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Reality sets in via GDP stats CUNA tells IWash. PostI

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MADISON, Wis. (2/2/09)--Although data on the U.S. gross domestic product (GDP) was not as bleak as expected, economists from the Credit Union National Association (CUNA) and other analysts suggest that the more they look at that data, the worse matters seem, according to Saturday's Washington Post. "Initially a cheer went up," Mike Schenk, senior economist at CUNA, told the Washington Post. "But reality quickly set in, and as I look at these numbers, there's nothing to be excited about." Schenk's analysis was the first from several analysts commenting in the article. The economy contracted at 3.8% annual rate in the fourth quarter of 2008, better than analysts expected, but the GDP, released Friday by the Commerce Department, means the recession is deepening and broadening. GDP presented worrying signs on all four of its main components: consumption, investment, government spending and net exports. Exports fell 19.7%, government spending rose but state and local government spending dropped, business investment dropped a 27.8% pace, and consumer spending dropped 3.5%. To read the entire article, use the link.

News of the Competition (01/30/2009)

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MADISON, Wis. (2/2/09)
* Wall Street firms are expected to lose a total $47.2 billion for 2008, a figure that will grow this year, according to a news release by New York City Mayor Michael Bloomberg. The city is projected to lose 294,000 jobs from mid-2008 through 2010. About 46,000 of those job losses will occur in the financial sector. Bloomberg said his administration may have to cut its workforce by more than 20,000 amid declining tax revenue. Most of the cuts would be in the city’s homeless department, the children’s welfare agency, and the education department. Bloomberg said the budget gap for fiscal 2010 is at $4 billion and rising (Associated Press via The Wall Street Journal Online and Bloomberg.com Jan. 30) … * New York Attorney General Andrew Cuomo may demand the return of $4 billion in bonuses paid by Merrill Lynch only days before it was acquired by Bank of America, according to a person familiar with the situation. Cuomo’s office wants to know if shareholders had enough information about Merrill’s financial situation, and if the government’s bailout loans to Bank of America were used properly. Last week, President Barack Obama said it was “shameful” that banks paid out $18.4 billion in bonuses last year even as taxpayers bailed out the companies (Bloomberg.com Jan. 30) … * Some executives are calling for an overhaul of the bonus system in banks. Chief executives meeting in Davos, Switzerland, last week said the incentive of year-end bonuses drove some bankers to take excessive risks. “It is quit clear that at least some of the compensation models at these firms have to be, not just incrementally changed, but completely overhauled,” said NYSE Euronext CEO Duncan Niederhauer. Some banks already are enacting measures to rein in bonus pay. Switzerland’s UBS has introduced a variable-pay system in which compensation can be boosted or cut back depending on performance. Credit Suisse plans to pay some senior executives with illiquid assets, in effect making them take on some of the risk they placed on the books (Reuters via The New York Times Jan. 30) … * The Federal Reserve has marked down the value of the investment portfolios acquired in the rescues of Bear Stearns and American International Group (AIG) by 2.4% to $72.2 billion, adding to potential taxpayer losses. The value of the former Bear Stearns assets fell 5.2%, or $1.41 billion, to $25.8 billion. The Fed’s share of losses from Bear Stearns totals about $3 billion so far. Last month, a Fed official said some mortgage loans in the former Bear Stearns portfolio went delinquent and were modified to avert foreclosure (Bloomberg.com Jan. 29) … * Bonds backed by card payments may face ratings downgrades as rising unemployment and a deepening recession make it tough for consumers to pay their bills, according to a report by Standard & Poor’s Corp. S&P noted that 5.3% of card accounts were delinquent in December, up 10 basis points from a year earlier. “Our outlook for the credit card sector is negative,” said S&P. The ratings agency noted that household savings rates have declined in recent decades, even as debt has increased (Bloomberg News via American Banker Jan. 30) …

Market News (01/30/2009)

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MADISON, Wis. (2/2/09)
* The economy shrank at the fastest pace in almost 27 years during the fourth quarter. Real gross domestic product (GDP), the output of goods and services produced by labor and property, plunged at an annual rate of 3.8% in the fourth quarter, according to a preliminary report by the Commerce Department on Friday. It was the largest contraction since a 6.4% decline in the first quarter of 1982. For all of 2008, real GDP rose 1.3%--the slowest pace since 0.8% growth in 2001. The fourth-quarter decrease in real GDP primarily reflected negative contributions from exports (-19.7%), personal consumption expenditures (-3.5%), business investment (-19.2%), and residential investment (-23.6%). These negatives were partly offset by positive contributions from private inventory investment (1.3%) and federal government spending (5.8%). Analysts said the buildup in inventories in the fourth quarter probably was involuntary, and it will lead to a bigger decline in GDP in the first quarter of this year. The sharp downturn in the economy in the fourth quarter cooled inflation. The core PCE deflator, an inflation measure that excludes food and energy, rose only 0.6% in the fourth quarter--slowing sharply from 2.4% inflation in the third quarter and the slowest pace since the fourth quarter of 1962 (commerce.gov, Reuters, and Moody’s Economy.com Jan. 30) … * Labor costs rose at the slowest pace on record in 2008 as the weak economy made it tough for workers to seek higher wages and benefits. The employment cost index rose 2.6%, the smallest annual increase since the government began tracking the data in 1982. The previous low was a 2.8% gain in 1996. Wages rose 2.7% last year, while benefits increased 2.2%. Mounting job losses this year will keep labor costs low. Employers announced more than 130,000 job cuts in January (The Wall Street Journal Online and Associated Press via The New York Times Jan. 30) … * Consumer confidence remained weak in January amid worries about a deep recession. The Reuters/ University of Michigan Surveys of Consumers said its final reading for January edged up to 61.2, from 60.1 in December. The index has improved since hitting a 28-year low in November. The index sank to a record low of 51.7 in May 1980. “Nearly all consumers now anticipate the deepest and longest recession in the post-World War II era, but consumers do not expect the economy to sink into a 1930s style depression,” said the report. Despite the overall improvement in January, consumers rated their current economic conditions as worse than the month before. That measure fell to 66.5 from 69.5 (Reuters via The New York Times and CNNMoney.com Jan. 30) … * Mortgage rates held steady last week, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) edged down 2 basis points to 5.10%, while the 15-year FRM was unchanged at 4.80%, and the one-year, adjustable-rate mortgage (ARM) slipped 2 basis points to 4.90%. “Both the S&P/Case-Shiller 20-city composite index, which registered an 18% annual decline through November, and the National Association of Realtors (NAR) sales data, down 15% in December from a year ago, indicate sharply lower house prices across many U.S. metropolitan areas,” noted Freddie Mac Vice President and Chief Economist Frank Nothaft. “At the same time, interest rates for 30-year FRMs reached a 50-year low toward the end of December. These two factors contributed to housing affordability reaching its highest level since 1973, as measured by the NAR's monthly affordability index and help to explain the 7% increase in existing home sales in December” … * Freddie Mac and Fannie Mae have extended by one month the freeze on evictions for homeowners in foreclosure. Freddie also will let renters in homes the company has repossessed remain, using leases at market rates. Homeowners who have lost their homes to foreclosure can rent them back from Freddie at market rates. “Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery of the housing market,” said Freddie CEO David Moffett. Tenants and former property owners must show they have enough income to pay the monthly rental bill. Freddie also said it would consider reinstating mortgages for people who can qualify for a modified loan. Freddie and Fannie together own or guarantee about half of the $10.6 trillion in outstanding home mortgage debt in the U.S. (Bloomberg.com and Associated Press via Yahoo! News Jan. 30) … * Home prices declined in 24 of the nation’s top 25 metropolitan areas in November, compared with a year earlier, as the recession and tighter lending boosted foreclosures, according to a report by New York-based Radar Logic Inc. Phoenix posted the largest decline (-34.6%), followed by Las Vegas (-32.4%). Only Milwaukee saw a price increase, at just 2.4%. The number of “motivated sales,” such as foreclosure auctions, helped boost transactions in 13 of the 25 metropolitan areas the firm tracks. “Motivated sales just represent houses sold at significant discounts,” said Radar Logic CEO Michael Feder (Bloomberg.com Jan. 30) …

Fed action not a cure-all CUNA tells IMarketWatchI

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MADISON, Wis. (1/30/09)--The Federal Reserve's action on fed funds rate and its indication that it would assist the economy is not a cure-all for the credit crunch, a Credit Union National Association (CUNA) economist told MarketWatch Wednesday. Earlier this week, the Fed kept its target fed funds rate at 0% to 0.25% and said it continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. It also stands ready to expand the quantity and duration of the purchase program as conditions warrant, and was prepared to purchase longer-term Treasury securities. However, "none of this is a cure-all for the credit crunch," CUNA Senior Economist Steve Rick said. "All this leverage built up on a government, corporate and personal level is going to take time" to digest, he told the nationwide publication.

News of the Competition (01/29/2009)

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MADISON, Wis. (1/30/09)
* Commercial paper outstanding, an important source of short-term funding for many companies, plunged by a record $98.8 billion to a seasonally adjusted $1.59 trillion in the week ended Jan. 28, according to Federal Reserve data. The decline followed a $30.3 billion drop the previous week. In an effort to prop up the market after the collapse of Lehman Brothers Holdings, the central bank began purchasing highly rated, three-month commercial paper on Oct. 27. The Federal Deposit Insurance Corp. also began guaranteeing bonds sold by financial firms. Before Lehman’s bankruptcy, there was more than $1.8 trillion in commercial paper outstanding. The total peaked at $2.2 trillion in the summer of 2007 (Associated Press and Reuters via Yahoo! News Jan. 29) … * National Bank of Commerce of Berkeley, Ill., filed a lawsuit against the Treasury Department, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. after its application to receive funds from the Capital Purchase Program was denied in November. The Berkeley, Ill.-based bank failed after it lost the case. The bank said it was well capitalized before the government takeover of Fannie Mae and Freddie Mac. NBC’s suit centered on a provision of the Emergency Economic Stabilization Act that said the Treasury should consider the losses community banks took on Fannie and Freddie preferred shares. Using that provision, House Financial Services Committee Chairman Barney Frank successfully lobbied for government money for Boston-based OneUnited. Newly confirmed Treasury Secretary Timothy Geithner has pledged to make the approval process for government funds more transparent (American Banker Jan. 29) … * State Farm Florida, the largest private insurer of property in Florida, announced Tuesday that it plans to shut down all its business in the state. The State Farm Mutual subsidiary failed in its bid with regulators to raise homeowner rates by almost 50%. The decision to shut down operations will affect more than one million policyholders in a state that has seen unemployment and foreclosures soar. The insurer plans to shut down its business over the next two years (The New York Times Jan. 27) … * Investment-firm owner Nicholas Cosmo has been ordered to be held in jail without bail in an alleged $370 million Ponzi scheme. U.S. Magistrate Judge E. Thomas Boyle denied a request to release Cosmo, the owner and president of Agape World and Agape Merchant Advance. However, the judge left the door open for him to be released later if his attorneys can offer a better bail package. Prosecutors allege that Cosmo told investors that the money they invested with his firm would be used to provide short-term business loans. They say only a small number of loans were made, and most of the investors’ money was used to pay previous investors and to fund Cosmo’s trading accounts (Dow Jones Newswires Jan. 29) …

Market News (01/29/2009)

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MADISON, Wis. (1/30/09)
* New-home sales plunged to a record low in December--capping off the weakest annual sales in more than 20 years, the Commerce Department reported Thursday. Sales of new homes tumbled 14.7% to a seasonally adjusted annual pace of 331,000--the lowest since record keeping began in 1963. An estimated 482,000 new homes were sold in 2008--37.8% below the 776,000 homes sold in 2007 and the weakest results since 1982. The median sales price was $206,500 in December--down 9.3% from a year earlier. Earlier this week, the National Association of Realtors reported that sales of previously owned homes jumped 6.5% to a seasonally adjusted annual rate of 4.74 million units. However, that rebound was led by a distressed-property surge in the West. For all of 2008, existing-home sales were down 13.1% to 4,912,000 units--the weakest volume since 1997. The median existing-home price was $175,400 in December--down 15.3% from a year earlier (Associated Press via Yahoo! News, realtor.org, and commerce.gov Jan. 29) … * Home prices will decline another 6% to 7% in 2009, predicts Ken Rosen, a University of California at Berkeley professor of real estate economics. He expects home prices to hit a cumulative decline of 23% to 24% this year. Rosen recommends a moratorium on foreclosures as rising unemployment creates a “second wave of foreclosures.” He estimates that another 5 million to 8 million new foreclosures will occur over the next three years if no actions are taken (Associated Press via Yahoo! News Jan. 29) … * Home foreclosures could surge as the moratorium Fannie Mae and Freddie Mac placed on foreclosure sales and evictions in late November expires next week. Fannie and Freddie owned or guaranteed 373,000 delinquent loans as of June 30. In addition, rising unemployment and resets of adjustable-rate mortgages (ARMs) will make foreclosures more likely. An estimated 847 alternative-A option ARMs were reset in December, according to First American CoreLogic Inc. The company predicts that figure will steadily increase to 11,700 by the end of this year. New efforts by the federal government to stem foreclosures could help more people remain in their homes. Some top lenders also have initiated mortgage-modification programs (American Banker Jan. 29) … * Lenders intervened to help avert 239,000 foreclosures in December, according to a report released Thursday by the Hope Now coalition of lenders, investors, and community advocates. The number of interventions for all of 2008 totaled almost 2.3 million. Lenders repossessed 55,608 homes in December--down from 69,000 in November and 77,000 in October. More interventions are helping prime borrowers as rising unemployment plays a bigger role in delinquency problems. An estimated 54% of all workouts in December involved subprime loans--down from 62% in the second quarter of 2008. Analysts expect job losses to hit more prime borrowers throughout the year (CNNMoney.com Jan. 29) … * The number of Americans receiving unemployment benefits hit a record high last week, the Labor Department reported yesterday. Continuing claims--the number of people still on the benefit roles after an initial week of aid--jumped by 159,000 during the week ending Jan. 17 to 4.78 million--the highest level since comparable records began in 1967. Including the 1.7 million people receiving benefits under an extended program authorized by Congress, the total number is about 6.5 million. Companies continued to announce layoffs Thursday. Eastman Kodak said it is cutting as many as 4,500 jobs this year. Starbucks said it is laying off 6,700 employees. Companies have announced 130,000 job cuts in January, according to an Associated Press estimate (Associated Press via Yahoo! News Jan. 29) … * The manufacturing sector continued to weaken last month. New orders for manufactured durable goods fell by 2.6% to $176.8 billion in December--the fifth consecutive monthly decline, the Commerce Department reported Thursday. For 2008, durable goods plunged 5.7%--following a 1.3% gain in 2007 and the second-largest decline since 2001. Inventories of manufactured durable goods rose 0.4% to $343.5 billion in December--the highest level since comparable record keeping began in 1992. The outlook for manufacturing is weak. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, declined by 2.8% last month. Year-over-year, orders were flat (commerce.gov and The Wall Street Journal Online Jan. 29) …

News of the Competition (01/28/2009)

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MADISON, Wis. (1/29/09)
* Wall Street bonuses tumbled 44% in 2008--but still were the sixth-largest on record, according to a report by New York Comptroller Thomas DiNapoli. Financial firms doled out $18.4 billion in bonuses, down from $32.9 billion in 2007. Still, the report noted that bonuses last year were the sixth-largest on record. The decline in bonuses will cost the state almost $1 billion in personal-income tax revenue, said DiNapoli. New York City will see $275 million less. The average bonus fell 37.6% to $112,000 last year. That decline was smaller than the overall drop in bonuses because the bonus pool was shared by fewer employees. The securities industry lost 19,2000 jobs, 10.2% of its workforce, in New York City from October 2007 to December 2008, according to the report. “It’s painfully obvious that 2009 will probably be another difficult year for the industry,” said DiNapoli (Bloomberg.com and The New York Times Jan. 28) … * Spain’s Banco Santander said it is offering thousands of its private-banking clients a total of $1.82 billion in compensation for losses stemming from investments in Bernard Madoff’s alleged Ponzi scheme. The offer is the first by a financial firm related to the alleged fraud. Banco Santander customers filed a lawsuit against the bank this week, accusing the firm of gross negligence related to the investments. Santander’s offer doesn’t include institutional investors. Private-banking clients accepting compensation must agree not to sue and must keep all their current business at the bank. Most of the losses have occurred among Latin American customers, who say there were unaware the bank was investing money with Madoff (The Wall Street Journal Online Jan. 28) … * Wells Fargo reported a surprise $2.83 billion loss for the fourth quarter--the first since 2001--as it took charges to lower its exposure to the risky assets of Wachovia Corp. and to the alleged fraud of Bernard Madoff. Wachovia nearly collapsed before Wells Fargo acquired the firm on Dec. 31. Wells Fargo, which has received $25 billion from the government’s Troubled Asset Relief Program, said it doesn’t expect to need more taxpayer funds. The firm’s shares surged 22% in early trading following the earnings report, a sign that investors believe the company is cleaning up its balance sheet (Associated Press and Reuters via Yahoo! News Jan. 28) … * E*Trade Financial Corp. reported a narrower loss for the fourth quarter but said its results were again dampened by its exposure to the housing market. The firm also said its application for an $800 million investment from the Troubled Asset Relief Program remains under “active consideration.” E*Trade said it will pursue other ways to raise capital as well. The company reported a net loss of $275.6 million for the fourth quarter--compared with a $1.71 billion loss a year earlier. E*Trade set aside more than $1.5 billion for bad loans last year as foreclosures and delinquencies in its bank unit’s mortgage portfolio surged. E*Trade has continued to shrink that portfolio (Dow Jones Newswires Jan. 28) … * Some high-rated commercial mortgage bonds (CMBs) may see downgrades this year as borrowers miss payments and property values decline, say JPMorgan Chase analysts. Servicers may have properties re-appraised to calculate current values when borrowers miss payments. Commercial real estate prices already have declined 14.5% from an October 2007 peak, according to Moody’s Investors Service (Bloomberg News via American Banker Jan. 28) …

Market News (01/28/2009)

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MADISON, Wis. (1/29/09)
* The stock markets surged late Wednesday morning amid hopes that the government would create a “bad bank” to buy companies’ troubled assets, including mortgage-backed securities. The Dow Jones Industrial Average surged 128 points to 8302 in late-morning trading. The S&P 500 rose 2.4%, driven by an 11% jump in the financial sector. CNBC reported late Tuesday that President Barack Obama is nearing completion of a plan to create a “bad bank.” Citing people familiar with the matter, Bloomberg News reported Wednesday that the Federal Deposit Insurance Corp. would manage the plan. By some estimates, the government would have to absorb more than $1 trillion in bad assets. Supporters of such a plan say it would help boost lending as banks move troubled assets off their balance sheets (The Wall Street Journal Online and Associated Press via msn.com Jan. 28) … * The global economy will grind nearly to a halt in 2009 as more than $2.2 trillion of bad assets from the U.S. help derail economies worldwide, the International Monetary Fund (IMF) said Wednesday. That’s up sharply from the $1.4 trillion in bad assets the agency forecast in October. The IMF predicts global growth of only 0.5% this year--down from 3.5% in 2008 and the weakest growth in more than 60 years. Advanced economies, including the U.S., are expected to decline by 2%--the first contraction of total advanced economies’ GDP in the post World War II era. China, India, the Middle East, and Brazil are projected to expand a combined 3.25% this year--down sharply from 6.25% growth in 2008. The IMF predicts that banks will need another $500 billion in new cash, at a minimum, “just to prevent their capital position from deteriorating further.” And it said “the restructuring process might involve the use of a publicly owned ‘bad bank’ to remove distressed assets from the balance sheets of institutions.” Inflation is expected to slow dramatically as asset values and household wealth continue to plunge. The IMF predicts that inflation in advanced economics will decline to a record-low 0.3% this year (Bloomberg.com and CNNMoney.com Jan. 28) … * Confidence among the world’s top corporate leaders plunged to a record low, according to a survey of CEOs meeting in Davos, Switzerland this week. Just 21% of CEOs said they are very confident of growing revenue over the next 12 months--down from 50% a year earlier. More than one-fourth of respondents said they were pessimistic. “You have to realize the size of the problem confronting us today is significantly larger than in the ‘30s,” said billionaire hedge-fund owner George Soros. CEOs also are gloomy about longer-term prospects. Only about a third of CEOs polled said they were very confident about growth over the next three years. About one-fourth said they plan to cut jobs during the next year (Bloomberg.com Jan. 28) … * The number of layoffs involving 50 or more workers soared last year as firms cut workers amid declining revenue. The Labor Department reported Wednesday that 21,137 mass layoffs occurred last year--up by about one-third from 15,493 the previous year and the highest annual total since the recession of 2001. The government said more than 2.1 million workers were laid off as a result of the mass layoffs. Employers are accelerating layoffs this year. On Monday, firms announced more than 70,000 job cuts. And on Wednesday, Boeing Co. said it plans to cut about 10,000 jobs this year. The firm posted an unexpected loss for the fourth quarter (Associated Press and Reuters via Yahoo! News Jan. 28) … * Rising mortgage defaults by affluent homeowners are hitting banks and investors hard as job losses spread. An estimated 6.9% of prime jumbo-mortgage loans were 90 days or more overdue in December--up from 2.6% a year earlier, according to LPS Applied Analytics. In comparison, delinquencies on non-jumbo prime loans rose to 2.1% from 0.8% over the period. Losses on jumbo mortgages are hitting lenders harder because more expensive homes are difficult to unload in a housing slump, and the mortgages sometimes exceed the current value of the home. Banks originated an average $557 billion a year in jumbo mortgage loans from 2002 to 2006, according to the trade publication Inside Mortgage Finance. Jumbo originations plunged 71% to just $87 billion in the first nine months of last year as the credit markets froze. Only about 7% of those loans were securitized--down from 40% in the 2002 to 2006 period (The Wall Street Journal Online Jan. 28) … * Mortgage activity plunged last week as refinancings tumbled, the Mortgage Bankers Association (MBA) reported Wednesday (mbaa.org Jan. 28). The trade group’s Market Composite Index dropped 38.8% during the week ending Jan. 23 to 732.1. The Refinance Index plunged 48% to 3373.9, and the Purchase Index fell 2.9% to 294.3. The average 30-year, fixed-rate mortgage (FRM) edged down 2 basis points to 5.22% last week, while the one-year, adjustable-rate mortgage (ARM) rose 7 basis points to 5.96%. The MBA statistics may be too optimistic about the housing market because foreclosure sales are buoying the purchase index, noted Moody’s Economy.com (Jan. 28). The National Association of Realtors reported Monday that 45% of all home sales in December were distress sales …

Fed decision has clues to future says CUNA economist

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MADISON, Wis. (1/29/09)--Wednesday's decision by the Federal Open Market Committee to keep the fed funds target rate in the 0% to 0.25% range is largely a "non-event with respect to short-term interest rates," says Credit Union National Association Senior Economist Steve Rick. However, the Fed's statement "did hold some interesting clues regarding their views and future policy actions," Rick told News Now. Rick was quoted in articles in MarketWatch and Dow Jones immediately after the Fed's announcement Wednesday (see resource links). There he noted that the Fed's "going out and purchasing long-term Treasurys would ease rates and hopefully help credit markets." "Since the fed funds interest rate has effectively reached its lower bound of zero, the Federal Reserve has turned to expanding its balance sheet--quantitative easing--to unfreeze the credit markets and stimulate the economy," Rick told News Now. "In an attempt to lower credit risk spreads, the Federal Reserve is implementing new programs to purchase private assets, which include agency mortgage-backed securities and asset-backed securities backed by consumer, auto, student and small business loan," he added. "An indication of the scale of the Federal Reserve's efforts to liquefy the financial system is the level of reserves in the banking system. Last week reserve balances outstanding were $843 billion, up from $6 billion a year earlier. But bank insolvency concerns are limiting the effectiveness of this monetary stimulus," Rick said. He noted that banks are hoarding these funds due to fear of further losses from their investment and loan portfolios. "The Fed also has serious concerns over the risk of a self-reinforcing deflationary spiral taking hold," Rick said. "During a period of deflation, consumers and businesses postpone purchases, real interest rates increase, and household and firms' debt burdens rise. This sets in motion a feedback loop where the economy spirals downward into a long contractionary phase. The Fed is pulling out all the stops to prevent this event from occurring. "We expect the fed funds interest rate target to remain near zero for the remainder of 2009 and into 2010," Rick said. "The Fed has an important and difficult goal to achieve. Restoring a normal functioning credit market is a necessary condition for the economy to regain its footing and begin an economic recovery. Unfortunately though this is not a sufficient condition." If inflation occurs, credit unions will see higher, short-term interest rates pushing up their cost of funds, while their yields on assets stay (level), which means net interest margins will decline, Rick told News Now. "This pivots on whether the Fed will be able or allowed to unwind all the money in the system and start selling (the assets) as fast as the Fed bought them," he said, noting this would "extract liquidity from the banking system." A lot of credit unions are keeping steady, selling the mortgages that they originate, investing in short term and keeping rates adjustable, Rick said. In a statement after the FOMC meeting, the Fed's policymakers said the weak economy probably will need “exceptionally low levels of the federal funds rate for some time.” “Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending,” said the Fed's statement. The central bank also noted that global demand has plunged. The Fed said it would continue to use “all available tools” to boost economic growth and to support the financial markets. “The committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.”

News of the Competition (01/27/2009)

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MADISON, Wis. (1/28/09)
* Former Merrill Lynch CEO John Thain and Bank of America Chief Administrative Officer J. Steele Alphin have been subpoenaed by New York Attorney General Andrew Cuomo to testify about the executive bonuses paid by Merrill just days before its acquisition by Bank of America. “The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation,” said Cuomo. He said his office is conducting an ongoing investigation into executive-compensation practices at firms taking part in the federal government’s $700 billion bailout program (Bloomberg.com and Reuters via The New York Times Jan. 27) … * Student lender Sallie Mae said it is cutting cash bonuses by as much as 80%, lowering stock options, and freezing merit pay increases for employees earning $50,000 or more after the firm incurred a $213 million loss for 2008. Salle Mae Vice Chairman and CEO Albert Lord, Vice Chairman and Chief Financial Officer Jack Remondi, and Chief Lending Officer Jack Hewes will receive no cash bonus for last year. Still, Lord will earn about $1.125 million for last year even without a bonus. Remondi will earn about $1 million. Reston, Va.-based Salle Mae has lost more than $1.1 billion over the past two years (washingtonpost.com Jan. 27) … * Citigroup, which has received $45 billion from the federal bailout program, has reversed a decision to purchase a $50 million corporate jet. Citigroup decided against the purchase after pressure from the Treasury Department, according to a CNBC report. In a press briefing Monday, White House Press Secretary Robert Gibbs said that President Barack Obama doesn’t think using private jets “is the best use of money. He said that as it relates to the auto industry, and he believes that as it relates to banks, as well.” Citigroup has said it wants to replace older aircraft with more fuel-efficient ones (Bloomberg.com Jan. 27) … * The Office of Thrift Supervision has directed Crofton, Md.-based Suburban Federal Savings Bank to find a buyer by Friday to boost its capital levels or be subject to a possible takeover by a government receiver or conservator. A Prompt Corrective Action filed last week directed the thrift to submit a binding merger agreement to regulators last Friday. It isn’t clear whether the firm met that requirement. Suburban has struggled with losses on real estate loans. No Maryland bank has failed since the later part of the savings and loan crisis in 1992 (Associated Press via Yahoo! News Jan. 27) … * American Express said its net income plunged 79% in the fourth quarter after its customers cut spending by 10%. Still, the company remained profitable, posting net income of $172 million. That’s down from $831 million a year earlier. AmEx reported rising delinquencies and writeoffs during the latest period. Chairman/CEO Kenneth Chenault noted “an operating environment that was among the harshest we have seen in decades.” Other card issuers have reported weak earnings as well, as the economic downturn erodes consumer spending and credit quality (The Wall Street Journal Online Jan. 27) …

Market News (01/27/2009)

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MADISON, Wis. (1/28/09)
* The Federal Reserve launched its two-day meeting Tuesday, with policymakers searching for new ways to boost the economy and lending, which so far has failed to respond to its zero-interest rate policy (AFP via Yahoo! News Jan. 27). Six weeks ago, the Federal Open Market Committee cut its target for the fed funds rate to a range of zero to 0.25% and said “exceptionally low” rates will remain “for some time.” The Fed will make a statement at the conclusion of its two-day meeting on Wednesday. News Now will cover the story as soon as possible … * The Treasury Department on Tuesday announced new rules to limit lobbying by companies receiving money from the federal government’s bailout program. “American taxpayers deserve to know that their money is spent in the most effective way to stabilize the financial system,” said Treasury Secretary Timothy Geithner, who was sworn into the position on Monday. The new regulations call for Treasury to limit contact with lobbyists in connection with applications for government bailout funds. The department also pledged not to let politics influence decisions about who receives bailout money. It will publish a detailed description of the review process it uses to make bailout decisions. The Treasury’s Office of Financial Stability also “will certify that each investment decision is based only on investment criteria and the facts of the case,” said the department in a statement. Only banks recommended by their primary regulator will be eligible for funds (AFP via Yahoo! News and Dow Jones Newswires Jan. 27) … * Home prices posted a record decline in November as the housing slump and recession deepened. The Standard & Poor’s/Case-Shiller 20-city housing index plunged by 18.2% year over year, the biggest decline since the index was launched in 2000. “The freefall in residential real estate continued through November,” said David Blitzer, chairman of S&P’s index committee. The 10-city index tumbled 19.1%, tied with the previous month for the largest decline in that index’s 21-year history. Both indexes have seen year-over-year declines for the past 23 consecutive months. All areas in the 20-city index posted a decline in prices in November--led by a 33% plunge in Phoenix and a 32% fall in Las Vegas. The 20-city index is down 25% from its peak in 2006 (Associated Press via Yahoo! News and Bloomberg.com Jan. 27) … * Consumer confidence plunged to a new record low this month amid continued concern about the economy, rising job losses, and weak earnings. The Conference Board’s Consumer Confidence Index fell to 37.7--from 38.6 in December and the lowest level since the survey was launched in 1967. “Looking ahead, consumers remain quite pessimistic about the state of the economy and about their earnings,” said Lynn Franco, director of the board’s Consumer Research Center. Consumers became gloomier about both current and future economic conditions. In January, 41.1% of respondents said jobs are hard to get, little changed from 41.5% in December. Only 10% expect their income to increase over the next six months, down from 12.7% and well below historic levels. Consumers did lower their expectations for future inflation, and more are anticipating stock market gains (Associated Press via Yahoo! News and Moody’s Economy.com Jan. 27) … * All 50 states and the District of Columbia reported both monthly and year-over-year increases in the unemployment rate in December, the Labor Department reported Tuesday. It was the first time every state recorded an increase in monthly unemployment since record-keeping began in 1976. Nationwide, the jobless rate rose to 7.2%, from 6.8% in November and up by 2.3 percentage points from a year earlier. Michigan and Rhode Island again led the nation with the highest unemployment rates--at 10.6% and 10% respectively. This month will probably see another spike in unemployment nationwide. Firms announced more than 70,000 jobs cuts on Monday alone. Five state unemployment funds have become insolvent as unemployment has jumped, according to the National Employment Law Project. The advocacy group says another 13 states are at “major risk” for insolvency (bls.gov and CNNMoney.com Jan. 27) … * The outlook for retail sales remains weak this year, according to the latest forecast by the National Retail Federation. NFR calls for retail sales--excluding sales at auto dealers, gasoline stations, and restaurants--to decline 0.5% in 2009. The projected annual decline is the first since the trade association began tracking the data in 1995, said NRF spokeswoman Kathy Grannis. Sales are projected to fall 2.5% during the first half of the year. Sales are forecast to decline 1.1% in the third quarter before rebounding to a 3.6% gain in the fourth quarter. However, the trade group said much of the fourth-quarter rebound would reflect an easy comparison with last year’s holiday season (CNNMoney.com Jan. 27) …

News of the Competition (01/26/2009)

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MADISON, Wis. (1/27/09)
* Lending at many of the largest banks in the nation declined in recent months, even after the banks received a total $148 billion in taxpayer money intended to boost lending and jumpstart the economy, according to a analysis of banks that recently announced fourth-quarter results by The Wall Street Journal (Jan. 26). Ten of the 13 largest beneficiaries of the Troubled Asset Relief Program (TARP) reported that their outstanding loan balances fell by a total $46 billion (1.4%) between the third and fourth quarters. The 13 banks obtained most of the $200 billion the government has granted so far. Bank of America and Citigroup, which each received $45 billion, saw their loan balances decline. Only three banks--U.S. Bancorp, SunTrust Banks, and BB&T Corp.---reported loan growth. “Basically we have dropped a huge amount of money … and we have nothing to show for what we actually wanted to happen,” said Campbell Harvey, a finance professor at Duke University’s business school. The government didn’t place many conditions on banks receiving bailout money so many of them have used it to shore up capital, pay dividends, fund acquisitions, and pay bonuses … * A surge of federal bailout money to banks pushed the Conference Board’s index of leading economic indicators up 0.3% in December. The increase followed a 0.4% drop in November and a 1% plunge in October. Excluding a surge in the money supply during December, the index would have tumbled 0.6%, estimates Ian Shepherdson, chief U.S. economist at New York-based High Frequency Economics. With most other components of the index posting steep declines, the Conference Board said unemployment could jump to 9%, from the current 7.2% rate, as the nation remains in a deep recession though spring (Associated Press via Yahoo! News Jan. 26) … * Former Merrill Lynch CEO John Thain on Monday defended the acquisition of the investment bank by Bank of America and said the bank was aware of Merrill’s losses and accelerated bonuses before the acquisition was final. He resigned from Bank of America last week after bank CEO Kenneth Lewis found out about rising fourth-quarter losses at Merrill from a transition team rather than Thain, said a person familiar with the matter on Thursday. Thain said Monday that Lewis was aware of the losses and knew about his decision to accelerate the payment of bonuses so they could be collected before the acquisition. Thain also said that he plans to reimburse Bank of America for $1.2 million he spent to renovate his office a year earlier. He called the expense “a mistake in the light of the world we live in today.” The expenses reportedly included a $35,115 commode and a $1,405 trash can (Reuters via The New York Times Jan. 26) … * In the third bank failure this year, 1st Centennial Bank of Redlands, Calif., was shut down late Friday by the California Department of Financial Institutions, which then appointed the Federal Deposit Insurance Corp. (FDIC) as receiver. First California Bank of Westlake Village, Calif. agreed to assume most of the insured deposits of 1st Centennial. Depositors of the failed bank will automatically become depositors of First California. The cost to the FDIC’s Deposit Insurance Fund is estimated at $227 million. 1st Centennial is the third bank to fail this year, after National Bank of Commerce in Berkeley, Ill., and Bank of Clark County in Vancouver, Wash … * Freddie Mac said its portfolio of home-mortgage assets fell at an annual rate of 1% in December (Bloomberg.com Jan. 23). The portfolio fell by $665 million to $804.8 billion, after surging in October and November as regulators acted to nudge down mortgage rates. Freddie Mac plans to ask the federal government for as much as $35 billion in extra aid as the housing slump continues, according to a regulatory filing (MarketWatch and The Wall Street Journal Online Jan. 26). The Federal Housing Finance Agency will ask the Treasury Department for the additional funds. Freddie received $13.8 billion in aid in November after reporting weak third-quarter results. Treasury established a $100 billion credit line when the government took over Freddie and Fannie Mae in September …

Market News (01/26/2009)

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MADISON, Wis. (1/27/09)
* Sales of previously owned homes unexpectedly rebounded in December and inventories declined, the National Association of Realtors (NAR) reported Monday. Existing-home sales--single-family, townhomes, condos, and co-ops--surged 6.5% to a seasonally adjusted annual rate of 4.74 million units. However, last month’s rebound was led by a distressed-property jump in the West, including California, Nevada, and Arizona. And sales for all of 2008 were down 13.1% to 4,912,000 units--the weakest volume since 1997. Total housing inventory fell to a 9.3-month supply at the end of December, from an 11.2-month supply in November. “The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions,” said NAR Chief Economist Lawrence Yun. “Buyers will continue to have an edge over sellers for the foreseeable future,” added Yun. NAR reported that the median existing-home price was $175,400 in December--down 15.3% from $207,000 in December 2007 (realtor.org and Bloomberg.com Jan. 26) … * Prospective homebuyers are staying out of the market because they can’t sell their existing homes and because of worries about the economy and employment, according to a survey conducted by the National Association of Home Builders (NAHB) “The vast majority--91%--of members surveyed in our January Builders’ Economic Council Survey said that buyers are staying out of the market because they cannot sell their homes,” said NAHB Chief Economist David Crowe. He also noted that 88% of builders said buyers are remaining on the sidelines because of worries about employment and the economy--up from 63% in a June poll. And 75% of builders say buyers believe home prices will decline even more, while 68% said buyers believe it is difficult to obtain financing. Crowe noted that 7-in-10 builders lowered their prices during the fourth quarter, and 6-in-10 builders said they made no profit as a result (nahb.org Jan. 26) … * Many homeowners are unable to obtain approval for their refinancing applications even as the number of refi applications has surged to a five-year high amid declining mortgage rates. Strict lending standards and declining property values are thwarting many refi applications. In addition, many applicants who have been approved back off because rising fees drive up the stated mortgage rate. A fee of 1% adds about 0.50% to the mortgage rate, noted Kevin Iverson, president of the Denver-based Reed Mortgage Corp. Erratic pricing on mortgages today adds to the problem, said Mike Stoffer, president of Ohio-based Stoffer Mortgage. Brokers estimate that just 30% of refi applications in some markets actually close. About 60% of refi applications were approved during the first half of 2008, according to the Mortgage Bankers Association. Federal Housing Administration (FHA) loans could be a viable option for those seeking to refinance. FHA loans require as little as 3.5% down even though borrowers pay a slightly higher mortgage rate and a mortgage premium of 1.5% to 1.75%. FHA loans currently account for about 20% of outstanding mortgages, up from just 3% in 2006 (The New York Times Jan. 26) … * U.S. companies announced a large number of layoffs Monday as the economy continued to deteriorate. Chicago-based Caterpillar Inc., the world’s largest maker of construction and mining machines in the world, announced that it plans to cut almost 20,000 jobs. The firm will lay off 17,000 workers and buy out another 2,500 to cut costs in what it predicts will be the weakest year since the end of World War II. Sprint Nextel, the nation’s third-largest wireless provider, is eliminating about 8,000 jobs in the first quarter. Home Depot is cutting 7,000 jobs. And about 8,000 layoffs are expected to occur after the expected merger of pharmaceutical makers Pfizer and Wyeth. General Motors said it plans to cut 2,000 jobs at plants in Michigan and Ohio. “This is a big deal,” noted Dean Baker, director of the Center for Economic and Policy Research. “We’re losing jobs at an incredibly rapid rate, and even with that, I’m worried they’re accelerating,” added Baker (Reuters and Associated Press via Yahoo! News and The New York Times Jan. 26). * More U.S. companies predict they’ll cut workers during the next six months as the recession deepens, according to a January survey by the National Association for Business Economics (NABE). Almost 40% of economists polled said their industries will lay off employees during the next six months--up from 32% in an October survey. In the goods-producing sector, 69% anticipate layoffs. And 44% of overall respondents believe capital spending in their industries will decline this year. With rising unemployment and tightening credit conditions, only 22% of respondents predict the economy will expand in 2009--down from 62% in October. The survey’s measures of consumer demand, profit margins, and capital expenditures all sank to the lowest levels in the 27-year history of the survey (CNNMoney.com and Bloomberg.com Jan. 26) …

Schenk to IReutersI Labor market to hurt home sales

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WASHINGTON (1/27/09)--A weakening labor market will hurt U.S. home sales, a Credit Union National Association (CUNA) economist told Reuters Monday. Sales of previously owned U.S. homes unexpectedly rebounded in December, increasing 6.5% to a 4.74 million unit annual rate from a downwardly revised 4.45 million rate in November, according to National Association of Realtors report issued Monday. However, there still are problems, Mike Schenk, CUNA senior economist, said in the story’s lead quote. “That’s good news, but it may be too early to get really excited yet,” Schenk said. “The problem is that the labor markets will weaken going forward. “That might not completely overwhelm the effect of lower interest rates, but people are reluctant to buy a home when they think their job prospects are not so great,” he added.

News of the Competition (01/23/2009)

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MADISON, Wis. (1/26/09)
* Troubled financial institutions and automakers continued to spend millions of dollars on lobbying even as they accepted billions of dollars in government money, according to Congressional reports. Bank of America spent $4.1 million on lobbying in 2008, up almost $1 million from the previous year. The bank is receiving a total $45 billion from the federal government. General Motors spent $3.3 million on lobbying during the fourth quarter, even as it received $13.4 billion from the federal government. The firm spent $13.1 million in lobbying for all of 2008, only slightly less than the combined spending by Ford Motor and Chrysler. The government committed $4 billion in loans to Chrysler in December. GM’s GMAC LLC lending unit spent $4.6 billion on lobbying last year, more than three times higher than in the previous year. GMAC has received $6 billion in bailout money. Fannie Mae and Freddie Mac were required to halt federal lobbying after they were placed into conservatorship. However, Congress hasn’t placed similar restrictions on other recipients of taxpayer funds (The Wall Street Journal Online Jan. 23) ... * After seeing its sales plunge 30% last year, Chrysler has announced a new incentive program called “Employee Pricing Plus.” The program offers prices similar to those its employees pay on all 2008 and 2009 Chrysler, Dodge, and Jeep vehicles. The price breaks are thousands of dollars less than sticker price. Buyers will receive additional discounts of $3,500 on 2009 vehicles and $6,000 on last year’s models. An added $1,000 rebate is available on vehicles financed through the automaker’s Chrysler Financial lending arm or through a customer’s credit union. The firm also is offering a 0% financing program (CNNMoney.com Jan. 23) … * Bank and credit-card issuer Capital One Financial Corp. reported a net loss of $1.4 billion for the fourth quarter, compared with net income of $226.6 million a year earlier. Expecting further deterioration in its loan portfolio as unemployment continues to rise, the McLean, Va.-based firm set aside another $1 billion for loan losses in the fourth quarter. Standard & Poor’s lowered Capital One’s outlook to negative following the report. “We believe higher credit costs will drive earnings lower in 2009,” said S&P. U.S. card business chargeoffs jumped to 7.08% in the final quarter of last year, from 6.13% in the previous quarter. Capital One predicts that loan losses from U.S. cards will rise to 8.1% during the first quarter. The company forecasts that the nation’s unemployment rate will jump to 8.7% by year end, from 7.2% in December. Home prices are expected to decline by another 10% (Reuters via The New York Times Jan. 23) … * The Federal Reserve’s balance sheet declined for a third consecutive week as banks lowered their use of several lending programs. The central bank’s balance sheet totaled $2.04 trillion as of January 21, down from $2.06 trillion the previous week. Commercial banks’ borrowing through the discount window declined by $3.6 billion to $62.9 billion, while borrowing by investment banks via the Fed’s primary dealer credit facility was essentially unchanged at $33.29 billion. The Fed’s holding of commercial paper in a program designed to help corporations finance short-term notes rose to $350.3 billion from $334.6 billion. Still, the commercial-paper market fell by $30.3 billion last week, the second consecutive weekly decline, suggesting that strains remain in that market (Dow Jones Newswires and Bloomberg.com Jan. 23) … * The cost of three-monthly dollar loans between banks continued to increase Friday, as investors remained worried about the financial sector despite generous bailout programs. The London Interbank Offered Rate (Libor) edged up 0.01 percentage points to 1.17%. Interbank rates, which affect the cost of loans for firms and individuals in the wider economy, have remained high during the financial crisis as banks continue to hoard cash (Associated Press via The New York Times Jan. 23) …

Market News (01/23/2009)

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MADISON, Wis. (1/26/09)
* The 30-year, fixed-rate mortgage (FRM) climbed back above 5% last week, Freddie Mac reported Thursday. The average 30-year FRM rose 16 basis points to 5.12%, following 11 consecutive weeks of decline. It was the first increase in the rate since the Federal Reserve decided to buy mortgage-backed securities in November. “Fixed-rate mortgages followed bond yields and edged up this holiday week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “However, over the first three weeks of 2009, the 30-year, fixed-rate mortgage was an average 0.25 percentage points below its monthly average for December 2008. As a result, the number of mortgage applications for refinancing was roughly about 86% of all conventional loans over the same time period.” Freddie also reported that the 15-year FRM rose 15 basis points to 4.8%, while the one-year, adjustable-rate mortgage edged up 3 basis points to 4.92%. For CUNA's Daily Financial Rates, use the link. … * Rising unemployment and high food prices are pushing food pantries to the limit. Food banks reported a 30% jump in the number of people seeking assistance—double the increase reported only six months ago, according to Feeding America, a national network of food banks. “Millions of Americans simply don’t have enough money to buy food,” said spokesman Ross Fraser. The organization estimates that food banks only serve 25 million of the 35 million people who need services. Mounting job losses and high food costs are adding to the problem. Food costs increased 5.9% last year—the largest gain of any category tracked by the Labor Department. The weak economy also has eroded charitable contributions to food banks, which depend on private donations (CNNMoney.com Jan. 22) … * One in seven Americans under the age of 65 skipped prescribed medicines in 2007 as pharmaceutical costs soared, according to a report by the Washington-based Center for Studying Health System Change. That’s up from one in 10 people in 2003. Ten percent of working-age people with employer-sponsored coverage went without a prescription in 2007, up from 8.7% in 2003. “Insurance coverage offers less financial protection against out-of-pocket costs than it did in the past,” noted Laurie E. Felland, lead author of the study and a senior health researcher at the center. She said the figures probably are even higher because of the current recession (The New York Times Jan. 23) … * Almost two of every three households said their home price declined last year—more than two times higher than in 2007 and up five times from 2006, according to a Reuters/University of Michigan survey released Friday. Homeowners anticipate an annual average 2.2% decline this year. The results show that the drop in home prices isn’t nearing an end, said survey director Richard Curtin. The housing market probably won’t rebound until 2010 (Reuters via CNNMoney.com Jan. 23) … * Toyota Motor is considering laying off more than 1,000 full-time workers in North America and the United Kingdom, according to Japan’s Nikkei newspaper. Toyota spokesman Yuta Kaga declined to confirm the report. Toyota employs 36,000 full-time workers at seven plants in North America. The firm has 5,000 full-time workers in the U.K. The company expects to see its first operating loss in 70 years during 2009 as global demand continues to collapse (Associated Press via The New York Times Jan. 23) … * The United Kingdom has officially entered a recession, the Office for National Statistics reported Friday. The U.K. economy contracted by 1.5% during the fourth quarter following a 0.6% decline in the third quarter. The back-to-back declines are the first since 1991. The fourth-quarter contraction was the largest since the second quarter of 1980. Total services output fell 1% in the fourth quarter, while total production plunged 3.9%. Both declines were the biggest since the 1970s. For all of 2008, the U.K. economy expanded by just 0.7%, the weakest annual growth since 1992. The weak data suggest the Bank of England will continue to lower interest rates. In early January, policymakers cut the benchmark rate by 50 basis points to 1.5%--the lowest in the central bank’s 300-year history (The Wall Street Journal Online Jan. 23) …

News of the Competition (01/22/2009)

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MADISON, Wis. (1/23/09)
* Former Merrill Lynch CEO John Thain resigned from Bank of America on Thursday after a brief meeting in his New York office with Bank of America CEO Kenneth Lewis, according to a person familiar with the situation. Bank of America lost confidence in Thain, this person said, after Lewis found out about rising fourth-quarter losses at Merrill from a transition team rather than Thain. Bank of America acquired Merrill Lynch early this month. Lewis also thought Thain exercised “poor judgment” by leaving for a vacation after the losses were revealed, and by accelerating bonus payments so they could be collected before the end of 2008 (The Wall Street Journal Online Jan. 22) … * Merrill Lynch accelerated bonus payments by a month last year, giving employees billions of dollars only three days before the firm closed its sale to Bank of America. The payouts came even as Merrill’s losses were rising and Bank of America CEO Kenneth Lewis was seeking additional money from the federal government to close the acquisition. About $3 billion to $4 billion was paid out in bonuses in December, said a person familiar with the matter. Merrill paid out bonuses in late January or in February during past years. The size of the 2008 Merrill bonus payments is “ridiculous,” said NAB Research Analyst Nancy Bush. Bank of America revealed last week that Merrill saw a $21.5 billion operating loss during the fourth quarter (FT.com Jan. 22) … * Revenue-growth forecasts for Visa Inc. and MasterCard Inc. were lowered by Barclays Capital analyst Bruce Harting after several banks reported a sharp decline in credit- and debit-card spending last week. “The latest data from the top card issuers indicates consumers have pulled back significantly on spending,” wrote Harting. He predicts that card issuers’ spending volumes will plunge 10% this year and that “growth in debit, which is considered to be much less cyclical than credit, could slow to a trickle.” Harting forecasts that Visa’ revenue will rise just 7% this year, while MasterCard’s revenue will increase only 5% (CardLine via American Banker Jan. 22) … * Sallie Mae, the nation’s largest student lender, reported a $216 million loss for the fourth quarter--narrower than the $1.64 billion loss the firm reported for the fourth quarter of 2007. For all of 2008, Sallie Mae lost $213 million, compared with a loss of $896 million in 2007. Sallie said its core business remained profitable. The firm made $4.8 billion in student loans during the fourth quarter, up slightly from $4.7 billion in the fourth quarter of 2007. However, the deteriorating economy hit its loan portfolio. The delinquency rate on private student loans rose to 2.6%, from 1.7% a year earlier (washingtonpost.com Jan. 22) … * Several large regional banks reported Thursday that rising credit losses prompted lower earnings during the fourth quarter. Ohio’s Fifth Third Bancorp, Huntington Bancshares, and KeyCorp reported losses, as did the Southeast’s SunTrust Banks. BB&T Corp. of Winston-Salem, N.C., said its profit plunged 31% to $284 million. Dallas-based Comerica said its profit plunged 97% to $3 million. The firm announced it is cutting about 5% of its workforce, or 509 jobs, and freezing salaries for the top 20% of its employees (Reuters via The New York Times Jan. 22) …

Market News (01/22/2009)

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MADISON, Wis. (1/23/09)
* Home prices dropped 1.8% on a seasonally adjusted basis in November, following a 1.1% decline the previous month, according to the Federal Housing Finance Agency’s monthly House Price Index (fhfa.gov Jan. 22). Home prices plunged 8.7% over the 12 months ending in November. Prices are down 10.5% from the April 2007 peak. The House Price Index is now where it was in March 2005, noted Moody’s Economy.com (Jan. 22). And the index probably underestimates the decline in prices because it excludes higher-priced homes bought with nonconforming mortgages. The research firm also noted that the recession and weakening job market are adding to the negative pull on home prices … * Housing starts plunged to a record low last month, the Commerce Department reported Thursday. New-home construction tumbled 15.5% to an annual pace of 550,000 in December, the weakest pace on record. For all of last year, 904,300 housing units were started--down 33% from 2007 and the weakest year since record keeping began in 1959. “The worst is not over,” said John Lonski, chief economist at Moody’s Capital markets. He added that any “stabilization of housing starts is well off into the future.” The government also reported that building permits, a sign of future construction, plunged 10.7% to a 549,000 annual rate in December, suggesting further sluggishness ahead (The New York Times and The Wall Street Journal Online Jan. 22) … * Homebuilders’ confidence edged down further in January amid worries about the weak economy. The National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI) fell one point to a new record-low 8 in January. All of the component indexes of the HMI remained at or near historic lows during the month. “Builder views continue to track with historically low consumer confidence measures,” noted NAHB Chief Economist David Crowe. “The fact that there has been microscopic movement in the historically low HMI and its component indexes over the last three months provides further evidence of the need for government action to rejuvenate housing demand,” added Crowe. Builders want the government to stimulate new-home demand by subsidizing mortgage rates and creating a tax credit for purchasing a home (nahb.org and MarketWatch Jan. 22) … * Mortgage activity stalled last week, the Mortgage Bankers Association (MBA) reported Thursday (mbaa.org Jan. 22). The trade group’s Market Composite Index fell 9.8% during the week ending Jan. 16 to 1195.3. The Refinance Index tumbled 12.4% to 6491.8, offsetting a 2.5% gain in the Purchase Index, to 303.1. The average 30-year, fixed-rate mortgage (FRM) jumped 35 basis points to 5.24% last week, according to the MBA, while the one-year, adjustable-rate mortgage (ARM) steadied at 5.89%. Both the market and refinance indexes remain higher than year-ago levels, noted Moody’s Economy.com (Jan. 22). However, the data may be overstating the real level of applications because tight credit conditions are prompting borrowers to submit applications to multiple lenders. The research firm doesn’t expect purchase demand to recover until income growth and home prices rebound later this year … * The job market continued to deteriorate last week. First-time claims for unemployment insurance jumped by 62,000 during the week ending Jan. 17 to 589,000, the Labor Department reported Thursday. Last week’s number was the same as the total in the week of Dec. 20, which was the highest level since November 1982 (Bloomberg.com Jan. 22). The four-week moving average, which smoothes out weekly volatility, was 519,250, unchanged from the previous week. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 97,000 during the week ended Jan. 10 to 4.607 million. Businesses continue to announce layoffs as the economy deteriorates. Microsoft shocked its investors Thursday when it announced that it plans to lay off up to 5,000 of its 94,000 employees over the next 18 months, including 1,400 workers yesterday (The New York Times Jan. 22). The firm reported net income of $4.17 billion for its second quarter, down 11% from the same period in the previous year …

News of the Competition (01/21/2009)

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MADISON, Wis. (1/22/09)
* Bank stocks plunged Tuesday, with shares of Citigroup and Bank of America sinking to their lowest levels since the early 1990s. The KBW Bank Index of major commercial banks tumbled almost 20% to a 14-year low. The index has plunged nearly 43% so far this month. “The market doesn’t trust that banks have properly marked their balance sheets and their loan portfolios,” said Morgan Keegan Bank Analyst Robert Patten. “The sense is there are further marks to come, that tangible book is not as it is stated today,” added Patten (Reuters via The New York Times Jan. 21) … * Citigroup’s top three executives are forgoing bonuses after the firm reported five consecutive quarterly losses. CEO Vikram Pandit, Chairman Win Bischoff, and Chief Financial Officer Gary Crittenden declined incentive and retention awards, according to a filing with the Securities and Exchange Commission. Citigroup’s stock plunged 20% to $2.80 on Tuesday amid investor worries that the government may have to do more to prop up banks. Citigroup’s stock tumbled 58% during the first three weeks of the year. Citigroup has received $45 billion in government funding. On Tuesday, the firm declared a quarterly dividend of just 1 cent per share, the maximum allowed under the firm’s agreement with the federal government (Associated Press via Yahoo! News Jan. 21) … * Hedge-fund investors yanked a record $152 billion during the fourth quarter amid dismal returns, according to Chicago-based Hedge Fund Research Inc. Global assets tumbled to $1.4 trillion at year-end 2008--down from a peak of $1.93 trillion in June and the same level as in 2006. Hedge-fund investments lost a record 18.3% in 2008--the most since the company began tracking the statistics in 1990. “Investor risk aversion remained at historically extreme levels through year end,” said Hedge Fund Research President Kenneth Heinz. “Investor redemptions were widespread and indiscriminate across fund strategies, regions, asset sizes and performance,” added Heinz (Bloomberg.com Jan. 21) … * JPMorgan Chase posted net income of $702 million for the fourth quarter of last year--down 76% from net income of $3 billion in the fourth quarter of 2007 (Banking Business Review via Yahoo! News Jan. 20). For the full year 2008, net income was $5.6 billion--down 64% from $15.4 billion in 2007. “If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves,” said CEO Jamie Dimon. In other news, JPMorgan Chase announced Tuesday that it plans to shut down 400 branches tied to the September acquisition of Washington Mutual’s banking operation (American Banker Jan. 21). JPMorgan will conduct system conversions in markets such as New York and Chicago in July, and more branches could close at that time, according to a company spokesman …

Market News (01/21/2009)

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MADISON, Wis. (1/22/09)
* The housing slump will deepen further in 2009, according to the consensus forecast of economists at the National Association of Home Builders. The trade group’s forecast calls for single-family housing starts to decline to about 441,000 this year--down 75% from a peak of 1.7 million starts in 2005 and a record low. Other economists meeting at the trade group’s International Builders Show in Las Vegas this week also were pessimistic about the housing market because of a huge overhang of unsold homes and rising foreclosures. Rising unemployment also will boost foreclosure rates. Freddie Mac Chief Economist Frank Nothaft predicts that the nation’s jobless rate will jump to 8.7% in the fourth quarter, from 7.2% in December (The Wall Street Journal Online Jan. 21) … * Several of the Federal Home Loan Banks (FHLBs), a source of funding for the nation’s banks, thrifts, and credit unions, have suspended dividends in recent weeks or warned that they may fall below capital minimums. They ran into trouble in recent years after investing heavily in “private label” mortgage securities. The 12 FHLBs own $76.2 billion of private-label mortgage securities, according to Moody’s Investors Service. The banks had posted $13.5 billion of unrealized losses on these securities as of Sept. 30. The struggle to maintain adequate capital in the face of markdowns on mortgage securities could prompt the home-loan banks to consider merging with each other, predicts Karen Shaw Petrou, a managing partner of Washington, D.C.-based Federal Financial Analytics (The Wall Street Journal Online Jan. 21) … * Defaults on big loans boosted commercial mortgage delinquencies in December, according to a report by Fitch Inc. Payments more than 60 days overdue on the commercial real estate credits underlying securities increased to 0.88%, from 0.64% in November. The defaults included two loans of more than $100 million. The 10-year average default rate is 0.74%. Fitch expects that measure to hit about 2% by year-end 2009. “Highly levered loans on transitional assets that were originated at the height of the market are proving particularly susceptible to performance default as the deepening recession continues to make stabilization according to schedule increasingly unlikely,” said Susan Merrick, group head of commercial mortgage-backed securities at Fitch (Bloomberg News via American Banker Jan. 21) … * Household credit conditions deteriorated further during the fourth quarter as consumer finances weakened, unemployment soared, and personal wealth plunged, according to the latest data from CreditForecast.com. Mortgage delinquency and default rates continued to increase. However, foreclosure moratoriums lowered defaults and boosted delinquencies in some states. Household liabilities that are in delinquency and default totaled $935 billion at year-end 2008, equal to 8% of all liabilities. That’s up sharply from $310 billion in delinquent and defaulting loans, accounting for just 3.3% of liabilities three years earlier. For all of 2008, 2.7 million first-mortgage defaults occurred, up from 1.5 million in 2007 and less than 1 million in 2006. Delinquency and default rates aren’t expected to peak until well into 2010 (Moody’s Economy.com Jan. 21) … * General Motors (GM) lost its No. 1 position in global vehicle sales last year. The U.S. automaker sold 8,355,047 vehicles in 2008--about 616,000 less than the 8.972 million vehicles sold by Japan’s Toyota Motor Corp. GM posted an 11% decline in global sales for 2008. Toyota’s global sales dropped 4% for the year. GM could regain the top spot in global sales after U.S. and European markets recover and sales in emerging markets rebound, said Mike DiGiovanni, executive director of global market and industry analysis at GM. The company received a $13.4 billion loan from the federal government in December after sales plunged in the worst U.S auto market in more than 25 years. The bailout calls for GM to achieve “viability” by March 31 (Associated Press via Yahoo! News Jan. 21) … * United Airlines announced Wednesday that it plans to cut another 1,000 jobs to lower costs (CNNMoney.com Jan. 21). The latest layoffs bring the total reduction of the airline’s workforce to 2,500, or almost 30%, since the beginning of 2008. All the major airlines cut capacity last year as they struggled with soaring fuel costs. In other news, American Airlines parent AMR Corp. announced Wednesday that it lost $340 million in the fourth quarter as fuel prices remained high and fewer people flew due to the weak economy (Associated Press via Yahoo! News Jan. 21). The company’s planes flew with 78.3% of seats sold in the fourth quarter of last year--down from a record 80.2% in the fourth quarter of 2007 …

Market News (01/20/2009)

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MADISON, Wis. (1/21/09)
* Italian automaker Fiat SpA agreed to take at least a 35% stake in Chrysler LLC, the two automakers confirmed Tuesday. The deal is designed to share technology between the two firms and bring small cars developed by Fiat to the U.S., analysts said. The move’s ultimate purpose is two-fold, said people familiar with the matter: to reinvigorate the two automakers and to eventually provide Fiat control of Chrysler’s operations. The people added that, under the terms of the deal, Fiat can increase its ownership stake up to 55%. Fiat would obtain its stake, not by injecting cash into Chrysler, but rather in exchange for covering costs of retooling a Chrysler plant to produce one or more Fiat models for sale in the U.S., the sources said. Also, Fiat would provide engine and transmission technology to Chrysler to help it introduce new, fuel-efficient small cars (The Wall Street Journal Jan. 20) … * Global businesses remain pessimistic, with sentiment at its worst in mid-December and improving only slightly since then, according to the Moody’s.com Survey of Business Confidence. Businesses in Europe and South America are most worried, followed by North American businesses. Asian companies also are negative, but less so. Confidence is low across all industries--in particular, business services. Hiring intentions are still very weak, and pricing power has fallen apart--suggesting that deflation is increasingly likely to occur. The intensity of the global economic turndown is not showing any signs of letting up (Moody’s Economy.com Jan. 30) … * The Bank of Canada cut its key interest rate to the lowest level since the founding of the financial institution in 1934. The bank also indicated that to stimulate the economy out of recession and to stabilize credit markets, more cuts may be necessary. Governor Mark Carney dropped by half a point to 1% the target rate on overnight loans between commercial banks. The move was predicted by 19 of 20 economists surveyed by Bloomberg News. Canada’s move mirrors efforts in the U.S., Japan and United Kingdom to spark lending, with credit markets faltering as a result of $1 trillion of write-offs and losses. The collapse of financial firms such as Fortis and Lehman Brothers Holdings Inc., which contributed to the worst global economic downturn since the Great Depression, helped thrust Canada into a recession for the first time since 1992, analysts said (Bloomberg.com Jan. 20) …

News of the Competition (01/20/2009)

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MADISON, Wis. (1/21/09)
* Due to poor fourth-quarter results reported last week for national banks Bank of America, Citigroup and JPMorgan Chase, an analyst Tuesday lowered his fourth-quarter estimate and price for Wells Fargo & Co. Paul Miller, analyst for Friedman Billings Ramsey & Co., cited concerns about rising credit costs in cutting the fourth-quarter profit estimate to 30 cents per share from 35 cents per share for the financial services company. “One consistent trend was continued credit quality deterioration, with expected continued growth in charge-offs and associated loan loss allowances for the next several quarters,” Miller wrote in a research note to clients, adding that peers of Wells Fargo also said there is less demand for credit (Associated Press via Forbes.com Jan. 20) … * The first bank failures of 2009 have cost the Federal Deposit Insurance Corp. (FDIC) more than $200 million. FDIC announced Friday that National Bank of Commerce, Berkley, Ill., and Bank of Clark County, Vancouver, Wash., had been shut down. Nationwide, the number of bank failures has steeply risen as the economy has become more troubled, analysts said. In 2008, roughly 25 banks closed, compared with three in 2007 and none in 2006 and 2005. Bank of Clark County was the first bank in the state of Washington to fail since 1993. FDIC said Friday that it has undertaken a purchase and assumption agreement with Republic Bank of Chicago, Oak Brook, Ill., to assume the deposits of National Bank of Commerce. In a separate matter, FDIC said Friday that it has entered a purchase and assumption agreement with Umpqua Bank, Roseburg, Ore., to assume the uninsured deposits of the Bank of Clark County (CNN.Money.com Jan. 16) … * The U.S. Supreme Court agreed Friday to consider if the New York Attorney General’s office has the authority to investigate whether some national banks have undertaken discriminatory lending practices in the state. Two lower courts ruled that only federal regulators have the power to undertake such an investigation and that New York could not enforce its state fair-lending laws against national banks. Under the purview of former New York Gov. Eliot Spitzer, the New York attorney general’s office started an investigation in 2005 into the banks’ residential real estate lending practices. The office claimed that mortgage data indicated black and Hispanic borrowers received a higher percentage of high-interest home loans than white borrowers. Spitzer asked several banks to voluntarily produce non-public information about their mortgage lending practices. The federal Office of the Comptroller of the Currency and the Clearing House Association---a group of national banks--each responded by suing to block Spitzer’s investigation. A federal trial judge and federal appeals court ruled in favor of the banks. The Supreme Court could hear oral arguments in April (Dow Jones Jan. 16) … * The Federal Home Loan Bank of Pittsburgh warned member banks Friday that unless they put in more capital, the wholesale bank is in danger of becoming under-capitalized. Bank President John Price said “significant deterioration” in the value of the bank’s mortgage-backed securities during the past year have resulted in the need for the bank to beef up its balance sheet. The bank projects that its net interest income will fall 59% to $30.5 million when it reports fourth-quarter and year-end financial results in March. On Dec. 23, the bank suspended the dividend it pays member institutions, so it could bolster its capital (Pittsburgh Tribune-Review Jan. 17) …

News of the Competition (01/19/2009)

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MADISON, Wis. (1/20/09)
* Bank of America reported a $2.39 billion fourth-quarter loss, only hours after it persuaded the federal government it required $20 billion in new capital to survive losses at Merrill Lynch, which the firm acquired on Jan. 1. The new infusion is in addition to the $25 billion in Troubled Asset Relief Program money it already received. In its agreement with the government, Bank of America said it will cut its quarterly dividend from 32 cents, place further limits on executive pay, and work harder to modify the mortgages of troubled borrowers. The Federal Reserve and the Federal Deposit Insurance Corp. also agreed to protect Bank of America against further losses on $118 billion in capital-markets exposure, mostly linked to Merrill Lynch. The government will receive $24 billion in preferred stock, which will pay an 8% annual percentage rate. In all, the government has put $163 billion at Bank of America’s disposal (Associated Press via Yahoo! News Jan. 6) … * Citigroup reported an $8.29 billion net loss for the fourth quarter and said it is splitting into two businesses. Its Citicorp business will focus on traditional banking, while its Citi Holdings business will hold the firm’s riskier assets. The reorganization--which dismantles the “financial supermarket” created 10 years ago--will let the company sell or spin off its Citi Holdings business to raise cash. Citigroup also announced Friday that it plans to remove more board members after the recent departure of director Robert Rubin (Associated Press via Yahoo! News Jan. 16) … * In an effort that could boost consumer lending, the Federal Deposit Insurance Corp (FDIC) announced Friday that it is expanding its debt-guarantee program. The FDIC will expand it Temporary Liquidity Guarantee Program to back debt with a maturity of up to 10 years, from the current three years, if collateral supports the debt and its issuance supports new loans to consumers. The FDIC’s effort to back debt up to three years has been popular. The agency was guaranteeing $220 billon in debt from federally insured banks and thrifts as of Jan. 5 (The Wall Street Journal Online Jan. 16) … * The Federal Deposit Insurance Corp. (FDIC) agreed to pay $90 million to settle allegations that it gave high-interest subprime mortgages to unqualified borrowers. The settlement ends a federal lawsuit by Plano, Texas-based Beal Bank SSB, a lender that bought thousands of the FDIC-originated mortgages during 2001 and 2002. Beal claims borrowers defaulted at very high rates because of the agency’s poor oversight of lending at Superior Bank, a subprime lender that the FDIC seized in 2001. The FDIC continued to make thousands of new subprime loans while it sought a buyer for the bank (The Wall Street Journal Online Jan. 16) … * Massachusetts state regulators claim top executives at the Reserve Fund lied to shareholders about their investments only hours before the company’s largest money fund disclosed that its share price had declined to less than a dollar. They claim the firm also gave large shareholders the first opportunity to avoid losses. Reserve’s Primary Fund reported a value of just 97 cents a share on Sept. 15--becoming only the second money fund in history to “break the buck.” The fund blamed the losses on holdings of Lehman Brothers, which filed for bankruptcy protection. The complaint said the fund didn’t honor redemptions in the order they were received and instead honored requests from “larger favored customers” ahead of smaller clients. “Management has worked tirelessly on behalf of fund investors and does not believe that it deceived Primary Fund investors,” said the company in a statement (The New York Times Jan. 16) …

Market News (01/19/2009)

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MADISON, Wis. (1/20/09)
* The Consumer Price Index (CPI) rose only 0.1% in 2008--the smallest annual gain in 54 years, the Labor Department reported Friday. The tiny gain followed a 4.1% increase the previous year and was the smallest since a 0.7% drop in 1954. Excluding food and energy, the core CPI rose 1.8% last year, the smallest gain since 2003. In December, the overall CPI dropped 0.7%, the third consecutive decline. Energy prices plunged 8.3% and were down 21% for the year--the largest annual decline since comparable records began in 1958. Food prices fell 0.1% last month, but were up 5.9% for the year. Excluding these two categories, core prices were flat in December, reflecting declines in prices for apparel, airfares, new vehicles and recreation. For all of 2008, new-vehicle prices plunged 3.2%--the largest annual decline since 1971. Medical-care prices rose 0.3% in December and were up 2.6% for the year. Costs for education and communication increased 0.3% and were up 3.6% for the year (MarketWatch, Bloomberg.com and bls.gov Jan. 16) ... * Industrial production tumbled 2% in December and was down 7.8% last year--the largest decline in more than 30 years, the Federal Reserve reported Friday. The plant-use rate fell to 73.6% in December--from 75.2% in November and matching the lowest level since April 1983. Last month’s plant use rate was 7.4 percentage points below the average level for 1972 to 2007. Factory output, which makes up about four-fifths of industrial production, was down 2.3% in December--led by a 7.2% drop in the production of autos and parts. Automakers assembled vehicles at an annual rate of just 6.43 million units during the month--the lowest since November 1982. Overall, manufacturing output plunged 9.9% last year (federalreserve.gov and Bloomberg.com Jan. 16) … * Automakers will sell only 10.5 million vehicles in the U.S. in 2009--down from 13.2 million vehicles last year and the lowest volume in 27 years, according to the latest forecast by General Motors (The New York Times Jan. 16) GM expects sales to rebound to only 12.5 million in 2010 and 14 million in 2011. The new forecast was the automaker’s worst-case scenario in a restructuring plan it submitted to Congress in December. GM received a $4 billion loan from the federal government last month, and was set to receive another $5.4 billion loan on Friday. In other news, Chrysler said its finance arm will receive a $1.5 billion loan as part of the government’s auto bailout (The Wall Street Journal Online Jan. 16). The automaker also announced 0% financing on 11 models and said it will be more liberal in approving loans for customers based on credit scores. “Now our customers, including those with scores in the 620 range, will be able to apply for affordable loans, and our dealers will be more competitive in the market place,” said Chrysler President Jim Press … * Consumer confidence remained at depressed levels in January. The Reuters/ University of Michigan Surveys of Consumers’ preliminary index for January edged up to 61.9, from 60.1 in December. The index is less than 5 points above the 28-year low hit in November. “Consumers cited even more negative income prospects as well as anticipated further declines in the value of their homes and pension accounts,” said the report. One-year inflation readings rose to 2% from 1.7%, but remained “well below any other reading in the past quarter century except for immediately following (Sept. 11, 2001).” The low level of consumer confidence suggests continued weak consumer spending ahead. The Commerce Department reported earlier last week that retail sales plunged 2.7% in December--the sixth consecutive decline. Retail sales fell 0.1% in 2008--following a 4.1% gain in 2007 and the first annual decline since comparable records began in 1992 (Reuters and Moody’s Economy.com Jan. 16) … * Chief executives’ confidence fell in the fourth quarter to the lowest level in more than three decades of record keeping. The Conference Board Measure of CEO Confidence plunged to 24--from 40 in the third quarter and the lowest level ever recorded since the survey was launched in 1976. “The erosion in CEO confidence is a reflection of the rapid and severe deterioration in economic conditions experienced in the final months of 2008,” said Lynn Franco, director of the Board’s Consumer Research Center. “Looking ahead, CEOs remain extremely pessimistic about overall economic prospects in the first half of 2009,” added Franco. Only 11% of chief executives expect economic conditions to improve within the next six months (/PRNewswire/ and Bloomberg.com Jan. 16) … * Small business confidence deteriorated in December to its second-lowest reading in 35 years, according to a report by the National Federation of Independent Business (NFIB). The trade group’s small business optimism index dropped 2.6 points to 85.2. The last time the index was near that level was in 1980. Owners hoped consumers would rescue them last month, but that didn’t happen, said NFIB Chief Economist William Dunkelberg. “Unless there is a solid turnaround in January, we are in for a longer-than-usual recession,” added Dunkelberg. Small businesses are cutting employment as profits tumble. About 19% of small business owners plan to cut jobs over the next three months, while just 8% plan to create jobs. Few owners are raising prices as demand falls. In December, 24% of respondents reported lower selling prices, while only 17% reported higher prices. Loan demand has declined along with weaker sales and profits. Just 33% of respondents reported regular borrowing last month--near the record low of 31% (Reuters via Yahoo! News and NFIB.com Jan. 14) …

News of the Competition (01/15/2009)

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MADISON, Wis. (1/16/09)
* JPMorgan Chase posted a profit of $702 million for the fourth quarter--down 76% from a $2.07 billion profit a year earlier. The bank’s acquisition of Washington Mutual helped the firm book a $1.1 billion after-tax gain. However, bad loans inherited from WaMu are expected to erode JPMorgan’s results in 2009. WaMu was the largest bank to fail in U.S. history. For the fourth quarter, JPMorgan added $4.1 billion to its loan-loss reserves. The bank’s card services reported a $371 million loss, compared with a $609 million profit a year earlier, as more customers became delinquent on their payments. Card losses will increase as unemployment rises to at least 7.5% to 8% this year, said JPMorgan CEO Jamie Dimon (Associated Press via The New York Times Jan. 15) … * The federal government is considering a new multibillion-dollar aid package for Bank of America to help it cope with losses at Merrill Lynch, which was acquired by the bank on Jan. 1, say people familiar with the matter. Bank of America already has received a total $25 billion in capital infusions from the Troubled Asset Relief Fund. President-elect Barack Obama is pressing for the release of the second $350 billion of the government’s bailout fund. Federal Reserve Chairman Ben Bernanke also said in a speech earlier this week that the second installment of the fund is urgently needed to shore up the financial system (Associated Press via Yahoo! News Jan. 15) … * Lawsuits have been filed against Europe’s UBS and HSBC by investors who lost money in the alleged $50 billion fraud run by Bernard Madoff. The investors claim the two banks should have protected their assets more carefully. UBS and HSBC were the largest European custodians for the “feeder” funds that funneled billions of dollars to Madoff, who required clients to open accounts granting custody to his Bernard L Madoff Securities business. HSBC says it has no liability in its custody business. UBS declined to comment (FT.com Jan. 15) … * Some credit card issuers are willing to ease terms for customers dealing with severe hardship, say credit counselors. In September, the nonprofit National Foundation for Credit Counseling urged issuers to waive over-limit and late fees for consumers receiving its counseling services. It also recommended that lenders set customers’ monthly payments at 2% of current balances if they’re receiving counseling. Bank of America and JPMorgan Chase are following the foundation’s guidelines, and that could encourage other issuers to follow suit, said Susan Keating, president and chief executive of the nonprofit (CardLine via American Banker Jan. 15) …

Market News (01/15/2009)

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MADISON, Wis. (1/16/09)
* More than 2.3 million homeowners faced foreclosure filings in 2008--up 81% from the previous year, RealtyTrac reported Thursday. More than 860,000 homes were repossessed by lenders last year--more than twice as many as in 2007. The report is similar to one by Foreclosures.com earlier this week, which said almost one million homes were repossessed last year. Analysts expect foreclosures to continue rising this year as job losses mount and the value of homes and stocks decline further. The number of homes lost to foreclosure will probably jump another 18% in 2009 before edging down through 2011, predicts Moody’s Economy.com. The Mortgage Bankers Association expects foreclosure levels to remain far above normal levels for years--keeping home prices from rebounding (Associated Press via Yahoo! News Jan. 15) … * The benchmark 30-year, fixed-rate mortgage (FRM) declined below 5% for the first time ever as the economy continued to weaken. The 30-year FRM fell by 5 basis points to 4.96% this week--the 11th consecutive decline, Freddie Mac reported Thursday. That’s the lowest rate since Freddie began tracking the data in 1971. The one-year, adjustable-rate mortgage also fell, by 6 basis points to 4.89%, while the 15-year FRM edged up 3 basis points to 4.65%. The weak economy and government actions pushed the 30-year FRM down to a record low, noted Freddie Mac Vice President and Chief Economist Frank Nothaft. “Both the U.S. Treasury Department and the Federal Reserve have added over $100 billion in liquidity to the mortgage market since September 2008, which put downward pressure on interest rates for fixed-rate mortgages,” said Nothaft. He expects further government initiatives to keep rates low this year (MarketWatch Jan. 15). For CUNA's Daily Financial Rates, use the link. … * Record-low mortgage rates have prompted a surge of refinancing applications, but lenders are turning down many of those applications. Lenders say as many as half of those wanting to refinance won’t be approved because they don’t meet stricter credit standards. Only about one-third of mortgage debt outstanding probably will quality for refinancing, said Fannie Mae Chief Economist Doug Duncan. He said almost 70% of borrowers won’t be approved, usually because they don’t have good enough credit or because they don’t have enough home equity. Many mortgages are “underwater,” meaning homeowners owe more on their mortgages than the current value of their home. Only about 25% of refinancing applications are leading to loans in Florida, where home values have plunged, noted W.D. Acosta, executive vice president for residential lending at Seacoast National Bank of Stuart, Fla. (The Wall Street Journal Online Jan. 15) … * Residential real estate sales and prices continued to decline in almost all Federal Reserve districts into the new year, according to the Fed’s latest Beige Book survey of the economy. Only the San Francisco district reported a slight uptick in sales. Many lenders reported high cancellation rates for home sales. Commercial real estate markets also deteriorated in most districts, and many reported tighter credit conditions. Retail sales were generally weak nationwide, especially during the holiday season, despite deep discounting. The job market deteriorated further, and wage pressures remained contained, with some districts reporting pay freezes or reductions in compensation. The New York district said year-end bonuses at financial firms are declining 20% to 30% from a year earlier at some of the smaller companies and more substantially at larger firms. The manufacturing and service sectors nationwide continued to weaken. The Fed report painted a bleak picture of the economy, which most analysts expect to continue contracting throughout the year … * House Democrats on Thursday released a summary of President-elect Barack Obama’s $825 billion stimulus package, which contains a number of provisions to help unemployed Americans. The bill calls for $275 billion in tax cuts and $550 billion in spending and economic aid to states. The American Recovery and Reinvestment bill probably is the most expensive plan ever proposed by Congress. Obama’s economic consultants say the legislation may create 3 million to 4 million new jobs by 2010. The bill includes $27 billion to continue the extended jobless-benefits program through year end and another $9 billion to boost the average unemployment check by $25 a week. It also calls for $30.3 billion to subsidize the cost of Cobra health-insurance coverage for 12 months. Cobra lets laid-off workers retain their employer’s health insurance if the worker pays the full premium--a cost too expensive for many workers. Workers eligible for subsidized Cobra are those 55 and older and those who worked at their last job for at least 10 years (CNNMoney.com Jan. 15) … * First-time claims for unemployment insurance surged by 54,000 during the week ending Jan. 10 to 524,000, the Labor Department reported Thursday. Continuing claims--the number of people still on the benefit rolls after an initial week of aid--declined by 115,000 during the week ended Jan. 3 to 4.497 million. The level of continuing claims remains near a 26-year high and is up sharply from 2.7 million a year ago (Associated Press via Yahoo! News Jan. 15). The high level shows workers are having a tough time finding new jobs after they’ve been laid off. Employers slashed 2.6 million jobs last year, and analysts expect job losses to surge again this year … * Energy prices plunged last month--prompting another sharp decline in wholesale prices. The Producer Price Index (PPI) fell 1.9% in December--the fifth consecutive decline, the Labor Department reported Thursday. Energy prices tumbled 9.3% last month, while food costs dropped 1.5%. For all of 2008, the PPI fell 0.9%--the first annual decline since a 1.6% drop in 2001, when the nation also was in recession. The PPI rose by 6.2% in 2007. Excluding food and energy, the core PPI rose 0.2% in December and was up 4.3% in 2008--the largest annual gain since a 4.4% increase in 1988. However, analysts expect core prices to ease sharply this year as the economy remains in recession (Associated Press via Yahoo! News Jan. 15) …

News of the Competition (01/14/2009)

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MADISON, Wis. (1/15/09)
* In its latest efforts to ease the financial crisis, the Treasury Department reported Tuesday that it invested $14.8 billion in another 43 banks. At $10 billion, Bank of America received the largest sum. The nation’s biggest bank received a $15 billion investment from Treasury on Oct. 28. Under the Troubled Asset Relief Program (TARP), the Treasury lends funds to banks in exchange for preferred shares, warrants and dividends. The government has infused $192.3 billion into 257 banks as of Jan. 13. Wells Fargo and JPMorgan Chase also have received a total of $25 billion from Treasury. Chief executives from smaller financial institutions complained to Congress this week that they have been mostly locked out of the TARP program. Critics also complain that the big banks receiving money aren’t using the funds to boost lending, the intended purpose of the program. In the latest round of injections, American Express received $3.4 billion. The credit-card firm became a bank holding company so it would be eligible for the funds (CNNMoney.com Jan. 14) … * Struggling with losses despite two federal government infusions, Citigroup is dismantling its financial conglomerate by spinning off its Smith Barney retail brokerage unit into a joint venture with Morgan Stanley. The company also is planning to narrow its corporate focus in two areas, say people familiar with the situation. Citigroup plans to target wholesale banking for large corporate clients and retail banking for customers in select markets. The company began building its financial conglomerate after the former Citicorp merged with Travelers Group in 1998. Citigroup’s stock price has declined more than 75% since then, and the firm is now under pressure from Wall Street and Washington to restructure itself. Citigroup plans to cut about one-third of its assets, probably by shedding its consumer finance operations, its private-label cards, and some of its consumer businesses in Japan. Citigroup also plans to cut its proprietary trading activities (Dow Jones Newswires and The New York Times Jan. 14) … * Raoul Weil, the former head of the wealth management business at UBS AG, was formally declared a fugitive Tuesday after he failed to surrender to U.S. authorities on charges that he conspired to help wealthy Americans hide assets from the Internal Revenue Service. Weil’s attorney has said the indictment against him is “totally unjustified.” UBS announced last week that it plans to close all the offshore accounts of U.S. clients. An indictment by Miami prosecutors unsealed in November alleges that Weil and other bankers conspired to help 17,000 U.S. citizens hide $20 billion in Swiss bank accounts to keep from paying taxes (Reuters via Yahoo! News Jan. 14) … * Originations of Home Equity Conversion Mortgages (HECMs), reverse mortgages insured by the Federal Housing Administration, jumped 6.4% to 115,176 last year, the Department of Housing and Urban Development reported last week. At 9,561, Miami was the top market for HECM originations in 2008, according to a study by Reverse Market Insight Inc. Los Angeles (4,126) ranked second; followed by Tampa (3,956), Santa Ana, Calif. (3,695), and Baltimore (3,595). The number of lenders making at least one HECM loan jumped 76.5% to 2,949 last year. Recent changes to the program will help boost lending in the future, said Peter Bell, president of the National Reverse Mortgage Lenders Association. Those changes include a higher loan limit, co-op eligibility, and letting homeowners use their loans for purchases (National Mortgage News via American Banker Jan. 13) …

Market News (01/14/2009)

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MADISON, Wis. (1/15/09)
* Home foreclosures surged 64% to almost one million homes in 2008, Foreclosures.com reported Wednesday. While the jump was “staggering, it was not unexpected,” said Alexis McGee, president of the foreclosure-listing service. However, McGee anticipates “substantial improvement” in 2009 because of increased affordability, the expanding population, and a looming housing shortage due to builders postponing new-home construction. The firm also reported that all foreclosure-related filings, including notices of default or foreclosure auction, surged 62% to 2.1 million in 2008. Per household, Nevada topped the list last year--with 49.9 foreclosure filings for every 1,000 households. Arizona ranked second (34.7 for every 1,000 households); followed by Mississippi (25.6), Georgia (25.5), and California (22.7) (The Wall Street Journal Online and BUSINESS WIRE via Yahoo! Finance Jan. 14) … * Record-low mortgage rates boosted refinancings last week, according to the Mortgage Bankers Association (mbaa.org Jan. 14). The trade group’s Market Composite Index jumped 15.8% during the week ending Jan. 9 to 1324.8. The Refinance Index surged 25.6% to 7414.1, offsetting a 14.1% decline in the Purchase Index, to 295.8. Refinancings made up 85.3% of overall applications in the latest week--up from 79.8% the previous week and 62.7% a year ago. Mortgage rates fell again last week. The average 30-year, fixed-rate mortgage (FRM) dropped 18 basis points to 4.89%, while the one-year, adjustable-rate mortgage (ARM) edged down 1 basis point to 5.89%. Still, both the 30-year FRM and the one-year ARM remain historically high relative to interest rates on 30-year Treasury bonds--which are now about 2.6%, said Moody’s Economy.com (Jan. 14). The research firm also noted that the 30-year FRM is 100 basis points lower than the one-year ARM. Historically, ARMs have been about 50 basis points below fixed rates … * Retail sales plunged 2.7% in December--the sixth consecutive decline, the Commerce Department reported Wednesday. Retail sales fell 0.1% in 2008--following a 4.1% gain in 2007 and the first annual decline since comparable records began in 1992. Before last year, the weakest annual sales was an increase of 2.4% in 2002. Consumer spending, which makes up about two-thirds of economic activity in the U.S., is expected to remain weak this year as the recession continues and unemployment rises further. The economy fell into a recession in December 2007. The economy has lost 2.6 million jobs since then. Retailers are shutting down stores and filing for bankruptcy amid the downturn in consumer spending. Macy’s Inc. announced last week that it will close 11 underperforming stores in nine states. And this week, regional store chain Gottschalks Inc. said it filed for bankruptcy and has put itself up for sale (Associated Press via Yahoo! News and Bloomberg.com Jan. 14) … * Business inventories declined for a third consecutive month in November as sales posted a record decline. Inventories fell 0.7% following a 0.6% drop in October, according to the Commerce Department. Sales plunged 5.1%--the largest decline since comparable records began in 1992. Firms had enough goods on hand to last 1.41 months at the current sales pace in November--the highest level since 2001. Businesses will need to continue slashing stockpiles in coming months as demand weakens further. The government also reported that retail inventories, which account for about one-third of all business inventories, declined 1.3% during the month. Auto stockpiles fell 1.7% (Bloomberg.com Jan. 14) … * The federal budget deficit soared in the first quarter of the 2009 fiscal year as the government spent record amounts to help ease the financial crisis. The deficit expanded by $83.6 billion in December--bringing the total deficit for the first three months of the fiscal year to $485.2 billion, the Treasury Department reported Wednesday. In comparison, the budget deficit for the total 2008 fiscal year was $455 billion. The government has collected less revenue this year due to soaring job losses and declining profit margins. The department collected $255.3 billion in individual income taxes--down 6.7% from the same period in the 2008 fiscal year. Just $50.4 billion were paid in taxes by businesses--down 45.5%. Analysts forecast that the budget deficit will swell to about $1.2 trillion this year, even without President-elect Barack Obama’s proposed stimulus package (CNNMoney.com Jan. 14) … * Import prices tumbled a record 9.3% in 2008 as the global financial crisis slashed business and consumer demand, the Labor Department reported Wednesday. Export prices fell 3.2%--the largest annual decline since 1998. In December, import prices plunged 4.2%, as costs for oil and many non-petroleum products declined. Import prices have fallen for the past five consecutive months as the global credit crisis intensified and oil prices tumbled. The plunge in oil and other commodity prices also is narrowing the nation’s trade deficit. The trade gap narrowed to $40.4 billion in November--down 28.7% from October and the lowest level since November 2003, according to Commerce Department data. The sharp deceleration in inflation will let the Federal Reserve leave interest rates at historic lows this year (Reuters via The New York Times and Moody’s Economy.com Jan. 14) …

News of the Competition (01/13/2009)

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MADISON, Wis. (1/14/09)
* The Federal Home Loan Bank (FHLB) of Seattle has suspended dividends and “excess” stock repurchases after devalued mortgages eroded its capital base below the regulatory requirement. The shortfall at the end of 2008 was prompted by “unrealized market value losses” on mortgage securities without government backing, said the bank in a regulatory filing. The San Francisco FHLB announced last week that it had suspended dividends and stock repurchases because of losses on non-agency mortgage bonds. Moody’s Investors Service forecasts that just four of the 12 FHLBs will remain above capital minimums in its worst-case scenario. That would mean higher costs for banks, thrifts, and credit unions, according to Keefe, Bruyette analyst Frederick Cannon. “Systemic weakness in the FHLBs, which may require federal action, could have a number of implications for U.S. banks and thrifts, including: higher costs of FHLB borrowings, reduced value of FHLB stock, and increased demand for alternative sources of liquidity,” said Cannon (Bloomberg.com Jan. 13) … * Some banks are acting to lower government ownership of their businesses by raising funds to supplement or pay back money they received from the Treasury Department. In recent weeks, several small banks--including IberiaBank of Louisiana, Pennsylvania-based National Penn Bancshares, and Flagstar of Michigan--have raised money from existing shareholders, private-equity groups, and through public offerings. Banks raising private equity during the first year of the Treasury’s investment qualify for a 50% reduction in the number of outstanding warrants the government owns if they raise 25% or more of the government’s capital outlay. Banks that match the government’s investment have the right to repay the Treasury at par. In December, IberiaBank became the first bank to satisfy both conditions (FT.com Jan. 13) … * Hedge funds lost a record $350 billion worldwide in 2008, as the financial crisis slashed returns and investors retreated, according to a preliminary report by Eurekahedge Pte. Funds that invested in North America posted the largest decline, at $183 billion. The hedge-fund industry declined by about one-fifth to $1.5 trillion at year-end 2008--from a peak of $1.9 trillion. Hedge funds posted a 12.3% loss in 2008, compared with a 13% gain the previous year and the first decline since the firm began tracking the data in 2000. The collapse of Lehman Brothers in September prompted a financial rout that halved the value of stock markets worldwide to $30 trillion last year. Hedge funds, largely used by wealthy individuals and institutions, are an unregulated pool of capital in which managers benefit from speculating on whether the price of assets will rise or fall (Bloomberg.com Jan. 13) … * Mobile-banking vendors’ revenues will almost double to $26 million in 2009 if, as expected, the number of deployments doubles, according to a report by Boston-based Aite Group. Credit unions and banks will be especially profitable segments for vendors this year. The report also noted that text messaging has become a necessary feature for mobile banking “as the only viable means of reaching all banking customers, regardless of handset and technical expertise” (CardLine via American Banker Jan. 13) …

Market News (01/13/2009)

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MADISON, Wis. (1/14/09)
* Vehicle sales will plunge 13% this year to the lowest level in 27 years, according to industry analysts meeting at a Society of Automotive Analysts roundtable at the North American International Auto Show this week. Forecaster J.D. Power and Associates predicts that sales in the U.S. will decline to 11.4 million units--down from 13.2 million units in 2008 and 16.1 million units in 2007 and the lowest level since a 10.5-million unit pace in 1982. Deutsche Bank predicts sales of 11.5 million units this year. Vehicle sales account for about 10% of consumer spending in the U.S. Analysts say this year’s sharp slowdown will push some automakers closer to bankruptcy. J.D. Power expects sales to pick up to a 13.4-million unit pace in 2010 and a 14.7-million unit pace in 2011 (Reuters via The New York Times Jan. 13) … * The U.S. economy will contract 1.5% in 2009, according to the median forecast of economists surveyed by Bloomberg News (Jan. 13). That projected downturn is a half percentage point more than respondents predicted last month. How soon the economy will rebound may depend on President-elect Barack Obama’s $775 billion stimulus package. “This is a once-in-a-century crisis, and we’re about to see a once-in-a-century response,” said Ian Morris, chief U.S. economist at New York-based HSBC Securities. The median forecast calls for the nation’s unemployment rate to jump to a 26-year high of 8.4% late this year, from a 7.2% rate in December. Respondents put the odds of a rebound from recession over the next 12 months at just 55%. With the severely weak economy, respondents say the core Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred inflation measure, will rise only 1.2% this year--the smallest increase since 1962 … * The biggest risk facing global economies in 2009 is a continued collapse in the price of stocks and homes that could cost as much as $1 trillion, the World Economic Forum said Tuesday. The group’s Global Risks 2009 report said most economies will see volatile markets, rising unemployment, and consumer and business confidence tumbling to record lows. “The window of opportunity we have to address some of the largest challenges of our time is narrow,” said Forum Director Klaus Schwab. Other risks noted by the report include rising costs tied to chronic disease, inadequate regulation, a surge in protectionist sentiment, and political instability (Associated Press via Yahoo! News Jan. 13) … * The stimulus package proposed by President-elect Barack Obama will give the economy a “significant boost,” but won’t lead to a lasting recovery unless other steps are taken to stabilize the financial system, said Federal Reserve Chairman Ben Bernanke. In a speech to the London School of Economics on Tuesday, Bernanke said lending could be stimulated by further capital infusions, public purchases of troubled assets, and asset guarantees. Another option would be to set up and capitalize “bad banks” that would purchase assets from financial institutions in exchange for cash and equity. Bernanke also addressed the need for better regulation. “It is unacceptable that large firms that the government is now compelled to support to preserve financial stability were among the greatest risk-takers during the boom period. In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking,” said Bernanke (Associated Press and The New York Times Jan. 13) … * The deepening recession helped slash the nation’s trade deficit to a five-year low in November as oil demand fell and imports from China tumbled. The trade gap narrowed to $40.4 billion--down 28.7% from October and the lowest level since November 2003, the Commerce Department reported Tuesday. The trade deficit was running at a $688.2 billion annual rate through November--compared with a $700.3 billion imbalance in 2007. Exports of goods and services tumbled 5.9% to a 14-month low of $142.8 billion in November, as economic downturns in the nation’s trading partners eroded demand for U.S. goods. Imports fell 12% to a two-and-a-half-year low of $183.2 billion--led by a record decline in crude oil. Economists expect the U.S. trade deficit to decline further this year as the global recession continues (Associated Press via Yahoo! News Jan. 13) … * The supply of homes available for sale in the nation’s top 29 metropolitan areas fell 6.4% in December, according to ZipRealty Inc. The supply of homes was down 9.5% from a year earlier. The report covers homes on multiple-listing services, so it doesn’t include new homes and foreclosed homes, which are a big part of the housing stock. About 4.2 million homes were listed for sale at the end of November--representing an 11-month supply at the current sales pace, according to the National Association of Realtors. The housing market is considered in balance between supply and demand when the housing inventory is about six months (The Wall Street Journal Online Jan. 13) …

News of the Competition (01/12/2009)

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MADISON, Wis. (1/13/09)
* Lloyds TSB Group’s banking unit has entered into a deferred prosecution agreement with U.S. state and federal authorities and will pay $350 million in fines and forfeiture related to an alleged scheme that let Iranian and Sudanese clients access the U.S. banking system. The U.K.’s Lloyds admitted to falsifying the business records of banks in Manhattan through a process of altering wire-transfer information to hide the identity of its clients from 2001 to 2004, said Manhattan District Attorney Robert M. Morgenthau in a statement. Lloyds TSB Bank said it is continuing discussions with the Office of Foreign Assets Control over the terms of the resolution of its investigation (The Wall Street Journal Online Jan. 12) … * Money manager Bernard Madoff can remain free on bail, a judge ruled Monday. Prosecutors attempted to have his bail revoked after they found out that he mailed more than $1 million in jewelry and other gifts to family and friends over the holidays. The bail decision does place more restrictions on Madoff, including making him create an inventory of items in his apartment and letting a security firm check on the items. The security firm also will search all outgoing mail. Madoff allegedly operated his Bernard L. Madoff Investment Securities firm as a giant Ponzi scheme. Prosecutors say he carried out the largest financial fraud in history (Associated Press via Yahoo! News Jan. 12) … * Citigroup moved closer to a deal to spin off its Smith Barney brokerage business into Morgan Stanley’s brokerage operation, said people familiar with the situation Monday (Reuters via Yahoo! News Jan. 12). The deal would create the world’s largest retail brokerage and would mark a step towards dismantling the huge financial services firm. In other news, federal banking regulators are pressuring Citigroup to shake up its board and replace Chairman Winfried F.W. Bischoff, say people briefed on the matter (The New York Times Jan. 12). Richard D. Parson, a Citigroup director and chairman of Time Warner, reportedly is the top candidate to succeed Bischoff. Citigroup has received two financial infusions from the federal government as it struggles with the financial crisis … * The Federal Deposit Insurance Corp. (FDIC) has initiated an unofficial clampdown on new-bank approvals in some states hit hard by the housing slump, say consultants and attorneys who advise investors wanting to charter new banks. They say the FDIC wants to limit failures by not creating more competition for loans and deposits in markets where many banks are struggling. They note that seven of the 25 banks that failed in 2008 were less than eight years old. An FDIC spokesman denied that the agency has adopted “a formal on informal moratorium” on approving new-bank charters. Still, FDIC data show that fewer banks opened in the fourth quarter than in any quarter in at least 12 years (American Banker Jan. 12) … * The Office of Thrift Supervision announced Friday that it approved applications from Hartford Financial Services Group and Lincoln National Corp. to become bank holding companies. The approvals clear the way for the two insurers to take part in the Treasury Department’s capital-infusion program. Hartford, which plans to purchase Federal Trust Bank of Sanford, Fla., has said it would be eligible for as much as $3.4 billion if approved for the federal program. Philadelphia-based Lincoln plans to acquire Newton Country Loan & Savings FSB of Goodland, Ind. (Insurance Journal via Yahoo! News Jan. 12) …

Market News (01/12/2009)

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MADISON, Wis. (1/13/09)
* Credit-card chargeoffs increased in November as payment rates plunged, according to reports by two ratings agencies. Fitch Inc. reported that chargeoffs on prime card portfolios rose to 6.84% during the month. That rate is expected to jump to 8% this year as job losses continue to mount. The retail-card chargeoff rate jumped to 10.51% in November. That rate is expected to hit 12% by the middle of the year. In another report by Moody’s Investors Service, the chargeoff rate for prime credit cards rose to 7.07% in November--the highest since December 2005. Moody’s predicts that both the jobless rate and the prime card chargeoff rate will peak at 9% early in 2010 (CardLine via American Banker Jan. 12) … * Maintaining family health care coverage after a job loss is too expensive for most families, according to a new study by Families USA. The average monthly Cobra premium for family coverage ($1,069) eats up 84% of the average monthly unemployment check ($1,287), the study found. Cobra is a federal law that lets many laid-off workers and their dependents remain on the former employer’s group health plan for 18 months if they pay the full cost of coverage and a 2% administrative fee. “If you’re subsisting on an unemployment insurance check and 84% of that check is what’s needed to continue family coverage, clearly it’s unrealistic to expect you can afford to do that and still have money left for food and rent and utilities and other necessities,” said Ron Pollack, executive director of the advocacy organization. The study also found that insurance coverage for single people consumes 30% of the average unemployment check (MarketWatch Jan. 12) … * The economy could lose 2 million more jobs this year after the loss of 2.6 million jobs in 2008, according to a report by the Conference Board. The research firm’s Employment Trends Index declined 1.6% to 99.6 in December. The index is down almost 16% from a year earlier and has fallen for the past 17 consecutive months. “The continued deterioration in the Employment Trends Index signals that no turnaround in the labor market is to be expected in the near future,” said Conference Board Senior Economist Gad Levanon. The “jobs are hard to get” component of the index increased to 42% in December, from 37.1% in November (CNNMoney.com and /PRNewswire/ Jan. 12) … * Global business confidence remains very negative but has improved slightly since hitting bottom at the end of 2008, according to the latest Moody’s Economy.com Survey of Business Confidence. However, hiring intentions have become especially negative in recent weeks, and pricing power has collapsed. Businesses are slashing their investment in equipment and software, inventories, and demand for office space. The results of the survey indicate a synchronized and severe global recession ... * President-elect Barack Obama has asked President George W. Bush to formally request release of the remaining $350 billion of the Treasury Department’s Troubled Asset Relief Program (TARP), the White House announced Monday. “We will continue our consultations with the President-elect’s transition team, and with Congress, on how best to proceed in accordance with the requirements of the statute,” said White House spokeswoman Dana Perino. Congress would have 15 days to reject the request. Some Senate Democrats plan to place strict conditions on the banks receiving TARP funds (The Wall Street Journal Online Jan. 12) … * Retail sales will decline by 4% in the first quarter of this year as the weak economy, rising unemployment, and increased foreclosures prompt consumers to save money, according to a forecast by ShopperTrak. The data tracker also predicts that foot traffic to retailers will tumble 16.4% during the quarter. “Although consumers will continue redeeming gift cards and taking advantage of some post-holiday sales throughout January, slow first-quarter shopping levels will have the industry scrambling,” said ShopperTrak co-founder Bill Martin. “Looking ahead, the second quarter will most likely continue the trend of slumping sales and traffic levels, but the period could start showing some recovery as the middle-class tax break from the new administration instills confidence, and Easter and graduation spending takes place,” added Martin on a hopeful note (Reuters via The New York Times Jan. 12) …

News of the Competition (01/09/2009)

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MADISON, Wis. (1/12/09)
* A long-running investigation by federal agencies and a consortium of state attorneys general has found possible bid rigging, tax evasion, and other widespread wrongdoing in the municipal bond business. Firms failed to openly compete--and instead secretly colluded--to divide municipal-bond business among themselves, according to e-mail messages and taped phone conversations revealed by the investigation. Investigators say companies made questionable payments and campaign contributions to local officials to obtain business from them. Investigators have issued subpoenas to more than 30 financial services companies. “Pay-to-play in the bond market is epidemic,” aid Charles Anderson, who retired as manager of the tax-exempt bond field operations at the Internal Revenue Service. State and cities issue municipal bonds to finance public projects. The issue is of special importance because President-elect Barack Obama has proposed a massive infrastructure spending program to help stimulate the economy (The New York Times Jan. 9) … * Citigroup will back a Congressional proposal to rewrite bankruptcy law to help mortgage borrowers avoid foreclosure, said CEO Vikram Pandit. The bank previously had opposed any changes. A group of senators, including Charles Schumer of New York and Dick Durbin of Illinois, is backing the plan, which they say would help “millions of families save their homes.” Banking lobbyists say the changes would boost costs for future homeowners. The National Association of Home Builders has dropped its opposition. And advocates hope Citigroup’s position represents a shift for the banking industry. “Citigroup’s support means that the dam has broken across the banking industry,” said Schumer (Reuters via Yahoo! News Jan. 9) … * Under pressure from U.S. authorities, Zurich-based UBS AG is closing the hidden offshore accounts of its wealthy U.S. clients. UBS plans to shut down about 19,000 accounts that prosecutors suspect have been undeclared to the Internal Revenue Service. The closures will give prosecutors a paper trail, as UBS transfers assets to other banks or mails checks to clients. “You can either take that check and throw it in the woods, or deposit it somewhere and get busted,” noted an unidentified UBS client (The New York Times Jan. 9) … * Some short sellers prospered last year as the financial crisis prompted a plunge in stock markets worldwide. Short-biased hedge funds gained an average 34% in 2008, according to HedgeFund.net. That compares with a 38% loss in the Standard & Poor’s 500. The Securities and Exchange banned short selling of financial stocks in September, saying it contributed to sharp declines in financial shares. The ban expired in October, but some are calling for more regulation of short selling. The Investment Company Institute says it supports “sensible” regulation of short selling. Rep. Gary Ackerman, D-N.Y., has introduced legislation to reinstate the “uptick rule,” which requires that traders wait until stocks rise before adding to short positions. The rule was rescinded by the Securities and Exchange Commission in July 2007, at the beginning of the credit crisis (The Wall Street Journal Online Jan. 9) … * Bank of America’s debt ratings have been lowered by Moody’s Investors Service amid concern that rising losses on credit cards and mortgages will erode capital. The bank’s senior debt rating was lowered to Aa3, from Aa2. Its financial strength rating was cut to B from A-minus. Bank of America’s “tangible common equity position remains relatively weak, leaving a modest cushion to absorb unexpected losses,” said Moody’s. The ratings agency said the bank’s capital position probably won’t improve until 2010. Bank of America’s shares have fallen more than 60% over the past 12 months (Bloomberg.com Jan. 9) …

Market News (01/09/2009)

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MADISON, Wis. (1/12/09)
* With job losses mounting and lenders tightening credit, consumers are paying down debt and boosting savings. Consumers paid down a record $8 billion in consumer debt in November--the third month in the past four in which consumers paid down more debt than they took on, the Federal Reserve reported Thursday (MarketWatch Jan. 9). Consumer credit fell at a 3.7% annualized rate--the largest percentage in almost 11 years and a record decline in dollar terms. The Fed data excludes mortgage and home-equity debt. Revolving credit, which includes credit cards, fell at an annul rate of 3.4% in November. Nonrevolving debt, including student and auto loans, dropped at a 3.9% pace. The Commerce Department reported in December that the personal savings rate rose to 2.8% in November--up from 2.4% in October and just 0.8% in August. Consumers will continue boosting savings and paying down debt as the recession continues … * The Federal Reserve purchased $10.213 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae during the first three days of the new program aimed at lowering mortgage rates and buoying the housing market. The Fed has pledged to purchase at least $500 billion of the securities during the first half of this year. Freddie Mac reported last week that the program already has started to bring down mortgage rates. The 30-year, fixed-rate mortgage fell to 5.01% last week--from 5.10% the previous week and the lowest since the rate survey was launched in 1971. The Fed reported that borrowing by commercial banks through the discount window declined about $10 billion from the previous week and stood at $83.68 billion as of Jan. 8. Lending through the primary-dealer credit facility, created for investment banks in March, fell to $34.55 billion from $37.4 billion the previous week (The Wall Street Journal Online Jan. 9) … * The Treasury Department has done nothing to ensure that the $700 billion financial bailout program is used to stabilize the mortgage market, according to a congressional watchdog. “There’s just no money that’s gone in that direction,” said Elizabeth Warren, head of a congressionally appointed oversight panel. “The TARP (Troubled Asset Relief Program) funds themselves have not been used in this way despite congressional statutes requiring them to do so,” Warren told ABC News’ “Good Morning America.” A panel report said the Treasury hasn’t used any of the first $350 billion of TARP funds to help borrowers refinance or avoid foreclosure. Warren said the Treasury Department didn’t enact any tracking systems or place any restrictions on banks receiving funds. So the money “might be used to buy other banks, it might be used to buy other assets, it might be used to buy things overseas. Or it may just be stuffed in vaults and left there” (Reuters via The New York Times Jan. 9) … * In an effort to avert foreclosures, Fannie Mae is testing a new program to pre-approve “short sales” of homes. In such a sale, mortgage firms let homeowners sell their homes for less than the current value, forgiving the difference. Fannie wants to speed up the process, and help more homeowners, by agreeing on the price of a home for sale, even before a buyer is found. Pilot projects launched in Phoenix and Orlando limit properties to those securitized by Fannie Mae and serviced by Bank of America subsidiary, Countrywide Financial. Short sales generate average loan losses of 19%, compared with 40% for homes sold after foreclosure, according to a study by Clayton Holdings Inc. (The Wall Street Journal Online Jan. 9) … * Homebuilder KB Home reported a loss of $307.3 million for the fourth quarter--down sharply from a $772.7 million loss a year earlier. However, the firm said demand for new homes continues to weaken. Homes delivered totaled 3,912 in the latest quarter, down from 8,132 a year earlier. The average price fell 6% to $232,200. “Housing market and general economic conditions in 2009 are expected to remain difficult or possibly worsen as the timing of any meaningful recovery for the homebuilding industry remains uncertain,” said KB President /CEO Jeffrey Mezger in a statement (Associated Press via The New York Times Jan. 9) …

Payrolls plunge unemployment jumps to 7.2

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MADISON, Wis. (1/12/09)--Employers cut another 524,000 jobs in December, the Labor Department reported Friday. The economy lost 2.6 million jobs in 2008--the most since the end of World War II in 1945 (The Wall Street Journal Online Jan. 9). Almost 2 million of those losses occurred in just the past four months.
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The nation’s unemployment rate jumped to 7.2% in December, from 6.8% the previous month and the highest level in almost 16 years (see chart). Since the beginning of the recession, the number of unemployed people has grown by 3.6 million, and the unemployment rate has risen by 2.3 percentage points. “Today’s employment report confirms what many had already expected: the labor market is in a self-reinforcing downward spiral,” Steve Rick, senior economist for the Credit Union National Association, told News Now. “Not only were fewer people working in December but the average number of workweek hours dropped to its lowest in history, 33.3 hours, while other workers were taking pay cuts. “The combined effect of more layoffs, few work hours, and less pay will result in lower incomes and therefore less spending going forward,” he added. “This fall in consumption spending will further reduce employment, and income and spending--a classic feedback loop.” The number of long-term unemployed (those jobless for 27 weeks or more) increased to 2.6 million in December and was up by 1.3 million in 2008. About 1.9 million people were only marginally attached to the job force in December--up 564,000 from a year earlier. These people wanted and were available for jobs but weren’t counted as unemployed because they hadn’t sought work in the four weeks prior to the survey. There were 642,000 discouraged workers among the marginally attached--up 279,000 from a year earlier. Discouraged workers aren’t currently seeking employment because they believe no jobs are available for them. Counting discouraged workers, the unemployment rate is as high as 17.5% (CNNMoney.com Jan. 9). “Typically, labor market conditions lag economic conditions,” Rick said. “But this time around, firms are slashing jobs due to worries and uncertainty regarding future business activity. We don't expect the unemployment rate to peak until 2010 when it could top 9.5%.” Manufacturing employment fell by 791,000 in 2008, with almost half occurring in the fourth quarter. Employment in construction plunged by 101,000 in December and has fallen by 899,000 since peaking in September 2006. Employment in retail trade tumbled by 522,000 during 2008. The temporary-help industry lost 490,000 jobs last year. “Earlier this week, the government reported consumer credit outstanding fell $7.9 billion in November, or a 3.7% annualized rate decline,” Rick said. “Consumers are deleveraging their balance sheet out of fears that they may be the next to lose their job. We expect consumer credit to fall through the first quarter of this year and intensify the recession.”

News of the Competition (01/08/2009)

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MADISON, Wis. (1/9/09)
* The failure of U.S. and European governments to remove toxic loans from banks before they are recapitalized may extend the financial crisis, the Paris-based Organization for Economic Cooperation and Development (OECD) said Thursday. The OECD noted that the failure to remove bad loans from the books of banks before recapitalizing them prolonged the Japanese banking crisis during the 1990s. “The injections to make banks sound becomes a moving target, if loan problems worsen, further injections are required to avoid a credit crunch,” said the agency (The Wall Street Journal Online Jan. 8) … * The Federal Home Loan Banks (FHLBs)--the government-chartered cooperatives owned by banks, credit unions, thrifts and insurers--face potentially “substantial” losses on mortgage bonds, according to a Moody’s Investors Service report. In the worst-case scenario, just four of the 12 banks would remain above regulatory capital minimums. Moody’s said the banks hold about $76.2 billion of “private-label” mortgage bonds that could prompt losses. However, the ratings agency said it probably won’t lower the system’s Aaa rating because it has government support. But Moody’s said the government may have to place some of the FHLBs in conservatorship or force them into mergers (Bloomberg.com Jan. 8) … * The global financial crisis will continue to dampen the investment returns of U.S. banks by a large percentage, according to Sanford C. Bernstein analysts. They boosted the total loss estimate for the U.S. banking industry for 2008-2010 by 11% to $420 billion. “Driven by the more negative macro assumptions, we are increasing our industry loan loss estimates by loan type,” wrote the analysts. “The net result is a higher, later, more prolonged peak in chargeoffs.” Banks most affected by the higher loss estimates are Citigroup, Synovus Financial, Marshall & IIsley, and KeyCorp. These firms are expected to see a cumulative 2009-2010 earnings per share drop of 75% to 125% (Reuters via msn.com Jan. 8) … * Michigan is leading a class-action lawsuit against investment bank Bear Stearns related to losses incurred by state pension funds and other investors. The state alleges that Bear Stearns and five current and former executives misled investors about the company’s exposure to the subprime mortgage crisis, which prompted a plunge in Bear Stearns stock value. The company narrowly averted a bankruptcy with a buyout by JPMorgan Chase last year. Michigan pension funds lost $62 million due to the stock rout (Associated Press via msn.com Jan. 8) …

Market News (01/08/2009)

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MADISON, Wis. (1/9/09)
* The 30-year, fixed-rate mortgage (FRM) declined to a record low this week, Freddie Mac reported Thursday. The rate fell to 5.01%--from 5.10% last week and the lowest level since Freddie began conducting the rate survey in 1971. The rate has declined for the past 10 consecutive weeks. Mortgage rates continue to respond to the Federal Reserve’s decision to buy mortgage-backed securities from Freddie Mac, Fannie Mae, and Ginnie Mae, said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that the 30-year FRM has declined almost 150 basis points since the end of October--bringing savings to buyers brave enough to enter the housing market. Freddie also reported that the average 15-year FRM fell 21 basis points to 4.62% this week, while the one-year, adjustable-rate mortgage rose 10 basis points to 4.95% (CNNMoney.com and MarketWatch Jan. 8). For CUNA's Daily Financial Rates, use the link. … * The number of people continuing to collect unemployment benefits jumped to a 26-year high at the end of last year as the recession deepened. Continuing claims increased by 111,000 during the week ending Dec. 27 to 4.611 million, the Labor Department reported Thursday. That’s the highest level since 1982. First-time claims for unemployment insurance declined by 24,000 during the week ended Jan. 3 to 467,000. Production cuts at automakers contributed to higher claims in recent months. Retailers also hired fewer workers because of slower sales, noted Joshua Shapiro, chief U.S. economist at New York-based Maria Fiorini Ramirez. “Just look at the continuing claims numbers, they give you a better idea of what is going on,” added Shapiro. “Nobody can find work once they’re fired.” (Bloomberg.com Jan. 8) … * Chain store sales declined 1.7% in December, according to a report by the International Council of Shopping Centers (ICSC). Combined sales for November and December were down 2.2%--the largest holiday decline since the ICSC series was launched in 1970. Lower gasoline prices contributed to the drop in sales. However, there’s little evidence that consumers spent the gasoline savings at other stores. Only discount retailers that sell consumer necessities have fared well during the recession, a trend that is expected to continue until the economy improves (Moody’s Economy.com Jan. 8) … * Venezuela’s Citgo Petroleum announced Wednesday that it has reinstated a program that offers discounted home heating oil to lower-income residents in the U.S. Citgo had suspended the program earlier this week to reevaluate its impact amid declining oil prices. Citgo Chairman Alejandro Granado said the decision to continue the program was in response to “the current global financial crisis and its impact on the oil industry in general.” Critics have said the program is simply a propaganda tool of Venezuelan President Hugo Chavez. However, Joseph Kennedy, chairman of the U.S. non-profit that oversees the program, said continuation of the program reflects Chavez’s “genuine concern for the most vulnerable, regardless of where they may live.” He said the move also reflects Chavez’s desire to strengthen ties between his country and the U.S. during the transition to a new administration. The program gives discounted heating oil to 200,000 households in 23 states (CNNMoney.com Jan. 8) … * The Bank of England on Thursday slashed its benchmark interest rate to the lowest level since the central bank was founded in 1694. The Monetary Policy Committee lowered the rate by 50 basis points to 1.5%. “The availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non-financial sectors,” said the Bank of England in a statement following the decision. Analysts say the British government may have to inject funds into the economy to help battle the financial crisis. The economy contracted by 0.6% in the third quarter. “The global banking system failed,” said Prime Minister Gordon Brown. “We have got to rebuild it” (Bloomberg.com Jan. 8) …

News of the Competition (01/07/2009)

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MADISON, Wis. (1/8/09)
* Bank failures will mount this year and into 2010 as credit quality continues to deteriorate, according to a report by Standard & Poor’s. The ratings agency predicts that rising costs linked to loan-loss provisions will erode bank earnings as the economy weakens further. “Asset-quality weakness will likely spread to a wider range of loan types such as commercial real estate, credit cards, and certain pockets of commercial lending, such as loans to the auto and retailing industries,” said S&P. The ratings agency said capital levels will be key to banks during the economic downturn. Support from government programs are expected to provide banks with added capital, although the capital infusions won’t completely protect the banking industry (Associated Press and Dow Jones Newswires Jan. 7) … * Banks may need to raise new capital in 2009 as a surge in credit-rating downgrades on mortgage-related securities further stress firms’ capital, said Oppenheimer Banking Analyst Meredith Whitney. “From July 2007 to date, over $5 trillion worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008,” wrote Whitney in a research note. She predicts that JPMorgan Chase will have the biggest jump in fourth-quarter 2008 loss provisions--at $6.2 billion, up from $2.5 billion a year earlier. Bank of America’s loss provision is expected to jump to $6.7 billion, from $3.3 billion (Reuters via Yahoo! News Jan. 7) … * Bank of America CEO Kenneth Lewis is recommending that he and his top executives receive no bonuses for 2008 as the bank’s results remain below expectations. The bank joins a growing chorus of banks whose top CEOs are abdicating bonuses. However, Bank of America has faired better than its rivals. It acquired Countrywide Financial and Merrill Lynch last year as those firms floundered. Bank of America is facing increasing pressures on its earnings. The firm reportedly is seeking to free up capital by selling $2.8 billon worth of stock in China Construction Bank (MarketWatch and Dow Jones Newswires Jan. 7) … * Prosecutors allege that money manager Bernard Madoff poses a “danger to the community” and should be confined to jail after he violated terms of his bail by mailing valuables worth more than $1 million to friends and family. Madoff, founder of Bernard L. Madoff Investment Securities, was arrested Dec. 11 and charged with securities fraud after confessing to operating a “giant Ponzi scheme.” Prosecutors say that his diversion of assets represents harm to investors who may seek to recover money lost through their investments with his company. Madoff’s attorneys claim he has tried to retrieve the items after he was told he was in violation of bail terms (The Wall Street Journal Online Jan. 7) …

Market News (01/07/2009)

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MADISON, Wis. (1/8/09)
* Consumer loan delinquencies jumped to a 28-year high in the third quarter as unemployment soared. The percentage of loans 30 days or more overdue rose to a seasonally-adjusted 2.90%--from 2.68% in the second quarter and the highest rate since 1980, the American Bankers Association (ABA) reported Wednesday. The trade association expects delinquency rates to rise even further this year as the jobless rate jumps to more than 9%. “The dramatic loss of jobs will have a huge impact on the ability of people to meet their debt obligations,” said ABA Chief Economist James Chessen. “This is one of the toughest environments we have ever seen,” added Chessen. The ABA also reported that delinquencies on home-equity-lines-of-credit rose to 1.15% in the second quarter--from 1.08% the previous quarter and the highest on record. The delinquency rate on indirect auto loans, which are made through dealerships, rose to 3.25%--from 3.07% and also the highest rate on record. A bright spot was the rate on direct auto loans--which declined to 1.71% from 1.77%. The delinquency rate on credit cards fell to a still-high 4.20% from 4.54% (Reuters via The New York Times Jan. 7) … * Credit-card late payments and chargeoffs increased in November, according to a report by Standard & Poor’s. The delinquency rate--30 days or more overdue--rose to 5.1%--up 20% from a year earlier. The chargeoff rate rose to 6.7%--up 44% from a year earlier and only slightly lower than the 7% level during the last recession. S&P analysts predict that credit-card losses will continue to increase as unemployment soars (Bloomberg.com Jan. 6) … * Job-cut announcements jumped to the highest level on record during December, the outplacement firm Challenger, Gray & Christmas reported Wednesday. Large companies announced 166,348 layoffs--up 275% from a year earlier and the highest December number since the firm began tracking the data in 1993. For all of 2008, firms announced 1.2 million layoffs--up 59% from 2007 and the highest since 2003. “Unfortunately, heavy job-cutting could continue through at least the first half of 2009,” said John A. Challenger, CEO of the Chicago-based firm. However, he said the government’s proposed stimulus plan could buoy the job market during the second half of this year. “The plan to rebuild the nation’s crumbling infrastructure will benefit not only laborers on the front lines, but it will push up through the economy, creating jobs for manufacturing workers, engineers, architects, technology specialists, etc.” Last year the financial sector accounted for more layoffs than any other industry, with plans to slash 260,110 jobs. The auto industry was second, with 127,281 announced layoffs (MarketWatch and CNNMoney.com Jan. 7) … * Citing the housing-market collapse and the financial crisis, the Congressional Budget Office (CBO) predicts that the U.S. budget deficit will surge to a record $1.2 trillion, or 8.3% of the nation’s gross domestic product, in 2009. That compares with a $455 billion deficit for fiscal-year 2008 and $161 billion for 2007. The 2009 forecast doesn’t include the huge spending and tax cuts proposed by President-elect Barack Obama. The current recession “will probably be the longest and the deepest since World War II,” said the CBO in its report. The CBO predicts a “slow recovery” in 2010, with the economy expanding by just 1.5% (CNNMoney.com Jan. 7) … * Mortgage activity retreated last week as refinancing enthusiasm waned. The Mortgage Bankers Association’s Market Composite Index fell 8.2% during the week ending Jan. 2 to 1143.8 (mbaa.org Jan. 7). The Refinance Index plunged 12.3% to 5904.5--offsetting a 7.3% increase in the Purchase Index to 344.2. Refinancings made up 79.8% of overall mortgage applications in the latest week--down from 82.9% the previous week. The recent rebound in purchase applications probably won’t be sustained, noted Moody’s Economy.com (Jan. 7). The research firm said a recovery in purchase-mortgage demand won’t occur until income growth recovers and house prices show signs of bottoming--two events that probably won’t occur until year end … * Federal Reserve policymakers were shocked by an economy that was declining faster than they expected, according to minutes of the Fed’s December meeting, released Wednesday. Fed policymakers expect the recession to last at least through the first half of this year. At the December 15-16 meeting, they promised to use “all available tools” to stimulate economic growth. Some policymakers even said the Fed should drop its official target for the federal funds rate. Others said such a move would confuse investors. They decided to lower the target to a range of 0% to 0.25%, from the previous 1%. On the inflation front, policymakers agreed that inflation should continue to decline, and “some members saw significant risks that inflation could decline and persist for a time at uncomfortably low levels” (The New York Times Jan. 7) …

News of the Competition (01/06/2009)

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MADISON, Wis. (1/7/09)
* The Federal Reserve Bank of New York announced Monday that it has started buying mortgage-backed securities. Announced Nov. 25, the program lets the Fed spend $500 billion to buy mortgage-backed securities guaranteed by Freddie Mac, Fannie Mae, and the Government National Mortgage Association. The mortgage-backed securities being purchased are considered investment grade and aren’t the loan packages that helped spark the current financial crisis. The New York Fed chose BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co., and Wellington Management Co. to manage the purchases, which it expects to complete by June. The New York Fed plans to begin providing weekly details of the purchasing program beginning on Thursday (Bloomberg.com and Associated Press via Yahoo! News Jan. 6) … * The cost of administering the federal government’s financial-rescue program will total $6.52 million by the end of January, the Treasury Department reported Tuesday. Expenditures include personnel compensation and travel costs. The department also reported that “projected obligations” will total $26.5 million. The report didn’t specify what that category includes. Critics say that Treasury has done too little to make certain that financial firms receiving taxpayer money help boost lending and come to the aid of struggling homeowners. They also argue that the government has done little to ensure that firms receiving bailout money place limits on executive compensation (Dow Jones Newswires Jan. 6) … * The federal government’s efforts to support student lending is one bright spot in the financial crisis. As of Nov. 28, the federal government has guaranteed or made $65.2 billion in student loans for the 2008-09 school year--up 18.6% from a year earlier. In comparison, mortgage lending is down almost 38% over the period, according to Inside Mortgage Finance. Under the Student Loan Act, the government required lenders to make loans with their own money before the federal government would invest in them. Still, private lenders have pulled back. Private lending accounted for only about one-fifth of total lending for the 2007-08 academic year. Analysts estimate that private lending has declined as much as 25% this school year. And 39 lenders have stopped making private student loans. To help boost private lending, the Federal Reserve in November announced a $200 billion initiative to help encourage investors to purchase securities backed by private student loans (The Wall Street Journal Online Jan. 6) … * After suffering badly during the savings-and-loan crisis, Texas banks have fared well in the current financial crisis. More than 800 banks and thrifts in Texas went bust during the 1980s and 1990s. But only two of the 28 banks and thrifts that have failed since the beginning of 2007 were based in Texas. Just 7% of banks in Texas are considered “problem institutions” by the Texas Department of Banking--down from 50% during the 1980s. Analysts say Texas lenders have toughened their loan standards since the S&L crisis, helping them weather the current crisis better. However, some analysts predict that the recent plunge in oil prices will hit the Texas economy harder this year. The Texas economy “is about one year behind” the rest of the country, said Oppenheimer & Co. analyst Terry J. McEvoy (The Wall Street Journal Online Jan. 6) …

Market News (01/06/2009)

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MADISON, Wis. (1/7/09)
* Pending home sales fell to a record low in November as the job market weakened and the credit markets remained frozen, according to a report by the National Association of Realtors (NAR). The trade group’s Pending Home Sales Index fell 4% to 82.3--the lowest level since the series began in 2001. “Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November,” said NAR Chief Economist Lawrence Yun. “December’s housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed,” added Yun. NAR predicts that the 30-year, fixed-rate mortgage will remain fairly steady at a low level during the first half of this year. The trade group’s housing affordability index is on track to match the record high set in 1972 (realtor.org Jan. 6) … * Foreclosure sales in the nation’s 25 largest metropolitan areas nearly tripled during the first 10 months of 2008 as mounting job losses and declining home values made it hard for homeowners to sell their homes or refinance their mortgages. Foreclosure sales surged 193% from January through October, compared with a year earlier, according to a report by New York-based Radar Logic Inc. Conventional sales increased just 6% over the period. Home prices declined in 24 of the 25 metro markets in October. “Lenders are motivated to sell foreclosed houses as quickly as possible to get as much of the loan recovered as possible,” said Radar Logic CEO Michael Feder. “They have a tendency to accept deeper discounts relative to other sales, to the point where motivated sales are driving the market,” added Feder (Bloomberg.com Jan. 6) … * Vehicle sales remained sluggish in December as the job market continued to erode and many consumers were denied access to credit. Vehicles sold at a 10.3 million annual pace last month, little changed from the previous two months. Fourth-quarter sales were the lowest since the early 1980s. At 13.1 million units, sales for all of 2008 were the lowest since 1992, when there were 19 million fewer households in the U.S. than today. Vehicle sales in 2009 probably won’t rebound much as employment and household income remain weak. In addition, demand for vehicles has been spent up because generous automaker incentives in the past lured consumers to replace vehicles early (Moody’s Economy.com Jan. 6) … * Fearing a “new normal” of low vehicle sales, automakers are curbing production and employment. Analysts don’t expect sales to top 15 million until 2012 or later. “After an era of excess indulgence, we’re now entering a prolonged period of conservation,” said auto analyst John A. Casesa. “Trading in a car every three years is a luxury that the average American can no longer afford,” added Casesa. He predicts that domestic automakers will need government aid for several more years (The New York Times Jan. 6) … * The service sector remained weak in December, the Institute for Supply Management (ISM) reported Tuesday. The group’s index of non-manufacturing activity edged up to 40.6, from a record-low 37.3 in November. “Respondents’ comments reflect concern about the overall decline in business, lack of funding, budget cuts and lower employment,” said survey director Anthony Nieves. Most components of the index showed gains--including employment, new orders, order backlogs, and export orders. However, inventories remained near a record high, suggesting that efforts to work down inventories will be a drag on growth going forward. Inflationary pressures continued to wane in December. The prices-paid index fell to 36--from 36.6 in November and the lowest reading since the survey was launched in 1997 (Moody’s Economy.com and Bloomberg.com Jan. 6) … * The manufacturing sector remained weak in November, according to a Commerce Department report. Factory orders fell 4.7% following a 6% drop in October--the largest back-to-back decline since comparable record keeping began in 1992. Factory sales tumbled 5.3% in November--the largest decline on record. In a hopeful sign, nondefense capital goods orders excluding aircraft--a proxy for future business investment--rose 3.9% in November following a 6.7% decline in October. However, the factory sector remained weak in December, according to a report released Monday by the Institute for Supply Management. The ISM’s factory index fell 3.8 points to 32.4--the fastest rate of decline since 1980. The new-orders index hit 22.7--the lowest level since record keeping began in 1948 (Bloomberg.com Jan. 6) …

Market News (01/05/2009)

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MADISON, Wis. (1/6/09)
* U.S. construction spending in November declined less than half the amount forecasted, due to gains in commercial and government construction that partially offset the slump in residential real estate, analysts said. The 0.6% November decline followed a 0.4% drop the prior month that was less than previously reported, the Commerce Department said Monday. The median estimate of economists for November was a 1.4% drop, according to a Bloomberg News survey. As home prices slip and prospective buyers find it difficult to obtain credit, the downturn in residential real estate likely will continue well into the fourth quarter, economists said. They also are concerned that nonresidential construction projects will decline, as developers confront a deep financial crisis that makes it hard to obtain financing in a recession that has slowed down enthusiasm for new office buildings and shopping centers (Bloomberg.com and The Wall Street Journal Jan. 5) … * Global corporate earnings will continue to fall in the first half of this year in the midst of the first concurrent recessions in the U.S., Europe and Japan since World War II, analysts said. Standard & Poor’s 500 companies’ earnings likely will fall in the first half, which would result in eight straight quarters of declines. The outlook could be even worse in Asia and Europe, as the recession diminishes demand for retail goods and exports, analysts added. Earnings probably will not recover until the end of 2009, said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages roughly $30 billion. The market has to recover first, then the economy and finally earnings, McCain added (Bloomberg.com Jan. 5) … * Office building vacancy rates are above 10% in just about every major U.S. city and are on the rise--indicating economic distress that could lead to more problems for already troubled lenders, analysts said. More empty office space is expected nationwide in 2009 due to job cuts and businesses retrenching. This would lead to a decline in rental income and a further drop in property values, analysts added. 2009 will be the worst year for the commercial real estate market since the 1991-1992 industry depression, The Urban Land Institute predicted (The New York Times Jan. 5) … * House prices are falling throughout all regions of the U.S., according to the third-quarter Fiserv Case-Shiller house price indices (CSI). The CSI price index declined on a quarter-over-quarter basis in all nine Census divisions. Prices in the Pacific West and Mountain states fell the fastest--moreover, the price decline accelerated in the third quarter compared with the second. The West South Central region held up the best, analysts said. The decline in the national house price index also accelerated in the third quarter, compared with the second. With the economy falling as fast as financial markets, the housing downturn is unable to reverse, analysts said. Job losses, along with increasing negative equity is causing an increased number of foreclosures and therefore forcing house prices further downward, they added (Moody’s Economy.com Jan. 5) ... * More than a quarter of small business owners said the current economic downward trend is a threat to their ability to survive, according to a survey by the National Federation of Independent Business (NFIB). The most immediate problem is slow or lost sales, nearly half the respondents said. Small businesses that are marginal likely will go out of business in the next few months, due to the weakest sales trend he’s seen, said William Dunkelberg, NFIB chief economist (The Wall Street Journal Dec. 26) ... * Treasuries will fall for the first time in a decade, say the biggest bond firms on Wall Street. The loss comes as efforts to spark the economy take hold, and the flight to safety that created the best returns in government debt since 1995 abates, analysts said. In 2009, benchmark 10-year notes could lose 3.5 %--the first loss since they dropped 8.3% in 1999--based on the median forecast of 17 primary government security dealers that trade with the Federal Reserve. Treasury demand will be rescued as the market swings to risk seeking from risk aversion, said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC (Bloomberg.com Jan. 5) … * Although there has been slight improvement in the past two weeks, global business confidence remains near record lows, according to Moody’s Economy.com Survey of Business Confidence. Businesses across all industries and around the globe are nearly equally pessimistic. Hiring intentions have turned markedly more negative in recent weeks. Pricing power has crumpled, suggesting that deflation is a significant threat. The global recession is deepening, according to the survey (Moody’s Economy.com Jan. 5) … * Two Lafayette, La.-based banks have received more than $100 million from the Capital Purchase Program--a component of the federal government’s $700 billion Troubled Assets Relief Program (TARP). Iberia Bank was granted $90 million, and MidSouth Bank, $20 million. However, receiving the TARP funds doesn’t mean the banks are in trouble, but rather that they are stable banks able to use the capital to make loans that support their communities, said Pete Yuan, Iberia Bank market president. Mid South intends to use the TARP funds to increase its loan program, said Rusty Cloutier, president/CEO. The bank will hold town hall meetings in Louisiana and Texas to let small businesses know that it is well-capitalized and has money to lend, Coultier said (the advertiser.com Jan. 4) …

News of the Competition (01/05/2009)

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MADISON, Wis. (1/6/09)
* U.S. sales for General Motors Corp. (GM) fell to a 49-year low in 2008. The drop-off was caused in part by a 31% dip in December sales, which were hurt by the recession and concerns that the largest U.S. automaker might collapse, analysts said. Also, Toyota Motor Corp.’s U.S. deliveries dropped 37%, while Honda Motor Corp. dipped 35%, Ford Motor Co. declined 32%, Nissan Motors Co. went down 31%, and Chrysler LLC nosedived 53%. The federal government’s rescue of GM and Chrysler couldn’t stem consumer pessimism and tight credit in the world’s largest auto market, analysts said (Bloomberg.com Jan. 5) … * Although U.S. banks’ borrowing from the Federal Reserve dropped in the latest week, the financial system is still significantly dependent on the “lender of last resort” during the most dire credit crisis in decades, according to Fed data released Friday, analysts said. In the week ended Dec. 31, banks’ overall borrowings averaged $187.77 billion per day--down from an average of $196.87 billion per day the previous week. Because many banks chose to access cheap cash from several auction programs the Fed is running to help financial institutions, the banks’ direct borrowing through the discount window may have eased, said Michael Feroli, U.S. economist with JPMorgan (Reuters Jan. 2) ... * The Treasury Department should explain its secretive process for determining which banks receive taxpayer money from the government’s $700 billion financial rescue program, the department’s inspector general said. The inspector general’s office is examining Treasury’s decision to invest $400 million in Beverly Hills, Calif.-based City National Bank to study the process by which financial institutions apply and are selected, said City spokesman Richard Delmar. The results of this “case study” will be published during the next few months, he added. The study is a result of criticism from legislators who say that Treasury is making decisions without a clear, consistent and public rationale, analysts said (Washington Post.com Jan. 3) … * GMAC LLC, the lending arm of General Motors Corp. (GM), said that it has agreed to give up its exclusive right to finance GM loans and allow GM to offer its customers financing from competing sources. In exchange, GMAC will be able to avoid sales targets and unwanted leasing programs. Financing competition could help GM circumvent a repeat of last year’s sales nosedive--which occurred when a global credit shortage depleted financing for GMAC customers, analysts said. Auto dealers partially blamed GMAC’s pullback for a 22% sales decline in November (Bloomberg.com Jan. 2) … * U.S. commercial banks’ loan losses are predicted to rise to 3% by the end of 2010--up from 1.5% in the third quarter of 2008, Deutsche Bank said. The expected loss uptick will be caused by a higher percentage of bad loans, quicker problem recognition by banks, and greater consumer leverage, the brokerage said. It is possible that loan losses could go beyond the 3.4% loss levels reached during the Great Depression in 1934 because the industry has assumed increased structural risk in addition to mortgages--and this should become more visible during the cyclical slowdown, the brokerage said (The New York Times Jan. 5) … * David G. Kittle, chairman of the Mortgage Bankers Association (MBA), announced the appointment Monday of John A. Courson, as MBA’s president/CEO, effective Jan. 1. Courson, currently serving as MBA’s chief operating officer, succeeds Jonathan L. Kempner, who in July announced that he would leave MBA effective Dec. 31. Courson previously served MBA as chairman in 2003 and as a member of MBA's Board of Directors, the Residential Board of Governors and the Commercial Real Estate/Multifamily Finance Board of Governors ...

News of the Competition (01/02/2009)

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MADISON, Wis. (1/5/09)
* 2008 was the U.S. auto industry’s worst year since 1992, and General Motors Corp. (GM) and Chrysler LLC led the decline in December, according to Bloomberg.com (Jan. 2). Chrysler’s sales plunged 48% from a year earlier, GM’s dropped 41%, and Ford Motor Co.’s was down 33%, according to averages from six analysts surveyed. Toyota Motor Corp. was likely to report sales were down 40%, and Honda’s total was expected to be down by 36%. Auto sales dropped more than 25% a month since September, largely due to consumers’ skittishness over the economy. Also, fuel prices hindered sales of large pickup truck and sport-utility vehicles. Automakers will report December sales today and they were predicted to market the first calendar year the U.S. automakers’ combined market share was less than 50%, based on results through November. December’s sales were the worst in more than a decade for that month … * GMAC LLC, the finance arm of General Motors Corp., completed a debt exchange offer as part of its becoming a bank holding company. Only 59% of its bondholders participated, less than the 75% needed to achieve its capital goal. In the swap, GMAC issued $11.9 billion of its senior guaranteed notes and $2.6 billion of its cumulative perpetual preferred stock. The Federal Reserve Board earlier approved the conversion to a bank holding company on the contingency that GMAC completed a debt-exchange. The debt-exchange offer came after the Treasury Department infused GMAC owners GM and Cerberus Capital Management LP with $6 billion of support from the Troubled Asset Relief Program (American Banker Jan. 2) … * Two top Citigroup Inc. executives will forgo their 2008 bonuses, said CEO Vikram Pandit in a memo. Those getting no bonuses include Pandit; Citigroup Chairman Win Bischoff; and Robert Rubin, former Treasury secretary and a consultant for Citigroup. Bonuses that are smaller than last year’s will go to the senior leadership committee, and payments for the executive committee will be cut even more, said Pandit’s memo. He cited the harsh realities of the year for earnings and a “dramatically lower” bonus pool than last year’s (American Banker Jan. 2) … * Management of Vienna, Austria-based Bank Medici, a merchant bank that was one of the largest victims in the Bernard L. Madoff ponzi scheme case, resigned Friday. An accountant appointed by Austria’s financial regulator will take over operations temporarily. The resignations of Peter Scheithauer, who had been chief executive of the bank for four months, and board member Werner Tripolt were effective immediately. The bank disclosed that it had invested $2.1 billion in client funds with Madoff, who is accused of masterminding a $50 billion Ponzi scheme (The New York Times Jan. 2) …

Market News (01/02/2009)

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MADISON, Wis. (1/5/09)
* Manufacturing activity in the U.S. continued to slump during December, with the worst slowdown in 28 years, according to the Institute for Supply Management’s (ISM) manufacturing index. The index fell a larger-than-anticipated 3.8 points to 32.4 in December, down from November’s 36.2 and 38.9 in October. Economists had expected it to be 35.4 (Moody’s economy.com Jan. 2). The weakest report since June 1980 suggested that the broader economy remains troubled. “The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time,” said Norbert Ore, chairman of ISM’s Manufacturing Business Survey Committee (The Wall Street Journal Jan. 2). He said new orders have contracted for 13 consecutive months and are at the lowest level on record back to January 1948. The new orders index was 22.7% in December, 5.2 percentage points lower than in November. The jobs sector was particularly grim, with an employment index at 29.9%-- 4.3 percentage points less than in November and the lowest reading since November 1982 (The New York Times Jan. 2) … * The Economic Cycle Research Institute’s (ECRI) Weekly Leading Index for the week ended Dec. 26 increased to 108 from a revised upward 106.8 (revised from 106.6) (Moody’s Economy.com Jan. 2). The annualized growth rate rose to -28.7% from an unrevised -29.2%. Although this is the third consecutive improvement, it has little impact on the downward trend of the index. The deterioration suggests a “severe downturn that will last well into 2009,” said Economy.com. The numbers are based on the mortgage applications index, which was up 1.4% during the week but 11% below its year-ago level; 94,000 fewer initial jobless claims; a decrease in the average yield on 10-year Treasury notes; the New York Stock Exchange’s 1.4% drop to 5,538, which is down 44% from a year ago; and low growth rates … * Crude oil inventories rose by 500,000 barrels during the week ending Dec. 26, contrary to analysts’ expectations of a 1.5 million barrel decline. The amount puts crude oil inventories at 10.1% above their year-ago level. Imports increased to 9.2 million barrels, up from 9.1 million the previous week. The statistics are from the Energy Information Administration, who said distillate supplies increased by 700,000 barrels, less than the 1.1 million barrel increase expected (Moody’s Eonomy.com Dec. 31). Gasoline inventories also increased, by 800,000 barrels, but the increase was less than the 1.5 million barrel increase forecast. Gasoline production fell to 8.9 million barrels, down 0.2 million from the previous week … * The U.S. stock market suffered its third-worst year in more than a century during 2008, says The Wall Street Journal (Jan. 2). Over the past 10 years, stocks as a broad group are down and their performance trails that of almost every other asset class, including government bonds, gold and even real estate, said Morningstar Inc. The Dow Jones Industrial Average finished the year at 8776.39, or down 33.8% and it is 38% below its October 2007 record. 2008 was the Dow’s worst year since 1931, when the blue-chip average plummeted 53%. In 1932, the Dow again dropped--23%--but it recovered the following year with a 67% increase. The index’s second-worst year was 1907, with a 38% decline. That was followed by a 46% rebound in 1908. During 2008, the Nasdaq Composite Index fell 40.5%, the worst percentage decline in its 38-year history. In 2000, it plunged 39.3% after the bubble burst on tech stocks …

News of the Competition (01/01/2009)

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MADISON, Wis. (1/2/09)
* General Motors Corp. (GM) and its financing arm, GMAC, announced Tuesday that GMAC has modified its lending criteria to allow it to lend to a broader range of customers in attempts to spark its sluggish business. GM is offering 0% financing--through Jan. 5--on several vehicles, and rates not higher than 5.9% on more than three dozen 2008 and 2009 models. Some eligible vehicles also offer cash discounts of $500 to $4,250. Access to funding is the key concern, said Mark LaNeve, GM vice president for North America sales. GMAC now will offer loans to customers with credit scores of 621 or higher, ridding itself of a restriction that required a 700 credit score. The changes were implemented a day after the U.S. Treasury Department bought a $5 billion stake in GMAC and lent $1 billion to GM to allow the automaker to contribute to the lender's reorganization as a bank holding company (Reuters Dec. 31 and Bloomberg.com Dec. 30) …. * While one company involved in a bankruptcy case asked for more time to file a plan, another company’s confidentiality request was denied in court. Lehman Brothers Holdings Inc. told a U.S. bankruptcy court that it would need more time to file a bankruptcy plan due to its large and complex case, and filed for a six-month extension to its Chapter 11 bankruptcy plan. Lehman’s initial 120-day exclusivity period expires Jan. 13. If the court does not grant the extension, creditors or other parties could propose competing plans. Bankruptcy courts usually allow such extensions for big, complex cases, analysts said. The company filed for bankruptcy protection Sept. 15. Meanwhile, Washington Mutual Inc.’s (WaMu) request to keep details of specific asset sales secret was denied Tuesday by a federal bankruptcy judge. WaMu filed for Chapter 11 reorganization in September. The Seattle-based thrift wants to sell some interests and equity holdings in venture capital funds to garner value for the company and its creditors. WaMu attorneys are asking permission to redact details of asset purchase prices from sales notices that would be sent to interested parties, analysts said. (Reuters and The Seattle Times Dec. 30) …

Market News (01/01/2009)

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MADISON, Wis. (1/2/09)
* Interest rates on U.S. mortgages have more room to fall, and a reduction of up to one percentage point would be a reasonable amount based on history, James Lockhart, director of the Federal Housing Finance Agency (FHFA), told CNBC in an interview. FHFA regulates Fannie Mae and Freddie Mac. Freddie Mac reported in its most recent survey that rates on 30-year fixed-rate mortgages set another record low, averaging 5.14% for the week ended Dec. 24--down from 5.19% the previous week (American Banker Dec. 31) … * Mortgage rates rose slightly last week for the first time since early November. The weekly rates for 30-year fixed-rate mortgages increased to 5.07%, up from 4.96% the previous week, according to the Zillow Mortgage Rate Monitor, compiled by Zillow.com. Rates for 15-year fixed mortgages fell to 4.86%, down from 4.91%, and 5-1 adjustable-rate mortgages increased slightly to 5.56% from 5.55%. However, rates for 30-year fixed mortgages dropped below 5% again Monday with the average rate on Zillow Mortgage Marketplace at 4.92%. At a state level, the 30-year fixed mortgage rate in Illinois had the biggest increase, from 5.07% to 5.28%. Rates on 30-year fixed mortgages were lowest in Georgia (4.92%) and Arizona (4.95%), while Illinois (5.28%) and Virginia (5.18%) had the highest rates (PRNewswire Dec. 30) … * The U.S. commercial paper (CP) market ended eight straight weeks of growth by shrinking last week, as many traders and companies took an end-of-the-year holiday, analysts said. Data from the Federal Reserve indicated that for the week ended Dec. 24, the size of the U.S. CP market shrank by $6.9 billion to $1.702 trillion from $1.709 trillion the previous week. The CP market is a key source of short-term funding for many companies’ daily operations. The recent contraction is not seen as the beginning of a new downturn, but rather a holiday-related phenomenon, because the Fed hasn’t changed its facility to purchase commercial paper, said Lou Brien, market strategist with DRW Trading Group (Reuters Dec. 29) ... * The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey Wednesday for the week ending Dec. 26. The Market Composite Index, a measure of mortgage loan application volume, was 1245.7, essentially unchanged on a seasonally adjusted basis, from 1245.4 one week earlier. Last week’s results included an adjustment to account for the shortened week due to the Christmas holiday. On an unadjusted basis, the index decreased 40% compared with the previous week, and was up 155% compared with the same week one year earlier. The Refinance Index decreased 0.4% to 6733.8 the previous week, and the seasonally adjusted Purchase Index increased 1.4% to 320.9 from one week earlier. The seasonally adjusted Conventional Purchase Index increased 1.1%, while the government Purchase Index increased 2.2%. The four- week moving average for the seasonally adjusted Market Index is up 10.3%. The four- week moving average is down 3.2% for the seasonally adjusted Purchase Index, while this average is up 15.7% for the Refinance Index. The refinance share of mortgage activity decreased to 82.9% of total applications from 83.2% the previous week. The adjustable-rate mortgage share of activity remained unchanged at 0.8% of total applications from the previous week ... * In a surprise development, new claims for unemployment benefits fell last week--the largest reduction in 16 years. Initial claims for jobless benefits dropped by 94,000 to a seasonally adjusted 492,000 for the week ended Dec. 27, from an unrevised 586,000 the prior week, said the Labor Department Wednesday. The size of the decline might have been a result of the Christmas holiday, a Labor Department analyst said. The 94,000- claim reduction was the biggest since 141,000 for the week ending Aug. 21, 1992. The number of continuing claims--those drawn by workers collecting benefits for more than one week--spiked by 140,000 to 4,506,000 in the week ended Dec. 20 (The Wall Street Journal Dec. 31) …