Aspen economy maintains strong financial foothold
September 29, 2008
ASPEN ” While the nation and the world suffer multiple body blows to their financial sectors, it seems that Aspen has avoided the worst of the ongoing economic crisis, although at least one banker predicted that the local second- home market may be in for some rough times.
And another local financial expert said although there have been no large-scale effects felt in Aspen yet, the town should not consider itself immune.
Around the United States and the world, investment bankers, brokers and others have found themselves facing insolvency thanks to heavy investments in what are known as “mortgage-backed securities” and the sub-prime mortgages that made up the bulk of such securities.
“We never went into the subprimes,” said Curt Adam, former head of the Bank of Aspen and now a senior vice president at Community Banks of Colorado, also in Aspen, a bank group that has more than $2 billion in assets.
“The Colorado bank continues to do quite well,” Adam added, voicing a sentiment that was echoed by other bankers in the upper valley.
“The only local effect [of the economic crisis], is the second-home market. A lot of that money comes from Wall Street,” said Mike Teats, president of Timberline Banks in Aspen, which has branches in Grand Junction and Montrose, Colo.
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And as investors continue to watch Wall Street try to tap dance its way out of a potential market crash, Teats said, “those guys, they’re not in Aspen buying second homes.”
Another, more rosy side effect of the crisis is that the wealthy elite, made nervous by a seeming meltdown of the economy, are moving their assets to places they feel are safe ” places such as Aspen, Teats added.
” People were moving that money out yesterday,” he said on Sept. 16, adding that some are “moving it here. We saw some of that.”
He said he was unsure of the exact amounts involved, but in general, “We have more money to lend.”
Adam said the family of banks he is part of, with 41 branches around Colorado, has spread itself out over three areas ” agricultural banking, banking in resort economies, and banking in Colorado’s major metropolitan area ” Denver.
But the banking group has avoided the kinds of high-risk (and, when it works out, high-profit) gambles that include buying up mortgage-backed securities and then selling them at a profit at some later date, according to Adam.
Instead, Community Banks recently held a statewide promotion of its various CD products, which brought in more than $200 million in new deposits.
Although unable to say who the buyers were and where they were from, the Community Banks top brass believe that some of that money came here from Eastern deposits or investment accounts that were closed by people who have homes here, or regularly come here and believe Aspen to be a safe place to put money.
“We did very well in the promotion here in Aspen,” Adam said, noting that the Aspen branch came out on top in a competition to see who could bring in the most cash from the CD promotion.
In addition, the bank does considerable business with Colorado’s farmers, whom Adam said are having good years with harvests of potatoes, wheat and barley.
“We live in a state that’s still very strong [financially speaking],” Adam said, although he cautioned, “certainly we feel a downturn here in the mountains” of the local real estate market. He predicted that banks in the Aspen area may have to consider being more stingy with their money when it comes to making loans. He said that “speculative” proposals already are having a harder time finding financing than they once did.
Another local financial expert, Jim DeFrancia of Lowe Enterprises, Inc., developer of the W/J Ranch project in Woody Creek, said there remains a likelihood of local repercussions from the fiscal crisis.
“Although Aspen likes to see itself as somewhat bulletproof next to the rest of the country, in fact, we’re not,” he said. “It may take longer to impact us, but it will impact us.”
But, he said, “I don’t see that any of our local banks are in any kind of trouble.”
He agreed with Teats that the second-home market will probably be the first economic sector to be hit, because the potential buyers of those properties are losing income as stock portfolios dry up and dividends shrink, and they are getting smaller bonuses from employers, or no bonuses at all.
The biggest hit, will hit at homes selling for between $2 million and $10 million, which may spell trouble for mortgage brokers and mortgage bankers, DeFrancia said.
All three of the experts felt the market’s volatility will settle down within a year or two, and DeFrancia predicted that Aspen’s recovery will be quicker than some areas because “there hasn’t been any real overbuilding here.” He said that was due to the constraints of the local market, both in terms of available land to build on and the slow-growth policies of local governments.
Sub-prime mortgages, in general terms and with the latest crisis, are balloon-payment mortgages with highly attractive initial terms that have been offered to home buyers who had no demonstrable way of making the payments once they start to rise.
Starting in 2006 the housing market, when home prices had been rising rapidly for several years, began to cool off. That meant that sub-prime borrowers, who had counted on housing prices continuing to rise and refinancing packages to repay loans, suddenly found themselves unable to refinance their homes.
As home buyers began defaulting on those loans in increasing numbers, the lenders were faced with a financial squeeze due to a fall-off in revenues that could be used to pay back loans made to the lenders themselves. And so the sub-prime fallout spread to the credit market and to the global stock markets, causing investment jitters, a tightening of credit and other problems.
Highly publicized bail-outs by the U.S. Federal Reserve of several leading financial institutions, amid concerns about making U.S. taxpayers shoulder the burden brought on by financial misdeeds on Wall Street, have prompted a certain level of a crisis in confidence among investors and citizens.
When the Fed allowed the Lehman Brothers investment banking firm to fail, sending it into bankruptcy, the nervousness grew.
But by last Friday, the Fed had announced it would step in with billions of dollars to shore up the sagging mortgage market in general, by buying up the troublesome mortgages and securities packages.