At a hedge fund idea dinner I attended last night, many of the participants seem focused on what they feel is the next leg of the credit problem that will manifest itself: commercial real estate.
After the close yesterday, RBC Capital put out a note essentially echoing that concern: "Next Credit Shoe to Drop on Banking Industry: We believe commercial and industrial loans (C&I), commercial real estate and non-resi construction loans will be the next credit problems for the banking industry brought on by the weakening in the US and Global economies."
Oil is at a fresh 5-month low, and airlines are trading up in the mid-single digits on light volume. OPEC is meeting in Vienna. European banks like UBS, Deutsche Bank, and HSBC are also trading up.
1) As expected several banks announced impairment charges related to investments in Fannie Mae and Freddie Mac preferred securities.
a) Wells Fargo said its charge relates to $480 million of securities it holds for sale. Wells said the preferreds now trade at 5 to 10 percent of face value. Oppenheimer's Meredith Whitney lowered her third quarter estimates by 9 cents to 17 cents.
b) Sovereign Bank, the second-largest savings and loan, said it held $622.6 m of Fannie and Freddie preferred stock.
2) BHP Billiton said the slowing world economy would likely cause commodities to continue to decline in price, but the decline would not their proposed buyout of Rio Tinto.
3) Proctor & Gamble downgraded at Merrill Lynch, saying they can't just the premium the stock trades at relative to its peers.
4) CapitalSource,a REIT that specializes in commercial finance and residential mortgages, down 9 percent pre-open as they cut their dividend 92 percent.
5) Forrester Research says that 43 percent of large businesses cut their overall tech budget this year.
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