Will Corus be a condo casualty?
marketwatch.com
SAN DIEGO (MarketWatch) -- If investors in Corus Bankshares do nothing else, they should read last Sunday's San Diego Union-Tribune.
A headline on the front page screamed, "Downtown Downturn?" It was a story about the slowdown in downtown San Diego's booming condo market, where the number of pre-owned units on the market has doubled to 600 from this time a year ago, while another 2,010 "unsold new units are being actively marketed in projects that are recently completed, are under construction or are expected to start construction soon."
The story went on to say that "the inventory bulge is likely to sideline at least some new condo construction...Already, a handful of proposed projects have been put up for sale."
Why single out Chicago-based Corus (CORS : CORUS Bankshares for what is happening in San Diego? Simple: 93% of its loans are tied to condo developments, up from 75% a year ago and around 49% in 2003. Twenty percent of those loans are in California; 6% in San Diego. The other key markets are Washington, DC, Florida and New York City.
That as fine while business was booming, but could be a trap when it's not.
Yet based on the company's stock, investors must be thinking it's different this time because of empty nesters and investment properties.
It's not, of course.
Management didn't return my call, but a story last December from one of my alma maters, Crain's Chicago Business, quoted CEO Robert Glickman as boasting about having never written off a loan in 10 years. He also said the bank wasn't slowing its condo lending and isn't tightening lending standards.
To be sure, the size of loans has ballooned. At the same time, loan loss reserves as of the end of the year were at a meager 0.88% of all loans, down from 1.5% in 2003. Glickman told Crain's that accounting rules restrict his ability to add substantially to reserves in the absence of loan delinquencies.
Maybe, but if this condo boom ever goes bust, delinquencies will be the least of Corus' problems.
Minding Marchex: Several weeks ago, on CNBC's Mad Money with Jim Cramer, I raised red flags over Marchex (MCHX : marchex inc an Internet advertising company. I noted that if it hadn't been for acquisitions, growth last year would've been flat.
The stock hadn't done anything since then, but on Tuesday Cramer got behind it again -- applauding a report from W.R. Hambrecht, that initiated coverage of this stock with a $29 target, or about $6 above its current price.
Just one problem: The analyst's revenue and earnings numbers for this year and next are well below consensus analyst estimates. Cramer couldn't care less. I say: Yet another example of two plus two on Wall Street not equaling four. |
