment in Poland is expected to decline following the end of government support for people buying smaller apartments. Continue reading
Investor Demand Driving Farmland Prices, says Knight Frank
By +Peter Mindenhall Friday 19 April 2013 Farmland continues to be seen as a preferred property investment option for many buyers, according to a new report. Research conducted by Knight Frank indicates that average farmland values in England rose by 1.5 per cent in the first quarter of 2013 to GBP 6,307 per acre. Increased demand for land has seen prices increase by four per cent in the last 12 months and 207 per cent over the last ten years. Knight Frank noted that farmland continues to outperform many other asset classes over the mid to long-term, predicting a further increase of between four and five per cent in the next 12 months. The firm said that although investors – fed up of poor returns – seem to be moving away from low-yielding ‘safe-haven’ investments, such as AAA-rated government bonds, there continues to be strong interest in farmland. Some of this demand can be attributed to famers paying a premium to secure land adjoining, or close to, their existing units. Tom Raynham, from Knight Frank’s Farms & Estates team, claimed that farmland still has “a valuable role” to play in investment portfolios. “Even though stocks and shares are back in favour, the markets remain volatile,” he stated. “Land offers something more tangible, yet still has the potential to provide good capital appreciation.” Mr Raynham said that for private investors, it also offers significant tax and amenity advantages. “This combination of benefits has seen increased activity in Lincolnshire, the UK’s arable heartland, with some large blocks of good arable land recently making over GBP 10,000 per acre,” he noted. James Prewett, head of regional farm sales at Knight Frank, claimed there is still a shortage of supply and, while more marginal land may have a lost a little of its value, demand remains strong for commercial units. Continue reading
