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Sean Crowley

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AIG Taken Over and Lehman Sold After All

09-16-08
Sean Crowley

In two astonishing pieces of news, giant insurer AIG will receive an $85 billion loan from the fed in return for an 80% interest...

The precise details of the government's plans were still being formulated late Tuesday. The primary option being hammered out involved the Fed providing AIG with a short-term "bridge" loan of $85 billion, according to people familiar with the situation. In exchange, the government would receive warrants in AIG representing the right to buy its stock, under certain conditions. That could put the government in a position to potentially control a private insurer, a historic move, particularly considering that AIG isn't directly regulated by the federal government.

...and Barclay's will buy Lehman Brothers core North American businesses for $1.75 billion. This will preserve 9000 jobs.

The new plan enables Barclays to buy much of Lehman's securities business without taking the risk of further losses on the firm's commercial real estate and mortgage assets; but it is unclear how many of Lehman's 26,200 employees will keep their jobs. Early estimates pin the number at about 9,000 to 10,000.

So what does this all mean? Well it is a short-term bandaid for the markets. It prevents the nearest-term possible crisis. Longer term it doesn't solve much and the idea of the Federal government controlling the country's largest insurance company cannot be a good thing over time. In terms of Maui real estate, this will quell some concerns buyers have over the general state of the financial markets, but only for a short time.

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FOLLOWING UP ON MONDAY'S MELTDOWN

09-16-08
Sean Crowley

When the Dow Jones sat 300 points down early in the day, it seemed to us that was about the best possible indicator that the damage from the weekend had been contained. But the last 30 minutes in the market was a catastrophe. The Dow finished off over 4% as did the S&P 500. Here are some important events marking the day:

  • Financial stocks got hammered. AIG was down 60% and was downgraded by the rating agencies (a sign of peril for an insurance company), WaMu was down to $2 and may well be the next shoe to drop;
  • The issue remains liquidity in the bond market which has dried up recently. Banks are not lending to other banks or financial companies. Without constant financing, these kinds of companies die;
  • The Fed injected $70 billion into the system, the largest infusion since 9/11;

The obvious question is of course, "What's next" and how does this impact Maui real estate? The real answer is nobody knows, we are all just guessing, but here are some guesses;

  • The Nikkei will have a very bad week;
  • WaMu may not survive the week;
  • AIG will continue to be a focus of the markets as EVERYONE has significant exposure to them;
  • Lehman assets will trade at levels that force other holders of similar securities to recognize additional losses;

We will keep you posted. As far as Maui real estate goes, September, in the best of years, is a lost month so the immediate impact is nil. But this situation needs to get resolved soon.

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LEHMAN BANKRUPTCY ETC.

09-15-08
Sean Crowley

In a remarkable weekend on Wall Street, Lehman Brothers has declared bankruptcy and Marrill Lynch has been sold to Bank of America. In other stories, New York State will permit troubled insurer AIG to transfer funds from its operating subsidiaries to the holding company and ten firms have set up a $70 billion financing facility. So what does this all mean? In our view, in the short-term, it means the following:

  • Wall Street is now down to six major firms (Citigroup, JP Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse and Bank Of America)
  • Merrill Lynch was clearly the firm at risk following the Lehamn meltdown. With them being sold, there is no obvious "weak sister" now
  • The unwillingness of the Federal Government to intervene to assist Lehman suggests that now the survivors are on their own
  • Likely 50,000 people will lose their jobs in and around New York as Lehman closes and Merrill gets stripped of everything but their brokerage network
  • The sale of Lehman's troubled assets will cause other firms to re-mark their positions lower setting off a new wave of losses
  • The $70 billion financing facility is public relations in our view

In the longer-term

  • The scavengers picking off currently troubled assets will likely be big winners
  • The financial sector will be strengthened

  • There will be fewer providers of capital in the mortgage world

What is the impact on Maui real estate?

  • Lehman is a significant force behind Honua'ula (Wailea 670) and it may well slow that project further
  • This will be another factor that shakes the confidence of buyers

We will be following events going forward.

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National For Sale Inventory...

09-12-08
Sean Crowley

According to Ziprealty:

The supply of homes available for sale in 29 major metropolitan areas in August was down 2.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The ZipRealty data cover all listings of single-family homes, condominiums and town houses on local multiple-listing services in metro areas where the firm operates...One reason for the recent declines in many cities is that potential sellers have withdrawn from the market because they don't want to compete with builders and banks that have been slashing prices in an effort to clear out their inventories of new or foreclosed homes.

While the direct impact on Maui real estate is almost zero, this is the sort of data that indicates we may be approaching a national bottom...maybe.

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Another Tom and Sean Escrow

09-12-08
Sean Crowley

We are pleased to announce that Kamaole Sands unit 4-408 has been placed under contract. This two-bedroom unit is listed for $565,000. This unit is a nicely upgraded two bedroom, two bath unit. It is just over 1100 sqft. Once again, even in this difficult market, the Leading Edge Marketing System continues to perform.

Kamaole Sands Real Estate

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