Randomly Noted

If other banks report the kind of earnings numbers that came out of J.P. Morgan today, suffice it to say the banking industry is certainly on the road to recovery. Strong earnings and revenue numbers were impressive. But the numbers that really stood out to this blogger were some of those that are the bread and butter of an investment bank (and commercial bank that does investment banking).

Investment banking fees were up in the three major categories: equity underwriting fees of $489 million were up 22% from the prior quarter. Debt underwriting fees of $920 million were up 17% from the prior quarter. And advisory fees of $424 million were up 10% from the prior quarter.

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We haven’t heard much recently on the commercial real estate front other than some big workouts have been done for loans of some high profile deals before the financial crisis hit. Today, Fitch Ratings issued a report that makes it clear that while the commercial real estate market may have shown signs of improvement in some parts of the country, in others it remains a problem.

Fitch downgraded a series of mortgage passthrough securities today because of problems with some of the underlying loans. We know how hard hit the housing sector has been and how related companies suffered as well. But perhaps no town has suffered as much as High Point, NC.

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We learn today that giant insurance company Allstate has sued BankAmerica and its Countrywide Financial unit over a bum investment. It seems Allstate bought $700 million of Collateralized Debt Obligations from Countrywide which were backed by residential mortgages originated by the mortgage lender. Allstate believes Countrywide misrepresented  the quality of the portfolio.

Well, we don’t know yet the merits of this case – and we don’t know exactly what Countrywide disclosed in the offering documents for this CDO (were these stated-income mortgages? was performance of the mortgages listed in the documents? default rates? delinquencies?) To be sure, Countrywide originated some really bad mortgages and it is entirely possible that some of those made their way into the CDO Allstate bought.

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At first, it’s hard to tell if BMO Financial Group’s $4.1 billion acquisition of Marshall & Ilsley is about a strategic expansion of business in the U.S. or an opportunistic buy of a bank beat up by bad real estate loans.

The answer is it is probably both. Marshall & Ilsley has lost money for nearly two years because its loan portfolio – heavily commercial – soured across the board. But it has a strong deposit footprint in Wisconsin, Minnesota, Florida and Arizona.

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Over the past couple of weeks, Moody’s Investors Service has been downgrading more pools of commercial mortgage backed securities. And buried in releases of a couple of those downgrade notices comes word that a loan on famous New York City office building landmark has moved into special servicing.

The building is 666 Fifth Avenue and it was built in 1957 by Tishman Realty & Construction. It at one point had Citigroup as a major tenant, with a “Citi” logo replacing the numbers “666″ on the side of the building. Kushner Properties bought the building for nearly $1.8 billion near the top of the NYC real estate market in late 2006.

And now there appear to be some issues with that loan.

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General Electric reported earlier today that its earnings and sales were a little softer than everyone expected them to be although orders for new equipment and services grew in the third-quarter – a sign business is picking up.

But one of the clear challenged that remains for GE is its real estate portfolio in its GE Capital unit. The company reported today that its real estate business lost $405 million. Now, that’s better than the $538 million loss in the year-ago quarter, but it shows that the weight of bad loans continues to drag down GE Capital.

The company also noted that it has $1.4 billion in non-performing loans, so, more losses are likely. It wrote off $222 million of losses from that real estate loan portfolio.

Looking to own a piece of the FBI? How about the IRS? Or the Border Patrol? Ok, it’s not exactly owning a part of one of those agencies but instead, a share of a company that holds leases to buildings housing those agencies.

The new company is called US Federal Properties Trust and it is proposing to sell 13.75 million shares of stock at a price from $19 to $21 each. It will be a real estate investment trust.

The company’s reason for being is to construct or buy buildings that it then leases to various federal government agencies. Commercial real estate still hasn’t recovered and there remains concerns about the default and delinquency rates. But you have to think the federal government and its agencies are somewhat immune to that. At least at a time when you an administration that doesn’t seem interested on slimming down government. So, if you want real estate as part of your portfolio, this could be an interesting option.

Investors looking for a play on the commercial real estate market but don’t have the stomach for defaults and declining property values may have an interesting alternative on the horizon. The company is Velocity Commercial Capital and it filed to go public late last week. It’s relatively small but that’s what makes it attractive.

The company originates or buys small business commercial real estate loans. All are first lein. And the largest loan it will get involved with is $3 million. The average loan value in its portfolio is $391,000.

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