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Corporate Struggle Goes On

Corporate Struggle Goes OnMergers, earnings and corporate activity

February 4, 2008


Commercial real estate lending is emerging as an area where losses are growing — prompting one regulator to take steps to head off problems. And Countrywide Financial Corp. is facing opposition to its proposed acquisition by Bank of America Corp.

Goldman Sachs released a report indicating commercial real estate prices will decline by as much as 26 percent through next year. The mark-to-market hit for commercial real estate was estimated at $20 billion, versus intrinsic subprime mark-to-market losses of $63 billion.

“Over the longer term, we expect total CRE-related losses of $183 billion, with global banks taking losses of $82 billion,” Goldman said. “We expect aggregate losses from commercial real estate loans to be $183 billion, versus expected subprime losses of $211 billion.”

Comptroller of the Currency John C. Dugan expressed concern over community banks’ exposure to commercial real estate loans — specifically construction and development, which have seen the nonperforming loan rate double over the past year to 1.96 percent as the market has been disrupted and home prices and sales have fallen.

“There will be more frequent interaction between supervisors and banks with concentrations in CRE loans that are declining in quality,” Dugan said in an announcement. “For those of you in stressed markets, it will almost certainly require you to downgrade more of your assets, increase loan loss provisions, and reassess the adequacy of bank capital.”

Goldman also said it expects commercial losses to be spread over more time.

Moody’s Investors Service reported negative ratings actions taken on mortgage insurers because of increased loss expectations for residential mortgages, with cumulative losses for the 2006 subprime vintage estimated between 14 percent and 18 percent and because off exposure to Alt-A mortgages and other subprime vintages. Among the affected companies are PMI, Triad Guaranty, Genworth, Republic Mortgage Insurance Co., United Guaranty, MGIC and Radian.

Thornburg Mortgage Inc. reported fourth quarter net income of $64.8 million, off from $80.3 million a year earlier. Originations during the period were $0.5 billion.

For all of 2007, Santa Fe, N.M.-based Thornburg said it lost $874.9 million, compared to a $297.7 million profit in 2006.

Capstead Mortgage Corp. announced the successful closing of an 8 million share public offering that netted the Dallas-based company $118 million. Proceeds will be used for general corporate purposes and to acquire adjustable-rate mortgages guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

CenturyPoint Mortgage has been launched as an online lending division of First Century Bank, N.A., according to an announcement last week. The national lender will offer a full product line, including home equity loans and reverse mortgages.

The acquisition of Countrywide Financial Corp. by Bank of America Corp. is being challenged by SRM Global Fund. The Cayman Islands-based company announced the effective purchase price, less than $8 per share, is well below the $20 per share book value.

“Our intention is to vote against the proposed merger,” SRM stated. “We strongly believe that the terms of the proposed merger with Bank of America are contrary to the interests of the company’s shareholders.”

SRM also questioned the movement of the shares of Countrywide in the days leading up to the merger announcement and said it intends to request that the Securities and Exchange Commission investigate the activity.

And SRM isn’t the only the only entity scrutinizing the merger.

The California Reinvestment Coalition, the Community Reinvestment Association of North Carolina, the Neighborhood Economic Development Advocacy Project and New Jersey Citizen Action have sent letters to Senate Banking Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank requesting hearing. The groups say they want to ensure the combined company commits to providing fixed-rate mortgages to delinquent subprime borrowers and maintains enough Countrywide employees to process modifications.

First National Bank Group Inc. received approval from the Federal Reserve to acquire up to 9.9 percent of the voting shares and control of Southside Bancshares Inc. Both companies are out of Tyler, Texas.

South Carolina-based First National Bancshares Inc. announced the completion of its $54.1 million merger with Carolina National Corp. — which will operate under the name First National Bank of the South.

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