2. Credit Crunch Explained It has been well documented that the mortgage crisis and subsequent credit crunch are the two main causes of the current economic recession. But what caused the mortgage crisis? The very beginning of the crisis started long before 2007, even before George W. Bush lived in the White House. It really all began in 1977 with the passage of the Community Reinvestment Act and the following regulatory and legislative changes enacted by Bill Clinton. This effectively forced banks and mortgage brokers to loosen requirements for obtaining mortgages. This coupled with the excess global capital that was available at the time created a "perfect storm" for banks, who subsequently issued billions of dollars in subprime mortgages.
3. Credit Crunch Explained-Cont With money finally available to many who, for the first time, could qualify for a loan, demand skyrocketed which created abnormal appreciation of real estate equity that was hard to track. With the high turnover of homes at prices far beyond their intrinsic value, an economic bubble was created. Many of the new applicants had never owned homes before. They were either naive enough to believe that their adjustable rate mortgage would not rise enough to hurt them, home appreciation would keep up with the rising rates, or the cost of living changes would impact them in a positive way. For awhile, they were correct. Many ARM's did not start adjusting until 3-5 years after they were originated, and while banks were still pumping out money, speculation continued to rise, the economy was going great, and homes were still appreciating. It's hard to estimate when a ceiling would be hit, but there were many warning signs that were ignored, which places even more blame on lenders and the personal responsibility of borrowers.
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5. Home Value Statistics As more borrowers stop paying their mortgage payments (this is an on-going crisis), foreclosures and the supply of homes for sale increases. This places downward pressure on housing prices, which further lowers homeowners' equity . The decline in mortgage payments also reduces the value of mortgage-backed securities , which erodes the net worth and financial health of banks. This vicious cycle is at the heart of the crisis.
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7. Today Today, the good news is the data above suggests that foreclosure rates have stabilized year to date in 2010 and median home sale prices are again on the increase. The length of time for complete recovery of home values has been estimated by dividing the lowest point of depreciated home values (34%) by the average annual home value appreciation rate of 5%. Essentially 6.8 years.
15. The ratings from Aa to Ca by Moody's may be modified by the addition of a 1, 2 or 3 to show relative standing within the category where the highest within the rating is 1 and the lowest is 3. BBVA Among the Safest Banks in the World Imminent default or in default C Very poor quality Ca Substantial Risk 24.73% Caa Very speculative 6.53% B Below investment grade. "Junk Bonds" Low grade 1.21% Ba Minimum Investment Grade 0.15% Baa High Quality 0.01% A Very High Quality 0.02% Aa Investment grade bonds. Highest Rating Available 0.00% Aaa Notes Definition Average Default Rate Within One Year of Rating (1970-2001) Moody's Rating
16. BBVA Standing Strong – Financial Highlights To be adequately capitalized under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 capital ratio of at least 4%, To be well-capitalized under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 capital ratio of at least 6%,
17. BBVA: Growth in the U.S. BBVA Legacy 2006 2007 2009 2005 Rio Grande Valley General Market Leadership in the Sunbelt BBVA Puerto Rico 1968 BBVA New York 1987 Bancomer Transfer Services 1994 Flagship of the United States franchise 2004 FDIC showed confidence in BBVA Compass’ ability to take over a troubled institution
18. BBVA Compass is a Sunbelt-based financial institution which operates 717 full-service branches in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas. Compass is among the top 15 largest commercial banks in the U.S. based on deposit market share and ranks among the largest banks in Alabama (3rd), Texas (4 th ) and Arizona (5 th ). Through three major business units - Corporate Banking, Retail Banking and Wealth Management - Compass offers innovative and industry leading products and services to meet their financial goals. In addition to meeting the needs of our clients in the communities we serve, as a subsidiary of the BBVA Group our clients also have access to a full range of international products and services in more than 30 countries. About BBVA Compass
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20. New Mexico: 2.4% Texas: 6.8% BBVA Compass: The Leading Regional Bank in the Sunbelt … in markets that are expected to continue outperforming the U.S. National average in terms of economic growth Deposit Market Share (%) California: 0.4% Arizona: 3.7% Colorado: 1.5% Alabama: 10.7% Florida: 0.5% $41.6 billion in lending 717 branches in 7 states $46.5 billion in deposits 11,367 employees Note: As of June 30, 2010
21. MSA 387 Banking Centers in Texas Texas represents almost 60% of BBVA Compass’ operations based on deposit market share. Source: FDIC, SNL Securities Mkt Share Ranking TEXAS Houston Dallas-Ft. Worth McAllen Laredo Austin San Antonio Beaumont Brownsville Waco 6.8% 6.6% 4.8% 30.9% 39.2% 8.4% 6.9% 22.2% 21.1% 13.0% 4 th 5 th 4 th 1 st 1 st 4 th 5 th 1 st 2 nd 1 st BBVA Compass: A Strong Franchise that Ranks 4 th in Market Share in the Lone Star State
24. BBVA Compass: Innovation & Technology Upgraded Mobile Banking Launched New Credit Card Programs BBVA Compass announces strategic alliance with Social Money Leader Affinity Banking Programs Launched Business Build-to-Order® Checking Account Launched BBVA Compass MarketLink CD Launched First-Time Home Buyer Program Upgraded Internet Banking Platform Launched Build My Savings SM account
We remain in Moody’s Upper Medium Quality group while many of our peers sustained deeper downgrades. Unlike some competitors, we retained a rating well above investment grade minimum levels even after Moody’s subjected our loan portfolio to a “catastrophic” scenario.
