Shrinking Bank Revenue Signals Dawn of 'Worst' Decade of GrowthRead the full article here
October 25, 2010
By Dawn Kopecki and Michael J. Moore - Bloomberg Business Week
Oct. 26 (Bloomberg) -- Shrinking revenue at U.S. banks, led by Goldman Sachs Group Inc. and Citigroup Inc., may continue to fall as the industry heads into what could be its slowest period of growth since the Great Depression.
After the six largest U.S. banks posted record revenue in 2009, combined net revenue fell by an average of 8 percent in the third quarter from a year earlier and 16.3 percent over the last two quarters, according to data compiled by Bloomberg. Revenue so far this year is down by 4.1 percent, driven by declines in everything from trading at Goldman Sachs to home lending at Bank of America Corp. New laws restricting account and credit-card fees, as well as derivatives and capital rules, are also squeezing lenders.
Next year will kick off a decade that will bring the “worst revenue growth” for U.S. banks in 80 years, according to Mike Mayo, a banking analyst at Credit Agricole Securities USA Inc. in New York. Net revenue at U.S. commercial lenders has expanded at a slower pace in each of the last three decades, falling to 6 percent in the last decade from 12 percent in the 1970s, according to Federal Deposit Insurance Corp. data.
“Revenues aren’t just weak for this quarter, or even for this upcoming year, but for the entire upcoming decade,” said Mayo, a former Federal Reserve analyst who has more than 20 years of industry experience. “The speed limit’s been lowered for how fast banks can drive earnings.”
The trend over the last two quarters is hitting almost every line of income statements and is spread across the sector, affecting investment banks, consumer banks and commercial lenders. It’s eating away at profits, depressing stock prices and threatening bonuses and new hiring.
Read the full article hereDouble whammy hits big local real-estate portfolioWhen investment-banking giant Goldman Sachs bought 11 Seattle and Eastside office buildings and complexes in 2007 — overnight becoming one of the market's largest landlords — there wasn't much talk of risk.
A Goldman Sachs affiliate paid $930 million for 11 Seattle and Eastside office properties in 2007 but now — as a balloon payment looms ever larger — it's reeling from plunging real-estate values and emptied cubicles.
By Eric Pryne - Seattle Times business reporter
The 2.5-million-square-foot portfolio was almost fully leased, its market value on the rise. Stable, venerable Washington Mutual, the largest tenant, had been locked in for another decade.
A Goldman affiliate, Whitehall Street Global Real Estate Limited Partnership 2007, paid a whopping $930 million for the buildings, borrowing almost all of it.
What's happened since then makes the deal a poster child for the troubles confronting Seattle's commercial real-estate scene.
Today, one-third of Whitehall's local space sits vacant. That includes about half of the biggest building, 34-story 1111 Third Avenue in downtown Seattle, hit hard by WaMu's implosion.
The portfolio's value has plummeted, perhaps as much as 60 percent. Bond-rating agency Fitch estimated it at $342 million in a recent report.
Fitch also predicted the Goldman Sachs affiliate will default when the huge, interest-only loan Whitehall took out in 2007 matures in 18 months and all the principal — about $900 million — must be paid back.
Fitch's somber assessment came a few months after Key Bank, which services the mammoth mortgage, put the loan on its "watchlist," citing the big drop in occupancy.
"It's an early indicator to investors of potential trouble," said Paul Mancuso, a vice president with Trepp, a New York firm that analyzes commercial real-estate debt.
Whitehall's 11 properties, which include two downtown Bellevue high-rises, are better known in Seattle as the Archon portfolio, for another Goldman Sachs subsidiary that manages them.
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No Seattle landlord was hit harder than Goldman. WaMu vacated 288,000 square feet in 1111 Third — half the tower.
"That's a zombie building," one Seattle broker said.
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