... Welcome to the California economic & real estate blog! Meet the author   ... Ongoing Articles: ... Bank of America & Countrywide: A signal of a housing bottom? The lender will once again have the position of strength.... ... Next for the Economy: The Greatest Bull Run in History? An analysis of the stock market and economy since the Bear Stearns incident in March '08... ... Riverside-San Bernardino tops the list... Of locales most likely to tank this year.... ... So what do we do now? Where to put money - when everything is so ugly?... ... No Recession, but Deflation? The March '08 UCLA economic report so far is 'right on target....  .... ... Commercial Properties 30 acres freeway frontage ... Office Space for Lease: 12,625 Sq Ft divisible .. The UCLA Anderson Forecast  Highly Recommended! ... Most Recent Articles: .. The Schizophrenic FED Gambit   .. Bearish on Housing, Bullish on Stocks  .. Other Articles Analysis of California Bank Earnings Highly Recommended! .

.   Earnings Analysis of California Banks and Foreclosure Update  Home Page The Blog Connection for California: Real Estate and Economy  Editions: Riverside County - San Diego County Home Page Here is an informal analysis of some local California banks. We need to see the following trends occur before even considering a home purchase:    1. Improvements in local bank earnings, Q by Q (liquidity). They have decreased significantly over the past 2 quarters, with no indication of recovery. 2. A measurable decrease in foreclosures, and a reduction in inventory (supply). April '08 was a 2 year record for new home starts - more inventory being added. Bank earnings reflect a financial institution's willingness to extend credit to potential buyers. Therefore, bank earnings indirectly influence a homes liquidity and valuation. When something cannot be easily sold, its value can be brought into question. During the housing boom years, loose lending policies brought about record price appreciation. It's hard to imagine another run up in housing like we saw before any time soon. Why? There simply wont be a buyer pool like before. Damaged credit scores, tighter banks, and reluctant speculators will keep prices down for a decade or more.  Below the chart shows the Bank name, Quarter 1 08 earnings, Q1 last years earnings, and the Q4 2007 earnings:   Bank Q1 Q1 Last year Q4 2007  Q2 Estimate Q2 Actual         ............ ............ *Canyon National Bank .02 .44 .17     *East West Bank .08 .68 .59     Pacific West .05 .09 x     City National .91 1.15 .96     Union Bank .79 1.07 .78     Bay Commercial Bank .07 .13 x     Coast Bancorp .22 .30 x     Countrywide -1.60 .72 -.79     Bank of America .23 1.16 .05     US Bancorp .62 .63 .53     Cathay Bancorp .55 .58 .62     Preferred Bank .34 .61 .57       An analysis of the chart shows that earnings have begun their deterioration in the close of 2007, and dropped significantly in Q1 '08. Q2 estimates cannot be given any credibility: The degree of the Q1 misses reflects that even the banks don't know what their exposure may be. The good news is many of the banks are still making money: but the sudden  and hard downward trend in earnings just in the past quarter is a major concern. If the earnings implosion continues, these banks could slide into the negative. 'Runs on the bank' will also adversely effect a banks willingness to lend. Many higher end depositors who previously had more than $100,000 in smaller banks are moving that money to the larger investment houses. Good for the JP Morgan's and online trading sites, like TD Ameritrade: Not so good for the smaller local banks that depend on these deposits to survive. This exodus of depositors has been occurring in the past few months, not reflected in earnings reports yet. I speculate that the smaller bank's 'total deposits' numbers will be down significantly for Q2 '08. Less deposits, In addition to increased foreclosures and defaults and greater inventory, will exacerbate the housing crisis in California. Glimmer of Hope?: On a positive note, some of the larger cap banks appear to be recovering Q4 '07 to Q1 '08. Bank of America went from .05 (Q4 '07) to .23 (Q1'08) a share; Union Bank of CA improved a penny, and  US Bancorp went from .53 Q4 to .62 in Q1 '08. Some concerns are that these improvements may be spooked money moving from the smaller banks, and not attributable to housing market improvements. Before we make any conclusions on this positive trend, we must see recovery to the smaller regional banks, and consistency in Q2 and Q3 results. We are waiting for the Q2 '08 results to see if a trend occurs. Here is why we don't trust this improvement data: on 5.14.08 it was reported that April saw 65% more foreclosures than last April. On 5.16.08 a report says new home and apartment construction up in April, the highest in two years. Without a reduction in current inventory or increased sales, this just means more product hitting the market. Currently at 11 months of inventory, possibly going as high as 18 months inventory. 5.26.08 report US home sales dropped over 14% in Q1 '08, slated to drop an additional 20-25% until a possible bottom. On 5.17.08 Forbes AOL listed California metro areas are set to drop at least another 19% more this year: Riverside-San Bernardino tops the list... The FED approved the acquisition of Countrywide by Bank of America. After its acquisition of MBNA, Bank of America has a significant percentage of the consumer credit card industry. With Countrywide, any defaults would surely see a delay in processing, and the lenders position was extremely weak. Conversely, with Bank of America holding the note, the delay will cease and there becomes a threat of immediately losing unsecured credit. Therefore, people that can actually afford to pay their 'upside down' mortgages must continue doing so.. or risk losing their credit cards. So now, basically the same bank that has your mortgage will have your credit card debt...are you going to walk away from your losing mortgage, when you have one or two $30,000 unsecured lines of credit with BAC that remain unused?  No. You are going to suck it up and pay. Conclusion? This is actually good for the overall housing and mortgage market; it makes people stay with their loser home mortgages, if they can. Not exactly the best thing for the consumer on the street, but it may be best for the economy, as it puts a 'bottom' or 'stop' to the level of foreclosures to people that are actually behind and really cant meet the payments. Speculators that still have good credit and are carrying under water mortgages will be forced to honor them; or lose other lines of credit with Bank of America.  Overall: its bullish for the housing market that this happens. All in all, there still remains too many adverse economic conditions in California that can weigh on future bank earnings. We cannot give too much credibility to the implied 'recovery trend' inherent to the Q4 '07 to Q1 '08 results at this time. Noteworthy: Update 05.29.08 1. CYNA.OB.- Canyon National Bank: A local community bank in the Coachella Valley. Q1 expected earnings were .28 per share, ACTUAL was .02 per share, a whopping 92.9 % miss. They estimate .11 a share for Q2, against .42 a year ago. This shows how bad things are in the California inland empire. 2. EWBC East West Bankcorp - California regional, so Cal larger cities. Q1 expected earnings were .46 per share, ACTUAL was a dismal .08 per share. 3. Preferred Bank dropped about 45% from Q4 2007 to Q1 2008. Cathay bank dropped about 16%: both have loan portfolios almost exclusive to the California housing market.  4.May 29, 2008 Update 05.29.08 Estimates cut on banks with significant exposure to California housing market: Cathay, Preferred, East West Bank named: See Article (Marketwatch). 5. On 06.05.08 FED approves Bank of America acquisition of Countrywide. This may provide a limitation of foreclosures to those that really are behind, and prevent speculators from walking away from loser mortgages to preserve credit with BAC. Additionally, the lenders position is strengthened with Bank of America holding the note, and not Countrywide. Overall, good for any housing recovery. California Foreclosure & Inventory Update:  Home Page   UPDATE 5.14.08:: US foreclosures have surged 65% from a year ago in April. California, Nevada, Florida, Arizona are the hardest hit. Combined with gas prices and inflation, this spells more price pressure on housing. No signs of trend reversal at this time. UPDATE 5.16.08 On 5.16.08 report says new home construction up in April, the highest in two years. Without a reduction in current inventory or increased sales, this just means more product hitting the market. Currently at 11 months of inventory, possibly going to 18 months inventory. UPDATE 5.23.08 Unsold homes in US rise to 23 year high. UPDATE 5.26.08 US home sales dropped over 14% in Q1 '08. US home prices see biggest drop in 20 years in Q1 '08.   California Real Estate and Economy: Riverside County - San Diego County ii   **ARTICLES** . Q1-Feb 10 '08: - The Perfect Storm of American Economic Downfall Q2- '08: So what do we do now? .. .. Q1-Feb 21 '08:-  The Counter Intuitive Market Force: But Housing is the Exception   Q2- '08: Analysis of CA Bank Earnings . Q1-Feb 21 '08:-  The 5% Income Rule  Q2- '08: Bearish on Housing.... Bullish on Stocks .. ... Q1-Feb 21 '08:- A Compelling Argument for Alternative Investments Q2- '08: Riverside-San Bernardino tops the list...  .. ... Q1-Feb 26 '08: True Market Analysis, or Self Interest? Q2-'08: Bank of America & Countrywide: A signal of a housing bottom?  . Q1- '08: No Recession, but Deflation? .. 3.17.08: Next for the Economy: The Greatest Bull Run in History? .. Q2- '08: The Schizophrenic FED Gambit               Realtech Partners, Inc. - ©  2008.  All Rights Reserved. Email DISCLAIMER:  Not associated with any city, county, civil entity, or government body. No warranties are stated or implied.  Use at own risk. External web sites are not endorsed. Users agree to all terms. These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy contained within. These articles are provided for information purposes only and are not meant to provide investment advice to anyone. Please consult with your professional financial planner for investment advice.

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