Friday, March 23, 2012

U.S. Sales of New Homes Probably Climbed to One-Year High

By Timothy R. Homan - Mar 23, 2012 12:01 PM GMT+0800

Purchases of new homes in the U.S. probably rose in February to the highest level in more than a year, economists said before a report today.

Sales, tabulated when contracts are signed, climbed 1.3 percent to a 325,000 annual pace, the fastest since December 2010, according to the median estimate in a Bloomberg News survey of 78 economists. That would mark the fifth gain in six months.
Enlarge image Sales of New Houses in U.S. Probably Climbed

Affordability is increasing as hiring picks up, incomes grow, home prices steady and mortgage rates hold near record lows. At the same time, builders face increasing competition from foreclosures, which are hurting all property values.

“We’re in the early stages of a recovery in sales,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We’ve seen builders saying things are improving, and the weather’s been pretty good.”

The Commerce Department report is due at 10 a.m. in Washington. Economists’ forecasts ranged from 310,000 to 350,000.

New-home sales have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing homes are calculated when a deal closes about a month or two later. New properties made up almost 7 percent of the market last year, down from a high of 15 percent during the last decade’s housing boom.

Existing-home purchases eased to a 4.59 million annual rate last month from a 4.63 million pace in January, the National Association of Realtors reported this week. Even with the decline, January and February sales marked the strongest start to a year since 2007.

Warmer Weather

Warmer weather may have may have encouraged more Americans to shop for new properties last month. The average temperature was 38.2 degrees Fahrenheit (3.4 Celsius), 3.6 degrees warmer than the 20th century average and the 17th warmest February in 118 years, according to the National Oceanic and Atmospheric Administration.

Among other signs that housing is improving, builders this year have broken ground on homes at the fastest pace since October-November 2008, according to Commerce Department figures released this week. Permits for construction climbed to the highest level since 2008, the same report showed.

The National Association of Home Builders/Wells Fargo sentiment index held in March at the highest level since June 2007. Sales expectations climbed for a sixth month, according to the March 19 report.

Investors also are upbeat about prospects for the industry. The S&P Supercomposite Homebuilding Index has advanced 25 percent this year through yesterday, compared with the 11 percent gain in the broader S&P 500.

Positive Outlook

Ryland Group Inc. (RYL), which builds homes with an average price of $255,000 in 13 states, said it has a positive outlook for 2012.

“We finished the year on a strong note, entered the year optimistic and still feel fairly optimistic today,” Larry Nicholson, president and chief executive officer at the Westlake Village, California-based company, said March 6 at an investor conference. “The good thing about the traffic we are seeing is it’s new traffic. We feel a lot better than we did a year ago.”

Nonetheless, foreclosures remain a concern. Filings fell 8 percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, RealtyTrac Inc. said last week.

“February’s numbers point to a gradually rising foreclosure tide,” Brandon Moore, RealtyTrac’s chief executive officer, said in the statement. “That should result in more states posting annual increases in the coming months.”

To hold down borrowing costs like mortgage rates, Federal Reserve policy makers last week said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist.

Bloomberg Survey
New Home New Home
Sales Sales
,000’s MOM%
Date of Release 03/23 03/23
Observation Period Feb. Feb.
Median 325 1.3%
Average 326 1.5%
High Forecast 350 9.0%
Low Forecast 310 -3.4%
Number of Participants 78 78
Previous 321 -0.9%
4CAST 320 -0.3%
ABN Amro 324 1.0%
Action Economics 328 2.2%
Aletti Gestielle 325 1.3%
Ameriprise Financial 325 1.3%
Analytical Synthesis 326 1.6%
Banca Aletti 325 1.3%
Banesto 326 1.6%
Barclays Capital 321 0.0%
BBVA 318 -0.9%
BMO Capital Markets 325 1.3%
BNP Paribas 330 2.8%
BofA Merrill Lynch 310 -3.4% 320 -0.3%
Capital Economics 325 1.3%
CIBC World Markets 325 1.3%
Citi 320 -0.3%
Comerica 320 -0.3%
Commerzbank AG 325 1.3%
Credit Agricole CIB 324 0.9%
Credit Suisse 330 2.8%
Daiwa Securities America 338 5.3%
Danske Bank 322 0.3%
DekaBank 330 2.8%
Desjardins Group 330 2.8%
Deutsche Bank Securities 325 1.3%
DZ Bank 318 -0.9%
Exane 330 2.8%
Fact & Opinion Economics 327 1.9%
First Trust Advisors 325 1.3%
FTN Financial 325 1.3%
Goldman, Sachs & Co. 328 2.0%
Helaba 330 2.8%
High Frequency Economics 350 9.0%
HSBC Markets 321 0.0%
Hugh Johnson Advisors 325 1.3%
IDEAglobal 330 2.8%
IHS Global Insight 327 1.9%
Informa Global Markets 323 0.6%
ING Financial Markets 330 2.8%
Insight Economics 325 1.3%
Intesa Sanpaulo 330 2.8%
J.P. Morgan Chase 320 -0.3%
Janney Montgomery Scott 321 0.0%
Jefferies & Co. 325 1.3%
Landesbank Berlin 320 -0.3%
Landesbank BW 325 1.3%
Market Securities 316 -1.6%
MET Capital Advisors 315 -1.9%
Mizuho Securities 328 2.0%
Moody’s Analytics 332 3.4%
Morgan Keegan & Co. 326 1.6%
Morgan Stanley & Co. 335 4.4%
National Bank Financial 330 2.8%
Natixis 325 1.3%
Nomura Securities 322 0.3%
OSK Group/DMG 314 -2.2%
O’Sullivan 330 2.8%
Parthenon Group 320 -0.3%
Pierpont Securities 335 4.4%
PineBridge Investments 337 5.0%
PNC Bank 345 7.5%
Raymond James 330 2.8%
RBC Capital Markets 310 -3.4%
RBS Securities 315 -1.9%
Scotia Capital 330 2.8%
SMBC Nikko Securities 325 1.3%
Societe Generale 335 4.4%
Standard & Poor’s 328 2.2%
Standard Chartered 330 2.8%
Stone & McCarthy Research 325 1.3%
TD Securities 335 4.4%
UBS 330 2.8%
University of Maryland 329 2.5%
Wells Fargo & Co. 320 -0.3%
WestLB AG 325 1.3%
Westpac Banking Co. 328 2.0%
Wrightson ICAP 330 2.8%

Tuesday, March 20, 2012

Record China Bank Profits to Be Overshadowed by Bad Loans

By Bloomberg News - Mar 21, 2012 10:21 AM GMT+0800

China’s biggest banks, set to post record profits for a fifth year, may report 2011 results marred by an increase in bad loans as an economic slowdown and faltering property market trigger defaults by borrowers.

Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four biggest local rivals may post a 15 percent increase in combined fourth-quarter net income when they report this month, according to analyst estimates compiled by Bloomberg. Their non-performing loans rose for the first time since the third quarter of 2008, the banking regulator said last month.
Enlarge image Record Profits at Chinese Banks

China’s efforts to bolster banks’ risk buffers and curb inflation following a two-year, $2.7 trillion credit boom have pushed up funding costs, slowed the economy and triggered defaults, prompting Standard & Poor’s to warn March 12 that a jump in bad loans may curb profitability. Fresh evidence of mounting defaults may clip the average 42 percent rally in shares of the banks in Hong Kong over the past five months.

“It’s time to take profits off the table,” said May Yan, a Hong Kong-based analyst at Barclays Capital Inc., who cut her rating on the industry to “neutral” last month, citing weakness in the economy and banking sector. “The rebound of NPLs is not temporary. It’s the beginning of a worrisome trend.”
Rising Bad Loans

Non-performing loans at Hong Kong-listed Chinese banks, which include Beijing-based ICBC, China Construction Bank Corp. and Agricultural Bank of China Ltd. (1288), may rise an average 40 percent in 2012, Yan forecast. The bad-loan ratio at the five biggest banks could climb to about 1.9 percent in 2013 from 1.1 percent in 2011, she said.

The economy expanded 8.9 percent last quarter, or at the slowest pace in 2 1/2 years, as Europe’s debt crisis curbed export demand and the property market weakened. The slowdown has extended into this year, with factory output in the first two months rising the least since 2009, while home prices posted the worst performance in a year, data showed this month.

Still, China’s 3,800 banks had fourth-quarter net income of $35.4 billion, a third more than the total earnings of 7,357 U.S. lenders including Bank of America Corp. and JPMorgan (JPM) Chase & Co., data from the China Banking Regulatory Commission and the Federal Deposit Insurance Corp. showed. The five largest Chinese banks accounted for 139.5 billion yuan ($22 billion) of profit, according to the analysts’ estimates.
Roads, Bridges

The earnings have been driven by accelerated loan growth after China’s government unveiled a 4 trillion-yuan stimulus package to bolster the economy following a slump in global equity and credit markets in 2008. That triggered an explosion in credit to local governments and property developers, and a surge in investments in infrastructure such as roads and bridges.

A year after the boom ended in 2010, defaults began to climb. Bad loans at China’s five largest banks rose to 299.6 billion yuan as of Dec. 31, from 287.9 billion yuan at the end of September, according to data from the regulator in February. The non-performing loan ratio remained at 1.1 percent, it said.

The actual increase in defaults is probably higher than the official data because lenders write off the worst assets at the end of the year, China International Capital Corp. analysts Mao Junhua and Luo Jing wrote in a note last month.
Missed Repayments

Mountain China Resorts Holdings Ltd., a partner of Club Mediterranee SA in China, said last week that it failed to repay 30 million yuan of bank loans on time. Shandong Helon Co., the fiber maker that in December became China’s first company to lose its investment-grade credit rating, missed 397 million yuan in loan payments in January.

Publicly traded Chinese banks’ bad loans may jump 26 percent this year as the economy slows, while profit growth will be cut by almost half, to 15 percent, and the average net interest margin may shrink 4 basis points from last year’s 2.7 percent, CICC forecast. A basis point is 0.01 percentage point.

“We are monitoring the NPL trend very, very closely, but it’s far from the stage of sending everybody into a panic,” said Yang Jianxun, a Shenzhen-based fund manager at Dacheng Fund Management Co., which oversees the equivalent of $12.7 billion. “The problem will be contained and banks’ valuations are still attractive from a long-term perspective.”

Shenzhen Development Bank Co. (000001), the first Chinese lender to report full-year earnings, posted a 26 percent increase in fourth-quarter non-performing loans following increased lending to smaller businesses, which have higher default rates, President Richard Jackson said on March 8.
Bankruptcies, Suicides

Among its branches, the ratio is the highest in Wenzhou, reflecting the difficulties faced by entrepreneurs in the coastal city, the bank said. More than 80 indebted businessmen in the small exporters’ hub disappeared, committed suicide or declared bankruptcy from April through September because of loans due to informal lenders, the official Xinhua News Agency said in October.

Property companies listed in China and Hong Kong face a worse cash shortage this year than in 2008, when China’s house prices fell for the first time since people were allowed to own homes, CEBM Group Ltd., a Shanghai-based investment advisory firm, said in January.

Residential prices will need to see a “meaningful correction” by falling 20 percent to 30 percent from last year’s peak before the government relaxes property rules, Qu Hongbin, an economist at HSBC Holdings Plc, said on March 19.
May Avert Crash

Prices may post a “single-digit” decline this year, billionaire developer Vincent Lo, chairman of Shui On Land Ltd., said in an interview in Beijing on March 8. The market won’t see a crash, he said.

Premier Wen Jiabao, who this month pared the 2012 economic growth target to 7.5 percent, said home prices remain far from a reasonable level and relaxing restrictions on sales could cause market “chaos.”

While Chinese banks’ bad debt have increased, total lending is growing faster. The ratio of non-performing loans to total credit should be “stable” after lending grew 15.8 percent last year, Morgan Stanley predicted in a March 7 note.

Agricultural Bank, the nation’s third-largest lender, may report tomorrow that fourth-quarter profit rose 16.6 percent to 28.84 billion yuan, according to a Bloomberg survey of analysts.

Construction Bank, the second-largest, is set to report a 29 percent gain on March 25. ICBC may say on March 29 that earnings rose 14 percent while Bank of China Ltd. (3988), ranked No. 4, will probably post a 2 percent increase in profit. The four banks are all based in Beijing.
Lower Valuations

Shanghai-based Bank of Communications Co., the fifth- largest lender, may post a 6.9 percent increase in net income on March 28.

The five banks are trading at an average 6.1 times their estimated earnings in 2012, compared with 9.5 times at New York- based JPMorgan and 13.8 times at Charlotte, North Carolina-based Bank of America, according to data compiled by Bloomberg.

Standard & Poor’s warned last week that China’s banks could face a slump in earnings growth in 2012 due to a slowing economy, falling property prices and the challenges of refinancing “sizable” local government debt.

The banks’ reported bad-debt ratio tied to local government financing vehicles is “not possible” unless they’re rolling over debt, said Liao Qiang, a Beijing-based S&P analyst. He estimated last year that as much as 30 percent of loans to such entities may sour without central-government support, and will probably be the biggest source of non-performing assets for the industry.
Local Governments

Yunnan Highway Development & Investment Co., a financing vehicle of the southwestern province, in April told creditors including Construction Bank (939) and ICBC that it wouldn’t be able to make principal payments on about 100 billion yuan of loans, Caixin Online reported in June. The provincial government later promised to assume payment.

In northern Liaoning province, about 85 percent of local government financial vehicles didn’t have sufficient income to pay principal and interest payments on debt due in 2010, Caixin said in September, citing a speech by the head of the provincial audit office.

China’s first audit of local-government borrowing showed 80 percent of their 10.7 trillion yuan of debt at the end of 2010 was bank loans and more than half will mature in 2011- 2013. More than 35 billion yuan of money borrowed for local development went into the stock and property markets or prohibited projects, the audit showed.

The credit boom also sapped lenders’ finances. BoCom said last week it plans to raise 56.6 billion yuan in a private placement to boost its core capital adequacy ratio above the 9.5 percent minimum required under the new capital rules. Agricultural Bank’s core capital ratio at 9.36 percent as of Sept. 30 was also below the mandatory minimum.

Thursday, March 8, 2012

European Stocks Gain Before Greek Debt Swap

By Peter Levring - Mar 8, 2012 5:46 PM GMT+0800

European stocks rose for a second day as Japan’s economy shrank less than the government initially estimated and a deadline on Greece’s debt swap approached. Asian shares and U.S. index futures gained.

European Aeronautic, Defence & Space Co. rallied to a five- year high after doubling its dividend and predicting earnings will climb. Aviva Plc added 2.3 percent as the U.K.’s second- biggest insurer by market value reported operating profit that exceeded estimates. Enel SpA (ENEL), Italy’s biggest energy company, sank 5.9 percent after cutting its dividend.
Enlarge image A Pedestrian Passes The Aviva Plc Headquarters

The Stoxx Europe 600 Index (SXXP) advanced 1.3 percent to 263.44 at 9:44 a.m. in London. The benchmark gauge has surged 7.7 percent this year as the European Central Bank lent more than 1 trillion euros ($1.3 trillion) for three years to the region’s banks to ease liquidity.

“European equity markets are set to open higher as traders begin to turn optimistic over the Greek bond swap deal and the U.S. continues the string of strong economic data,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in e- mailed comments.

Standard & Poor’s 500 Index futures added 0.7 percent before a report at 8:30 a.m. in Washington that economists in a Bloomberg survey forecast may show initial claims for U.S. jobless benefits held at 351,000 last week. The MSCI Asia Pacific Index (MXAP) advanced 1.3 percent.
Japanese Economy

Japan’s economy contracted less than initially estimated last quarter, improving prospects for the recovery from last year’s earthquake. Gross domestic product shrank an annualized 0.7 percent in the three months ended Dec. 31, the Cabinet Office said, compared with a preliminary estimate of a 2.3 percent contraction. The median forecast of 21 economists surveyed by Bloomberg was for a 0.6 percent contraction.

Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. The offer, which ends at 10 p.m. Athens time today, aims to reduce the 206 billion euros of privately held Greek debt by 53.5 percent.

ECB policy makers will keep the benchmark rate at a record low of 1 percent today, 55 of 58 economists in a Bloomberg News survey predict. The decision is due at 1:45 p.m. Frankfurt time and ECB President Mario Draghi will unveil the bank’s new economic projections at a 2:30 p.m. press conference.
ECB Forecasts

The bank is also expected to lift its 2012 inflation forecast above the 2 percent price-stability threshold today, limiting its ability to cut interest rates further even as it lowers the outlook for growth, economists said.

The Bank of England will today hold its key rate at 0.5 percent and maintain its commitment to buy an additional 50 billion pounds ($79 billion) of bonds by May after lifting its target for asset purchases to 325 billion pounds last month, according to economists. That decision is due at noon in London.

EADS rallied 9 percent to 29.25 euros, the highest price since May 2006. The maker of Airbus passenger jets agreed to pay a dividend of 45 cents a share, more than doubling the payout from last year and exceeding analyst estimates of a 30-cent dividend. Earnings before interest, taxes and one-time items will increase to more than 2.5 billion euros in 2012, from 1.8 billion euros last year, EADS said.

Aviva (AV/) increased 2.3 percent to 359.2 pence. The insurer reported operating profit that fell 2 percent to 2.5 billion pounds ($4 billion), surpassing the 2.45 billion-pound median estimate of analysts in a Bloomberg survey.
Gemalto, Klepierre

Gemalto NV (GTO) jumped 5.5 percent to 45.57 euros as the inventor of the smart chip used in bank and phone cards forecast revenue and operating profit will increase this year.

Klepierre (LI) SA, France’s second-largest publicly traded owner of shopping centers, climbed 5.6 percent to 24.70 euros. Simon Property Group Inc., the biggest U.S. mall owner, agreed to pay BNP Paribas SA 28 euros a share for 28.7 percent of Klepierre in a deal worth about 1.52 billion euros.

Deutsche Post AG (DPW) advanced 3.3 percent to 13.34 euros. Europe’s largest postal service said profit in 2012 will rise as much as 6.6 percent as growth in global trade helps the company’s DHL express and freight business.

Enel retreated 5.9 percent to 2.86 euros. The utility cut its dividend payout by a third to 40 percent of ordinary net income as it seeks to raise funds to cut debt.

Annual net income fell to 4.15 billion euros from 4.4 billion euros a year earlier, hurt by a windfall-profit tax imposed in Italy, the company said. That missed the 4.3 billion- euro average estimate of 17 analysts surveyed by Bloomberg.

Wirecard AG (WDI) sank 4.3 percent to 13.79 euros. The German provider of software and systems for online payments said it plans to sell 10.2 million new shares to fund acquisitions in the payment processing sector.