|CECL: Preparing For FASB’S New Current Expected Credit Loss Standard
How will CECL affect your institution? The Financial Accounting Standards Board’s (FASB) new current expected credit loss (CECL) standard represents a sea change to accounting practices for financial institutions, and poses significant operational and compliance challenges. The new standard will effectively require financial institutions to record all credit loss projected to occur over the life of the loan at the time of loan origination or purchase.In June 2016, when FASB issued a new accounting standard to calculate credit losses, it ushered in a major shift in how financial institutions record impaired loans on their books. Currently, banks mark their loans as healthy until the point of impairment – that is, until actual losses have been incurred. The new standard will instead require that institutions use an expected credit loss model, whereby they will be required to calculate expected losses over the life of a loan. Implementation of the CECL model will require a carefully considered strategic plan.
The new standard is the culmination of FASB’s sweeping review of the 2007-2008 financial crisis and its conclusion that it was necessary to revisit loss-estimate protocols used in the allowance for loan and lease losses (ALLL) calculation. The new CECL standard will be phased in: For fiscal years beginning after December 2019, Securities and Exchange Commission (SEC) filers must be fully implemented by their 10-Q reporting deadline for Q1 2020, December 2020 for public companies that are not SEC filers and December 2021 for all other organizations.
The transition to the CECL model should not be taken lightly, nor should the amount of time required to plan and prepare for the changeover be underestimated. To be sure, accurately accounting for expected losses through the implementation of the new CECL model will bring with it significantly greater data requirements and changes to institutions’ processes, systems and controls. Further, not only will financial institutions need to consider their method for estimating losses, but also the documentation and other support their internal control framework should produce to substantiate their loss estimates. It should be expected that the SEC and other regulators will continue to focus such support.
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Manhattan Office Owners Lure Tenants with Concessions
Manhattan office leasing is on the rise — thanks in large part to deal sweeteners offered by landlords.
With big companies reducing space and new towers rising across New York, office owners are trying to attract tenants by lowering asking rents and shelling out cash to fix up properties. Such moves helped prop up demand in the third quarter, according to a new report by Savills Studley. Manhattan leasing soared 32 percent from the previous three months to 9.1 million square feet (845,000 square meters), well above the historical average of 7.5 million, the brokerage said.
“In order to entice tenants to make lease commitments at high face rents, landlords are having to provide very large concession packages,” said Bill Montana, a Savills Studley senior managing director. Even landlords under less pressure to achieve high rents, such as families who own real estate, “are having to do this to compete for tenants.”
Asking rents fell 2.2 percent in the third quarter to $73.21 a square foot, Savills Studley said. Landlords are also increasingly covering the cost of finishing out spaces, known as tenant improvement allowances. Fifty-six leases so far this year had such allowances valued at $100 a square foot or more, compared with 24 in all of 2016. In the past, triple-digit allowances were an anomaly, the brokerage said.
Almost a decade after the credit crisis pummeled New York office demand, the typical boom-bust cycle of the city’s commercial real estate market has given way to something less reliable.
read more: NREI
MBA Sees Flat Growth In ’18 for Commercial Mortgages
Two mortgage banking sectors, one organization, one slow-growth economy, two divergent outlooks for the coming year. The Mortgage Bankers Association said last week that it expects commercial and multifamily originations to be essentially flat in 2018. On the residential side, though, MBA is expecting a year-over-year increase in purchase mortgage originations, even as refinancing activity is expected to slide.
Flat growth doesn’t equate to a decline in volume, though. MBA’s latest prediction of a 5% annual increase in commercial and multifamily originations this year, to $515 billion, comes after the association’s projection in June of a slight decline for 2017 volume.
Yet if the prediction holds true that next year will show essentially no gains over ’17 levels, it will represent the first year since 2009 that Y-O-Y comparisons for commercial and multifamily mortgages don’t represent a meaningful increase. The annual growth rate was steeper in the years following the Global Financial Crisis — 2010 volume was 44.8% over the year prior, for example, and 2011 brought another 55% improvement — but each year since the downturn has seen larger numbers than the one before.
“Commercial and multifamily markets remain strong, even as many growth measures are exhibiting a bit of a downshift,” says Jamie Woodwell, VP of commercial real estate research. “Property values are up 6% through the first eight months of this year.”
read more: GlobeSt
Citi: Macy’s No Longer Makes Much Money; Outlook Downgraded to Sell
Macy’s retail business continues to slip this year, causing Citi Research to downgrade its outlook for the stock’s performance to sell from neutral.
Macy’s “has seen significant pressure on sales/margins for several years, they no longer make much money as a retailer,” Citi analyst Paul Lejuez wrote in a note Monday morning.
Macy’s stock declined more than 2 percent in premarket trading following the Citi call.
Citi does not believe Macy’s “has found the right tools” to avoid a steady decline, saying decreasing foot traffic in stores continues despite efforts by the company’s management to turn things around.
“The core business is weak and (we believe) is getting weaker,” Lejuez said.
read more: CNBC
Corporate Tax Rate of 20% Touted; GOP Has Not Discussed Phasing in
Stocks were lower on Monday on the heels of a Reuters report that President Donald Trump’s lower corporate tax rate would be phased in over a number of years.
But Senate Judiciary Committee Chairman Sen. Chuck Grassley, (R-Iowa), told Fox Business that Republicans have no plans of gradually lowering the corporate tax rate.
“On the Senate side we have not talked about phasing that in. We have talked about starting out with the 20% rate,” Grassley told FOX Business’ Stuart Varney on “Varney and Co.”
Grassley, however, said he would be in favor of phasing it in if Senate Republicans approved the budget, which allows $1.5 trillion in tax cuts.
read more: Fox Business
Consumer Confidence Hits Highest Level Since December 2000
Consumers were even more optimistic in October than economists polled by Reuters expected.
Consumer confidence rose to 125.9 in October, according to the Conference Board.
The index “increased to its highest level in almost 17 years,” Lynn Franco, Director of Economic Indicators at The Conference Board, said in a statement. That was in December 2000, when the index hit 128.6.
The economic weight of Hurricanes Harvey and Irma pulled down the spirits of U.S. consumers in September, when the index was relatively flat. In October, “consumers’ assessment of current conditions improved,” Franco said.
read more: CNBC
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