Posts Tagged ‘assets’

Boomers Planning on Taking It With Them

Tuesday, September 27th, 2011

A new study  has found that many baby boomers plan to spend their money on themselves and forego giving their offspring any inheritance.  “My goal is when they carry me away in that box that my bank account is going to say zero,” said Carol Willison, a 60-year-old Seattle woman.  “I’m going to spoil myself now.”  Upsetting the conventional idea of parents carefully tending their financial estates to be passed down once their wills are read, many baby boomers plan to spend the money on themselves while they still can.

In a survey of millionaire boomers by investment firm U.S. Trust, only 49 percent said it was important to leave money to their children.  The low rate surprised a company that for decades has advised well-heeled people about how to leave money to their heirs.  “We were like ‘wow,'” said Keith Banks, U.S. Trust president.

The decision to leave an inheritance is increasingly faced by many of the nation’s 77 million baby boomers, and it’s becoming all the more complicated because of the difficult economy.  Boomers face the decision of wanting to enjoy their long-awaited golden years and the pressure of various financial concerns, such as fear of outliving their savings and the need to help parents, children or siblings who have money struggles of their own.

“I do not see my baby boomer clients giving up a vacation or wine or dinners out so that they can leave more money to their children, because they feel like they’ve already done it for their kids,” said Susan Colpitts, Executive Vice President of a Norfolk, VA wealth management firm.  “They say, ‘If there’s something at the end I’d love (the kids) to have it, but what’s important for me now is to get what I’ve earned, which is to travel and have a nice bottle of wine,'” Colpitts said.

“How can you say no when a child asks ask for a down payment for a house or money to remodel their house to have a bedroom for a second child?” asks Ken Dychtwald, chief executive of the research firm Age Wave.  “A lot of boomers are finding that family members are taking cash advances on those inheritances right now.” 

Writing on the Encore blog about retirement planning,  Missy Sullivan says that “The survey found that three-quarters of respondents believe their wealth came from their own focus and hard work, while half said they paid a steep personal price — limiting time off, neglecting their families, mishandling relationships.  Maybe that’s why, as they approach retirement, they’re planning to spend more on themselves, traveling (64 percent) and having fun (36 percent).  Boomers surveyed also had doubts about their kids’ readiness to handle the family riches.  Only 31 percent of parents agree strongly that their children can handle an inheritance.  Only 36 percent believe the kids can work together to make decisions about the family wealth after they’re gone.  Fifteen percent have disclosed zilch to the kids, detail-wise, about their wealth.  When asked why, the reasons included fear the kids would become lazy (24 percent), would make poor decisions (20 percent) or would squander the money (20 percent).” 

The size of parental estates can be significant  — a median of $64,000, according to a report from the Center for Retirement Research at Boston College and MetLife insurance.  That’s a handsome amount, but hardly the life-changing Lotto win that will send boomers on a big shopping spree.  “We ran all the numbers, and it’s really unlikely that boomers will inherit an unimaginably large amount of money,” said Anthony Webb, a research economist with the retirement center.

The fact remains that many Boomers inherited less from their parents, thanks in part to the recent financial meltdown.  Boomers who have already inherited an estimated $2.4 trillion avoided much of the market declines.  If investors didn’t have to take their cash out of the market, the investment hit most estates took during the recession has nearly all been recovered.  Nevertheless, the Center for Retirement Research estimated that the $6 trillion originally coming due to boomers had been cut to $5.2 trillion, creating an $800 billion loss.  Additionally, that 13 percent estimated loss in investment wealth, the major factor dragging down boomer inheritances, is the drop in housing prices.  “Real estate took a huge cut, whereas investments have largely recovered for many people,” says Warren McIntyre, a certified financial planner with Troy’s VisionQuest Financial Planning.

According to Marilyn Capelli Dimitroff of Capelli Financial Services, “Once the parents are gone, the kids can’t sell the house.  I’ve had conversations with clients where they just don’t know what to do.  The houses are on the market and on the market, and sometimes the kids live out of state and the houses just deteriorate.  I actually had one family try to give away the home, and they couldn’t do it.”

Lehman Brothers Workout Could Take Three to Five Years

Tuesday, October 6th, 2009

1105000_lehman_brothersCleaning up the mess left by Lehman Brothers’ collapse and bankruptcy involves salvaging a national portfolio of 900 properties valued at $16 billion.  What the advisory firm overseeing Lehman’s bankruptcy achieves could be a framework for the strategies that big banks across the country use as they deal with their own troubled assets whose loans are maturing over the next 18 months.

According to Bryan Marsal, the head of Alvarez & Marsal, the advisory firm overseeing Lehman’s bankruptcy proceedings, “It’s not a great time to sell today.  We are not passively waiting for a better market.”  Marsal’s firm has 66 people overseeing the Lehman portfolio, as well as 250 outside contractors.  Describing the effort as the “biggest workout department in the U.S.,” Marsal estimates that it could take his team three to five years to complete the wind down of Lehman with its creditors and in federal bankruptcy court.

Lehman’s restructuring could provide a lesson for U.S. banks and thrifts holding more than $1.2 trillion in commercial mortgages backed by office buildings, hotels, shopping malls and apartments.  With falling property values and tight credit, commercial property lenders’ losses could total as much as $115 to $150 billion, according to a Deutsche Bank AG report.

The Lehman portfolio clearly demonstrates the depth of losses across the board.  One group of properties fell in value by an estimated $5.4 billion between the weekend of its bankruptcy filing and December 31.  This was due to a combination of a deteriorating market and unrealistically high valuations prior to the bankruptcy filing.

Distressed CRE Hits $108 Billion

Monday, August 3rd, 2009

More than $108 billion of commercial properties in the United States are now in default, foreclosure or bankruptcy.   That preliminary statistic is nearly double the amount reported at the start of 2009, according to New York-based Real Capital Analytics, Inc.19and20

At the end of June, 5,315 buildings were reported to be in financial distress.  Hotels and retail properties are the most “problematic” assets after bankruptcy filings by mall owner General Growth Properties, Inc., and Extended Stay America, Inc.  The lack of credit is spurring property defaults throughout the country and among every type of investor.

“Perhaps more alarming than the rapid growth in the distress totals is the very modest rate at which troubled situations are being resolved,” according to Real Capital Analytics.  The good news is that approximately $4.1 billion of commercial properties have emerged from distress.  “In far more situations, modifications and short-term extensions are being granted, but these can hardly be considered resolved, only delayed,” the report notes.

Local Banks Facing Significant CRE Losses

Monday, June 15th, 2009

Toxic commercial real estate loans could create losses up to $100 billion for small and mid-size banks by the end of 2010 if the economy worsens.  According to a Wall Street Journal report – which applied the same criteria used by the federal government in its stress tests of 19 big banks — these institutions stand to lose up to $200 billion.  In that worst-case scenario, 600 small and mid-sized excedrin1banks could see their capital contract to levels that federal regulators consider troubling, possibly even surpassing revenues.  These losses would exceed home loan losses, which total approximately $49 billion.

The Journal, which based its analysis on data mined from banks’ filings with the Federal Reserve, are a grim reminder that the banking industry’s troubles are not confined to the 19 giants that have already completed the Treasury Department’s stress tests.  More than 8,000 lenders nationwide are feeling the dual impacts of the recession and commercial real estate slowdown.

The banks analyzed by the Journal include 940 bank-holding companies that filed financial statements with the Fed for the year ending December 31.  They range from large regional banks to mom-and-pop banks in small towns, as well as American-based subsidiaries of international banks.

Smaller banks are unlikely to appeal to bargain-hunting investors who are starting to recapitalize the industry’s giants.  As a result, these institutions must boost their capital by selling assets and making fewer loans – which could make the recession last even longer than anticipated.

Geithner: The Patient is Out of Intensive Care

Friday, May 15th, 2009

It’s been a long, strange ride, but the nation’s financial system is finally starting what is certain to be an extended healing process. Treasury Secretary Timothy Geithner believes that “the financial system is starting to heal” as he promised to move returned bail-out funds to community banks that need help.bandaid-on-broken-and-cracked-piggy-bank

Improved lending circumstances are tempering concerns about systemic risk and reduced leverage at banks, according to Geithner, who noted that “a substantial part of the adjustment process” for the financial sector is now coming to an end.

Several of the larger banks – Goldman Sachs, JP Morgan and Capital One Financial – want to repay the funds they received under the Troubled Asset Relief Program.  The Treasury will increase the money community banks can access to five percent of risk-weighted assets from three percent.  The government has already invested in preferred stock in 300 smaller banks.

“As in any financial crisis, the damage has been unfair and indiscriminate,” Geithner said.  “Ordinary Americans, small business owners and community banks who did the right thing and played by the rules are suffering from the actions of those who took on too much risk.”

Why the optimism?  Geithner points to declines in corporate bond spreads, lower risk premiums in inter-bank markets and cheaper default insurance on big banks as evidence that the financial system is healing.  “These are welcome signs, but the process of financial recovery and repair is going to take time,” he cautions.

Dr. Geithner’s Harsh Medicine

Tuesday, April 21st, 2009

The Obama administration has proposed the most comprehensive overhaul of the nation’s financial industry since the Great Depression.  The measures, as outlined by Secretary of the Treasury Timothy Geithner, geithnerwill require regulation of hedge funds for the first time and give government wide-ranging powers to seize and take apart companies that are perceived as threats to the overall economy.  The proposals are strong medicine indeed.

The measures, which require Congressional approval, are structured to entice private buyers by offering the similar supercharged leverage that prevailed during the financial boom-but one where oversight is de rigueur.   While the private sector is cutting back on its debt, the government believes that providing inexpensive financing is the best way to free up the market for illiquid debt.

The proposals give the Federal Reserve the authority to oversee the nation’s economy for signs of “systemic risk”.  The legislation will include significantly stronger requirements regarding the cash reserves and assets that institutions must have on hand to endure economic downturns.  Hedge funds, private-equity firms, derivatives and other private investment funds will be required to register with the Securities and Exchange Commission and will be subject to strict regulation.  Additionally, the government will establish a central clearinghouse to closely monitor trades in these markets.  Lastly, the administration will develop stricter requirements for money market funds so withdrawals don’t threaten the broader financial system.

Harsh medicine indeed, but the old system failed us all.  Secretary Geithner sees his proposals as a price worth paying to clean out banks’ balance sheets.  If the plan fails, it will be because banks were not willing to risk of taking a write-down and depleting precious capital.

$700 Billion Financial Bailout Plan Still Evolving: Part 2

Monday, November 24th, 2008

Paulson’s TARP (Troubled Assets Relief Program) turnaround – he originally dismissed the bailout package as a recipe for “failure” -may demonstrate that his revised response is a gesture to public opinion.  At present, the bailout also seems geared more to help Main Street than Wall Street, a strategy that will play well with the general population.  Approximately half of the bailout money has been spent on emergency investments in banks and other institutions with the purpose of reviving the regular lending and borrowing that is vital to the nation’s economic health. According to Alan Ruskin, chief international strategist at RBS Global Banking and Markets, “This hasn’t done the Treasury’s credit a world of good.  Basically, they found that the market would applaud direct capital injections more easily than understanding the complexities of reverse auctions to buy more assets, so it’s a pragmatic choice.”

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