In response to California Banker: Views from the Business Banker’s Chair I received a pair of emails from readers tuned into Virginia.

Livs in Virginia (LIV) writes …

Hi Mish

Richmond VA, where I live, is inundated with radio commercials to get rich quick by flipping houses. And I’ve seen articles in the paper about flippers. I, too, viewed this as being indicative of a top.

We’ve also seen a huge surge in new restaurants.

There has been a really big surge has been in microbreweries, and its now in the bubble phase, something not seen since 1996. The GM of Legend Brewing, which has been around for 22 years, told me he’s counted > 25 new breweries opened in the greater Richmond area. Most of these have no distribution, no access to shelf space in grocery stores, and are simply trying to find a niche in a crowded market. They will be washed out in the next recession; good brands and brewing tanks will sell for 10 cents on the dollar. I suspect that most of these ventures have been funded with private capital and SBA loans rather than bank lending, but I have no hard data to support this view.

And my local banker has repeatedly told me loan demand is as strong as he’s seen in years. The COO of the local ‘bankers bank’ tells me that loan covenants and pricing have been getting weaker for several years due to competition for good loans. The bankers will lend right into the top and won’t recognize the top until it’s too late. Happens every time. And the small banks have taken much duration risk in the investment portfolios in search of yield.

There has been a huge 25-year wave of converting old buildings in Richmond into apartments and I’d say in the last 5 years that move has gone into warp drive. I’ve wondered for the past 5 years how many apartments Richmond can possibly support. And if there should ever be some event (e.g. riots) that change the perception of young adults to not wanting to live in the inner city, then good luck finding a bid. FNMA has helped fuel this boom by offering long term cheap fixed rate, nonrecourse financing.


State Tax Plunge

Meanwhile, the Richmond Times-Dispatch reports State Revenue Growth Loses Steam in April as Income Tax Payments Lag.

Total revenues fell by 3.4 percent compared with the same month a year ago, but that’s not what most concerns budget officials. They’re wondering why estimated and final income tax payments from nonwithholding fell almost 18 percent in the month and 4.2 percent for the year to date.

“It’s probably weaker than we’d like to see,” Secretary of Finance Richard D. “Ric” Brown said in an interview.

State revenues had come out of March strong, growing 4.6 percent for the first nine months of the fiscal year compared with an annual projection of 2.9 percent. The results in April dropped the growth rate for the year to 3.6 percent.

“I think the optimism in March gave way to the reality in April,” House Appropriations Chairman S. Chris Jones, R-Suffolk, said Thursday.

What can possibly go wrong?

Mike “Mish” Shedlock