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Economy will take time to heal Hampel tells ICNBCI

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NEW YORK (11/3/08)--Even though the Treasury and Federal Reserve will do whatever it takes to help the U.S. economy, it will require a long time to heal, Bill Hampel, chief economist at the Credit Union National Association, told CNBC Friday in a live interview from the floor of the New York Stock Exchange. Hampel appeared along with Robert Pavlik, chief investment officer at Oaktree Asset Management, on the cable television network’s “Today’s Market Action” segment.
CUNA Chief Economist Bill Hampel live from the floor of the New York Stock Exchange Friday on CNBC-TV.
In response to a question about the relevance of the recent market rally, Hampel said it will take awhile for the economy “to get out of the woods.” “Consumers are really nervous about everything,” Hampel said. “That’s what has cut spending down. We’ve had real declines in spending this quarter. Consumer confidence is at the lowest level we’ve ever seen. The volatility is what’s done that. I think if the news from Wall Street can level off and not get worse--and maybe even start inching up a little bit--that can really do wonders for consumer confidence. “It will take a long time to get out of the woods,” he added. “The household sector--the real economy--doesn’t have to be as bad as Wall Street.” The Treasury and the Fed will do whatever it takes to take care of any future economic bumps that arise in the road, Hampel said. Financial credit markets are starting to loosen up, and in nonfinancial markets, credit hasn’t tightened nearly as much as it has with financial institutions. “So there’s still action going on,” he said. So in light of recent events, what will the new economy look like? If the Treasury and Fed stay on top of things, which he thinks they will, the U.S. economy is looking at a recession through the middle of next year, Hampel said. “It should be slightly worse than the last two in 1990 and 2001,” he said. “If it gets out of hand we could go back to the 1980s. The recession probably will be followed by a slow, draggy recovery because the household sector--which is two-thirds of gross domestic product--is over-leveraged. It will take years to get over it.”

News of the Competition (10/31/2008)

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MADISON, Wis. (11/3/08)
* Financial institutions receiving federal bailout money owed their executives more than $40 billion for past years' pay and pensions at year-end 2007, according to an analysis by The Wall Street Journal (Oct. 31). These liabilities essentially are hidden, with most companies lumping them into the “other liabilities” category. Companies have been granting bigger pay and pensions to executives even as they’ve complained loudly about the cost of retiree benefits, noted the newspaper. For example, deferred executive compensation at Goldman Sachs totals $11.8 billion, compared with a liability of only $399 million for its pension plan for all employees … * Banks receiving public money under the federal government’s financial bailout program must use it for lending or they will be in violation of the law, said U.S. Rep. Barney Frank, D-Mass, chairman of the House’s Financial Services Committee. “Any use of these funds for any purpose other than lending--for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc.--is a violation of the terms of the Act,” said Frank in a statement. The Treasury Department is supervising a $250 billion capital-infusion plan for U.S. banks as part of the $700 billion bailout plan passed by Congress. Nine big banks received the first $125 billion, and the Treasury is distributing the rest to regional institutions (Reuters via Yahoo! News Oct. 31) … * JPMorgan Chase said it will expand its mortgage program over the next 90 days to help 400,000 homeowners with $70 billion in loans avoid foreclosure over the next two years. The firm said it will begin a new program to independently review each loan before moving it into the foreclosures process, and will temporarily suspend foreclosures until it implements the changes. JPMorgan noted that it acquired pay-option, adjustable-rate mortgages when it purchased Bear Stearns and Washington Mutual (Dow Jones Newswires Oct. 31) … * Commercial banks borrowed a record amount from the Federal Reserve last week, the Fed reported Thursday. Banks borrowed an average of $111.9 billion a day from the central bank’s emergency lending facility--up $6.1 billion from the $105.8 billion in daily borrowing the previous week. Investment banks borrowed an average of $87.4 billion a day, down $23.9 billion from $111.3 billion. The Fed also reported that it has purchased $143.9 billion in commercial paper since its Commercial Paper Funding Facility was launched Oct. 27. “The unprecedented amount of liquidity coming from the Fed and Treasury will find a home eventually, and that will be good for the market,” said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Council (CNNMoney.com Oct. 31) ... * American Express, the nation’s largest credit -card firm by purchases, said it will eliminate about 7,000 jobs, or 10% of its workforce, as consumers spend less and defaults rise. The company, which has lost about half its market value during the past year, used the Federal Reserve’s commercial paper facility for the first time on Oct. 29. American Express has seen spending decline and loan losses mount amid rising unemployment. The firm, which set aside $1.4 billion for loan losses in the third quarter, will take a charge of as much as $290 million in the fourth quarter, related to the job cuts (Bloomberg.com Oct. 30) …

Market News (10/31/2008)

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MADISON, Wis. (11/3/08)
* Almost 20% of mortgage borrowers owed more on their loan than their home was worth during the third quarter, according to a report by First American CoreLogic. More than 7.5 million homes have negative equity--a number that will increase by 2.1 million if prices fall another 5%. Six states accounted for nearly 60% of homes with negative equity: Nevada (48% of homes are underwater); Michigan (39%); Florida (29%); Arizona (29%); California (27%); Georgia (23%); and Ohio (22%). The number of homes with negative equity could increase to 25% if home prices continue declining. Home prices fell 11.2% year-over-year in August, according to First American’s home-price index. The rate of decline could rise to 12% by the end of the year, said First American Senior Economist Sam Khater (Bloomberg.com Oct. 31) … * Mortgage rates surged last week as long-term Treasury bond yields jumped, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) rose 42 basis points to 6.46%, while the 15-year FRM--a popular choice for refinancings--increased 47 basis points to 6.19%. The one-year, adjustable-rate mortgage (ARM) rose a modest 15 basis points to 5.38%. “Long-term mortgage rates followed long-term Treasury bond yields higher this week, pushing fixed-rate mortgages up to levels of two weeks ago,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The Federal Reserve's 0.50 percentage point cut in the discount rate and federal funds target rate on Wednesday was widely anticipated in the financial markets and is likely to keep short-term interest rates low; consequently, initial interest rates on ARMs, which tend to be set relative to other short-term rates, may remain near current levels,” added Nothaft. He also noted that declining home prices have boosted affordability and stimulated sales gains in some regions … * Consumer spending declined by 0.3% in September following no growth the previous two months, the Commerce Department reported Friday. September’s decline was the largest in four years (Bloomberg.com Oct. 31). Income rose by just 0.2% after a 0.4% gain in August, reflecting smaller wage gains as job losses mounted. The core PCE deflator, the Federal Reserve’s preferred inflation gauge, was up 2.4% year-over-year in September. The personal savings rate rose to 1.3% from 0.8%. Falling wealth, lower home equity, reduced credit availability, and high debt loads are pushing consumers to save more and pay down debt rather than borrow and spend, noted Moody’s Economy.com (Oct. 31) … * Wages and benefits paid to workers rose modestly during the third quarter, according to a Labor Department report. The Employment Cost Index (for civilian workers) rose by 0.7%, seasonally adjusted, the same as the increase in the previous two quarters. Both compensation components--wages and salaries, and benefits--posted gains that were the same as in the previous quarter. Wages and salaries rose 0.7% and benefits increased 0.6%. Wages and salaries were up 3.1% year-over-year in the third quarter, while benefits costs were up 2.6%. Tame wage pressures will ease any inflationary worries for the Federal Reserve--allowing it to maintain its focus on encouraging economic growth, said Moody’s Economy.com (Oct.31). However, workers will continue to struggle for higher wages in the future as the job market remains weak … * Consumer confidence posted its largest monthly decline on record in October (Reuters via The New York Times Oct. 31). The Reuters/ University of Michigan Surveys of Consumers’ final reading of consumer sentiment tumbled to 57.6--from 70.3 in September and the lowest reading since 56.4 in June. “Consumers reported the most dismal assessments of their current financial situation ever recorded,” said the report. It noted that there only have been four months that saw double-digit declines, “and all resulted from severe economic dislocations, with the losses accelerated by fear and panic.” Earlier last week, the Conference Board reported that its Consumer Confidence Index plunged to 38 in October--from 61.4 in September and the lowest level since the index was launched in 1967 (CNNMoney.com Oct. 28). “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of the Board’s Consumer Research Center …

News of the Competition (10/30/2008)

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MADISON, Wis. (10/31/08)
* New York Attorney General Andrew Cuomo sent a letter Wednesday to nine financial institutions that have obtained government money, requesting that they provide a “detailed accounting regarding your expected payments to top management in the upcoming bonus season.” His letter cautioned that payments that are higher than the services executives have provided could violate New York law. U.S. Rep. Henry Waxman, (D-30 Calif.) also sent a letter to the banks, urging them not to use any government funds for bonuses and asking for statistics on past payments to executives. The letters sent by both Waxman and Cuomo went to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo, all of which received funds from the federal government (The New York Times Oct. 30) … * With government permission, banks receiving more than $163 billion from the Treasury Department in bailout lending are on track to pay more than half of that amount to their shareholders in dividends over the next three years. The government has said it wants the banks to use the money to boost lending. However, Treasury officials said banks would be discouraged from participating in the program if a suspension of dividends was required. Critics, though, say banks shouldn’t receive taxpayer money if they have enough to pay dividends. The 33 banks that have signed up for the program so far plan to pay shareholders about $7 billion in the current quarter. At that pace, the dividends would eat up 52% of the government’s investment over the next three years. In contrast, Britain and Germany require that banks accepting public investments suspend dividends. Some U.S. banks accepting government money have said they will reduce dividends or pay them out of other sources (washingtonpost.com Oct. 30) … * A main source of funding for businesses expanded for the first time in seven weeks, the Federal Reserve reported Thursday. Commercial paper outstanding increased by $100.5 billion to a seasonally adjusted $1.55 trillion over the week ending Oct. 29. However, that’s still down from $1.82 trillion seven weeks earlier and down from the peak of $2.2 trillion hit in the summer of 2007. The market for commercial paper, which businesses use for short-term financing, collapsed after Lehman Brothers’ bankruptcy. To address that decline in an important funding source, the Fed on Monday started buying corporate debt via its Commercial Paper Funding Facility. The central bank is offering competitive rates under the program, a move that could help lower other rates (CNNMoney.com and Associated Press via The New York Times Oct. 30) … * The Federal Reserve announced Wednesday that it will send as much as $120 billion in dollar reserves to the central banks of Brazil, Korea, Mexico and Singapore. The facility is structured as a swap, exchanging dollars for each country’s currency. The Fed said the move was “in response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies.” Analysts say the facility will help ease a shortage of dollars in foreign markets by giving central banks back-door access. Last month the Fed authorized swap lines with nine central banks--including the Bank of England, the European Central Bank, and the Bank of Japan (MarketWatch Oct. 30) …

Market News (10/30/2008)

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MADISON, Wis. (10/31/08)
* The nation’s gross domestic product (GDP), the total output of goods and services produced by labor and property, declined at an annual rate of 0.3% in the third quarter, according to preliminary Commerce Department estimates. The decline followed a 2.8% advance in the second quarter. The department’s advance estimate is subject to large revisions because it is based on incomplete source data. The decline in third-quarter GDP reflected negative contributions from personal spending, fixed residential investment, and equipment and software. These were partly offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential construction, and state and local government spending. The third-quarter decline was the first since a 0.2% drop in the fourth quarter of last year and the largest since a 1.4% decline in the third quarter of 2001 … * Consumer spending fell at a 3.1% annual rate in the third quarter--the first decline since 1991 and the largest since 1980, according to the Commerce Department report. The 6.4% drop in spending on non-durables, such as clothing and food, was the largest since 1950. Consumers have been socked hard by rising unemployment, tight credit, and declining wealth from falling stocks and home values. The stock-market decline has wiped out about $2.8 trillion from investors’ portfolios. A narrower trade deficit and a smaller drop in inventories helped avert a steeper contraction in the third quarter than the 0.3% drop reported. Excluding those two categories, the nation’s gross domestic product would have declined at a 1.8% pace--the largest since 1991. Inflation accelerated in the third quarter. Excluding food and energy, the core PCE deflator (the Federal Reserve’s preferred inflation measure) rose by 2.9%--the largest gain in nearly two years (Bloomberg.com Oct. 30) … * The Treasury Department and the Federal Deposit Insurance Corp. (FDIC) are crafting a plan to help struggling homeowners, say people familiar with the matter. The plan, which would cost $40 billion to $50 billion, could shift as many as three million people into more-affordable mortgages--with the government sharing some of the possible losses on the loans. “The administration is looking at ways to reduce foreclosures,” said Treasury Spokeswoman Jennifer Zuccarelli. FDIC Spokesman Andrew Gary declined “to speculate about any final framework or parameters of a potential program.” About 7.3 million homeowners will default on their mortgages between 2008 and 2010, estimates Moody’s Economy.com. About 4.3 million of those homeowners could lose their homes (The Wall Street Journal Online Oct. 30) … * Unemployment claims remained at a high level last week, the Labor Department reported Thursday. First-time claims for jobless insurance steadied at 479,000 during the week ending Oct. 25. The four-week moving average, which smoothes out weekly volatility, declined by 5,000 to 475,500. In a hopeful sign, continuing claims--the number of people still on the benefit rolls after an initial week of aid--dropped by 12,000 during the week ended Oct. 18 to 3.715 million. Unemployment claims have averaged 393,800 so far this year--compared with an average of 321,000 for all of 2007, noted Bloomberg.com (Oct. 30). According to a survey of economists by the news group, the economy will lose another 175,000 jobs in October--the most this year. That would bring total job losses for the year to 935,000 … * Not all companies are struggling amid the financial crisis and economic slowdown. Exxon Mobil Corp., the world largest publicly-traded oil firm, reported $14.83 billion in profits for the third quarter--topping its own record for the largest profit of any U.S. corporation (Associated Press via Yahoo! News Oct. 30). The previous record was set by Exxon Mobil for the second quarter, when it earned $11.68 billion. The company benefited from record-high oil prices in both quarters. Prices have declined since then as the financial crisis deepened …

Speaker No wiggle room on economy for next president

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FARMERS BRANCH, Texas (10/31/08)--The nation's new president--no matter who's elected--will have little wiggle room in searching for solutions to the economic problems facing the country, said a speaker at Southwest Corporate FCU's 31st annual Economic Forum. The forum met this week in Dallas with nearly 500 attending (LoneStar Leaguer Oct. 30). Author and economist Jeff Thredgold told the group, "Regardless of whether (Sen. Barack) Obama or (Sen. John) McCain emerges the victor, what the new president wants to do and what he can do are two different things." "Policy changes will be limited by a large national budget, likely to exceed $400 billion this year. There is just no wiggle room for aggressive spending on new programs," he said. Thredgold, who expects large wins by Democrats, said he did not believe there will be sufficient political stomach to undo tax cuts passed during the Bush administration. However, he predicted Congress will take action to tighten regulations in the financial industry. "When we moved from quality of loans to quantity of loans, it was a recipe for disaster," he said, adding the situation will be addressed. Education will be key to success in the economy as it moves forward, he said. He cited as seven critical industries of the future:
* Technology; * Transportation; * Telecommunications; * Financial services; * Energy; * Entertainment; and * Biomedicine.
"And thanks to the baby boomers, we'll also see growth specifically in healthcare, financial planning and leisure activities," Thredgold said.

Recession severity depends on credit markets says Hampel

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PLANO, Texas (10/31/08)--Like a Halloween horror story where tension mounts, the worst of an economic recession in the U.S. is still to come, Credit Union National Association Chief Economist Bill Hampel told the Southwest Corporate FCU's 31st annual Economic Forum this week in Dallas. "If credit markets remain tight, we're likely to have a severe recession like the early 1980s. If credit markets ease within a month, the recession will be milder--like 1990 or 2001--but we'll have a slow recovery," Hampel said. "However, this is not a depression like the 1930s," he continued. "Wall Street is in much worse condition than Main Street." But the huge contraction in consumer wealth that has occurred over the past two years will take time to reverse, he said. The ratio of household debt outstanding to annual disposable income was 125% for the first quarter of 2008. Until households start saving again, the economy will remain weak, and a "significant increase" in credit union loan delinquencies and losses will offset improving interest-rate spreads. Hampel urged credit unions not to panic. "Let your capital cushion do its work. Credit unions have high capital in the 11% range now. Avoid penalizing your members with higher fees and loan rates and lower dividend rates just to protect your return on assets. Even if net income drops to 9%, we're still a well-capitalized industry." Hampel projected both loan and share growth at 8% for credit unions in 2009. Other forecasts included a consumer price index of 2.5 over the next 12 months and an unemployment rate of 8% by late next year. Nearly 500 attended the two-day Economic Forum and pre-Forum Member Business Services and Financial Management Seminars, said Southwest Corporate.

Fed funds cut to affect CU bottom lines positively

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MADISON, Wis. (10/30/08)--The widely anticipated move Wednesday by Federal Reserve policymakers in cutting the target for the fed funds rate to 1% should affect credit unions' bottom line in a positive way, said Credit Union National Association Economist Mike Schenk. The Federal Open Market Committee (FOMC) cut the rate, at which banks borrow from each other, by half a percentage point, saying, "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures.” Schenk told News Now that this will affect credit unions' bottom line because "funding costs will decline," thus "buoying" their bottom lines. "[The cut] is unlikely to result in substantial increases in loan demand because consumers and credit union members generally are tapped out," Schenk said. "Relatively speaking, they have no savings. Their safety net is smaller than ever, and they already have unprecedented levels of debt." A reduction in the funds will "lower the debt service burdens for consumers who have adjustable-rate credit and give them some breathing room." However, the rate cut will "put savers and investors under additional pressure," he said. "This will be a challenge for many consumers and credit union members." "Consumers are in extreme distress," he told News Now. "This will become more obvious going forward." Because "credit unions have near-record levels of capital, they are therefore positioned to respond in more consumer-friendly ways than other financial institutions may be," Schenk said. That does not mean credit unions should follow the market all the way down on the savings side, he said. "But to the extent they can help and make the transition easier, the more palatable, they can differentiate credit unions in the marketplace. This obviously will come at a cost," he said. In announcing the unanimous rate-reduction decision, FOMC said, "Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.” In a related action, the Fed also approved a 50-basis-point cut in the discount rate, at which the Fed lends to banks, to 1.25%. “The committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability,” FOMC said.

News of the Competition (10/29/2008)

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MADISON, Wis. (10/30/08)
* GMAC Financial Services, the financial unit part-owned by General Motors, will receive federal help to access the commercial-credit markets. “We did apply and were approved to participate,” said GMAC Spokeswoman Gina Proia, referring to the new short-term funding facility created by the Federal Reserve. Ford Motor’s Ford Motor Credit unit also has access to the Fed’s new program to help firms meet their short-term financing needs. GMAC said it is seeking to become a bank holding company, a move that would let it gain access to the federal government’s $700 billion bailout program (The Wall Street Journal Online Oct. 29) … * Morgan Stanley, which converted from an investment bank to a bank holding company following the bankruptcy of Lehman Brothers, has sold $3 billion in certificates of deposit during the past week in an effort to beef up its deposit base. The company said it plans to use its workforce of 8,500 advisers to gather deposits. Morgan Stanley also said it will launch new savings accounts and global-currency accounts, and expand its banking services for smaller businesses (Reuters via Yahoo! News Oct. 29) … * Three more regional financial institutions announced that they have received preliminary approval to participate in the Capital Purchase Program at the Treasury Department. Milwaukee-based Marshall & IIsley Corp. said it plans to sell $1.7 billion of preferred stock, to boost its total risk-based capital ratio to 14.8%. Salt Lake City-based Zions Bancorp plans to obtain $1.4 billion in capital to increase its risk-based capital ratio to about 15.3%. And Umpqua Holdings of Portland, Ore., plans to obtain a $214 million investment, which would boost its risk-based capital ratio to 14% (American Banker Oct. 29) … * PNC Financial Services Group’s acquisition of National City Corp. will boost its automated teller machine (ATM) network to 6,204--making it the fourth-largest bank-owned ATM network in the U.S., according to PaymentsSource. U.S. Bancorp currently operates the fourth-largest bank-owned ATM network. With 18,584 ATMs, Bank of America has the largest bank-owned network. JPMorgan’s purchase of Washington Mutual boosted its network to 14,722--giving it the second-largest network. Wells Fargo’s purchase of Wachovia Corp. will increase its network to 12,227, making it number three (ATM & Debit News Oct. 29) … * Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said the agency probably won’t need to borrow money from the Treasury Department to replenish its deposit insurance fund, despite a continued increase in bank failures. In remarks to a conference of international deposit insurance agencies on Wednesday, Bair predicted that most banks will choose to remain in the short-term liquidity program that the FDIC created last month to help stabilize the banking system. Sixteen banks in the U.S. have failed so far this year. Bair said she expects that number to increase. She also said more actions are needed to help families avoid foreclosure. She said the FDIC is working on a framework for modifying mortgage loans (Dow Jones Newswires Oct. 29) …

Market News (10/29/2008)

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MADISON, Wis. (10/30/08)
* Lower home prices are helping to lure some buyers back into the housing market, according to a survey of housing data in 28 top metropolitan areas by The Wall Street Journal (Oct. 29). The study found that the glut of unsold homes is shrinking in most metro areas, led by Sacramento and Orange County in California and the Virginia suburbs of Washington, D.C. Still, analysts say rising foreclosures, the weak economy, and mounting job losses will continue to pressure prices and inventories for at least one more year. Barclays Capital estimates that banks and loan investors owned 826,200 foreclosed homes as of Sept. 1--up from 343,500 a year earlier. Barclays expects this inventory to peak at about 1.3 million homes in mid-2010 … * Mortgage activity rebounded last week, the Mortgage Bankers Association reported Wednesday (mbaa.org Oct. 29). The trade group’s Market Composite Index jumped 16.8% during the week ending Oct. 24 to 476.7. The Purchase Index rose 8.5% to 303.1, while the Refinance Index surged 28.5% to 1489.4. The home-sales market probably won’t improve much, predicts Moody’s Economy.com (Oct. 29). Many of the mortgage applications reported by the trade association won’t translate into actual mortgages, due to tight underwriting standards … * Lenders are sharply curbing credit-card offers and credit lines, even as consumers face tighter mortgage- and home-equity lending standards. Lenders wrote off about $21 billion in bad credit-card loans during the first half of this year. Analysts estimate that lenders will lose another $55 billion over the next year as the job market weakens further. Mail offers to new and existing customers are on track to decline to less than 8.4 billion pieces this year--the lowest level since 2004, according to Mintel Comperemedia (The New York Times Oct. 29) … * Orders for big-ticket durable goods--which are manufactured to last three years or more--rose by a stronger-than-expected 0.8% in September--led by robust demand for defense goods and transportation equipment, the Commerce Department reported Wednesday. The increase followed a 5.5% drop in August. Orders for defense capital goods jumped 19.6% in September, the largest increase since December, while transportation orders rose 6.3%, the biggest gain since July 2007. Orders for non-defense capital goods excluding aircraft, a proxy for future business spending, declined by 1.4% following a 2.2% drop in August. Facing weak demand in the economic slowdown, businesses are curbing their expansion plans (Reuters and Associated Press via The New York Times Oct. 29) ... * General Motors on Wednesday reported a plunge in global sales for the third quarter (CNNMoney.com Oct. 29). Its sales were down 11.4%, compared with the same period last year, accelerating from a 2.9% drop during the first half of the year. The sales decline put GM even further behind Toyota Motor, which is poised to become the world’s largest automaker. Toyota’s sales are almost 6%, or 400,000 vehicles, ahead of GM for the first nine months of this year. In other news, 25,000 to 35,000 auto jobs will be lost if General Motors acquires Chrysler Corp, according to a report by the consulting firm Anderson Economic Group (Associated Press via The New York Times Oct. 29). However, the firm noted that many more jobs would be lost if Chrysler is sold off in pieces instead of being acquired by GM. Analysts expect Chrysler to file for bankruptcy next year if it isn’t acquired. GM is lobbying the federal government to put money into the deal …

News of the Competition (10/28/2008)

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MADISON, Wis. (10/29/08)
* Bank of America retained its top spot as the nation’s largest bank by deposits, with $719.8 billion in total U.S. deposits, followed by Wells Fargo, at $711.5 billion, and JPMorgan Chase, at $649.3 billion. All three banks topped the 10% national market-share threshold, at 11.31%, 11.18%, and 10.2%, respectively. The top three banks now control almost 33% of the nation’s deposits--compared with just under 23% in 2007. “Industry consolidation is significantly altering the financial landscape,” said Kris Niswander, associate director of SNL’s Financial Institutions Group. “Many national franchises have expanded their branch footprint and improved their ability to meet the needs of a broader and more diverse client base” (PRWEB via Yahoo! News Oct. 27) … * Payday lenders are spending millions of dollars to back ballot initiatives challenging state restrictions on their cash-advance practices. Payday lenders are spending $30 million on initiatives in Arizona and Ohio that would repeal the caps placed on payday loans. Yes on 200, a political-action committee that is pushing the Arizona ballot initiative, is financed by the local affiliate of the Community Financial Services Association, a national payday-lending group (The Wall Street Journal Online Oct. 28) … * MasterCard and Visa Inc. will pay a combined $2.75 billion to settle a lawsuit brought by Discover Financial Services. Discover said the card associations’ anti-competitive rules limited its growth. Visa will pay $1.89 billion, and MasterCard will pay $862.5 million. “Resolving this longstanding case on reasonable terms is in the best interest of Visa and out clients, cardholders, and shareholders,” said Visa CEO Joseph Saunders (The Wall Street Journal Online Oct. 28) … * Fidelity Investments announced Tuesday that it is reviewing its costs and staffing after the newsletter Ignites said the firm is planning to eliminate as many as 4,000 jobs. Fidelity Spokeswoman Anne Crowley said the report was “speculation,” but she didn’t deny it. Fidelity, the world’s largest mutual-fund company, already has cut its workforce by about 1,000 jobs over the past year. Investors yanked a record $104.4 billion from U.S. mutual funds in September as the stock markets plunged, according to Lipper Inc. data. The stock markets have continued to decline this month (Reuters via The New York Times Oct. 28) …

Market News (10/28/2008)

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MADISON, Wis. (10/29/08)
* Consumer confidence plunged to a record low this month as the financial crisis weighed on households (CNNMoney.com Oct. 28). The Conference Board’s Consumer Confidence Index fell to 38 in October--from 61.4 in September and the lowest level since the index was launched in 1967. “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of the Board’s Consumer Research Center. “In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter,” added Franco. Declining employment, weakness in the stock markets, falling home prices, rising food prices, and reduced credit availability will remain drags on consumer confidence going forward, noted Moody’s Economy.com (Oct. 28). However, further declines in gasoline prices could lift confidence in the near term … * Home prices declined in August for a 25th consecutive month, and prices in the 10 top markets posted a record 17.7% year-over-year drop, according to the S&P/Case-Shiller home price index. The 20-city index posted a record year-over-year drop of 16.6%. For a fifth consecutive month, all areas showed a decline in home prices in August, compared with a year earlier--led by 31% plunges in Phoenix and Las Vegas. Cities with the smallest declines were Dallas (-2.7%); Charlotte, N.C. (-2.8%); and Boston (-4.7%). No city posted a price gain over the past 12 months. The declines reflect two conditions, noted National City Corp. Chief Economist Richard DeKaser. “One is that the difficulty in obtaining credit has further constricted demand. The second is that home sellers are finally capitulating on prices,” said DeKaser. On a hopeful note, DeKaser said the government’s stimulus packages could make credit more available, in turn prompting a decline in housing inventories (CNNMoney.com and Bloomberg.com Oct. 28) … * The federal government will have to borrow a record sum of money as the financial bailout pushes the deficit to record highs, said Anthony Ryan, the Treasury Department’s undersecretary for domestic finance. “This year’s financing needs will be unprecedented,” said Ryan. Speaking at the annual meeting of the Securities Industry and Financial Markets Association in New York yesterday, Ryan said many economists believe the economy already has fallen into a recession. “The potential for deterioration in economic conditions given the contraction in credit may also affect budget conditions this year,” noted Ryan (Associated Press via Yahoo! News Oct. 28) … * The Bush administration is considering a range of options to facilitate a merger between General Motors and Chrysler Corp., say government officials familiar with the situation. Another option would be to tap a $25 billion loan program to help the automakers update their plants. The financial crunch has weakened auto sales as potential buyers have a tough time obtaining financing. White House officials said Monday that the auto companies may be eligible for some help under the Troubled Assets Relief Program. “We believe the federal government should consider using all the tools available to it, including some recently enacted, to support industries that are in distress and that are essential to the U.S. economy,” said GM Spokesman Greg Martin. GM, Ford Motor, and Chrysler together directly employ more than 200,000 people, and their operations indirectly support jobs for millions more Americans (The New York Times Oct. 28) … * Oil prices retreated Tuesday after an early rally in the U.S. stock markets lost steam. U.S. light crude for December delivery fell 15 cents to $63.07 in early afternoon trading. The global economic crisis has pummeled oil prices, which have fallen about 60% from a record of more than $147 a barrel in July. The Organization of Petroleum Exporting Countries announced Friday that it plans to cut output by 1.5 million barrels a day. However, some analysts said the oil cartel probably won’t follow through with that target (Reuters via The New York Times Oct. 28) …

Economists expect Fed to cut rates Wednesday

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NEW YORK (10/28/08)--As the Federal Reserve Board's policymaking body heads into a two-day meeting today, most economists surveyed say they expect another interest rate cut to be announced Wednesday. Of the 45 economists surveyed by USA TODAY, 82% expect The Federal Open Market Committee (FOMC) to reduce the fed target for short-term interest rates from its current 1.5%. Of that group, 44% anticipate a half-point reduction and 38% expect a quarter-point cut (USA TODAY (Oct. 27). The expectations come at a time when the nation marks the first decline in consumer spending in 17 years. A reduction to 1% would be at a level not seen since mid-2004. The survey shows a significant deterioration in economists' assessment of the economy since the last survey conducted in July, said the newspaper. In July, 51% of economists surveyed said the nation was in a recession. In the latest survey, all but one agree the U.S. is in a recession. The Fed's last rate cuts occurred on Oct. 8, when it cut rates in a surprise move coordinated with central banks around the world in the midst of the stock market's volatility.

Canadas Desjardins Group pulls funds amid market plunge

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MONTREAL, Quebec (10/28/08)--The Desjardins Group, Canada's largest credit union, has shut down its lines of "principal-protected notes" (PPNs) linked to hedge funds in light of the market's volatility. Desjardins, based in Montreal, said its investment arm shut down the PPNs, which bought hedge funds to offer the co-op's 5.8 million members. The value of the products or whether Desjardins incurred losses was not stated, said The Globe and Mail Oct. 27). Desjardins is closing PPNs called the Perspectives Plus Guaranteed Investment and Alternative Guaranteed Investment, both of which will be due the next five years. Andre Chapleau, Desjardins spokesman, told The Globe and Mail that Desjardins isn't necessarily losing money but that it could not offer the possibility of a good return on the investments. The company is steering clients into other savings products. After it sold the PPNs, Desjardins placed the bulk of investors' capital into bonds, which guarantee that capital will not be lost. It invested the remaining cash, roughly 20 cents on each dollar, in hedge funds to use them as leverage to boost results. That investment is largely lost, said the newspaper. Chapleau said the process, which isn't a fire sale but a "structured process, very systematic," began two weeks ago and will continue for about two more months. Desjardins was one of the world's 50 largest players in "funds of hedge funds." Last year it held a $6 billion portfolio at its Desjardins Global Asset Management subsidiary that picked a variety of European, U.S., Asian, and domestic funds on behalf of its clients. Desjardins has been redeeming holdings in hedge funds before CEO Monique Leroux decided Oct. 1 to exit the business, the newspaper said.

Hampel addresses home prices in IMarketWatchI

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WASHINGTON (10/28/08)--Credit Union National Association Chief Economist Bill Hampel Friday addressed last week's unexpected increase in existing-home sales in an article published by the national MarketWatch (Oct. 24). Existing-homes sales increased 5.5% to a seasonally adjusted rate of 5.18 million, the National Association of Realtors announced Friday. Economists surveyed by MarketWatch had expected sales to rise to a five million pace from August's 4.91 million. The sales were spurred by a drop in home prices, but economists had warned that the housing bottom still a long way off. "Prices don't have to fall much more," Hampel told MarketWatch. "Current prices seem to be sufficient to absorb" the number of homes coming onto the market due to default, he said. Earlier Friday another CUNA economist, Mike Schenk, vice president of CUNA's economics and statistics, weighed in on the sales for Bloomberg Radio and CNN. Use the links to view those stories.

Market News (10/27/2008)

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MADISON, Wis. (10/28/08)
* Freddie Mac’s mortgage investment portfolio dwindled considerably in September, and delinquencies on loans guaranteed by the second-biggest home funding company in the U.S. reached a record level, the company said Friday. Freddie’s mortgage investment portfolio shrank to $736.09 billion in September--an annualized 37.9% rate, the government-sponsored enterprise (GSE) said in its monthly volume summary. September’s decrease followed an even larger drop in August when the portfolio contracted by an annualized rate of 56.2% to $760.9 billion. Year-to-date, retained mortgage earnings are still up by an annualized rate of 3%, at $720.8 billion at the end of 2007. Freddie and Fannie Mae--the other GSE--were placed into a government conservatorship in September, which allows them to grow their mortgage portfolios, analysts said (Reuters Oct. 24) … * Fueled by a drop in prices that preceded the most recent financial market troubles, U.S. new-home sales unexpectedly increased in September from a 17-year low. New-home purchases rose 2.7% to an annual rate of 464,000 in September from 452,000 in August, according to the Commerce Department. The median sales price dropped to a four-year low. New-home sales were forecasted to drop to a 450,000 annual pace from an originally reported 460,000 rate the prior month, according to the median estimate in a Bloomberg survey of 59 economists whose forecasts ranged from 400,000 to 501,000. The median price of new homes was $218,400--a 9.1% decrease from a year earlier and the lowest level since September 2004. Sales were down 33% from September 2007, the Commerce report indicated (Bloomberg.com Oct. 27) … * Retailers nationwide are expecting a gloomy holiday shopping season that will include many promotions to stimulate sales, according to a BDO Seidman LLP survey of chief marketing officers at 100 retail companies. The respondents said they expect same-store sales in November and December to drop an average of 2.7% from year-ago levels. In the survey released Monday, 88% of the executives said they plan to offer more promotions and discounts than last year. Same-store sales are expected to decline this holiday season, said 39% of executives surveyed, while 41% expect flat sales, and 20% said they expect rising sales. In a sign that could portend trouble for retailers, 65% of the executives said they don’t expect to experience a meaningful economic turnaround until the third quarter of 2009 at the earliest (The Wall Street Journal Oct. 27) … * The labor market is the worst it’s been since the two previous recessions in 2001 and the early 1990s, according to a slew of new job data. One of the bleakest indicators is that the number of people who have been unemployed for 27 or more weeks reached the two-million mark in September. That level is 21% of the total unemployed--which approaches the previous peaks of roughly 23% in 2003 and 1992. Job seekers’ prospects diminish as layoffs spread beyond the auto, financial and home-building industries, analysts said. Companies also saw 2,269 mass layoffs (in which 50 or more people are let go at once) in September--more than at any time since September 2001. And while the national unemployment rate comes in a 6.1%--a five-year high--a wider measure of employment weakness includes people who have either stopped searching for work or whose hours have been cut to part-time, which is now is at 11%--the highest level in 15 years (The Wall Street Journal Oct. 27) … * Business sentiment settled last week near the record low set the week before, according to the Moody’s Economy.com Survey of Business Confidence. For the nine questions posed in the survey, negative responses measurably outnumbered positive ones. Sentiment is very negative in Europe and North America, and measurably weaker in Asia and South America. Intentions to hire again dropped to another new low--which is consistent with monthly job losses in the U.S.--of significantly more than 150,000. General assessments regarding the broader economy and the six-month forward-looking outlook remain bleak, according to the survey. The global economy is now in recession, after the financial panic that started in early September caused a severe blow to global business confidence, the survey indicated (Moody’s Economy.com Oct. 27) … * U.S. commercial paper yields rose as a result of the Federal Reserve beginning to buy back the debt directly from companies. This indicates the Fed’s efforts to unfreeze short-term credit markets have yet to show results, analysts said. Rates on the highest-ranked 30-day commercial paper rose two basis points to 2.88%--based on yields offered by companies and compiled by Bloomberg. Many corporations use 30-day commercial paper to finance their daily operations, analysts said. Three weeks ago, the Fed started its program to buy 90-day commercial paper directly from issuers to jump-start demand when the market froze after the bankruptcy of Lehman Brothers Holdings Inc.--a circumstance that prevented many borrowers from selling anything except overnight paper. Since Sept. 10, the commercial paper market has shrunk by 20%--the worst slump on record--as investors avoided the debt, and companies sought other financing, analysts said (Bloomberg.com Oct. 27) … * The credit crunch could exacerbate a profit squeeze for farmers, resulting in a reduction in global harvests and a deepening food-supply crisis for developing nations, analysts said. The most-consumed food crop--wheat--may see a 4.4% drop in global production next year, said Dan Basse, president of Chicago-based AgResource Co. Corn and soybean harvests also could fall, added Basse, who has advised farmers, food companies and investors for 29 years. Chicago Board of Trade futures contracts indicate that wheat prices will jump 16% by end of 2009, corn prices will go up 15% and soybeans prices will rise 3%. The number of hungry people worldwide is at risk of rising as a result of the financial crisis reducing investments in agriculture and crops, according to Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations Food and Agriculture Organization in Rome. Last year, the number of hungry increased by 75 million to 923 million, per United Nations estimates (Bloomberg.com Oct. 27) … * The Persian Gulf states are being touched by the global financial crisis, and in response, Kuwait is suspending trading of shares of a major bank. Also, the Saudi government announced a plan Sunday to help its citizens receive credit. Trading in Gulf Bank, one of Kuwait’s biggest lenders, was halted by the Central Bank of Kuwait after a customer defaulted on a derivatives contract. The central bank said it would forcefully back up the bank’s financial position and protect deposits in attempts to assure the public that Gulf Bank’s business would not be negatively impacted. Early on, major oil-producing countries had seemed immune to the international financial system crisis, analysts said. In the first half of 2008, rising oil prices gave the countries a buffer of cash. However, a recent significant drop in oil prices left the Gulf economies vulnerable because they had become dependent on high prices, analysts said (The New York Times Oct. 27) …

News of the Competition (10/27/2008)

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MADISON, Wis. (10/28/08)
* Although MasterCard Inc. and Visa Inc. experienced strong first-half-of-the-year revenue growth, market results have turned against the two companies through several factors, analysts said. These include a global economic downturn, the increasing consumer weakness and a deepening crisis among lenders, they added. In the near term, transaction growth rates at the two companies are expected to decline considerably. MasterCard and Visa are expected to report their quarterly results within the next two weeks. Since the company’s initial public offering in March, Visa’s shares have lost almost all of their doubled value. Similarly, MasterCard shares have lost nearly 60% of their value since hitting a high in June (American Banker Oct. 27) … * The specter of bankruptcy will emerge if there is not a successful merger between Chrysler and General Motors, or assistance from the federal government, analysts said. Without these two elements, two of Detroit’s Big Three auto makers could be out of cash within a year, they added. In recent weeks, the automakers and Michigan political delegations have offered at least three plans to free up cash for a Chrysler-General Motors merger. Among the plans are provisions to seek an equity investment from the government or to obtain funds from the government’s Troubled Asset Relief Program (TARP). The two auto makers estimate that a combined entity would require $10 billion in new equity to close plants, lay off workers, integrate the two companies and obtain needed liquidity, said several people involved in the merger talks (The Wall Street Journal Oct. 27) … * Germany’s biggest bank lost more than $400 million on equity derivative trades. Deutsche Bank AG sustained the losses due to stock markets sustaining their biggest losses since the 1930s, two people with knowledge of the matter said. As a result of writedowns and slowing revenue from investment banking, Deutsche Bank may post its second quarterly loss of the year, according to the median estimate of six analysts. The bank’s shares dropped 12% in Frankfurt trading by mid-afternoon Monday. So far this year, the bank’s shares have dropped 70% (Bloomberg.com Oct. 27) … * St. Cloud, Minn.-based Stearns Bank N.A. acquired all insured deposit of Alpha Bank & Trust in Alpharetta, Ga., effective Friday afternoon. Alpha Bank & Trust’s insured depositors automatically will become depositors and customers of Stearns Bank and will continue to have uninterrupted services and access to their accounts. The Federal Deposit Insurance Corp. shut down the bank Friday--the 16th bank failure so far this year. Alpha was the third Alpharetta institution to fail in slightly more than a year. The roughly $1 billion asset Integrity Bank failed in August, and NetBank, a $2.5 billion asset thrift failed in September 2007. Stearns Bank has grown to more than $1 billion in assets with five Minnesota locations and one in Arizona (MarketWatch Oct. 24 and American Banker Oct. 24) ...

CUNA economist advises Bloomberg about economy

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NEW YORK (10/27/08)--The strength of the rise of existing housing sales accompanied by continued price drops announced Friday is "somewhat surprising, but it's only one good number and we're not out of the woods yet," Credit Union National Association Senior Economist Mike Schenk told Bloomberg Radio Friday afternoon. Schenk was interviewed on the nationwide broadcast about the Federal Reserve's meeting next week, housing numbers and the broad economy in light of Friday's market activity, which reflects the notion of global recession. The prices "won't fall a whole heck of a lot more to get the market moving," he noted, cautioning it is "better to wait a month to confirm whether it’s a trend or an aberration." The National Association of Realtors had reported Friday that sales of existing homes jumped in September--up 1.4% from a year ago and the first time that sales rose compared to the previous year since November 2005 (CNN Money Oct. 24). It also reported prices were down. Foreclosures are a driving force in the market but Friday's figures reflect sales two months ago, he said. "A lot has changed." Schenk said he is not as concerned about prices as about consumer confidence. "That's more bad news. It means it will be less likely that people will jump into the market." The length of the downturn is more worrisome than the recession, he noted. "The Treasury and the Fed are throwing everything at it to solve the (credit market) problem. If it works and eases up, the recession likely will continue to the middle of next year. And it will look like previous recessions but it won't be a V shape, where you hit the bottom and then go back up," he said. As for access to mortgages, there are problems on both the supply and demand sides, he said. "On the supply side are foreclosures but a bigger problem is that people expect prices to go down more. In the audiences I've presented to, almost all the hands go up when I ask if they expect prices to go down," Schenk said. "The opposite is true on the demand side. You wait. You sit on your hands. It's not expectations but the pricing. The pricing is different, the underwriting is different and there are fewer speculators today. In the past 20% of the mortgage activity was speculation. It's not there today," Schenk said.

Market News (10/24/2008)

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MADISON, Wis. (10/27/08)
* The Organization of the Petroleum Exporting Countries (OPEC) decided Friday to make a significant cut in oil production by taking 1.5 million barrels per day off the global markets. OPEC made the move to manage prices amid a potential global recession, analysts said. OPEC ministers defended their decision, saying they were not responsible for volatility in the markets. OPEC has had no role in the current global financial crisis, said Ali Naimi, Saudia Arabia’s oil minister. While low oil prices are one of the few highlights in a weak worldwide economy, some large oil consumers were not happy with the OPEC move, analysts said. The world needs a greater amount of oil supply in the market, not less, said Healy Baumgardner, spokeswoman for the U.S. Energy Department. In the current rough economic times, the global marketplace needs reassurances that energy supplies are dependable and affordable, so as not to exacerbate the challenges being faced, Baumgardner added (The Wall Street Journal Oct. 24) … * A working paper titled “Facts and Myths about the Financial Crisis of 2008,” released by the Federal Reserve Bank of Minneapolis, is disputing a widely held perception that the financial crisis is cutting off credit to a large percentage of consumers and nonfinancial companies (American Banker Oct. 24). The paper’s abstract states: “The U.S. is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are myths. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing.” For Facts and Myths about the Financial Crisis of 2008, use the link … * The Economic Cycle Research Institute (ECRI) Weekly Leading Index decreased to 114 for the week ending Oct. 17 from an unrevised 117. The smoothed, annualized growth rate fell to -19.3% from an unrevised -17.1%. Recent deteriorations in the ECRI suggest a more lengthy and severe downturn, analysts said. The basic cause of current problems has been housing and eroding credit conditions, although these problems have gradually changed into a broader slowdown, analysts said. In the U.S., the strain on the economy is best indicated by a net employment contraction for the past nine months, with September’s net employment decline of 157,000 the largest yet, analysts said. In each of the past five weeks, ECRI’s growth rate has lost ground. Turning points in this measure are intended to predict turning points in the economy, and if this trend continues, it would indicate a recession through a good part of 2009, analysts said (Moody’s Economy.com Oct. 24) … * The yield on the U.S. 30-year bond fell to the lowest level since the regular issuance of securities began in 1977, as treasuries rose and the growing financial chaos knocked more than $10 trillion of value off stock markets worldwide in October. Also, the Federal Reserve reduced the estimated value of Bear Stearns Cos. assets the Fed took on in June by $2.7 billion, or 9.2%, due to markdowns on mortgage-backed debt in the worsening credit crisis, analysts said. In other news, U.S. fixed-rate mortgages declined in the most recent week, according to a survey released Thursday by Freddie Mac. In the week ending Thursday, the national interest rate on the benchmark 30-year fixed rate loan averaged 6.04%--down from last week’s 6.46% and the year ago rate of 6.33% (Bloomberg.com Oct. 24, Bloomberg.com Oct. 23, and MarketWatch Oct. 23) … * Stocks tumbled worldwide Friday due to concerns that the deepening economic decline will hurt earnings, analysts said. Also yields on 30-year treasuries fell to a 30-year low, and the Japanese yen rose to a 13-year high against the U.S. dollar. The Standard & Poors 500 Index lost 4.7%. The MSCI’s index of 48 developed and emerging stock markets is on track for its worst year on record, dropping 48% so far in 2008 due to writedowns and credit-related losses that have risen over $660 billion, analysts said. (Bloomberg.com Oct. 24) …

News of the Competition (10/24/2008)

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MADISON, Wis. (10/27/08)
* Chrysler LLC will slash 25% of its white-collar workforce next month, it told employees Friday. The economy’s steep downturn and tightening credit are causing auto sales to wither, resulting in the need for the cuts, Chrysler CEO Robert Nardelli said in a letter to employees. The company is confronting “the most difficult economic period any of us can remember,” Nardelli said. The current job reduction is expected to impact 5,000 Chrysler employees. The company previously slashed 1,000 jobs at the end of September. Employees whose jobs are eliminated in the current reduction will be taken of the payroll Dec. 31, Nardelli explained. Some employees will be offered early retirement packages, while others will be involuntarily let go. Affected employees will be notified within the next two weeks. The job reductions are being made as Chrysler’s majority owner--Cerberus Capital Management--works on a merger deal with automaker General Motors Corp. (The Wall Street Journal Oct. 24) … * The largest bank in Pennsylvania intends to buy National City Corp.--Ohio’s largest bank--for roughly $5.2 billion in stock with funds from the U.S. Treasury. PNC Financial Services Group Inc. will pay $2.33 per share--19% less than Thursday’s closing price for National City. The deal will create the fifth largest U.S. bank as measured by deposits, according to a statement Thursday by Pittsburgh-based PNC. The deal has been substantially bolstered by $7.7 billion of Treasury funding, PNC said. Cleveland-based National City--in agreeing to the takeover after losses from failed home loans--joins Wachovia Corp. and Washington Mutual in such moves. PNC anticipates costs of $2.3 billion related to the merger and said the deal would contribute to earnings in the second year. The combined bank will cut costs by $1.2 billion, PNC said (Bloomberg.com Oct. 24) … * Phishing attacks rose 16% between August and September, and by 103% between September and October, according to MessageLabs, a provider of messaging and Web security services to businesses worldwide. With the credit crisis worsening, there has been an increase in phishing attacks, mostly on banks, in September and October, the company said. The object of the phishing attacks are credit unions and smaller state banks, online retail sites and national and global banks. MessageLabs intercepted 7,000 phishing attacks on Bank of America (BofA) Oct. 16. MessageLabs also intercepted 35,000 e-mails intended for American Express customers on Oct. 20. Because of the increased activity surrounding mergers and bailouts, scammers are taking advantage by targeting financial institutions, such as BofA, Chase Manhattan, Wachovia, Washington Mutual and big United Kingdom banks such as Lloyds and Royal Bank of Scotland (MarketWatch Oct. 21 and American Banker Oct. 24) …

CU economics group expects more market deterioration

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WASHINGTON (10/27/08)--The U.S. is in a recession that will last well into 2009, with the market expected to deteriorate, according to a group of credit union economists. The Credit Union Economics Group's (CUEG) consensus fourth quarter gross domestic product (GDP) forecast is consistent with most economics forecasters, said Dave Colby, chief economist for CUNA Mutual Group. "CUEG does not anticipate a strong deposit surge at credit unions during this economic cycle like we saw in 2001," he said, adding the economy is expected to finish the year on "a very weak note, with that weakness continuing on through 2009." The group expects target Fed Funds rates to move downward one more time during 2008 and drift upwards next year. It also says credit unions will see more growth in savings relative to lending for the rest of 2008 and 2009. Liquidity isn't expected to become an issue anytime soon. Capital and liquidity are critical in times of economic stress, and credit unions must have a good supply of both, said CUEG's Sam Inman, chief financial officer of Community First CU, Jacksonville, Fla. The current economic disruptions will bring opportunities for credit unions, he said. "For credit unions, one of our greatest opportunities is to assure we communicate our safety and soundness message and the common-sense approach of our not-for-profit business model that has prevented the excesses highlighted in media reports," Inman said. "While the mass media are focusing on the credit seize for banks, credit unions are well-positioned to continue meeting the lending needs of members," Inman said. "Credit unions offer an alternative for Americans who may be unaware of the credit union difference and are seeking a new financial partner." Terrin Griffiths, economist-industry analyst with the California and Nevada Credit Union Leagues, said, "Despite the tumultuous series of events over the past month, credit unions continue to maintain solid capital levels, enabling them to respond to their members' needs during these times of market distress." Credit unions in the West have stepped up efforts in mortgage lending in response to the credit crunch and lack of market participants, Griffiths said. "Many credit unions have also ramped up their financial literacy education efforts and have reported significant turnouts for lectures and educational sessions. Though economic conditions have continued to deteriorate in the West, credit unions appear to be well-positioned to manage the challenges such an environment brings," she said.

Schenk to CNN Premature to say housing hit bottom

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MADISON, Wis. (10/27/08)--The U.S. housing crisis may get worse before it improves, a Credit Union National Association (CUNA) economist told CNN Money Friday. Sales of existing homes rose in September, although home prices continued their decline, the National Association of Realtors (NAR) said in a report issued Friday. “I think it’s premature to say we hit bottom,” Mike Schenk, CUNA senior economist, told CNN Money. “One month of data doesn’t make a trend, and there are still some big issues hanging out there. “People are extremely nervous,” Schenk added. “When they’re nervous, they don’t buy things, specifically big-ticket purchases.” Existing home sales--which include single-family homes, townhomes, condominiums and co-ops--increased 5.5% to a seasonally adjusted annual rate of 5.18 million units in September. This is up from a level of 4.91 million in August, and is up 1.4% higher than the 5.11 million pace in September 2007, according to NAR. The median price of all homes sold in September fell to $191,600--down 8.8% from $210,500 a year ago, NAR said. “The housing market is in bad shape in fundamental ways,” Schenk said. “The good news is that prices have come down, but the problem is that people expect prices to come down.”

News of the Competition (10/23/2008)

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MADISON, Wis. (10/24/08)
* The government is working on a plan to help troubled homeowners avoid foreclosure, said Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair. “Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards,” Bair told the Senate Banking Committee yesterday. “By doing so, unaffordable loans could be converted into loans that are sustainable over the long term. Now that the administration has taken strong measures to stabilize financial institutions, it is imperative that we apply the same sharp and urgent focus to help the individual homeowners whose plight is at the root cause of this crisis.” Bair created a loan modification process at IndyMac after the FDIC became conservator of the mortgage lender this summer. She noted that the firm has mailed 15,000 modification proposals to borrowers so far, and 3,500 homeowners have accepted the offers (Reuters via The New York Times and CNNMoney.com Oct. 23) … * American International Group (AIG) has agreed to suspend bonus payments to executives from its $600 million fund and $19 million in remaining payments to Martin Sullivan, the firm’s former CEO, New York Attorney General Andrew Cuomo announced Wednesday. AIG’s spending on bonuses and lavish events--including a foreign hunting excursion--have been heavily criticized after the company received billions of dollars in loans from the Federal Reserve. “There should not even be any contemplation of bonuses for executive performance because I find it hard to conceive of a situation that you could justify a performance bonus for management that virtually bankrupted the company,” said Cuomo (The New York Times Oct. 23) ... * Goldman Sachs, the only one of the top five Wall Street investment firms to remain profitable during the credit crisis, plans to eliminate about 3,200 employees, or 10% of its workforce, as its earnings outlook weakens, said a person briefed on the matter. During the first nine months of this year, Goldman’s revenue has plunged 32%, compared with a year earlier. The company has reported $4.9 billion in losses on devalued assets. More than 130,000 jobs have been eliminated in the financial sector since the credit crisis began in mid-2007 (Bloomberg.com Oct. 23) … * The unregulated hedge-fund sector has been hit by the financial crisis. Hedge funds have lost $180 billion during the past three months. The number of hedge funds declined by 217 during the period--to 10,016, according to Hedge Fund Research. The average fund was down 17.6% through Oct. 21. Some hedge funds dumped stocks in September as wealthy investors retreated, contributing to the plunge in stock markets. The rout has affected more than just wealthy investors because public pension funds and foundations have poured billions of dollars into these private partnerships in recent years. Hedge funds could face new regulation. The House Committee on Oversight and Government Reform plans to hold a hearing with five hedge fund managers in November (The New York Times Oct. 23) …

Market News (10/23/2008)

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MADISON, Wis. (10/24/08)
* Home prices declined 0.6% (seasonally adjusted) in August compared with the previous month, the Federal Housing Finance Agency (FHFA) reported Thursday. Prices were down 5.9% over the 12 months ending in August, and down 6.5% from a peak hit in April 2007. The FHFA was formerly called the Office of Federal Housing Enterprise Oversight. Its index probably underestimates the decline in home prices because it relies on data collected by Fannie Mae and Freddie Mac, so it excludes non-conforming loans such as those purchased with jumbo loans. The maximum is $417,000, but Congress temporarily raised the limit to $729,750 for some high-costs areas. Another measure of home prices by the National Association of Realtors showed a 9.5% drop in the median home price in August (Bloomberg.com Oct. 23). That’s the largest decline on record … * Home prices will decline another 10% before stabilizing in 2010, according to Fitch Ratings. Home prices have fallen by 22% so far, estimates the ratings agency. Fitch expects most of the 10% price decline to occur in the next few quarters. Fitch says prices will have declined by 30% from the peak seen in 2006. That means that the 29% increase in prices realized between 2004 and 2006 will have been reversed. A worsening of the economy, higher mortgage rates, and continued tight underwriting present risks to the outlook, said Fitch. “Alternatively, government programs such as the U.S. Treasury’s Trouble Asset Relief Program and expanded mandates for Fannie Mae, Freddie Mac and the Federal Housing Administration to increase loan purchases and originations may facilitate liquidity in the housing markets, which could have a positive impact on prices,” said Fitch Senior Director Suzanne Mistretta (Associated Press and BUSINESS WIRE via Yahoo! News Oct. 22) … * Foreclosure filings jumped 71% in the third quarter, from a year earlier, to 765,558--the highest level on record, RealtyTrac reported Thursday. The Irvine, Calif.-based firm said 851,000 homes have been repossessed by lenders since August 2007. “We have never seen a foreclosure cycle like this one before,” said RealtyTrac Senior Vice President Rick Sharga. The firm also reported that foreclosure filings dropped 12% in September from a record-high number of filings in August. “Much of the 12% decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures,” said RealtyTrac CEO James Saccacio. Six states accounted for more than 60% of defaults in the third quarter--led by California, with 210,845 foreclosure filings. The other five states were Florida, Arizona, Ohio, Michigan and Nevada (CNNMoney.com and Bloomberg.com Oct. 23) ... * Mortgage rates retreated this week after a spike the previous week, Freddie Mac reported Thursday (CNNMoney.com Oct. 23). The average 30-year, fixed-rate mortgage (FRM) fell to 6.04%--from 6.46% the previous week and lower than the 6.33% rate a year earlier. Mortgage rates declined on “news of tame inflation and a weaker housing market,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. The 15-year FRM tumbled 42 basis points to 5.72%, while the one-year, adjustable-rate mortgage (ARM) edged up 7 basis points to 5.23%. Mortgage rates will remain volatile at least until the end of this year, said Keith Gumbinger, vice president of mortgage-research firm HSH Associates (Bloomberg.com Oct. 23). He predicts that the 30-year FRM will range from 6.25% to 6.75% until the end of 2008. For CUNA's Daily Financial Rates, use the link. … * The Pension Benefit Guaranty Corporation, the federal agency that guarantees private pensions, has lost $2.1 billion on its investments so far this year. The results reflect small gains in fixed-income investments, which slightly offset a $2.2 billion plunge in stock investments. The losses were worse because the agency in February decided to invest more aggressively in stocks to narrow its deficit. The results don’t include September or October, two months when stock markets plunged. The agency is a backstop for the pensions of workers and retirees whose firms have gone bankrupt (The New York Times Oct. 23) … * The job market continues to weaken. First-time claims for unemployment insurance rose by 15,000 during the week ending Oct. 18 to 478,000, the Labor Department reported Thursday. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, edged down by 6,000 during the week ended Oct. 11, to 3.72 million. The level of continuing claims is consistent with an economy that is in recession, noted Moody’s Economy.com (Oct. 23). With cash scarce and a weak economic outlook, businesses remain reluctant to hire. Companies also continue to announce layoffs. Chrysler announced Thursday that it plans to cut 1,825 jobs by eliminating one shift at a Toledo plant and accelerating the shutdown of a factory in Newark, Del. (Associated Press via Yahoo! News Oct. 23). The automaker’s sales plunged 25% during the first nine months of this year, compared with the same period last year …

News of the Competition (10/22/2008)

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MADISON, Wis. (10/23/08)
* In yet another effort to help ease the credit crisis, the Federal Reserve announced Wednesday that it will increase the interest rate paid to commercial banks on excess reserves. Beginning Oct. 23, the Fed will pay 1.15% on excess reserves, up from 0.75%. The rate had been set as the fed funds rate target established by the Federal Open Market Committee minus 75 basis points. Under the new formula, the rate is equal to the target rate minus 35 basis points. The move will encourage banks to keep excess reserves at the central bank. “The Board will continue to evaluate the appropriate setting of the rate on excess balances in light of evolving market conditions and make further adjustments as needed,” said the Fed … * Corporate short-term borrowing costs tumbled after the Federal Reserve announced Tuesday that it will begin providing loans to money-market funds that purchase commercial paper. Rates on the highest-ranked 30-day commercial paper plunged a record 1.46 percentage points, to 1.92%. Rates on overnight commercial paper declined 4 basis points to a record-low 0.74%, while 90-day yields dropped 18 basis points to 3.31%. Companies depend on commercial paper to finance payrolls, rent and other expenses (Bloomberg.com Oct. 22) … * Credit-rating agencies adopted an overly optimistic view of securities backed by subprime mortgages due to the relentless pursuit of profits and inherent conflicts of interest, former executives from Moody’s Investors Service and Standard & Poor’s told a congressional committee Wednesday. Ratings firms focused on boosting profits even if reliability was compromised, said Frank Raiter, a former managing director at Standard & Poor’s. Former Moody’s Executive Jerome Fons said the goals of ratings agencies should be changed so that they serve bond buyers, not issuers. Committee Chairman Henry Waxman, D-Calif., noted that ratings firms grew rich even as investors were burned by mounting losses. Revenue of the three largest ratings companies doubled from 2002, to $6 billion in 2007. “The story of the credit-rating agencies is a story of colossal failure,” said Waxman (The Wall Street Journal Online Oct. 22) … * Federal prosecutors investigating the bankruptcy of Lehman Brothers are subpoenaing executives from other securities firms to see whether their analysts were misled by Lehman about its financial strength, say people familiar with the situation. Current and former Lehman executives also have been subpoenaed. Less than one week before its bankruptcy filing, Lehman assured analysts during a conference call that it needed no new capital. However, executives had determined the previous day that the company needed at least $3 billion in new capital, say people familiar with the matter. Prosecutors are centering their investigation on whether Lehman valued its assets at artificially high levels, improperly shifted $8 billion from its London operations to New York just before the bankruptcy filing, and whether the firm misled the New Jersey pension fund when it provided data about its financial situation (The Wall Street Journal Online Oct. 22) … * Wall Street should impose a moratorium on year-end bonuses until firms find a way to keep the payouts from encouraging excessive risk taking, said House Financial Services Committee Chairman Barney Frank, D-Mass. “They have a negative incentive effect because they are the ones that say if you take a risk and it pays off you get a big bonus,” and if executives’ actions prompt losses, “you don’t lose anything,” said Frank. The nation’s five largest securities firms paid out a record $39 billion in bonuses in 2007, even as the credit crisis spread (Bloomberg.com Oct. 22) …

Market News (10/22/2008)

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MADISON, Wis. (10/23/08)
* New-home sales will plunge by 12% in 2009 as housing starts post a record decline, said Mortgage Bankers Association Chief Economist Jay Brinkmann. At the trade group’s annual convention in San Francisco yesterday, Brinkmann said he expects the economy to contract during the first half of next year. “We expect residential investment to decline further through the first half of 2009, due to the excess supply of houses and weakened demand from the recession,” said Brinkmann. The trade group forecasts that housing starts will decline to 525,000 in the second quarter of next year--down 70% from the peak reached in the third quarter of 2005. Home prices are expected to continue falling through most of next year. The trade group predicts that mortgage originations for home purchases will tumble 20% to $912 billion this year (Bloomberg.com Oct. 22) … * Mortgage activity tumbled last week as both purchase and refinancing applications declined, the Mortgage Bankers Association (MBA) reported Wednesday (mbaa.org Oct. 22). The trade group’s Market Composite Index fell 16.6% during the week ending Oct. 17 to 408.1. The Purchase index dropped 10.9% to 279.3, and the Refinance Index plunged 23.5% to 1158.8. The average 30-year, fixed-rate mortgage (FRM) fell 19 basis points to 6.28% last week, while the one-year, adjustable-rate mortgage (ARM) jumped 30 basis points to 6.97%, said the MBA. The 30-year FRM is now 7 basis points higher than a year ago, while the one-year ARM is 87 basis points higher, noted Moody’s Economy.com (Oct. 22). The research firm predicts that mortgage demand will remain weak until potential homebuyers see an improvement in the job market … * The number of mass layoff actions jumped in September to the highest level since the September 2001 terrorist attacks, the Labor Department reported Wednesday. Employers took 2,269 mass layoff actions in September (seasonally adjusted), up by 497 from August. The number of initial unemployment claims related to mass layoffs increased by 61,726 to 235,681--the highest level since September 2005, a month with high layoffs due to Hurricane Katrina. Hurricanes Gustav and Ike contributed to the higher September 2008 layoffs. The manufacturing sector accounted for 28% of all mass layoff events and 36% of initial claims filed last month. Manufacturing layoffs have increased by an average of more than 15,000 workers over the past three months, compared with last year, said Moody’s Economy.com (Oct. 22). The research firm predicts that job losses in the sector will continue to increase as a slowdown in the global economy curbs U.S. exports … * Growth in the world’s advanced economies will be close to zero at least until mid-2009--the weakest since the 2001-02 recession--as the credit crisis continues and the commodity markets remain volatile, the International Monetary Fund (IMF) said Wednesday. U.S. economic growth is expected to be close to zero or slightly negative for the remainder of this year and into the first quarter of 2009. The U.S. economy is forecast to gradually recover during the second half of next year. Lower commodity prices will dampen economic growth in emerging markets. However, the IMF predicts that Latin American and Caribbean regions will grow at a 3% pace (CNNMoney.com Oct. 22) … * Oil prices plunged Wednesday following a government report of rising supplies due to weaker demand. The Energy Information Administration said crude-oil inventories surged by 3.2 million barrels last week. Light, sweet crude for December delivery tumbled $4.03 to $68.15 a barrel on the New York Mercantile Exchange in morning trading. The stock markets declined again Wednesday as companies continued to report weak earnings for the third quarter. “Oil is now highly correlated with the stock market,” noted Clarence Chu, a trader with Hudson Capital Energy. He said oil prices may jump Friday if the Organization of Petroleum Exporting Countries announces a production quota reduction, as expected. Oil prices have declined by 54% from the peak of $147.27 hit in mid-July (Associated Press via Yahoo! News Oct. 22) … * Airline fares in North America may decline slightly next year as the economic slowdown dampens demand, according to American Express’ annual business travel forecast. Lower oil prices also are giving airlines more room to lower fares. Lower occupancy rates and restrictions on business travel should moderate hotel-rate increases next year as well. American Express predicts that airline fares will decline as much as 3% or rise by no more than 5%. Hotel rates are forecast to increase by no more than 6% or decline by up to 1% (Reuters via Yahoo! News Oct. 22) …

News of the Competition (10/21/2008)

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MADISON, Wis. (10/22/08)
* In another effort to ease the credit crunch, the Federal Reserve announced Tuesday that it will begin purchasing commercial paper from money market mutual funds. Through its new “Money Market Investor Funding Facility,” the central bank plans to back purchases of commercial paper and certificates of deposit issued by highly rated financial institutions. The private sector will establish special purpose vehicles to purchase eligible money market instruments, and the Fed will back those purchases through the new credit facility. “The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs,” said the Fed. The situation prompted a huge credit crunch for firms depending on commercial paper to pay workers and buy supplies (Associated Press via CNNMoney.com and The Wall Street Journal Online Oct. 21) … * Even as it cuts thousands of jobs due to its planned acquisition by Bank of America, Merrill Lynch is set to pay strategy head Peter Kraus more than $10 million in exit compensation, say people familiar with the situation. Kraus, a former Goldman Sachs executive who joined Merrill in early September, was recruited by CEO John Thain. The takeover has changed the terms of Kraus’s contract and will trigger an exit payment. He will leave Merrill with a total $25 million in overall compensation (The Wall Street Journal Online Oct. 21) … * Citigroup was defrauded by bankrupt Italian company Parmalat, a New Jersey jury has decided. Parmalat’s new management had sought up to $2.2 billion in damages from the bank, alleging that it engaged in complex transactions designed to help Parmalat “mask their systemic looting of the company.” Citigroup filed a countersuit, claiming it was a victim of Parmalat’s fraud. “Citi was the largest victim of the Parmalat fraud and not part of it,” said the bank in a statement following the verdict. Citigroup still is facing billions of dollars in legal claims for its alleged role in the subprime-mortgage meltdown (The New York Times Oct. 21) … * The financial crisis hit six large regional banks in the third quarter. Ohio’s largest regional banks all posted losses. Cleveland-based National City Corp. posted its fifth consecutive quarterly deficit. The firm said it plans to eliminate 4,000 jobs, or 14% of its workforce, over the next three years. Fifth Third Bancorp of Cincinnati and KeyCorp of Cleveland both reported their second consecutive loss. “We have experienced the most severe financial crisis any of us has known in our business lifetime,” said KeyCorp CEO Henry Meyer. Other regions also were hard hit. Minneapolis-based U.S. Bancorp said its profit plunged 47% to $576 million. Regions of Birmingham, Ala., said its profit tumbled 80% to $79.4 million, and profit at Buffalo, N.Y.-based M&T dropped 54% to $91.2 million (Reuters via The New York Times Oct. 21) … * Countrywide Financial Corp., which once was the nation’s largest mortgage lender, ranked last in satisfaction among customers who received new mortgages during the past year, according to a study by J.D. Power and Associates. SunTrust Banks ranked highest in the study of 10 top lenders--followed by National City Corp., Wachovia Corp., Wells Fargo, Bank of America, Washington Mutual, CitiMortgage, GMAC’s mortgage unit, JPMorgan Chase, and Countrywide. The industry has since consolidated, with Countrywide being acquired by Bank of America, and JPMorgan acquiring Washington Mutual. Wells Fargo expects to complete its acquisition of Wachovia by the end of this year (Reuters via Yahoo! News Oct. 20) ...

Market News (10/21/2008)

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MADISON, Wis. (10/22/08)
* The gap between rich and poor is growing in the world’s richest countries--especially the U.S.--as children and low-skilled workers become poorer, according to a report by the Organization for Economic Cooperation and Development (OECD). The U.S. has the highest inequality and poverty among OECD nations, after Mexico and Turkey. The richest 10% of Americans earn an average $93,000--the highest level among OECD nations--while the poorest 10% earn an average $5,800--20% lower than the OECD average. The gap between rich and poor in the U.S. has soared since 2000, noted the report. “Greater income inequality stifles upward mobility between generations, making it harder for talented and hard-working people to get the rewards they deserve,” said OECD Secretary General Angel Gurria. “It polarizes societies, it divides regions within countries, and it carves up the world between rich and poor,” added Gurria (Associated Press via The New York Times Oct. 21) … * All of the major European nations will enter recession during the coming months, the International Monetary Fund (IMF) said Tuesday. “Confronted with a crisis in the financial system that is of unprecedented scale, scope and complexity, on top of a commodity price shock, it’s hardly surprising that Europe’s economy is entering a major slowdown,” said Alessandro Leipold, acting director of the IMF’s European department. The U.K., Sweden, and Denmark are forecast to post average economic growth of 1.3% this year and 0.2% in 2009. The IMF said Europe may need to consider further interest-rat cuts and stimulative fiscal policy to help ease the downturn (The Wall Street Journal Online Oct. 21) … * Investor confidence dropped to a record low in October amid a flight from risky assets. The State Street Investor Confidence Index plunged to 58.2--from 75.7 in September and the lowest level in the more than 10 years of the index. The previous low for the index was 65.9 in December 2007. “The combination of financial crisis along with truly global macroeconomic risk of deep recession has been causing a complete re-evaluation of risk across a wide investment community centered on U.S. institutional investors,” said Ken Froot, a professor at Harvard University who co-developed the index. He noted that the sell-offs seen in the 1996 Asian crisis and in the 1998 Russian crisis seem “small compared with the current outflows.” (Reuters via The New York Times Oct. 21) … * The U.S. dollar has benefited from the worldwide financial crisis amid a global flight from risky assets and the unwinding of bets made with borrowed cash. Since September, the dollar has strengthened 8% against a trade-weighted basket of 26 currencies, according to Federal Reserve data. The dollar also has been strengthened because foreign banks are scrambling for dollars. However, some analysts are concerned that the fiscal cost of bailing out the U.S. financial sector eventually will dampen the value of the dollar (The Wall Street Journal Online Oct. 20) … * Tracinda Corp., the investment firm of millionaire Kirk Kerkorian, said Tuesday that it sold 7.3 million of its shares in Ford Motor Co. The company said it plans to further cut what is now a 6.1% stake in Ford. Kerkorian lost about $44.3 million in Tuesday’s sale. Just four months ago, Tracinda bought 20 million of Ford’s shares to increase its stake to 6.49%. However, rising gasoline prices, the economic slump, and tighter credit markets have weakened the profits of Ford and other automakers since then (Associated Press via The New York Times Oct. 21) …

News of the Competition (10/20/2008)

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MADISON, Wis. (10/21/08)
* Facing a flood of new regulation in the wake of the financial crisis, U.S. financial institutions continue to lobby lawmakers and government agencies even as they accept bailout money. Merrill Lynch, which soon will be acquired by Bank of America, spent at least $1.5 million on lobbying between July 1 and Sept. 30, according to disclosures. Bank of America will sell $25 billion in preferred stock to the Treasury Department as part of the federal bailout plan. Morgan Stanley, which will receive $10 billion from Treasury in exchange for preferred stock, spent $765,000 in the third quarter. While Fannie Mae and Freddie Mac were prohibited from lobbying after they were placed in conservatorship last month, other financial firms don’t face bans (The Wall Street Journal Online Oct. 20) … * Insurer American International Group (AIG), which has obtained more than $120 billion in government loans to keep it afloat, said Monday that it will stop lobbying lawmakers and regulators. “AIG has spent millions to lobby states to soften [mortgage] licensing provisions, even after taxpayers loaned AIG more than $120 billion to prevent its collapse precipitated by excessive risk-taking,” senators wrote in a letter sent to AIG CEO Edward Liddy on Friday. The firm also announced yesterday that it cancelled about 160 events, which would have cost a total $80 million. Lawmakers and reporters criticized the lavish events held by AIG after it received bailout money. The all-expenses-paid events included an overseas hunting trip for executives that cost $100,000 (The Wall Street Journal Online Oct. 20) … * The federal government and New York Attorney General Andrew Cuomo have launched a joint investigation into the $34.8 trillion credit-default swap market, said U.S. Attorney Michael Garcia on Monday. Cuomo has been investigating whether short sellers manipulated credit-default swaps to spread false rumors about financial firms. Investors often purchase credit-default swaps to bet that a firm’s financial condition will weaken. Swaps increase in value as investors’ view of a firm weakens. The absence of regulation in such markets was a “principal cause” of the financial meltdown, said New York Gov. David Patterson in a speech last month (Bloomberg.com Oct. 20) … * Merrill Lynch will eliminate thousands of jobs after it is acquired by Bank of America, said Merrill CEO John Thain in an interview with Bloomberg News on Monday (Bloomberg.com Oct. 20). The company already cut more than 5,000 jobs during the last 18 months in an effort to curb costs as the credit markets froze. Thain said he expects credit markets to thaw over the next six-to-12 months after governments injected trillions of dollars into banks. However, he said the government bailout plan won’t help the U.S. economy avoid a recession. Banks worldwide have cut more than 130,000 jobs since June 2007. Banks and insurers have reported more than $661 billion in losses and writedowns …

Market News (10/20/2008)

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MADISON, Wis. (10/21/08)
* The global financial crisis will prompt the loss of 20 million jobs by the end of 2009, according to a forecast by the United Nation’s International Labor Organization. ILO Director-General Juan Somavia also noted that it is alarming that global unemployment remained at the same level from 2002 through 2007--despite strong economic growth. He said the financial sector’s share in the profits of U.S. firms jumped to 41% last year, from 5% in 1980. As a result, said Somavia, banks wanted to invest in financial transactions rather than lend to productive sectors of the economy, and non-financial companies cut costs by freezing salaries or eliminating staff so they could match the returns of the financial sector. “So this system began to siphon off resources from the real economy process,” said Somavia. “From one point of view this is called productivity increases. From a more profound point of view it means a worker becomes a commodity.” (Reuters via Yahoo! News Oct. 20) … * Germany announced conditions Monday for banks that accept help from its $675 billion bailout plan. The conditions include capping annual salary for top managers at $675,000 and requiring them to forgo bonuses and dividend payments. Several banks said they would not participate in the bailout. Deutsche Bank Chief Executive Josef Ackermann said his firm doesn’t need capital from the state. His top pay last year totaled almost $18.9 million (Associated Press via msn.com Oct. 20) … * Another round of fiscal stimulus is needed to help the economy recover from what could be a prolonged slowdown, said Federal Reserve Chairman Ben Bernanke. In a speech to the House Budget Committee yesterday, Bernanke said a new stimulus plan should be timely, targeted and temporary. He said measures should include improving access to credit for consumers, homebuyers, and businesses. However, he said financial stabilization, “though an essential first step, will not quickly eliminate the challenges still faced by the broader economy.” He noted that housing “remains depressed” and a decline in vehicle sales “has been particularly sharp.” And Bernanke said uncertainty about the economy “is unusually large” (MarketWatch and The Wall Street Journal Online Oct. 20) … * A barometer of the nation’s economic health improved for the first time in five months during September (Associated Press via The New York Times Oct. 20). The Conference Board’s index of leading economic indicators rose 0.3%, following revised declines of 0.9% in August and 0.7% in July. Six of the 10 components of the index were positives in September--led by the money supply and consumer expectations. “Data on hand reflect a contracting economy, but not one in free fall,” said Conference Board Labor Economist Ken Goldstein. The money supply and consumer expectations have reversed since September, noted Moody’s Economy.com (Oct. 20). A 5% rate of decline in the index over the last three months indicates that the economy is slowing as much as it did in 1990, just before the last consumer-driven recession … * Americans have become much more worried about the weakening economy and its effects on them, according to an Associated Press-Yahoo News survey of likely voters released Monday. The in the poll, only 15% of respondents said the economy is moving in the right direction--down from 28% in September. And 59% said they are personally happy, down from 70%. In addition, one-third are worried about losing their jobs, half worry they won’t be able to keep current on their mortgage and credit-card payments, 70% are anxious that their stocks and retirement accounts are losing value, 53% said they’re worried about having to work longer because their retirement accounts have lost value, and 66% said they’re worried about facing major medical bills (Associated Press via Yahoo! News Oct. 20) … * Ford Motor and Chrysler LLC are offering discounts on their newest pickup trucks to boost sales, according to a report in The Financial Times (Reuters via The New York Times Oct. 20). Ford is offering a $2,500 discount for every trade-in of the F-150 truck. Chrysler will be offering incentives of up to $2,000 on the 2009 Dodge Ram. Sales of the F-Series were down 39% in September, compared with a year earlier, while Ram sales were down 28% …

News of the Competition (10/17/2008)

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MADISON, Wis. (10/20/08)
* Illinois last week became the first state to help boost local banks and credit unions by making up to $1 billion in deposits available to them. Under a plan by State Treasurer Alexi Giannoulias, state funds will be made available to any state- or federally-chartered bank or credit union with a physical location in Illinois. It doesn’t include the nine Wall Street firms receiving funds as part of the federal government’s bailout program. Financial institutions can request up to $25 million. We wanted to show that the state is confident in its banking sector, said Giannoulias. He expects other states to follow suit (FT.com Oct. 17) … * The combined profits that major banks have earned in recent years have vanished because of the credit crisis. The nation’s nine largest banks have written down their assets by a combined $323 billion since the credit crisis began in mid-2007. Banks already have wiped out $1.06 for each dollar earned during their most prosperous years. And with a recession on the horizon, there’s no end in sight. Banks still need to raise about $275 billion even with the federal government’s massive capital infusion. “The losses now are showing that in some sense the profits reported in earlier years were not real, because they were taking too much risk then,” said Richard Sylla, an economist at New York University’s Stern School of Business (The New York Times Oct. 17) … * Bankrupt Lehman Brothers Holdings is the focus of three federal criminal investigations and at least 12 subpoenas, according to Lehman bankruptcy attorney Harvey Miller. In Manhattan federal court last week, Miller said the firm is facing grand jury investigations by the New York U.S. attorneys in Brooklyn and Manhattan and in Newark, N.J. The probes are focusing on the firm’s role in the auction-rate securities market and possible crimes related to the investment bank’s $6 billion stock issue in June, said a person familiar with the matter. Lehman’s bankruptcy on Sept. 15 helped accelerate the global credit panic that so far has wiped out $30 trillion of equity value (Bloomberg.com Oct. 17) … * The Federal Reserve’s plan to buy commercial paper may be helping the market. The commercial paper market shrank for a fifth consecutive week last week, but the pace of declines slowed, according to Fed data released last week. The commercial paper market declined by $40.3 billion (seasonally adjusted) in the week ended Oct. 15--following declines of $56.4 billion the previous week and $94.9 billion two weeks earlier. For the past five weeks, the market’s cumulative decline is $304.7 billion--bringing the overall market down to $1.511 trillion, compared with its July 2007 peak of $2.2 trillion. The commercial paper market is important to businesses, which often depend on it for short-term expenses such as rent and payrolls (The Wall Street Journal Online Oct. 17) …

Market News (10/17/2008)

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MADISON, Wis. (10/20/08)
* New-home construction plunged last month as builders slashed production in the face of an inventory glut. Privately owned housing starts tumbled 6.3% to a seasonally adjusted annual rate of 817,000 units in September, the Commerce Department reported Friday. Starts were down 31.1% from a year earlier. Single-family housing starts fell 12% last month to an annul rate of 544,000. There’s more weakness ahead. Building permits, a sign of future activity, dropped 8.3% to an annual pace of 786,000 in September. The rate was 38.4% below the year-earlier level. “The home building market continues to slide away and it is not over yet,” said Mark Zandi, chief economist at Moody’s Economy.com (Associated Press via The New York Times Oct. 17). “Demand is now weakening as a result of the financial panic and the hit to the job market,” added Zandi. A report by the National Association of Home Builders (NABE) also signals further weakness. The NABE/Wells Fargo Housing Market Index (HMI) fell 3 points to a record-low 14 in October (nahb.org Oct. 16). “Undoubtedly, today’s HMI reflects builder assessments of the recent events on Wall Street, the rapid deterioration in job markets and the corresponding weakness in consumer confidence,” said NAHB Chief Economist David Seiders … * Consumer confidence posted the largest decline on record during October amid plunging stock markets and mounting job losses (Bloomberg.com Oct. 17). The Reuters/ University of Michigan preliminary index of consumer sentiment tumbled to 57.5--from 70.3 in September and the largest decline since record keeping began in 1978. The index of current conditions tumbled to 58.9--from 75 and the lowest level on record. The index of consumer expectations (for six months ahead) fell to 56.7 from 67.2. Rising food prices and volatile energy prices will weigh on consumers going forward, noted Moody’s Economy.com (Oct. 17). Other weights include falling home prices, stock-market declines, job losses, high debt obligations, and tight credit … * Long-term mortgage rates soared last week as bond yields increased. The average 30-year, fixed-rate mortgage (FRM) jumped 52 basis points to 6.46%, while the 15-year FRM surged 51 basis points to 6.14%. The one-year, adjustable-rate mortgage (ARM) rose just 1 basis point to 5.16%. “Interest rates for 30-year FRMs rose this week to an 8-week high,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “ARM rates, which tend to be based on shorter-term benchmarks, showed smaller gains in part due to the Federal Reserve’s October 8 inter-meeting rate cut in the overnight lending rate,” added Nothaft. Long-term rates are now higher than they were a year earlier, while short-term rates are lower. The 30-year FRM averaged 6.40% at this time last year, while the 15-year FRM stood at 6.08%, and the one-year ARM was at 5.76%. For CUNA's Daily Financial Rates, use the link. … * Financial institutions borrowed a record amount from the Federal Reserve’s discount window last week, the Fed reported Thursday. Total borrowing--including direct loans to depository institutions and securities firms--rose to $441.4 billion as of Oct.15, from $430.9 billion the previous week. Lending via the primary credit facility used by commercial banks increased to $101.9 billion from $98.1 billion. Lending via the primary dealer credit facility, which was created for investment banks in March, rose to $133.9 billion from $122.9 billion. “Other credit extensions,” mostly reflecting loans made to insurer American International Group (AIG), were $82.86 billion, up from $70.3 billion. Last month, the Fed agreed to rescue AIG with an $85 billion loan, in return for an 80% stake in the insurer. The Fed also agreed to provide as much as $37.8 billion in additional liquidity to AIG (The Wall Street Journal Online and Bloomberg.com Oct. 17) …

News of the Competition (10/16/2008)

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MADISON, Wis. (10/17/08)
* New York Attorney General Andrew Cuomo is demanding that American International Group (AIG) recover bonuses and other payments made to its former executives. In a letter to AIG’s Board, Cuomo also cited a lavish golf outing and an overseas hunting trip that cost $100,000, expenditures that the firm made after receiving billions of dollars in government aid. “AIG’s belief is that they had the party, and the taxpayers will have the hangover,” Cuomo told reporters on Wednesday. In his letter, Cuomo noted that AIG’s board gave its chief executive officer a $5 million cash bonus and a “golden parachute” worth $15 million. “Similarly, in February 2008, a top-ranking executive who was largely responsible for AIG’s collapse was terminated, but still permitted by the board to keep $23 million in bonuses. This same individual apparently continued to receive $1 million a month from the company until recently,” said Cuomo (The New York Times Oct. 16) … * Even after receiving billions of dollars in emergency aid from the federal government, American International Group (AIG) is spending money to lobby states for weaker controls on the mortgage industry. The federal government banned lobbying at Fannie Mae and Freddie Mac when it took control of those two firms. However, it hasn’t prohibited the practice at AIG, even though it has an 80% ownership stake in the insurer. State regulators say AIG is lobbying to ease some provisions of the new federal law creating strict oversight of mortgage originators. Regulators say other financial institutions also are lobbying against stricter supervision. “I find it disconcerting that there’s still efforts to weaken our regulatory system, and that those efforts would be in any way subsidized by taxpayer dollars,” said John Ryan, executive vice president of the Conference of State Bank Supervisors (The Wall Street Journal Online Oct. 16) … * The Securities and Exchange Commission (SEC) has agreed to a request from banks for a rule change that will let them postpone writedowns on some securities that have declined in value because of the credit crunch. In a letter, SEC Chief Accountant Conrad Hewitt told Financial Accounting Standards Board chairman Robert Herz that banks could treat perpetual preferred securities more like debt securities. Perpetual preferred securities are rated similarly to debt, but are considered more like stock because investors can’t redeem them the way they can redeem debt. Treating the securities as debt lets banks avoid writing them down as they would with equity (Reuters via The New York Times Oct. 16) … * JPMorgan Chase, which acquired Washington Mutual on Sept. 25, has surpassed Citigroup to become the biggest U.S. bank by assets. JPMorgan ended the third quarter with $2.25 trillion in assets, compared with $2.05 trillion for Citigroup. However, Bank of America may become the nation’s largest bank by assets after it completes its acquisition of Merrill Lynch in the first quarter (Reuters via The New York Times Oct. 16) … * One out of five consumers say they can’t pay their monthly credit card or other loan balances at least some of the time, according to a Standard & Poor’s survey (American Banker Oct. 16). In the poll, 14% said they sometimes can’t pay off their balances, and 6% said they always can’t pay them off. In other news, Capital One Financial Corp. said Wednesday that the net chargeoff rate on its U.S. card portfolio jumped 38 basis points to 6.34% in September (Forbes.com Oct. 15). Internationally, chargeoffs surged 56 basis points to 5.87%. The delinquency rate rose to 4.20%, from 4.07%, on domestic accounts. The delinquency rate rose to 5.24%, from 5.15%, on international accounts …

Market News (10/16/2008)

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MADISON, Wis. (10/17/08)
* Stock markets plunged again Thursday after the government reported a huge decline in industrial production for September. Industrial output tumbled 2.8% last month as hurricanes Gustav and Ike and a strike at an aircraft producer curbed production, the Federal Reserve reported yesterday. The output of mines plunged 7.8%--reflecting disruptions in oil and natural gas operations in the Gulf of Mexico because of the hurricanes. Manufacturing output dropped 2.6%, while utilities output rose 2.2%. The capacity utilization rate for total industry dropped to 76.4% in September--4.6 percentage points below its average from 1972 to 2007. For the third quarter, overall industrial production fell at an annual rate of 6%. That’s the largest decline since 1991 (Bloomberg.com Oct. 16). The monthly drop was the biggest since December 1974 … * Inflation eased last month as energy prices continued to decline and the economy weakened. The Consumer Price Index (CPI) was unchanged in September after a 0.1% drop in August, the Labor Department reported Thursday. The CPI was up 4.9% over the year ending in September, easing from a 5.4% year-over-year gain in August. Energy prices fell 1.9% last month following a 3.1% drop, while food prices rose 0.6%, the same as the previous month. Excluding the volatile food and energy categories, the core CPI rose 0.1% in September and was up just 2.5% from a year earlier. The CPI statistics show the serious economic situation, as declining consumer demand has helped dampen energy prices, said Moody’s Economy.com (Oct. 16). Not even the inflation hawks at the Federal Reserve will be able to say that inflation remains a danger to the U.S., noted the research firm … * Social Security benefits will increase 5.8% in 2009--the largest gain in more than 25 years. The increase, which was announced by the Social Security Administration on Thursday, is based on data from the Consumer Price Index released by the Labor Department. The increase will mean another $63 per month for the average retiree, to a monthly payment of $1,153. That’s scant comfort to retirees facing rising energy and food bills and declining retirement savings because of the stock-market plunge. Earlier this month, the Congressional Budget Office estimated that retirement plans lost about $2 trillion over the previous 15 months--20% of their value. The stock markets have continued to decline since then (Associated Press via CNNMoney.com Oct. 16) … * Workers’ earnings remain weak, even as retirement accounts are losing value and home prices continue to decline. Real (inflation-adjusted) weekly earnings were unchanged in September, the Labor Department reported Thursday. A 0.2% increase in average earnings and a 0.1% decline in the Consumer Price Index for Urban Wage Earners and Clerical Workers were offset by a 0.3% drop in average hours. Real earnings were down by 2.5% over the 12 months ended in September … * The economy weakened in all of the Federal Reserve’s 12 regional districts in September and early October, according to the central bank’s latest Beige Book survey. Most districts reported a decline in consumer spending, weaker manufacturing activity, tighter credit conditions, and softer job markets. Retail sales and tourism also weakened. The residential real-estate market continued to soften in most districts. Retailers forecast a “weaker economic outlook, including a slow holiday season,” said the Fed (Associated Press via Yahoo! News and Economy.com Oct. 16) … * Holiday shopping this year will increase by the lowest amount in six years, according to a survey released Thursday by the National Retail Federation (NRF). Consumers plan to spend an average $832.36 on holiday shopping--up only 1.9% from last year and the smallest increase since 2002, when the trade group launched the survey. “Consumers will be sticking to their budgets and looking for good deals when deciding where to spend this holiday season,” said NRF president/CEO Tracy Mullin. Almost 70% of respondents said they plan to do some shopping at discount stores this year, while 58% plan to shop at department stores (Reuters via The New York Times Oct. 16) …

News of the Competition (10/15/2008)

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MADISON, Wis. (10/16/08)
* JPMorgan Chase and Wells Fargo posted stronger-than-expected earnings Wednesday despite mounting credit losses. Both banks added deposits as customers withdrew funds from weaker rivals, and both are snapping up competitors. Last month JPMorgan agreed to acquire Washington Mutual, and Wells Fargo agreed to buy Wachovia. JPMorgan posted profit of $527 million for the third quarter--down 84% from a year earlier but beating analysts’ expectations. The New York-based firm set aside $6.6 billion for credit losses--almost three times more than a year earlier. The company wrote off $3.6 billion for mortgage debt and leveraged loans, lost $642 million on preferred stock at Freddie Mac and Fannie Mae, and took a $248 million charge to buy back auction-rate securities. San Francisco-based Wells Fargo posted a profit of $1.64 billion--down 25% from a year earlier, as it set aside $2.5 billion for credit losses. Its net charge-offs more than doubled to $2 billion, and it took $646 million in charges related to Fannie and Freddie preferred stock and to Lehman Brothers’ bankruptcy. Despite their strong capital positions, Wells and JPMorgan are among the nine banks taking part in the government’s $250 billion capital-infusion plan (Reuters via The New York Times and Dow Jones Newswires Oct. 15) … * The compensation committees of financial institutions accepting the government’s capital infusions would have to identify incentives in their pay packages that led to excessive risk taking, according to rules of the bailout plan. Such reviews would have to occur within 90 days after the government first takes preferred shares in the firm. Banks accepting capital infusions also would only be allowed to deduct $500,000 in compensation expenses for tax purposes--not the $1 million typically allowed. “The terms are not meant to be punitive, but there are incentives built in so companies will buy us out,” said a Treasury official (Dow Jones Newswires Oct. 15) … * JPMorgan Chase has agreed to let bankrupt Washington Mutual’s parent firm access $4.4 billion of its funds to help pay creditors, according to bankruptcy documents. The thrift’s parent firm can take back control of $707 million in deposits it held at Washington Mutual Bank and $3.7 billion it held at subsidiaries. Creditors’ attorneys had been worried that the deposit funds wouldn’t be available to pay back their clients. JPMorgan agreed to acquire Washington Mutual in September (Reuters via The New York Times Oct. 15) … * Standard & Poor’s Corp. has lowered its ratings on another $5.19 billion of U.S. collateralized debt obligations (CDOs). The downgrades reflect continued credit deterioration and housing weakness, and recent cuts on residential mortgage-backed securities. So far, the ratings agency has downgraded $457.24 billion of CDOs. And its ratings on $28.42 billion of securities face a high probability of downgrades as home prices continue to decline and delinquencies mount (Dow Jones Newswires Oct. 14) …

Market News (10/15/2008)

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MADISON, Wis. (10/16/08)
* The housing collapse and government bailout program pushed the budget deficit to a record high this year, according to the Treasury Department (Associated Press via Yahoo! News Oct. 15). The deficit soared to $454.8 billion for the budget year ended Sept. 30--more than twice the $161.5 billion deficit in 2007 and topping the previous record of $413 billion set in 2004. Some analysts predict the deficit will exceed $700 billion in 2009, as the economic slump dampens revenue and the costs of the federal bailout mount. Moody’s Economy.com (Oct. 14) predicts that the deficit will top $700 billion in 2009 and 2010. The research firm estimates that the deficit will be about $250 billion greater over the next decade than it otherwise would have been, due to the federal takeovers of Fannie Mae, Freddie Mac, and American International Group, and the bailout package. The deteriorating economy is projected to added another $250 billion to the deficit over the next 10 years … * The nation’s economy won’t rebound soon even if confidence in the financial system improves, said Federal Reserve Chairman Ben Bernanke. In a speech to the Economic Club of New York yesterday, Bernanke said the $700 billion bailout package should help lower economic risks. “Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away … Credit markets will take some time to unfreeze.” He had an upbeat view of inflation. Economic weakness, declining oil prices, and “decelerating” import prices “should lead to rates of inflation more consistent with price stability.” His remarks suggest the Fed may lower interest rates further when policymakers meet later this month. A week ago, the Fed lowered the target for the fed funds rate by 50 basis points, to 1.5% (Associated Press via Yahoo! News and The Wall Street Journal Online Oct. 15) … * Two surveys indicate increased pessimism about the global economy. Confidence in the global economy tumbled in October as the credit freeze boosted the odds of recession, according to a survey of Bloomberg News users worldwide (Bloomberg.com Oct. 15). The Bloomberg Professional Global Confidence Index tumbled to 4, from 11.3 in September. British respondents were the most pessimistic, with that index dropping to 3 from 5.7%. The U.S. reading fell to 5.1 from 15.2. In another survey by Merrill Lynch, the number of fund managers saying the global economy already is in recession jumped to 69% in October, from 44% in September (MarketWatch Oct. 15). A net 59% of respondents said they think monetary policy is still too restrictive--up from 29%, while 72% predict short-term interest rates will be lower 12 months from now, up from 51% … * Retail sales tumbled 1.2% in September, the Commerce Department reported Wednesday. It was the largest decline since a 1.4% drop in August 2005 (Associated Press via Yahoo! News Oct. 15). The decline was led by a 3.8% plunge in auto sales, as tighter credit and high gasoline prices discouraged buyers. In addition, sales at department stores dropped by 1.5%, while sales at furniture stores declined by 2.3%, and sales at appliance stores fell by 1.5%. The weak report helped dampen the stock markets yesterday, as investors worried about weak consumer spending and recession. Mounting job losses, continued declines in stocks and housing, high food and energy prices, and weak income growth probably will continue to dampen consumer confidence and spending in the months ahead … * Wholesales prices retreated for a second consecutive month in September, according to a Labor Department report. The Producer Price Index (PPI) fell 0.4% following a 0.9% drop in August. The slower rate of decline in September was led by energy, which fell by 2.9% after a 4.6% drop in August. Excluding the volatile food and energy categories, the core PPI rose by 0.4% following a 0.2% increase. Over the past year, the core PPI was up 4% compared with an 8.7% jump in the overall PPI. The economic slowdown will dampen pricing pressures in coming months, giving the Federal Reserve room to ease interest rates further … * Mortgage activity rose for a second consecutive week--led by refinancings, the Mortgage Bankers Association reported Wednesday. The trade group’s Market Composite Index increased by 5.1% during the week ending Oct. 10 to 489.3. The Refinance Index jumped 12.5% to 1514.2, while the Purchase Index edged down 0.3% to 313.5. “Lower (Treasury) yields earlier in the week appeared to have spurred refinance activity, which then faded as the week went on and rates began to rise,” said Orawin Welz, vice president of economic forecasting at the trade association. The average 30-year, fixed-rate mortgage (FRM) jumped 48 basis points to 6.47% last week, while the one-year, adjustable-rate mortgage (ARM) rose 7 basis points to 6.67% (mbaa.org Oct. 15) …

News of the Competition (10/14/2008)

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MADISON, Wis. (10/15/08)
* GMAC Financial Services, the financing arm of General Motors that is now controlled by Cerberus Capital Management, announced late Monday that it is adopting a stricter policy for auto financing amid the global credit crunch. GMAC said it will limit purchases to contracts with a credit score of 700 or higher. It also will restrict contracts with longer terms and increase the rate it charges dealers for providing non-incentivized auto financing. The new policies could deepen General Motor’s slide in auto sales. GMAC provided 43% of GM’s auto loans during the second quarter. The changes also will exacerbate the credit crunch. Regions Financial of Alabama told 2,600 auto dealers last week that it will stop issuing loans though their businesses. And Capital One Financial plans to end financing of auto dealer’ inventories in New York and New Jersey later this month (MarketWatch and Bloomberg.com Oct. 14) … * Discover Financial Services and card networks MasterCard Inc. and Visa Inc. have settled an antitrust lawsuit, a court official and MasterCard announced Tuesday. Discover filed a lawsuit against the two card associations in 2004, claiming they harmed its business by keeping member banks from issuing Discover cards. MasterCard and Visa settled a similar lawsuit by American Express for $3.9 billion. Details on the latest settlement weren’t immediately available. “The parties are working on settlement documentation,” said MasterCard Spokeswoman Sharon Gamsin. “Details of the settlement will follow” (Reuters via The New York Times Oct. 14) … * Goldman Sachs has chosen a state regulator to oversee its new banking subsidiary. The firm applied for a New York state charter on Monday. Goldman’s application for a state charter “will add new vitality to the dual banking system,” said New York Banking Superintendent Richard Neiman. The Federal Reserve designated Goldman and Morgan Stanley as bank holding companies last month. Morgan applied for a federal charter with the Office of the Comptroller of the Currency. Goldman has a “long association with New York State,” said a company spokesman, and “we’re pleased that relationship will be reinforced.” (The Wall Street Journal Online Oct. 14) … * Sellers of credit-default protection on bankrupt Lehman Brothers will have to pay holders 91.375 cents on the dollar. An auction Friday to set the size of the settlement set a value of 8.624 cents on the dollar for the debt, according to Creditfixings.com. Based on that auction, sellers of protection may have to make more than $270 billion in cash payments, said BNP Paribas Strategist Andrea Cicione (Bloomberg.com Oct. 14) …

Market News (10/14/2008)

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MADISON, Wis. (10/15/08)
* In the latest effort to ease the credit panic, government officials announced a plan Tuesday to use $250 billion of taxpayer funds to purchase stakes in thousands of financial firms. The money will come from the $750 billion bailout package. “Leaving businesses and consumers without access to financing is totally unacceptable,” said Treasury Secretary Henry Paulson. He urged firms receiving the government funds to “deploy” the money in loans. The stock-buying program will begin with nine banks. The government will purchase preferred equity stakes in Goldman Sachs, Morgan Stanley, JPMorgan Chase, Wells Fargo, Bank of America, Merrill Lynch--which will be acquired by BofA, Citigroup, State Street Corp., and Bank of New York Mellon. Other banks wanting to join the capital-purchase plan must elect to participate by Nov. 14 (The Wall Street Journal Online and Bloomberg.com Oct. 14) … * In announcing the $250 billion equity-purchase plan, Treasury Secretary Henry Paulson said financial institutions participating in the program will agree on some limits to executive compensation. They also can’t write new employment contracts containing golden parachutes. Paulson said participating firms will need to step up their efforts to avert mortgage foreclosures. “The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” said Paulson. In addition to the equity stakes, federal regulators announced that they’ll guarantee new bank debt and expand insurance for non-interest-bearing accounts. This would be voluntary for banks, and would extend the $250,000 per deposit guarantee enacted two weeks ago (The Wall Street Journal Online and Bloomberg.com Oct. 14) … * Commodity prices have plunged in the wake of the global financial panic. Wheat and corn prices plummeted more than 40% since peaking in the early summer, while oil prices tumbled 44%, and metal prices dropped by one third or more. “Commodities followed the euphoria cycle that we had along with housing,” said Yale Economist Robert J. Shiller. “We had the idea that the world is growing very fast, people are getting very rich, and by the way, we are running out of everything. That theory doesn’t seem so good when the economy is collapsing.” However, many analysts say commodity prices will continue to surge over the long term because demand will remain strong in developing countries. “What we are seeing is a pause in what we see as a very, very long bull run,” said Kevin Norrish, a senior commodities researcher at Barclays Capital (The New York Times Oct. 14) … * Chain store sales remain weak despite lower gasoline prices. Sales edged up just 0.7% during the week ending Oct. 11, according to the International Council of Shopping Centers. Sales were up only 1% year-over-year, the weakest showing since early May, before tax-rebate checks began supporting spending. Consumers focused their spending on staples, while spending at electronics and office-supply stores remained weak. Household budgets will continue to be pressured by weak wage growth, job losses, falling stock and home prices, soaring food prices, high debt burdens, and stricter lending standards (Economy.com Oct. 14) … * Chrysler’s North American truck unit plans to cut 3,500 jobs and shut down two plants as it eliminates its Sterling Trucks brand amid slumping demand (MarketWatch Oct. 14). The firm plans to close its St. Thomas, Ontario, plant in March 2009 and its Portland, Ore., plant in June 2010. In other news, United Auto Workers President Ron Gettelfinger said Tuesday that he would oppose a merger between Chrysler and General Motors because it would cost jobs (Associated Press via Yahoo! News Oct. 14). GM and Chrysler owner Cerberus Capital Management have discussed a possible merger of the two companies. Gettelfinger said his union has helped domestic automakers a lot by granting health-care and other concessions …

News of the Competition (10/13/2008)

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MADISON, Wis. (10/14/08)
* Two regional banks in Illinois and Michigan were shut down by state regulators late Friday. Michigan-based Main Street Bank and Meridian Bank of Illinois were closed and the Federal Deposit Insurance Corp. (FDIC) was named receiver. Fifteen federally-insured institutions have been shut down so far this year. Main Street’s two offices reopened Saturday as branches of Monroe Bank & Trust. Meridian’s four offices were taken over by National Bank. The FDIC estimates that the two bank failures will cost the Deposit Insurance Fund $46 million to $53 million (CNNMoney.com Oct. 13) … * Federal Reserve officials should be concerned about the emergence of a new “financial oligarchy” as banks merge during the credit crisis, said Kansas City Federal Reserve President Thomas Hoenig. Central bankers should focus on specific issues, said Hoenig at a meeting of the Institute of International Bankers in Washington on Monday. Regulators will have to decide what kind of insurance premiums to charge financial institutions considered too large to fail, and the “oversight of an entire industry called hedge and equity funds.” He also noted that regulators failed to prevent the imbalances that occurred. “The hard truth is the crisis was seen coming, and warnings were mostly ignored during the very exciting period called the boom.” (Bloomberg.com Oct. 13) … * Philadelphia-based Sovereign Bancorp confirmed Monday that it is engaged in advanced negotiations with Spain’s Banco Santander about a possible buyout of the thrift. Santander already owns a 25% stake in Sovereign, which has been hit by rising mortgage delinquencies over the past year. Sovereign set aside $132 million for loan losses in the second quarter--up sharply from $51 million a year earlier. Shares of Sovereign have plunged 67% so far this year (Associated Press via The New York Times Oct. 13) … * Morgan Stanley received a cash infusion from Mitsubishi UFJ on Monday. Morgan Stanley raised $9 billion by selling preferred shares to the Japanese bank. Mitsubishi now owns a 21% stake in Morgan Stanley. It also will receive a seat on Morgan Stanley’s board of directors. Morgan Stanley has converted itself from an investment bank to a bank holding company, a status that will let the firm create a big deposit base (Associated Press via Yahoo! News Oct. 13) … * The financial cost outside the U.S. from the bankruptcy of Lehman Brother totals about $300 billion, said Jochen Sanio, president of the German Federal Financial Supervisory Authority. “We’re still licking the wounds of Lehman,” said Sanio during an international banking conference on Monday (Reuters via The New York Times Oct. 13) …

Market News (10/13/2008)

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MADISON, Wis. (10/14/08)
* The Federal Reserve announced Monday that it will offer an unlimited amount of dollars to the Bank of England, the European Central Bank, and the Swiss National Bank in an unprecedented effort to inject liquidity into the global banking system. After borrowing dollars from the Fed, the three central banks will provide private financial firms with one-week, 28-day, and 84-day U.S. dollar loans. The latest move follows Sunday’s announcements that European governments will guarantee new bank loans. “People have become extremely risk-adverse because of the legacy of Lehman Brothers,” said Wachovia Chief Economist John Silvia. “If a bank like Lehman can turn over and die in a matter of days, it would be hard to convince banks to lend to other institutions for any given time period,” added Silvia (CNNMoney.com Oct. 13) … * European Union (E.U.) heads of states agreed on a plan Sunday for governments to issue guarantees and insurance, purchase stock in firms, and pursue other measures to address the financial crisis. “We now need an unprecedented level of coordination to deal with this unprecedented crisis,” said E.U. Commission President Jose Manuel Barroso. The plan also calls for the European Central Bank to create a facility to buy commercial paper from companies. The U.S. Federal Reserve announced a similar plan last week (The Wall Street Journal Online Oct. 13) … * The stock markets rebounded Monday after governments announced plans to further support the global banking system. The Dow Jones Industrial Average posted a 575-point gain in early-afternoon trading, rising to 9,026.41. The Dow plunged 18% last week--the worst weekly performance in its 112-year history. Other stock markets rebounded Monday. Most European indexes traded about 6% higher, and Hong Kong’s benchmark index jumped 10.2% (The Wall Street Journal Online Oct. 13) … * Investors rushed to withdraw their money from mutual funds in recent weeks so they could flee to the safety of government-insured bank deposits. Investors yanked a record $52.1 billion from U.S.-managed stock and bond mutual funds during the week ending Oct. 8, according to TrimTabs Investment Research. Shareholders pulled $43.3 billion from stock funds and $8.8 billion from bond funds during the week. That followed a $72.3 billion outflow in September--the largest monthly outflow on record. Investors put $185.5 billion into bank accounts last month--through Sept. 22, according to Federal Reserve data cited by TrimTabs. “People are scared,” said TrimTabs Chief Operating Officer Conrad Gann. “This market is different from what we’ve seen before,” added Gann. The five biggest diversified U.S. stock fund managers have posted an average 28% loss so far this year--about 2 percentage points more than the Standard & Poor’s 500 Index, according to Morningstar Inc. (Bloomberg.com Oct. 10) … * Global business confidence tumbled to a new record low last week, according to the latest Moody’s Economy.com Survey of Business Confidence. Pricing power has evaporated, while hiring and investment plans have sunk to new lows. The survey’s results indicate a contraction in the global economy that could soon become a full-scale recession …

News of the Competition (10/10/2008)

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MADISON, Wis. (10/13/08)
* The U.S. stock exchanges may seek to impose a temporary ban on short sales for individual stocks that tumble as regulators strive to curb a practice that has dampened the shares of many financial firms. The New York Stock Exchange and the Nasdaq Stock Market may file a proposal with the Securities and Exchange Commission (SEC) soon, say people familiar with the situation. A stock that ends trading with a loss of 20% or more would be protected from short selling for the next three days. An SEC emergency ban on short sales of finance-related stocks expired on Oct. 8. The Standard & Poor’s 500 Financials Index is down 53% this year (Bloomberg.com Oct. 10) … * Morgan Stanley and Goldman Sachs shares tumbled Friday after Moody’s Investors Service placed a negative outlook on the firms’ credit ratings. Shares of Morgan Stanley plunged 35%, and Goldman Sachs shares fell 18%. Investors worry that more financial firms will fail as the credit panic continues. “Morgan Stanley shares have been under extraordinary pressure as of late, for no apparent fundamental reason, as we estimate liquidity, the balance sheet, and long-term earnings prospects are sound,” said Fox-Pitt Kelton Analyst David Trone. “However, as we’ve seen with Bear Stearns and Lehman, once the fear virus has infected the story, it is tough to shake,” added Trone (Reuters via The New York Times Oct. 10) … * In another sign of the credit squeeze, Capital One Financial Corp. announced Friday that it will end financing of auto dealer inventories in New York and New Jersey by the end of October (Bloomberg.com Oct. 10). Spokesman Steven Thorpe said the company will continue to finance dealers in Louisiana and Texas, where it also has banking offices. New-car dealerships already plan to close as many as 40% of their outlets, according to the National Automobile Dealers Association. In other news, J.D. Powers and Associates says the global auto market may experience an “outright collapse” next year amid growing worries about credit availability and the economic slump (Reuters via The New York Times Oct. 9). The industry tracker said a pronounced recovery is about 18 months away … * Federal regulators have cleared Wells Fargo’s $11.7 billion acquisition of Wachovia Corp. The approval came a day after Citigroup abandoned its efforts to acquire the Charlotte, N.C.-based firm. Citigroup said it will pursue up to $60 billion in legal claims related to breach of contract in the Wachovia/Wells Fargo deal. The deal resolves the fate of yet another struggling financial firm. In recent weeks, Merrill Lynch agreed to be acquired by Bank of America, Washington Mutual was seized by regulators and acquired by JPMorgan Chase, and Lehman Brothers filed for bankruptcy protection. Bank shares have been hit hard as investors worry about the spreading financial panic (Reuters and Associated Press via The New York Times Oct. 10) … * Direct borrowing from the Federal Reserve’s expanded discount window jumped to a record $430.87 billion as of Oct. 8--from $409.52 billion the previous week. Average daily borrowing surged to $420.16 billion from $367.80 billion. Lending through the primary-dealer credit facility--created for investment banks in March--edged down to $122.94 billion from a record $146.57 billion. A loan to insurer American International Group on Oct. 10 totaled $70.3 billion. That represents more than three-fourths of the insurer’s $85 billion credit line with the Fed (The Wall Street Journal Online Oct. 10) …

Market News (10/10/2008)

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MADISON, Wis. (10/13/08)
* The U.S. is considering guaranteeing billions of dollars in bank debt and temporarily insuring all bank deposits in an effort to unfreeze bank lending and stem the exodus of cash from financial institutions. In the U.S. and Europe, central banks have cut interest rates and governments have agreed to buy troubled assets from banks. However, those moves have failed to soothe the markets. The Federal Deposit Insurance Corp. (FDIC) has about $45 billion in its insurance fund to cover $5.2 trillion in insured bank deposits. In eliminating the cap, the FDIC would be guaranteeing the remaining $1.8 trillion worth of bank deposits (The Wall Street Journal Online Oct. 10) … * Long-term mortgage rates declined last week, for the first time in three weeks, while short-term rates edged up. The average 30-year, fixed-rate mortgage (FRM) dropped 16 basis points to 5.94%, while the 15-year FRM fell 15 basis points to 5.63%, Freddie Mac reported Thursday. The one-year, adjustable-rate mortgage (ARM) edged up 3 basis points to 5.15%. “Longer-term mortgage rates fell for the first time in three weeks, roughly following bond market yields,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He also noted that pending home sales picked up in August, according to a National Association of Realtors report. And the Mortgage Bankers Association reported a slight increase in mortgage applications for the latest week. For CUNA's Daily Financial Rates, use the link. … * Housing inventories declined slightly in many metropolitan areas in September, but remained higher than normal, according to a report by ZipRealty Inc. The supply of homes available for sale in 29 top metro areas fell 1.6% in September, compared with the previous month. The September inventory was 7% lower than a year earlier in the 28 metro areas for which comparable statistics are available. However, ZipRealty covers all homes listed on multiple-listing services, and foreclosed home aren’t always sold through such services. Barclays Capital estimates there are now 811,000 bank-owned homes--compared with 129,000 two years ago. Barclays expects that total to jump 60% before peaking in late 2009 (The Wall Street Journal Online Oct. 9) … * Home foreclosures rose 6.6% in September, compared with the previous month, according to a report by ForeclosureS.com. Foreclosures were up 82.6% year-to-date, compared with the same period last year. Foreclosures have pushed almost 750,000 people out of their homes so far this year. About 10.3 of every 1,000 households have been foreclosed this year. The report predicts that foreclosures will top 1 million by year end (BUSINESS WIRE Oct. 9) … * The U.S. economy is now in a recession, according to economists surveyed by Bloomberg News (Oct. 9). The median estimate calls for the economy to decline at a 0.2% annual rate in the third quarter and a 0.8% rate in the fourth quarter. Consumer spending will fall at a 0.9% annual pace in the fourth quarter after posting a 2% drop in the third quarter. The nation’s unemployment rate is forecast to jump to 6.8% by mid-2009--from a five-year high of 6.1% in September and above the peak of 6.3% reached in 2003 following the 2001 recession. In a follow-up survey, economists said they expect the Federal Reserve to lower interest rates again after the unprecedented coordinated action taken by central banks last week … * The U.S. trade deficit fell slightly in August, reflecting a decline in foreign oil from record highs. The trade gap dropped 3.5% to $59.1 billion, the Commerce Department reported Friday. The nation’s foreign oil bill fell to $43.7 billion--from a record $51 billion in July. The trade deficit is running at an annual rate of $717.1 billion so far this year--compared with last year’s deficit of $700.3 billion. The trade deficit is expected to decline in coming months as global economies weaken and oil demand falls (Associated Press via The New York Times Oct. 10) …

Overall consumer delinquencies as expected says CUNA

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WASHINGTON (10/13/08)--Barring an unexpected jump in the national unemployment rate, Credit Union National Association (CUNA) Chief Economist Bill Hampel doesn’t anticipate overall credit card and auto loan delinquencies to increase the same way subprime mortgage delinquency rates have soared in the past few years. Hampel’s comments on consumer debt were aired live on Bloomberg Television last week.
CUNA Chief Economist Bill Hampel appears live on Bloomberg Television Thursday. (Photo provided by CUNA)
With exceptions in certain parts of the country, overall consumers are “not doing that badly,” said Hampel. He said lenders in the non-mortgage consumer credit side should not see a significant increase in write-downs. That’s mainly because the process for extending credit cards lines and auto loans has not changed much in years, unlike relatively new subprime and exotic mortgage products, he noted. Hampel cautioned that lenders could experience higher than anticipated consumer chargeoffs if the current 6.1% unemployment rate moves closer to 7.5%. “That would be a much more severe indicator of a consumer household sector in distress,” he said. The chief economist said portfolio lenders--like credit unions and smaller banks--actually have seen deposit inflows during the last few months as consumers and investors make the flight to quality. “[These institutions] have money to lend and they can keep lending,” said Hampel. He said the real problem is the record high household debt exposure, which consumers have accumulated during the last 15 years. “Twenty years ago [the ratio of outstanding household debt to annual disposable income] was about 80%, but it peaked in the fourth quarter of last year at 126%,” said the economist. That number has exploded in just the last six years--from 100% to 126%. “This is the all-time record high for household debt exposure ever in the history of United States,” said Hampel. “That [exposure] is going to have to work its way down and that’s why for quite some time we’ve been expecting consumer spending to be disappointing for not only this year and next year--but for a few years after that.” He said the reduction in household demand for credit coupled with a reduction in lender supply will further slow consumer spending.

News of the Competition (10/09/2008)

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MADISON, Wis. (10/10/08)
* The Treasury Department is considering methods to inject capital directly into banks--perhaps by taking equity stakes--as the financial crisis depends (The Wall Street Journal Online Oct. 9). In a big shift in tone, Treasury Secretary Henry Paulson talked about the new authority to “inject capital into financial institutions.” Previously, he had focused on the department’s plan to purchase toxic securities. His statements came after Britain moved to pour funds into troubled banks there in exchange for stakes in them--a partial nationalization (Associated Press via The New York Times Oct. 9). Governments are rushing towards a number of alternatives to address the rapidly expanding credit crisis. In an unprecedented coordinated move, five central banks--including the Federal Reserve--cut interest rates on Wednesday. And on Thursday, South Korea, Taiwan, and Hong Kong all followed suit … * The Federal Reserve on Wednesday agreed to provide insurer American International Group (AIG) a $37.8 billion loan (Associated Press via The New York Times Oct. 9). The new loan comes after AIG said last week it already had spent $61 billion of its first federal loan. Under the new arrangement, the Federal Reserve Bank of New York will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. In other news, AIG said Thursday that it is scrapping plans to hold another retreat for brokers (USATODAY.com Oct. 9). AIG came under intense criticism this week after congressional investigators found that the firm had spent almost $500,000 on a trendy retreat only days after the government agreed to spend billions of dollars to bail the insurer out. “In light of new circumstances we reevaluated cost of operations … and the need to repay the fed while still serving the needs of out policyholders,” said AIG Spokesman Joe Norton in announcing the cancellation … * Four of the nation’s top mutual-fund companies--Fidelity Investments, Vanguard, T. Rowe Price, and Oppenheimer--said Wednesday that they have joined the new federal program that insures that the value of fund shares won’t decline below a dollar. Last week, Charles Schwab, Federated, Morgan Stanley, Putnam Investments, BlackRock, and JPMorgan Chase announced their enrollment in the plan. The new program has helped stem the rush away from money-market funds. Fund assets steadied at $3.38 trillion during the week ending Oct. 7--following several weeks of decline, according to iMoneyNet (The New York Times Oct. 9) … * Iceland moved to nationalize a second large bank on Wednesday. Prime Minister Geir Haarde also is considering obtaining a loan from Russia and is meeting with the International Monetary Fund. Sweden said it will lend as much as $703 million to Iceland’s Kaupthing Bank--the only large bank remaining in private hands. Britain and the Netherlands sought to shore up Icelandic bank accounts yesterday. Attracted by high interest rates, many people in those two countries have deposited money in Icelandic banks in recent years (The Wall Street Journal Online Oct. 9) … * Canada has the soundest banking system in the world--following closely by Sweden, Luxembourg, and Australia, according to a report by the World Economic Forum. The U.S. rates only 40, just behind Germany, at 39. Britain--which once ranked among the top 5--fell to 44th place. At the bottom of the list are Algeria, Libya, Lesotho, the Kyrgyz Republic, Argentina, and East Timor (Reuters via Yahoo! News Oct. 9) …

Market News (10/09/2008)

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MADISON, Wis. (10/10/08)
* Almost one in six U.S. homeowners are “under water” with their mortgages--meaning they owe more on the mortgage than their home is worth. That indicates more foreclosures ahead, and fewer consumers willing to spend at the mall. With declining home prices, about 12 million households--or 16%--owe more than their homes are worth, according to a study by Moody’s Economy.com. That compares with 6% last year and 4% in 2006, said Mark Zandi, chief economist at the research firm. “It is very possible that there will ultimately be more homeowners under water in this period than any time in our history,” added Zandi. Mortgage delinquencies have soared as home prices plunged. According to the Mortgage Bankers Association, 9.16% of mortgages on one- to four-family homes were one month or more overdue or in foreclosure during the second quarter--the highest level since the trade association began the survey 39 years ago. On the upside, declining home prices have made homes in many regions more affordable--bringing prices closer to their long-term relationship to income (The Wall Street Journal Online Oct. 8) … * Americans’ retirement accounts have lost as much as $2 trillion in value--or 20%--during the last 15 months, said Congressional Budget Office head Peter Orszag. In testimony to the House Education and Labor Committee, Orszag said people are delaying major purchases and putting off their retirements to cope with the plunging value of their retirement funds. Americans increasingly are depending on retirement accounts like 401(k)s as firms eliminate traditional pensions. “Unlike Wall Street executives, America’s families don’t have a golden parachute to fall back on,” said Committee Chairman George Miller, D-Calif. “It’s clear that their retirement security may be one of the greatest casualties of this financial crisis,” added Miller (Associated Press via Yahoo! News Oct. 8) … * Americans coping with declining home values and retirement assets also are struggling with soaring household costs. All types of homeowner expenses rose faster than incomes between 1996 and 2006, according to a report by the Center for Housing Policy. Mortgage payments jumped 46% over the 10-year period, while utilities surged 43%, property taxes soared 66%, and property insurance jumped 83%. In comparison, homeowner incomes rose only 36%. Overall, these household expenses jumped by 65% over the period. In addition, food costs soared 30%, transportation costs rose 33%, and health-care costs soared 56%--placing more pressure on household budgets. Household finances during the last two years are even more stretched, noted the report, because costs for energy, food and health care have increased further in that period (MarketWatch Oct. 9) … * Export growth--one of the few strong areas in the weak U.S. economy--is expected to plunge in coming months as the credit crunch spreads worldwide, dampening demand. Real goods exports jumped 12% over the past year--making up almost 13.5% of the nation’s gross domestic product, the highest share since World War II. Rising commodity prices fueled much of this year’s export boom. Prices now are retreating as the global economy weakens. In addition, the value of the U.S. dollar has increased, making U.S. exports less competitive. “Export-oriented manufacturers are going from being a real source of growth to just barely hanging on,” said Mark Zandi, chief economist at Moody’s Economy.com (The Wall Street Journal Online Oct.8) ... * Unemployment claims retreated last week but remained at recessionary levels. First-time claims for unemployment benefits declined by 20,000 during the week ending Oct. 4 to 478,000, the Labor Department reported Thursday. The effects of Hurricane Gustav in Louisiana and Hurricane Ike in Texas added an estimated 17,000 claims to the total. The four-week moving average, which smoothes out weekly volatility, rose by 8,250 to 482,500. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 56,000 during the week ended Sept. 27 to 3.659 million. That’s the highest level in more than five years (Associated Press via Yahoo! News Oct. 9). Companies have eliminated 760,000 jobs so far this year. The unemployment rate was 6.1% in September, up from 4.7% a year earlier … * Consumer sales plunged in September as shoppers worried by the credit crisis, high food and energy costs, and declining retirement accounts dampened spending, according to a report by MasterCard Advisors’ SpendingPulse. Sales fell in all categories. Apparel sales dropped 5.5%, compared with a year earlier, while furniture sales were down 13.3%, and electronics and appliance sales were off 13.8%. “The turmoil on Wall Street had an immediate impact on consumer confidence,” said SpendingPulse Research Director Kamalesh Rao. “Uncertainty around the financial markets naturally forces people to scale back their own spending,” added Rao (Reuters via The New York Times Oct. 7) … * Chain-store sales edged up 0.1% during the week ending Oct. 4, following four consecutive weekly declines, according to the International Council of Shopping Centers. Year-over-year growth was up a modest 1.3%. Cooler weather and declining gasoline prices helped lift sales modestly in the latest week. However, tight credit, rising job losses, sluggish growth in wage income, and falling home prices and wealth will continue to dampen spending going forward (Economy.com Oct. 7) …

Fed rate cut likely will increase CU lending

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WASHINGTON (10/9/08)--The Federal Open Market Committee’s (FOMC) unexpected rate cut Wednesday morning could have positive effects for the marketplace and credit unions, a Credit Union National Association (CUNA) economist told News Now. His comments came after the FOMC yesterday slashed its target for the federal funds rate 50 basis points to 1.5% after it said evidence pointed to a weakening of economic activity and a reduction in inflationary pressures. In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1.75%. Mike Schenk, CUNA vice president for economics and statistics, said for credit unions, the cut is likely to mean more of the same. “In an economic downturn, credit unions typically experience very fast savings growth and fairly slow loan growth. But the opposite has occurred in the current market--credit union lending is expanding faster than credit union savings," Schenk explained. In the 12 months ending August, aggregate credit union savings increased 6.3%, while aggregate loans increased 7.5%, Schenk said. The relatively fast growth in lending is likely a reflection that credit unions are stepping up and helping members--refinancing toxic mortgages obtained at other lenders and helping small businesses abandoned by other lenders. Credit unions are reporting double-digit 12-month growth in first mortgages and in member business loans, he added. "With lower rates, more members will likely be turning to their credit union to address debt management issues," Schenk said. More broadly, he said the rate cut will first provide direct, though not immediate, relief to millions of borrowers who have variable rate credit by lowering monthly payments on that debt. "Second, it will make it easier for new borrowers to obtain credit and the cost of that credit will be lower than it was yesterday," he continued. "Third, it sends a clear signal that the Fed is very concerned about the current situation and is doing all that it can to soften the blow of the credit crisis. The global coordination of this move confirms that both the level of concern and the vigor of response is shared internationally--and this should serve to calm markets." "Having said all this, it should be noted that one of the underlying factors contributing to the current crisis is that the average household simply has too much debt," Schenk added. This suggests that the Fed cut will not pack the punch that it has in the past. Consumers are focused more on fixing their balance sheets, reducing debt and building rainy day funds, and are focused less on debt accumulation to support spending, according to Schenk. Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months, according to the FOMC. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit," it said. "Inflation has been high, but the committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation," the committee said. The FOMC said it will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; Timothy F. Geithner, vice chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

News of the Competition (10/08/2008)

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MADISON, Wis. (10/9/08)
* Former UBS AG Senior Executive David Aufhauser reached a settlement Tuesday with New York Attorney General Andrew Cuomo related to the sale of auction-rate securities (ARS). Cuomo filed a lawsuit against UBS in July, accusing Aufhauser and six other executives at the firm of insider trading with $21 million in ARS. The settlement calls for Aufhauser to give the state of New York his $6 million bonus. He also will pay a $500,000 civil penalty. Cuomo’s office and regulators in other states are conducting both civil and criminal investigations into whether Wall Street firms improperly described ARS as safe and liquid investments. Cuomo said he is targeting the “excessive compensation” of executives during the credit crisis. “Senior executives cannot walk away from the table and take all the money with them,” said Cuomo (The New York Times Oct. 8) … * Bank of America and the Royal Bank of Canada have agreed to settle claims that they made misrepresentations in the marketing and sale of auction-rate securities (ARS). Bank of America agreed to return $4.5 billion to investors, and RBC agreed to buy back $850 million worth of the securities. In addition, Bank of America will pay a $50 million penalty, and RBC will pay a $9.8 million fine. The ARS market collapsed in February. Financial firms had marketed the securities as safe and liquid. “In today’s economic climate, it’s more important than ever for investors to be able to access their money,” said New York Attorney General Andrew Cuomo (Reuters via msn.com Oct. 8) … * Citigroup announced Wednesday that it plans to slash the number of outside mortgage brokers it conducts business with in the U.S. by about 8,500. It also plans to eliminate 500 related jobs. The company isn’t abandoning the wholesale mortgage business, just “redefining” it, said a Citigroup spokesman. Other banks have exited the wholesale mortgage business altogether as borrowers defaulted on mortgages and related financial instruments plunged in value. Citigroup is competing with Wells Fargo to acquire Wachovia Corp. Analysts say the two may compromise by agreeing to acquire branch networks in different regions (MarketWatch Oct. 8) … * Fannie Mae has agreed to purchase 15-year and 30-year mortgages from the Federal Home Loan Bank of Chicago. Fannie was given a larger mandate to help support the housing market after it was placed into conservatorship in September. Fannie “may find it more efficient to manage one relationship--with the FHLBank of Chicago--than to work with a number of smaller, individual institutions,” said James Lockhart, director of the Federal Housing Finance Agency. Since their conservatorship, both Fannie and Freddie Mac have increased their loan modifications for delinquent mortgage borrowers. They also have eliminated scheduled “adverse market” fee increases (American Banker Oct. 8) … * MetLife Inc., the nation’s biggest life insurer by assets, announced Wednesday that it plans to eliminate an unspecified number of jobs. The insurer also plans to sell 75 million shares to raise capital. Insurers have been pressured to boost capital so they can maintain their credit ratings as the credit crisis continues. “The size and indicated uses of cash are to increase the capital position to a level to withstand extraordinarily severe credit/equity market scenarios, including further downturns, without triggering rating agency actions,” said Fox-Pitt Analyst Mark Finkelstein. American International Group, which once was the world’s largest insurer, received a federal bailout last month after losses pushed it to near bankruptcy (Reuters via The New York Times Oct. 8) …

Market News (10/08/2008)

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MADISON, Wis. (10/9/08)
* Stock markets seesawed Wednesday as unprecedented interest-rate cuts by six central banks failed to soothe investors. The Federal Reserve lowered the target for the fed funds rate by 50 basis points to 1.5%. It was joined in the rate cut by the European Central Bank, the Bank of England, the Bank of Canada, the Swedish Riksbank, and the Swiss National Bank. Russia, Indonesia, Ukraine, and Romania closed their stock exchanges yesterday after opening with steep losses. The U.S. stock markets rose early in the day, then declined as companies including Alcoa Inc., J.C. Penny Co, and Target Corp. reported weak financial results. The Dow Jones industrials were volatile, posting a 181-point gain at its morning high before tumbling more than 2% later in the morning. The Dow was up about 27 points to 9,474 in early afternoon trading (Bloomberg.com, The Wall Street Journal Online, and Associated Press via Yahoo! News Oct. 8) … * The U.S. probably will sink into a recession this year and next, according to the International Monetary Funds’ (IMF) World Economic Outlook report. The U.S. economy is projected to contract in the fourth quarter and in the first quarter of 2009. Annually, it will expand by just 1.6% this year and only 0.1% in 2009, according to the report. The global economy is expected to grow by 3.9% this year and only 3% in 2009. The IMF classifies global growth of 3% or less as a recession. “The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” said the IMF. Despite sluggish growth, the IMF expects inflation to remain high amid soaring energy and food prices--making it tough for central banks to stabilize economies (Associated Press via Yahoo! News Oct. 8) … * The Treasury Department announced Wednesday that it will boost the size of Treasury securities sold to the public. The government’s need to borrow has increased because of the $700 billion bailout plan. In addition, demand for Treasuries has surged in the credit crunch as investors seek the safety of government-backed bills, notes, and bonds. The Treasury said the expansion, which will be conducted through a “re-opening” of securities the government has already sold, will help deal with “acute, protracted shortages” in the Treasury securities market (Associated Press via The New York Times Oct. 8) … * Consumer borrowing posted its first decline since 1998 in August, the Federal Reserve reported Wednesday. Consumer credit fell by $7.9 billion, at an annual rate of 3.7%, during the month. Revolving credit, which includes credit cards, declined at an annual rate of 0.8%, while non-revolving credit, which includes auto, student, and boat loans, fell at a 5.4% rate. The large decline in non-revolving credit reflects weak vehicle sales, said Sean Maher, associate economist at Moody’s Economy.com. High gasoline prices “translated to a weak appetite for new vehicles,” said Maher. He also noted that the dip in revolving credit was “fairly significant” because that category has steadily increased on a historical basis. “Consumers are becoming more reluctant to charge,” and “banks are being a lot more cautious.” (CNNMoney.com Oct. 8) … * In an upbeat sign for the housing market, the National Association of Realtors (NAR) reported Wednesday that its Pending Home Sales Index jumped 7.4% to 93.4 in August--the highest level since June 2007. The index is up 8.8% from a year earlier. “What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island, and the Washington, D.C. region,” said NAR Chief Economist Lawrence Yun. “It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales,” added Yun. He predicts that home prices will increase 2% to 3% next year, following a decline of 5% to 8% this year (realtor.org Oct. 8) … * In more good news for the housing market, mortgage activity edged up last week as mortgage rates declined. The Mortgage Bankers Association’s Market Composite Index rose 2.2% during the week ending Oct. 3 to 465.5 (mbaa.org Oct. 8). The Purchase Index increased 3.2% to 314.5, and the Refinance Index edged up 0.9% to 1345.8. The average 30-year, fixed-rate mortgage (FRM) fell 8 basis points to 5.99% last week, while the one-year, adjustable-rate mortgage (ARM) was unchanged at 6.60%. The housing market may be closer to reaching a bottom because home-price declines are slowing, said Moody’s Economy.com (Oct. 8). On the downside, credit tightening continues to push away many borrowers …

Fed slashes target fed funds rate to 1.5 from 2

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WASHINGTON (10/8/08)—In an unexpected action, the Federal Open Market Committee (FOMC) Wednesday morning slashed its target for the federal funds rate 50 basis points 1.5%. The FOMC in a statement said it took the action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures. According to the FOMC, incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit,” it said. “Inflation has been high, but the committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation,” said the committee. The FOMC said it will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1.75%.

News of the Competition (10/07/2008)

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MADISON, Wis. (10/8/08)
* Bankrupt investment bank Lehman Brothers arranged millions of dollars in bonuses for fired executives even as it sought a federal bailout, Congressional lawmakers learned Monday. The House Oversight and Government Reform Committee questioned Lehman CEO Richard Fuld Jr. about the firm’s collapse. “You made all this money by taking risks with other people’s money,” said Panel Chairman Henry Waxman, D-Calif. Fuld said Lehman’s compensation system--which paid him about $350 million from 2000 and 2007 even as the firm was going towards bankruptcy--was appropriate. “We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders,” said Fuld. According to internal documents acquired by the panel, the company on Sept. 11--just four days before the firm collapsed--planned to approve “special payments” of $18.2 million for two executives who were fired by the company. Waxman also unveiled e-mails in which Fuld derided suggestions from a Lehman subsidiary that top executives forgo bonuses to “send a strong message to both employees and investors that management is not shirking accountability for recent performance” (Associated Press via The New York Times Oct. 7) … * Stocks declined sharply again Tuesday after a weak earnings report by Bank of America (BofA) intensified worries about the financial crisis. Charlotte, N.C.-based Bank of America said its net income dropped to $1.18 billion in the third quarter--down 68% from a year earlier. The firm also announced plans to increase its capital by slashing its dividend in half, to 32 cents, and to raise $10 billion through a stock sale. Bank of America’s results were much weaker than the consensus forecast, which called for $3.22 billion in net income. BofA Chairman/CEO Kenneth Lewis said higher credit losses helped erode earnings. The firm set aside $6.45 billion for credit-related losses, more than three times higher than in the year-ago quarter. BofA also posed a charge related to buying back auction-related securities from clients, and took a $320 million hit from the firm’s ownership of Fannie Mae and Freddie Mac preferred stock. The company posted more than $1.2 billion in writedowns related to mortgage-backed securities and leveraged loans (CNNMoney.com Oct. 7) … * The global credit crisis has spread to Iceland, which took over Landsbanki, the nation’s second-largest bank, late Monday. Iceland enacted far-reaching powers over banks late Monday as its currency tumbled and the financial system faltered. New legislation gives the government the power to direct banking operations, including forcing mergers or making banks declare bankruptcy. On Tuesday, Iceland’s government sought a $5.44 billion loan from Russia to help strengthen the country’s foreign reserves and support the crown. An International Monetary Fund staff team is in Iceland and Norway, said a fund spokesman (Reuters via The New York Times Oct. 7) … * A federal appeals court has affirmed a ruling by a lower court awarding SunTrust Banks $30.6 million in damages from the federal government in a suit hailing back to the savings and loan crisis. In 1995, more than 100 thrifts filed a suit alleging that the government reneged on a promise to let healthy thrifts that acquired weak ones during the S&L crisis count goodwill as regulatory capital. There are about one dozen cases related to the original lawsuit still pending, noted Howard N. Cayne, an attorney who represented SunTrust. “The courts are still dealing with the thrift bailout legislation of more than 19 years ago,” added Cayne (American Banker Oct. 7) …

Market News (10/07/2008)

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MADISON, Wis. (10/8/08)
* The Federal Reserve on Tuesday announced the creation of the Commercial Paper Funding Facility. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper via a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Treasury Department will make a special deposit at the Federal Reserve Bank of New York to support the facility. “The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities,” said the Fed in its announcement. “By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market.” In a conference call, Fed officials didn’t say how much commercial paper, which firms use to finance payrolls and other cash needs, it plans to buy (Bloomberg.com Oct. 7). However, the SPV will be large enough to backstop the entire market, said one official on condition of anonymity … * In another move to help ease the credit crisis, the Internal Revenue Service (IRS) has relaxed the rules on how U.S. corporations can repatriate cash from overseas. The new IRS rule lets firms bring back money for as long as 60 days, three times a year, without having to pay a 35% corporate income tax. The ruling will make it easier and cheaper for big U.S. multinationals to borrow money from their foreign subsidiaries. Overseas borrowing could take the place of using the commercial paper market, noted Robert Willens, a former tax analyst who now operates a corporate-tax advisory company. The commercial-paper market declined a record $94.9 billion during the week ending Oct. 7, following a $61 billion drop the previous week (The Wall Street Journal Online Oct. 7) … * The Federal Reserve may have cut borrowing costs Monday in a stealth move. The Fed used power granted it under the bailout legislation to effectively set a floor under its fed funds rate that’s lower than the 2% target officially set by policymakers in September. The central bank now can pay interest on bank reserves while it floods the financial markets with liquidity--thus pushing down the fed funds rate by 75 basis points to 1.25%. “Absolutely, it’s a stealth easing,” said RDQ Economics Founder and Chief Economist John Ryding. “The problem is it’s an easing that’s trying to offset a massive tightening in the market.” (Bloomberg.com Oct. 7) … * Losses on bad U.S. assets will top $1.4 trillion, the International Monetary Fund (IMF) said Tuesday in its Global Financial Stability Report. That’s much higher than the IMF’s estimate of $945 billion made in April. The fund estimates that writedowns on U.S. assets totaled $760 billion through September, indicating that the financial crisis is only at a halfway point. The fund is urging global policymakers to coordinate a response to the extraordinary crisis. “With financial markets worldwide facing growing turmoil, internationally coherent and decisive policy measures will be required to restore confidence in the global financial system,” said the IMF. “Failure to do so could usher in a period in which the ongoing deleveraging process becomes increasingly disorderly and costly for the real economy.” The IMF said governments will have to provide capital because global banks need an estimated $675 billion in new capital to support even modest credit growth (The Wall Street Journal Online Oct. 7) … * Households struggling with declining home prices and stock values will also face higher heating costs this winter. Households using fuel oil will spend an average of $2,388 during the October-April heating season--$449 more than last year, according to the Energy Department’s Energy Information Administration (Associated Press via CNNMoney.com Oct.7). Households that use natural gas will pay an average $1,010--or $155 more than last year. The department noted that actual costs will vary depending on region, local weather, and the energy efficiency of individual homes. Some people have seen their utilities cut off because of unpaid winter and summer bills. Shutoffs have been running about 17% to 22% higher than last year in some regions, according to a recent Associated Press poll … * State tax revenue rose only slightly in the second quarter as the economic slowdown and declining home prices eroded revenue from sales taxes, fuel taxes, and property taxes, according to a report by the State University of New York’s Rockefeller Institute of Government. Total tax revenue for states was up a modest 3.6% in the second quarter, from a year earlier. Adjusted for inflation, revenue was up just 1.6%. Fuel-tax revenue was down 2.1%, reflecting fewer miles driven. Property-tax revenue was down 0.1%, while sale tax revenue was off 1.4%. “The underlying trend for states is negative; budget cuts and other gap-closing measures likely loom ahead,” said the report (Associated Press via The New York Times Oct. 7) …

News of the Competition (10/06/2008)

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MADISON, Wis. (10/7/08)
* Bank of America has agreed to settle claims brought by state attorneys general related to certain risky loans originated by Countrywide Financial Corp, which was acquired by BofA on July 1. The deal will cover as many as 390,000 borrowers, and will apply to subprime loans and option-adjustable-rate mortgages serviced by Countrywide. “With this settlement, we have the first-of-its kind mandatory loan modification program,” said Illinois Attorney General Lisa Madigan. “This program is going to help homeowners stay in their homes, which ultimately helps investors,” said Madigan. Possible loan modifications include reducing loan balances, lowering interest rates, and refinancing borrowers into government-backed loans. Attorneys general in states signing the agreement include Arizona, California, Connecticut, Florida, Iowa, Michigan, North Carolina, Texas and Washington (The Wall Street Journal Online Oct. 6) … * Citigroup has filed a $60 billion lawsuit against Wells Fargo and Wachovia for allegedly breaching an exclusivity agreement by striking a deal Monday. “The Citi/Wachovia transaction would have been signed and announced on Friday, Oct. 3 if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors,” said Citi in a statement announcing the suit. Citi said it had been providing liquidity support to Wachovia since it announced a deal to acquire the bank (TheStreet.com via msn.com Oct. 6) … * Lehman Brothers creditors want a federal judge to investigate why JPMorgan Chase “froze” billions of Lehman’s assets during the days right before Lehman’s bankruptcy. The creditors claim the action may have contributed to the collapse of the investment firm. Chase’s actions resulted in Lehman’s “immediate liquidity crisis that could have been averted by any number of events, none of which transpired,” said the creditors. A Chase spokesman wasn’t immediately available for comment (Dow Jones Newswires Oct. 6) … * The Department of Housing and Urban Development (HUD) plans to increase the loan limit for government-insured reverse mortgages to $417,000, from the current cap of $200,160 to $362,790-- depending on where a home is located. Lenders had wanted the cap to match the new $625,000 ceiling on Fannie Mae and Freddie Mac loans. “We tried to convince HUD that [reverse mortgages] should be tied to the higher limit, but the lower ceiling is still going to be very helpful,” said Daryl Hicks, vice president of communications at the National Reverse Mortgage Lenders Association (National Mortgage News via American Banker Oct. 6) … * Zurich’s UBS AG announced Monday that it plans to exit from several risky business areas such as commodities trading. The bank also plans to cut 2,000 more investment-banking positions. UBS has posted $42 billion in writedowns since the credit crisis began, and has slashed more than 20% of the workforce in its investment bank. The company also has been forced to raise $27 billion in new capital (The Wall Street Journal Online Oct. 6) …

Market News (10/06/2008)

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MADISON, Wis. (10/7/08)
* Stocks plunged Monday as the credit crisis threatened to weaken the global economy. The Dow Jones industrial average fell 483 points to 9,843 in late morning trading. That’s the first time the Dow has been below 10,000 on an intraday basis since late October 2004. The Dow has lost more than 1,100 points--or about 10%--in the past week. The declines came a day after several European governments moved to save top banks and lenders from collapse. Those actions alarmed investors and regulators in the U.S. and abroad. In an effort to avert financial contagion, the German government said it would guarantee all private bank deposits. At the same time, oil prices plunged almost $4 a barrel to under $90, amid concerns that weak economic growth would slow energy demand (The New York Times and The Wall Street Journal Online Oct. 6) … * The Federal Reserve said Monday that it will double auctions of cash to banks to as much as $900 billion and will consider other actions to unfreeze the short-term lending markets. “The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions,” said the central bank in a statement. The Fed also said that as of Monday it will start paying interest on the cash reserves banks hold at the Fed. The central bank gained that authority under the $700 billion financial-bailout plan authorized by Congress last week (Bloomberg.com Oct. 6) ... * The European Union on Monday pledged to protect personal savings and maintain financial stability. In a statement from the 27 member states, French President Nicolas Sarkozy said individual countries will do all they can to safeguard the financial system. Germany said it would guarantee all private bank deposits. Sweden, Austria, Iceland, and Denmark followed suit. “Governments have no choice but to give the guarantees on deposits, otherwise we will see runs on banks and a complete loss of business and consumer confidence,” said ECU Group Chief Economist Neil Mackinnon. Within the banking industry, France’s PNP Paribas bought up the assets of Fortis in Belgium and Luxembourg. Trading in shares of Italy’s UniCredit was suspended several times after sharp declines in that bank’s stock. Germany also negotiated a $69 billion bailout deal for Hypo Real Estate, as Europe’s second-largest economy moved to avert a financial crisis there (Reuters and Associated Press via The New York Times Oct. 6) … * The U.S. economy will recover from the current recession in the second quarter of 2009 if the credit crisis gradually improves, according to a survey of economists by the National Association for Business Economics (NABE). Two-thirds of respondents said the economy is now is recession. The economy “could deteriorate markedly” if the financial crisis doesn’t turn around soon, said NABE President-Elect Chris Varvares. “Still, the NABE panel expects that lower oil prices, a bottoming out in home prices, and a better functioning of financial markets should enable the economy to resume trend-like growth by the second half of 2009,” said Varvares. Respondents expect employers to continue cutting jobs. The nation’s unemployment rate is forecast to increase to 6.4% next year, from the current 6.1% rate (MarketWatch and Associated Press via Yahoo! News Oct. 6) … * Global business confidence remains very low and consistent with a global recession, according to the latest Moody’s Economy.com Survey of Business Confidence. Expectations about the economic outlook six months from now tumbled to a new record low last week. U.S. confidence is the weakest, followed closely by Europe and Japan. Hiring plans remain soft. The only positive sign in the survey was a decline in pricing pressures during the past month. Just 35% of respondents said they are raising prices--down from 50% this summer when oil prices peaked …

News of the Competition (10/03/2008)

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MADISON, Wis. (10/6/08)
* Citigroup is demanding that Wells Fargo & Co.’s agreement Friday to acquire rival Wachovia Corp. for roughly $15.1 billion in stock be terminated. Citi issued a statement Friday saying that the agreement “is in clear breach of an exclusivity agreement between Citi and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference [occurs when a person intentionally damages the plaintiff's contractual or other business relationships] with the exclusivity agreement.” Earlier last week, Citi had agreed to buy Wachovia’s banking operations for $2.2 billion--or about $1 per share--in a deal that the Federal Deposit Insurance Corp. brokered. Wachovia evidently rejected the deal in favor of one in which the whole company would be acquired, analysts said. “Citi was negotiating in good faith and nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction that was announced Monday …,” said Citi’s statement. “Citi also has been providing liquidity support to Wachovia Bank since Monday’s announcement. Citi has demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction … Citi has substantial legal rights regarding Wachovia and this transaction” (The Wall Street Journal Oct.3 and The New York Times Oct. 4) … * For a second straight week, rates on 30-year mortgages rose to the highest level in a month. Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.10% last week--up slightly from 6.09% the previous week--and the highest level since 30-year mortgages averaged 6.35% for the week ending Sept. 4. In recent weeks, financial markets have been unstable as demand for safe-haven Treasury securities has forced those yields down drastically, while rates on other types of corporate bonds have been forced higher by increasing concerns about whether the bonds would be repaid, analysts said (Associated Press Oct. 2) … * The insurance unit of MBIA Inc. has sued several units of Countrywide Financial Corp., regarding securitization of pools of more than $14 billion in home equity loans. MBIA says Countrywide made fraudulent representations about its loan underwriting standards for the loans. In a breach-of-contract lawsuit filed Tuesday in New York State Supreme Court, MBIA Insurance Corp. alleged Countrywide developed a “systematic pattern and practice of abandoning its own guidelines for loan origination” in attempts to expand its market share during a boom time in mortgage lending from 2005 to 2007. The complaint alleges that this behavior “fundamentally changed” the risk profile of Countrywide’s mortgage portfolio (MarketWatch Oct. 2) … * To warn each other that banks are using any excuse to increase charges to renew lines of credit, nearly 100 U.S. corporate treasurers participated in an emergency conference call Thursday, organized by the National Association of Corporate Treasurers, the association said. One bank charged 80 basis points for a company to renew a routine $25 million credit line, said Edward Liebert, treasurer of Rohm & Haas Co., which took part in the call. The banks are starting to play tough because they don’t have enough capital to lend money to people, said Jeff Wallace, managing partner at Greenwich Treasury Advisors, during the call (Bloomberg.com Oct. 3) … * Capital One Financial Corp. reached a settlement agreement with the U.S. Trustee Program--an arm of the Justice Department that monitors bankruptcy courts. The settlement involves allegations that Capital One’s credit-card unit filed roughly 5,600 claims in credit-card debts it wasn’t entitled to, resulting in $340,000 in payments from debtors. Per the settlement, Capital One--one of the top credit-card issuers--agreed to hire an independent auditor to go over roughly 650,000 customer accounts to ensure the company did not improperly collect debts that previously had been discharged in prior bankruptcy cases. The auditor will review all claims the company made since 2005 in consumer bankruptcy cases, analysts said (The Wall Street Journal Oct. 3) ...

Market News (10/03/2008)

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MADISON, Wis. (10/6/08)
* Mortgage lending stalled as credit standards tightened over the past year. New mortgage loans granted during the third quarter totaled $320 billion--down 44% from a year earlier and the lowest third-quarter total since 2000, according to Inside Mortgage Finance. Lending slowed as Fannie Mae and Freddie Mac added fees that boost borrowing costs. Even people with good credit records are reluctant to purchase homes now for fear that home prices will continue declining. In addition, mortgage rates have remained little changed during the past year even as the Federal Reserve slashed the target for the fed funds rate. Fed officials may be considering further interest-rate cuts even with passage of a bailout plan, as the economy continues to deteriorate and the financial crisis deepens (The Wall Street Journal Online Oct. 2) … * The financial crisis is hitting ordinary Americans hard, as they worry about their jobs, home values and retirement plans. Eight out of 10 people fear the financial crisis will affect them directly, according to an Associated Press-GfK survey conducted by GfK Roper Public Affairs & Media Sept. 27-30. Still, 45% of respondents said they oppose the proposed bailout plan. President Bush signed the plan into law on Friday. In the poll, banks received most of the blame for the financial crisis, followed by the federal government for not adequately regulating the firms. More than half of respondents said they’re concerned about having to work longer because of lost retirement savings, while almost half said they’re worried about the long-term value of their homes, and nearly one-third said they’re concerned that the crisis could cost them their jobs (Associated Press via The New York Times Oct. 2) … * Factory orders tumbled in August as the credit crisis hit the manufacturing sector. Orders for factory goods fell by 4%, the Commerce Department reported Thursday. It was the largest decline since a 4.8% drop in October 2006. The decline was led by a 38.1% drop in aircraft orders and a 10.6% decline in vehicle orders. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell by 2.4%--the largest decline in 19 months. The credit crunch is prompting companies to slash their investment plans because they can’t obtain loans to expand. The weak report followed a report Wednesday from the Institute for Supply Management (ISM). ISM said its factory index fell to 43.5% in September--from 49.9% in August and the lowest reading since 40.8% in October 2001 during the aftermath of the terrorist attacks (Associated Press via Yahoo! News Oct. 2) … * More than 60 corporate loan defaults have been recorded so far this year, according to a report issued Thursday by Standard & Poor’s (S&P). Nine companies defaulted in September--including failed Washington Mutual and bankrupt Lehman Brother--bringing the year-to-date total to 61. This year’s rate is well above that in 2007 when 16 companies defaulted, and 2006, when 22 firms failed to meet their financial obligations. With the increase this year in defaults, the situation will only get worse, according to S&P analysts (Financial Week Oct. 2) … * Activity was extremely busy at the Federal Reserve Board’s discount window the past week, setting a record with commercial banks averaging $44.5 billion in daily borrowing. Wednesday’s borrowing recorded an all-time high of $49.5 billion. To obtain short-term loans to meet liquidity needs, financial institutions have access to the Fed window. Loans from the Fed lending facility have a 28-day duration. It is no surprise that borrowing has hit a record high with the current credit crunch squeezing financial institutions, analysts said (AHN Oct. 2) … * Job cuts are on the rise as September saw more than twice the number of jobs lost as in August or July, the Labor Department reported last week. About 159,000 were slashed last month--the biggest monthly decline since 2003. The number of cuts exceeded the 100,000 loss of jobs that forecasters had expected in September. Although single job reports generally should viewed somewhat narrowly since the number can often be reversed the following month, last week’s report portends the possibility that the U.S job market--and perhaps the economy as a whole--are entering into new stage, analysts said. The heaviest job losses continue to be found in industries tethered to the housing market such as construction and real estate, they added. However, hotels, manufacturers, restaurants and retailers also cast off jobs, analysts said (The New York Times Economix Oct. 3) … * The Institute for Supply Management (ISM) non-manufacturing index dropped slightly to 50.2 in September from 50.6 in August. Since its precipitous drop to 44.6 in January, the ISM non-manufacturing composite index has remained in a narrow band around 50, which signals slow expansion in the non-manufacturing sector, analysts said. Given the drop in the ISM manufacturing survey in September, a key question the survey brings to the forefront is whether the survey was finished prior to the most recent round of financial turmoil, analysts added (Moody’s Economy.com Oct. 3) … * The Economic Cycle Research Institute (ECRI) Weekly Leading Index slightly increased to 122.2 for the week ending Sept. 26, from a revised 122.1 (previously 122.2). The smoothed, annualized growth rate fell to -13.3% from an unrevised -12.3%. Recent deterioration over the past several months suggests a lengthier and even more drastic downturn, analysts said. The core cause of current problems has been deteriorating credit conditions and housing issues, although these problems have slowly morphed into a broader slowdown, analysts said. An example is the contraction in employment in the U.S. for nine consecutive months, punctuated by September’s decline of 159,000--the largest monthly decline yet (Moody’s Economy.com Oct. 3) …

News of the Competition (10/02/2008)

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MADISON, Wis. (10/3/08)
* Insured bank deposits would increase by 15% under the Senate bill giving the Treasury Department authority to purchase troubled mortgage-backed assets, according to a Congressional Budget Office (CBO) estimate. The bill includes a provision that would increase the amount of FDIC-insured bank deposits to $250,000, from the current $100,000 limit. The CBO estimates that the provision would extend FDIC coverage to $700 billion of deposits, with higher insurance premiums offsetting the long-term cost of the new cap (Dow Jones Newswires Oct. 2) … * The Securities and Exchange Commission (SEC) on Wednesday extended the ban against short selling in the shares of more than 800 financial firms. The SEC had enacted the ban on Sept. 18. The extension will last at least until after Congress passes a bailout plan. In short selling, someone borrows a company’s shares, sells them, and then buys them back when the stock price falls. Regulators say short selling has contributed to the collapse of financial companies’ stock prices. The SEC has also extended its easing of restrictions on the ability of firms to buy back their own shares. Both measures are designed to restore liquidity and confidence to the markets (Associated Press via The New York Times Oct. 2) … * The Justice Department is increasing its criminal investigations into the collapse of the auction-rate-securities (ARS) market. One probe is investigating whether Lehman Brothers defrauded clients, and another is investigating whether former USB AG executive David Shulman engaged in insider trading in selling his personal ARS holdings before the market for such securities collapsed, say people familiar with the matter. Wall Street firms had touted ARS as almost as liquid as cash. The market froze earlier this year as Wall Street firms stopped supporting auctions (The Wall Street Journal Online Oct. 2) ... * Fannie Mae and Freddie Mac have boosted their loan-modification efforts since being placed in conservatorship. The government takeover freed the firms to shift from capital-raising efforts to concentrate on delinquent borrowers, analysts said. “Because of the government takeover, they’re getting all the money they need, so they’re increasing loan modifications and recasting mortgages, based on what the borrower can pay,” said Newbold Advisors Partner Terry Couto. Fannie Spokesman Brian Faith noted that the firm has kept 3,100 borrowers from being foreclosed on during the last five weeks. He said another 13,847 at-risk borrowers have avoided foreclosure by receiving loan modifications. Freddie Spokesman Brad German said the firm is on track to modify 82,000 delinquent loans that had been on the way to foreclosure (American Banker Oct. 2) … * Sovereign Bancorp’s credit ratings were cut by Moody’s Investors Service because of large charges from the bank’s exposure to Fannie Mae and Freddie Mae preferred stock, and a loss taken on the sale of its $750 million collateralized-debt-obligation portfolio. Moody’s lowered Sovereign’s debt and deposit ratings one notch to Baa2, only two notches above junk status. Sovereign Bank’s long-term deposit rating was lowered one notch to Baa1. Moody’s also cautioned about further downgrades. Like many banks, Sovereign has seen loan losses soar this year (Dow Jones Newswires Oct. 1) …

Market News (10/02/2008)

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MADISON, Wis. (10/3/08)
* The U.S. economy may fall into a severe recession as the financial crisis deepens, the International Monetary Fund (IMF) said Thursday. The fund noted that a banking crisis preceding a downturn typically doubles or triples the size of the downturn. “The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis,” and there is “a substantial likelihood of a sharp downturn in the U.S.,” said the fund in its semiannual World Economic Outlook. “In the euro zone, by contrast, the relatively strong position of households offers some protection against a sharp downturn.” IMF Director of Research Charles Collyns said the financial crisis is “the most dangerous shock to the financial sector since the 1930s” (Bloomberg.com Oct. 2) … * Vehicle sales plunged last month as credit tightened and the economy weakened further (Moody’s Economy.com Oct. 1). Vehicles sold at an annual pace of 12.46 million units in September (seasonally adjusted)--down sharply from a 13.68 million rate in August and the weakest pace since January 1992. Economy.com expects auto sales to remain weak, at under 14 million units, through mid-2009 as employment continues to decline, wage growth softens, and credit access remains limited. Sales should then rebound as the economy improves and consumers with pent-up demand re-enter the market … * Home prices declined in 24 of the top 25 U.S. metropolitan areas in July, from a year earlier, as foreclosures continued to dampen prices, according to a report by Radar Logic Inc. Only Milwaukee saw a price increase, at 2.9%. Las Vegas posted the largest decline, at 33%. Los Angeles, Phoenix, Sacramento, and San Francisco each saw price declines of about 28%. Foreclosures rose to a record-high 2.75% of all mortgages during the second quarter, according to the Mortgage Bankers Association. Foreclosed homes typically sell at a 20% discount, according to Lehman Brothers research (Bloomberg.com Oct. 2) … * Mortgage rates were little changed this week following a surge the previous week, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) rose to 6.10%, from 6.09% the previous week and the highest level in a month. The 15-year FRM, a popular choice for refinancings, edged up to 5.78% from 5.77%. “Average mortgage rates were nearly unchanged during the past week, leaving rates above the levels of two weeks ago,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “Reflecting the rate uptick from two weeks ago, the Mortgage Bankers Association reported that loan applications were down 23% last week,” added Nothaft. Rates are lower than a year ago, however. The 30-year FRM stood at 6.37% at this time last year, while the 15-year FRM averaged 6.03% (Associated Press via Yahoo! News and UPI.com Oct. 2). For CUNA's Daily Financial Rates, use the link. … * The job market remains weak, according to a Labor Department report. First-time claims for unemployment insurance edged up by 1,000 during the week ending Sept. 27 to 497,000. The government said the effects of Hurricane Gustav in Louisiana and Hurricane Ike in Texas added about 45,000 claims to the total. The four-week moving average, which smoothes out weekly volatility, jumped by 11,500 to 474,000. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 48,000 during the week ended Sept. 20 to 3.591 million--suggesting that people are having a tough time finding new jobs after they’ve been laid off. Unemployment claims are at high levels even excluding the hurricanes (Associated Press via Yahoo! News Oct. 2). Weekly claims have topped 400,000 for the past 11 consecutive weeks, a level that signals recession. Claims averaged just 324,000 a year ago … * The amount of money immigrants send home to their families in Latin America is slowing sharply as the U.S. economy weakens, according to a report by the Inter-American Development Bank. The bank projects that immigrants will send home $67.5 billion this year--up only about 1.5% from 1997 and the slowest rate on record. At the same time, inflation is increasing throughout most of Latin America and the value of the U.S. dollar is declining. “The money sent home in dollars isn’t going as far as it used to go,” said Money-Transfer Specialist Robert Meins (washingtonpost.com Oct. 1) …

CUs poised to prosper during downturn says CUNA

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MADISON, Wis. (10/2/08)--Conservative lending practices, favorable rates and a liquidity base primarily comprised of member deposits have well positioned U.S. credit unions to weather what economists are now calling a pending recession. Tumbling stock prices have prompted investors to put more of their money into credit union share savings accounts, further strengthening institutional liquidity and better enabling credit unions to help members through the current financial crisis, said Steve Rick, senior economist for the Credit Union National Association (CUNA), during a webinar sponsored by World Council of Credit Unions (WOCCU). He presented the economic snapshot and told how U.S. credit unions fare against their for-profit counterparts to WOCCU's G7 group, which consists of member organizations in Australia, Brazil, Canada, the Caribbean, Ireland, Poland and the U.S.--representing the world’s largest credit union movements. The Wednesday webinar was presented in response to frequent requests WOCCU has received for information about the U.S. economy and its impact on credit unions from members in other countries, according to Pete Crear, WOCCU president/CEO and host of the webcast. “The U.S. economy has a global reach, and problems we may be having here definitely impact the financial well-being of our members in other countries,” Crear said. “We wanted to share the best information we could from one of the credit union industry’s top economic resources.” Rick’s 90-minute presentation painted a dour picture of the next several years, during which he said the economy will likely enter a recession. Declining home values continue to plague consumers, more of whom are defaulting on loans that now exceed the value of their homes. Investors have been steering away from mortgage loan portfolios that continue to decline in value, particularly subprime loan portfolios. Large banks that have invested heavily in these portfolios now find themselves with a liquidity crisis, realizing large losses and responding by tightening credit requirements to preserve liquidity, further dampening economic growth by restricting consumer spending. Credit unions, on the other hand, are in good position, thanks to their traditionally conservative approach to lending, Rick said. Since the credit union industry has not invested heavily in subprime loans, there are few liquidity issues for most institutions, he added. Credit unions’ liquidity base, largely made up of member deposits, is growing, thanks to skittish investors' withdrawals from the stock market and deposits into share savings accounts. Also, the lack of a liquidity crisis and an average institutional net worth of 11.4%, compared with banks’ average 7.8%, have helped credit unions remain more flexible in their loan rates and standards, Rick explained. These factors are particularly critical to mortgage loans, which have been increasing in number for many credit unions whose strong institutional liquidity allows them to offer more flexible rates and terms. Credit unions have limited credit risk because they did not engage in subprime lending. The lower provisions for loan loss frees up more capital, allowing credit unions to lend with fewer restrictions and stimulate consumer spending, he added. “Credit unions should remain very optimistic during the current financial situation,” said Rick. “There is inherent strength in credit unions’ cooperative model to deal with the housing and credit crisis.”

News of the Competition (10/01/2008)

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MADISON, Wis. (10/2/08)
* The sustained freeze in the auction-rate securities (ARS) market may start to show up in negative ratings actions on U.S. student-loan trusts that use ARS, Fitch Ratings said Tuesday. “While most trusts have shown resilience to the market freeze, none were structured to withstand permanent market dislocation, making negative rating actions on certain transactions less a case of if and more a case of when,” said Kevin Duignan, head of Fitch’s U.S. ARS group. Fitch plans to review 110 U.S. student-loan trusts that have issued ARS. Liabilities exceed assets in about one-third of those trusts. Student-loan firms have not been as successful as municipalities and closed-end funds at refinancing or restructuring their ARS (centredaily.com and Bloomberg.com Sept. 30) … * Warren Buffett’s Berkshire Hathaway has agreed to buy $3 billion in perpetual preferred stock from General Electric. GE, whose finance unit accounts for about half of its revenue, has seen its stock hammered in recent weeks amid the credit crunch. Shares of GE have declined 34% so far this year. GE also plans an offering of “at least” $12 billion in common stock. Recently, Warren Buffet made a $5 billion investment in Goldman Sachs. Both moves were designed to instill confidence in the financial system (The Wall Street Journal Online Oct. 1) … * Goldman Sachs is seeking to purchase up to $50 billion in assets from beleaguered U.S. banks to support its push into commercial banking, according to a report in The Financial Times. Goldman and Morgan Stanley recently announced that they will become bank holding companies. Goldman shares plunged more than 12% Monday after the House of Representatives failed to pass the administration’s bailout plan (MarketWatch Sept. 30) … * Genworth Financial announced Tuesday that it may spin off its mortgage-insurance business to cut its exposure to the housing crisis. Genworth stock, which lost about half its value on Monday after the government bailout plan failed to pass in the House of Representatives, gained 30% in trading Tuesday. Mortgage insurers have had to pay out much more on claims as the housing slump continues and foreclosures soar. Genworth noted that is borrowed just $79 million in the commercial-paper market, down from $158 million in early September. Some parts of the commercial-paper market have frozen recently as the credit crisis deepened (MarketWatch Sept. 30) … * The Federal Agricultural Mortgage Corp. (Farmer Mac) is facing a capital shortage after being hit by losses on its investments in Fannie Mae and Lehman Brothers. The GSE’s common stock has lost more than 87% of its value since Fannie Mae and Freddie Mac were taken over by the government on Sept. 5. Farmer Mac may have to cut back on programs that help banks and Farm Credit System lenders offer credit to farmers if its capital plan doesn’t succeed, said its regulator. The asset quality of the loans Farmer Mac buys remains strong. The firm “is a critical piece in the farm real estate lending network,” noted John Blanchfield, senior vice president at the American Bankers Association (American Banker Sept. 30) …

Market News (10/01/2008)

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MADISON, Wis. (10/2/08)
* In another bad sign for the economy, the manufacturing sector contracted to the lowest level since 2001 last month, the Institute for Supply Management (ISM) reported Wednesday. The ISM factory index fell to 43.5% in September--from 49.9% in August and the lowest reading since 40.8% in October 2001 during the aftermath of the terrorist attacks. A reading below 50% indicates that the manufacturing sector is generally contracting. The index “indicates a significantly faster rate of decline in manufacturing during September, marking a departure from the 2008 trend toward negligible growth or contraction each month,” said Norbert Ore, chairman of the group’s Business Survey Committee. He also noted that the survey’s price index fell to the lowest level in 21 months, and that growth in export orders slowed. And in a negative sign for the job market, the employment index dropped to 41.8 in September, from 49.7 a month earlier … * Planned layoffs by large U.S. firms jumped in September, according to a survey by the outplacement firm Challenger, Gray & Christmas. Companies announced plans to cut 95,094 jobs last month-- 33% higher than a year earlier. During the third quarter, layoff announcements were up 48% from a year earlier, to 287,142--the highest quarterly total in almost three years. The financial sector announced just 8,244 job cuts in September. However, that number is expected to swell after Lehman Brothers, Merrill Lynch, AIG, Wachovia and Washington Mutual all were acquired, bailed out, or went bankrupt during September. “It may take several weeks or months for the fallout from September’s Wall Street turmoil to hit the employment numbers,” said John Challenger, chief executive of the Chicago-based firm. The auto sector, which continues to downsize, announced 14,595 job cuts last month--bringing the total for the year to 94,918 (MarketWatch and CNNMoney.com Oct. 1) … * Construction activity in August beat analysts’ expectations, as residential spending posted the first increase in 17 months. Construction spending was unchanged in August, the Commerce Department reported Wednesday. That beat analysts’ forecast for a 0.5% decline. Residential spending rose 0.3%--the first gain since March 2007. On the downside, overall construction spending for August was revised down to a 1.4% drop, much bigger than the 0.6% decline originally estimated. And commercial construction was hampered by the ongoing credit crunch. Spending on non-residential construction declined by 0.8%. Over the past year, overall construction spending has fallen by 5.9% (Associated Press via CNNMoney.com and commerce.gov Oct. 1) … * Mortgage activity declined for a second consecutive week, according to the Mortgage Bankers Association (mbaa.org Oct. 1). The trade group’s Market Composite Index plunged 23% during the week ending Sept. 26 to 455.4. The decline followed a 10.6% drop the previous week. The Refinance Index was down 34.7% in the latest week, to 1333.9, while the Purchase Index fell 10.9% to 304.8. Mortgage rates were mixed last week. The average 30-year, fixed-rate mortgage (FRM) edged down one basis point to 6.07%, while the one-year, adjustable-rate mortgage (ARM) rose 18 basis points to 7.19%. Mortgage demand has now given up most of the gains seen in the previous four weeks, said Moody’s Economy.com (Oct. 1). The research firm also noted that ARM lending is on its way to disappearing. ARMs made up only 3.3% of mortgage activity in the latest week--down from 4% the previous week and 14% a year earlier … * Confidence among small-business owners plunged in September amid growing concern about the economy. Discover Financial Services’ Small Business Watch index tumbled 12.3 points to 74.6 last month. In the latest poll, 42% of respondents said they have experienced cash-flow issues, unchanged from August, while 51% said they believe economic conditions for their businesses are getting worse, up from 44%. A record-low 7% of small-business owners say the economy is getting better. The September decline in overall confidence “isn’t surprising given the constant stream of uninspiring news about the housing and lending markets, as well as the turmoil on Wall Street,” said Ryan Scully, director of Discover’s business credit card (BUSINESS WIRE via Yahoo! News Sept. 29) …