The Garrett, Watts Report (Nov. 28, 2009)

To Our Clients, Colleagues and Friends,

Here’s a weird statistic: Bert Blyleven pitched 75 complete games which he lost. He had an excellent 3.19 ERA in those games, but his teams just didn’t give him enough run support. Another example of not getting enough offensive support is the great Nolan Ryan. Ryan pitched 75 games in his career in which he allowed 2 or fewer runs, and still lost. His ERA in those 75 losses was 2.03.
Here are the top eight banks by assets:

Bank of America	$2.232 trillion
JP Morgan Chase	$2.041 trillion
Citigroup	$1.888 trillion
Wells Fargo	$1.228 trillion
HSBC No. American	$ 390 billion
PNC Financial	$ 271 billion
U.S. Bancorp	$ 265 billion
Bank of New York	$ 212 billion

Here are a few others: #9 Suntrust ($172 billion), #11 BB&T ($163 billion), #14 Regions ($140 billion), #25 Comerica ($60 billion), #30 Huntington ($52 billion), #33 Charles Schwab Bank ($38 billion), #49 City National ($18 billion).
Here they’re ranked by deposits, with U.S. Bancorp and PNC moving up in the rankings and HSBC moving down.

JP Morgan Chase	$868 billion
Citigroup	$832 billion
Wells Fargo	$796 billion
PNC Financial	$183 billion
U.S. Bancorp	$169 billion
HSBC No. American	$161 billion
Bank of New York	$133 billion

Remember how the sub-prime crisis morphed into the mortgage crisis and then became the global economic crisis? Today just might be the three anniversary of when it all started. On November 28, 2006, a Wall Street warehouse lender cut off subprime lender Ownit, which then promptly failed. And from what we recall, that was the first such failure, a ground-zero for what was yet to come. Kind of an après moi, le deluge.
In response to some stuff on e-mail manners, we just got this. “In my 20 years in the business, I think a simple thank you is one of the most important things we can teach our employees. It’s not just e-mail etiquette; it’s etiquette in everything we do. Please, thank you, andyou’re welcome are still important words, and thank you notes after meeting someone are always the right thing to do.”

We’re still puzzled by companies who do over $20-25 million a month and continue selling best efforts. The pick-up between best efforts and going mandatory has never been so wide. And those who agonize over it too long will, perhaps, finally decide to go to the party and find that the punch bowl has already been taken away, the band leaving, and nothing left but cold pizza and warm beer. Put another way, no one wants to be the first one at a party, but you miss all the fun if you show up too late.

Florida is the worst hit with non-performing mortgages including foreclosures, totaling 24.9% compared to 23.4% in Nevada , 18.1% in Arizona , and 16.3% in California . That 24.9% for Florida is just a disaster.
David Stein at Residential Finance Corp. wrote us that the basket building from the last issue is in a suburb of Columbus . On our next trip, maybe we’ll go see it.
When growing up as teen age boys, we always tried figuring out how to be cool and be popular with girls. We read Playboy to learn Hugh Hefner’s techniques, but wearing silk pajamas and smoking a pipe looked pretty idiotic for a 15 year old. We watched James Bond movies to learn how to be cool, but 16 year old boys asking for martinis stirred rather shaken was really moronic. The mystery has now been solved for 15 year old boys. If they go see The Twilight Saga: New Moon, they’ll learn exactly what makes girls scream. We watched the first 15 minutes while waiting for 2012 to start, and if there were any teenage boys in the audience, they should have been taking notes.

Here’s a trailer for 2012. If you don’t see the movie, take a few minutes and watch this preview.
Despite $62 billion in loan loss provisions and $51 billion in charge-offs, the banking industry still managed to make a profit of $2.8 billion for the recent quarter. This shows real underlying strength and portends strong bank earnings once the economy is back to normal.

And what’s going on with that warehouse lender who’s raising haircuts from two points to five points and eliminating bulge lines? Has that happened to you, or are we just seeing isolated instances?

The FDIC just hit Pacific International Bank (Seattle) with civil money penalties because they failed to get flood insurance on 7 of 23 mortgage loans. The penalty was charged to the bank, but when it gets really ugly is when they fine individual officers and directors.

Did you know it’s been 28 years since Natalie Wood drowned? Within hours of her death, MBS traders were telling sick jokes about her, but her acting in movies like Splendor in the Grass was nothing les than terrific.

Transparency International has ranked 181 nations from the least corrupt to the most corrupt. The top five in order are New Zealand , Denmark , Singapore , Sweden and Switzerland . The worst were Iraq , Sudan , Burma , Afghanistan , and finally, Somalia . Russia was #146, Pakistan was #139, China was #79, and the U.S. was #19.

We made a list of fifty books we want to read or re-read. Here are twenty of them and we’ll show the rest next week. If you think of any classics that should be on a must read list, let us know.

A Doll’s House (Ibsen)	Love (Stendhal)
All Quiet on the Western Front	Madame Bovary (Flaubert)
Confession (Augustine)	Notes from the Underground
Crime & Punishment	Pride & Prejudice (Jane Austen)
East of Eden (Steinbeck)	Sons & Lovers (D.H. Lawrence)
Far from the Madding Crowd	The American (Thomas Hardy)
First Love (Turgenev)	The Genius (Dreiser)
Jayne Eyre (Bronte)	Last of the Mohicans (Cooper)
The Dead (James Joyce)	Wuthering Heights (Bronte)
Essays (Schopenhauer)	The Way of All Flesh ( Butler )

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We’ve been doing a lot of FOCIS-plus Reviews lately, and they’re one of the more gratifying aspects of our work. We look at all the areas of risk, but the best part is figuring out how a company can make more money. Sometimes it’s really obvious, and other times we need to tear apart the entire organization and put it back together before we find the source of the problem.
And it’s not that we’re the smartest people in the world. We’re not. But the three of us have over 80 years experience in the mortgage banking industry and lending to it, and we’re in dozens and dozens of mortgage companies every year. It’s the latter which proves so useful, as we see over and over again what works and what doesn’t. We see certain processes and ways of doing certain things over and over again at all the highly profitable companies. If ten companies perform a certain function one way and make good money, and you’re doing it a totally different way and losing money, maybe learning how the top performers do it can help you.
The FOCIS-plus looks at about 67 areas, and we typically have very specific recommendations on about 40-45 of them. Interestingly, the key to going from a low-performing company to a high-performing one is usually found in less than five recommendations. The solution is usually not all that complicated.
We’ve gone into companies that were making a ton of money and where our recommendations were more along the lines of how to better manage risk and have better financial reporting. When someone’s making 125 bps per loan, we’re hard pressed to find ways for them to make even more. But when companies make 50-60 bops, and less, these are our favorite ones where we’ve been able to make a real difference and help them really grow their revenues. Those are the most gratifying. *