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Market News (01/31/2008)

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Market News MADISON, Wis. (2/1/08)
* Long-term mortgage rates surged this week, ending a month-long string of declines, even as the Federal Reserve slashed short-term interest rates. The average 30-year, fixed-rate mortgage (FRM) jumped 20 basis points to 5.68%, while the 15-year FRM surged 22 basis points to 5.17%, according to Freddie Mac. The one-year, adjustable-rate mortgage (ARM) edged up 6 basis points to 5.05%. “The movement in fixed mortgage rates was broadly consistent with the movements of Treasury bonds over the week,” noted Freddie Mac Vice President and Chief Economist Frank Nothaft. “Reinforcing the Fed’s resolution to thwart a recession, the Federal Open Market Committee announced another cut in the target federal funds rate by half of a percentage point in their most recent scheduled meeting. This came on the heels of the Fed’s rate cut of three-quarters of a percentage point the previous week, and the shaping-up of a fiscal stimulus package by Congress and the White House,” added Nothaft. Rates are still lower than a year ago. The 30-year FRM averaged 6.34% a year ago, while the 15-year FRM stood at 6.06%, and the one-year ARM was at 5.54% (CNNMoney.com and MarketWatch Jan. 31) For CUNA's Daily Financial Rates, use the link. * First-time claims for unemployment insurance jumped by 69,000 during the week ending Jan. 26 to 375,000, the Labor Department reported Thursday. It was the highest level since early October and the largest gain since September 2005 following Hurricane Katrina. A Labor Department official said the surge reflected problems adjusting to the Martin Luther King holiday. Still, analysts expect jobless claims to continue rising as the economy slows. The four-week moving average, which smoothes out weekly volatility, increased by 10,250 to 325,750 last week. Continuing claims (the number of people still on the benefit rolls after an initial week of aid, increased by 47,000 during the week ended Jan. 19 to 2.716 million, suggesting that laid-off workers are having a tough time finding new jobs (MarketWatch and Economy.com Jan. 31) … * Food stamps are the most effective way to stimulate the economy, according to a study by Moody’s Economy.com. For each dollar spent on the food-stamp program, $1.73 is spread throughout the economy, said Economy.com Economist Mark Zandi. “If someone who is literally living paycheck to paycheck gets an extra dollar, it’s very likely that they will spend that dollar immediately on whatever they need--groceries, to pay the telephone bill, to pay the electric bill,” said Zandi. He said expanding jobless benefits is the next most effective way to stimulate the economy--yielding a return of $1.64. Giving companies tax breaks to purchase equipment is the least effective way--generating just 33 cents. The stimulus package passed by the House this week doesn’t include provisions for expanding jobless insurance or food stamps (CNNMoney.com Jan. 30) … * The housing slump and economic slowdown are taking a heavy toll on Hispanic immigrants, both legal and illegal. The unemployment rate for Hispanics surged to 6.3% in December--from 5.7% in November and far above the national rate of 5%, according to Labor Department data. Jobs in the construction sector, which employs many immigrants, declined sharply as the housing market sank. And about half of the mortgage loans Hispanics obtained in the last few years are subprime. Many immigrants didn’t understand how much their payments would increase as the terms reset, and now they’re losing their homes. At the same time, tougher immigration enforcement has created more pressure on illegal immigrants. Mexican consular sources report that many illegal immigrants are returning home. Hispanics account for most of the nation’s 12 million illegal immigrants (Reuters via Yahoo! News Jan. 30) … * Consumer spending slowed in December, while income growth accelerated and inflation remained above the Federal Reserve’s comfort level. Personal consumption rose by just 0.2%--slowing sharply from a 1% gain in November, the Commerce Department reported Thursday. Income rose by 0.5% after a 0.4% gain. For all of 2007, consumer spending rose 5.5%--down from a 5.9% increase in 2006. Personal income rose 6.2% last year, slowing from a 6.6% gain the previous year. The core PCE price index, the Fed’s preferred inflation measure, was up 2.2% over the 12 months ending in December--above the central bank’s preferred 1% to 2% range (bea.gov and The Wall Street Journal Online Jan. 31) … * The cost of employing workers steadied during the fourth quarter, the Labor Department reported Thursday. The employment cost index rose 0.8%, the same rate as most of last year. Wage costs increased 0.8%, while benefit costs rose 0.9%. For all of 2007, the employment cost index rose a moderate 3.3%, the same pace as in 2006. Wages rose 3.4% last year, while benefit costs increased 3.1% (MarketWatch Jan. 31) …

News of the Competition (01/31/2008)

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MADISON, Wis. (2/1/08)
* Standard & Poor’s downgraded or threatened to downgrade more than 8,000 mortgage investments and forecast that many more types of financial institutions would see a total of more than $265 billion in mortgage-securities losses. The ratings agency said the new downgrades may not hit banks that already have taken writedowns, but could broaden to regional banks in the U.S. and to banks in more countries. S&P economist David Wyss predicts that home-price declines could hit 13% by the end of 2008. S&P lowered its rating on 3,787 types of subprime mortgage bonds and placed the ratings of 2,602 more on “credit watch negative.” It also downgraded or threatened to downgrade 1,953 ratings on collateralized debt obligations (The Wall Street Journal Online Jan. 31) … * Moody’s Investors Service announced Thursday that it has boosted its estimate for losses on loans backing subprime mortgages by as much as 85% The ratings agency said average losses for loans made in 2006 probably will total 12% to 24%. “We see delinquencies still going up, not having reached a plateau,” said Nicolas Weill, chief credit officer at Moody’s. “There also are more concerns by the Moody’s economists on the potential for higher unemployment and recession” and further declines in home prices, added Weill (Reuters via Yahoo! News Jan. 31) … * Bond insurer MBIA reported a $2.3 billion loss for the fourth quarter--mostly due to $3.5 billion in writedowns on its insured credit-derivatives portfolio. That compares with a net profit of $181 million a year earlier. The company also announced that it has received a $500 million infusion from private-equity firm Warburg Pincus. The infusion, “along with reduced capital requirements resulting from slower business growth, will result in our capital position surpassing rating agency Triple-A requirements as currently articulated,” said CEO Gary Dunton (CNNMoney.com Jan. 31) … * Banks are boosting consumer fees in an effort to create more revenue as loan losses mount. In early January, New York-based JPMorgan Chase increased its non-customer ATM fee to $3, from the previous range of $1.50 to $2. Other banks followed suit in boosting their fees. Not sufficient fund (NSF) fees also are rising. Memphis-based First Horizon National Corp. boosted its NSF fee to $35 last autumn, from $32 previously. Citigroup Banking Analyst Keith Horowitz estimates that NSF fees give banks $30 billion to $40 billion a year--or about 70% of the total fee income banks receive from their consumer business. “If you need to hit your target, one of the easiest ways to do it is to raise your fees,” said Horowitz. Analysts predict that more banks will boost consumer fees as the credit rout continues (The Wall Street Journal Online Jan. 28) … * U.S. money managers are eagerly seeking foreign-government investment funds so they can rake in generous fees for managing those growing piles of money. Management of these “sovereign wealth” funds has become more lucrative as the funds have shifted away from U.S. Treasury holdings to stock and real estate investments. Sovereign wealth funds in the Middle East have surged in value, as oil prices jumped. And the export boom in China and other Asian countries has boosted government reserves there. Government funds have $2 trillion to $3 trillion worldwide, estimates Standard Chartered PLC. The British bank predicts that sum will soar to $12 trillion over the next 10 years. Merrill Lynch estimates that $1.5 trillion to $3 trillion of assets will shift into the global asset-management industry over the next few years--giving money managers $4 billion to $8 billion each year in extra fees. U.S. money managers are more eager to grab a piece of the action today as inflows from defined-benefit pensions have ebbed. At the same time, sovereign funds are investing more in Wall Street banks, provoking protectionist concerns about how much influence they may have on the U.S. financial system (The Wall Street Journal Online Jan. 28) …

Mortgage rates wont soar Hampel tells IMarketWatchI

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WASHINGTON (1/31/08)--Mortgage rates rose after the Federal Reserve's rate cut yesterday, but don't expect long-term rates to start soaring, Credit Union National Association (CUNA )Chief Economist Bill Hampel told MarketWatch Wednesday. When the Federal Reserve's Open Market Committee lowered the target for the federal funds rate by 50 basis points to 3%, market rates for 30-year notes and 10-year bonds shot up while short-term rates dropped sharply for three-month and six-month bills. Fixed-interest mortgage rates are set by markets based on long-term money notes, not short-term rates. If bond investors believe the Fed is letting inflation get out of control, then long-term rates could increase, said MarketWatch (Jan. 30). But Hampel doesn't see mortgage rates soaring. "Mortgage rates are going to be attractive for quite some time," he said, indicating that the current state of the economy will keep long-term rates from increasing too much. Last week, according to Freddie Mac, the average rate for a 30-year, fixed-rate mortgage was 5.48%, one of the lowest rates since 2004.

Market News (01/30/2008)

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MADISON, Wis. (1/31/08)
* Economic growth slowed sharply in the fourth quarter as consumer spending weakened and home construction plunged. The nation’s gross domestic product (GDP) rose at an annual rate of just 0.6%--down from a 4.9% rate of growth in the third quarter, the Commerce Department reported Wednesday. For all of 2007, the economy expanded 2.2%--down from 2.9% growth in 2006 and the weakest since a 1.6% gain in 2002. Residential fixed investment tumbled 24% in the fourth quarter--the largest decline since a 35% plunge in the fourth quarter of 1981. Consumer spending rose at a 2% pace last quarter and 2.9% for the full year. Business inventories fell by $3.4 billion--following a $30.6 billion gain in the third quarter. Business spending slowed to a 7.5% pace from a 9.3% rate. At the same time, inflation accelerated at year end. The core PCE price gauge, the Federal Reserve’s preferred inflation measure, rose at a 2.7% pace in the fourth quarter--following a 2% rise in the third quarter and the largest increase since the second quarter of 2006. A bright spot in the report was a 3.9% increase in exports during the final three months of the year (Bloomberg.com and The Wall Street Journal Online Jan. 30) ... * A surge in refinancings boosted mortgage activity last week, according to a report by the Mortgage Bankers Association (mbaa.org Jan. 30). The trade group’s Market Composite Index rose 7.5% during the week ending Jan. 25 to 1054.9. The Refinance Index jumped 22.1% to 5103.6--offsetting a 17.7% plunge in the Purchase Index to 362. The refinance share of mortgage applications surged to 73%, from 66% the previous week. Mortgage rates increased last week. The 30-year, fixed-rate mortgage (FRM) rose 11 basis points to 5.60%, while the one-year, adjustable-rate mortgage (ARM) jumped 19 basis points to 5.70%. The interest rate for the one-year ARM is 10 basis points higher than the 30-year FRM, suggesting that the risk premium for ARMs remains high, noted Moody’s Economy.com (Jan. 30). How soon the Federal Reserve’s rate cuts will be passed along to the mortgage markets “is an open question,” said the research firm … * The Treasury Department announced Wednesday that it will sell $22 billion in debt next week at its quarterly auction. The department said officials are studying ways to finance Congress’ economic stimulus package, which is expected to increase the federal budget deficit by more than $100 billion this year. The government’s borrowing needs also are expected to increase as the economic slowdown trims tax revenue and boosts expenditures for unemployment insurance and food stamps. Treasury said it will auction $13 billion in 10-year notes on Feb. 6 and $9 billion in 30-year bonds on Feb. 7 (Associated Press via CNNMoney.com Jan. 30) … * Orders for big-ticket durable goods jumped 5.2% in December--reflecting a surge in demand for commercial aircraft, the Commerce Department reported Tuesday (Associated Press via CNNMoney.com Jan. 29). The increase was much larger than analysts had anticipated. However, orders for all of 2007 rose only 0.97%--down sharply from a 6.3% gain in 2006 and the weakest reading since a 3.2% drop in 2002. The December gain was led by an 11.3% surge in demand for transportation products. However, excluding the transportation category, orders rose a still-strong 2.6% last month. In another hopeful sign, orders for non-defense capital goods excluding aircraft (a proxy for future business investment) jumped 4.4% in December--the largest gain since last March. Analysts say strong demand for U.S. exports is helping U.S. firms cope with weakening domestic demand. However, the government also reported that durable-goods inventories rose 1.1% in December--the biggest gain in 15 months--suggesting that firms may be overestimating demand, noted MarketWatch (Jan. 29). Another measure of the manufacturing sector, the Institute for Supply Management’s factory index, indicates continued weakness in the sector. The new-orders component of that index tumbled 7 points to a six-year low of 45.7 in December … * U.S. chief financial officers have become more downbeat this year as worries about recession mount, according to a survey by Financial Executives International (FEI) and Baruch College. The poll’s optimism index fell 6.6 points to a three-year low, with 73% of respondents saying they’re more worried about recession. Other top concerns were consumer spending, inflation and oil prices, and the weak dollar. “I think this credit crisis and the market have really got them spooked,” said FEI President Michael Cangemi (Reuters via The New York Times Jan. 30) …

CUNAs Rick Rate cut aims to jumpstart economy

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MADISON, Wis. (1/31/08)--Wednesday's widely anticipated Federal Reserve action to cut the target for the fed funds rate by 50 basis points to 3% means the Fed finally realizes the housing correction will be deeper and longer than expected, says Steve Rick, senior economist with the Credit Union National Association. In a widely anticipated move, the Federal Reserve cut the target for the fed funds rate by 50 basis points to 3%. The action, combined with last week’s emergency cut of 75 basis points, is the largest easing of monetary policy since 1990, noted Bloomberg.com (Jan. 30). The Fed also lowered the discount rate by 50 basis points to 3.5%. "It appears 2008 is going to be a replay of 2001 with regards to monetary and fiscal policy," Rick told News Now. The combination of cuts of the past two weeks "is an attempt by the Fed to jumpstart an economy that is very close to crossing the recession threshold," he said. "The dramatic 1.25% drop in the fed funds interest rate over an eight-day period was an attempt by the Fed to get ahead of market expectations. The Fed's policymakers have finally come to realize this housing correction is going to be deeper and of longer duration than they previously anticipated and that the economy has not fully absorbed all the losses from the 2003-2006 credit boom," Rick said. "The Fed hopes by slashing the fed funds rate, financial institutions will be more willing to lend, and consumers more willing to borrow and spend to keep this economy rolling along," he said. "But unfortunately this monetary policy stimulus channel will not function as well today as it has in past rate cutting cycles." Rick noted that "household debt ratios are at record levels, financial obligations are using up record amounts of disposable income, and consumer confidence has plummeted since the credit crisis hit in August 2007. Given this financial backdrop, household spending responsiveness to lower interest rates will be very limited." The Fed funds futures market is predicting the Federal Open Market Committee will return to a more gradualist rate-changing policy and lower interest rates by an additional 0.25% at each of the next two scheduled FOMC meetings on March 18 and April 30. This will bring the fed funds rate down to 2.5% by summer. With year-over-year core inflation running at 2.3%, real short-term interest rates will be very close to zero. In Wednesday's statement announcing the rate cut, the FOMC said, “Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.” The Fed said it “expects inflation to moderate in coming quarters” and noted that “downside risks to growth remain.” The committee said it will continue to monitor developments and “act in a timely manner as needed to address those risks.”

News of the Competition (01/30/2008)

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MADISON, Wis. (1/31/08)
* The Federal Bureau of Investigation has launched criminal inquiries of 14 companies as part of its investigation of the mortgage industry. FBI officials said the agency is investigating possible accounting fraud, insider trading, and other violations related to subprime loans. The FBI also is working with the Securities and Exchange Commission to conduct about three dozen civil investigations of how subprime loans were made, packaged, and valued. The FBI documented 35,600 suspicious-activity reports related to mortgage fraud in the 2006 fiscal year--up from 22,000 in 2005 and just 7,000 in 2003 (The New York Times Jan. 30) … * Banks may be forced to take another $40 billion to $70 billion in writedowns this year because of credit downgrades at top bond insurers, said Oppenheimer Analyst Meredith Whitney in a research note Tuesday. Bond insurers could see losses on guarantees they sold on collateralized debt obligations. She predicted that most writedowns will occur at Merrill Lynch, Citigroup, and UBS AG--which together hold about 45% of the market risk associated with bond insurers (MarketWatch Jan. 30) … * UBS AG on Wednesday announced an $11.45 billion loss for the fourth quarter as it wrote down another $4 billion related to subprime mortgages. UBS said the results reflected $12 billion in losses from the U.S. subprime market and $2 billion in losses from other U.S. mortgages. The latest writedown brought the Swiss bank’s total to $18.4 billion. Its shares have plunged 40% over the last year. Switzerland’s bank regulator said in December that it plans to investigate the subprime losses at UBS (Reuters via Yahoo! News Jan. 30) … * Wachovia Corp., the nation’s fourth-largest bank, plans to aggressively open branches in California and Texas, said CEO Ken Thompson. He said opening another 110 branches would help the firm offset pressure from mounting credit losses as the economy slows. The Charlotte, N.C.-based firm saw its profit plunge 98% in the fourth quarter as it faced more than $3 billion of writedowns and credit losses tied to the mortgage and capital markets. Wachovia’s shares have declined 32% since it acquired Golden West Financial Corp. in October 2006 (Reuters via Yahoo! News Jan. 30) … * CME Group, owner of the Chicago Mercantile Exchange, and Nymex Holdings, owner of the New York Mercantile Exchange, announced Tuesday that they were in “preliminary” negotiations about an $11 billion merger. A merger would give CME--the biggest market for derivatives trading in the world--a huge presence in energy trading. The move is just the latest round in a boom of mergers among stock exchanges. Almost $53 billion in exchange-related mergers have occurred since 2006, according to Dealogic. Last year, the Chicago Mercantile Exchange and the Chicago Board of Trade merged to create CME. Nymex and CME said they are engaged in an exclusive negotiating period of 30 days (The New York Times and AFP via Yahoo! News Jan. 29) …

Market News (01/29/2008)

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MADISON, Wis. (1/30/08)
* The U.S. homeownership rate posted the largest annual decline on record in 2007, as the housing slump continued and credit dried up during the second half of the year. The nation’s homeownership rate fell to 67.8% in the fourth quarter--down 1.1 points from the same period in 2006 and the biggest annual drop since the Census Bureau began tracking the measure in 1965. The rate had hit a record-high 69.2% at the end of 2004. The government also reported that a record 2.18 million homes were vacant and available for sale during the fourth quarter of last year--up from 2.07 million in the third quarter and 2.1 million in the fourth quarter of 2006. The rising inventory of vacant homes has boosted foreclosure filings as homeowners find it difficult to sell when their mortgages reset to higher interest rates. The glut also has helped dampen home prices (CNNMoney.com Jan. 29) … * Foreclosure filings surged 75% in 2007 amid declining home values and tighter credit. There were 2.2 million foreclosure filings lodged by banks and lenders during the year, according to a report by Irvine, Calif.-based RealtyTrac. That total represents more than 1% of all U.S. households--up from 0.58% in 2006. In December, 215, 749 foreclosure filings were recorded--up 97% from a year earlier and the highest quarterly reading since the firm began tracking the data in 2005. “Given the number of loans due to reset through the middle of 2008 and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets,” said RealtyTrac Chief Executive James J. Saccacio. At 250,000, California had the highest number of foreclosure filings of any state last year. Almost 66,000 people lost their homes last year in that state. Florida ranked second--followed by Ohio, Texas, Michigan, Georgia, Illinois, Colorado, Arizona, and Nevada. Michigan--which has been hit hard by job losses in the auto industry--saw 87,000 foreclosure filings. Almost 47,000 families lost their homes in that state (The Wall Street Journal Online, CNNMoney.com, and AFP via Yahoo! News Jan. 29) … * Home prices in 20 metropolitan areas dropped in November--for the 11th consecutive month--as rising foreclosures and declining sales added to the glut of unsold homes. Prices tumbled 7.7% from a year earlier following a 6.1% drop in October, according to the S&P/Case-Shiller home-price index. November’s decline was the largest since the index was launched in 2000. Seventeen cities in the index posted declines--led by a 15% plunge in Miami. San Diego saw a 13.4% drop, while Las Vegas recorded a 13.2% decline, and Detroit posted a 13% decrease. Just three cities saw gains--Charlotte, N.C.; Portland, Oregon, and Seattle. The group’s 10-city composite index plunged a record 8.4% in November. Previously, the largest year-over-year decline on record for that index was 6.3% in April 1991. “We reached another grim milestone in the housing market in November,” said Robert Shiller, co-creator of the index and chief economist at MacroMarkets LLC (Bloomberg.com, CNNMoney.com and PRNewswire/ via Yahoo! News Jan. 29) … * Consumer confidence plunged in January amid concerns about the weak housing and job markets (Associated Press via Yahoo! News Jan. 29). The Conference Board’s consumer confidence index fell to 87.9 from a revised 90.6 reading in December. “Consumers’ appraisal of current business conditions is becoming more negative and their assessment of the job market, while slightly less negative than in December, is more negative than a year ago,” said Lynn Franco, director of the Board’s Consumer Research Center. She said the share of respondents expecting an improvement in their earnings has fallen “and could potentially impact spending decisions.” Consumers became slightly more confident about the current economic situation, but more gloomy about the outlook for the next six months. Buying plans for autos and appliances improved in January while plans to buy homes stayed at the lowest level since 1994, noted Moody’s Economy.com (Jan. 29). The research firm predicts that confidence will fall further over the near term as debt burdens remain high, the job market deteriorates, and high energy prices and the housing slump weigh on consumers … * The global economy will slow sharply in 2008, but the U.S. will evade recession, according to the latest forecast by the International Monetary Fund. IMF officials said the Federal Reserve’s large rate cuts should help stimulate the U.S. economy by mid-year. The report said central banks worldwide should provide liquidity “as long as needed” to offset the effects of financial turmoil on economies. “The five-year long global expansion has begun to moderate in response to the spreading effects of financial disruptions,” said Simon Johnson, economic counselor and director of the IMF’s research department. He said the agency expects U.S. economic growth to slow to 1.5% this year--from an estimated 2.2% growth rate in 2007. Global growth is predicted to slow to a 4.1% pace from 4.9% (Associated Press via The New York Times and Bloomberg.com Jan. 29) …

News of the Competition (01/29/2008)

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MADISON, Wis. (1/30/08)
* The Federal Reserve announced Tuesday that it auctioned $30 billion in funds to banks at a 3.123% interest rate on Monday. It was the lowest rate of any of the Fed’s four auctions. The previous auction resulted in a 3.95% interest rate, while the first two auctions resulted in 4.65% and 4.67% rates. Analysts said the lower rate in the fourth auction reflected the Fed’s emergency rate cut of 75 basis points last week. Fed Chairman Ben Bernanke has pledged to continue the auctions, as needed, to help ease the credit crunch. On Friday, the Fed will announce its schedule for upcoming auctions (Associated Press via CNNMoney.com Jan. 29) … * The Education Department announced Friday that it is trying to recover about $15 million in government subsidies from a Pennsylvania student-loan agency. The department said the subsidies to the Pennsylvania Higher Education Assistance Agency resulted in overpayments. It claims the agency exploited a program that guaranteed a 9.5% interest rate for some loans, even when market rates were much lower. Officials said the program, which was launched in 1980 to ensure student access to loans when interest rates are high, created a loophole that lenders exploited when rates declined. In past years “the interest of students and taxpayers were forgotten as lenders took hundreds of millions of dollars out of the Treasury,” said Luke Swarthout of the Higher Education Project of the U.S. Public Interest Research Group (washingtonpost.com Jan. 26) … * Countrywide Financial, the largest U.S. mortgage lender, announced Tuesday that it lost $422 million in the fourth quarter due to increased loan-loss provisions and impairment charges, as borrowers missed mortgage payments. That compares with a $622 million gain a year earlier. The Calabasas, Calif.-based firm set aside $924 million for credit losses and recorded an $831 million impairment charge in the final quarter of 2007. Countrywide also recorded a $394 million loss as it transferred $7 billion in jumbo mortgages to a held-for-investment portfolio. At year end, 33.6% of its subprime loans were delinquent, up from 29.1% in the third quarter. The delinquency rate for conventional loans jumped to 5.76% from 4.41%. The company, which has agreed to be acquired by Bank of America, said it expects another difficult year, as the housing slump continues (Associated Press via Yahoo! News and American Banker Jan. 29) … * Countrywide Financial Chief Executive Angelo Mozilo said Monday that he is forfeiting about $37.5 million in severance pay, fees, and other benefits that he was set to receive after retirement. Mozilo also will forfeit the $400,000 per year salary he would’ve been paid as a consultant to the firm after retirement. However, he will keep his retirement benefits and $20.6 million in deferred compensation he already earned. “I believe this decision is the right thing to do as Countrywide works toward the successful completion of the merger with Bank of America,” said Mozilo in a statement. Damon Silvers, associate general counsel at the AFL-CIO, said Mozilo “seems to recognize that there’s something wrong with this picture,” in giving up the perks. “It would be best if Countrywide and Bank of America froze all of his compensation until a thorough inquiry could be completed as to exactly what happened at Countrywide,” said Silvers. (Associated Press via Yahoo! News Jan. 28) …

Fed decision expected today on rates

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WASHINGTON (1/30/08)--Analysts expect the Federal Reserve policymakers to announce another key federal fund interest-rate cut today. The Federal Open Market Committee, the fed's policymaking committee, met yesterday and is continuing its regularly scheduled meeting today, about one week after the Fed made its emergency 75-basis point cut in the key rate to 3.5% on Jan. 22. The general expectation is that the Fed may go with another rate cut as a stopgap measure against a recession. According to The New York Times, the central bankers are expected to lower the key rate by as much as 50 basis points to 3%. Today's meeting will be the last FOMC meeting for seven weeks. However, that doesn't rule out another emergency cut before the next meeting if the Fed decides it is necessary. Rate cuts are only one part of the Fed's plan to boost the economy. It auctioned $30 billion in funds to commercial banks Tuesday. See "News of the Competition" for more detail on the auctions.

News of the Competition (01/28/2008)

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MADISON, Wis. (1/29/08)
* Student lender Sallie Mae reached a settlement this week over its aborted $25 billion buyout, according to people familiar with the agreement. The firm agreed to settle with buyers--including JPMorgan Chase, Bank of America, and private-equity firm J.C. Flowers & Company--in exchange for their refinancing about $30 billion in debt that is due in February. Sallie Mae’s lawsuit and the buyers’ counterclaims were dismissed and the merger agreement terminated. The deal to acquire the lender collapsed shortly after it was announced last April. Salle Mae had sought a $900 million breakup fee. Sallie’s stock, which has plunged more than 56% over the past year, rebounded following the announcement. The buyers wanted to back out of the deal because of the drop in the lender’s stock and because of new legislation that lowered federal subsidies to student lenders (The New York Times Jan. 28) … * Alliance Data Systems, a credit-card services provider, said Monday that Blackstone Group has informed the company that it doesn’t plan to complete its acquisition. Blackstone said the Office of the Comptroller of the Currency is asking for “extraordinary measures” to approve the acquisition, measures that Blackstone is unwilling to meet. Alliance’s board said it “strongly disagrees” with Blackstone’s view of the Comptroller’s stance and is now evaluating a course of action. Another deal by Blackstone to acquire PHH, a mortgage company that serves credit unions, fell apart earlier this month (The New York Times Jan. 28) … * Thirteen people were indicted and seven other people pleaded guilty Friday to charges that they illegally acquired more than $20 million worth of home-equity loans and other credit lines. The U.S. Attorney’s Office for New Jersey announced the charges on Monday. The indictment claims American Macro Growth President Jacob Kim and other brokers at the firm helped clients use property as collateral for multiple loans. The indictment alleges the firm falsified income-tax returns and other documents to boost the qualified loan amounts and that the company closed the loans quickly so that banks wouldn’t discover the multiple collateral pledges (Dow Jones Newswires Jan. 28) … * Worried that significant downgrades of troubled bond insurers could erode liquidity, tax-free money market funds are selling insured variable-rate municipals notes. The selling is boosting costs for some municipal insurers. Yields on their daily notes have reset from the typical 2.5% level to a range of 4% to 4.5%. Last week Fitch Ratings lowered Ambac Financial Group’s rating two notches to AA. Ratings of MBIA and Financial Guaranty Insurance Co., which is partly owned by Blackstone Group, are currently under review for a downgrade by all three ratings agencies (Reuters via Yahoo! News Jan. 28) … * Banks may need to raise as much as $143 billion in new capital if all the top-rated bond insurers are downgraded sharply, said analysts at Barclays Capital. That estimate presumes that banks hold up to 75% of insured structured securities and that the ratings would drop to single-A from triple-A, assumptions Barclays said are “very aggressive.” Ratings agencies have been taking a closer look at the firms’ capital to ensure they have enough for the top rating as the credit crunch continues. Moody’s Investors Service and Standard & Poor’s have put several bond insurers on watch for a downgrade. Barclays Analyst Seth Glasser said bond insurers will defend their ratings and could take actions to shift risky portfolios off the firms’ books. “We believe there is global capacity available, seeking to take financial guaranty risk at attractive prices,” said Glasser (Dow Jones Newswires Jan. 25) …

Market News (01/28/2008)

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MADISON, Wis. (1/29/08)
* New-home sales posted the largest decline on record in 2007, according to a Commerce Department report. Sales plunged 26% to 774,000--topping the 23% drop recorded in 1980 and the largest decline since the department began tracking the data in 1963. In December, new-home sales fell 4.7% to an annual pace of 604,000 units. The median price of a new home sold in December was $219,200--down 10.4% from $244,700 in the same month the previous year. That was the biggest year-over-year decline since 1970. For all of 2007, the median price edged up 0.2% to $246,900. A glut of inventory has dampened prices. The number of homes for sale fell to a seasonally-adjusted 495,000 in December. At the current sales pace, it would take 9.6 months to sell all those homes. Sales of new homes will drop another 15% this year, according to the Mortgage Bankers Association’s latest forecast (CNNMoney.com and Bloomberg.com Jan. 28) … * Plunging stock markets have prompted 25 companies to delay or withdraw plans for initial public offerings--the largest number in about a decade, according to data compiled by Bloomberg.com (Jan. 28). The Bloomberg IPO index fell 10% over the past year. The Standard & Poor’s 500 Index dropped 6.7% over the period. Still, some IPOs are going forward this year. So far 50 firms have raised $7 billion in IPOs worldwide. The U.S. market accounts for 41% of the worldwide total. In the U.S., nine firms have raised $2.9 billion … * Most Americans hold onto their Individual Retirement Account (IRA) funds until the later years of retirement, according to a survey by the Washington-based Investment Company Institute (ICI). Seven in 10 respondents said “it is unlikely they will take withdrawals prior to age 70 ½.” IRA rules discourage early withdrawals, noted Sarah Holden, senior director for retirement and investor research at the ICI. She said people also want to hold onto their IRA money so that tax-deferred earnings can accrue and because they view the funds as “money for emergencies.” The study found that 40% of households (46 million) have funds in IRAs. Most IRA growth has come from assets being rolled over from employer-sponsored funds such as 401(k)s (Associated Press via The New York Times Jan. 28) … * The Securities and Exchange Commission is revamping regulations on how mutual funds value their holdings after they had problems pricing mortgage-backed investments amid the credit crunch. “Funds seem to be relying on stale pricing on several occasions,” said Douglas Scheidt, an associate director at the agency’s investment management division. “They were continuing to value the securities at prior levels” even as “facts would suggest that the price would have gone down.” Last week, Federal Reserve Chairman Ben Bernanke said the lack of accurate pricing for mortgage-backed securities contributed to billions of dollars in losses and weakened investor confidence. “As investors lost confidence in their ability to value complex financial products, they became increasingly unwilling to hold such investments,” said Bernanke. The new rules will determine how much mutual funds can use price quotes from brokers and pricing services to set prices when exchanges are closed or the asset is infrequently traded (Bloomberg.com Jan. 25) … * Chrysler LLC is offering buyouts of as much as $100,000 to an unspecified number of its hourly workers at 12 plants in Detroit, said company spokeswoman Michele Tinson on Monday (Reuters via Yahoo! News Jan. 28). She said the buyouts could be extended to a 13th facility in Warren, Mich. In other industry news, Toyota topped General Motors in vehicle production last year (Associated Press via Yahoo! News Jan. 28). The Japanese automaker said Monday that it manufactured a record 9,497,754 vehicles worldwide--up 5.3% from 2006 and about 213,000 more vehicles than GM made last year. By sales, GM narrowly kept its ranking above Toyota. GM sold 9,369,524 vehicles worldwide last year--about 3,000 vehicles more than Toyota …

News of the Competition (01/25/2008)

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MADISON, Wis. (1/28/08)
* The Federal Reserve announced Friday that it will auction $30 billion in 28-day credit on Monday in its last scheduled Term Auction Facility (RTTNews via Yahoo! News Jan. 25). The minimum bid is $10 million, and the maximum bid per institution is $3 billion. The Fed has said it will offer other auctions as needed. The availability of loans via the Fed’s new Term Auction Facility has helped dry up bank demand for direct loans from the discount window. Discount lending totaled only $20 million as of Jan. 23--down from $5.567 billion a week earlier (Dow Jones Newswires Jan. 25). Lending through the primary credit facility last week was $14 million, while seasonal credit was $6 million. In a surprise move last week, the Fed cut the target for the fed funds rate by 75 basis points to 3.50%. The central bank also lowered the discount rate by 75 basis points to 4% … * Home-improvement retailer Home Depot has dropped its plan to acquire EnerBank USA as it refocuses on its core retail business. The firm announced its intention to buy the bank in May 2006. Wal-Mart Stores also had sought federal approval to launch an industrial loan corporation, but withdrew its bid after intense criticism by banks and lawmakers. Political opposition had nothing to do with Home Depot’s decision to drop the EnerBank deal, said Company Spokesman Ron DeFeo. He said Home Depot is “focusing all of our efforts on our retail business.” Fifteen non-financial companies--including Target and Toyota Motor--own industrial banks (Associated Press via Yahoo! Finance Jan. 25) … * Citigroup awarded CEO Vikram Pandit $26.7 million of shares and 3 million stock options just a week after announcing a record $9.83 billion loss for the fourth quarter. Pandit had only been at the helm for six weeks. The company also awarded stocks or options to more than two dozen other top executives and directors, according to Securities and Exchange Commission filings (Reuters via The New York Times Jan. 25) … * Brokerage Morgan Stanley plans to cut about 1,000 employees in its global workforce, about 2% of the total (The Wall Street Journal Online Jan. 25). The layoffs will take place in the wealth-management unit and among employees in technology, operations, and support functions, said people familiar with the matter. In other news, investment bank Goldman Sachs plans to cut about 5% of its global workforce, around 1,500 employees (Reuters via Yahoo! News Jan. 25). The company, which reported a 2% gain in fourth-quarter earnings, also gave a cautious outlook for its earnings this year … * Online brokerage E*Trade Financial reported a net loss of $1.71 billion for the fourth quarter--compared with net income of $176.7 million a year earlier. E*Trade said it expects to take additional writedowns of $400 million to $600 million this year on its mortgage portfolio. Most of those writedowns are related to losses in its $12 billion home-equity portfolio. CEO Jarrett Lilien said he anticipates mortgage-asset losses to total $1 billion to $1.5 billion during the next three years. E*Trade said it plans to restructure this year in an effort to return to profitability (The Wall Street Journal Online Jan. 25) …

Market News (01/25/2008)

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MADISON, Wis. (1/28/08)
* The White House and leaders of the House of Representatives last week reached an agreement on a plan to boost growth by pumping about $150 billion in tax relief into the economy. Tax rebates would go to low- and middle-income workers, and more than 117 million families would receive checks up to $1,200. It also calls for tax breaks for businesses to invest in new equipment. And it could lift the housing market by temporarily boosting the limit for Fannie Mae and Freddie Mac to $729,750, or 125% of the median home price in an area. The new limit would be permanent for loans insured by the Federal Housing Administration. Some Democrats in the House had wanted the plan to include an increase in food stamps and unemployment benefits. Some Republicans argued against providing any stimulus. The Senate still must approve the plan, and some lawmakers have promised to make changes (MarketWatch Jan. 25) … * Fannie Mae and Freddie Mac could face more risk if the stimulus package passes. It calls for temporarily boosting the limit for the two government-sponsored enterprises to $729,750, or 125% of the median home price in an area. The current limit is $417,000. The White House-backed plan signals a retreat for President Bush’s efforts to reduce the role of Fannie and Freddie in the mortgage market. The increase in the conforming-loan limit would expire Dec. 31. However, Congress could find it hard to let that expiration date stand. In fourth-quarter 2007, 71% of mortgage loans originated were headed for purchase or guarantee by Fannie and Freddie--up from 40% in the same period in 2006, according to Inside Mortgage Finance Publisher Guy Cecala. He predicts that the higher limit would boost that share to at least 80% (The Wall Street Journal Online Jan. 25) … * The economy is the main concern among voters, according to the latest Wall Street Journal/NBC News survey. Forty-seven percent of respondents said “job creation and economic growth” is their first or second pick as the federal government’s main priority. That’s up 15 percentage points from a poll conducted last month. In another finding, 64% said the economy will be in recession within the year, and 70% predict tougher times ahead for their families. Just 29% approve of President Bush’s handling of the economy, and only 18% approve of Congress’ performance. Disapproval of the war remains high: 59% said removing Iraqi dictator Saddam Hussein wasn’t worth the cost in lives and money … * Cutting interest rates to head off recession can be risky when inflation is mounting at the same time. Several factors--including a continued surge in demand from rapidly-developing nations--probably will keep commodity prices high despite the downturn. Consumer prices in developed countries increased at an average 1.9% rate per year from 1996 to 2006, according to the International Monetary Fund. But in 2007 prices accelerated to a 2.4% gain. Inflation in the 15 nations that use the euro jumped to a 6 ½-year high of 3.1% in November and December--much higher than the European Central Bank’s (ECB) preferred limit of about 2%. Inflation is the top mandate for the ECB, so that central bank didn’t follow with a rate cut after the Federal Reserve slashed interest rates last week. The Fed’s task is to balance growth and inflation. “The biggest concern at the moment is that these central banks could hold on too long and therefore exacerbate the downside of the growth outlook because of their concerns about the inflationary environment,” said HSBC Economist Stuart Green (The Wall Street Journal Online Jan. 25) … * Concerns about a sharp slowdown in U.S. consumer spending helped dampen global markets last week. Investors in other countries are worried that their exports will suffer as U.S. consumers pull back, which in turn would weaken the market for U.S. exports as overseas economies suffer. Only recently, analysts thought strong U.S. exports would help buffer the U.S. economy against recession. Consumer spending accounts for about 70% of the $14 trillion U.S. economy. “The real fear is that there’s a kind of total systems meltdown,” said MKM Partners Chief Economist Michael Darda. Still, he thinks global markets have overreacted to the U.S. economic slowdown. He said recent declines in unemployment claims suggest the U.S. job market is healthy (The New York Times Jan. 25) … * A World Trade Organization (WTO) committee on Friday approved the membership of former Soviet republic Ukraine. Ukraine agreed to restrict its export duties to win approval. Members of the WTO’s General Council are expected to endorse the bid. Ukraine then will have to ratify its policies by July 4. Currently there are 151 member states in the World Trade Organization. Russia is still negotiating its entry (Reuters via The New York Times Jan. 25) …

Market News (01/24/2008)

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MADISON, Wis. (1/25/08)
* Existing-home sales--including single-family, townhomes, condominiums, and co-ops--fell 2.2% in December to an annual pace of 4.89 million units, the National Association of Realtors (NAR) reported Thursday. For all of 2007, there were 5,652,000 existing-home sales--the fifth-highest level on record but down 12.8% from 2006. The national median existing-home price was $208,400 in December--down 6% from a year earlier. For all of 2007, the median price was $218,900—down 1.4% from 2006. “Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate,” said NAR Chief Economist Lawrence Yun. “Home prices are lower, mortgage interest rates continue to decline and incomes are higher, but many potential buyers are delaying a purchase,” added Yun. NAR also reported that total housing inventory declined 7.4% to 3.91 million homes available for sale at the end of December. That represents a 9.6-month supply at the current sales pace--down from a 10.1-month supply the previous month. “The fall in inventory in December in encouraging, but inventories remain elevated, and buyers have a clear edge over sellers in many markets,” said Yun (realtor.org Jan. 24) … * Fixed-rate mortgages (FRMs) fell to the lowest levels in almost four years this week, according to Freddie Mac. The average 30-year FRM dropped 21 basis points to 5.48%--the lowest since 5.40% in the week ended March 25, 2004. The 15-year FRM dropped 26 basis points to 4.95%--the lowest since 4.84% during the week ended April 1, 2004. The one-year, adjustable-rate mortgage (ARM) fell 27 basis points to 4.99%. That’s the lowest rate since 4.91% during the week ended Oct. 27, 2005. Rates were pushed down this week by further evidence of weak housing markets and the Federal Reserve’s surprise rate cut, said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The last time the Fed decided to ease the target federal funds rate in an unscheduled meeting was immediately after Sept. 11, 2001,” noted Nothaft. “As a result, mortgage rates continued trending down for the fourth consecutive week across loan products,” added Nothaft (MarketWatch Jan. 24) For CUNA's Daily Financial Rates, use the link … * The U.S. budget deficit will widen to about $219 billion this year as the weakening economy erodes tax revenue, according to the latest Congressional Budget Office (CBO) forecast. Lawmakers’ expected $150 billion stimulus plan isn’t included in the forecast. It also doesn’t include all of the funding for the wars in Iraq and Afghanistan. However, the CBO doesn’t predict a recession this year. It expects economic growth of 1.7% for 2008, rebounding to 2.8% growth next year. “The ongoing problems in the housing and financial markets and the high price of oil will curb spending by households and businesses this year and trim the growth of GDP,” said the report. “Although recent data suggest the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession,” said the agency (Bloomberg.com Jan. 24) … * First-time claims for unemployment insurance edged down by 1,000 during the week ending Jan. 19 to 301,000-the lowest level in almost four months, the Labor Department reported Thursday (Bloomberg.com Jan. 24). The four-week moving average, which smoothes out weekly volatility, declined by 14,000 to a three-month low of 314,750. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, fell by 75,000 during the week ended Jan. 12 to 2.672 million. The decline in claims probably doesn’t indicate a strengthening labor market because claims tend to be volatile this time of year, noted Moody’s Economy.com (Jan. 24). Claims had trended higher during the later part of 2007, and business confidence has weakened considerably this year. The research firm predicts that continuing claims will remain elevated as businesses continue to be reluctant to hire … * Ford Motor Co. announced Thursday that it will offer buyout and early-retirement packages to all of its 54,000 hourly employees in the U.S. and replace them with lower-wage positions. CEO Alan Mulally said the first round of buyouts will be offered to employees who were located at plants that already have been shut down. The second round of buyouts will be offered to employees at other plants. Mulally said the firm negotiated the buyouts with the United Auto Workers union (Associated Press via Yahoo! News Jan. 24) …

News of the Competition (01/24/2008)

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MADISON, Wis. (1/25/08)
* MGIC Investment Corp., the nation’s largest mortgage insurer, said it expects to pay about $2 billion in claims this year as more homeowners default on their mortgage loans. The firm previously had predicted payouts of as much as $1.5 billion. In its update, MGIC said it had 107,120 delinquent loans at the end of the fourth quarter--up 18% from the third quarter. The company said fewer delinquencies are getting back on track, and claim sizes are increasing. MGIC will announce payouts for 2007 when it reports fourth-quarter earnings on Feb. 13, said Company Spokeswoman Katie Monfre. In December, MGIC predicted it would pay out $875 million for last year (Associated Press via Yahoo! News Jan. 24) … * A lawsuit has been filed against Fidelity Information Services, claiming the data-processing firm is a “secret puppetmaster” in bankruptcy courts. The suit alleges the company conspired with mortgage servicers and attorneys to “add to the indebtedness” of homeowners by adding secret fees when consumers tried to avoid mortgage foreclosures. The suit claims some of the fees amounted to kickbacks. Fidelity National handles default-mortgage servicing for 22 of the nation’s 25 top residential mortgage servicers and 13 of the largest 25 subprime servicers. Company Spokeswoman Michelle Kersch said the “lawsuit is without merit, and appears to be an attempt to profit from the current wave of antilender sentiment created by the increase in subprime-mortgage foreclosures.” (The Wall Street Journal Online Jan. 24) … * French bank Societe Generale announced Thursday that it has discovered a $7.14 billion fraud--one of the largest in history--by a futures trader who deceived investors. The bank, which already has suffered $2.99 billion in writedowns because of the subprime rout, said it will now have to seek $8.02 billion in new capital. The company said an unnamed trader at the futures desk used a “scheme of elaborate fictitious transactions” to mislead investors in 2007 and this year. The firm said the trader used the bank’s security systems to hide his fraud. If confirmed, Societe Generale’s fraud would top the 1995 trading scandal in which Nick Leeson lost $1.38 billion, prompting the bankruptcy of British bank Barings. A 1991 fraud at the Bank of Credit and Commerce International topped $10 billion (Associated Press via CNNMoney.com Jan. 24) … * Capital One, the nation’s largest independent credit-card issuer, said it is curbing lending this year as defaults and delinquencies increase. The firm’s stock has lost almost half its value over the last year. For 2007, Capital One reported a $1.57 billion profit--down from $2.41 billion in 2006. Profit in its credit-card business surged 55% despite rising delinquencies. However, its auto-loan business posted a $112.4 million loss. “We’re pulling back on loan growth, focusing on our most resilient businesses and closely managing credit with the insights and experience we have garnered in prior economic downturns,” said CEO Richard Fairbank (washingtonpost.com Jan. 24) … * The $230 billion backlog of high-risk, high-yield debt that banks are trying to sell has stopped declining--a development that could prompt a slowdown in lending, said Bank of America analysts. Banks including Citigroup, Goldman Sachs, and Morgan Stanley are having problems selling debt from $438 billion of leveraged buyouts in 2007. Banks had cut their backlog by 32% in the second half of 2007 as lenders sold at a discount. “The leverage buyout business that we’ve known for the past five years, doing large leverage buyouts--that business is gone for a while,” said David Rubenstein, co-founder of the buyout firm Carlyle Group (Bloomberg.com Jan. 24) …

News of the Competition (01/23/2008)

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MADISON, Wis. (1/24/08)
* New Century Financial Corp. may have wrongly spent as much as $20 million that belonged to Wall Street backers, according to Michael Missal, an investigator named by a bankruptcy court to probe the firm’s finances. “There does not appear to be a basis for New Century to have expended properly such funds,” wrote Missal in a report to the bankruptcy court. New Century representatives defended the firm’s finances, saying in a reply to the report that its attorneys had legal reasons to dispute the banks’ claims to the funds. Missal said he spent $800,000 more than necessary investigating the financial issue because for “more than two months” the company told him it hadn’t identified an issue about whether it was using the cash improperly prior to the bankruptcy (Associated Press via Yahoo! News and Bloomberg.com Jan. 23) … * William Galvin, Massachusetts’s top securities regulator, announced Wednesday that he has requested information from bond insurers Ambac Financial Group and MBIA Inc. about their exposure to high-risk securities. Galvin said he wants to know if the insurers informed communities in the state about their exposure to collateralized debt obligations. “If the credit quality of these companies comes into question, the impact on cities and towns is enormous,” said Galvin (Reuters via Yahoo! News Jan. 23) … * Visa Europe is seeking to negotiate an agreement with the European Commission (EU) after the regulator ruled in December that a fee charged by MasterCard is illegal. The ruling also applies to Visa Europe, as its 2002 settlement with the EU on interchange rates expired at the end of last year. “The door is open for a positive discussion on interchange, and that’s how we’ll proceed,” said Visa Europe CEO Peter Ayliffe. The European Retail Round Table, a merchant lobbying association, claims interchange fees inflate prices for consumers by as much as $19.4 billion annually (Bloomberg News via American Banker Jan. 23) … * Student lender Sallie Mae on Wednesday reported a $1.6 billion loss for the fourth quarter, compared with an $18 million profit a year earlier (Associated Press via The New York Times Jan. 23). The Reston, Va.-based company also set aside $585 million to meet expected loan losses. For all of last year, Salle Mae reported a net loss of $896.4 million as it saw increased borrowing costs amid the credit crunch. That compares with a $1.15 billion net profit for 2006. Separately, Sallie Mae said in a Securities and Exchange Commission (SEC) filing that the agency is seeking information about company disclosures and actions last December related to sales of the firm’s stock by its directors and executives (The Wall Street Journal Online Jan. 23). The firm didn’t provide further details about the SEC request … * SunTrust Banks reported Wednesday that its fourth-quarter earnings plunged 98% to $11.1 million. The Atlanta-based firm said its earnings weakened as its credit losses tripled. SunTrust also took a $510 million writedown to purchase back securities from money market funds and a commercial paper vehicle the company sponsored. The firm suffered from “rapid deterioration of the residential real estate market, the change in the credit cycle and consumer credit quality, and the resulting impact on liquidity in the financial markets,” said CEO James Wells. SunTrust set aside $356.8 million during the fourth quarter to cover loan losses. Its net charge-offs increased 6% to $168 million, while its nonperforming assets jumped to $1.66 billion. SunTrust has announced plans to cut 2,400 positions by the end of this year (Reuters via The New York Times Jan. 23) …

CU movement reacts to Fed rates decision

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MADISON, Wis. (1/24/08)--Credit unions and related organizations, like just about everyone else, had reactions to the Federal Reserve Board's emergency reduction Tuesday of the fed fund rate. At Mid-Atlantic Corporate FCU, Brad Stewart, senior vice president/chief investment officer, said the action, which dropped the rate by 75 basis points to 3.5%, came as a "total surprise" but was necessary. "Based on the reaction of global financial markets this weekend, the response by the Fed leaders to lower rates immediately was necessary," he told the Pennsylvania Credit Union Association (Life is a Highway Jan. 23). "The current situation isn't going to go away overnight. There's still concern that inflation is just around the corner, given the price of oil and gold." Brian Turner, manager of advisory services at Southwest Corporate FCU's Investment Services, told credit unions that in light of the Fed decision and the market's direction, "this is a pivotal time to review all share and deposit rates--particularly money market rates (eFACTS Jan. 22). Credit unions should make sure all deposit rates are positioned in respect to each other to avoid any transitory shift between product, he said. "Given that most credit unions have not raised share draft or regular share rates, there might be a propensity to believe that there's little room to move," Turner said, adding they should check anyway. He encouraged a proactive stance on non-term accounts to position cost of funds. "This is also important for term certificate rates," Turner said. Holders of certificates of deposit (CDs) and money-market accounts stand to lose money when banks adjust the rates they pay on investments in the next few days or weeks to reflect the Fed's cut, said Ron Araujo, chief financial officer at Mission FCU, San Diego. Araujo told a local newspaper the changes will be particularly tough on retirees who already are affected by declining income from stock investments and shrinking property values. He advised anyone sitting on the fence waiting to buy a CD to move more quickly (The Union-Tribune Jan. 23). Some say it could take months for consumers to get a lower rate on their mortgage as a result of the fed change. "These types of cuts do not usually affect first mortgages, at least not immediately," George Joseph of Dade County FCU told CBS (CBS4.com Jan. 23). The Fed's cut and the Bush administration and Congress' plan to pump $150 billion into the economy won't necessarily translate into lower mortgage costs for Americans with risky subprime loans that are scheduled to reset to higher rates the next year. Credit Union National Association (CUNA) Chief Economist Bill Hampel told Reuters that home prices, at best will level off. "So long as home prices are not rising, the reset problem exists, he said (Reuters.com Jan. 23). Colorado Springs, Colo.-based Ent FCU, with $2.292 billion assets making it the largest financial institution in southern Colorado, won't decide until later this week whether or how much to cut its rates for loans and deposit accounts, according to Senior Vice President Jim Moore. Any changes would take effect next Monday. Moore told The Gazette Wednesday that consumer loan demand has weakened noticeably the past two months. He doesn't expect that to change--even if the credit union's rates drop. "People are still trying to absorb the impact of what is happening in the housing market," he said. Missy Adams, vice president of lending at the Heritage USA Community FCU based in Midland, Texas, said the $31 million asset credit union lowered its lowest interest rate to 5.99% in late December. Future rates offered will depend on the member's credit score and the rates set by the credit union's board of directors--not necessarily on any federal action, she told Midland Reporter-Telegram (Jan. 23).

Market News (01/23/2008)

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MADISON, Wis. (1/24/08)
* Refinancings drove an increase in mortgage activity last week, according to the Mortgage Bankers Association (MBA). The trade group’s Market Composite Index jumped 8.3% during the week ending Jan. 18 to 981.5. The Refinance Index surged 16.9% to 4178.2, while the purchase index fell 4.6% to 439.9. “Refinance applications are up 92% since the beginning of November and purchase applications are up 7%,” noted Jay Brinkmann, vice president of research and economics at the MBA. “With tighter credit conditions we do not know how many of these applications will become loans, but it is clear that borrowers are responding to the 40-80 basis point drop in rates we have seen since Nov. 2 across products,” added Brinkmann. The MBA reported that refinancings made up 66% of mortgage activity in the latest week, up from 62.7% the previous week. Mortgage rates continued to decline. The 30-year, fixed-rate mortgage fell 13 basis points to 5.49%, while the one-year, adjustable-rate mortgage dropped 26 basis points to 5.51% (mbaa.org Jan. 23) ... * Home prices nationwide may plunge 25% to 30% over the next three years as supply continues to grow and demand remains weak, predicts Merrill Lynch Economist David Rosenberg. “This sounds dire… but would only reverse part of the unprecedented 130% price surge from 2000 to 2006,” wrote Rosenberg in a research note. He said the Standard & Poor’s 500 could drop 20% to 25% this year. Merrill Lynch on Wednesday cut its forecast for economic growth in 2008 to 0.8%--half its previous forecast of 1.6%. “Investors are about to face the worst consumer recession since the 1980s,” said Merrill in its report. The investment bank expects the fed funds rate to decline to 1.25% by the fourth quarter (MarketWatch Jan. 23) … * The Federal Reserve’s surprise 75-basis point rate cut Tuesday prompted banks to cut the prime rate to 6.50%--the lowest level since August 2005. The action will save the average household about $50 over the next year, based on a median revolving credit-card balance of $6,600. Taking into account all the Fed’s rate reductions since last summer, the average family will see savings of about $115 per year. Those with revolving balances of about $10,000 will save around $175 per year. The average variable-rate credit card has declined to 15.79% from 16.59% over the past year. Variable-rate cards account for about 87% of all major credit cards (CardTrak.com Jan. 23) … * The Federal Reserve’s emergency 75-basis point cut in the fed funds rate on Tuesday will help consumers feel more confident and boost auto sales this year, said Chrysler CEO Bob Nardelli. “For us, for the auto industry, it gives the auto financing companies the ability to really bring some more credit into the marketplace … it’s going to help consumer confidence,” said Nardelli. He now forecasts vehicle sales of more than 16 million this year--up from his previous forecast of 15.5 million to 16 million. In 2007, sales slumped by 3% to 16.14 million units, the lowest level in nine years (Reuters via The New York Times Jan. 23) … * The global economy is stalling, according to the latest Moody’s Economy.com Survey of Business Confidence. Global business confidence is consistent with a much weaker global economy and a contracting U.S. economy. Expectations for the next six months are the weakest in the five years of the poll. However, pricing pressures remain modest despite high energy costs. Facing weak sales, businesses have been forced to keep a lid on prices … * Gasoline prices fell 5.1 cents over the past week to $3.02 a gallon, the lowest level in a month, as concerns about a slowing economy grew, the Energy Information Administration reported Wednesday. Still, the price is 85 cents higher than a year ago. “Obviously, any time an economy slows, production processes slow, inputs slow and so there’s less resource utilization,” said Assistant Energy Secretary Andy Karsner. The price of crude oil, which accounts for about two-thirds of the cost of manufacturing gasoline, declined to $86.11 Tuesday on the New York Mercantile Exchange--down nearly 14% from the record high of $100.09 set on Jan. 3 (Reuters via Yahoo! News Jan. 23) …

NEW Fed lowers fed funds rate target to 3.5

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WASHINGTON (1/22/08, UPDATED 8:45 a.m. ET)—-Before Tuesday’s opening markets, the Federal Open Market Committee (FOMC) lowered its target for the federal funds rate 75 basis points to 3.5%. The FOMC said its action was in response to a broad view that the economy is weakening with increasing downside risks to growth. “While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets,” the FOMC said in a statement. The FOMC said it expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. The committee noted “appreciable downside risks to growth remain” and that it “will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks." In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4%.

Schenk Feds move means recession more loan risk

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MADISON, Wis. (1/23/08)--The Federal Open Market Committee's (FOMC) unexpected 75-basis-point rate cut to 3.5% Tuesday means the economy is in or near a recession, and credit unions can expect more loans at a risky time, says a Credit Union National Association (CUNA) economist. "The Fed's 75 basis-point cut was unexpected--doubly surprising coming as it did with less than a week before a regularly scheduled FOMC meeting," said Mike Schenk, CUNA senior economist. FOMC is scheduled to meet Jan. 29 and 30. "The timing and magnitude of this cut means that the Fed now views the economy as in or very nearly in recession," he told News Now. "It also underlines the fact that the Fed views financial markets as extremely fragile. "This is also a clear attempt to send a strong signal to financial markets--both here and abroad--that the Fed remains committed to act aggressively to get the economy back on track," Schenk said. "The real issue here is: Will the Fed's action have as great an effect as it hopes," he said. "Consumer balance sheets are not in the best of shape. Household debt, for example, remains near record highs, equal to about 125% of take-home pay. This debt load is double what it was 20 years ago and about 40% higher than it was going into the last recession. "The Fed is essentially asking these folks with unprecedented levels of debt to bail out the economy by running out and borrowing more. This suggests--as Fed Chairman Ben Bernanke argued last week--that fiscal stimulus also may be needed," Schenk said. As for credit unions, "this will mean that loan growth will be a little bit stronger than we had anticipated. Savings growth is still likely to exceed loan growth. But the yield curve is likely to be steeper, and that means less interest margin pressures," he said. "But, of course, the increased demand for loans will be coming at a time that the risks are larger and more obvious," he concluded. Schenk's analysis about consumers' ability to spend the country back into solid growth was featured prominently in an Associated Press news story, which has been distributed to media nationwide. He told AP, "People are up to their eyeballs in debt, and they're being asked to borrow more." The Wall Street Journal Wednesday morning reported 75% of the nation's largest banks followed the Fed's move and lowered their prime rates to 6.5%. Use the resource link below to view the latest financial rates, updated daily.

Market News (01/22/2008)

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MADISON, Wis. (1/23/08)
* The Fed's decision Tuesday to cut the fed funds rate by 75 basis-points to 3.5% is unusual in scale and timing, and spotlights the severity of the strains on the economy, said The New York Times (Jan. 22). The Federal Open Market Committee's (FOMC) cut--the largest since October 1984--was deeper than the usual 25- to 50-basis-point cuts. FOMC rarely has acted between its scheduled meetings; it was the first emergency move since 2001 (Bloomberg.com Jan. 22). The rare move comes one week prior to the FOMC's regularly scheduled Jan. 29-30 meeting. Jan Hatzius, chief U.S. economist at Goldman Sachs, told the Times the cut's timing--after a significant sell-off in foreign stocks on Monday--may turn market performance into a referendum on the Fed's decision. Although the move isn't wrong if one is worried about systemic stability, it could tie the Fed to a short-term perspective related to current stock market volatility, Hatzius said. Economists were divided on whether the rate cut will help stave off a recession … * The European Central Bank (ECB)and the Bank of England may have to follow the Federal Reserve's lead and cut interest rates in their countries as the risk of a U.S. recession threatens to hamper a global expansion, analysts said (Bloomberg.com Jan. 22). An economist at UBS AG, London, Amit Kara, said the Fed cuts adds to the risk of more and quicker rate cuts. Kara predicted four rate cuts by the Bank of England and two by ECB. The Bank of Canada, in its scheduled meeting, lowered its main rate by 25 basis points to 4% and indicated it would do so again to shield Canada from the U.S. slowdown. The ECB's benchmark rate is 4% and the Bank of England's is 5.75% … * CEOs' confidence about business prospects declined for the first time since 2003 and fear of a global recession emerged as the major threat to growth, says a PricewaterhouseCoopers llth Annual Global CEO Survey, whose results were announced Tuesday at the World Economic Forum annual meeting in Davos, Switzerland. Possible economic downturn is the only risk factor that increased in concern among CEOs from last year's survey. All other growth risks--energy supply, global climate change and terrorism--declined as business threats. Other top concerns were over-regulation and availability of talent. Those who said they are "very confident" about revenue growth for the next 12 months dropped two percentage points--to 50%--from last year. However, CEOs were nearly twice as confident as they were in 2003. The overall drop in business confidence was most pronounced in North America, with 35% of CEOs saying they were "very confident" compared with 53% last year … * The Chicago Fed National Activity Index sagged to -0.91 in December from November's downwardly revised -0.29, indicating the pace of U.S. economic growth is slowing (Moody's Economy.com Jan. 22). The index's three-month moving average decreased to -0.67 from November's three-month average of -0.50, reversing a small increase from November and keeping the index intact through year-end. The largest drag on the overall index was the employment category at -0.43. Also contributing: a three basis-point jump in the unemployment rate to 5%; the consumption and housing category, which contributed -0.26 in December, down from -0.14 in November; and the sales, orders and inventories category at -0.05 to the overall index reading … * The credit crunch is seeping from residential mortgages to the broader economy, with banks tightening credit and making it more expensive for some small and midsize businesses to borrow. Those with strong balance sheets still can borrow at good rates. However, start-ups and smaller companies face higher rates and requirements to ante more collateral, or receive smaller loans than needed. Some banks, including PNC Financial Services Group and J.P. Morgan Chase & Co., say they are exercising more caution on commercial real estate, construction and other loans. Wells Fargo & Co. plans to cut the maximum amount some small-business owners can borrow in unsecured loans and credit lines of less than $20,000. The cost of borrowing is increasing, also. Although lending to businesses has actually increased in recent months, 7% of small-business owners surveyed in December say they are having problems getting financing, compared with 4% in November, according to a National Federation of Independent Business survey (The Wall Street Journal Jan. 22) …

News of the Competition (01/22/2008)

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MADISON, Wis. (1/23/08)
* Fourth-quarter net income fell 95% for Bank of America as the company weathered rapid credit deterioration in its consumer and commercial loan portfolios. BofA’s net income also was impacted by higher-than-expected write-downs of subprime mortgage-related assets. However, despite the poor performance in the quarter, the sluggish economy, and the need to raise about $2 billion in new capital, BofA earnings this year should exceed last year’s with mild economic growth, according to BofA Chief Executive Kenneth Lewis (The Wall Street Journal Jan. 22) … * The first bond insurer to lose its AAA credit rating due to subprime mortgages is looking at “strategic alternatives” after sustaining its largest-ever loss. Ambac Financial Group Inc.’s shares have risen 52% on rumors that the company may be sold. As a result of writing down the value of credit derivatives connected to loans made to homeowners with poor credit by $5.21 billion, the second-largest U.S. bond insurer posted a fourth-quarter net loss of $3.26 billion, or $31.85 per share, the company said Tuesday. Because the company cannot issue either equity or debt, Ambac may be preparing for a potential sale, according to Robert Haines, an analyst at Credit Sights, a New York-based bond research firm (Bloomberg.com Jan. 22) … * Commercial and industrial (C&I) loans at U.S. banks fell $2.2 billion, to roughly $1.446 trillion in the week that ended Jan. 9, the latest time period for which data are available, according to the Federal Reserve Friday. The previous week, C&I loans had risen $3 billion. Also, revolving home equity loans went up $1.2 billion, to $489 billion, after growing by $300 million the previous week (American Banker Jan. 22) … * As a result of Moody’s Investors Service cutting its lender’s credit rating further into “junk” territory Thursday, IndyMac shares dropped almost 6 % Friday. The downgrade was due to IndyMac’s struggling business and the falling value of its home loan portfolio, according to Moody’s, who cut Indy Mac’s credit rating to B1 from Ba2. Indy Mac is expected to lose money for several quarters, struggle to remain competitive and lose market share, said Moody’s (Los Angeles Business Journal Jan. 18) … * The largest U.S. student lender intends to lay off about 3% of its work force nationwide. The cutting of 350 workers from the 11,000-worker staff at Sallie Mae is prompted by a $25 billion collapsed buyout offer and higher borrowing costs, analysts said. The move is part of the lender’s goal to cut costs 20% by 2010. Sallie’s Mae’s latest reported quarterly results indicate that it lost $344 million, prompting the company to say additional layoffs are likely (BusinessWeek Jan. 18) … * Countrywide Financial Corp. is offering annual bonus awards for a few top executives as an inducement to stay with the company, according to regulatory filings with the Securities and Exchange Commission. The bonuses are being offered because Bank of America Corp. is acquiring Countrywide, analysts said. Countrywide’s compensation committee has approved retention awards of cash and cash-settled restricted stock units for four executives (Associated Press via WAVY.com Jan. 17) … * Despite rising uncertainty about Citigroup’s overseas operations, the U.S. Financial behemoth intends to move forward with its stock swap with Nikko Cordial Corp., Japan’s third-largest brokerage, according to a Nikko press release Friday. Citigroup will pay Nikko shareholders the equivalent of 1,700 yen ($16) of its stock for each Nikko share they own, in accordance with the original announcement of the deal Nov. 14. Citigroup just booked a $17.4 billion fourth-quarter loss due to subprime-related write-downs (Dow Jones Newswires Jan. 18) …

News of the Competition (01/18/2008)

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MADISON, Wis. (1/22/08)
* Washington Mutual, the nation’s largest savings and loan, reported a loss of $1.87 billion for the fourth quarter, compared with a $1.06 billion profit a year earlier. WaMu said its fourth-quarter results included a $1.6 billion writedown to account for the declining value of its mortgage portfolio and $1.53 billion to cover future loan losses. “Clearly, the current downturn in housing is acute and deeper than expected,” said WaMu Chief Executive Kerry Killinger in a conference call. “We continue to see declining home prices, elevated inventories of unsold homes and increased foreclosure activity.” He said high unemployment prompted losses in its card business, a trend that he expects to continue this year. Killinger said he won’t accept a bonus given the firm’s poor results. In December, Seattle-based WaMu said it planned to shut down its subprime unit and cut jobs and dividends to lower costs (Associated Press via The New York Times Jan. 18) … * Banks will continue to struggle into next year as the credit crunch persists, said Standard & Poor’s in a report released Friday. The ratings agency said the structured finance market may take even longer to recover. S&P noted that banks so far have announced a total $90 billion in writedowns of leveraged loans, subprime securities, and collateralized debt obligations. “Lower business flows from housing finance and fixed-income origination and trading will limit revenues, while higher risk premiums on funding and rising provisions for loan losses will weigh on pretax profits,” said the report. However, S&P said widespread downgrades for the sector shouldn’t occur (Reuters via The New York Times Jan. 18) … * Investment bank Lehman Brothers Holdings announced Thursday that it plans to exit the wholesale mortgage-lending business in the U.S. because of the housing downturn. The company also will cut 1,300 jobs and take a $40 million charge. Lehman already has laid off about 2,500 employees in its mortgage business. Unlike other investment banks, the company has continued to remain profitable despite the housing slump (Associated Press via Yahoo! News Jan. 18) … * Banks boosted their borrowing at the Federal Reserve’s discount window last week. Borrowings totaled $5.567 billion as of Jan. 16, up sharply from $1.015 billion the previous week. Lending via the primary credit facility last week totaled $5.557 billion, while seasonal credit totaled $10 million. The Fed has cut the discount rate--at which the central bank lends to banks--by 150 basis points to 4.75% since August. The Fed also has sold $70 billion in short-term credit via three Term Auction Facility program sales. The central bank plans another auction this month, and has said it will continue them as long as necessary (Dow Jones Newswires Jan. 17) … * New York Stock Exchange owner NYSE Euronext announced Thursday that it has agreed to acquire the American Stock Exchange. The purchase will give NYSE stock-options trading, exchange-traded funds, and smaller company listings. NYSE said the deal would save it about $100 million annually within two years of its close, which is expected by the third quarter (The Wall Street Journal Online Jan. 18) …

Market News (01/18/2008)

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MADISON, Wis. (1/22/08)
* The mortgage industry modified 54,000 loans and created formal repayment plans for another 183,000 borrowers during the third quarter of last year, according to a report by the Mortgage Bankers Association (MBA) (mbaa.org Jan. 17). Foreclosure actions were begun on 384,000 mortgage loans during that period. However, the trade association noted that in 63% of those foreclosure actions, the borrower either didn’t live in the home, failed to respond to lenders’ repeated attempts to contact them, or failed to carry out loan repayment or modification plans. “The mortgage industry took major steps during the third quarter to help those borrowers who could be helped,” said MBA Vice President of Research Jay Brinkmann. “It is likely that the number of loan modifications for subprime ARMs will continue to grow through the outreach efforts of the industry,” added Brinkmann. The MBA study also found that there were about 13,000 loan modifications and 90,000 repayment plans created for subprime ARMs in the third quarter. Servicers established 15,000 loan modifications and 30,000 repayment plans for subprime fixed-rate loans … * The HOPE NOW Alliance, a group of mortgage counselors, lenders, and servicing firms, said Friday that it assisted 370,000 homeowners during the second half of 2007, more than previously estimated. That assistance included 250,000 formal repayment plans and 120,000 loan modifications. Annualized, the total represents 39% of delinquent borrowers and 10.4% of subprime borrowers. The report also noted that mortgage servicers modified subprime loans in the fourth quarter at a rate that was three times faster than in the third quarter. And it said HOPE NOW sent out about 233,000 letters to at-risk homeowners asking them to call their servicer. About 16% responded by calling the sevicer. Another 250,000 letters were sent out to homeowners in December. Treasury Secretary Henry Paulson said the HOPE NOW report is “a promising development” that suggests “this organization is showing the potential to help more homeowners keep their homes and working to prevent a market failure without forcing American taxpayers to pay the bill.” (Reuters, Thomson Financial, and PRNewswire-USNewswire/ via Yahoo! News Jan. 18) * The Conference Board’s index of leading economic indicators fell by 0.2% to 136.5 in December, the third consecutive decline and the lowest level since mid-2005. “Consumption and investment have weakened and even export growth, the remaining source of strength, has cooled,” said Board Labor Economist Ken Goldstein. “The latest data suggest that growth could remain slow, and possibly even be a little slower, in the first half of 2008,” added Goldstein. Housing permits were the largest negative contributor to the December index. Other negatives were manufacturing hours, manufacturers’ new orders for nondefense capital goods, unemployment claims, consumer expectations, and interest rate spreads (The Wall Street Journal Online Jan. 18) … * Consumer sentiment improved in January despite concerns about the housing slump and rising energy costs (Bloomberg.com Jan. 18) The Reuters/ University of Michigan preliminary index of consumer sentiment rose to 80.5 from 75.5 in December. Consumers became more upbeat about both current and future economic conditions last month. However, other consumer confidence measures have declined in recent weeks, noted Moody’s Economy.com (Jan. 18). High debt burdens, weaker job growth and less mortgage-equity withdrawal because of the housing slump remain major weights on consumer confidence going forward, said the research firm. On the positive side, lower interest rates should help offset these trends somewhat … * Fifty-seven percent of Americans believe there will be a recession this year, and 19% say the economy already is in recession, according to a survey commissioned by Fortune Magazine. Just 19% believe the economy will avoid a recession. About half of respondents said they’ve already lowered their spending compared with last year. Almost 40% said they are worse off financially than a year ago. And 15% said they are falling behind on credit-card payments, while 9% said they’re having problems making their mortgage or rent payments. About 25% said they’re worried about losing their job during the next 12 months. Analysts note that consumers worried about recession are more likely to curb consumer spending and thus prompt or exacerbate a downturn (CNNMoney.com Jan. 18) …

News of the Competition (01/17/2008)

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MADISON, Wis. (1/18/08)
* Wall Street bonuses soared to record levels last year, even as firms posted their weakest quarterly results in history, and shareholders lost more than $80 billion. The Street’s five largest firms--Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers Holdings and Bear Stearns--paid $39 billion in bonuses for 2007. The average bonus of $219,198 was more than four times the median U.S. household income in 2006. The firms, which lost 25% of their stock value last year, are cutting about 4,900 jobs (Bloomberg.com Jan. 17) … * The subprime-mortgage rout continues to hit investment banks. Merrill Lynch reported a $9.8 billion loss for the fourth quarter, and an additional $11.5 billion in writedowns. That followed a $2.3 billion loss in the third quarter, along with an $8.4 billion writedown. For the year, Merrill’s subprime mortgage-related losses totaled almost $23 billion. In October, Chief Executive Stanley O’Neal resigned, as losses mounted. John Thain, the company’s new CEO, said the firm now has enough capital after $12.8 billion in cash infusions from U.S. and foreign investors (Reuters and forbes.com Jan. 17) … * Members of the Community Financial Services Association of America (CFSA), a national trade group that represents more than half of payday lenders in the U.S., are now required to display their fees on easy-to-read posters. “To ensure that our customers understand the fee structure of a payday advance before they enter into the transaction, they will now see the fees posted in large type on posters,” said CFSA President Darrin Andersen. “Fees are displayed as both a dollar amount and annual percentage rate.” The trade association has launched an advertising campaign to tell consumers about the new disclosures (PRNewswire-USNewswire/ Jan. 15) … * The West Virginia Attorney General’s office has settled a lawsuit it filed against Visa USA and MasterCard International that alleged the card associations violated antitrust and consumer-protection laws by forcing retailers who accepted their credit cards to also accept their debit cards. Visa said it will pay the state $12.8 million. A call to MasterCard wasn’t immediately returned. The state will put $12.1 million into a trust account to be used for sales-tax relief for residents (Associated Press via Charleston Daily Mail Jan. 17) … * Experian Group said its sales slowed to 2% growth in its fiscal third quarter, from 9% growth a year earlier, as banks requested less data about consumers’ credit. Experian will lower costs by relocating to lower-cost countries, including Chile, Bulgaria, India and China, said CEO Don Robert. He said the company also is considering a sale of its French transaction unit (Bloomberg.com Jan. 17) …

Market News (01/17/2008)

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MADISON, Wis. (1/18/08)
* Auto-loan delinquencies surged during the last half of 2007, as job losses mounted and banks tightened standards for home-equity-lines-of-credit, which consumers often use to pay down other debt. The problem was exacerbated by lenders’ lax standards for auto loans during the last two years. “The problem of lax loan-underwriting standards was not just concentrated in the mortgage sector; it’s looking like it took place across the consumer-finance sector, from credit-card loans to auto loans to motorcycle loans,” said Portales Partners Analyst William Ryan. According to Standard & Poor’s, 2.06% of prime auto loans made in 2006 were 30 days or more overdue--up from 1.75% in 2005. The ratings agency said delinquencies no doubt rose further in 2007. Credit-card delinquencies also have risen, according to Fitch Ratings. The agency said 2.91% of the prime credit-card loans it rates were 60 days or more overdue in December 2007, up from 2.59% a year earlier (The Wall Street Journal Online Jan. 16) … * Federal Reserve Chairman Ben Bernanke said he supports an economic stimulus package to go along with Fed easing to buoy the economy. “I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone,” said Bernanke in Congressional testimony Thursday. However, he said any stimulus “should be explicitly temporary” so that the nation can deal with the budget deficit. Bernanke also noted that the inflation outlook should improve this year. “However, any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank’s policy flexibility to counter shortfalls in growth.” (The New York Times Jan. 17) … * Housing starts plunged 14.2% to an annual pace of 1.006 million in December, the Commerce Department reported Thursday. For the full year, starts tumbled 25%--the largest decline since 1980. Starts are expected to continue falling this year. Permits for future construction dropped 8.1% last month. Analysts say mounting foreclosures will put even more homes on the market. The latest forecast by the Mortgage Bankers Association calls for new-home sales to decline 15% this year, after an expected 26% drop in 2007. (Bloomberg.com Jan. 17) … * The housing market remained “quite weak,” at the end of last year, according to the Federal Reserve’s latest Beige Book survey of the economy. The Fed said home prices fell significantly in the Atlanta, Cleveland, Kansas City, New York and Richmond districts. However, the Chicago and Richmond districts reported a rebound in refinancing activity. “Looking ahead, bankers generally foresee slow growth in overall lending,” said the report (American Banker Jan. 17) … * Mortgage rates continued to decline this week, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) dropped 18 basis points to 5.69%, while the 15-year FRM fell 22 basis points to 5.21%, and the one-year, adjustable-rate mortgage (ARM) declined 11 basis points to 5.26%. The 15-year FRM is now lower than the one-year ARM--for the first time in seven years, noted Freddie. Rates fell after the government reported weak retail sales for December, said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The declines aggravated concerns about the well being of the economy and exerted downward pressure on mortgage rates,” said Nothaft (MarketWatch Jan. 17) For CUNA's Daily Financial Rates, use the link … * First-time claims for unemployment insurance declined by 21,000 during the week ending Jan. 12 to a four-month low of 301,000, the Labor Department reported Thursday. It was the third consecutive weekly decline. The four-week moving average, which smoothes out weekly volatility, fell by 11,750 to 328,500. However, continuing claims--the number of people still on the benefit rolls after an initial week of aid-- jumped by 66,000 during the week ended Jan. 5 to 2.751 million. The rise in continuing claims suggests that people are having difficulty finding new employment. Analysts expect unemployment to trend upward this year, as the economy struggles (Dow Jones Newswires Jan. 17) …

CUNA notes economys razor edge in CNBC Reuters

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WASHINGTON (1/17/08)--The economy is on a slippery slope, meaning that “we’re in great danger of slipping into a recession if we’re not already in one,” Credit Union National Association Senior Economist Mike Schenk told CNBC Wednesday.
CUNA Senior Economist Mike Schenk appeared live on CNBC television yestereday. (Photo provided by CUNA)
It’s true that people are suffering, and that the Federal Reserve has all the data it needs to act soon, Schenk said. He predicted that the Fed would act at its next meeting by cutting the rate by 50 basis points, and perhaps following up with more action. The Federal Reserve Open Market Committee meets on Jan. 30. The real question, however, is if the Fed’s action will yield desired effects, and whether borrowers will be encouraged to borrow, and lenders encouraged to lend. “On the margin, yes,” Schenk said, but he noted that the effect will not be as great as it has been in previous cycles. In addition to the troubled housing market, consumers are struggling with a “huge pile” of debt. About 125% of take-home pay is needed to cover the debt, doubling 1985’s figures. “People will be cautious going forward,” Schenk said. Schenk also was interviewed by Reuters for an article about the economy. The article noted that reports released Wednesday show consumer prices increased last year at the fastest rate in 17 years. The increase “underlines our view that we’re on the razor’s edge here, that we could be headed into recession,” he told Reuters (Jan. 16).

Market News (01/16/2008)

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MADISON, Wis. (1/17/08)
* Adjustable-rate mortgages (ARMs) are becoming less popular with borrowers because they now offer fewer advantages, according to the latest Freddie Mac ARM survey. The interest-rate savings relative to fixed-rate mortgage (FRM) loans has shrunk, and lenders are now offering smaller discounts for introductory ARM rates. “Disruptions in the capital markets beginning in August and an increase in delinquencies on ARM products has led to a sharp decline in interest-rate discounting and a tightening of credit underwriting on ARMs in recent months,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that, according to the Mortgage Bankers Association, the serious delinquency rate on prime ARMs was 3.1% as of Sept. 30--compared with just 0.8% for prime FRMs in the same period and a 1.1% rate on prime ARMs a year earlier. Freddie Mac’s Primary Mortgage Market Survey found that ARMs accounted for only 17% of loan applications in October 2007--the lowest percentage since June 2003. The ARM share of activity has swung between a low of 11% in 1998 and a high of 33% in 2004. Freddie launched the survey in 1995 (freddiemac.com Jan. 16) … * Adjustable-rate mortgages (ARMs) with an initial fixed-rate period of five years--hybrid 5/1 ARMs--have increased in popularity among consumers choosing ARMs over the past few years, according to the latest Freddie Mac ARM survey. “A 5/1 hybrid ARM provides the consumer the comfort of knowing that the interest rate will be fixed over the first five years of the loan,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. However, he noted that the product is most popular with households who plan to have their mortgage for five years or less because the rate can surge as much as five percentage points when it resets. The average initial interest rate on 5/1 hybrids was 6% last year--about 50 basis points higher than the one-year ARM and 10 basis points lower than the 30-year, fixed-rate mortgage. More than 90% of lenders polled said they offer 5/1 hybrids (freddiemac.com Jan. 16) … * A surge in refinancings helped fuel a jump in mortgage activity last week, according to the Mortgage Bankers Association. The trade group’s Market Composite Index jumped 28.4% during the week ending Jan. 11 to 906.4. The purchase index rose 11.4% to 461.2, while the refinancing index surged 43.4% to 3575.5. The refinance share of overall activity rose to 62.7% from 57.7% the previous week. Fewer people chose adjustable-rate mortgages (ARMs), which accounted for only 9.2% of mortgage applications last week. Mortgage rates continued to decline. The average 30-year, fixed-rate mortgage fell 11 basis points to 5.62%, while the one-year ARM dropped 27 basis points to 6.04% (mbaa.org Jan. 16) … * Standard & Poor’s on Tuesday boosted its projected losses for subprime mortgages made in 2006 to 19% from 14%. The higher forecast means the ratings agency may lower ratings on many more subprime mortgage-backed securities and collateralized debt obligations. S&P already has cut ratings on most of the subprime-mortgage bonds that originally were rated triple-B. The new forecast means the ratings agency now may begin to downgrade double-A bonds (The Wall Street Journal Online Jan. 16) … * Confidence among U.S. chief executives fell to a seven-year low in the fourth quarter amid concerns about a weak economy. The Conference Board’s Measure of CEO Confidence dropped to 39, from 44 in the third quarter. “Given continued trouble in the housing and credit markets, persistent volatility in financial markets and increases in energy prices, it’s not surprising that confidence has eroded,” said Lynn Franco, director of the Board’s Consumer Research Center. Just 7% of respondents said economic conditions have improved, and only 16% said they expect conditions to improve over the next six months (CNNMoney.com Jan. 16) … * Industrial production stalled in December as the manufacturing of autos and housing-related goods plunged. The output of the nation’s factories, mines, and utilities was unchanged following a 0.3% increase in November, the Federal Reserve reported Wednesday. The capacity utilization rate edged down to 81.4% from 81.6%. Growth in exports helped offset weakness in the housing and auto sectors last year. Industrial production increased 1.5% in 2007 (The Wall Street Journal Online Jan. 16) …

News of the Competition (01/16/2008)

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MADISON, Wis. (1/17/08)
* IndyMac Bancorp announced Wednesday that it plans to cut 2,403 jobs, or 24% of its workforce, in an effort to cut costs after the mortgage crisis prompted a surge in defaults and losses. The layoffs are in addition to the 1,600 cuts announced last year. IndyMac posted a loss of $202.7 million for the third quarter. The company has long specialized in Alt-A mortgage loans, which are intermediate between prime and subprime. However, with rising defaults the company is now shifting its focus to loans it can sell to Freddie Mac and Fannie Mae. The company was the ninth-largest residential-mortgage lender last year, according to Inside Mortgage Finance. Employment in the mortgage industry has plunged to about 400,000--from a peak of 505,000 in October 2006, said Doug Duncan, chief economist at the Mortgage Bankers Association. Duncan predicts that job losses in the industry will continue to mount--bottoming out at 350,000 to 375,000 by the middle of this year (The Wall Street Journal Online Jan. 16) … * Wells Fargo reported Wednesday that it earned $1.36 billion in the fourth quarter--down 38% from the same period the previous year and the lowest quarterly profit in six years. Like other banks, Wells Fargo has seen rising loan losses and charge-offs during the mortgage rout. Wells set aside $1.4 billion in the fourth quarter to cover its expected losses in 2008. The company wrote off $595 million in home-equity loans last year. In a sign that the mortgage crunch could be spreading to other products, Wells also said it wrote off $223 million of its credit-card loans during the fourth quarter. And consumer loans that were 90 days or more overdue totaled $1.44 billion--up 32% from the end of 2006. Still, Wells has fared better than many of its peers. Analysts expect the banking industry’s writedowns in the fourth quarter to total more than $65 billion (Associated Press via The New York Times Jan. 16) … * JPMorgan Chase announced Wednesday that its profits plunged 34% to $2.97 billion in the fourth quarter, compared with a year earlier, after its subprime-mortgage exposure devalued its portfolio by $1.3 billion. The nation’s third-largest bank boosted its loan-loss provisions by $2.54 billion in anticipation of continued defaults. JPMorgan Chief Executive Jamie Dimon said lower profits reflected weaker-than-expected results in home-equity loans. Its corporate business also declined. Still, for the full year, JPMorgan’s net income was a record $15.4 billion (Associated Press via Yahoo! News Jan. 16) … * MoneyGram International, a payment-transfer firm that was hit hard by mortgage-related losses, announced Tuesday that it may sell as much as a 65% stake to an investment group led by Thomas H. Lee Partners. MoneyGram would receive $750 million to $850 million of equity from the group. The Minneapolis-based firm also would receive $550 million to $750 million of new debt facilities from other parties. MoneyGram’s check-processing business lost about $860 million on subprime investments in 2007 (The Wall Street Journal Online and American Banker Jan. 16) … * The San Francisco Federal Home Loan Bank announced Tuesday that it had received approval from the Federal Housing Finance Board for a program to direct up to $10 million to homeowners facing foreclosure. The pilot program will offer assistance to low- and moderate-income households that are facing resets on their adjustable-rate mortgages. The San Francisco bank will provide a maximum of $25,000 each to help borrowers refinance into 30-year, fixed-rate mortgages (Dow Jones Newswires Jan. 16) …

Consumer prices soared but are within Feds target zone

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WASHINGTON and MADISON, Wis. (1/17/08)--Consumer inflation posted the largest gain in 17 years in 2007 as food and energy prices soared. The Consumer Price Index (CPI) rose 4.1% last year--up sharply from a 2.5% increase in 2006 and the largest annual gain since a 6.1% jump in 1990 (see chart).
Click to view larger image Click for larger view
Energy prices soared 17.4% last year, while food prices increased 4.9%--both the largest gains since 1990 (Associated Press Jan. 16). Excluding the volatile food and energy categories, the core CPI rose a modest 2.4% last year--the smallest increase since a 2.2% gain in 2005. Clothing costs and new-vehicle prices both fell by 0.3%, while transportation costs jumped 8.3% and medical-care costs rose 5.2%. Workers’ earnings failed to keep up with inflation last year. Real (inflation-adjusted) earnings fell 0.9%, the largest decline since a 1.5% drop in 2005. However, the latest report from the Bureau of Labor Statistics indicates that higher energy prices are not being passed through in any significant way to core consumer prices, said Steve Rick, senior economist at the Credit Union National Association (CUNA). "Year-over-year core inflation of 2.4% is within the Federal Reserve's target zone. This will allow the Federal Reserve to focus more on the below-trend growth path the economy appears to be on. To avoid a possible recession and stabilize the financial markets, the Fed will lower its fed funds interest-rate target--the overnight interbank lending rate," Rick told News Now. "The fed funds futures market is currently pricing in a 50-75 basis point rate cut by the Federal Open Market Committee on Jan. 30, and another 100 bps by year end," he said. "Historically this has led to a drop in credit union deposit rates and funding costs, pushing up net interest margins. But the ongoing credit/liquidity crunch in the banking sector is leading to intense deposit competition and therefore smaller declines in deposit rates than previous cycles," Rick concluded.

Hampel to Bloomberg TV On edge of recession

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NEW YORK (1/16/08)--There will be a consumer downturn in the U.S, largely due to rising debt levels, Bill Hampel, chief economist at the Credit Union National Association, told Bloomberg TV Tuesday.
CUNA Chief Economist Bill Hampel during a live Bloomberg broadcast yestereday. (Photo provided by CUNA)
“The consumer sector is just about at stall speed,” Hampel told Kathleen Hays, host of “Bloomberg on the Economy.” Hampel was commenting on a 0.4% drop in December retail sales, after a 1% increase in November. As for the effect on credit unions nationwide, savings coming in are picking up, while loans going out are declining, Hampel said, noting that credit unions have seen a rise in delinquencies for the first time in six months. “We are seeing a reluctance of credit unions to lend because borrowers are not as able to make payments,” he said. “I believe that small credit unions and banks still can extend credit and are doing so.” At present, the economy is right on the edge of recession, Hampel said. “Any more shocks to the economy, such as the continuing decline of home prices, could put us into recession,” he explained. Regarding producer prices, the concern about inflation is misplaced, Hampel said. “When we are teetering on the edge of recession, the Fed would ignore inflation indicators over the next several months and keep the economy going,” he said, adding that economists can expect a 50 or 25 basis-point cut in the prime rate at the Jan. 30 Federal Reserve Open Market Committee meeting. “Even if the Fed cuts rates, the rates to borrowers will not fall as much,” he concluded. “The Fed cannot stop recession; it can just moderate it.”

Market News (01/15/2008)

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MADISON, Wis. (1/16/08)
* Wholesale inflation posted the largest increase in 26 years in 2007 due to soaring energy and food prices. The producer price index (PPI) jumped 6.3% following a modest 1.1% increase in 2006, the Labor Department reported Tuesday. It was the largest gain since 1981. Food prices jumped 7.4% last year following a 1.7% gain in 2006, while energy costs soared 18.4% after a 2% decline. However, soaring energy and food costs didn’t filter down into other prices. Excluding the volatile food and energy categories, the core PPI was up just 2% last year, the same increase as in 2006. Wholesale inflation moderated in December. The overall PPI fell 0.1% after a 3.2% jump in November--the largest monthly gain since 1973. Energy prices dropped 1.9% after a 14.1% jump. Food prices surged 1.3% after holding steady in November. Excluding food and energy, the core PPI rose 0.2% last month (bls.gov and The Wall Street Journal Online Jan. 15) … * Retail sales edged down by 0.4% in December and rose just 4.2% for the full year--the smallest gain in five years, according to the Commerce Department (Bloomberg.com Jan. 15). The increase followed a 5.9% gain in 2007. In December, the sales slump was led by a 2.9% drop at building-material stores, reflecting the housing downturn. Service-station sales fell 1.7%, reflecting lower gasoline prices. The sales decline in December was mostly due to a shift of sales into November rather than a real drop in consumer spending, noted Moody’s Economy.com (Jan. 15). Retail sales rose 1% in November. Consumer spending probably will continue to grow at a modest pace, said the research firm, despite slower job and income growth, high debt burdens, and rising energy costs … * Subprime mortgages, which have accounted for a large number of foreclosures in the housing downturn, have been given disproportionately to women. Subprime mortgages account for only 13% of existing home loans but make up 55% of foreclosure starts, according to the Mortgage Bankers Association. Women are 32% more likely to receive subprime mortgage loans than men, although they have about the same credit scores, according to the Consumer Federation of America. Another study by the National Community Reinvestment Coalition found that women received 37% of high-cost mortgage loans in 2005, compared with only 28% of prime loans. Women are more likely to receive subprime loans because they have less wealth. And research by Consumers Union found that women’s credit status is more likely to be unstable because of divorce or medical emergency. But many women are qualified for prime loans. Freddie Mac and Fannie Mae estimate that 15% to 50% of the subprime loans they purchased in 2005 went to borrowers whose credit scores should have qualified them for prime mortgage loans (The New York Times Jan. 15) … * Mortgage production will tumble 16% to $1.96 trillion this year from an expected $2.34 trillion in 2007, according to the latest forecast by the Mortgage Bankers Association (MBA) (mbaa.org Jan. 15). Mortgage originations are forecast to decline another 4% to $1.88 trillion in 2008. Purchase originations are projected to decline 18% to $955 billion this year from an expected $1.16 trillion in 2007. The MBA doesn’t expect refinancings to pick up much despite lower interest rates this year because lending standards have tightened and because the spread between the 10-year Treasury yield and conforming mortgage rates, and the spread between conforming mortgage rates and jumbo rates has widened. In addition, home prices have fallen in many regions. The MBA therefore expects refinancings to fall 14% to $1.01 trillion this year from an expected $1.17 trillion in 2007. Refinancings are expected to drop another 13% to $883 billion next year … * The 30-year, fixed-rate mortgage will edge up modestly during the second half of this year, hitting 6.2% by the fourth quarter, predicts Doug Duncan, chief economist and senior vice president of the Mortgage Bankers Association (mbaa.org Jan. 15). “Thus, interest rates will still be quite low by historical standards,” said Duncan. In its latest forecast, the MBA predicts that existing-home sales will tumble 13% to 4.94 million units this year, while new-home sales will drop 15% to 666,000 units. Median home prices for existing and new homes are expected to fall about 2% this year before recovering next year to increase 1% to 2% … * Vehicle sales probably will decline again in 2008 as the economy slows---prompting automakers to lower prices or boost incentives, say economists and industry officials. Vehicle sales fell 2.5% to an annual pace of 16.15 million units last year, the lowest level in 10 years. The consensus calls for sales to gear down again this year, to a level of about 15.5 million. Automakers already have lowered production in anticipation of slower sales. Production will decline from 15.5 million units in January to a low of 12.9 million in March before stabilizing, predicts industry tracker CSM Worldwide (Reuters via Yahoo! News Jan. 15) …

News of the Competition (01/15/2008)

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News of the Competition MADISON, Wis. (1/16/08)
* Regulators are investigating instances in which one arm of an investment bank traded in the stock of a firm being advised on a deal by another arm of the investment bank to see if the trades were coincidental or deliberate moves to take advantage of inside information, according to a report by The Wall Street Journal Online (Jan. 14). A new academic study by European finance professors concluded that some banks probably are trading on the inside information about such deals because the trading happens much more frequently than can be explained by chance. A study by the newspaper also found dozens of cases in which investment banks apparently are purchasing shares of target firms about the same time the bank is advising the acquirers. Such actions are illegal and unfair to other investors, noted the paper … * The Federal Reserve announced Tuesday that it awarded $30 billion in 28-day credit though its term action facility offering on Monday at a 3.95% interest rate, below the fed funds rate of 4.25%. The central bank said it received $55.526 billion in bids in its third of a series of auctions designed to ease the credit crunch. The Fed sold $40 billion in two sales in December. The central bank plans a $30 billion sale on Jan. 28. Last week, the Fed announced that it plans to hold biweekly auctions as long as needed to address liquidity concerns (The Wall Street Journal Online Jan. 15) … * Citigroup reported a $9.83 billion loss for the fourth quarter--the first quarterly loss since Citicorp and Travelers Group merged in 1998. The company also said it is writing down $22.2 billion because of bad mortgage-related investments and sour loans. Citigroup said it is cutting its dividend by 41% to 32 cents a share. The company is expected to announce at least 4,000 layoffs soon and thousands more in coming months. For the full year, Citigroup said its net income plunged 83% to $3.62 billion. The company said it is receiving a $12.5 billion infusion of funds from investors from the state of New Jersey, Kuwait, and Singapore. Analysts said the company may need more cash infusions to shore up its capital base (CNNMoney.com and The New York Times Jan. 15) … * The California Reinvestment Coalition has raised $4.6 million from eight financial institutions and two foundations to create the California Home Ownership Preservation Initiative. The funds will be given as grants to housing-counseling agencies so they can hire more counselors to work with people facing interest-rate resets and the threat of foreclosure. The money will affect 50,000 to 75,000 homeowners who are facing foreclosure, said Alan Fisher, executive director of the coalition. Its partners include Merrill Lynch, HSBC North America, Wachovia, Comerica, Wells Fargo, Countrywide Financial, Citibank, Bank of America, the San Francisco Foundation, and the California Community Foundation (BizJournals via Yahoo! News Jan. 15) …

News of the Competition (01/14/2008)

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MADISON, Wis. (1/15/08)
* Citigroup plans to announce a writedown of as much as $24 billion and layoffs of as much as 24,000 because of subprime-related losses, according to sources. CEO Vikram S. Pandit is expected to announce the plans Tuesday when the company reports its results for the fourth quarter. The company also plans to raise as much as $15 billion from foreign and domestic entities including its biggest individual shareholder, Saudi Arabian Prince Alwaleed bin Talal. Pandit hopes to avoid charges from the layoffs by using attrition and unit sales as well as outright layoffs to achieve its goals (CNBC.com Jan. 14) ... * Freddie Mac’s financial strength rating could be dropped by Moody’s Investors Service Inc. over fears that the enterprise will have higher credit losses than expected. On Thursday, the enterprises’ shares dropped by 4% but recovered later (BusinessWeek Jan. 10). Freddie was placed at an “A-”rating, the second highest in the category, but will be put on review for a potential downgrade. Moody’s stated that Freddie’s stock ratings and investment grade debt is stable, and that a downgrade in financial strength would not be enough to negatively affect its other securities ... * A suit brought against the Bank of New York by the Federal Customs Service was delayed until Jan. 21 by a Moscow arbitration court on Monday. “The bank put forward several motions, including one that put in question whether an American law firm has the right to represent the customs service in this case,” said Maxim Smal, an attorney representing the customs service. The suit, which was filed in May 2007, alleged $22.5 billion in damages from a money-laundering case against Bank of New York Vice President Lucy Edwards. She admitted to helping launder $7 billion from Russia during the late 1990s via dummy firms and accounts created by her husband at the bank. The two were sentenced to six months of house arrest and $725,000 in fines. The bank paid $38 million in penalties (Reuters via Yahoo! News Jan. 14) … * M&T Bank and Sovereign Bancorp, two financial institutions in the East, reported weak profits for the fourth quarter due to the housing slump. Buffalo, N.Y.-based M&T said its profits plunged 70% to $64.9 million. Results were weakened by $78 million in losses to write down collateralized debt obligations tied to mortgages. Philadelphia-based Sovereign, the nation’s 2nd-largest savings and loan, announced $1.58 billion of writeoffs, and added $88 million to its loan-loss reserves. “We’re significantly increasing our reserves to prepare for what we think could be weakening credit in 2008,” said Chief Financial Officer Mark McCollom. Most U.S. banks are expected to report weaker fourth-quarter results this month due to the housing slump and credit crunch (Reuters via Yahoo! News Jan. 14) … * Investors and analysts have become more concerned about rising chargeoffs and delinquencies on high-end credit cards after American Express announced last week that its cardholder spending slowed, and its delinquencies and writeoffs surged due to fallout from the housing slump. AmEx said its writeoffs jumped to 4.3% in the fourth quarter, from 3.7% the previous quarter. The company expects writeoffs to average 5.1% to 5.3% this year. Citigroup and JPMorgan Chase, two of the nation’s largest issuers of credit cards, are due to report fourth-quarter results this week. Both firms are expected to set aside hundreds of millions of dollars to cover rising losses on credit cards. Analysts say card firms probably will scale back their generous perks and big credit lines for affluent customers as the problem grows (The Wall Street Journal Online Jan. 14) …

Market News (01/14/2008)

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MADISON, Wis. (1/15/08)
* Retail sales in 2008 will post the weakest gain in six years as consumers cope with rising unemployment, the housing slump, tight credit, and rising food and energy costs, according to a report by the National Retail Federation (NRF). The trade association predicts that retail sales will increase just 3.5% this year--the weakest increase since a 3% gain in 2002. “Consumers will be under financial stress from high energy costs, the fallout from the housing slump, and sluggish employment and income growth,” said Rosalind Wells, chief economist at the NRF. “Shoppers will seek to pay down debt, spend more in line with income growth, and approach discretionary purchases with more restraint.” She also noted that concern about a possible recession will dampen consumer confidence. However, the NRF predicts that fiscal and monetary stimuli will help the economy and spending recover during the last half of the year (CNNMoney.com Jan. 14) … * Global businesses are signaling a sharp slowdown in economic growth and business confidence in the U.S. is signaling a recession, according to the latest Moody’s Economy.com Survey of Business Confidence (Jan. 14). Real-estate, financial, and business-service firms are the most pessimistic, and manufacturers are becoming more downbeat. U.S. business confidence declined to just 7%--below the 10% reading that is consistent with recession. Overall, the results show that the global economy will continue to struggle and a recession in the U.S. is increasingly probable. The survey also found that pricing pressures haven’t increased much despite rising oil prices, because firms remain concerned about demand … * Weak employment growth, the housing slump, and subprime concerns will continue to slow economic growth in 2008, but a recession isn’t likely under current conditions, said Moody’s Investors Service in a report on Friday. “In 2008, the risk of an outright recession appears to be increasing, although this is not yet the mainstream scenario,” said Moody’s. “If home prices, consumer confidence and spending do continue to sink, the economy could see negative growth in the first half of 2008.” However, the report noted that the diversity of the economy and the global role of the dollar will continue to support U.S. government and bond ratings (CNNMoney.com Jan. 14) … * The U.S. dollar declined to within a cent of its record low against the euro on speculation that the Federal Reserve will continue to cut interest rates to help the economy avoid recession. The dollar also is declining because analysts expect U.S. investment banks to announce writedowns of as much as $25 billion this week, said strategists at UBS AG. Over the past 12 months, the euro has increased 15% against the dollar. There’s a 58% chance the Fed will lower the target for the fed funds rate by 50 basis points to 3.75% at its Jan. 30 meeting, according to fed funds futures contracts on the Chicago Board of Trade. In a speech last week, Fed Chairman Ben Bernanke said the central bank is “ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” (Bloomberg.com Jan. 14) … * General Motors is nearing an agreement with the United Auto Workers union on another series of buyout and early-retirement offers, said GM North American President Troy Clarke. Buyouts will be offered at plants where the automaker wants to pay lower-tier wages. Current union workers earn about $28 an hour. Entry-level wages start at $14 to $15 an hour. New hires also will receive lower health-care and pension benefits. More than 34,000 workers left through retirement or buyouts in 2006. The company wants another 16,000 employees to leave the firm (Associated Press via The New York Times Jan. 14) … * General Motors has purchased an equity stake in Coskata, a start-up in Warrenville, Ill., that plans to produce ethanol from crop waste, wood chips, scrap plastic, rubber, and city garbage, said GM Chairman/ CEO Rick Wagoner. Coskata says its process is more economical than corn-ethanol production. It uses a less expensive feed stock that won’t compete with food production. The process also doesn’t release as much carbon because it uses less electricity, water, and natural gas. And feedstock is plentiful nationwide, so distribution isn’t a problem (The New York Times Jan. 14) …

Market News (01/11/2008)

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MADISON, Wis. (1/14/08)
* Economists polled by The Wall Street Journal (Jan. 10) now say the odds of a recession occurring within the next year are at 42%. That’s up from 38% in a survey last month and just 23% in a poll taken six months ago. Economists predict the economy will create only 74,000 jobs per month during the next year--the weakest forecast since the query was added to the poll in 2004. At the same time, respondents expect inflation to accelerate--to a 2.7% gain in the consumer price index for June--complicating the Federal Reserve’s response to slower economic growth. However, they still expect the Fed to lower interest rates by at least another 50 basis points during the first half of this year … * The Federal Reserve’s new term action facility (TAF) auctions have helped boost liquidity and may become permanent, said Fed Chairman Ben Bernanke. "Based on our initial experience, it appears that the TAF may have overcome the two drawbacks of the discount window, in that there appears to have been little if any stigma associated with participation in the auction, and because the Fed was able to set the amounts to be auctioned in advance, the open market desk faced minimal uncertainty about the effects of the operation on bank reserves," said Bernanke in a speech to a housing and economy forum in Washington. "The TAF may thus become a useful permanent addition to the Fed's toolbox. TAF auctions will continue as long as necessary to address elevated pressures in the short-term funding markets." Bernanke noted that “the banking system remains sound.” However, he also noted that 21% of subprime adjustable-rate mortgages are 90 days or more overdue, and concerns about the banking industry could affect overall economic growth (American Banker and federalreserve.gov Jan. 10) … * Fears about recession, and concerns about the weak dollar and high oil prices are fueling a surge in gold prices, as investors turn to safe-haven investments. An ounce of gold for February delivery soared $6.50 to a record-high $900.1 an ounce on the New York Mercantile Exchange on Friday. Gold prices jumped 32% in 2007. “It’s a reflection of market sentiment,” said CPM Group Analyst Carlos Sanchez. “Gold is a hedge against uncertainty and right now it’s the best bet.” (Associated Press via CNNMoney.com Jan. 11) … * The U.S. trade deficit widened in November as the U.S. spent a record amount on imported oil. The deficit jumped $63.1 billion--up 9.3% from $57.8 billion in October, the Commerce Department reported Friday. Soaring oil prices prompted a 10.9% jump in import prices in 2007, according to a separate Labor Department report. However, the weak dollar, which makes U.S. goods cheaper for foreign buyers, and strong demand from Asia and Latin America have helped buoy the U.S. manufacturing sector and keep the overall economy from contracting (Bloomberg.com Jan. 11). * Delta Air Lines executives are planning to ask the firm’s directors for permission to talk with United Airlines and Northwest Airlines about a possible merger. The airline industry--which only recently began to recover--is struggling with soaring oil prices and the economic slowdown. A merger could meet with public opposition if it results in service cuts. It also could face opposition from labor unions concerned about layoffs. Pardus Capital Management, a large shareholder of Delta, has urged the company to explore a merger with United. Pardus claims the firms would save $585 million annually by merging (The New York Times Jan. 11) … * Chrysler and Nissan have reached an agreement for Nissan to supply Chrysler with a small vehicle to be sold in South America, a possible first step towards a wider partnership. Chrysler also has teamed up with Volkswagen to develop a VW minivan to sell in the U.S. Industry analysts say Chrysler, which has depended on sales of pickup trucks and sport utilities to buoy earnings, needs to shift towards more fuel-efficient vehicles (The New York Times Jan. 11) …

News of the Competition (01/11/2008)

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MADISON, Wis. (1/14/08)
* U.S. insurance companies routinely overcharge customers, underpay home and auto claims, and get taxpayers to pick up some of the tab to boost their profits, said J. Robert Hunter, insurance director at the Consumer Federation of America (CFA). A study by CFA, Consumers Union and other consumer groups found that the insurance industry overcharged U.S. households by an average $870 during the past four years. The loss ratio for the industry was 54.6% in 2007--up from 53.3% the previous year but well below the 75% average during the late 1980s. At the same time, the industry’s net after-tax income was $65 billion in 2007--down only modestly from the record $67.6 billion set the previous year and well above the $48.8 billion total for 2005. “Insurers have reduced much of the risk they face, allowing them to earn record profits even in years of severe hurricane activity,” said the report. It noted that the industry has received $4 billion in subsidies since new laws were enacted to mitigate the sector’s losses after the 2001 terrorist attacks. The American Insurance Association defended the industry’s performance. “The absence of any major storm or earthquake has allowed insurers to post two modestly profitable years,” said Association President Marc Racicot (Associated Press via Dow Jones Newswires Jan. 11) … * Cleveland Mayor Frank Jackson has filed a lawsuit against 21 banks and mortgage companies, alleging that they devastated many neighborhoods by pushing subprime mortgages. The city hopes to receive compensation for the effects of the subprime crisis on those neighborhoods--including lost tax revenue and increased costs for demolishing foreclosed homes and policing the areas. “If you look at the end result of organized crime activity on neighborhoods, cities and individual lives, sucking equity out, you see the same thing here,” said Jackson. Cleveland saw 7,000 foreclosures last year. The firms being sued include Deutsche Bank Trust, Ameriquest Mortgage, Bear Stearns, Countrywide Financial, and Bank of America (CNN Jan. 11) … * Bank of America has agreed to acquire Countrywide Financial in a $4.1 billion stock deal that would rescue the nation’s largest mortgage lender (Associated Press via Yahoo! News Jan. 11). The acquisition would make Bank of America the biggest mortgage lender and servicer in the nation. Moody’s Investors Service said Friday that it may lower Bank of America’s credit rating because of its plan to acquire Countrywide (Reuters Jan. 11). Moody’s said Bank of America’s capital position is low and it faces a harsh business environment. “The transaction gives Bank of America a leading position in mortgage banking, but presents challenges, including integration, volatile mortgage asset valuations and potential litigation.” … * American Express announced Thursday that its cardholder spending has slowed, and delinquencies have increased--prompting the firm to take a $440 million pretax charge against fourth-quarter earnings. The company’s business weakened last month--especially in California, Florida, and other regions hit hard by the housing slump, said AmEx Chairman and Chief Executive Kenneth Chenault. The firm’s loan delinquency rate (30 days or more overdue) increased to 3.2% in the fourth quarter, from 2.9% the previous quarter, while write-offs jumped to 4.3% from 3.7%. The company expects write-offs to average 5.1% to 5.3% this year. However, AmEx Chief Financial Officer Daniel Henry noted that the write-off rates are not nearly as bad as in past economic slumps. He said write-off rates were 6% in 2001 and 9% in 1991 (The Wall Street Journal Online Jan. 11) … * Northern Rock, the British mortgage lender that was saved from bankruptcy by borrowing 26 billion pounds from the Bank of England, sold a 2.2 billion pound mortgage portfolio to JPMorgan Chase on Friday. Proceeds of the sale will go towards paying back Northern Rock’s borrowing from the Bank of England. The British government has been seeking a buyer for Northern Rock. The government also has considered nationalizing the firm or putting it into administration to accelerate repayment of the loans (Reuters via The New York Times and The Wall Street Journal Online Jan. 11) …

Expect softer spending Schenk advises IMarketWatchI

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SAN FRANCISCO (1/11/08)--Consumer spending will continue to soften in 2008, Mike Schenk, senior economist at the Credit Union National Association, told MarketWatch Thursday. “We expected people to come out of the holidays with a bit of a hangover,”’ Schenk said. “Debt levels are at records. Debt-payment levels are at near-record levels. And people will be extremely conscious of that going forward and will alter their behavior as a consequence.” Schenk commented on December holiday sales figures, which for many U.S. retailers were disappointing. December represents the largest sales month of the year. The low sales led to company profit warnings, as last-minute shopping, promotions and gift-card redemptions came up short in turning around the month’s sales performance, the article said.

News of the Competition (01/10/2008)

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MADISON, Wis. (1/11/08)
* Former British Prime Minister Tony Blair has accepted a part-time position with JPMorgan Chase, a Wall Street bank with assets of $1.5 trillion and business operations in more than 50 countries (CNN.com Jan. 10). Blair probably will be paid almost $1 million a year, a New York recruitment consultant told The Financial Times. Blair will advise JPMorgan on global political and strategic concerns. The part-time position won’t affect his role as a Mideast peace envoy, said Blair Spokeswoman Ruti Winterstein (Associated Press via The New York Times Jan. 10). He is a special envoy to the Middle East Quartet, which works to facilitate the peace process between Palestinians and Israelis. “He will continue as Quartet representative in the exact way, with the same level of commitment and time input,” said Winterstein … * U.S. banks lag their European counterparts in altering their business practices to address global warming, according to a report by Boston-based Ceres. All of the most climate-friendly banks on the study’s list were European--HSBC Holdings, ABN Amro Holding, Barclays PLC, Deutsche Bank, and HBOS PLC. U.S.-based bank Citigroup ranked sixth, while Bank of America came in seventh. At the bottom of the rankings were Bear Stearns, Franklin Resources, Legg Mason, T. Rowe Price Group and Black Rock. “For some banks, this issue simply has not emerged on their radar screen,” said report author Douglas Cogan (Associated Press via MSN.com Jan. 10) ... * Stung by billions of dollars in losses from subprime mortgages, Citigroup and Merrill Lynch are seeking large cash infusions from foreign governments. The two firms, which recently raised billions of dollars from outside investors, are now negotiating to receive additional infusions. Merrill is expected to obtain $3 billion to $4 billion, mostly from a Middle Eastern government investment fund. Citigroup may receive as much as $10 billion from foreign governments. Foreign governments already have invested a total of about $27 billion in Citigroup, Merrill, UBS AG, and Morgan Stanley. Citigroup and Merrill are expected to report additional losses of about $25 billion from their exposure to mortgage investments (The Wall Street Journal Online Jan. 10) … * Capital One Financial of McLean, Va., lowered its 2007 earnings forecast Thursday because of rising loan delinquencies and increased loss reserves in the fourth quarter. The credit-card issuer said it expects 2007 earnings of about $3.97 a share--lower than its previous forecast of “about $5 per share.” Capital One said it is taking a $1.9 billion provision for loan losses in the final quarter of 2007, including $1.3 billion in charge-offs. The company also said it is adding $650 million to its charge-off allowance due to rising delinquencies and “continued deterioration” of $700 million of home-equity-lines-of credit originated by its GreenPoint Mortgage unit, which closed in August. Capital One expects $5.9 billion in charge-offs this year, as the economy weakens (Associated Press via Yahoo! News Jan. 10) …

Market News (01/10/2008)

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MADISON, Wis. (1/11/08)
* Federal Reserve Chairman Ben Bernanke promised Thursday to cut interest rates again to keep the economy from falling into recession. “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” said Bernanke in a speech to a housing and economy forum in Washington yesterday. The Fed cut interest rates three times in 2007, pushing the fed funds rate to a two-year low of 4.25%. The housing downturn, weaker home prices, tighter credit, and high energy costs all “seem likely to weigh on consumer spending as we move into 2008,” said Bernanke. But the Fed chairman faces a quandary because high energy prices can both weaken economic growth and boost inflation risks. “... any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate” the central bank’s job of maintaining price stability, said Bernanke (Associated Press via Yahoo! News Jan. 10) … * The weak job report and slower growth in the service sector prompted a sharp decline in mortgage rates and a jump in refinancings, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) fell 20 basis points to 5.87% this week--the lowest level since September 2005. The 15-year FRM dropped 25 basis points to 5.43%, while the one-year, adjustable-rate mortgage (ARM) declined 10 basis points to 5.37%. The nation’s unemployment rate surged to a two-year high of 5% in December, while the service sector posted the weakest growth in nine months, and pending home sales dropped in November, said Freddie Mac Vice President and Chief Economist Frank Nothaft. “As a result, mortgage rates came down across the board, with 30-year fixed mortgage rates at their lowest level in more than two years,” said Nothaft. He also noted that refinancings have increased because mortgage rates have fallen more than 25 basis points in the past two weeks (MarketWatch and CNNMoney.com Jan. 10). … * The odds of a recession occurring within the next year are 38%, according to a survey of forecasters by the Blue Chip Economic Indicators newsletter. However, the survey was conducted before a Labor Department report on Jan. 4 that said the economy created only 18,000 new jobs in December while the unemployment rate jumped 30 basis points to 5%. “Whether or not the economy is already in a recession, about to enter one, or manages to muddle through without one, will only be known in the fullness of time,” said the newsletter. Respondents expect consumer spending to slow this year to the weakest pace since 1991, as job and income growth slows, and high energy prices and falling home prices exact a toll. New-home construction is expected to plunge 17% this year. “Slower consumer spending and capital investment are expected to limit manufacturing activity,” said the newsletter. “Foreign goods producers will absorb some of the hit from reduced demand, but the consensus still expects total industrial production to grow only 1.9% in 2008.” (Reuters via Yahoo! News Jan. 10) … * First-time claims for jobless benefits fell last week, but analysts said the report doesn’t necessarily signal a stronger job market (Associated Press via Yahoo! News Jan. 10). Initial claims for unemployment benefits declined by 15,000 during the week ending Jan. 5 to 322,000, the Labor Department reported Thursday. However, the decline could result from problems adjusting the data for the holidays. The four-week moving average, which smoothes out weekly volatility, edged down by 3,000 last week to 341,000. Continuing claims--the number of people still on the benefit rolls after an initial week of aid--declined by 52,000 during the week ended Dec. 29 to 2.702 million. Expect unemployment claims to trend upward in the months ahead as the economy slows, said Moody’s Economy.com (Jan. 10). Continuing claims also will increase as the pool of available workers rises and hiring remains weak … * Most stores saw the weakest holiday season in years, while discounters benefited from beleaguered consumers seeking bargains. Same-store sales in November and December increased just 1.7%--the smallest gain since 2002, according to Retail Metrics. “Consumers are feeling the squeeze,” said Retail Metrics President Ken Perkins. “Now there’s job uncertainty with last month’s unemployment number showing a surprisingly large uptick,” added Perkins. Consumers shopped for bargains last month. Wal-Mart, which aggressively slashed prices for the holidays, said its sales rose 2.4% in December. Costco reported a 5% gain (CNNMoney.com Jan. 10) … * The European Central Bank announced Thursday that it will infuse another $20 billion into the money markets, which have been hit by the U.S. mortgage slump. The bank said it wants to “satisfy the exceptional needs for dollar funding and to facilitate the further normalization of conditions in the money markets.” It will be the second time the ECB has injected U.S. currency into the money markets in an effort to boost liquidity (The New York Times Jan. 10) …

Market News (01/09/2008)

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MADISON, Wis. (1/10/08)
* The U.S. will avoid recession as the Federal Reserve lowers interest rates more than previously expected, according to a survey of economists by Bloomberg News (Jan. 9). The odds of a recession occurring within the next year are 40%, according to the median estimate of respondents. They expect economic growth to average 1.5% during the first half of this year. Respondents expect the Fed to lower the target for the fed funds rate to 3.5% by the middle of this year. That compares with a rate cut to 4% in the previous poll. Strong export growth and business investment also are expected to help the economy avoid recession … * Believing a steep rate cut was needed to avoid recession, three regional Federal Reserve banks sought a larger 50-basis-point cut in the discount rate before the Fed’s December policy meeting, according to minutes released Tuesday. Heads of the Boston, Minneapolis, and San Francisco Fed banks wanted the larger rate cut. The Dallas and Kansas City banks wanted to keep the rate unchanged at 5%, while the other seven regional banks sought a 25-basis-point cut. The committee lowered the rate by 25 basis points to 4.75% on Dec. 11. They also cut the target for the fed funds rate by 25 basis points to 4.25%. Economic conditions have deteriorated since that meeting, with the Labor Department reporting last week that the economy created only 18,000 new jobs in December. Most analysts expect at least another 25-basis-point cut when the Fed meets later this month (The Wall Street Journal Online Jan. 9) … * Concerned about recession, the Bush administration is considering a stimulus plan that would include tax rebates for consumers and tax breaks for business, say people familiar with the matter. So far, the president has only addressed the housing slump and subsequent economic fallout by proposing a subprime rescue. The major options he now is considering include tax rebates of $500 for people to stimulate spending and a tax break for businesses to encourage investment, say those familiar with the administration’s discussions. President Bush plans to present a stimulus package on Jan. 28 during his State of the Union Address (The Wall Street Journal Online Jan. 9) … * Consumers plan to curb their spending following the holidays as they face increased household expenses. In a survey by Discover Financial Services, 24% of respondents said they expect to spend less in January--compared with 11% in December. “Not surprisingly, consumers are modifying their spending habits after the holidays,” said Margo Georgiadis, chief marketing officer at Discover. “Household expense pressure remains high with nearly 50% of consumers expecting to spend more in this category.” She said consumers are curbing discretionary spending and saving more to compensate for higher household expenses. In the poll, just 27% of consumers said current economic conditions are “good” or “excellent.” (The Wall Street Journal Online Jan. 9) … * Consumers are turning increasingly to their credit cards as the housing slump and credit crunch dampen the availability and appeal of refinancing and home-equity borrowing. Consumer borrowing--excluding mortgages and other debt secured by real estate--increased at an annual rate of 7.4% in November following a 1% increase in October, the Federal Reserve reported Tuesday. Revolving credit, which includes credit cards, jumped at an 11.3% annual rate--after an 8.5% gain and the biggest increase in six months. Nonrevolving credit, which includes loans for autos, rose at a 5.1% rate following a 3.5% decline in October (Associated Press via CNNMoney.com Jan. 9) … * Refinancings rebounded last week as long-term mortgage rates continued to decline. The Mortgage Bankers Association’s Market Composite Index jumped 32.2% during the week ending Jan. 4 to 706. The Purchase Index rose 14.7% to 414, while the refinancing index surged 53.9% to 2494.2. The refinance share of mortgage activity jumped to 57.7% last week--from 50.9% the previous week. Long-term rates were down. The 30-year, fixed-rate mortgage (FRM) tumbled 32 basis points to 5.73%, while the 15-year FRM plunged 40 basis points to 5.21%. The one-year, adjustable-rate mortgage edged up 4 basis points to 6.04% (mbaa.org Jan. 9) …

News of the Competition (01/09/2008)

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MADISON, Wis. (1/10/08)
* Countrywide Financial, the nation’s largest mortgage lender, said late payments and foreclosures jumped in December. Late payments surged to 7.2% of unpaid balances, from 4.6% a year earlier, while foreclosures doubled to 1.44% of unpaid principal from 0.7%. The housing slump and rising defaults prompted a 70% decline in Countrywide shares last year, and the firm’s shares have continued to slump this year--prompting speculation that the firm might file for bankruptcy, a prospect it denies. CEO Angelo Mozilo has called the current housing slump the worst since the Great Depression. The firm has retreated from the subprime market--making just $6 million in subprime loans in December--compared with $3.7 billion in the same month the previous year. Despite its problems, the company said it hopes to be profitable this year (Bloomberg.com Jan. 9) … * Responding to the housing slump, discount brokerage E*Trade Financial announced Wednesday that it has sold about $3 billion of mortgage-backed securities and municipal bonds. That follows the sale of the firm’s $3 billion asset-backed securities portfolio in November. E*Trade’s shares have plunged after it announced the initial writedown in November. The latest sale is expected to result in the loss of about $5 million. E*Trade also announced that it is exiting the institutional trading business. And it has created a special committee to “aggressively” lower risk in its real-estate portfolio. Robert V. Burton, who was recently named the firm’s chef operating officer, will head the committee (Associated Press via CNNMoney.com Jan. 9) … * In a move to boost capital and retain its AAA credit rating, MBIA Inc said it will cut its dividend and raise $1 billion in a sale of notes. The credit quality of the securities MBIA guarantees against default has declined, and the world’s largest bond insurer expects to report losses of $737 million for the fourth quarter. Fitch Ratings said the company’s plans may be enough to avoid a downgrade of its ratings. In October, the firm reported a $36.6 million loss due to writedowns of mortgage-backed securities. The company also acknowledged last month that it guarantees $8.1 billion of collateralized debt obligations that it hadn’t previously disclosed (Bloomberg.com Jan. 9) … * In an effort to cope with the housing slump, Citigroup is combining its separate mortgage units into one business unit. Bill Beckmann, head of consumer mortgage operations, will create a separate residential-mortgage unit that will issue, package, and service loans. Separate units currently conduct those operations. Citigroup hopes the shift will let it cut costs and improve risk assessment by creating a common product set, underwriting guidelines, and back-office functions. Some analysts say the reorganization is a natural byproduct of Citigroup’s purchase of ACC Capital Holdings and its Argent debt-collection unit. That unit will become increasingly key, as more borrowers default on their mortgage debt (The New York Times Jan. 9) …

Home sales not good news Schenk tells iCNNMoneyi

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NEW YORK and WASHINGTON (1/9/08)--The November drop in home sales nationwide is “not surprising, but it’s certainly not good news,” Mike Schenk, senior economist at the Credit Union National Association, told two media outlets Tuesday. Schenk’s comments to CNNMoney.com and MarketWatch were spurred by the National Association of Realtors’ Pending Home Sale Index--considered to be the leading indicator of existing home sales--which fell by 2.6% to 87.6 for November. The dip comes after two months of modest improvements from a record low in August. A November forecast of economists surveyed by Briefing.com had predicted only a 0.8% decline (CNNMoney.com Jan. 8). “We may be near the bottom,” Schenk told CNNMoney.com. “But the trouble is we’re likely to stay at or near the bottom for a while. It’s going to take us six to nine months to claw our way out of this situation, at least.” “We’ll see more [home] price movement, but we’ll probably limp along for a while,” Schenk told MarketWatch.

News of the Competition (01/08/2008)

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MADISON, Wis. (1/9/08)
* Countrywide Financial Corp. fabricated documents in the bankruptcy case of a homeowner in Pennsylvania, according to court records. Documents from Countrywide to the homeowner said the borrower owed the firm $4,700 due to escrow discrepancies. Countrywide’s attorney described the letters as “recreated.” The borrower, Sharon Diane Hill, completed steps to exit bankruptcy and was discharged with court records showing her as current on her mortgage payments. However, a month later, Countrywide sent her a notice of intent to foreclose, saying she was in default. Under questioning by a judge, Leslie Puida, Countrywide’s outside counsel on the case, said “ a processor” at the firm generated the escrow letters to demonstrate how the discrepancies occurred. The case is one of 300 bankruptcy cases in Pennsylvania where the firm’s practices are being investigated. Ronda J. Winnecour, the Chapter 13 trustee for the western district of Pennsylvania, alleges that Countrywide lost or destroyed more than $500,000 in checks paid by homeowners in bankruptcy, but still assessed charges, including legal costs and late fees (The New York Times Jan. 8) … * Wells Fargo Bank is being sued by Baltimore’s mayor and city council. They claim the firm’s lending practices discriminated against black borrowers, prompting a surge in foreclosures that has slashed city tax revenues. The suit is asking the court to prohibit Wells from charging black borrowers higher fees. The suit claims Wells made high-cost loans to 65% of its black borrowers, but only 15% of its white borrowers in Baltimore in 2006. The suit is asking for damages to cover the lower tax revenues and to pay for the higher costs the foreclosures have prompted--including those for police and fire protection and to purchase and renovate abandoned properties. Wells Fargo Spokesman Kevin Waetke said the firm’s loan pricing simply reflects credit risk (The New York Times Jan. 8) … * Nineteen brokerages--including Merrill Lynch, UBS AG, and Lehman Brothers Holdings--were fined a total $2.8 million by brokerage regulators for overstating trading volumes used to compile rankings. The Financial Industry Regulatory Authority said each firm made “substantial overstatements” in at least one security in August 2006. “It is critically important that firms take appropriate steps to ensure that their advertised trade volume is accurate,” said Thomas Gira, executive vice president of market regulation at the agency. The regulator also cited the companies for failing to adopt adequate supervisory systems for the data prior to September 2006 (Bloomberg.com Jan. 8) … * Credit-card portfolios in 2007 were the most profitable since 1987, according to a report by R.K. Hammer Investment Bankers. Revenues jumped 10.1% to $160.1 billion. Last year 61% of revenues came from interest charges while 39% were from fees. That compared with figures of 62% and 38%, respectively, in 2006. Expenses rose 11.9% to $119.4 billion in 2007. Chargeoffs increased 22.3% to $41.1 billion (American Banker Jan. 8) …

Market News (01/08/2008)

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MADISON, Wis. (1/9/08)
* Pending-home sales fell in November, suggesting further deterioration in the housing sector. The National Association of Realtors’ (NAR) index of pending home sales declined by 2.6% to 87.6 following a revised 3.7% gain in October. The November index was 19.2% lower than the November 2006 level of 108.4. However, NAR expects existing-home sales to hold fairly steady early this year before rising later in the year and continuing to improve in 2009. The trade group said sales probably totaled 5.66 million in 2007 and will total 5.70 million this year and 5.91 million in 2009. Existing-home prices probably fell 1.9% to $217,600 in 2007. The group expects prices to hold steady this year, and then increase 3.1% to $224,400 in 2009. However, NAR Chief Economist Lawrence Yun noted that the “exact timing and the strength of a home sales recovery is a bit uncertain.” NAR expects the 30-year, fixed-rate mortgage to edge up to 6.3% by the end of this year. But the association noted that further Federal Reserve easing should lower short-term interest rates (realtor.org and Bloomberg.com Jan. 8) … * Treasury Secretary Henry Paulson said the housing slump will continue and a government program to avert foreclosures may need to be extended beyond subprime borrowers. “There is no evidence it is bottoming,” said Paulson in an interview on CNBC on Tuesday. “We have this wave of resets coming.” About 2 million adjustable-rate mortgages are expected to reset to higher rates within the next two years. Paulson also noted that the housing slump apparently is affecting the overall economy. However, he said the Bush administration hasn’t decided if fiscal stimulus is needed to avert recession. Harvard Economist Martin Feldstein, who also appeared on the CNBC program yesterday, said economic growth is in “a very sharp decline.” He said the government should offer fiscal stimulus “as quickly as possible.” (Bloomberg.com Jan. 8) … * In another sign that the housing slump is continuing to take its toll, homebuilder KB Home said Tuesday that it lost $772.6 million in the fourth quarter. The nation’s 5th-largest homebuilder also said it is negotiating with its banks because it no longer is in compliance with some terms of its credit lines. CEO Jeffrey Mezger said this year will be another difficult one for homebuilders. Other homebuilders have reported weak results as well. Lennar, the nation’s top builder, and No. 2 Centex reported larger-than-expected losses due to inventory writedowns and weak sales (CNNMoney.com Jan. 8) … * Growth in overall health-care spending continued to increase in 2006, and Medicare spending soared, according to a study by the Centers for Medicare and Medicaid Services. Health-care spending totaled $2.1 trillion, representing 16% of the nation’s gross domestic product--up 6.7% from the previous year. That follows a 6.5% increase in health-care spending in 2005. Total spending translated into $7,026 per person in 2006, up from $6,649 in 2005. The study also reported that the government’s new Medicare prescription-drug plan was mostly responsible for an 18.7% surge in Medicare spending in 2006--to $401.3 billion. Some consumer advocates have criticized the government’s drug plan--which is paid for by the government but offered through private insurers--for a law prohibiting the government from negotiating with drug companies for lower prices. “If you have a segment of health care completely out of control as in prescription drug prices for Medicare--it’s a strong argument why there should have been price controls and negotiated prices,” said Dr. Sidney M. Wolfe, director of the Health Research Group of Public Citizens. He noted that both the Department of Defense and the Veterans Administration negotiate prices with drug firms. “The drug companies used their lobbyists to fight to the death against price controls because they knew they would make much less money if there were price controls,” said Wolfe (The Wall Street Journal Online and HealthDay News via Yahoo! News Jan. 8) … * Ford Motor Co. announced Tuesday that it plans to invest $500 million in India to double its factory capacity by 2010. The company considers India to be a major production hub for producing small cars to sell in Asia and Africa. The new investment boosts Ford’s overall financial commitment in India to more than $875 million. Annual vehicle sales in India are expected to almost double--to 2 million--by 2010 (Associated Press and Reuters via The New York Times Jan. 8) …

Market News (01/07/2008)

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MADISON, Wis. (1/8/08)
* More employers are cutting workers’ hours to less than full time as the economy weakens, a trend that could signal further increases in the unemployment rate ahead. Cutting workers to part-time hours helps employers avoid layoffs and severance costs and retain skilled workers, but results in lower earnings for employees and puts their benefits at risk. There were 2.8 million people working part-time hours in 2007 because of slower business conditions--up 9% from the previous year, according to the Labor Department. The trend accelerated after the credit crunch began in August. The number of people working part time because of weaker business rose to 3.1 million in December--the highest level in four years. This trend probably will result in a higher unemployment rate because many employers already have lowered hours and are on the verge of cutting jobs, said Marisa Di Natale, a senior economist at Economy.com (The Wall Street Journal Online Jan. 7) … * U.S. business confidence declined to a new record low at the beginning of 2008 in a trend consistent with recession, according to the latest Moody’s Economy.com Survey of Business Confidence. Real-estate, financial, and business-service companies are the most pessimistic, and previously optimistic manufacturers have become less upbeat. Businesses are cutting inventories and see less demand for office space. However, equipment investment remains solid, and pricing pressures are fairy modest despite rising oil prices. Expectations about the first six months of this year are at the lowest level on record. Business confidence among foreign nations also has declined, a trend that portends poorly for U.S. trade and the nation’s ability to avoid recession … * The odds of a recession have increased to more than 50% after the Labor Department reported Friday that the unemployment rate jumped by 30 basis points to 5% in December, said Martin Feldstein, a Harvard University economist and president of the National Bureau of Economic Research, a group that dates U.S. business cycles. “Consumers, with essentially no growth in jobs in December, are going to be more nervous about the future,” said Feldstein. He said the Federal Reserve will have to keep cutting rates to keep the economy expanding, and Congress may even have to lower taxes to boost consumer spending and confidence. “Housing starts have collapsed, so you have low construction, low household wealth and that is now beginning to accumulate and to shift over into reductions in the growth of employment and therefore in the growth of incomes,” said Feldstein (Bloomberg.com Jan. 7) … * The national vacancy rate for office buildings increased in the fourth quarter, for the first time in four years. The nationwide office-vacancy rate rose to 12.6%, from 12.5% in the third quarter, according to New York-based Reis Inc. “I think we’re going to see the market continue to slow in 2008,” said Reis Chief Economist Sam Chandan. Vacancy rates climbed most sharply in areas of California, Florida, and in Las Vegas--regions that have been especially hard hit by the housing slump. The rising vacancy rate along with the jump in the nation’s unemployment rate to 5% in December suggest that the economy could be headed for a recession (The Wall Street Journal Online Jan. 7) … * Oil prices jumped to more than $98 a barrel on Monday before retreating as reports of increased tension in the Middle East offset a shift towards lower U.S. demand. Iranian vessels in the Strait of Hormuz threatened three U.S. Navy ships this weekend, according to a CNN report. The U.S. came close to firing on the Iranian ships. U.S. light crude for February delivery jumped 14 cents to $98.05 a barrel before easing. Goldman Sachs predicts that oil prices will remain high this year despite weaker demand from the U.S. as the economy slows. “We maintain that the combination of tighter short-term fundamentals and escalating costs will continue to provide strong support to oil prices in 2008, with the risk skewed to the upside from current levels,” said Goldman (Reuters via Yahoo! News Jan. 7) …

News of the Competition (01/07/2008)

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MADISON, Wis. (1/8/08)
* More than 86,000 mortgage jobs were eliminated in 2007 because of the housing slump, according to a report by MortgageDaily.com. Countrywide Financial of Calabasas, Calif., cut the most jobs last year--at 11,665 or 14% of all mortgage job cuts during the year. California was the state hardest hit, with almost 16,000 mortgage jobs lost in 2007. The state was headquarters to one of the country’s biggest subprime lenders, New Century Financial, which filed for bankruptcy last year, resulting in the loss of 5,200 jobs. The pace of job cuts will continue, but slow in 2008, said Sam Garcia, publisher of MortgageDaily.com. However, he predicts that job growth in mortgage servicing will expand as mortgage delinquencies and foreclosures increase (Associated Press via msn.com Jan. 7) … * Sales of credit-card portfolios remained sluggish last year, but analysts predict much higher sales in 2008 as the credit crunch and consolidation among big issuers continues. An estimated $9.4 billion of prime receivables were sold in 2007--up about one third from 2006, but far below the $30 billion to $45 billion sold from 2003 to 2005, according to R.K. Hammer Investment Bankers. The Thousand Oaks, Calif.-based firm said sales of $48.4 billion already are in the pipeline for this year. CEO Robert Hammer noted that concern about weaker card assets is now becoming an issue in increasing deal activity. Frank Martien, a partner at First Annapolis Consulting, said lenders this year probably will sell card portfolios to “help offset mortgage losses,” or because of credit problems in their portfolios (American Banker Jan. 4) … * Former Goldman Sachs Associate Eugene Plotkin was sentenced last week to four years and nine months in prison for heading one of the biggest insider-trading conspiracies in recent years. Along with co-worker David Pajcin and other conspirators, Plotkin engineered three plans that brought in $6.5 million in ill-gotten gains. Most of the plans involved tips from former Merrill Lynch Analyst Stanislav Shpigelman. Plotkin was the last major person in the conspiracy to plead guilty (The New York Times Jan. 4) … * Student lender Sallie Mae on Monday named banking-industry executive Anthony P. Terracciano as chairman of its board. He replaces Albert L. Lord, who held that title for three weeks and will remain chief executive officer and vice chairman. Shares of Sallie Mae, the largest U.S. student lender, have slumped in recent weeks amid higher borrowing costs and after the failure of a $25 billion buyout. Sallie shares rebounded Monday after news of the appointment (Associated Press via Yahoo! News Jan. 7) … * Collateralized debt obligations (CDOs) with $64 billion of original balances have seen events of default since mid-October, prompted by collateral downgrades, according to a report by Wachovia Corp. Analyst Justin Pauley. Units of State Street, BlackRock, Societe Generale, and Deutsche Bank are some of the managers of CDOs seen at risk of failing to repay their most-senior classes, said the report (Bloomberg News via American Banker Jan. 7) …

Weak job market will affect CUs says CUNA economist

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MADISON, Wis. (1/7/08)--The economy created just 18,000 new jobs in December, the Labor Department reported Friday (see chart). It was the weakest growth since a 25,000 decline in August 2003 and will have an impact on credit union lending and delinquencies.
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"The labor market slowdown is a direct result of the subprime mortgage and housing market meltdown," said Steve Rick, senior economist for the Credit Union National Association (CUNA). "The increase in the unemployment rate could not have come at a worse time," Rick told News Now. "Two million adjustable-rate mortgage loans are scheduled to reset over the next 18 months. Unemployed people have a difficult time making higher mortgage payments. If the labor market continues to deteriorate in 2008, which we expect, credit union delinquency rates will climb over 1% in 2008, the first time since 1997." The slower employment growth will also translate into lower loan growth in 2008, he said. "CUNA is forecasting credit union loans to increase only 5% in 2008, down from 7% in 2007." December's unemployment rate jumped to 5%--from 4.7% the previous month and the highest level in more than two years. Job gains for all of 2007 totaled 1.3 million--down sharply from 2.3 million the previous year. Payroll gains averaged 111,000 per month, compared with 189,000. The government’s expected revisions for last year are expected to bring the total down even further (Economy.com Jan. 4). The number of unemployed people rose by 474,000 to 7.7 million in December. A year earlier, the number of unemployed people totaled 6.8 million, and the unemployment rate was 4.4%. Job losses in construction (49,000); manufacturing (31,000); and the retail sector (24,300) largely offset growth in service industries (93,000). Average weekly hours were unchanged at 33.8, while average hourly earnings rose by seven cents to $17.71.

News of the Competition (01/04/2008)

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MADISON, Wis. (1/7/08)
* The Federal Reserve announced Friday that it will increase the amount of money available to banks via the new auction process it launched in December to help ease the credit crunch. The Fed’s announcement came after the Labor Department reported that the economy created only 18,000 new jobs in December while the unemployment rate jumped 30 basis points to 5%. The central bank also repeated its pledge to continue holding the auctions “for as long as necessary.” The Fed said it plans to boost the amount offered at its next two auctions, on Jan. 14 and on Jan. 28, by 50% to $30 billion each. The central bank’s first two auctions, which each offered $20 billion, drew bids for about three times that sum. The Fed wanted to try the new method of injecting funds after many banks remained reluctant to borrow from the discount window because they feared being seen as desperate (Associated Press via Yahoo! News Jan. 4) … * Banks boosted their borrowing at the Federal Reserve’s discount window last week. Borrowings totaled $4.923 billion as of Jan. 2--up 8.5% from $4.535 billion the previous week. Most of the loans were issued as primary credit to healthy financial institutions. There was no secondary credit issued to weak institutions. The remainder of the sum was issued as seasonal credit for banks in rural regions. Most of the loans ($4.763 billion) were made by the Federal Reserve Bank of New York. The New York Fed also has dominated the central bank’s term auction loans (Dow Jones Newswires and American Banker Jan. 4) … * The number of class-action lawsuits accusing firms of defrauding investors jumped more than 40% in 2007--fueled by bad mortgage investments and the volatile stock market, according to a study by Stanford University and Cornerstone Research. Most of the surge occurred during the last half of the year after the credit crunch began. Attorneys filed suits against 166 companies in 2007. That total included 47 financial-services firms. “There will be additional companies sued because of subprime in 2008,” predicts Stanford Law Professor Joseph Grundfest. Regulators also are investigating possible cases of wrongdoing by lenders and financial institutions related to mortgage investments (washingtonpost.com Jan. 4) … * State Street Corp., which manages $2 trillion for pension funds and other institutions, announced last week that it plans to set aside $618 million to cover expected legal claims and other costs from investments tied to mortgage securities. Five clients have sued the Boston-based company. They claim they lost tens of million of dollars in funds that State Street said would be mostly invested in risk-free debt. The suits allege that one fund that placed large bets on mortgage securities lost 28% of its value. The suits say the company breached its fiduciary duty by investing in securities that didn’t match the risk tolerance of its clients. State Street said it will take a $279 million after-tax charge to account for the reserve (The New York Times Jan. 4) …

Market News (01/04/2008)

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MADISON, Wis. (1/7/08)
* Vehicle sales geared up modestly in December, rising to a 16.3 million annual pace from a 16.2 million rate in November. For the full year, vehicle sales totaled less than 16.2 million units--down from 16.5 million units in 2006 and the weakest growth since 1998. Toyota outpaced Ford for the year to become the 2nd-largest brand in the U.S., behind General Motors. Domestic brands now account for only about half of all vehicles sold in the U.S. Going forward, consumers will continue to be pressured by high energy costs, the housing slump, and weak job growth--prompting automakers to continue offering incentives to boost sales (Economy.com Jan. 4) … * Sector-sector growth slowed last month as the economy continued to struggle with high energy prices and the credit crunch. The Institute for Supply Management’s (ISM) index for non-manufacturing businesses (including banks, insurance companies, and retailers) declined to 53.9 in December--from 54.1 in November and the lowest level since March. Still, a reading above 50 indicates expansion in the sector, which makes up about 90% of the economy. However, respondents “remain concerned about the economy,” noted Anthony Nieves, chairman of the institute’s business survey committee. The ISM reported earlier last week that its manufacturing index fell to 47.7 in December--from 50.8 in November and below the level that indicates expansion (Associated Press via Yahoo! News and Bloomberg.com Jan. 4) … * Mortgage rates declined to a four-week low last week, according to a report by Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) fell 10 basis points to 6.07%, while the 15-year FRM dropped 11 basis points to 5.68%, and the one-year, adjustable-rate mortgage (ARM) fell 6 basis points to 5.47%. “The new year has begun with mixed signals on the direction of the economy and mortgage market,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “On the downside, the Institute for Supply Management’s index of manufacturing activity showed significant contraction in this sector, perhaps a harbinger of a more substantial economic slowdown to begin this year. On the upside, the Conference Board reported that consumer confidence rose in December for the first time in five months, with more positive expectations for the next six months. Furthermore, interest rates have moved lower with average 30-year fixed-rate mortgage rates down about a tenth of a percentage point, the lowest in four weeks.” He said Freddie continues to predict that home sales will decline in the first quarter of this year before beginning a slow recovery … * States are coping with rising budget deficits and borrowing costs as the housing slump and credit crunch continue, according to data compiled by Bloomberg.com (Jan. 4). The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates has doubled since July to the widest since 2004. The housing slump has prompted lower property tax revenue. In addition, consumers have curbed spending, leading to lower sales-tax revenue. Thirteen states are facing cash shortfalls totaling $30 billion for the next fiscal year, according to a report last month by the Washington-based Center on Budget and Policy Priorities. In response, states are slowing growth in spending or curbing tax cuts. State spending will increase 4.7% to $686 billion during the current fiscal year--the smallest increase since 2004, according to a survey by the National Governors Association and the National Association of State Budget Officers …

Market News (01/03/2008)

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MADISON, Wis. (1/4/08)
* Consumer-loan delinquencies increased to the highest level since the nation’s last recession in 2001, according to a report by the American Bankers Association (ABA). The delinquency rate (30 days or more overdue) on a composite of consumer loans (including autos, home improvement, and some types of home-equity loans) jumped to 2.44% in the third quarter--from 2.27% in the second quarter and the highest level since 2.51% in the second quarter of 2001. The increase reflected rising energy prices and many homeowners’ difficulties in making mortgage payments, said ABA Chief Economist James Chessen. “My concern is that delinquencies will continue to rise, because the housing problem will worsen, and disposable income will not stretch as far. Lenders will need to take a second or third look at any consumer loans they make,” said Chessen. The ABA also reported that the delinquency rate on home-equity-lines-of-credit rose to 0.84% in the third quarter--from 0.77% in the previous quarter and the highest rate since the fourth quarter of 1997. The delinquency rate on indirect auto loans (which are made via dealerships) rose to a 16-year high of 2.86% in the third quarter. However, the credit-card delinquency rate declined to 4.18% from 4.39% in the second quarter. “The hope is that will continue, but that relies on job and income growth, which are tied to the strength of the economy,” said Chessen (Reuters and Associated Press via Yahoo! News Jan. 3) … * Forecasts for the fourth-quarter earnings of S&P 500 companies dropped to a 6.1% decline this week--from a projection of an 11.5% increase on Oct. 1, according to survey of analysts by Reuters Estimates. It was the largest quarterly movement since the survey began in 1999. Analysts’ forecasts for first-quarter and second-quarter earnings also plummeted. Analysts expect earnings to increase only 5.1% in the first quarter and 5% in the second quarter. Both forecasts are down sharply from estimates of 11.4% growth in the first three months of this year and 9.4% growth in the second quarter. Year-over-year earnings for the financial sector is forecast to plunge 62% in the fourth quarter. “The surge in analysts’ conservatism is primarily the result of the subprime crisis in the U.S. and globally, and its impact on the write-downs in the financial sector,” said Riley Asset Management Chief Investment Officer Ned Riley. “Forecasters also are becoming more sensitive to the possibility of recession in the U.S., and those macro forces will exert huge influence over consumer spending in the U.S. as well as globally,” added Riley (Reuters via Yahoo! News Jan. 3) … * First-time claims for unemployment benefits retreated from a three-year high last week, even as continuing claims continued to increase. Initial jobless claims fell by 21,000 during the week ending Dec. 29 to 336,000, the Labor Department reported Thursday. Jobless claims had jumped to the highest level in more than two years the previous week. However, the government said much of last week’s improvement reflected unusual factors related to the holidays. Continuing claims (the number of people drawing benefits for more than one week) jumped by 46,000 during the week ended Dec. 22 to 2.761 million--the highest level since October 2005 after Hurricane Katrina. Over the last six weeks, continuing claims have increased by more than 200,000. The trend could weaken consumer income and spending in the months ahead (The Wall Street Journal Online and Associated Press via Yahoo! News Jan. 3) … * Planned layoffs by large corporations declined by 8.5% to 768,274 in 2007--the lowest level since 2001, according to a report by the outplacement firm Challenger, Gray & Christmas. In December, announced layoff plans fell 39% to 44,416--the lowest level of the year. “The housing slump has failed to translate into widespread job cuts outside of the financial sector,” said John Challenger, CEO of the Chicago-based firm. The financial sector announced 153,105 layoffs in 2007--more than three times the 2006 total. Automakers announced 78,880 layoffs, down from 158,766 in 2006. The report only covers a small portion of those losing their jobs, since it only tallies large corporations (MarketWatch Jan. 3) … * Mortgage activity retreated during a holiday-shortened week, according to a report by the Mortgage Bankers Association (mbaa.org Jan. 3). The MBA’s Market Composite Index tumbled 11.6% during the week ending Dec. 28 to 533.9, as both purchase and refinancing applications declined. The 30-year, fixed-rate mortgage (FRM) fell 5 basis points to 6.05%, while the one-year, adjustable-rate mortgage (ARM) edged down 3 basis points to 6%. The 30-year FRM is now 17 basis points lower than a year ago, while the one-year ARM is 17 basis points higher, noted Moody’s Economy.com (Jan. 3). The spread between the two rates is only five basis points. The research firm said the end of the housing slump isn’t yet in sight … * Factory orders jumped by 1.5% during November--following a 0.7% gain in October and the largest increase in four months, the Commerce Department reported Thursday. However, the gain largely reflected higher oil prices. Excluding a 15.9% jump in petroleum orders, new orders were down 0.2% in November. Orders for nondefense capital goods excluding aircraft (a proxy for future business spending) edged down 0.1% following a 3% drop in October. A report by the Institute for Supply Management on Wednesday also suggested contraction in the manufacturing sector. The trade group’s factory index fell to 47.7 in December, from 50.8 in November. A reading below 50 indicates contraction in the sector (MarketWatch and The Wall Street Journal Online Jan. 3) …

News of the Competition (01/03/2008)

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MADISON, Wis. (1/4/08)
* Only 66% of previously licensed mortgage brokers and 42% of previously licensed loan originators have fully renewed and been approved to do business in Washington, according to the state’s Department of Financial Institutions (DFI). The DFI considers these numbers low in light of numerous reminders and full-year leniency regarding testing, license renewal and continuing education requirements. “The low number of renewals--compared to the number practicing prior to Dec. 31, 2007--is a concern, particularly in light of the numerous notices issued,” DFI Director Scott Jarvis said in a press release. “We understand that the reduction reflects a dramatic drop in loan activity due to the downturn of the mortgage industry, and a number of firms going out of business or dropping their state license.” Because of the decreased number of licensed loan originators and mortgage brokers, DFI is advising consumer to verify that their loan originator and/or mortgage broker is licensed to do business in Washington … * After weathering a $279 million writedown to cover legal costs induced by subprime mortgage losses, the head of State Street Corp.’s investment unit resigned. William Hunt, 45, CEO of State Street Global Advisers for the past three years, was replaced by James Phalen, 57, on an interim basis, according to a company statement Thursday. State Street, the world’s largest money manager for institutions, is facing lawsuits that claim its funds made unacceptably risky investments (Bloomberg.com Jan. 3) … * The Response Group of Companies announced Thursday it would voluntarily comply with Washington Insurance Commissioner Mike Kreidler’s request related to its auto insurance customers in Federal Emergency Management Agency (FEMA)-declared disaster counties. As a result, Response will withdraw insurance cancellations or non-renewals effective or issued between “one week prior” to Dec. 3, 2007. Response also is making adjustments to ensure that such notices will be delayed until after Jan. 10 for auto policies in effect in the counties. The company will extend the time limit that affected policy holders have to transmit any information or funds until Jan. 10 (PRNewswire Jan. 3) … * The owner of the largest state-chartered bank in the U.S--BB&T Corp.--has been given the OK to convert some of its assets to a federal thrift charter, said the Office of Thrift Supervision (OTS). BB&T Financial will be the name of the new thrift, which will focus on mortgages, gift and credit cards, and consumer equipment lending. The $130.8 billion asset, Winston-Salem company said it plans to move $2.13 billion into the new thrift. The move is seen as departure for a company that traditionally has emphasized community banking, analysts said. The move is meant to allow BB&T Corp. to more competitively run niche businesses and conduct business throughout the U.S. without having to adhere to different compliance procedures in each state, according to company spokeswoman A.C. McGraw (American Banker Jan. 3) …

News of the Competition (01/02/2008)

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MADISON, Wis. (1/3/08)
* Evergreen Bancorp Inc., the holding company for EverGreenBank, announced Monday that it will record a fourth quarter 2007 pretax charge of about $1.4 million. This will reduce earnings after tax by $940,000 or 39 cents per diluted share, representing its proportionate share of certain litigation involving Visa Inc. and number of Visa member banks, including EvergreenBank. EvergreenBancorp expects to fully recover the $1.4 million in the first quarter of 2008, when Visa goes public, the company said in a press release. EvergreenBancorp owns 0.052% of Visa Inc., which recently filed its registration statement with the Securities and Exchange Commission to go public through an initial public offering. EvergreenBancorp obtained its ownership of Visa shares, and resulting proportionate share of the Visa settlement, through a business line that it discontinued in 2003. Between 1993 and 2003, EverGreenBank was the issuing bank of Visa cards for about 1,000 financial institutions … * National City Bank will cut 900 additional jobs and reduce its quarterly dividend by 49% as it discontinues home loans through brokers. The lender, which is Ohio’s largest bank, has eliminated 3,400 positions in the past year. The Cleveland-based National City will continue to make home loans through staff at its 300 mortgage offices and 1,400 bank branches, said company spokeswoman Kirsten Baird Adams. A year after selling its subprime mortgage unit to Merrill Lynch & Co., National City is still struggling, analysts said (Bloomberg.com Jan. 2) … * With defaults on the rise in November, the stability of mortgage insurance is being tested. Sixty-day delinquencies on loans covered by it members rose 2.9% in November from the month before and 8.24% from the previous year to 61,033, Mortgage Insurance Companies of America said Monday. The trade group said this is the highest level since data has been available--which is January 2000. In November, the rate at which privately insured mortgages got out of delinquency status rose, with 60.8% of delinquencies offset by cures of 37,137 loans--4.7 percentage points better than the numbers for October. However, the November tally was still lagging that of a year earlier by 14.8 percentage points (American Banker Jan. 2) … * The unusual action of auctioning certificates of deposit through its website is paying off for Zions Bancorp, analysts said. Since February 2007, the Salt Lake-city based company has held more than 250 online auctions of its certificates of deposit (CDs) at its Zions Direct Site, said Zions Executive Vice President W. David Hemingway. Five of Zions’ eight banks use the Dutch auction service to sell CDs. The strategy is an experiment, with the company moving further along than anyone else, even those who experimented with the concept seven or eight years ago, Hemingway said (American Banker Jan. 2) …

Market News (01/02/2008)

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MADISON, Wis. (1/3/08)
* More interest rate cuts might be needed if the credit markets' deterioration leads to deeper economic and housing market problems, according to the Federal Reserve's latest meeting minutes. The Fed minutes said that some members noted the risk of an unfavorable feedback loop in which credit market conditions restrained economic growth further, leading to even tighter credit. "Such an adverse development could require a substantial further easing of policy." Wall Street analysts say the comments mean a rate cut at the Fed's next meeting, which concludes on Jan. 30 (CNNMoney.com Jan. 2) … * Manufacturing activity in the U.S. dropped to 47.7% in December from November's 50.8% and October's 50.9%--far below economists' expectations that the index would hold steady at 51% (The Wall Street Journal Jan. 2). The Institute for Supply Management (ISM) reported Wednesday that the index turned in its weakest performance since April 2003. Numbers over 50 indicate growth, while numbers under 50 indicate contraction in the economy. New orders for December were at 45.7--down from 52.6 the previous month. ISM's production index hit 47.3, compared with November's 51.9. Most disturbing was the prices index--at 68 vs. 67.5 in November--and the employment index showed contraction with 48, from November's 47.8 reading. Inventories for December were 45.5, down from November's 46.5. According to Norbert Ore, chairman of the Tempe, Ariz.-based ISM's survey, the measure starts pointing to a recession across the country when it falls below 41.9 for two consecutive quarters. Last year, the manufacturing index, which covers about 12% of the economy, averaged 52.2; in 2006, it averaged 53.9. December's reading was the first below 50 since January 2007 (Bloomberg.com Jan. 2) … * For the first time, oil prices rose above the $100 a barrel threshold Wednesday before dropping slightly on the New York Mercantile Exchange (The New York Times Jan. 2). Prices, which were at a low of $50 per barrel at the beginning of 2007, have quadrupled since 2003. Today's surge is different from the surge in oil prices in the 1970s and 1980s, which were attributed to interruptions in the supply from the Middle East. Today's surge is caused by demand for oil and gasoline from the U.S., China and other Asian and Middle East countries. Gasoline prices are at an average of $3.05 nationwide--below May's $3.23 per gallon but 82 cents more than a year ago … * Construction spending in the nation rose unexpectedly by 0.1%--to $1,165.1 trillion--in November, largely due to stronger spending on nonresidential and public construction projects, said the Commerce Department Wednesday. November's reading is 0.1% lower than in November 2006. October spending fell 0.4%, a sharp revision upward from the 0.8% drop originally estimated. Private residential construction declined 2.5% in November to $484.9 billion--17.8% lower than a year ago. Analysts on Wall Street had expected construction spending to decline by 0.4% (Moody's Economy.com and The Wall Street Journal Jan. 2) … * Sales at chain stores in the nation dropped 0.2% for the week ending Dec. 29, after the previous week's gain of 2.8% seasonally adjusted, the International Council of Shopping Centers (ICSC) reported Wednesday. Year-over-year growth dropped to 2.3. Last minute holiday shopping was strong, spurred by gift card redemptions after the holiday. Wal-Mart and some other retailers' technical issues with gift card redemption immediately after Christmas should not impact the overall sales trend, said Moody's Economy.com (Jan. 2). ICSC projected growth for December at about 1%--just below 2.5% for the combined November-December shopping period. Overall, sales met modest expectations for the season. Calendar shifts during the season related to the Thanksgiving holidays and the flux of gift card redemptions after the holiday make data more volatile. The fiscal month has another week to run this year compared with last year, when Christmas was in the final week of the month …