This recession is more like a Hitchcock thriller than a modern day horror movie. You know what’s coming but you don’t know when, where, why or who. Blood and guts are replaced with innuendo and heavy plot lines.
Each week, I apologize to our editors for my obsession with banks – but I really think it all begins and ends with what happens within those walls.
This thriller moves slowly, taking baby steps to the next scene; first corporate layoffs, then missed mortgage payments, next foreclosures and then bankruptcies.
The corporate version goes like this: first slowing sales, then reduced profit forecasts and next stocks plummet.
Most will agree that the real estate mess is not over. Banks will continue to incur losses and take over more properties. Then the banking regulators will step in to close down failing institutions. The plot is already written in this story. It’s the players who remain unknown.
Dallas and Detroit will fall further than Seattle and San Francisco, they usually do. Those areas that have yet to fall will also see their day. Rural shopping centers will go bust while urban ones will simply change hands at lower prices. As they say, “the pond always dries up from the outside.”
I expect that the banks that fall will surprise us. Who knew until last weekend’s Seattle Times article that a bank in downtown Seattle could make an illustrious “bottom 10″ list of the most troubled institutions in our state? Years ago, the Seattle PI had a similar bottom 10; a list of the 10 worst college football teams in the nation. Without it, the Fighting Owls of Rice University would never have sold T-shirts emblazoned with the slogan “We’re Number One!”
Fine institutions like Evergreen Bank and Seattle Bank have to dig deeper to supplant the likes of WestSound Bank. But hey, anything is possible.
What is coming next, and when you ask?
Those two unknowns are selling a lot of coffee these days as investors both large and small burn the midnight oil trying to play this chess match to something more than a draw. Some sit at the infamous courthouse steps bidding on foreclosed properties hoping to hit singles and doubles through sweat equity. Others gather with a team of analysts to map out the carnage and plan the next trophy asset ready to fall.
I have lost count of the number of players who have walked through the grand Marlborough Condo Conversion only to realize that a 100-year-old apartment building foreclosed upon in the middle of construction may be too expensive at any price.
Similarly, drawing the attention of all is the big question of who is going to be the yenta who marries a landlord and tenant to the WaMu building now that JP Morgan Chase doesn’t see the logic of an East Coast and West Coast world headquarters. The rumors continue to build and for the sake of our Northwest economy let’s hope that one of our creative capitalists completes a deal.
Here is what we do know.
There is a lot of money out there and there is no money out there. The banks who have it can’t lend if it makes capital ratios drop below 10 percent. For those of you unfamiliar with a capital ratio the simple answer is that a bank can lend 10 times its equity – 10 percent capital ratio - before the regulators want the banks to pull its expansion. My apologies to the bank executives among our readers for the fourth grade version of the problem. The banks that don’t have money are told to clean up the books and sell off those problem loans to the highest bidder. In many cases, the highest bidder is the only bidder.
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