2024-10-23 19:51

NY Fed warns stressed banks obscuring commercial real estate issues NY Fed: Troubled banks extending commercial real estate terms NY Fed: Extended troubled CRE loans could quickly become broader problem NEW YORK, Oct 23 (Reuters) - Banks have been tweaking the terms of commercial real estate mortgages to obscure losses, and in delaying the day of reckoning, are increasing risks to the broader financial system, a paper , opens new tab released Wednesday by the Federal Reserve Bank of New York said. The commercial real estate sector, or CRE, has been under heavy pressure from the pandemic and its aftershocks. Lockdowns and the widespread rise of remote working has reduced the need for office buildings and similar structures, and thus far, the sector has shown few signs of recovery. On top of that aggressive Fed rate rises between the spring of 2022 and July 2023 further pressured banks. “Banks ‘extended-and-pretended’ their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility,” the study’s authors wrote, adding problems associated with this lending could arise quickly. Fed officials have been bracing for some level of manageable trouble among the banks that do CRE loans but have broadly argued that whatever issues arise will likely be modest, concentrated in smaller banks and slow moving, as financial institutions navigate the troubled landscape. And yet, as bad as the pressure has been on the sector, the issue thus far has failed to generate broader dislocations. The report noted “nonperforming loans and net charge-offs have remained low by historical standards, especially for weakly capitalized banks. The paper notes that CRE mortgages are mainly issued and held by banks, with these firms accounting for 50.7% of the $5.8 trillion CRE loan sector as of the final quarter of 2023. Banks with “weaker” marked-to-market capital levels tied to losses in their securities holdings are the primary vector for the CRE mortgage extensions. The firms have since the first quarter of 2022 “pretended that such credit provision was not as distressed to avoid further depleting their capital,” the authors said. Extending the maturity of these troubled loans has made it harder to make new CRE loans and increased the chances that troubled CRE mortgages will face an imminent reckoning, noting “the maturity extensions granted by banks also fueled the volume of CRE mortgages set to mature in the near term--a ‘maturity wall’ with the associated risk of large losses materializing in a short period of time.” The paper said CRE mortgages from weakly capitalized banks have a 0.2 percentage point higher probability of getting the terms extended versus better capitalized banks. The Fed rate cuts that kicked off in September and are projected to continue could however bring some relief to CRE lending. On Monday, Moody’s lifted its outlook on the banking sector to stable from negative, in part of because “stabilizing asset quality for banks due to rate cuts, especially for CRE loans.” Meanwhile, a report from Goldman Sachs at the end of September noted “there remains little evidence of a credit crunch in the CRE market” even as it is clear lending is growing at a much slower pace. Sign up here. https://www.reuters.com/markets/us/ny-fed-says-banks-obscuring-commercial-real-estate-risks-by-extending-loan-terms-2024-10-23/

2024-10-23 19:48

HAVANA, Oct 23 (Reuters) - Cuba said on Wednesday it would keep schools closed and non-essential workers home through Sunday as the crisis-racked Caribbean island nation struggled to recover from the collapse of its power grid last Friday and Hurricane Oscar this week. The island's far eastern province of Guantanamo was particularly hard hit by Oscar, which made landfall as a category one hurricane and unleashed more than 15 inches of rain in some areas. The cyclone was downgraded to a tropical storm before veering north to the Bahamas earlier this week. The storm, combined with a nearly unprecedented electrical grid collapse on Friday, created a nightmare scenario in a country already suffering dramatic food, fuel and medicine shortages. The crisis prompted scattered protests throughout Havana and elsewhere in the country. Officials said late on Tuesday seven people had died as a result of the storm. Cuba's armed forces had rescued nearly 500 people from remote areas isolated by floodwaters or landslides, with upwards of 4,000 residents still housed in shelters. Flash floods destroyed homes, roads, agricultural lands and already decrepit infrastructure throughout the major coffee-producing region. Wind and rain had damaged at least 2,280 homes, state-run media reported. Communications were still spotty in rural areas, and most of the eastern province remained without power as emergency workers cleaned up tangles of downed power lines. The United Nations said on Wednesday it would support Cuba in recovery efforts following Oscar. The storm had also complicated the recovery of Cuba's already precarious electrical grid. Cuba stabilized its electrical service on Tuesday, but warned that outages would continue as before the grid collapse. Cuba's outdated power plants, struggling to keep the lights on, reached a full crisis this year as oil imports from Venezuela, Russia and Mexico dwindled, culminating in last Friday's grid collapse. A generation deficit of about one-third total demand was expected on Wednesday, the national electric company said, leaving many Cubans still in the dark. Sign up here. https://www.reuters.com/world/americas/cuba-keeps-schools-closed-workers-home-during-recovery-power-failure-hurricane-2024-10-23/

2024-10-23 19:47

Oct 23 (Reuters) - The European Central Bank should evaluate any deal between Italian lender UniCredit (CRDI.MI) , opens new tab and Germany's Commerzbank (CBKG.DE) , opens new tab purely based on the solidity of the resulting bank rather than national interests, ECB policymaker and Governor of the Bank of Italy Fabio Panetta said on Wednesday. UniCredit is pressing for a tie-up with Commerzbank that has met with political opposition in Berlin and will need approval from the ECB, the euro zone's top banking watchdog. "The assessment on that deal should be based only on the strength of the entity which would be formed through the merger," Panetta told an event in Washington. "There should be no discussion on nationalities. There is no match between Italy and Germany. This is not soccer." He added that he was "sure" the ECB's supervisory arm, which for now needs to decide whether UniCredit can raise its Commerzbank stake to 29.9%, will base its assessment on an "objective analysis." The ECB's top supervisor Claudia Buch also said last week that such decisions are based on "the prospects for stability and resilience" of the banks involved. Sign up here. https://www.reuters.com/markets/deals/unicredit-commerzbank-deal-should-be-judged-financial-strength-bank-italy-2024-10-23/

2024-10-23 19:29

Fed's 'Beige Book' shows inflation pressures moderating Job market kept steady pace from September to early October Businesses cautious due to uncertainty about US election Oct 23 (Reuters) - U.S. economic activity was little changed from September through early October and firms saw a slight uptick in hiring, continuing recent trends that have reinforced expectations the Federal Reserve will opt for a smaller 25-basis-point reduction in borrowing costs in two weeks. The U.S. central bank's latest temperature check on the health of the economy also showed that inflation pressures continued to moderate while input prices generally rose faster than selling prices, denting firms' profit margins. The economy, and inflation in particular, remains a key issue among voters ahead of the Nov. 5 U.S. presidential election. "On balance, economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth," the Fed said on Wednesday in the survey known as the "Beige Book," which polled the business contacts of each of its 12 regional banks through Oct. 11. "Despite elevated uncertainty, contacts were somewhat more optimistic about the longer-term outlook." The central bank last month began an easing cycle with an unusually large half-percentage-point cut in its policy rate, lowering it to the 4.75%-5.00% range, amid increasing concerns about the labor market. The Fed hiked rates by 525 basis points in 2022 and 2023 to quash high inflation. A string of stronger-than-expected economic data on consumer spending, job gains and inflation since then has caused investors to dial back bets on the pace and extent of rate cuts. The resilient economy has been underpinned by firm income growth and ample household savings. Though labor market momentum has slowed, the level of layoffs remains historically low, supporting wage gains. U.S. job gains increased by the most in six months in September and the unemployment rate fell to 4.1%, while retail sales increased solidly last month. The steadiness of the labor market was reflected in the latest survey, with more districts than in the prior survey reporting slight to moderate growth. Demand for workers, however, eased somewhat. A source at a Minnesota supply company told the Minneapolis Fed "I about fell out of my chair" at the interest it received for a high-skill driving position it had previously struggled to fill. But there were few signs of outright deterioration, with layoffs remaining limited. The San Francisco Fed noted that some employers had begun hiring for open positions that had been on hold for the past year, while wages across Fed districts "generally continued to rise at a modest to moderate pace." OPTIMISM AMID ELECTION UNCERTAINTY Investors currently expect the Fed to cut rates by a quarter of a percentage point at its Nov. 6-7 policy meeting, with another reduction of the same size in December. A number of contacts across the country cited the drop in borrowing costs and the expectation for more cuts ahead as a reason for optimism. But uncertainty around the election, the outlook for inflation, and the path of interest rates continued to weigh in many parts of the country. "Businesses remained hesitant to make hiring decisions due to uncertainty surrounding the presidential election," the New York Fed said. The Fed, which is aiming to keep the economy humming and unemployment low while returning inflation to its 2% target, is also still keeping a watchful eye on price pressures. The pace of annual price increases, based on the Fed's preferred measure, slowed to 2.2% in August from 2.5% in July. However, a different measure that strips out volatile food and energy components edged up to 2.7% from 2.6%. Selling prices rose at a slight or modest pace in most of the Fed's districts, the central bank's survey showed, although prices for some everyday food items, such as eggs and dairy products, increased more sharply. In line with prior reports, consumers were also described as more sensitive to prices. Input prices generally rose moderately. In multiple districts the price of inputs rose faster than selling prices, dampening company profits. Pressures from rising insurance and healthcare costs were particularly acute, the report said. Sign up here. https://www.reuters.com/markets/us/us-economic-activity-little-changed-recent-weeks-fed-survey-shows-2024-10-23/

2024-10-23 19:12

Home sales fall 1.0% to 3.84 million units in September Housing inventory up 1.5% to 1.39 million units Median existing home price rises 3% from year-ago period WASHINGTON, Oct 23 (Reuters) - U.S. existing home sales dropped to a 14-year low in September, weighed down by higher mortgage rates and house prices. The second straight monthly decline in home resales reinforced economists' views that the slump in residential investment, which includes homebuilding, deepened in the third quarter. The housing market has struggled to rebound after being knocked down by a resurgence in mortgage rates in the spring. Though supply has improved, entry-level homes remain scarce in most regions of the country, keeping home prices at levels that are unaffordable for most first-time buyers. "It will take more rate cuts and more options to bring buyers back," said Jennifer Lee, a senior economist at BMO Capital Markets. Home sales fell 1.0% last month to a seasonally adjusted annual rate of 3.84 million units, the lowest level since October 2010, the National Association of Realtors said on Wednesday. Economists polled by Reuters had forecast home resales would be unchanged at a rate of 3.86 million units. Sales likely reflected contracts signed a month or two ago, when mortgage rates were quite high. Mortgage rates initially dropped after the Federal Reserve began cutting interest rates last month, but they have risen over the past three weeks as solid economic data, including retail sales and annual revisions to national accounts, forced traders to abandon expectations for another 50-basis-point rate cut next month. The rate on the popular 30-year fixed mortgage averaged 6.44% last week compared to 6.08% at the end of September, data from mortgage finance agency Freddie Mac showed. "We expect housing market activity to remain subdued well into 2025," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. Tombs noted that the average interest rate on existing mortgages was about 4% compared to the current 6.5% rate for new mortgages. "As a result, interest payments for most existing homeowners will jump if they move home, creating a huge incentive to stay put," he said. "Only large Fed policy easing will meaningfully change this calculus." Home resales, which account for a large portion of U.S. housing sales, decreased 3.5% on a year-on-year basis in September. Sales fell 1.7% in the South, with some of the decline attributed to weakness in Florida following the devastation caused by Hurricane Helene. Sales in the state could remain depressed after it was slammed by Hurricane Milton weeks later. The Northeast and Midwest also experienced a decrease in sales, but activity increased in the West. The Fed's "Beige Book" report on Wednesday described housing market activity as generally holding up in early October. It also added that "uncertainty about the path of mortgage rates kept some buyers on the sidelines, and the lack of affordable housing remained a persistent problem in many communities." Signs of potential homebuyers hugging the sidelines in anticipation of even lower borrowing costs were evident in government data last week showing a marginal increase in single-family building permits in September. Stocks on Wall Street traded lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell, with the yield on the benchmark 10-year note hitting a three-month high. SUPPLY IMPROVES FURTHER The NAR speculated that the upcoming Nov. 5 U.S. presidential election could be making prospective homeowners hesitant to commit themselves. There is, however, no hard evidence that the election is influencing buying decisions. Residential investment subtracted from gross domestic product in the second quarter. Growth estimates for the third quarter are as high as a 3.4% rate. The economy grew at a 3.0% pace in the April-June quarter. Housing inventory increased 1.5% to 1.39 million units last month, the highest since October 2020. Supply surged 23.0% from one year ago. Nonetheless, supply is below the 1.8 million units seen before the COVID-19 pandemic. Despite the improving inventory, the median existing home price increased 3.0% from a year earlier to $404,500 in September, the highest for any September. Home prices rose in all four regions. About 20% of the homes were sold above their listing price. Most of the homes sold last month were in the $250,000-$500,000 price range. At September's sales pace, it would take 4.3 months to exhaust the current inventory of existing homes, the highest since May 2020 and up from 3.4 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Properties typically stayed on the market for 28 days in September compared to 21 days a year ago. First-time buyers accounted for 26% of sales versus 27% a year ago. That share remains below the 40% that economists and realtors say is needed for a robust housing market. All-cash sales made up 30% of transactions, up from 29% a year ago. Distressed sales, including foreclosures, represented only 2% of transactions, virtually unchanged from last year. "Increases in inventory will temper future gains in home prices," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "However, any downside to prices will be offset by increases in demand fueled by lower interest rates." Sign up here. https://www.reuters.com/markets/us/us-existing-home-sales-fall-14-year-low-september-2024-10-23/

2024-10-23 19:10

Boeing's quarterly losses surge to $6 billion due to strike CEO Ortberg calls for fundamental culture change Boeing's commercial aircraft and defense units report significant losses Growth slows in company's aftermarket business Company able to fund operations for foreseeable future, it says in regulatory filing Oct 23 (Reuters) - Boeing (BA.N) , opens new tab CEO Kelly Ortberg laid out a cautious path to turn the company around on Wednesday, calling for a "fundamental culture change" at the struggling planemaker as its quarterly losses surged to $6 billion due to a crippling strike. Boeing has racked up losses of nearly $8 billion for the current year, after the strike halted production of its 737 MAX, 777 and 767 planes and an ailing defense and space division hammer its business. The planemaker was already wrestling with a quality crisis from a January mid-air panel blowout. Boeing CFO Brian West told analysts he expects the company will continue burning cash in full year 2025 and the last three months of 2024, sending shares of Boeing down 1.7% to $157.15. In a letter to employees Wednesday morning, Ortberg stressed the need for improving performance in its defense business and its 737 MAX and 777 programs while broadly stabilizing Boeing. Ortberg went further than his recent predecessors in acknowledging the damage to Boeing's reputation has voided the company's "iconic" status, a term he used to describe Boeing when he was named as its new chief executive in August. "This is a big ship that will take some time to turn, but when it does, it has the capacity to be great again," Ortberg said. West said the company has a plan to address Boeing's balance sheet in the near term that could include an offering of equity and equity linked securities, but did not specify a time frame. Reuters has reported the raise could be around $15 billion. "Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, and our expected ability to successfully implement actions to improve liquidity, we believe it is probable that we will be able to fund our operations for the foreseeable future," Boeing said in a regulatory filing. "We also believe we have the ability to access additional liquidity," Boeing added. In his first call with analysts, Ortberg said he is now reviewing Boeing's businesses and long term forecasts. The company may end up selling some assets, as it downsizes its workforce to focus on the company's key civil planemaking and core defense units. "I think that we're better off doing less and doing it better than doing more and not doing it well," Ortberg said. Ortberg's call to arms follows sweeping plans for significant downsizing announced earlier this month as a strike by about 33,000 workers has dragged on for more than a month. The former Rockwell Collins executive, who took the helm of the U.S. planemaker in August, said he was hopeful that a new contract proposal being voted on Wednesday by more of the striking workers would be approved, though analysts say ratification is not certain. It is a crucial day for the planemaker, which was already struggling with the fallout from a regulator-imposed cap on production of MAX aircraft following a harrowing mid-air door panel blowout. West said the company's earlier 38 per month target for producing its 737 MAX, originally set for year's end, will be delayed following the strike. But even if the strike ends, restarting production of 737 MAX as well as 767 and 777 widebodies will be a fresh challenge given the supply chain is still struggling in some pockets. Boeing will also have to convince suppliers who have announced furloughs and put off investments over the last few weeks, to now reverse course and support its production plans. "It's much harder to turn this on than it is to turn it off," Ortberg said, referring to its factories and the supply chain. "We view (Kelly's) comments as encouraging, as Boeing has historically been averse to recognizing that it has issues, let alone actually fixing them," Vertical Research Partners analyst Robert Stallard said. Boeing on Wednesday reported a quarterly cash burn of $1.96 billion, compared with a cash burn of $310 million a year earlier. Quarterly revenue fell 1% to $17.84 billion. Meanwhile, revenue growth in the company's aftermarket business, Boeing Global Services, slowed to 2% in the quarter through September, compared with 9% growth last year and 7% in the first quarter of this year. Sign up here. https://www.reuters.com/business/aerospace-defense/boeing-ceo-presses-turnaround-embattled-planemaker-contract-vote-looms-2024-10-23/