Netherlands, the Next Chip to Fall?

Most attention lately has been on Cyprus, Spain, and Italy. Long-time troubles have been brewing in Portugal and I have an update coming up shortly.

First consider Underwater: The Netherlands Falls Prey to Economic Crisis.

The Netherlands, Berlin’s most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.

“Underwater” is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, widely viewed as a model economy, is facing the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral.

Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property’s price. “You could readily obtain a loan for five times your annual salary,” says Scheepens, “and all that without a cent of equity.” This was only possible because property owners were able to fully deduct mortgage interest from their taxes.

Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit.

No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.

Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.

The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Despite tough austerity measures, this year the government in The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).

It’s a heavy burden, especially for Dutch Finance Minister Jeroen Dijsselbloem, who is also the new head of the Euro Group, and now finds himself in the unexpected role of being both a watchdog for the monetary union and a crisis candidate.

Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.

Today is a flight day. Will be back to more normal posting Sunday evening.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Netherlands, the Next Chip to Fall?

Atlanta real estate: Peachy keen or sour grapes?

Deborah Gilmore is a realtor with Harry Norman Realtors. She’s been selling homes in the Atlanta area for more than two decades. Gilmore says people should move to Atlanta because of its fabulous weather, diversity and the wide variety of housing — everything from a condo to a castle. She says Atlanta’s housing market is recovering.

“We do have a heartbeat now. We had flat line for quite a while, but we are beating. That’s good news,” says Gilmore. “Certain areas of Atlanta, where high-end is predominant, there are people buying.”

Gilmore says a three bedroom, two bath home in Atlanta can be found for around $ 150,000-200,000. While the same type of home in other parts of the county — depending on whether it’s in foreclosure or on short sale — can cost around $ 90,000-150,000. In one of her recent sales, Gilmore says she sold a house to a new couple who were thrilled with their new home.

“They got so excited about the house, we got close to closing. And the buyer called and said that he wanted to go and cut the grass. I said that’s so very nice. I said we have one problem. He said, ‘What?’ I said you don’t own the house. It’s not your house yet. You haven’t bought it, so you can’t just show up on the property and start cutting the grass and trimming the bushes. That’s just one example. Excitement of people that when they want to buy and they have a good experience with the process and they can’t wait to get the property, that’s what I like,” she says. “[If] they have cartwheels from the front door, you know they love the house.”

But how are the bankers down South? Are they as hospitable as the people and likely to throw loans at potential buyers?

“Nobody’s throwing loans, I’m sorry. You have to check with a lender bank first to see if you’re credit worthy. People love to look at the pretty stuff — the house and dream about where they want to live, but the restrictions are much different now than they were five or six years ago,” says Gilmore. “They’re looking at credit scores and pattern of payment. This has to be really good and clean.”

CLICK HERE TO VIEW AN INTERACTIVE MAP OF HOW MANY MORTGAGES ARE UNDERWATER IN YOUR STATE
 
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Atlanta real estate: Peachy keen or sour grapes?

Merrill Of America Cuts JCP Price Target To $13 On Pending Revolver Draw

When we reported on JCPenney’s horrendous quarterly results, we made the comments that when “speaking of [the] credit facility, JCP had no borrowings under its 2012 Revolver, and about $ 1.3 billion available net of L/Cs. Expect these numbers to change.” The reason we pointed this out, is that the second a retailer goes from “unused Revolver” to “used Revolver”, the bankruptcy deathwatch drums begin their steady beat. Indeed, it was only a matter of time before even the traditionally slow sellside brigade figured out that JCP’s liquidity is horrifying and about to get much worse, and moments ago Bank of America downgraded JCP by $ 3 to a $ 13 price target on expectations of an imminent revolver draw. To wit: “JCPenney intends to self-fund its transformation, but we think it will
need to draw down on the revolver as early as this quarter.” This explains why Ackman is down another $ 60 million in the name at last check.

From Bank of America’s Lorraine Huttchinson

Important shareholder begins liquidating stake; lowering PO

 

Vornado sells; lowering PO to reflect pressure on stock

 

Last night, the WSJ reported that Vornado (VNO), JCPenney’s third largest shareholder, is liquidating 10mn shares of JCPenney (54% of its 18.5mn share stake). Vornado’s CEO resigned last week and JCPenney was discussed on Vornado’s earnings call as being on Vornado’s “for-sale” list. Vornado was not willing to discuss a time frame for exiting its investment due to a conflict of interest (Steven Roth is on JCPenney’s board). We think Vornado could be back in the market in the near term to sell its remaining 8.6mn shares. Our work indicates that monetizing JCPenney’s real estate would be difficult and substantially less lucrative than the market initially thought. 

 

We are lowering our PO by $ 3 to $ 13 as we think the stock will remain under pressure due to deteriorating investor confidence in JCPenney’s turnaround, and we reiterate our Underperform rating. 

 

Time to put the real estate thesis to bed

 

In our recent department store real estate note, we evaluated the likelihood of JCPenney splitting itself into two publicly traded companies — a standalone REIT and an operating company. We concluded that JCPenney’s retail fundamentals are not sound enough to support a stand alone operating company and we do not think REIT investors have an appetite for owning single tenant mall anchor real estate. Vornado’s liquidation of its JCPenney stake supports our view that this was simply a non-core investment, without strategic purposes.  

 

Expect revolver draw in 2013, but ample liquidity for now

 

JCPenney’s balance sheet looks OK today but deteriorating fundamentals should cause pressure in 2013. The company has access to $ 3.1bn of liquidity including $ 0.85bn of cash (excluding deferred vendor payments made in 1Q), $ 1.85bn of revolver capacity, and a $ 0.4bn accordion on the revolver. JCPenney intends to self-fund its transformation, but we think it will need to draw down on the revolver as early as this quarter

Zero Hedge

Merrill Of America Cuts JCP Price Target To $13 On Pending Revolver Draw

UPDATE 1-UK estate agent Countrywide plans return to main list

Wed Feb 20, 2013 2:50am EST

LONDON Feb 20 (Reuters) – Countrywide Holdings, Britain’s largest estate agency group by revenue, said that it plans to return to the London Stock Exchange after nearly six years in private hands.

The company is seeking to raise 200 million pounds ($ 309 million) through the float, which it said it would use to repay debts and then pursue a strategy of organic and acquisition-based growth.

Countrywide, which sells and rents residential properties, was listed between 1986 and 2007, when it was taken private at the peak of the market.

“Over the past six years we have transformed Countrywide into the UK’s largest integrated property services group,” said CEO Grenvill Turner in a statement on Wednesday.

“We have worked hard to secure significant growth opportunities via acquisitions and by opening new high street branches.”

Just last week, British housebuilder Crest Nicholson returned to the stockmarket with a successful listing that valued it at 553 million pounds.

A return to the markets for Countrywide would likely lead to inclusion on the FTSE 250 index, the company said. In its 2012 results, also announced on Wednesday, it reported earnings of 63 million pounds on revenues of 540 million.

Goldman Sachs, Jefferies International Ltd and Credit Suisse will be bookrunners for the listing.

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Reuters: Financial Services and Real Estate

UPDATE 1-UK estate agent Countrywide plans return to main list