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Market Archive

Market

Market News (01/31/2011)

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MADISON, Wis. (2/1/11)
* Bolstered by healthy personal income growth and moderating saving, U.S. consumer spending, which constitutes 70% of the economy, rose more than forecast in December---finishing its strongest quarter in more than four years (Moody’s Economy.com and Bloomberg.com Jan. 31). Purchases rose 0.7% in December after increasing 0.3% in November, the Commerce Department said Monday. Personal income growth in December remained at a healthy 0.4%, Moody’s said. “We ended the quarter on a firmer note,” Joseph La Vorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, told Bloomberg. “We are going to see continued healthy spending in 2011. The inflation numbers are very tame. The Fed is going to stay right where [it is].” In a related matter, buoyed by rising business spending and consumer confidence, U.S. auto sales in January may have hit the second-fastest pace in 17 months (Bloomberg.com Jan. 31). January vehicle deliveries--to be announced today--may have run at a 12.4 million annual rate, according to analysts’ estimates compiled by Bloomberg … * Business confidence worldwide has significantly improved in recent weeks, according to Moody’s Analytics Survey of Business Confidence (Moody’s Economy.com Jan. 31). For the week ended Jan. 28, confidence increased to its highest level on a four-week moving average basis since the summer of 2006--climbing to 30, from 27.1 the prior week. Sentiment improved the most in the U.S, but still is strong in Europe, South America and Asia--outside of Japan. Also, U.S. businesses grew in January at the fastest pace since July 1988, according to the Institute for Supply Management-Chicago Inc., whose business barometer increased to 68.8 from 66.8 in December (Bloomberg.com Jan. 31). “This fortifies the stability of the recovery,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. “You definitely see traction from manufacturing going forward” … * U.S. home prices are declining at an increasingly rapid rate in many cities nationwide, according to The Wall Street Journal latest quarterly survey of housing-market conditions (The Wall Street Journal Jan. 31). Prices dropped in all 28 major metropolitan areas tracked during the fourth quarter when compared with a year earlier. Falling prices indicate tight credit conditions and weak demand that reduce the number of potential buyers. “There are just not a lot of renters with confidence, with a down payment, with good credit, and without a lot of additional debt,” said John Burns, a homebuilder consultant in Irvine, Calif. ...

News of the Competition (01/31/2011)

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MADISON, Wis. (2/1/11)
* Four banks were taken over Friday by regulators and have entered into a purchase-and-assumption agreement with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the total bank failures for 2011 to 11. That compares with 157 for all of 2010. The banks include The First State Bank, Camargo, Okla., assumed by Bank 7, Oklahoma City, Okla.; FirsTier Bank, Louisville, Colo., assumed by the FDIC-created Deposit Insurance National Bank of Louisville; Evergreen State Bank, Stoughton, Wis., assumed by McFarland State Bank, McFarland ,Wis.; and First Community Bank, Taos, N.M., assumed by U.S. Bank, N.A., Minneapolis. The closed institutions held roughly $3.38 billion in assets as of Sept 30. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $546 million. Bank failures so far this year have cost the fund about $1.19 billion ... * Chrysler Group LLC, the smallest automaker in Detroit, reported a fourth-quarter loss of $199 million--its largest of the year because the automaker shipped fewer vehicles while it introduced newer models (The New York Times and Bloomberg.com Jan. 31). On the strength of its new products, Chrysler pledged a return to profitability in 2011. Retooling the product lineup has positioned Chrysler to begin making money again, said Sergio Marchionne, CEO of Chrysler and Fiat. “It can be safely said that what Chrysler delivered last year, on both product and financial fronts, surpassed many expectations,” he said in a statement. “However, our job is not done yet” …

News of the Competition (01/28/2011)

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MADISON, Wis. (1/31/11)
* Bank of America Corp. (BofA) is upgrading most of its ATMs to help them “self-heal”--to combat viruses and more effectively perform their own maintenance (PaymentsSource Jan. 27). A year ago, BofA approached Diebold Inc. to develop and license software to help BofA’s ATMs self-heal. BofA is deploying the system across more than 17,000 ATMs to save the bank the time and expense of having to service machines in person for problems that Diebold technology can automatically solve. BofA’s program for ATMs fits its plans to reduce its number of branches, the publication said. Diebold is a CUNA Strategic Services provider … * In 2005, the Office of the Comptroller of the Currency (OCC) warned Citigroup Inc.’s bond-trading desk that it was taking on too much risk--three years prior to mortgage losses in the Citi unit that spearheaded a near collapse of the bank and necessitated a $45 billion federal bailout (Bloomberg.com Jan. 28). The OCC warning was sent in a December 2005 letter to Geoff Coley, then co-head of Citi’s fixed-income trading. “The findings of this examination are disappointing, in that the business grew far in excess of management’s underlying infrastructure and control processes,” bank examiner Ronald Frake wrote in the letter. “Transaction risk is high. Management oversight is considered less than satisfactory” … * Western Union Co. is set to offer a reloadable card--dubbed the Moneywise card--through a partnership with prepaid card distributor InComm Inc. (PaymentsSource Jan. 27). The MoneyWise card will initially be made available through the 150,000 locations for U.S. retailers that partner with InComm, which includes convenience stores, grocery stores and pharmacies. The card can be reloaded at Western Union agent locations--or through direct deposit, an online transfer fund or a Western Union transfer initiated by someone else … * Starbucks Corp Customers loaded a record $700 million onto Starbucks prepaid card accounts during its first fiscal quarter, which ended Jan. 2 (PaymentsSource Jan. 27). The coffee seller’s card-based loyalty program and its card sales “contributed significantly” to the company’s record revenues in the quarter, said Howard Schultz, Starbuck chairman/CEO. Starbucks said it sold 42 prepaid cards per second nationwide during peaks sales volume periods in the quarter …

Market News (01/28/2011)

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MADISON, Wis. (1/31/11)
* The U.S. economy’s fourth-quarter growth accelerated because consumers spent more, businesses reduced inventories, and exports rose to narrow the international trade deficit, indicating the economic recovery may gain steam in 2011 (The Wall Street Journal, The New York Times and Bloomberg.com Jan. 28). Gross domestic product--the widest measure of all goods and services produced--increased at a 3.2% annual rate, up from 2.6% in the third quarter, according to Commerce Department figures released Friday. “Consumers have been on a recovering trend,” John Ryding, chief economist at RDQ Economics, told the Times. “Consumers came into the holiday season after probably having a couple of years of being fairly frugal, and with a bit more cash in their pockets, and a bit more willingness to spend that cash.” Consumer spending--which constitutes 70% of the U.S. economy’s demand--increased at a 4.4% rate in the fourth quarter, the Journal said. The payroll tax cut and the Bush tax cuts extension passed in December may further boost consumer spending in 2011, the Times said … * U.S employers’ costs increased less than expected in the fourth quarter, culminating a year in which employee compensation recorded the second smallest rise on record (Bloomberg.com Jan. 28). The 0.4% rise in the employment cost index mirrored the third-quarter rise, according to Labor Department figures released Friday. Labor costs in 2010 increased 2% following a 1.4% rise in 2009--the smallest since record-keeping started in 1982. “Wage pressures are still quite muted,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “It’s hard to demand higher wages when there are so many people in the market waiting to take your job.” The fourth-quarter trends are consonant with the overall trend of weak wage gains throughout 2010 and a slowing influence of benefits growth (Moody’s Economy.com Jan. 28) ... * In a sign the largest part of the U.S. economy may extend gains realized from late last year, U.S. consumer confidence declined less than expected in January, according to the Thomson Reuters/University of Michigan index of consumer sentiment (Bloomberg.com Jan. 28). The index fell to 74.2 from 74.5 in December. The median forecast of analysts predicted a reading of 73.3, according to a Bloomberg News survey. “There’s a very solid foundation for very solid growth over the next couple of quarters,” said Eric Green, chief market economist at TD Securities Inc. in New York. “You’re seeing stronger views in terms of the outlook and firming views on economic conditions.” Near-term inflation expectations rose steeply, while longer-term expectations increased modestly from December (Moody’s Economy.com Jan. 28) ... * The U.S. economic expansion still is too meager to reduce unemployment or a budget deficit headed for $1.5 trillion, said Treasury Secretary Tim Geithner (Bloomberg Businessweek Jan. 28). “There’s much more confidence now that we’ve got a sustainable expansion,” Geithner said last week at the World Economic Forum’s annual meeting in Davos, Switzerland. “It’s not a boom. It’s not an expansion that’s going to offer a rapid decline in unemployment.” The U.S. unemployment rate remains above 9% …

News of the Competition (01/27/2011)

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MADISON, Wis. (1/28/11)
* General Motors Co. (GM) is retracting its request for $14.54 billion in Department of Energy (DOE) Loans to help the auto manufacturer create more fuel-efficient vehicles (The Wall Street Journal Jan. 27). Through DOE’s $25 billion lending program, GM had been in the process of negotiating loan terms, the Journal said. By turning down the federal loans, GM could enhance its image and distance itself from the federal government’s $49.5 billion bailout in 2009, the Journal said. GM intends to publicize its loan withdrawal, a source familiar with the situation told the Journal ... * Bolstered by new auto models and a better reputation, Ford Motor Co. Friday may report its most profitable year since 2000 (Bloomberg.com Jan. 27). The annual profit for the second-biggest U.S. automaker would be the second consecutive one under CEO Alan Mulally, who has expanded the model lineup and improved quality, Bloomberg said. “Ford is building better cars, they’re more fuel-efficient and they’ve really focused on quality since Alan Mulally came in,” said Gary Bradshaw, a fund manager at Dallas-based Hodges Capital Management, which owns 100,000 Ford common shares and 100,000 preferred shares …

Market News (01/27/2011)

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MADISON, Wis. (1/28/11)
* Pending home sales improved further in December, marking the fifth gain in the past six months, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator, increased 2% to 93.7, from a downwardly revised 91.9 in November. The index is based on contracts signed in December. The index is 4.2% below the 97.8 mark in December 2009. The data reflect contracts and not closings, which normally occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions,” he said. “Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit,” he added. For the NAR report, use the link … * In an indication the labor market will need time to heal, more U.S. citizens filed initial claims for unemployment benefits last week (Bloomberg.com Jan. 27). Initial U.S. claims for unemployment benefits jumped 51,000 for the week ended Jan. 22, to 454,000, the Labor department said Thursday. “If claims drift higher, we’re just going to have to wait and see, tread water,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “We’re creating enough jobs to keep the unemployment rate roughly steady and at a pace to keep the economy on track, but it’s not necessarily a picture of rapid improvement.” Meanwhile, continuing claims increased 94,000 for the week ended Jan. 15, to roughly 3.99 million, although many more on extended and emergency benefits are not tallied in that figure (Moody’s Economy.com Jan. 27). In a related matter, U.S. mass layoffs--involving at least 50 workers from a single establishment--in December declined to 1,483 from 1,579 in November, Moody’s said … * In a warning that congressional budget analysts said will fuel the battle over government spending and taxation, the U.S. federal budget deficit will hit a record level of nearly $1.5 trillion in 2011--up from $1.29 trillion in 2010 (The Wall Street Journal Jan. 27). If the deficit reaches that level, it would be about $60 billion more than the White House forecast last summer, the nonpartisan Congressional Budget Office (CBO) said Wednesday. The tax-cut package, just in 2010, will add roughly $400 billion to the deficit, the CBO said. As a percentage of the U.S. economic output, the 9.8% deficit would be the second biggest since World War II--behind the 10% level in 2009 …

Fed stays the course CUs should mind balance sheets

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MADISON, Wis. and WASHINGTON (1/27/11)--Federal Reserve policymakers kept key interest rate and quantitative easing policies in place Wednesday. The extended low interest rates have changed credit union members' borrowing and savings behavior, and credit unions must pay attention to the risk embedded in their balance sheets, said Steve Rick, senior economist at the Credit Union National Association (CUNA) . The Federal Open Market Committee (FOMC), the fed's chief policymaking group, announced Wednesday it would keep its $600 billion bond purchase program and its key interest rate steady, citing a "disappointingly slow" economic recovery. The vote was unanimous, although some economists expected more dissension because several new hawkish members have rotated onto the committee. "The Federal Open Market Committee reiterated its belief that weak economic conditions will 'likely warrant exceptionally low levels for the federal funds rate for an extended period,'" said Rick. "The fed funds futures market is currently pricing in a 25 basis point rise by the Federal Reserve of the fed funds interest rate in the first quarter of 2012," he added. "Today’s low interest rates, and expectations for interest rates to stay low for another year, has changed the incentives affecting credit union members’ behavior," Rick told News Now Wednesday. "Members today are opting for fixed-rate loans, short-term certificates and money market account deposits because of the historically low interest rates. But from an interest rate risk perspective, this has changed the balance sheet of many credit unions from being asset sensitive (more variable-rate assets than variable-rate liabilities) to liability sensitive (more variable-rate liabilities than variable-rate assets)," he said. "When interest rates do rise in a year or so, these credit unions could face declining earnings as funding costs rise faster than asset yields. Credit union managers need to assess the interest rate risk embedded in their balance sheets and take steps now to hedge the risk before the Federal Reserve switches from a loose monetary policy to a tighter one," Rick advised. The FOMC's statement after the meeting said that although it "anticipates a gradual return to higher levels of resource use in a context of price stability, progress toward its objectives has been disappointingly slow." The committee noted that inflationary pressures are trending lower, although commodities prices are increasing and announced it would maintain the target range for the federal funds at 0% to 0.25%--which it has left unchanged since December 2008. It also "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." It also noted the expansion of its quantitative easing (QE2) policy, the second bond-buying program it launched in November to help boost the economy. "To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate," the committee said it would continue "expanding its holdings of securities as announced in November. In particular, the committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011." The committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

News of the Competition (01/26/2011)

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MADISON, Wis. (1/27/11)
* Lehman Brothers Holdings Inc. has filed a revised plan to exit Chapter 11 bankruptcy, after some bondholders didn’t support its previous proposals, including its original plan disclosed in April (Bloomberg.com and The Wall Street Journal Jan. 26). The defunct investment bank’s revised plan filed Tuesday offers bondholders more money. After creditors vote on the proposal, Lehman will seek a court hearing by the end of June on the amended plan and said it hopes to obtain approval of U.S. bankruptcy Judge James Peck two to three months afterward, Lehman CEO Bryan Marsal told Bloomberg News. Creditors holding senior unsecured claims against Lehman would recover 21.4% under the new plan--up from 14.7%, while creditors of several Lehman subsidiaries could see even greater improvements, according to a filing with the U.S. Bankruptcy Court in Manhattan, the Journal said … * Toyota Motor Corp., the largest global auto manufacturer, recalled roughly 1.67 million vehicles worldwide because of defects in fuel pumps and pipes, pressure sensors and spare-tire carriers (Bloomberg.com Jan. 26). The Japanese-based automaker is fighting to regain its reputation for reliability after numerous recent recalls for problems related to unintended acceleration. General Motors, the second-largest automaker worldwide, cut Toyota’s lead in 2010 after the Japanese auto company’s sales dropped 0.4% in the U.S. “Compared with last year, consumers are responding less to Toyota’s continued recalls,” said Tadashi Usui, a Tokyo-based analyst at Moody’s K.K. …

Market News (01/26/2011)

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MADISON, Wis. (1/27/11)
* Mortgage loan application volume decreased 12.9% on a seasonally adjusted basis for the week ended Jan. 21 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey, released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index dropped 12%. The results do not include an adjustment for the Martin Luther King holiday. The Refinance Index fell 15.3% and reached its lowest level since January 2010. The seasonally adjusted Purchase Index declined 8.7%. The Purchase Index is at its lowest level since October 2010. The unadjusted Purchase Index decreased 3.1% and was 20.8% lower than the same week one year ago. For the MBA report, use the link … * Despite new home sales increasing significantly more than anticipated last month, 2010 still was the worst year on record for the troubled home-building industry (The Wall Street Journal Jan. 26). Sales rose 17.5% in December compared with the prior month, increasing to a seasonally adjusted annual sales pace of 329,000, the Commerce Department said Wednesday. A record 72% surge in the West region drove the gain. Economists had anticipated a 3.1% increase to a 299,000 annualized rate, according to a Dow Jones Newswires survey. “This is consistent with a gradual path of recovery,” said Drew Matus, an economist at UBS Securities LLC in Stamford, Conn. “Housing is going to remain a weak spot for some time. The stabilization in the economy has to be encouraging for the Fed, but it’s still not a rip-roaring economy, so they are not going to alter [policy today],” he added … * U.S. chain store sales continued their slow start to 2011 last week, as winter weather hampered shopping, according to the International Council of Shopping Centers (ICSC) (Moody’s Economy.com Jan. 25). In the week ended Jan. 22, sales dropped 1.2%, although year-over-year growth rose to 2.8% from 1.4% the prior week. At this time of year, low sales volume tends to increase volatility, because January and February are the lowest sales-volume months for chain-store retailers, ICSC said …

News of the Competition (01/25/2011)

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MADISON, Wis. (1/26/11)
* Investors who claim they were misled about mortgage-backed securities (MBS) filed a lawsuit Monday accusing Bank of America Inc.’s Countrywide Financial unit--acquired by the bank in 2008--of “massive fraud” (Bloomberg.com Jan. 25). Among the dozen institutional investors who filed the complaint in New York Supreme Court are TIAA-CREF Life Insurance Co., New York Life Insurance Co. and Dexia Holdings Inc. “Countrywide was an enterprise driven by only one purpose--to originate and securitize as many mortgage loans as possible into MBS to generate profits for defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the complaint …

Market News (01/25/2011)

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MADISON, Wis. (1/26/11)
* U.S. house prices were unchanged on a seasonally adjusted basis from October to November, according to the Federal Housing Finance Agency’s (FHFA) monthly House Price Index. The previously reported 0.7% increase in October was revised downward to a 0.2% increase. For the 12 months ending in November, U.S. prices fell 4.3%. The index is 14.9% below its April 2007 peak and roughly the same as the August 2004 index level. The index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally adjusted monthly price changes from October to November ranged from -1.9% in the Mountain Division to 1.3% in the West South Central Division. For the FHFA release, use the link. In a related matter, prices in 20 major U.S. metropolitan areas declined 1% in November from October, according to the Standard & Poor’s (S&P) Case-Shiller Home Price Index (The New York Times Jan. 25). Data indicate this constitutes the start of the long-predicted double dip in housing--with cities nationwide dropping to their lowest point in many years, the Times said. “A double-dip could be confirmed before spring,” David M. Blitzer, chairman of S&P’s index committee, told the Times … * U.S. consumer confidence increased more than anticipated in January--rising to the highest level in eight months--because citizens turned more positive about the job market (Bloomberg.com Jan. 25). The Conference Board’s Index of consumer confidence rose to 60.6 from 53.3, revised from 52.5, in December. The expectations component of the index led to the gain, rising to 80.3 from 72.3 (previously 71.9) (Moody’s Economy.com Jan. 25). “Consumers are seeing the true improvement in the labor market,” Ryan Wing, an economist at HSBC Securities USA Inc. in New York, told Bloomberg. “[Still] more progress is going to be needed to get the types of growth rates in both employment and spending that many are expecting to see this year.” Also, business sentiment worldwide has improved to its highest level since spring 2007 before the financial crisis and recession, according to Moody’s Analytics Survey of Business Confidence (Moody’s Economy.com Jan. 24). Businesses are responding more optimistically to all questions asked in the survey, Moody’s said. (See Related Story in Market News: “Consumer confidence good news, CUNA tells media”) … * With emerging nations leading the recovery, the International Monetary Fund (IMF) raised its 2011 global economic growth forecast (Bloomberg.com Jan. 25). The IMF forecast also reflects stronger U.S. output, based on tax-cut extensions. The forecast calls for the global economy to expand 4.4%--more than the 4.2% projected in October. Expansion in 2012 is forecast to reach 4.5%, the IMF said Tuesday in a revision to its World Economic Outlook report. “The world economy is recovering, but it is a two-speed recovery,” said Olivier Blanchard, IMF chief economist. “Our forecast is that next year, growth will be roughly the same as this year. That’s not going to be able to make a big dent in unemployment” …

Consumer confidence good news CUNA tells media

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MADISON, Wis. (1/26/11)--A January rise in consumer confidence is good news for the economic recovery, the Credit Union National Association (CUNA) told CNNMoney.com Tuesday. “The bottom line is, it’s pretty good news,” said Mike Schenk, CUNA senior economist. “On the other hand, we’re a long way from feeling like happy days are here again.” The Consumer Confidence Index shot up to 60.6 in January, from 53.3 in December, the Conference Board, a New York-based private research group that compiles the index, said Tuesday. The reading climbed to its highest level since May. To read the article, use the link. (See Related Story in “Market News” section). Also, several media outlets are featuring a comment Schenk made to Bankrate.com Monday about savers facing yield droughts for certificates of deposit because interest rates remain low and the Federal Reserve isn’t likely to take action any time soon. “Without those substantial increases in economic activity, without improvements in labor markets, you won’t have inflation pressures,” Schenk said. Schenk’s comment was picked up by foxbusiness.com, Yahoo! Finance U.S. and Yahoo! Finance Canada. To read the Bankrate.com article, use the link.

News of the Competition (01/24/2011)

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MADISON, Wis. (1/25/11)
* Four banks were taken over Friday by regulators and have entered into a purchase-and-assumption agreement with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the total bank failures for 2011 to seven. That compares with 157 for all of 2010. The banks include CommunitySouth Bank and Trust, Easley, S.C., assumed by CertusBank, National Association, Easley, S.C.; Enterprise Banking Company, McDonough, Ga., assumed by the FDIC-created Insurance National Bank of McDonough; The Bank of Asheville, Asheville, N.C., assumed by First Bank, Troy, N.C.; and United Western Bank, Denver, assumed by First-Citizens Bank &Trust, Raleigh, N.C. The closed institutions held roughly $2.79 billion in assets as of Sept 30. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $455 million. Bank failures so far this year have cost the fund about $641 million ... * Taxpayers have spent more than $160 million defending mortgage finance companies Fannie Mae and Freddie Mac and their former top executives in civil lawsuits accusing the companies and executives of fraud, since they were taken over by the federal government (The New York Times Jan. 24). Congress requested an accounting from the companies and their regulator, making the cost--which had been a closely held secret--public, the Times said. Most of the expenditures--$132 million--were used to defend Fannie Mae and its officials in securities suits and government investigations into accounting irregularities that happened years before the subprime crisis occurred, the Times said. The legal payments likely will continue, it added … * Florida regulators are balking at approving “expansionary” deals combining in-state banks, according to industry observers (American Banker Jan. 24). One deal has been denied so far this year, nine proposed deals were terminated last year and seven turned down in 2009, according to data from SNL Financial. This means Florida banks are lagging banks elsewhere that are taking part in wave of consolidation, the Banker said. “The regulators want to see good regulatory standing and capital,” Paula Johannsen, a managing director at Carson Medlin Co., told the publication. “More often than not, they have turned down deals rather than approved them, and they’re finding more reasons to say no” …

Market News (01/24/2011)

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MADISON, Wis. (1/25/11)
* U.S. companies surveyed intend to hire more workers in coming months because the firms are more positive about the economy, according to a quarterly survey released Monday by the National Association for Business Economics (NABE) (The Wall Street Journal Jan. 24). About 42% of the 84 companies polled expect to increase the number of jobs in the next six months. That figure is up from 29% in the first quarter 2010. Just 7% of companies surveyed forecast that they will cut jobs in the next six months--down from 23% at the start of 2010. “It looks like the opening melody of a true recovery in the labor market,” Shawn DuBravac, economist at the Consumer Electronics Association, a trade group, and chairman of the NABE committee that conducted the survey, told the Journal … * The world may be coming into a long-term growth cycle--for just the third time since the industrial revolution--that will benefit all economies at the same time (Bloomberg.com Jan. 23). This week’s annual meeting of The World Economic Forum in Davos, Switzerland, will explore the dimensions of the expansion. The “super-cycle” expansion--swelling global gross domestic product to $143 trillion by 2030 from $62 trillion in 2010--should drive commodity prices and bond yields higher, and allow world leaders to focus their emphasis away form crisis-fighting, Bloomberg said. With an improving economic and investment outlook in recent years, “people are talking about how to get back to business as normal and what comes next,” Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, told Bloomberg … * Although Toyota Motor Corp. was the world’s biggest automaker for the third consecutive year in 2010, massive recalls of some of its models and General Motors Co. (GM) narrowing the gap in the global sales race have put the Japanese automaker in jeopardy of losing its top position in 2011 (The Wall Street Journal and Bloomberg.com Jan. 24). Toyota said Monday it sold 8.418 million vehicles worldwide in 2010, including those sold by its subsidiaries. However--due mostly to robust sales in the Chinese market--GM narrowed the sales gap to roughly 28,000 in 2010, from about 330,000 in 2009. “Looking at the current sales momentum, it’s hard to say whether Toyota will be able to keep its top position for a fourth straight year” in 2011, Mamoru Kato, an analyst at Tokai Tokyo Research Center, told the Journal

News of the Competition (01/21/2011)

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MADISON, Wis. (1/24/11)
* The notice of default--the first letter that a mortgage lender or servicer sends to a homeowner who has become delinquent on monthly payments--has become a controversy in 27 U.S. states where the foreclosure process is not handled in court (American Banker Jan. 21). The notice usually begins the formal foreclosure process in nonjudicial states, such as Arizona, California and Nevada, the Banker said. At issue is that every notice of default has a signature on it, but in some instances, the notices have been signed by employees who did not verify the information they contained, according to court papers. Borrowers’ attorneys--in several lawsuits filed in nonjudicial states--are claiming this justifies halting a foreclosure, the publication said. Some lawsuits filed also assert the default notices are void because employees who signed them worked for companies that did not have legal standing to foreclose, the Banker said … * Writedowns, mounting refund costs, and litigation connected to faulty mortgages have resulted in Bank of America (BofA)--the biggest U.S. bank by assets--posting a $1.24 billion fourth-quarter loss (Bloomberg.com Jan. 21). BofA has been beset with lawsuits and demands to repurchase bad loans after its 2008 acquisition of Countrywide Financial Corp.--then the biggest U.S. mortgage originator. “It’s a kitchen-sink quarter for their Countrywide issues,” said Jason Taylor, who helps oversee $5.5 billion at Ariel Investments LLC in Chicago. “It’s typical for a new CEO to report a lot of big charges to lower the bar for themselves. You have a small window to do this and not get blamed for it.” The largest charge in the quarter was $4.1 billion connected to outstanding and future mortgage repurchase claims (The Wall Street Journal Jan. 21) … * With the beginning of Wall Street bonus season, employees of Goldman Sachs Inc. are discovering the range of their 2010 pay cuts, although they still will top their competitors at JPMorgan Chase & Co. (Bloomberg.com Jan. 21). “As a rule of thumb, bonuses are going to be down 5% to 10% on last year as revenues have fallen,” said Shaun Springer, CEO of Square Mile Services in London, which advises companies on compensation. Goldman Sachs 2010 bonus pool equates to an average of $430,700 per employee--a 14% reduction from 2009, Bloomberg said. JPMorgan’s investment bank set aside funds to pay an average of $369,651 per employee in 2010--which is 2.4% less than in 2009, according to the company’s year-end financial statements …

Market News (01/21/2011)

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MADISON, Wis. (1/24/11)
* The Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 128.9 for the week ended Jan. 14 from an unrevised 128.1 the prior week (Moody’s Economy.com Jan. 21). The smoothed, annualized growth rate increased to 4.1% from a revised 3.6%, previously 3.7%. Following two consecutive weekly declines, the ECRI weekly leading index jumped higher for the most recent week, and the general trend in the most recent weeks portends a sustained recovery through a good part of 2011, ECRI said. However, downside risks, including the effect of home foreclosures and the weak labor market, still are palpable, ECRI added … * Sales at U.S chain stores remain weak as the new year progresses, according to the International Council of Shopping Centers (ICSC). For the week ended Jan, 15, ice and snowstorms put a damper on shopping, with sales declining 0.1% (Moody’s Economy.com Jan. 19). Year-over-year growth plunged to 1.4%--the weakest level since mid-May when effects of the European sovereign debt crisis manifested themselves, ICSC said. In recent years it has become the norm for sales to decline steeply during the first full week of January and then to partially bounce back the following week, but this year there was no recovery, Moody’s said. However, it seems likely that inclement weather was the cause and not a fundamental weakness of spending trends, Moody’s added …

Market News (01/20/2011)

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MADISON, Wis. (1/21/11)
* First-time claims for unemployment benefits fell 37,000 during the week ending Jan. 15 to 404,000, according to Labor Department statistics released Thursday. It is the biggest decline since February 2010 and was less than the 420,000 jobless claims forecast by economists surveyed by Bloomberg News (Jan. 20). There were no special factors related to the decline, said the Labor Department. The previous week's claims were revised downward to 441,000 from 445,000, said Moody's Economy.com (Jan. 20). The decline brings the four-week moving average to 411,750 from the previous 415,750 claims. Continuing claims for the week ended Jan. 8 dropped to 3.861 million from 3.887 million. The four-week moving average for those claims moved to 4.006 million from 4.059 million. Analysts said employers may be retaining staff after the economy strengthened slightly at the end of 2010. While they said the report indicates some healing in the labor market, they cautioned against reading too much into the decline. There typically is more volatility in the claims data between mid-November and mid-February due to winter weather and the holidays, said Bloomberg … * Consumers trying to lock in low mortgage interest rates before rates begin to rise helped existing-home sales in the U.S. increase sharply in December (Bloomberg.com Jan. 20). It is the fifth rise in sales in the past six months, said the National Association of Realtors (NAR) in a report released Thursday. Completed transactions for single-family, townhomes, condos, and co-ops rose 12.3% during the month to a seasonally adjusted annual rate of 5.28 million from November's upwardly revised 4.70 million. However, sales remained 2.9% below the 5.44 million sales in December 2009. NAR Chief Economist Lawrence Yun indicated that a six-month pattern is "clearly showing a recovery. The December pace is near the volume we're expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain." The national median price for existing homes of all housing types was $168,800 in December--1% below December 2009. Distressed homes accounted for 36% of the market in December, up from November's 33%. Total housing inventory at the end of December fell 4.2%-- to 3.56 million existing homes available for sale … * The Conference Board's index of leading indicators rose 1% during December--more than forecast and suggesting that the recovery pace will pick up during the year (Moody's Economy.com and Bloomberg.com Jan. 20). The leading index, which gauges the outlook for the next three to six months, was 5% more than it was a year ago. In November, the index rose 0.6%. The December increase was attributed to gains in the interest rate spread between short- and long-term interest rates and a gain in building permits. However, these gains were broad-based, said Moody's. Bloomberg noted improved consumer expectation, a better labor market and increasing prices in the stock market helped boost the outlook for consumer household spending, which is the largest portion of the gross domestic product. Six of the 10 components of the index contributed to December's gain. Areas that decreased included supplier deliveries and new orders for manufactured goods, said Moody's …

News of the Competition (01/20/2011)

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MADISON, Wis. (1/21/11)
* Banking industry observers are predicting that if the Federal Deposit Insurance Corp. (FDIC) achieves a legal victory in a Georgia case against eight former executives and directors of failed Integrity Bank in Alpharetta, it could have ominous ramifications for directors and executives of banks that have failed in that state and in other previously hot markets (American Banker Jan. 20). Described as a microcosmic example of the growth extremes that did in many banks in growth states, Integrity failed in August 2008. The FDIC suit in the U.S. District Court for the Northern District of Georgia alleges that the bank’s executives and directors failed to correct growth strategies when the banks became unsustainable as markets weakened. An expert said failed banks’ executives have room to worry if the FDIC wins its allegation that the banks’ leaders should have known better, thereby setting a legal precedent for other cases that could likely to be brought by the agency … * Morgan Stanley reported a fourth-quarter earnings increase of 35% from a year earlier as revenue rose among its investment-banking, wealth- and asset-management businesses. Net income increased to $836 million, or 41 cents per share, from $617 million, or 29 cents, in 2009, according to the company. Those results include a 17-cent gain from the sale of an investment in Chinese investment bank China International Capital Corp. The fourth-quarter results are an indication of improved overall performance for Morgan Stanley, though the firm has yet to string together consecutive strong quarters. The company’s trading business has lagged as it shifts its focus to client businesses. Trading activity fell in the fourth quarter, with $854 million revenue, down by 27% a year ago. Those numbers reflect an industry-wide trend (The Wall Street Journal Jan. 20) …

Chase says it overcharged foreclosed on military families

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NEW YORK (1/20/11)--JPMorgan Chase, the nation's second largest bank in assets, said it overcharged more than 4,000 military families--including families of troops fighting in Afghanistan--for their mortgages and erroneously foreclosed on 14 of them. The bank made the admissions after Marine Capt. Jonathan Rowles and his wife Julia filed a lawsuit after nearly five years of battling the bank and debt collectors over the charges. According to an NBC investigation, the bank allegedly violated the Servicemembers Civil Relief Act, which grants protections against foreclosure to troops serving active duty. The act also caps their mortgage interest rates at 6% (NPR and wavy.com Jan. 19). When Rowles was called to active duty in 2006, the mortgage payments were lowered to the 6% rate but the bank wrongly charged the family at rates above 9% and 10%. The couple kept calling the bank to explain there had been a mistake but said no one would listen. The couple received as many as three calls a day from debt collectors saying they owed $15,000 on the mortgage loan--money they did not owe. Julia Rowles described the events as "a nightmare" with collections calls coming in the middle of the night. The callers threatened to take the house and report the family to a credit agency. Once hit with the lawsuit, JPMorgan Chase said it reviewed its handling of all mortgages involving active-duty military personnel and found it had overcharged. It is collectively refunding about $2 million to the effected families. That would average out to $450 per family. The lawsuit is still pending.

News of the Competition (01/19/2011)

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MADISON, Wis. (1/20/11)
* Vikram Pandit, CEO of Citigroup Inc., Wednesday named John Havens to be the bank’s new president/CEO (The Wall Street Journal Jan. 19). The move is a component of a structural overhaul to help Citi expand as it attempts to get beyond the protracted effects of the financial crisis, the Journal said. Havens is a long-time colleague of Pandit. Havens’ promotion will cut the number of executives directly reporting to Pandit in half from the current 18 and engender more efficient decision-making, according to sources familiar with the matter … * Washington Mutual Inc. Monday outlined revisions to a Chapter 11 bankruptcy plan that was recently rejected by a judge, and said it intends to pursue confirmation of the amended plan (Dow Jones via American Banker Jan. 19). The effort starts today at a conference with Judge Mary Walrath of the U.S. Bankruptcy Court in Wilmington, Del., who previously rejected the plan and delayed a $7 billion payoff for creditors of the failed bank holding company, Dow said … * American Express Co. said it will cut roughly 550 jobs because it is consolidating some facilities amid projected fourth-quarter earnings that missed Wall Street estimates (The Wall Street Journal Jan. 19). The moves reflect a drop-off in service volumes because more routine transactions have drifted to mobile and online channels, the card company said … * Wells Fargo--one of the largest U.S. banks and lenders to consumers--Wednesday said its fourth-quarter earnings climbed 21% to $3.4 billion, or 61cents per share, compared with $2.8 billion, or eight cents per share, a year ago (The New York Times DealBook Jan. 19). The rise was helped by an improving loan portfolio and a release in its reserves, the bank said. Goldman Sachs Group Inc. saw its fourth-quarter earnings drop 52% to $2.39 billion or $3.79 per share--the third consecutive quarterly decline--because slowing in trading and investment banking slashed revenue more than analysts estimated (Bloomberg.com Jan. 19). Earnings were $4.95 billion, or $8.20 per share, a year earlier …

Market News (01/19/2011)

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MADISON, Wis. (1/20/11)
* Mortgage loan application volume increased 5% on a seasonally adjusted basis for the week ended Jan. 14 from the previous week, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 6.4%. The Refinance Index went up 7.7%. This is the third consecutive weekly increase in refinance applications and is the highest Refinance Index observed since the beginning of December. The seasonally adjusted Purchase Index decreased 1.9%. The unadjusted Purchase Index increased 3.1% and was 16% lower than the same week one year ago. “Mortgage rates have moved somewhat lower since the beginning of the year, as mixed data on the job market continue to cloud the outlook for the economy,” said Michael Fratantoni, MBA vice president of research and economics. “Refinance applications have picked up, as borrowers take advantage of lower rates, but purchase applications remain quite low, indicating that home sales are unlikely to pick up any time soon.” For the MBA report, use the link … * Residential construction, as measured by U.S. housing starts, fell more than anticipated in December, indicating that the housing industry is struggling to get its footing more than a year after the U.S. economic recovery began (Bloomberg.com Jan. 19). Housing starts dropped 4.3% to an annualized rate of 529,000--the lowest level since October 2009--according to Commerce Department figures released Wednesday. Analysts had anticipated a 550,000 rate, according to a Bloomberg News survey. “With sales near record lows and a lot of unsold properties in the market, there’s very little reason for builders to add more homes to the supply,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Housing remains a key downside risk to the economy.” In a related matter, the largest U.S. homebuilders are set to gain from a nascent rebound in demand for new homes in 2011 because many competitors’ businesses have been shuttered during the recession and sales are apt to rise from record lows, Bloomberg said. New single-family home sales are expected to climb to 405,000 this year, according to the National Association of Home Builders. Moody’s Analytics Inc. forecasts a rise to 540,000. “What’s fueling the strength in 2011 is the inventory of new homes is so low,” said Celia Chen, a housing analyst with Moody’s Analytics. “Of course, 540,000 still is a lot lower than it was in 2006 and 2007 [for annual sales],” she added …

News of the Competition (01/18/2011)

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MADISON, Wis. (1/19/11)
* One bank was taken over Friday by regulators and has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure is the third bank failure of 2011. That compares with 157 for all of 2010. Ogelthorpe Bank, Brunswick, Ga., was assumed by Bank of the Ozarks, Little Rock, Ark. The closed institution held roughly $231 million in assets as of Sept 30. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $80 million. Bank failures so far this year have cost the fund about $186 million ... * Although Citigroup Inc. saw a fourth-quarter profit derived from increased lending abroad, revenue from bond trading nosedived from the previous quarter, resulting in earnings and revenue for the bank that fell short of Wall Street expectations (The Wall Street Journal Jan. 18). Citigroup posted a $1.3 billion profit, compared with a $7.6 billion loss a year earlier. Revenue leapt to $18.4 billion from $5.4 billion a year earlier, but declined more than 11% from the third quarter. Because of the declining dollar and the bank hiring more employees, Citigroup’s expenses rose in the quarter, the Journal said … * The Financial Accounting Standards Board (FASB) has filled two openings of its seven-member board, appointing Harold Schroeder of Carlson Capital LP and Daryl Buck of Reasor’s Holding Co. (American Banker Jan. 18). FASB is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the U.S. in the public’s interest. The two join FASB at a crucial time because the board is expected to issue a final ruling in 2011 on controversial topics, including fair-value accounting …

Market News (01/18/2011)

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MADISON, Wis. (1/19/11)
* U.S. homebuilder confidence remained down in January because builders still are discouraged about prospects for increased home sales in the months ahead and unconvinced the economic recovery will trigger the type of job growth needed to push more buyers into the market (The New York Times Jan. 18). The National Association of Home Builders (NAHB) said Tuesday its monthly housing market index remains flat at 16--where it has been mired since November. Although December’s reading remains the highest since June, any number below 50 indicates negative market sentiment. “Unfortunately, a severe lack of construction financing, and widespread difficulties in obtaining accurate appraisal values, continue to limit builders’ ability to prepare for anticipated improvements in buyer demand in 2011,” Bob Nielsen, NAHB chairman and home builder from Reno, Nev., said in a statement … * Affluent shoppers are the driving force behind a rise in U.S. consumer spending, strengthening an economic recovery that disguises less rich Americans’ reticence to spend (Bloomberg.com Jan. 18). “The heavy lifting is being done by the upper-income households,” said Michael Feroli, a former Federal Reserve economist and now chief U.S. economist at JPMorgan Chase & Co. in New York. “They’re the ones benefiting the most from the stock market rally, and they’re spending.” Consumer purchases indicate larger gains among high-income households and “financial pressures on those of more-modest means,” according to minutes of a Dec. 14 Fed meeting. The top 20% of wage earners constitute about 40% of spending, Feroli said. Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, estimated the contribution of higher-income households at nearly 50% … * The probability that the U.S. will be in recession in six months dropped to 24% in December from 28% in November, according to Moody’s Economy.com (Jan. 18). December constitutes the fourth consecutive monthly decline, placing the probability of recession at its lowest level since May. Headwinds that have slowed the U.S. economic recovery--including the credit crunch, the housing crash and household deleveraging--are diminishing and helping to lessen the chances the economy will fall back into a recession, Moody’s said …

News of the Competition (01/17/2011)

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MADISON, Wis. (1/18/11)
* U.S. mortgage companies in 2010 set a record, initiating 3.8 million foreclosure-related actions, which included filing notice of default, scheduling auctions and repossessing homes, according to statistics compiled by RealtyTrac Inc. (American Banker Jan. 14). Foreclosure-related actions increased 2% from 2009, and 23% compared with two years ago. Five states--Arizona, California, Florida, Illinois and Michigan--accounted for 51% of foreclosure activity in 2010 and nearly 1.5 million properties receiving a foreclosure filing during the year … * Small community banks are not as likely as larger banks to increase dividend payouts (American Banker Jan. 14). Community banks would be reticent to boost dividends when a plethora of acquisition opportunities are anticipated to arise as ailing banks seek to merge, and as smaller banks find it tough to exist in a changing regulatory environment, said analysts on a research team at Raymond James & Associates in a report on the subject. “A lot of the small banks are still struggling,” Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. told the Banker. “For a lot of the community banks, it is probably too soon to talk about dividend increases” … * J.P. Morgan Chase & Co.--the second-largest U.S. bank by assets--saw its fourth-quarter profit soar 47% because its asset quality improved and the huge bank said its businesses and consumers were searching for more loans (The Wall Street Journal Jan. 14). J.P. Morgan said its business loans were slightly increasing and it is adding market share, the Journal reported. “What we see is fairly broad-based strength across corporate, middle market, even small business,” CEO James Dimon said. “We see the consumer is getting stronger” …

Market News (01/17/2011)

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MADISON, Wis. (1/18/11)
* Pushed by higher food and fuel prices, the cost of living in the U.S. rose in December more than forecast (Bloomberg.com Jan. 14). The consumer price index (CPI) increased 0.5%--besting the 0.4% forecast of economists in a Bloomberg News survey--according to figures released Friday by the Labor Department. The core CPI rate, which excludes volatile food and fuel costs, increased 0.1%. “Inflation pressures remain relatively subdued because there’s so much slack in the economy,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “It’s another factor that justifies the Fed’s stance.” December’s numbers should eliminate any lingering deflation concerns (Moody’s Economy.com Jan. 14) … * Although U.S. retail sales increased in December for the sixth consecutive month, finishing off the largest one-year gain in more than a decade, the gain was smaller than expected (Bloomberg.com and The Wall Street Journal Jan. 14). Sales rose 0.6%, following a 0.8% gain in November, the Commerce Department said Friday. Economists had predicted a 0.9% increase, according to a Dow Jones Newswires survey, the Journal said. “[Consumers are] feeling that the worst is definitely behind them,” David Semmens, a U.S. economist at Standard Chartered Bank in New York, told Bloomberg. “The first quarter should definitely receive a boost in consumer spending from the fiscal stimulus and the improvement in hiring.” Christmas 2010 finished with the best retail revenue growth since 2006, according to the International Council of Shopping Centers. December’s gain was led by building supply stores, drug stores, gas stations and nonstore retailers. Although department stores sales declined steeply, the decline did not reverse November’s gains (Moody’s Economy.com Jan. 14) … * Industrial production increased 0.8% in December after having risen 0.3% in November, according to a Federal Reserve Statistical Release on Industrial Production and Capacity Utilization. The rate of change for industrial production was revised down in November after being revised up in September and October. The net effect of the revisions from July to November left the level of industrial production in November slightly higher than was previously reported. For the fourth quarter as a whole, industrial production increased at an annual rate of 2.4%--a slower pace than in the earlier quarters of the year. In the manufacturing sector, output moved up 0.4 % in December, with gains in both durables and nondurables. Excluding motor vehicles and parts, factory output increased 0.5%. The output of mines advanced 0.4%; utilities’ output surged 4.3 %, as unusually cold weather boosted the demand for heating. At 94.9% of its 2007 average, total industrial production in December was 5.9% above a year earlier. The capacity use rate for total industry rose to 76%, a rate 4.6 percentage points below its average from 1972 to 2009. For the Fed release, use the link … * U.S. consumer confidence unexpectedly dropped in January, indicating concern about a high unemployment rate and elevated gasoline prices (Bloomberg.com Jan. 14). The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for the month fell to 72.7--the lowest level since November--from 74.5 in December. Economists had forecast a gain of 75.5, according to a Bloomberg News survey. “[The decline in optimism] reflects a frustration with the lack of labor market progress,” said David Semmens, a U.S. economist with Standard Chartered Bank in New York. “Until employers start hiring aggressively enough to bring down unemployment, improvements in consumer sentiment will be slow.” Near-term inflation expectations increased steeply, while longer-term expectations remained unchanged from December (Moody’s Economy.com Jan. 14) …

News of the Competition (01/13/2011)

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MADISON, Wis. (1/14/11)
* Banks in rural areas of New York and Pennsylvania are poised to benefit from an economic development surge during the next 20 years engendered by the Marcellus Shale, one of the world’s largest natural gas fields, which stretches from West Virginia up to central New York (American Banker Jan. 13). Many banks already are readying themselves to take advantage of an industry that could create 212,000 jobs and generate $18.8 billion in economic value by 2020 just in Pennsylvania, according to one estimate, the Banker said. “I think banks that are in that market, for the first time in a long time, can garner a greater multiple because of their location along the shale,” Jason O’Donnell, an analyst at Boenning & Scattergood Inc., told the publication … * In a milieu in which many U.S. banks are no longer offering free checking, CitiGroup Inc. is pursuing a plan to deploy the service for small-business customers, reported American Banker (Jan. 13). For new and existing clients who sign up by March 31, Citi will offer free checking for up to one year on two business accounts, the bank said Wednesday. The promotion is geared to not only help small businesses hurt by the recession--but also to entice them to use more of the bank’s services, Raj Seshadri, Citi’s head of small-business banking, told the publication …

Market News (01/13/2011)

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MADISON, Wis. (1/14/11)
* Initial U.S. claims for unemployment benefits rose last week--the first week of 2011--to the highest level since October because more people filed for benefits after the holidays (Bloomberg.com Jan. 13). Claims increased 35,000--to 445,000--for the week ended Jan. 8, the Labor Department said Thursday. The less-volatile gauge of the average number of claims during the past four weeks increased to 416,500. “Firms won’t go out and hire a lot of people until they’re confident that demand is increasing,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla. “Demand is improving, but it isn’t enough.” Meanwhile, continuing claims dropped 248,000 to roughly 3.88 million for the week ended Jan. 1, although there are millions more on extended and emergency benefits not tallied in the figure (Moody’s Economy.com Jan. 13) … * The U.S. trade deficit unexpectedly narrowed in November to $38.3 billion from a revised $38.4 billion in October, according to Commerce Department figures (Moody’s Economy.com Jan. 13). A widening of the gap to $41.3 billion had been anticipated by Moody’s. The November trade deficit is at the lowest level in 10 months because a weaker dollar and faster growth abroad bolstered demand for U.S.-made aircraft and industrial supplies such as cotton (Bloomberg.com Jan. 13). “It’s three months in a row that exports are up,” said Brian Jones, an economist at Societe General in New York. “We’re going to get a massive lift to fourth-quarter growth from the external sector” … * U.S. foreclosure filings could reach a peak for the housing crisis, jumping roughly 20% in 2011 because unemployment still is high and banks will resume home seizures after a slowdown, according to RealtyTrac Inc. (Bloomberg. com Jan. 13). A record 2.87 million properties received notices of default, auction or repossession last year--a 2% rise from a year earlier, the company said. Banks seized more than one million homes is 2010--a 14% rise from a year earlier and the most since RealtyTrac began reports in 2005. “We will peak in foreclosures and probably bottom out in pricing, and that’s what we need to do in order to begin the recovery,” said Rick Sharga, RealtyTrac senior vice president. “But it’s probably not going to feel good in the process” … * U.S. producer (wholesale) prices increased 1.1% in November--the most in 11 months--pushed by higher prices for commodities such as foods and fuel, according to Labor Department figures released Thursday (Bloomberg.com Jan. 13). “Price pressures are being fueled by energy and commodities, but that is about as far as it will go,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “Companies are not in position to pass on the costs. This gives the Fed time to continue with quantitative easing” …

Fed banks note moderate expansion of economy

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WASHINGTON (1/13/11)--All 12 Federal Reserve districts reported that economic activity continued to "expand moderately" from November to December, with conditions "generally better" in the districts' manufacturing, retail and nonfinancial service sectors than in financial services or real estate, according to the Fed's Beige Book, released Wednesday. The Beige Book is a report that summarizes comments from business and other contacts outside the Fed and anecdotal information in each district. It is not considered a commentary on the views of Federal Reserve officials. Conditions improved in the Boston, New York, Philadelphia and Richmond Districts, while activity increased "modestly to moderately" in the Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and Dallas Districts. The Minneapolis District continued its "moderate" recovery while the San Francisco District "firmed further" in the reporting period up to the end of 2010. Financial conditions were mixed across districts reporting on it, with overall loan demand slowly improving in Philadelphia and Richmond and weaker in St. Louis and Dallas. Reports on credit standards were also mixed in New York, while standards reportedly eased somewhat in Atlanta, stayed restrictive in San Francisco and held steady in Kansas City. Delinquency rates were flat or trending down in Cleveland while New York saw rising delinquencies for commercial mortgages, decreased delinquencies in consumer lending, and no changes for other loans. Residential real estate markets remained week, with new-home construction remaining slow across all districts. Most districts reported that both retailers and manufacturers indicated costs were rising but also indicated that competitive pressures led to only "modest pass-through" into final prices. Labor markets appeared as firming somewhat in most districts, with modest hiring beyond replacement occurring. Upward pressure on wages, however, was very limited, the districts reported. Retail spending improved across all districts, with most retailers reporting sales growth consistent with or ahead of plan for the 2010 holiday season. Boston, Richmond, Atlanta, Chicago and Kansas City reported consumers positively reacting to promotions and discounts. Inclement weather in the Northeast affected sales in the New York and Philadelphia districts. Auto sales were either steady or up in eight districts. For the full report, use the link.

News of the Competition (01/12/2011)

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MADISON, Wis. (1/13/11)
* Fannie Mae and Freddie Mac are expected to introduce a substantial proposal that likely would reduce the value of servicing rights of mortgage servicers that handle loans for the two government-sponsored enterprises (American Banker Jan. 12). That change could consequently affect how banks hedge, account for and service their portfolios--altering a large portion of how the mortgage industry conducts business, the Banker said. For the past several decades, mortgage servicers for Fannie Mae and Freddie Mac loans were paid a set minimum rate for each dollar of performing loans they manage--with a current rate of 0.25%--which is the underpinning of the industry’s compensation structure, accounting and hedging, the Banker said. The right to collect that rate constitutes a large part of the biggest U.S. banks’ balance sheets, the publication said … * Morgan Stanley’s asset management unit--Morgan Stanley Investment Management--said its initial dedicated corporate mezzanine fund has closed with $956 million in capital from investors--which is expected to help it benefit from an anticipated lack of refinance activity (The Wall Street Journal Jan. 12). The fund--dubbed Morgan Stanley Credit Partners, or MS Credit--mostly invests in fixed-income securities issued by middle-market companies in tandem with debt refinancings, acquisitions and recapitalizations and leveraged buyouts, the Journal said. Mezzanine funds collect a mix of debt and equity financing to bankroll existing companies … * In an innovative way to sell investments, Gratio Capital’s GoalPack functions like a gift card, as it can be bought for any amount, starting at $25, and “redeemed” at the company website by allotting the cash into a savings account or one of three mutual funds (American Banker Jan. 12). The cards will be used to sell financial products to the underinvested--similar to the way prepaid cards help sell financial-type services to the underbanked, the publication said …

Market News (01/12/2011)

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MADISON, Wis. (1/13/11)
* Mortgage loan application volume increased 2.2%, on a seasonally adjusted basis for the week ended Jan. 7, from the prior week, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 47.5% compared with the previous week, which included the New Year’s holiday. The Refinance Index climbed 4.9%. The seasonally adjusted Purchase Index decreased 3.7%. The unadjusted Purchase Index went up 41.9% and was 10.5% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index is down 5.3%. The four-week moving average declined 1% for the seasonally adjusted Purchase Index and decreased 7.5% for the Refinance Index. For the MBA report, use the link ... * Although this likely will be the year U.S. housing markets start to rebound from their nadir, the pace will be so weakened by foreclosures that the rebound won’t do much to spark economic growth (Bloomberg.com Jan. 12). In third quarter 2011, home prices will begin to ascend and increase 0.6% for the year--the first annual gain since 2006, according to Fannie Mae, the biggest U.S. mortgage buyer. Real residential investment--an inflation-adjusted gauge of homebuilding--will rise 9.6% this year after five years of decreases that hit a record low, according to a median forecast of 30 economists gathered at the Federal Reserve Bank of Chicago in December. “There’s a good chance of a housing turnaround this year, but it’s not going to be enough to give much help to the economy,” said Karl Case, co-creator of the S&P/Case-Shiller Index that monitors U.S. home prices. “We’re coming off 50-year lows and we still have to deal with the foreclosure mess” … * The cost of U.S. imported goods increased in December, spearheaded by rises in commodity prices, such as food and fuels (Bloomberg.com Jan. 12). The import-price index rose 1.1% , following a revised 1.5% gain in November, the Labor Department said Wednesday. Escalating demand from emerging economic markets such as China, coupled with a weaker dollar, is pushing up the cost of commodities, Bloomberg said. “The improving economic sentiment in the U.S. and across the world is putting pressure on commodity prices,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “Core prices are still relatively tame. The Fed policymakers have some time before they feel the need to take some of the easing off the table” …

News of the Competition (01/11/2011)

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MADISON, Wis. (1/12/11)
* Morgan Stanley intends to spin off Process Driven Trading (PDT), the bank’s biggest proprietary trading group, to create an independent advisory group by year-end 2012 (Bloomberg News via American Banker Jan. 11). Morgan Stanley said it will have an option to acquire a preferred stake in the new firm, to be dubbed PDT Advisors. The bank anticipates the unit’s complete staff of 60 employees will join the new company … * Under an agreement announced Monday, U.S. inspectors will be given access to the books of Lehman Brothers Holdings Inc. to determine whether British auditors improperly cleared questionable accounting (Bloomberg News via American Banker Jan. 11). U.S. and United Kingdom authorities settled a jurisdictional disagreement that has prevented the U.S. Public Company Accounting Oversight Board from reviewing British auditors of U.S. companies since 2008, the agreement said … * A key driver of profits for Goldman Sachs Group Inc.--its trading and principal investments business segments--will be spun off into two separate categories--one of several changes the firm said it would make to its quarterly reports, after an eight-month review of its business practices (The Wall Street Journal Jan. 11). Under the new structure, trading and principal investment is broken into investing and lending, and institutional client services. Separating trading from other activities creates different percentage contributions from the company’s trading desks to net revenues, the Journal said …

Market News (01/11/2011)

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MADISON, Wis. (1/12/11)
* Following four consecutive monthly gains, the National Federation of Independent Business (NFIB) index of small-business optimism retreated in December, falling 0.6 of a point to 92.6 from 93.2 in November (The Wall Street Journal Jan. 11). “The hope for a pickup in the small-business sector did not materialize,” said William Dunkelberg, NFIB chief economist. “Owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects” (Bloomberg.com Jan. 11). November’s 93.2 reading was the highest since the start of the recession in December 2007. An improvement in credit conditions, increased final sales and a reacceleration in the economic recovery were not sufficient to buoy small-business spirits in December (Moody’s Economy.com Jan. 11) … * U.S. job openings dropped in November from the highest level in two years, indicating that a prolonged recovery of the labor market will need time to take hold (Bloomberg.com Jan. 11). The number of positions waiting to be filled declined 80,000 to 3.25 million, the Labor Department said Tuesday. Also, hirings declined and separations rose from the prior month. “The breadth of job gains has disappointed recently, but this is expected to improve,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. The 3.33 million job openings in October were the most since October 2008, according to the Labor Department report. In a related matter, the number of workers hired in November slid to 4.2 million from 4.25 million, while the number of workers separated from their jobs rose to 4.12 million from 4.08 million, according to the Job Openings and Labor Turnover Survey (Moody’s Economy.com Jan. 11) … * U.S. wholesale inventories unexpectedly fell in November by the most in nearly a year, portending that stockpiles will spark the economy less (Bloomberg.com Jan. 11). The 0.2% November decline followed a downwardly revised 1.7% (from 1.9%) increase in October--a surprise, since the consensus estimate was for a 1% rise (Moody’s Economy.com Jan. 11). “Inventory levels are probably going to be maintained rather than significantly ramped up or significantly cut,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, told Bloomberg. “Inventories should improve as the overall economy continues to gain, just to keep items on the shelf” …

News of the Competition (01/10/2011)

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MADISON, Wis. (1/11/11)
* Two banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures were the first two bank failures of 2011. That compares with 157 for all of 2010. The banks include First Commercial Bank of Florida, Orlando, Fla., assumed by First Southern Bank, Boca Raton, Fla.; and Legacy Bank, Scottsdale, Ariz., assumed by Enterprise Bank & Trust, St. Louis. The two closed institutions held roughly $724 million in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $106 million ... * Global financial reforms recently implemented are not sufficient to avoid another financial disaster, said economists gathered in Denver for the annual meeting of the American Economic Association (The Wall Street Journal Jan. 9). New international rules will mandate that large global banks maintain more equity to protect their depositors and other creditors. U.S. lawmakers have implemented rules to mitigate risks at large banks and keep close watch on potential threats throughout the financial system, the Journal said. However, economists at the meeting offered several reasons why the reforms aren’t enough, including: the new capital reforms aren’t as tough or simple as they should be, the way governments will deal with distress at the largest lenders still remains too uncertain, and not enough has been done to prevent the type of crisis that could happen if trouble arose at smaller financial institutions, such as hedge funds … * Wells Fargo & Co. and U.S. Bancorp have lost a widely monitored foreclosure case in Massachusetts that could affect other foreclosures statewide and may presage similar effects in the banking industry elsewhere (American Banker Jan. 10). The Supreme Court of Massachusetts rejected claims made by the two banks that, as securitization trustees, they did not have to prove their authority to foreclose on two separate homes. The ruling is a repudiation of the industry’s fallback defense on botched securitization procedures, the Banker said. The American Securitization Forum and several securitization attorneys working for the banking industry have argued that evidence of intended transfers of a mortgage are enough to demonstrate legal standing, which the Massachusetts high court rejected ...

Market News (01/10/2011)

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MADISON, Wis. (1/11/11)
* Wall Street banks are shedding their Treasuries’ holdings at the fastest rate since 2004 because the largest global bond firms believe the economy will rebound and demand for higher-yield assets will rise (Bloomberg.com Jan. 10). Holdings of U.S. government debt dropped to a net $2.34 billion on Dec. 29 from $81.3 billion on Nov. 24 for the 18 primary dealers that trade with the Federal Reserve, according to the most recent data from the Fed. “Slowly but surely the economy’s getting on stronger footing,” said John Fath, who helps manage $2.5 billion as a principal at investment firm BTG Pactual in New York. “There are people moving or thinking of moving out of risk-free assets. This is what [Fed Chairman Ben] Bernanke wanted” … * Jobless rates in 2010 for logging workers, metalworkers and railroad conductors dropped steeply by seven percentage points or more, while unemployment rates for construction laborers and roofers increased, according to the most recent Labor Department data (The Wall Street Journal Jan. 10). Telemarketers’ unemployment rate leapt more than 10 percentage points to nearly 35%, and the jobless rate for parking lot attendants increased to 13.3% in 2010, from 9% in 2009. Generally, manufacturing and logistics occupations saw employment increases, while production occupations--a broad category including jobs from butcher and baker to machinist and metal fabricator--fell 1.6 percentage points to 13.1%. “Production is regularly among the hardest hit during recessions but is very flexible and able to respond quickly to a pick-up in demand,” said Julie Hotchkins, an economist with the Federal Reserve Bank of Atlanta. In a related matter, Ford Motor Co. said Monday it will hire 4,000 factory workers and 750 engineers this year, and will add 2,500 hourly workers next year (Bloomberg.com Jan. 10) … * Entering 2011, worldwide business sentiment was up, with the weekly index for the first week of the year jumping to a prerecession high, according to Moody’s Analytics Survey of Business Confidence (Moody’s Economy.com Jan. 10). The index rose to 34.7 for the week ended Jan. 7 from 19.2 the prior week. However, the four-week moving average remained consonant with the global economy expanding at the low-end of its growth potential and no higher than last spring, Moody’s said. Because volatility can rise during the holiday season, it will be key to see if the results are confirmed in the coming weeks, Moody’s added …

November consumer credit rises 0.7 up 0.9 at CUs

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WASHINGTON (1/10/11)--Consumers borrowed $2.40 trillion in November, up 0.7% or $1.3 billion from October, reported the Federal Reserve Friday. At credit unions, members borrowed $227.6 billion--up $0.2 billion or about 0.9% from October's $227.4 billion. Overall borrowing exceeded economists' expectations, with some expecting no change from October and others anticipating consumer credit would rise by about $500 million (MarketWatch and Bloomberg Jan. 7). Revolving credit or credit-card use decreased 6.3% or $4.2 billion, to $796.5 billion, as consumers continued to rein their spending until the economy recovers. That followed a $5.4 billion decrease a month earlier. November was the 27th consecutive month that revolving credit has declined, with the last increase in August 2008 (The Wall Street Journal Jan. 7). Revolving credit at credit unions continued its trend, gradually rising to $35.8 billion, a $0.3 billion increase from October. Overall non-revolving credit, led largely by an unadjusted rise in student loans, rose 4.2% or $5.6 billion--to $1.61 trillion, said the Fed. For credit unions, non-revolving credit totaled $191.8 billion, down $0.1 billion from October's $191.9 billion. Non-revolving credit covers loans such as auto financing and education-related lending by the government. The report doesn’t track mortgage debt or home-equity lines of credit. The Fed, according to minutes of its Dec. 14 policy meeting released last week, said consumer credit outstanding “showed signs of stabilizing,” though lending “terms were still noticeably less favorable than in the past, and demand for credit appeared to remain weak.”

News of the Competition (01/07/2011)

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MADISON, Wis. (1/10/11)
* The Federal Reserve Board took action and barred five U.S. banks from paying dividends without the Fed’s approval (American Banker Jan. 7). The banks are: Boscobel Bancorp Inc., Boscobel, Wis.; Capital Commerce Bancorp Inc., Milwaukee; Foundation Bancorp Inc. Bellevue, Wash.; Metropolitan Bank Holding Corp., New York; and Prairie Star Bancshares Inc., Olathe, Kan. ... * PayPal Inc., an online payment service, is expanding its use of cloud computing to improve its defenses against Internet attacks, reported American Banker (Jan. 7). PayPal and other payment brands stopped handling payments for WikiLeaks in December, after the organization published secret government communications. In retaliation, WikiLeak’s online supporters, which included hackers, claimed credit for denial of service attacks they said were in retaliation, and which disrupted use of Visa Inc. and MasterCard Inc. websites. However, PayPal, which also was a target of the attacks, was mostly unaffected, the Banker said. “We have a lot of defenses in place. When this happened, we put additional defenses in, in a very fast manner,” said Annul Nayar, a PayPal spokesman. “Major cloud providers have incredible amounts of bandwidth” … * MetLife Bank, a unit of MetLife Inc., a New York-based insurance company, has risen from from virtual obscurity to become the seventh largest depository and contender in mortgages (American Banker Jan. 7). Contrary to most big U.S. banks, MetLife was not substantially hurt by the mortgage crisis or burdened with legacy loans that prolonged financial troubles for some companies. In 2008, MetLife acquired a nationwide mortgage operation from First Horizon National Corp., and in 2010, it purchased the servicing portfolio of the failed AmTrust Bank. MetLife originated $5.5 billion in mortgages in the third quarter--the most recent period for which data are available …

Market News (01/07/2011)

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MADISON, Wis. (1/10/11)
*Although the U.S. economy ended 2011 by adding 103,000 jobs in December and with an unemployment rate that dipped, the numbers indicate that the labor-market recovery still is struggling because many people stopped looking for work (The New York Times Jan. 7). The unemployment rate slid to 9.4%--the lowest rate since July 2009--from 9.8% in November, the Labor Department said Friday. However, the department’s monthly report also showed that the civilian labor force decreased by 260,000, with many citizens no longer applying for jobs. “It certainly is a disappointment,” said Dan Greenhaus, chief economic strategist for Miller Tabak & Company. “The drop was more attributed to a decline in the number of unemployed people, rather than an increase in the number of employed people. There was not a surge in employment. The economy is still working through the overhang left over from the recession,” he added. Also, payroll employment rose much less than anticipated, with a net gain of 103,000 jobs, the Bureau of Labor Statistics said Friday. Expectations had been heightened by a robust ADP Employer Services report, which predicted gains of nearly 300,000 jobs (Moody’s Economy.com Jan. 7) ... * The Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--dropped to 128.9 for the week ended Dec. 31 from a revised 129, previously 128.8, the prior week (Moody’s Economy.com Jan. 7). The smoothed, annualized growth rate increased to 3.3% from a revised 2.3%, which previously was 2.2%. In recent months, the ECRI index has been rising, portending that the economic recovery should continue through at least the first half of the year, Moody’s said. In a related matter, the U.S future inflation gauge rose to 100.7 in December from 100 in November, continuing an upward trend that began in July, Moody’s said. The smoothed annualized growth rate increased to 3.1% from 2.6%. The gains are not significant enough to warrant a near-term inflation threat, Moody’s said ... * U.S. hedge funds generated 1.7% returns in December, bouncing back from a November loss and finishing 2010 at the highest level in more than two years because of a rally in global equity markets, according to Bloomberg data (Bloomberg.com Jan. 7). “December was a strong month for hedge funds, fueled by positive economic news,” said Don Steinbrugge, managing partner of Agecroft Partners LLC, a consulting firm based in Richmond, Va., that advises hedge funds and investors. The Bloomberg aggregate hedge fund index increased to 120.34 in December--the highest level since August 2008--fueling optimism for economic growth, Bloomberg said. The zenith of the gauge for the $1.8 trillion hedge fund industry was 130.38 in July 2007 …

News of the Competition (01/06/2011)

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MADISON, Wis. (1/7/11)
*In what may constitute the second consecutive year of gains, U.S. auto sales may increase to 12.9 million in 2011, indicating to investors that the industry’s recovery is authentic (Bloomberg.com Jan. 5). An average of 17 analysts’ estimates compiled by Bloomberg showed total deliveries will increase 11% from 2010. Following a 27-year low in 2009, sales bounced back to 11.6 million vehicles last year, Autodata Corp. said Wednesday. “There are some serious positives out there, but some buyers have still been forced out of the market due to credit issues, or they’re paying down debt and unwilling to originate a new-car loan,” said Dan Montague, analyst at the Autofacts forecasting unit of PricewaterhouseCoopers LLP--which predicts 12.5 million deliveries this year. “It’s going to be methodical, stair-step kind of growth” … * Because of their role in the financial crisis, JPMorgan Chase &Co and the largest U.S. banks are being forced to deal with billions of dollars in legal costs that are placing their profits and stock price gains realized in 2010 at risk, analysts said (Bloomberg.com Jan. 6). JPMorgan, Bank of America Corp. and Citigroup Inc. all are facing lawsuits from the credit crisis, Bloomberg said. “They’re under legal attack,” said Richard Bove, an analyst at Rochdale Securities. “They’re similar to the asbestos or the tobacco industry, and they’re going to be repeatedly sued in the next few years” … * Bank of America Corp. (BofA) said Wednesday it would reduce services for its most basic users and charge consumers who carry low checking-account balances a $9 monthly maintenance fee under a new program (washingtonpost.com Jan. 5). However, those customers with a minimum of $50,000 in deposits and investments would be provided priority customer service and higher savings’ interest rates. BofA’s moves, which aim to make up for lower revenues amid heightened federal regulation, will be tested this month in Arizona, Georgia and Massachusetts, before a planned nationwide rollout late this year or early next year, the Post said … * The Federal Housing Finance Agency (FHFA) reported that it approved the three agreements that Fannie Mae and Freddie Mac reached with two counterparties to resolve claims related to mortgages the two entities sold to the government-sponsored enterprises. The agreements include the $2.8 billion Bank of America (BofA) paid to Fannie and Freddie to buy back loans issued by BofA's Countrywide Financial unit, as noted in this section of News Now on Jan. 4. BofA purchased Countrywide in 2008. The approved agreements also include Fannie Mae’s with Ally Financial regarding business with the former GMAC, which also includes resolution of FHFA’s subpoena regarding GMAC-issued private-label securities purchased by Fannie Mae, the agency said. “Combined, the agreements provide $3.3 billion in recovery to the (GSEs) and, thereby, to taxpayers,” said FHFA Acting Director Edward J. DeMarco. “The agreements also reflect FHFA's ongoing efforts to ensure the enterprises enforce claims for violations of representations and warranties incurred by the enterprises or breaches of other legal obligations” …

Market News (01/06/2011)

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MADISON, Wis. (1/7/11)
* Initial U.S. claims for unemployment benefits increased slightly less than expected last week, indicating the labor market is continuing on a gradual track toward recovery (The Wall Street Journal Jan. 6). Claims rose by 18,000 to 409,000 for the week ended Jan .1, following 391,000 claims the prior week--revised upward from 388,000. Meanwhile, continuing claims for unemployment benefits declined 47,000 to roughly 4.1 million for the week ended Dec. 25, although millions more people on extended and emergency benefits are not tallied in that figure (Moody’s Economy.com Jan. 6). In a related matter, the U.S. Monster Employment index--which gauges help-wanted ads placed online--dropped four points from November to December, posting a level of 130, according to Monster Worldwide Inc. Although the decline is larger than seen in previous months, it is consistent with the typical seasonal decline recorded at year-end, Monster said. The index still remains 13% above its December 2009 level … * U.S. retailers are reporting that December sales fell short of expectations because snowstorms in the Northeast hurt post-Christmas sales and more consumers shopped earlier for the holidays (The New York Times and Bloomberg.com Jan. 6). December sales increased 3.2% at stores open more than one year, according to Retail Metrics Inc. Analysts’ had forecast an average 3.5% rise, the firm said. “It’s not shaping up to be a blowout holiday for retailers,” Ken Perkins, president of Retail Metrics, told the Times. “It’s slow and steady.” Craig Johnson, president of Customer Growth partners, a retail consulting firm, told Bloomberg: “Snowstorms do not destroy demand, they simply displace demand. Those gift cards don’t disappear, they get redeemed in January” … * Total U.S. health spending expanded 4% in 2009--the slowest rate of increase in the past half century--because people lost their jobs and health insurance, and then deferred medical care, according to a report issued by the office of the actuary at the Centers for Medicare and Medicaid Services (The New York Times Jan. 5). However, health care still accounted for a bigger portion of a smaller economy--17.6% of the 2009 total U.S. economic output--as the economy shrank while health care spending continued to expand, the report said …

News of the Competition (01/05/2011)

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MADISON, Wis. (1/6/11)
* Many U.S. banks are finding new ways to increase fees on basic products such as cash machines, checking accounts and debit cards to replace revenue lost when federal regulations precluding financial institutions from levying certain fees took effect and grew during the past year (The Wall Street Journal Jan. 5). New inactivity fees and foreign-exchange charges are being assessed credit card users, and checking accounts are being assessed new monthly maintenance fees. Banks also are contemplating additional fees on checking accounts and credit cards, the Journal said. Two of the largest U.S. banks--J.P. Morgan Chase &Co. and Wells Fargo--will start to phase out free checking in New Jersey next month, reported the New Jersey Credit Union League (The Daily Exchange Jan. 5) … * Wilmington Trust Corp.--Delaware’s largest bank--took back roughly $2 million of pay from CEO Donald Foley because the compensation violated Treasury Department rules (Bloomberg News via American Banker Jan. 5). The company received a $330 million taxpayer bailout, and withdrew the payments Dec. 22 “in order to be in full compliance” with rules of the Troubled Asset Relief Program (TARP), said William Benintende, a bank spokesman. TARP funds came with restrictions intended to keep CEOs from profiting from bailouts. The rules ban cash bonuses and limit incentive payments in restricted stock to one-third of total pay for a top executive, Bloomberg said ...

Market News (01/05/2011)

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MADISON, Wis. (1/6/11)
* U.S. companies added 297,000 jobs in December--the most since record-keeping began in 2001--indicating a robust labor market recovery at the end of 2010, according to data from private firm ADP Employer Services (Bloomberg.com Jan. 5). The December gain follows a revised 92,000 rise in November, ADP said. “The headwinds for the recovery are fading,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “Companies have been pretty cautious and they’ve accumulated a lot of spending power, and we’ve seen that in purchases of equipment and software. Now they need more workers to man the equipment.” In a related matter, employers last year announced the fewest U.S. job cuts since 1997, according to Chicago-based outplacement firm Challenger, Gray & Christmas Inc. There were 529,973 planned job cuts in 2010--a drop of 59% from 2009 when cuts hit a seven-year high, the company said. Also, year-end job cuts in December declined to 32,004--the lowest monthly total for the year--from 48,700 in November, the company said (Moody’s Economy.com Jan. 5) … * Mortgage loan application volume decreased 3.9% on a seasonally adjusted basis for the week ended Dec. 24 from the previous week, and increased 2.3% for the week ended Dec. 31 on a seasonally adjusted basis from the prior week, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). Both weeks’ results include an adjustment to account for the Christmas and New Year’s Day holidays. On an unadjusted basis, the index declined 23.7% the week before Christmas and 10% the week after. For the week ending Dec. 24, the Refinance Index dropped 7.2 % and the seasonally adjusted Purchase Index rose 3.1 %. The following week, the Refinance Index went up 3.9% and the seasonally adjusted Purchase Index fell 0.8%. The unadjusted Purchase Index decreased 18.1% the week before Christmas and declined 12.2% the week following. This measure was 12.1% higher and 6.1% lower, respectively, than the same periods a year ago. For the MBA report, use the link … * In an indication the U.S. economic recovery is expanding, U.S. service industries grew in December at their fastest pace since May 2006 (Bloomberg.com Jan. 5). The Institute for Supply Management’s (ISM) nonmanufacturing index--which encompasses roughly 90% of the U.S. economy--increased to 57.1 from 55 in November. Readings above 50 indicate growth. “We’re coming into 2011 with some good momentum,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. “Confidence is better and we’re going to be entering a better business climate.” The ISM index overall is consistent with a measureable acceleration in real gross domestic product growth in the fourth quarter (Moody’s Economy.com Jan. 5) ...

Threshold for changes high says FOMC minutes

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WASHINGTON (1/5/11)--Although there were signs the economic outlook was improving when the Federal Open Market Committee (FOMC) met Dec. 14, the Fed's policymakers indicated that the change in outlook was not sufficient enough to warrant adjustments on its $600 billion asset-purchase program. Some members of the committee emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments. However, some also indicated they had a "fairly high threshold for making changes to the program," according to FOMC's minutes of that meeting released Tuesday. At the meeting, the Fed maintained its bond-buying program as part of its "quantitative easing" strategy. It intended to purchase $600 billion of longer-term Treasury securities by the end of the second quarter 2011, which would be about $75 billion per month. The decision, said the FOMC minutes, was "roughly in line with market expectations, although market participants appeared to expect the purchase program would be increased over time." It noted favorable economic factors and abrupt changes in investor positions, the effects on the approaching year-end on market liquidity, and hedging flows associated with investors' holdings of mortgage-backed securities as factors that may have amplified the rise in yields in the weeks following the committee's November meeting. In a widely anticipated move, the committee also kept the federal funds target rate at 0% to 0.25%, reiterating its expectation that economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period. One member dissented. Members of the committee agreed it should continue to "regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information" on the economic outlook, the efficacy of the program and any unintended consequences that might arise. FOMC said it would make adjustments as needed to best foster maximum employment and price stability. FOMC members agreed that only small changes were necessary to reflect the modest improvement in the near-term economic outlook. According to MarketWatch (Jan. 4), positive economic indicators since the FOMC's December meeting, are leading economists to be more optimistic about the possibility of growth this year. Some are speculating that the Fed may adjust the amount of its bond-buyiing downward. And, it said, most economists expect the Fed to start increasing the fed funds target rates in early 2012.

Market News (01/04/2011)

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MADISON, Wis. (1/5/11)
* With shoppers returning to stores to capitalize on after-Christmas bargains, U.S. retail sales increased 3.6% last week from a year earlier (Bloomberg.com Jan. 4). Chain store sales posted their fourth consecutive weekly gain, rising 0.4% for the week ended Jan. 1 from the prior week despite a snowstorm in the Northeast, according to the Weekly Chain Store Sales Index released by the International Council of Shopping Centers (ICSC) (Moody’s Economy.com Jan. 4). Also, gift card sales were up and redemptions down, which portend good sales in coming weeks, ICSC said. For some retailers, the holidays can generate as much as 40% of annual revenue, Bloomberg said. The stores that performed well “are those that inspire people to buy something they don’t need,” said Richard Jaffe, an analyst at Stifel Nicolaus & Co. in New York … * U.S. factories saw new orders unexpectedly increase in November, while orders excluding transportation posted their biggest gain in eight months--indicating fundamental strength in manufacturing, according to a Commerce Department report issued Tuesday (The New York Times Jan. 4). Orders for manufactured goods rose 0.7% after falling a revised 0.7% in October, the department said. Economists had forecast a 0.1% decline in November orders, according to a Reuters poll. Durable goods shipments dropped 0.1% (Moody’s Economy.com Jan. 4). Unfulfilled orders and inventories also increased during November. Although the manufacturing recovery is on solid ground, the strong growth seen in late 2009 and early 2010 is not expected, Moody’s said ... * The U.S. office building market added 2.5 million square feet of occupied space in the fourth quarter--the first increase in net absorption since fourth quarter 2007--according to Reis Inc., a New York-based property research firm (Bloomberg.com Jan. 4). Last quarter’s gain compares with a loss of 14 million square feet a year earlier, said the Reis report. The office vacancy rate at 17.6% remains the same as the third-quarter rate, which is the highest level since 1993. However, the last time vacancies didn’t increase quarter to quarter was in the third quarter 2007, Reis said. “Vacancy has finally appeared to have stabilized,” said Ryan Severino, a Reis economist, adding that vacancies are more apt to drop than rise in coming quarters …

News of the Competition (01/04/2011)

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MADISON, Wis. (1/5/11)
* U.S. credit card profits increased in 2010, according to data released Monday by credit card consulting firm R.K. Hammer (paymentssource.com Jan. 3). Bankcard and private-label card issuers’ total net pretax net income increased 36% to $18.5 billion from $13.6 billion in 2009. “While a lot of attention is commonly paid by outside observers to the top-line revenue number … what is often overlooked by many is that credit card enterprise expenses are also large,” said Robert Hammer, CEO of the company. The industry’s profit increase in 2010 was mostly because of the lower cost of funds and “better operating expense,” he added … * Rising regulatory costs are causing banks to try to pass the increased expenses on to large corporate borrowers (The Wall Street Journal Jan. 4). Lenders such as Bank of America Corp. and J.P. Morgan Chase & Co. have started including language in loan documents that will help banks shift additional costs engendered by the Dodd-Frank financial overhaul law to their large borrowers, the Journal said. The changes, which several companies are disclosing in securities filings, reflect guidelines issued by the Loan Syndication and Trading Association--a trade group of banks and loan investors … * Goldman Sachs and Russian investment firm Digital Sky Technologies have invested $500 million in Facebook--the No. 1 Internet social networking company in the world (Reuters via The New York Times Jan. 4). The deal values Facebook at $50 billion, according to a source familiar with the matter, who added the two firms intend to raise at least $1 billion in additional funding for Facebook. Using private investors to raise funds allows Facebook to garner many of the benefits that usually require an initial public offering of stock--without having to deal with the additional scrutiny of the public markets, Jeremy Liew, managing director of venture capital firm Lightspeed Venture Partners, told Reuters

News of the Competition (01/03/2011)

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MADISON, Wis. (1/4/11)
* Bank of America Corp. (BofA) acquiesced to demands by Fannie Mae and Freddie Mac that it buy back mortgages the two government-sponsored enterprises allege were based on faulty data (Bloomberg.com Jan. 3). BofA paid $2.8 billion to Fannie and Freddie--resulting in a $3 billion fourth-quarter provision--to buy back loans issued by BofA’s Countrywide Financial unit (The Wall Street Journal Jan. 3). BofA purchased Countrywide in 2008. “These actions resolve substantial legacy issues in the best interest of our shareholders,” Brian T. Moynihan, BofA president/CEO, said in a statement. “Our goals remain the same: put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times” (dealbook.nytimes.com Jan. 3). Paul Miller, a bank analyst at FBR Capital Markets Corp. in Arlington, Va., added: “Now you’ve got a hard number, and the math looked really good for Bank of America” (Bloomberg.com Jan. 3) … * Wells Fargo has agreed to modify nearly 15,000 mortgages by providing $2 billion worth of loan modifications (CNNMoney.com Dec. 21). The bank announced the agreement with the California Attorney General (AG) last month. Under terms of the deal, Wells Fargo also is paying $32 million to borrowers who lost their homes to foreclosure, AG Jerry Brown said. “Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” said Brown, who becomes California’s governor this month. “Recognizing the harm caused by these loans--Wells Fargo accepted responsibility and entered in this settlement with my office” … * Hundreds of community banks that entered the Troubled Asset Relief Program (TARP) are desperately looking for a way out of TARP, even if it means selling themselves (American Banker Jan. 3). Several, including Marshall & Ilsley Corp. in Milwaukee, Whitney Holding Corp. in New Orleans and Wilmington Trust Corp. in Delaware, decided to sell themselves in 2010--which left acquirers to pay back the Treasury. Others, such as Webster Financial Corp. in Westbury, Conn., gradually paid off investments with retained earnings to preserve shareholder value, the Banker said ...

Market News (01/03/2011)

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MADISON, Wis. (1/4/11)
* U.S. construction spending in November increased for a third consecutive month, bolstered by federal government projects and funding for homebuilding (Bloomberg.com Jan. 3). The 0.4% rise exceeded economists’ forecast of a 0.2% gain in a Bloomberg News survey and followed a 0.7% gain in October, Commerce Department figures indicated Monday. Low lending rates and pent-up demand led to spending on construction and home improvements in November. Also, stimulus funding triggered government spending on office buildings, schools and water supply plants, Bloomberg said. “Public spending will increase as the stimulus funds are put to use,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research, based in New York. “Residential [construction] will grow next year but only marginally, while commercial construction will continue to be a drag” … * Because factories received more orders, U.S. manufacturing in December grew at the fastest pace in seven months, bolstering indications that the manufacturing expansion picked up steam at the end of 2010 (Bloomberg.com Jan. 3). The Institute for Supply Management’s (ISM) manufacturing index for December rose to 57 from 56.6 in November and 56.9 in October. Economists had anticipated the December index to be 57.1 (The Wall Street Journal Jan. 3). A reading above 50 indicates growth. “We saw significant recovery for much of the U.S. manufacturing sector in 2010,” Norbert Ore, director of the ISM survey, told the Journal. “Manufacturers that export have benefitted from both global demand and the weaker dollar.” He added, “December’s strong readings in new orders and production, combined with positive comments from the panel, should create momentum as we go into the first quarter of 2011” … * The U.S. auto industry may see its first annual sales increase since 2005, with December auto sales continuing at the fastest pace since 2009 (Bloomberg.com Jan. 3). The tally of total sales to be released today likely ran at an annual rate of 12.3 million for the month, according to analysts’ estimates compiled by Bloomberg. Also, full-year deliveries probably bounced back to roughly 11.5 million vehicles from 10.4 million in 2009. “Consumers are now becoming more comfortable buying cars in an uncertain economic environment, which is a major change in buying patterns, compared to a year ago,” said Jesse Toprak, vice president of industry trends at TrueCar.com. “We saw more of the same in terms of consumers’ eagerness to come back into the marketplace in December” … * Investors worldwide are demanding a smaller premium to own U.S. corporate bonds than global company debt--for the first time on record (Bloomberg.com Jan. 2). To hold U.S. investment-grade company debt rather than Treasuries, bondholders are demanding 166 basis points more in yield, according to data from Bank of America Merrill Lynch. The shift accentuates confidence in the economic recovery in North America, while European companies are dealing with the cost of bailing out Greece and Ireland, and waiting to determine if the fiscal crisis pulls in more countries, Bloomberg said …

Market News (01/02/2011)

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MADISON, Wis. (1/3/11)
* Pending home sales rose again in November, with the broad trend over the past five months indicating a gradual recovery into 2011, according to the National Association of Realtors (NAR). Still, even with the upward trend all indications are this will be the worst year for home sales in 13 years (The New York Times Dec. 31). The Pending Home Sales Index (PHSI), a forward-looking indicator, rose 3.5% to 92.2 based on contracts signed in November from a downwardly revised 89.1 in October. The index is 5% below a reading of 97 in November 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” said Lawrence Yun, NAR chief economist. “But further gains are needed to reach normal levels of sales activity.” The PHSI in the Northeast increased 1.8 % to 72.6 in November but is 6.2% below November 2009. In the Midwest the index declined 4.2% in November to 78.3 and is 7.7% below a year ago. Pending home sales in the South slipped 1.8% to an index of 91.4, which is 7.2% below November 2009. In the West the index jumped 18.2% to 123.3 and is 0.4% above a year ago … * Homeowners, appraisers and real estate agents are attacking computerized home appraisals, saying they are too stingy and prevent homeowners from refinancing or borrowing against their houses, reported The Wall Street Journal (Dec. 30). That is in sharp contrast to criticisms that appraisals during the housing boom were too generous. Lenders rely on computerized appraisals primarily for home equity lines of credit (HELOCs), mortgage refinancing preapproval, loan modifications and originations of mortgages under $250,000. Although automated appraisals are considered faster and cheaper than on-site visits and don't have pressure from banks, some claim they are underestimating the prices of the homes. A homeowner who sued Citibank, a unit of Citigroup Inc., said the bank suspended his $510,000 HELOC because his home's value dropped to $1 million in 2009 on a computer appraisal from $1.65 million appraisal four years earlier. However, an on-site appraiser recommended by the bank set the value at $1.3 million. …

News of the Competition (01/02/2011)

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MADISON, Wis (1/3/11)
* Smaller financial institutions are expected to spend more on ATMs with advanced features in an effort to keep pace with big banks, according to manufacturers (American Banker Dec. 30). Diebold Inc., NCR Corp. and Wincor Nixdorf AG say smaller financial institutions will soon install intelligent-deposit, or envelope-free, ATMs. Wincor Nixdorf said an online survey it sponsored indicates that consumers are using intelligent-deposit machines of the type the company manufactures. About 70% of respondents said they make envelope-free deposits at least two to five times per month, according to the survey, published in December. About 67% said they considered envelope-free deposits to be an important ATM feature. Wincor Nixdorf surveyed 200 U.S. consumers who use ATMs more than three times a month. Analysts said they expect mid-sized banks to begin rolling out envelope-free machines in early 2011 with small financial institutions to follow as capital becomes available … * Allstate Insurance sued Bank of America and its Countrywide mortgage unit for more than $700 million in damages related to residential mortgage-backed securities the insurer purchased, claiming Countrywide misrepresented the investments. Allstate, based in Northbrook, Ill., said in its complaint, filed in the Southern District of New York in Manhattan, Countrywide disregarded its underwriting standards, withheld important information about the underlying mortgages and concealed material facts from the insurer. Allstate purchased 67 Countrywide mortgage-backed securities between March 2005 and June 2007. Bank of America acquired Countrywide in 2008 and assumed most of its liabilities …