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Monday, July 13, 2009

Gave Me Pause

Bloomberg article on Fitch rating action on Japanese CMBS. I'll have to stagger off to Fitch and see what's really going on, but it sounds as if Fitch is now assuming that all balloon-backed Japanese CMBS will default over the next year, because over the last six months the majority of them have:
Default rates on loans underlying Japanese commercial mortgage-backed securities rose to an “unprecedented high” of 53 percent in the first half, Fitch Ratings said.
“The agency expects the extremely challenging refinancing environment to continue,” Fitch said in today’s statement. “The lack of finance and the resultant forced disposition of assets are weighing heavily on the real estate market.”
The crash that just keeps crashing....

A 53% default rate is hard for me to comprehend.Collapse is the only word that seems appropriate.
This is quite serious, if true.

The Japanese credit system has more in common with China's than with ours. Businesses get loans based on their relationships with the financial bureaucracy, not on their credit-worthiness which is (mostly) true here in the U.S., however imperfectly. If the majority of balloon payments are not being re-financed, it's because either somebody decided to stop the merry-go-round of bad loans, or because Japan is simply out of money.

Either way, it's not a collapse--it's a societal earthquake. The entire structure of Japan's political economy is shifting.
Not ignoring you two - it's just that I can't think of anything to say except "Fifty-three percent?" in a weak, small voice.

Yeah, that's just amazing.
Yeah, that's why I prefaced my comment with "if true". I kinda need some verification on that, but so far I haven't found any.
I can believe it. Japan has an export-driven economy, and exports are down a huge, huge percent year on year.

Overcapacity is about to get foreclosed on with a vengeance.
This is from July 8:


(Reuters)-"Commercial mortgage-backed security issuance in Japan increased by 68 percent in the six months to June from the previous half-year, suggesting a recovery in the market which was severely hit by the global financial crisis, a brokerage report said."

That was just a week ago. What gives? Have the Japanese seriously started foreclosing on unprofitable businesses? That would be novel, indeed. Or are they shoveling out commercial lending faster than ever?
Neil - the article referred to bullet maturity loans as the major problem. I looked for some info on Fitch's website, but they have refined it so beautifully that I can't find anything.
Ah, here's a bit more information on that report. It seems that CMBS issuance is, indeed up greatly from the 2nd half of 2008, but down mightily from 2007.

The ¥300 billion [H1 '09] figure is also way down on the ¥2.3 trillion in new Japanese CMBS issuance that was recorded for all of 2007, as Otani himself points out.


So, it looks like commercial mortgage lending has, indeed, collapsed in Japan.
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