This excerpt, from the full online Pioneer Press story, here. The excerpt is interspersed with observations and comment.
Local pain minimal from lending woes
Few banks hurt by subprime fallout
BY NICOLE GARRISON-SPRENGER
Pioneer Press
TwinCities.com-Pioneer Press
By the time Nicole Middendorf walked into her office Friday morning, her voicemail light was flashing and her e-mail box was full of messages from clients concerned about the safety of their investments.
On Thursday, the Dow fell 387 points after BNP Paribas of France said it was freezing three funds that invest in U.S. subprime mortgages. Financial-services stocks, in particular, took a big hit - even a few Minnesota-based companies suffered a decline.
Despite the market volatility, local financial experts like Middendorf, a financial adviser at Plymouth-based Strategic Financial Inc., are convinced that the credit fears that sparked Thursday's downturn are not as dire as recent reports make them seem.
"I think fears that financing has dried up are overblown," said Carol Clark of Minneapolis-based investment firm Lowry Hill. The economy remains strong, as does corporate cash flow - two important factors that did not exist leading up to the tech-boom bust at the turn of this century, she said.
You are in the business of advising people - you want to keep your customers - you can offer thoughts about where the future will go - the SEC is not severe on future projection standards, absent some parallel showing, such as with the analysts who were giving strong buy on Enron while flushing it from their own portfolios and their employers were doing the same with the firm's holdings, in the recent past. That level of wrong gets a sanction, but innocent error in guessing the future has to be generally tolerated. And Ms. Middendorf or Clark probably are not falsifying a thing, nor intentionally slanting their comments. They caution against overreaction. They speak in a context, one where most people think that emotion controls the yin and yang of behaviorial aspects of changes in the financial markets. Reason and analysis play a major role too, but emotion is a factor. And it is wise to discourage overreaction to what might be an Oct. 1987 change - but could be a 1929 crash. Only time will tell, but the impact can be worsened by loss of faith, and the analysts and advisors will all be saying have cause to expect the worse, or don't expect the worse, approach it rationally, try to analyze and not merely guess out of fear and go stash gold somewhere, etc. Locally:
"If you're talking about who owns the junk - no one knows," said Ben Crabtree, an analyst with Stifel, Nicolaus & Co. "But since the banks around here don't really do much in the way of subprime lending, I don't see a real significant impact."
San Francisco-based Wells Fargo & Co., the largest bank in Minnesota by market share, may have had the biggest exposure to subprime loans of any local bank. Over the past year or so, however, the bank has sold off many of those loans. A few weeks ago Wells Fargo announced it would no longer originate certain types of subprime loans.
Executives at St. Paul-based Bremer Financial Corp., the No. 4 bank in the state, say they've avoided the subprime market. Though they've beefed up their mortgage operations in the past year and a half, the company leans toward more-conservative loans.
The subprime shakeout might help banks by scaring off or weeding out other financial institutions that have competed fiercely with traditional banks lately for mortgages and other loans.
Am I wrong, in thinking that is a "Them, not us," kind of thing to be saying. And cold comfort.
Yesterday, Guardian reported worldwide numbers about central banks pumping liquidity into the financial trading markets - gross amounts reported without detail about specific central bank ways and means of "providing liquidity" when such a shockwave propagates. When the machine is tweaked here and there, the reporting has not analyzed any specifics of where "here" is, or "there."
Liquidity, was reported to have been injected into the markets promptly; with total amounts reported. But as with Town Center, you can pull on a rope if movement is too enthusiastic or fast. You cannot push on a string.
Next week will be interesting. The Pioneer Press continues:
"This is a liquidity crisis and banks, because of deposits, have much more stable liquidity than the nonbanks that raise money by creating these nonstructured finance instruments, all of which tend to incorporate some of the subprime junk," Crabtree said.
Nonbanks will find the cost of lending much more expensive than in the past. That will prompt them to raise rates, thus becoming less competitive. Some might opt to leave the market altogether.
If there is any fallout from the credit crunch locally, it's likely to be among small community banks loaning money to residential developers, Crabtree said.
That's because without the subprime borrowers, the number of potential buyers for the properties these developers are building has declined. Developers who aren't selling properties often find they can't pay their bills. Some, like the developer of the stalled Ramsey Town Center project off U.S. 10 in Ramsey, file for bankruptcy, leaving the banks that loaned them money in the lurch.
Yes but that is the essence of banking risk, that credit decisions will sour. Without the risk, is it banking?
I sure would love to see, if that last observation is true about which sector will bind up worse for now, if true - where exactly did all that central bank liquidity injection go? To the local mon-and-pop banks forming a consortium to lend to the Bruce Nedegaard - John Feges teams, or to Wall Street?
Details have not been reported, that would answer that. Probably combing over the Federal Reserve's website pages might have an answer, possibly not. It would surprise me greatly if the Fed says much about who gets the "liquidity" when it get pumped into "the system." Send an email if you see any of that reported anywhere. I will post about any facts of that kind called to my attention. I think it is a quite valid question. Whose bacon are they saving from being overcooked? I suppose benefits will trickle down. That always seems to be the thinking. But is it an effort for a rising tide to raise all boats, or are there locks and dams in the system to allocate the liquidity so some boats get raised much more than others?
Who gets their local congressperson to return email is not a uniform thing, and which bank or Wall Street player gets liquidity help probably also is non-uniform. At a guess. The new Greenspan guy, name starts with a "B", he is not sharing his thoughts with me or you. He works for bankers and the Federal Reserve is run by banks. It is a bankers' bank. Not that it's wrong or imprudent that it be so. But it is so. And Greenspan had that sign on his office wall, "The buck starts here." They print money. People accept what they print, because of what you can exchange it for. Is liquidity provided by the printing presses; or by buying treasury bonds on the bond market? It probably is both together, you increase money supply and do it by purchasing on the bond market. If you do not go to the bond market, how else do you distribute "liquidity?" Who to, and how?
In closing: Just as the awards for the Ramsey Town Center project in advance of the project hitting the market were wrongly thought out, then - it is equally wrong now making Town Center the poster child for failure in ways that are really nationwide in scope. It is an oversimplification to do that. Both statewide daily papers in the past have reported other stalled Twin Cities regional "smart growth" or planned growth projects.
"Smart growth," a recent planner-speak motto used in earlier Metropolitan Council shared-wall dense growth marketing effort, is only smart when the market says so, and it can be real dumb when the market says otherwise.
For now, the otherwise analysis of that last set of paragraphs controls - but the fan loading up with Pulte and D.R. Horton shared-wall housing is a phenomenon that is nationwide, and regional, but not solely a Ramsey thing.
And in fairness to the reporting, Town Center is not mentioned as an exception, it is mentioned as a good, general example. That's probably fair, since the paper had given it much attention recently.
Next week will likely, from the immediate financial markets perspective, be indeterminate.
A half year from now, "Did the housing market take its full hit, bottom out, and start a recovery," will still be uncertain. But the suggestions of a half-year's activity will be a better thing to forecast from than the ending days of trading, early August, while still in early August. If the trend is the friend, only the real trend is, not falsely perceived ones, and until recently, there was a housing sales slump, a foreclosure build-up, but not the precipitous thing seen in financial markets the last few days. Trending has been constant but less severe than the last few days would forecast.
Whatever the future, it is good to see local reporting of what was a worldwide trend, viewed from a local perspective.
However, I saw no great reassurance in the opinions mentioned or quoted.
Wait and see is, still, wait and see.