A Closer Look At Volvo´s Customer Finance Arm......

Underneath the headline ( Volvo swings to loss as deliveries slump ) another trend is emerging..... With a credit reserve under 2 percent ( close to 400 percent increase YOY )it looks like their credit book will be a significant headwind for quarters to come..... This kind of "vendor financing" is widespread and i´m pretty sure we will more of this kind of problems on a regular basis ( see BMW & Harley Davidson )

Hinter der ernüchternden Schlagzeile Lkw-Bauer Volvo im 2. Quartal schlechter als erwartet verbirgt sich ein anderer Trend der bald wohl desöfteren nachzulesen sein wird. Da bei Volvo die Reserven für mögliche Kreditausfälle momentan bei nur 2% ( und das nach fast 400% Anstieg auf Jahressicht ) liegen dürfte deren Kreditbuch die nächsten Quartale sicher nicht zum Ergebnis beitragen......Diese Art der "Absatzfördeung" ist über etliche Branchen weit verbreitet und dürfte zukünftig regelmäßig für wenig erfreuliche Nachrichten sorgen ( siehe BMW & Harley Davidson ).

Volvo

Operating income was negatively affected by SEK 3.2 billion in increased provisions for credit losses and residual value commitments, lay-off related costs and write-downs on inventories as well as costs associated with an agreement with UAW regarding healthcare benefits for retirees

Within the customer-financing operations of Volvo Financial Services, provisions increased for credit losses, primarily in Western Europe, which resulted in a loss for the quarter. This development is to be against the backdrop of our customers having lower freight volumes as a result of the weak economic trend throughout the world. We are working actively with the customers and have an established process for managing customers who have difficulty in paying back their loans.

In Western Europe customers are challenged by the substantial reduction in economic activity leading to an increasing level of delinquency and repossessions.

Continuing to be affected are segments directly associated with the production of motor vehicles, which, despite stimulus programs, remain under pressure. In markets such as Spain the widespread economic slowdown has impacted portfolio performance. In Eastern Europe, there has been little or no improvement since the first quarter as many countries continue to experience a steep decline in economic activity. This means that customers in many segments struggle to meet their obligations and require long term assistance in the form of restructured financing to continue operations.

The operating loss in the second quarter, as a result of higher credit provisions, amounted to SEK 296 M, compared to an operating income of SEK 387 M in the previous year.

VFS has increased the credit provisions primarily in Western Europe during the second quarter of 2009. Total credit provision expenses amounted to SEK 663 M (59) which was higher than the write-off level of SEK 563 M (103).

This resulted in an increase in the credit reserve from 1.72% at March 31, 2009 to 1.88% of the credit portfolio at June 30, 2009.

The annualized write-off ratio through June 30, 2009 was 1.77% (0.37).

At June 30, 2009 total assets amounted to SEK 109.7 billion (99.2). The credit portfolio decreased by 3.6% net over the last twelve months, adjusted for exchange-rate movements.

> Add higher financing cost & this as another kind of vendor financing to the mix and the picture isn´t getting any better..... Needless to say that the stock is up close to 4%....... Probably because the time of negative orders is now over...... ;-)

> Wenn man jetzt noch höhere Finanzierungskosten & diese Form der Absatzförderung hinzunimmt dürften die Riskien für Firmenbilanzen nicht gerade weniger werden...... Überflüssig zu erwähnen das die Aktie mit 4% im Plus notiert...... Liegt wohl daran das endlich die Zeit der negativen Orders vorbei ist......;-)

No Wonder GE Changed The Reporting Pattern.....

New equipment orders down over 40 percent........No problem with bad numbers, especially when they have to compete with a very high 2008 comparison.....But it is not transparent when after several years "celebrating" one of the most important components of the operating business in the headlines you suddenly choose to bury it in the conference call presentation.... I´m pretty sure that when there is an uptick they will once again switch back to the old pattern..... ;-)

Neue Investotionsgüteraufträge für GE mal eben über 40% eingebrochen..... Da diese aber im Verhältnis zu einem sehr starken Vorjahresquartal zu sehen sind relativiert sich dieser Absturz zum Glück um einiges..... Was mich hier am meisten stört ist das GE diese wohl wichtigste Kennziffer des operativen Geschäfts im Gegensatz zu all den Vorjahren, als noch jede winzige Veränderung in der Überschrift bejubelt worden ist, mit keinem Wort in der Ergebnisveröffentlichung erwähnt und man sich erst die Mühe machen muß die Analystenpräsentation zu durchforsten..... Denke wir wissen alle was passiert wenn die Zahlen wieder etwas erfreulicher aussehen........ ;-)

> As CNBC puts it best.... "Nothing troubling in the press release......"

> Besser als CNBC kann man es nicht formulieren.... "Nichts besorgniserregendes in der Presseveröffentlichung".......




GE Press Release / Fineprint press release.....

Highlights for the quarter included sustained strength in high-margin services where orders grew 2% and contractual services backlog reached an all-time high of $122 billion.

A highlight for the quarter was a record $8 billion in wins by GE and its two aircraft engine joint ventures at the Paris Air Show

> Nice to see how they pump up the 2% growth in services but fail to mention brutal slump in equipment orders.......

> Schon bemerkenswer wir man den 2% Anstieg im Servicesegment immerhin im Kleingedruckten findet aber den wohl historisch einmaligen Einbruch nicht einmal in der Fußnote der Presseveröffentlichung auffindbar ist...

GE Presentation ( Slide 6 )

GE 1st Quarter 2009 / Headline Press Release

Total equipment and services backlog steady at $171 billion; 1Q
Infrastructure orders totaled $19 billion, down 10%

GE 4th Quarter 2008 Headline Press Release

Infrastructure 4Q orders declined 6%; Total equipment and services backlog grew to $172 billion, up 9%

GE 3rd Quarter 2008 Headline Press Release

GE 3rd Quarter 2008 Total orders backlog of $170 billion; equipment backlog up 19%; service backlog up 22%

GE 2nd Quarter 2008 Headline Press Release

Services orders of $9.5 billion, up 19%; major equipment orders of $13.7 billion, up 4%, outpacing shipments 1.3x; total orders of $26.9 billion, up 8% Major equipment backlog of $55 billion, up 25%; customer service agreements (CSA) backlog of $113 billion, up 17%

GE 1st Quarter 2008 Headline Press Release

Total orders of $24 billion, up 8%; major equipment orders of $12 billion, up 11%; services orders of $8.3 billion, up 5% Major equipment backlog of $52 billion, up 41%; customer service agreement (CSA) backlog of $110 billion, up 16%

> The "old" style of reporting goes back at least to the the first quarter of 2006 ( see Earnings Reports 2006, 2007 )......Siemens, ABB & Alstom ( all with orders down up to 30 percent (Alstom) , all reporting the slump within the top of the first page / see links) havn´t switched to a more "favourable" reporting system.....Thank god GE´s financial arm has such a "Strong Asset Quality" ...... Some thanks to the $46 billion Temporary Liquidity Guarantee Program ( more than anybody else ) issuance some are already calling GE "Guaranteed Electric" / see also TLPG Issuance Table via Winkler......;-)

> Die "alte" jetzt unerwünschte Weise der Berichterstattung ist mindestens seit dem Jahr 2006 Standart gewesen ( sieheEarnings Reports 2006, 2007 ) .....Siemens, ABB & Alstom haben übrigens trotz ebefalls happiger Einbrüche ( bis zu 30% , bei allen auf den ersten Blick zu erkennen / siehe Links ) Ihre Methodik nicht verändert....... Zum Glück hat der Finanzarm von GE ja eine extrem "Starke Asset Qualität" ..... Und dank der 4 Mrd $ die GE unter dem TLGP Programm mit staatlicher Garantie emitieren konnte ( mehr als jeder andere ) nennen einige GE nicht ganz zu unrecht "Guaranteed Electric" / siehe auch TLPG Issuance Table via Winkler ......;-)

The Only Company That Has Managed To Get An Upgrade From Junk To Investmentgrade Is........

Congratulations to Jeff Bezos....... The overall trend that the bondholders ( vs shareholders ) are the new masters will continue for quite a long time & news like this will pop up on a daily basis and "DILUTION" will finally have an effect on stock prices..... Questions from Wall Street Finest about the debt profile, maturities & the balance sheet quality in general were unheard of until 2008..... Up to early 2008 they still have asked how big the next buyback will be ( of course financed with newly issued debt , see "I Want My Buyback Back....")...........

Glückwunsch an Jeff Bezos....... Insgesamt bleibt festzuhalten das der Trend das die Anleihe und Kreditgeber den Kurs der Unternehmen bestimmen ( im Gegensatz wie in den letzten Jahren die Aktionäre ) noch auf Jahre hinaus intakt bleiben wird. Nachrichten wie diese werden zum Alltag gehören und irgendwann wird auch die "Verwässerung" einen Einfluß auf die momentan doch recht losgelösten Aktienkurse haben.......Und ich glaube kaum das Trends wie dieser ( siehe Europäer stürzen sich auf Ramschanleihen & Hochzinsanleihen: Zahlungsausfälle in Europa halten sich in Grenzen ) von Dauer sein werden...... Fragen in Unternehmenspräsentationen von Analystenseite zur Bilanzqualität ( Verschuldung, Fälligkeiten usw. ) habe ich persönlich bis zum Mitte 2008 nicht vernommen..... Bis dahin wurde stattdessen in schöner Regelmäßigkiet nach der Höhe des nächsten schuldenfinanzierten Aktienrückkaufes gefragt ( siehe "I Want My Buyback Back...." & Druckreifer Vergütungsirrsinn ) ........


Amazon.com: An Angel Among Us Deal Journal WSJ

Forty companies have been jettisoned from the ranks of investment-grade credits this year. Just four junk-rated companies have been promoted to investment grade.

The credit changes, tracked by Moody’s Investors Service, show just how much the economy has faltered. It also shows that even healthier high-yield credits will require a much more vigorous economic environment to achieve investment-grade status.

Indeed, three of the upgrades didn’t reflect better economic times, only that the companies had been acquired in mergers. That leaves just one company to receive an upgrade on its business fundamentals. That company is Amazon.com.

“Other than Amazon, what’s missing are upgrades stemming from enhanced fundamentals such as an improved outlook for sales and a widening of profit margins,” said John Lonski, manager director of Moody’s Credit Market Economics. “In an environment like this, acquisition is still the main driver for upgrades.”

Alltel Communications, First Allmerica Financials Life Insurance and Barr Laboratories were acquired by Verizon Communications’ Verizon Wireless arm, Commonwealth Annuity & Life and Teva Pharmaceuticals, respectively. As a result, their bond ratings were upgraded to investment-grade level.

In the most recent quarter, no companies have been upgraded. Moody’s records show the previous record low was two upgrades–in the second quarter of 2008.

Amazon’s second-quarter financial statements reflected “the company’s very strong balance sheet, healthy operating performance, and good liquidity,” according to Moody’s.

As the dollar value of acquired U.S. companies plunged 53% in 2008 and fell 35% for this year through May, Lonski predicted that the potential for more “rising star” upgrades through M&A will keep diminishing.

> Unfortunately i think "good" ( if you want to call the ratio 1:44 good.... ) news like this will be the exception.... Will be interesting to see if at least one media outlet will spin this as a sign that the green shoots are still here....... :-)

> Bin mir ziemlich sicher das solch "gute" ( wenn man das Verhältnis 1 zu 44 gut nennen möchte ) Nachrichten auch weiter die absolute Ausnahme bleiben werden....... Trotzdem nicht ganz auszuschließen das sich zumindest ein Medienvertreter findet der dies als Beleg für den absurden "Green Shoots" Wahn verwendet....... :-)

The Day After The Bond Marked Tanked....Must Read Report From Mr. Mortgage / Field Check Group

I have said a few weeks ago Ben, You Have A Problem......".... The problem has not gotten smaller......Get ready for QE 2.0......... Version 1.0 worked wonders for at least two weeks.....No wonder Gold has a chance for a breakout ( via Zero Hedge ). I highly recommend to read the entire piece and visit Mark Hanson & his Field Check Group site on a regular basis. Excellent stuff!

Vor einigen Wochen habe ich bereits getitels Ben, You Have A Problem....... Sieht so aus als wenn aus dem großen ein wirklich großes Problem geworden ist.....Wenn man weiß wie beschränkt Bernanke in seinem Denken ist gilt es als abgemachte Sache das wir uns auf eine massive Ausweitung des Quantitve Easing ( Notenpresse ) gefasst machen können. Macht ja auch Sinn wenn man sieht wie "toll" der erste Versuch funktioniert hat...... Da verwundert es wenig das Gold kurz davor ist "auszubrechen" ( via Zero Hedge ). Empfehle den kompletten Report zu lesen und den regelmäßigen Besuch von Mark Hanson und seiner Field Check Group Seite. Hier gibt es ungelfilterte "Bodenberichte" von der Hypotheken und Immobilienfront.


bigger / größer Thanks to Karl Denninger

5-28 - Potential Consequences of 5.5% Mortgage Rates Mr. Mortgage / Field Check Group

Mortgage Rates - It Could be as Bad as You Can Imagine

With respect to yesterday’s in the mortgage market — yes, it is as bad as you can imagine. No call can be made on the near-term, however, until we see where this settles out over the next week of so. If rates do stay in the mid 5%’s, the mortgage and housing market will encounter a sizable stumble. The following is not speculation. This is what happens when rates surge up in a short period of time - I lived this nightmare many times.

Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day.

Jumbo GSE money — $417k - $729,750 — has been blown out completely with some lender’s at 8%.

I have seen it all in the mortgage world — well, I thought I had.

A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.”

The consequences of 5.5% rates are enormous. Because of capacity issues and the long time line to actually fund a loan in this market, very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone.

A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lenders without a rate lock.

This is because consumers are incented by much better pricing to lock for a short period of time…12-30 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s time line.

Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.

Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock — a large percentage of these suddenly died yesterday. From the lows of a month ago to today, rates are up 20%.

To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates — if rates don’t come down quickly many will have to be canceled out of the lender’s system.

To add insult to near-mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006. .....

With respect to banks, mortgage banks, servicers etc, under-hedging a potential sell-off with the Fed supposedly having everybody’s back was a common theme. Banks could lose their entire Q2 mortgage banking earnings and middle market mortgage banker may never recover or immediately have to close shop

Lastly, consider sentiment — this is a real killer. This massive rate spike may have invalidated hundreds of billions spent to control the mortgage market literally overnight.

This leaves the mortgage and housing market very vulnerable.

Mortgage loan officers around the country are having a very very bad day today explaining to their clients why their rate was not locked and how rates are going to come right back down. They are also taking calls from borrowers with locked loans to confirm that the loan is indeed locked, inquiring as to when it will be approved or fund, and to rush the process in order to fund the loan by end of the lock-in term. This creates a customer service log-jam that chews through lender capacity quickly making the loan process even longer. Loans with second mortgages that need to be subordinated, are in a world of their own. Essentially, everything becomes a rush. Subsequently, loan officers will not feel like getting too aggressive taking new loan applications at least for the next month unless this corrects quickly.

Press surrounding this event will be the talk of Main Street immediately and cast a serious doubt over the housing recovery story that has been the common theme for months. An overnight housing market sentiment killer wildcard is something that nobody was factoring in.

We have to see where all this settles over the next few days before making a near to mid-term call on the outright damage because at this point, Fed or Treasury shock and awe is almost certain — another common theme has been ‘if it doesn’t work throw much more money at it’.

Obviously they have been following this closely for the past few weeks, as conditions began to deteriorate, and have likely been waiting to see where the upper range was before shocking in order to get maximum benefit…that would be a humongous short squeeze in Bonds driving rates lower. The problem is…if they do shock her and it is sold into with the same fury that we have been seeing, there may not be an act two.

The bond and mortgage market got complacent with the ultimate in moral hazard’s — the Fed’s got my back. Complacency is a killer.

Where we stand in two weeks in unknowable......