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News of the Competition (10/30/2009)

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MADISON, Wis. (11/2/09)
* Still coping with bad investments in mortgage securities, the U.S. Federal Home Loan Banks reported a combined $165 million net loss for the third quarter. Write-downs of $1.04 billion in the value of private-label mortgage securities were reflected in the loss, analysts said. Five of the 12 banks nationwide had losses in third quarter, including those in Boston, Chicago, Pittsburgh, San Francisco and Seattle. The other seven were in the black. In the third quarter 2008, the 12 regional banks had combined net income of $506 million. Although the banks are separately owned, run as cooperatives and report individual results, they also produce combined quarterly results for the convenience of debt investors. The banks are collectively liable for debt issued by any of them (The Wall Street Journal Oct. 30) ... * The U.S. Federal Reserve’s balance sheet contracted slightly for the week ending Oct. 28. The Fed’s balance sheet liabilities--which are a broad measure of its lending to the financial system--dropped to $2.144 trillion Wednesday from $2.183 trillion a week earlier. Overnight direct loans to banks through the Fed discount window in the week ended Oct. 28 averaged $107.63 billion, compared with $108.17 billion in the week ended Oct. 21 (Reuters Oct. 29) … * CIT Group Inc.--the commercial lender giant trying to avoid bankruptcy--made a deal with Goldman Sachs Group Inc. to amend a $3 billion loan to $2.13 billion and also keep the line of credit open if CIT should file for bankruptcy, analysts said. As part of the deal, Goldman Sachs receives $285 million in termination fees, according to a Friday filing with the Securities and Exchange Commission. Under terms of the original agreement between the two companies, Goldman Sachs would have been entitled to a $1 billion termination payment to close the credit line in case of a CIT bankruptcy, analysts said (Bloomberg.com and The Wall Street Journal Oct. 30) …

Market News (10/30/2009)

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MADISON, Wis. (11/2/09)
* For the first time in five months, U.S. consumer spending dropped in September, as consumers confronted a poor job market, tight credit and the loss of a popular government auto-rebate subsidy, analysts said. The 0.5% spending decline was the largest since December when the recession was at its peak. Most of the drop in spending occurred in consumer goods--which includes autos, analysts said (The Wall Street Journal Oct. 30). The September decrease follows a 1.4% jump in August, according to Commerce Department figures released Friday. Consumer incomes remained unchanged, while the savings rate rose, the department added. Consumers “went out spending in August, but once that incentive was taken away, they didn’t have the same reason to spend as much,” said Jonathan Basile, an economist at Credit Suisse. “Consumers are going to be selective and not necessarily aggressive going into the holiday season,” he added (Bloomberg.com Oct. 30). The September decline was consonant with expectations, analysts said. In September, spending adjusted for inflation dropped 0.6%--also the biggest decline since December--after increasing 1% the prior month, the department said. Consumer spending normally constitutes more than two-thirds of overall U.S. economic activity (The New York Times Oct 30) ... * The University of Michigan consumer sentiment index for October dropped to 70.6 from an upwardly revised 73.5 in September. A modest firming trend is in place, analysts said, keeping the index above August’s 65.7 mark. The October decline was propelled by a 4.9-point decline in the expectations component. The current conditions component increased 0.3 points. Also, short-term inflation expectations increased steeply from September, analysts said. Although consumer sentiment is stuck at low levels, it appears to be gradually improving, according to the University of Michigan. The inconsistent upward trend in consumer expectations is expected to continue. Consumer fundamentals are still weak, but are slowly improving, analysts said (Moody’s Economy.com Oct. 30) … * U.S. employer costs increased 0.4% in the third quarter, meeting expectations and repeating a second-quarter gain, according to the Bureau of Labor Statistics Employment Cost Index. During the third quarter, wages and salaries advanced 0.4%, while benefits-cost growth was 0.4%. The wages and salaries growth matched the second-quarter growth, while the benefits-cost growth was up from a 0.3% increase in the prior quarter. The third-quarter flat trend in employer costs reflects the general pattern of slow wage expansion, analysts said (Moody’s Economy.com Oct. 30) …

News of the Competition (10/29/2009)

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MADISON, Wis. (10/30/09)
* Midsize U.S. banks are not happy with the most recent industry proposal that would require them to help pay for the bailout of big banks to deal with systemic risk, analysts said. The crux of the matter is the proposal for the Federal Deposit Insurance Corp. (FDIC) to assess a fee from all institutions with more than $10 billion in assets whenever a systemically important institution fails. The Treasury Department and House Financial Services Committee released a draft bill Tuesday that proposes new regulatory oversight of the largest U.S. financial services companies. The bill proposes that if any systemically important institution is considered to be a failure, the FDIC will intervene just as it does now with banks, analysts said. The $10 billion asset cutoff could cause companies approaching that level to pull back on lending, said Jeff Davis, an analyst at First Horizon National Corp.’s FTN Equity Capital Markets Corp. “I think if it passes, there will be less lending,” Davis said. “It will certainly encourage any bank that doesn’t have really large aspirations to stay put” (American Banker Oct. 29) …. * American International Group (AIG) has recouped some of the billions of dollars it doled out last year on souring trades due to a turnaround in the same securities that helped caused the insurer to implode, analysts said. The company was forced to go under government control. In recent months, billions of dollars from banks have poured into AIG, said sources familiar with the matter. The figure may have exceeded $3 billion for the second quarter, according to public filings. Goldman Sachs has sent back at least $1 billion, said the sources. The money flows--which follow a bounce-back in the financial market, including bonds tied to subprime mortgages--are coming while AIG is still struggling under the auspices of government control, analysts said (the Wall Street Journal Oct. 29) … * Struggling lender CIT Group turned down a loan from financier Carl Icahn, instead accepting a $3.5 billion loan from a group of investors that included some of CIT’s biggest bondholders, analysts said. Arranged by Bank of America Merrill Lynch, the bondholder loan will supplement a $3 billion loan CIT received in April from several large investors, analysts added. The loan was announced one day before a large debt exchange--designed to keep the company out of bankruptcy--expired. If that should fail, CIT has been soliciting votes to pass a prepackaged bankruptcy, analysts said (The New York Times Oct. 29) … * U.S. banks are becoming more dependent on debit transactions as a part of their payment mix--a fact that is not likely to change, even after the economy recovers, analysts said. Consumers have shifted from using credit cards, and debit transactions have steeply risen this year at Fiserv Inc. Also, younger consumers--who have grown up using debit cards and other forms of electronic payments--will begin to constitute a bigger share of the country’s purchases, analysts said. This will result in younger people becoming more important debit customers for banks. That means current changes in the payments market are going to have a long-term impact, analysts concluded (American Banker Oct. 29) …

Market News (10/29/2009)

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MADISON, Wis. (10/30/09)
* For the first time in more than a year, the U.S. economy expanded in the third quarter because of a rebound in consumer spending. Gross domestic product increased by a seasonally adjusted 3.5% annual rate for July through September--which was higher than expected, the Commerce Department said Thursday. However, weakness in the labor market is expected to result in a subdued recovery, economists added. This was the first quarter of growth since the second quarter of 2008. Growth resulted from consumer spending in several areas, including autos--largely due to the “cash for clunkers” program--as well as exports, inventory investment, home building, federal government spending and a smaller decline in business investment, analysts said. This is the most obvious indication to-date that the U.S. economy is out of recession, economists added (The Wall Street Journal and Moody’s Economy.com Oct. 29) … * For the week ending Oct. 24, initial claims for unemployment benefits dropped by 1,000--to 530,000, according to a Labor Department report. However, that number was higher than anticipated and indicates the job market is slow to recuperate, even as growth is picking up, analysts said. Continuing claims for unemployment dropped by 148,000 to nearly 5.8 million for the week ended Oct. 17. In total, the report is consistent with a gradual improvement in the labor market, analysts said. California was the only state that reported an uptick in claims of more than 1,000 for the week ending Oct. 17. New York, Pennsylvania and Wisconsin led the states reporting decreases in claims of more than 1,000 (Moody’s Economy.com and Bloomberg.com Oct. 29) … * Visa Inc. set a new 52-week high in trading Wednesday because of financial results that exceeded analysts’ expectations and because the company proclaimed that a year-long downturn in consumer spending has ended, analysts said. The largest global payments network posted net income of $514 million--or 69 cents a diluted share--for the fiscal fourth quarter ended Sept. 30. This compares with a year earlier loss of $56 million or 45 cents per share tied to the settlement of an antitrust lawsuit lawsuit, the company said. Also, U.S. payment volume--a gauge of total spending on Visa’s network--dropped 1% in the quarter, compared with the 3% decline in the quarter ended June 30. This constituted a “solid” improvement, said Byron Pollitt, Visa chief financial officer. U.S. spending rose 1% in September and 3% in the first three weeks of October--the first positive growth this year, he added. “While we draw some encouragement from this data, it is still not enough for us to call an inflection point in the U.S. economy,” Pollitt said (Bloomberg.com Oct. 28) …

News of the Competition (10/28/2009)

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MADISON, Wis. (10/29/09)
* Kenneth Feinberg, special master for Troubled Asset Relief Program (TARP) executive compensation at the Treasury Department, last week announced steep cuts--about 50%--in total compensation at finance and auto companies under his control. However, he substantially increased regular salaries when banks complained, according to a Wall Street Journal analysis. Feinberg oversees seven companies: GMAC Inc., American International Group Inc., Citigroup Inc., Bank of America Corp., General Motors Co., Chrysler Group LLC and Chrysler Financial. All 136 employees and executives working at the seven companies under Feinberg’s purview will earn significantly less this year than in 2008, even after factoring in the increase in base salaries (The Wall Street Journal Oct. 28) … * GMAC Financial Services Inc., a beleaguered consumer finance company, is in talks with the Treasury Department to see if the government will give the lender its third taxpayer bailout and provide the government a majority stake in the company, said sources familiar with the matter. The federal government is likely to inject $2.8 billion to $5.6 billion of capital into GMAC, following the $12.5 billion that the company has received since December, the sources said. Any new injection of government money into GMAC would likely take the form of a conversion of the government’s existing preferred shares into common stock, the sources added (The New York Times and The Wall Street Journal Oct. 28) …

Market News (10/28/2009)

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MADISON, Wis. (10/29/09)
* Sales of new U.S. homes in September unexpectedly dropped--following five consecutive monthly increases--because tighter credit and fears of unemployment kept buyers from making purchases, analysts said. Single-family home sales dropped 3.6% below August sales levels to a seasonally adjusted annual rate of 402,000, the Commerce Department said Wednesday. A survey conducted by Dow Jones Newswires indicated that September sales were expected to rise 2.6% to 440,000. September sales have fallen back to the mid-year pace. Months of supply are flat at 7.5, and the median sales price is down 9% year-over-year. Despite the September downturn, the recent stabilization in the housing market--which caused the worst recession since the 1930s--is expected to help the U.S. economy return to growth in the third quarter, analysts said (Moody’s Economy.com and the Wall Street Journal Oct. 28) … * For the fourth time in the past six months, orders for U.S. durable goods increased in September, signaling that factories are helping to usher in an economic recovery, analysts said. September saw a 1% increase, following the previous month’s downwardly revised -2.6% (previously -2.4%). The September report ends the third quarter, with new orders rising at annual rate of 12.3%--up from the second quarter’s 4% and the strongest since 2007, analysts said. Manufacturing gains are a reason economists are anticipating that a report due out today will indicate that the economy expanded in the third quarter at the fastest pace in two years, analysts said. “It’s an encouraging bounce-back,” said Sal Guatieri, a senior economist at BMO Capital Markets. “In the current market, the economy will be supported by a pickup in business investment. The recovery has some legs, albeit weak ones” (Bloomberg.com and Moody’s Economy.com Oct. 28) … * For the week ending Oct. 23, the Market Composite Index--a measure of mortgage loan application volume--decreased 12.3% on a seasonally adjusted basis from one week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association. The index dropped 2.8% on an unadjusted basis compared with the previous week, which included the Columbus Day holiday. The Refinance Index decreased 16.2% from the previous week, and the seasonally adjusted Purchase Index decreased 5.2% from one week earlier. The unadjusted Purchase Index rose 4.8% compared with the previous week, which was a holiday-shortened week, and was 15.4% lower than the same week one year ago. For Mortgage Applications Decrease in Latest MBA Weekly Survey, use the link … * States report that they have used federal stimulus money to save or create more than 388,000 jobs in 2009, according to a USA Today review of reports from 33 states and Puerto Rico. The report includes construction workers, teachers and others whose jobs were funded by stimulus money given to the states. This supports the Obama administration’s claims that the $787 billion federal stimulus program has had a substantial effect on the economy, analysts said. The states’ reports suggest that schools were impacted by the stimulus the most. More than 156,000 jobs have been saved or created, according to school job numbers reports from 23 states. On Friday, the administration intends to release reports from all 50 states, which would provide the most comprehensive accounting to-date of the impact of the stimulus plan, analysts said (USA Today Oct. 27) …

Deposit interest rates tied to unemployment rates

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SAN ANSELMO, Calif. (10/28/09)--Unemployment rates are strongly tied to deposit interest rates, which means that deposit interest rates likely won't go up until the unemployment rate goes down, according to a new study using data for the past five years. The analysis was performed by Market Rates Insight (MRI) a research firm that tracks rates for deposits, loans and fees for financial institutions (Business Wire Oct. 27). It found that 79.1% of the variance in the average interest rate for deposits can be explained by the variance in the unemployment rate, said MRI. "This means that when the unemployment rate is going up, the national average annual percentage yield for deposits goes down, and when the unemployment rate drops, deposit rates increase," said MRI's press release. The unemployment rate in January 2005 was 5.20% and the national average interest for deposits was 2.63%. In March 2007, the unemployment rate declined to 4.20% while the deposit rate average rose to 4.25%. In September 2009, the unemployment rate rose to 9.80% and the interest rate national average for deposits declined to 1.55%. "Although there may be other factors that affect deposit interest rates, such as inflation, these factors did not have a major impact on deposit interest rates over the last five years," said Dr. Dan Geller, MRI executive vice president. "Therefore, assuming that there will not be any major change in the inflation rate, it is very likely that the deposit interest rates will not go up until the unemployment rate will go down," he said.

News of the Competition (10/27/2009)

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MADISON, Wis. (10/28/09)
* PrivateBancorp Inc. said it recorded a third-quarter loss because commercial real estate loan weaknesses caused the Chicago lender to nearly triple its provisions for bad loans. The company also said it will hold a stock offering to raise $175 million. As a result of these two developments, the company’s stock dropped 14% in pre-market trading Monday. The company’s credit quality continues to decline in the third quarter, and PrivateBancorp added that nonperforming assets could increase for the next several quarters. Proceeds from the share offering may be used for working capital and also for deals backed by the Federal Deposit Insurance Corp., the company said (Reuters Oct. 26) … * West Coast Bancorp., based in Lake Oswego, Ore., announced Monday that it received $155 million in capital investments--with $134.2 million of that amount contributed to its wholly owned banking subsidiary, West Coast Bank. “The capital raised enhances West Coast Bank's capital position and increases its pro forma total risk-based capital ratio to 17.01%, considerably above the level required by bank regulators,” said CEO/President Robert D. Sznewajs. “This capital raise also will strengthen our liquidity position ...” (Reuters Oct .26) … * Overall third-quarter earnings in the banking industry indicate that--while bank stocks were down at the start of this week--the industry’s performance is better than anticipated, analysts said. “Most banks are meeting or beating [Wall] Street estimates, with notable margin expansion and a deceleration in credit-quality deterioration,” Raymond James & Associates analyst Anthony Polini said Monday. “Although there are certainly pockets of relatively weak performance, the light at the end of the tunnel appears to be getting brighter.” If the economy puts out further signals of a real recovery and the high-water mark for credit losses becomes apparent, then in the next few months, bank stocks could continue to remain steady or even trade higher, analysts said (American Banker Oct. 27) ...

Market News (10/27/2009)

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MADISON, Wis. (10/28/09)
* For a second consecutive month, U.S consumer confidence unexpectedly dropped because Americans are concerned about a lack of jobs, analysts said. The Conference Board’s confidence index fell to 47.7 in October from a revised 53.4 in September, according to a report from the private research group. The expectations component led the decline, falling to 65.7 from 73.7--previously 73.3. Also, a measure of the availability of employment eroded to a 26-year low. Rising unemployment could hamper consumer spending as it enters the holiday shopping season, and without a prolonged rebound in the largest part of the U.S. economy, the emerging economic recovery could fail to reach expectations, analysts said (Bloomberg.com and Moody’s Economy.com Oct. 27) … * Lending evidence that an economic recovery is occurring, August home prices rose for the third consecutive month in 20 U.S cities, analysts said. The S&P/Case-Shiller home-price index increased 1% from the prior month--seasonally adjusted and following a 1.2% July increase. The gauge fell 11.3% from a year earlier--less than forecast. In August, compared with July, only Charlotte, N.C.; Cleveland; and Las Vegas experienced declines. Month-to-month advancers were led by Minneapolis (3.2% gain), and San Francisco (2.8%). Cleveland posted the worst number, dropping 0.5%. Also, 12 of the 20 major metropolitan areas experienced price declines of more than 10% from the same period a year earlier. Nationally, home prices are at levels similar to the autumn of 2003, analysts said (Bloomberg.com and The Wall Street Journal Oct. 27) … * Billionaire investor Carl Icahn this week announced a tender offer for CIT Group Inc.’s smaller bondholders. Icahn claims they have been “disadvantaged by the restructuring process and completely ignored” by the troubled commercial lender. Premised on the condition that the bondholders support him in opposing CIT’s prepackaged bankruptcy plans, Icahn said he would provide them with protection. CIT is confronting a Thursday deadline for some bondholders to vote on choosing between a plan to file for a prepackaged bankruptcy or a $31 billion debt exchange, analysts said. Under terms of the bankruptcy plan, CIT would seek Chapter 11 protection, with support from a sufficient number of creditors to get a reorganization quickly approved, and emerge from bankruptcy within two months, analysts said (The Wall Street Journal Oct. 27) …

Expect weak consumer holiday spending CUNA to IAPI

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MADISON, Wis. (10/28/09)--U.S. consumer holiday spending will be weak this year, a Credit Union National Association (CUNA) economist told the Associated Press Tuesday. “When you look at the consumer, you see a lot of weakness, and you will continue to see a lot of weakness,” Mike Schenk, CUNA senior economist, told the news service. “[Shoppers] are sitting here with depleted savings, no safety net in an environment where the labor market continues to deteriorate.” The Conference Board’s Consumer Confidence Index released Tuesday fell to 47.7 in October--from a revised 53.4 in September--and far from what is considered healthy by economists, the AP said. Many economists anticipate that consumer confidence will be mired in the current levels during the important holiday shopping season, the news service said. To read the story, use the link.

Market News (10/26/2009)

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MADISON, Wis. (10/27/09)
* With the U.S. preparing to sell a record $123 billion of notes to fund its stimulus program program and record deficits, Treasuries dropped Monday with 10-year note yields hitting their highest level in the past two months. Government securities dropped for a fourth consecutive day before Monday’s offering of $7 billion in five-year Treasury Inflation Protected Securities, constituting the first of four note auctions this week. The Federal Reserve likely will end its $300 billion debt buyback Thursday, analysts said. The 10-year yield will rise to 3.56% by year-end, according to the average forecasts of analysts in a Bloomberg survey (Bloomberg.com Oct. 26) ... * U.S. retail gas prices are jumping to summer driving-season levels, engendering fears that consumers might cut back on holiday spending, analysts said. On Monday, for the 13th consecutive day, the average price for a gallon of regular gasoline increased--adding six-tenths of a cent to $2.671, according to several industry sources. The 20-cent, two week jump in prices--although below what drivers paid this time last year--could cause consumers to spend less during the holidays because they already are coping with rising unemployment, falling home prices and troubled 401(k) accounts, said Ryan Sweet, a senior economist with Moody’s Economy.com. “If they’re spending more money at the pump, they’re going to be less willing to go out to the malls to spend frivolously,” he added (The New York Times Oct. 26) … * As market strains abate, borrowing has continued to decline at most lending facilities that the Federal Reserve launched to mitigate the impacts of the financial crisis, the Fed said Friday in a monthly report. “Continued improvements in financial market conditions have been accompanied by further declines in credit extended through many of the Federal Reserve’s liquidity programs,” the Fed said in its 35-page report, titled “Federal Reserve Credit and Liquidity Programs and the Balance Sheet.” In the meantime, purchases of Treasuries and mortgage-related securities to help ameliorate transitions in those markets have continued to marginally increase, analysts said. This resulted in the Fed holding roughly $2.1 trillion in assets as of Sept. 30--up $66 billion from the previous report Aug. 26, and from $1.5 trillion one year earlier, analysts said (Dow Jones Newswires Oct. 26) … * Federal restrictions on executive compensation at seven U.S. companies receiving extraordinary government help would eliminate roughly $879 million from their compensation, according to documents filed by Kenneth Feinberg, the special master for Troubled Asset Relief Program (TARP) executive compensation. The documents indicate how much pay would be slashed for the top 25 employees at each of seven companies. The companies are: GMAC Inc.; American International Group, Inc., Citigroup Inc., Bank of America Corp., General Motors Co., Chrysler Group LLC and Chrysler Financial. Auto lender GMAC Inc. will have the largest reduction in compensation with pay for its top 25 employees reduced by $413.3 million from last year’s level. The companies have 30 days to ask Feinberg to reconsider (Dow Jones Newswires via American Banker Oct. 26) …

News of the Competition (10/26/2009)

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MADISON, Wis. (10/27/09)
* Seven banks failed Friday, raising the number of failed banks so far this year to 106. The failed banks include Partners Bank, Naples, Fla.; American United Bank, Lawrenceville, Ga.; Flagship National Bank, Bradenton, Fla.; Hillcrest Bank Florida, Naples, Fla.; Bank of Elmwood, Racine, Wis.; Riverview Community Bank, Otsego, Minn.; and First Dupage Bank, Westmont, Ill. The Federal Deposit Insurance Corp. estimates that the failures will cost the Deposit Insurance Fund $356.7 million (Bankinfosecurity.com Oct. 24) … * ING Groep NV, a Dutch financial services company, plans to break up and sell its insurance and banking businesses, and also raise $7.5 billion euros ($11.3 billion) in a stock issue. ING reached a deal with the Dutch government to repay ahead of schedule half the funds it received in a bailout last year, analysts said. In 2008, ING stayed afloat with 10 billion euros in emergency funds issued from the Dutch government last October. Since then, the company has been divesting itself of assets in Asia, Europe and North America to raise capital and restructure, analysts added. ING’s divestiture also aims to appease European Union regulators who are investigating the Dutch government’s aid to the company through an asset guarantee program that the two agreed to in January (The New York Times and Bloomberg.com Oct. 26) … * Porter Bancorp, Louisville, Ky., said Friday it has begun an exchange offer to acquire all the outstanding common shares of Citizens First Corp. for $9 per share. The offer is scheduled to expire Dec. 22. Porter Bancorp announced Oct. 15 that it had entered into option agreements to purchase roughly 15.8% of Citizens First common stock, raising its beneficial ownership to 19.7% of the outstanding Citizens First common stock. On that date, Porter Bancorp also renewed its offer to Citizens First to consider a possible business combination, analysts said (Reuters Oct. 23) …

News of the Competition (10/23/2009)

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MADISON, Wis. (10/26/09)
* Although American Express Co.’s balance sheet became tidier as loss provisions declined, the company said Thursday its third-quarter net income dropped 21%. AmEx said its third-quarter earnings were $640 million--or 53 cents per share, compared with--$815 million--or 70 cents per share--a year ago. “At the start of the year, the economy appeared to be in a freefall, the drop in card-member spending was accelerating and loan loss rates were rising rapidly,” CEO Kenneth Chenault said in a press release. “Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in card-member spending are encouraging, and there are signs that the recession may be approaching an end” (MarketWatch Oct. 22) … * Capital One Financial Corp., a U.S. banking and credit card company, Thursday reported its first quarterly profit of 2009 Thursday in the aftermath of cutting its spending on marketing, analysts said (Reuters Oct .22). Third-quarter profit increased 14%--exceeding analysts’ expectations largely due to increased revenues from lending, analysts added. Net income was $425.6 million--or 94 cents per share, compared with $374.1 million--or $1 per share for the period one year ago, the company said. “We’re weathering the storm, but the storm is not over, and we continue to face several significant risks,” said Richard Fairbank, Capital One CEO. “While the pace of deterioration appears to have slowed, labor markets have yet to actually improve” (Bloomberg.com Oct. 22) … * The Federal Reserve Bank’s asset holdings for the week ending Oct. 21 increased to $2.204 trillion from $2.196 trillion last week (American Banker Oct. 23). Securities also increased to $773.48 billion from $773.46 billion. Discount window borrowing dropped to $107.46 from $111.76 the week before. Borrowing by commercial banks through the window decreased to $23.56 billion Wednesday, compared with $27.23 billion the previous week ...

Market News (10/23/2009)

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MADISON, Wis. (10/26/09)
* In September, sales of existing U.S. homes rose to the highest level in more than two years because of homebuyers trying to use a federal tax credit for first-time owners before it expires, analysts said. Sales increased 9.4% to a seasonally adjusted annual rate of 5.57 million in September from a downwardly revised rate of 5.1 million in August, the National Association of Realtors said Friday. Economists surveyed by Thompson Reuters had expected sales to rise to an annual rate of 5.35 million. The median sales price was $174,000--down 8.5% from one year earlier and lower than August’s median of $177,300. “There’s a mini-boom going on in the housing market,” said Tomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications, a research firm (The New York Times Oct. 24) … * The costs of closing down large financial institutions should be paid by the financial services industry--not taxpayers, Federal Reserve Chairman Ben Bernanke told Congress last week. Bernanke said there should be a “credible process” for imposing losses on creditors and shareholders adding “any resolution costs should be paid by through an assessment on the financial industry.” While Congress contemplates the largest make-over of financial regulations since the 1930s, Bernanke said it is “critical” that lawmakers fill regulatory gaps and give supervisors the tools to manage risk throughout the financial system (Bloomberg.com Oct. 23) …

News of the Competition (10/22/2009)

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MADISON, Wis. (10/23/09)
* Kenneth Feinberg, the Treasury Department’s master of compensation--also known as the U.S. pay czar--will cut total compensation for the top 25 earners at seven firms by an average of roughly 50%, sources familiar with the matter said Wednesday. The largest cuts will be in salaries--which will drop an average of 90%, the sources said. Feinberg said he may publicly disclose his rulings before an Oct. 30 deadline. However, some executives will still get big paychecks, the sources added. Also, Feinberg will mandate several corporate governance changes--including the separation of the positions of chairman and CEO; requiring boards of directors to create a “risk” committee; and stopping staggered terms for directors, the sources said (Reuters via Forbes.com Oct. 21 and Dow Jones via American Banker Oct. 22) … * The Beige Book--the Federal Reserve’s regular report on economic activity nationwide--noted that regional economies in most parts of the U.S. are recovering--largely because home sales have rebounded, and factories and manufacturers are on the mend. The report noted the contrast between tentative signs of economic recovery and lingering weaknesses in the economy, analysts said. While Fed Chairman Ben Bernanke has said the recession likely is over, the pace of improvement has been slow, analysts added. “Reports of gains in economic activity generally outnumbered declines, but virtually every reference to improvements was qualified as either small or scattered,” the Fed said in the report (The New York Times Oct. 22) …

Market News (10/22/2009)

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MADISON, Wis. (10/23/09)
* For a sixth consecutive month, the index of U.S. leading economic indicators increased in September, portending that the economy likely will continue to grow into early 2010, analysts said. The Conference Board’s gauge of the economic outlook for the next three to six months rose a greater than predicted 1%--contributing to the largest six-month gain in 26 years, the private research group said Thursday. However, other reports indicated that home prices dropped and jobless claims increased in September. Low short-term borrowing costs, rising stocks, and a declining trend in claims are the measures that are sparking the leading index, analysts said. Those measures also are stopping the depletion of consumer finances and lessening the risk that the economy will have a downturn, analysts added. “The recovery is here and it’s going to get a little stronger too,” said Jonathan Basile, an economist at Credit Suisse, who accurately forecasted the gain in the index. “We are mindful that there are headwinds, like there are in every recovery, but the leading index is telling you there won’t be a double dip” (Bloomberg.com Oct. 22) … * Small-business lending and aid to struggling homeowners will be the direction of a new course set by the Obama administration for the $700 billion financial rescue, according to Herb Allison, the assistant secretary who oversees the Troubled Asset Relief Program (TARP) at the Treasury. The Treasury is halting efforts used to stabilize bigger banks and the automotive industry, but the U.S. financial system remains “fragile” and the government must be cautious about the way it withdraws its support, he added. “It is time to set a new direction for the TARP, to account for the recent improvements in capital markets and to address lingering weaknesses in housing markets and small-business lending,” Allison said in remarks to the Congressional Oversight Panel (Bloomberg.com Oct. 22) …

News of the Competition (10/21/2009)

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MADISON, Wis. (10/22/09)
* Although the federal government has spent trillions of dollars to rescue the banking system from failure, the largest costs could be the government’s loss of credibility with the public, said a quarterly report released Wednesday by a congressional watchdog over the bailout of U.S. banks. “The anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary costs” of the Troubled Asset Relief Program (TARP), said Neil Barofsky, the special inspector general for TARP, in a report to Congress (MarketWatch Oct. 21) The Treasury and other agencies haven’t done enough to be frank with the public about what they are doing and why, Barofsky said. “The American people’s belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government,” Barofsky added (USA Today Oct. 21) … * Wells Fargo & Co.’s third-quarter profit nearly doubled from one year ago, the company said Wednesday. However, it joined several other large U.S. banks that reported higher loan losses, analysts said. Wells Fargo--the fourth largest U.S. bank--said it earned $3.2 billion--or 56 cents per share--in the third quarter. The average forecast by analysts was 37 cents per share. The bank also said its losses from bad loans rose to $5.1 billion. As consumers grapple with paying off their bills, Bank of America, Citigroup and JPMorgan Chase have reported higher credit losses, analysts said (The New York Times Oct. 22). Meanwhile, third-quarter results were mixed for a number of regional U.S. banks. Regions Financial Corp., Comerica Inc., and M&T Bank Corp. saw third-quarter gains. Marshall & Ilsley Corp., Zions Bancorp., SunTrust Bank Inc., Capital One Financial Corp. and Huntington Bancshares Inc. saw third-quarter declines (American Banker Oct. 21) …

Market News (10/21/2009)

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MADISON, Wis. (10/22/09)
* For the week ending Oct. 16, the Market Composite Index--a measure of mortgage loan application volume--decreased 13.7% on a seasonally adjusted basis from a week earlier, according to the Weekly Applications Survey released Wednesday by the Mortgage Bankers Association. On an unadjusted basis, the index increased 22.4% compared with the previous week. The Refinance Index, also adjusted for the Columbus Day holiday, dropped 16.8% from the previous week and the seasonally adjusted Purchase Index fell 7.6% from one week earlier. The unadjusted Purchase Index decreased 16.7% compared with the previous week and was 3.4% lower than the same week one year ago. For Mortgage Applications Decrease in Latest MBA Weekly Survey, use the link … * The National Association of Realtors (NAR) is urging Congress to extend the $8,000 home buyer tax credit. Doing so will give consumers hope and some momentum in the turnaround of the housing market and overall economy, NAR First Vice President Ron Philips told the Senate Banking, Housing and Urban Affairs Committee Tuesday during a hearing on “The State of the Nation’s Housing Market.” Phillips added: “The data on the present home buyer tax credit show that the credit has had its intended impact--sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably.” He also said that each home sale generates about $63,000 in additional economic activity, providing a tremendous economic boost to the national economy. “But it is a fragile recovery, and now is the time to build on home sales momentum by extending the tax credit throughout 2010 and expanding it to all home buyers,” Phillips added. For Housing Tax Credit Working, So Keep Momentum Going, NAR urges Congress, use the link …

News of the Competition (10/20/2009)

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MADISON, Wis. (10/21/09)
* The Obama administration Monday introduced a new mortgage plan to help state and local housing agencies finance mortgages for first-time buyers. The program also will help develop rental housing. Because of the housing crisis and credit crunch, the agencies have had a difficult time raising money, analysts said. In 2009, the agencies have sold roughly $4 billion in tax exempt bonds--about one quarter of the typical annual amount--which is limiting the amount of loans they can make, analysts said. Mortgage finance companies such as Fannie Mae and Freddie Mac will participate in the program to help alleviate the financing crunch. The two government-sponsored enterprises will package mortgages made by housing agencies and sell them as bonds to the Treasury Department (USA Today Oct. 20) … * A Bank of America (BofA) e-mail indicated that company executives thought BofA’s government assisted purchase of Merrill Lynch would boost Merrill’s stock price. Instead, the stock imploded. “The chairman of the Federal Reserve indicated it would be structured in such a manner such that [BofA] stock should go up when announced,” Joe Price, chief financial officer, said in a Dec. 29 e-mail to BofA executives, including CEO Kenneth Lewis. In the aftermath of $50 billion in write-downs and losses connected to the subprime mortgage market, Merrill--the largest global broker--agreed to be acquired ( Bloomberg.com Oct. 20) …

Market News (10/20/2009)

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MADISON, Wis. (10/21/09)
* The Federal Reserve has more rationale to keep interest rates low to help ensure an economic recovery due to builders starting construction on fewer homes than anticipated, and wholesale prices unexpectedly dropping in September, analysts said. U.S. housing starts increased 0.5% to an annual rate of 590,000 in September from a 587,000 pace in August, a Commerce Department report said Tuesday. Also, prices paid to factories, farmers and other producers dropped 0.6%--the second decline in three months, the Labor Department said. The producer price drop affirms the Fed’s view that inflation is “subdued,” and helps Fed Chairman Ben Bernanke and policymakers keep their promise to maintain the benchmark rate at a record low for an “extended period,” analysts said. “Builders are a little bit cautious about the outlook,” said Zach Pandi, an economist at Nomura Securities International Inc. “There is still a huge amount of slack in the economy, and downside risks for inflation” (Bloomberg.com Oct. 20) … * U.S. wholesale prices fell in September, reflecting weak domestic demand, while investors were bidding up prices of gold and oil, analysts said. The government’s Producer Price index dropped 0.6% in September, after rising 1.7% in August, the Labor Department reported Tuesday. The data indicate that--despite a weakening dollar, inflation remains a distant possibility because the American economy is struggling to come out of a deep recession, analysts said. “The demand for goods is still very soft; the U.S. economy is just barely recovering,” said Allen Sinai, president of Decision Economics. “In a weak economy where consumer spending is weak, businesses have been slashing left and right. This surprisingly deflationary result reflects that” (The New York Times Oct. 21) …

News of the Competition (10/19/2009)

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MADISON, Wis. (10/20/09)
* Federal investigators intend to file charges against a bigger assortment of insider trading networks--some of whom are connected with a criminal case made public last week against Raj Rajaratnam, a billionaire hedge fund manager, said sources familiar with the situation. The two-year-old investigation is targeting securities professionals, including hedge-fund managers, lawyers and others involved with Wall Street, the sources added. For years, investigators have struggled to compile evidence against large institutional investigators--such as hedge fund mangers--who often claim that suspiciously timed bets are statistical anomalies among their millions of trades, analysts said. Investigators now are taking more aggressive steps to sift through the maze of trading and accurately follow the flow of information, analysts said (Bloomberg.com Oct. 19) ... * On Friday, federal regulators closed San Joaquin Bank in Bakersfield, Calif., moving the national tally of federally insured failed banks to 99 this year. The Federal Deposit Insurance Corp. (FDIC) was chosen as a receiver of the bank. As of Sept. 29, the bank possessed roughly $775 million in assets and $631 million in deposits. California-based Citizens Business Bank will assume San Joaquin Bank’s deposits. The bank’s failure will cost the FDIC about $103 million, analysts said (topnews.us Oct .19) …

Market News (10/19/2009)

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MADISON, Wis. (10/20/09)
* The National Association of Home Builders/Wells Fargo sentiment index dropped to 18 in October from 19 in September--the first decrease since June. The index was expected to rise to 20 in October, according to economists surveyed by MarketWatch. The index hit a record-low of 8 in January. More than four years ago, the index peaked at 72. The reason for the October dip is the pending expiration of a government subsidy for buyers, which is causing U.S. home builders to become more pessimistic, the association said Monday (MarketWatch Oct. 19). However, in related news, September was a busier month for homebuilders and real estate agents, and the index of leading economic indicators rose, analysts said. These developments are adding to evidence that the next U.S. economic expansion has begun, they added. In September, construction started on 610,000 houses at an annual rate--the most since November, according to a median forecast of 53 economists surveyed by Bloomberg News before today’s Commerce Department report (Bloomberg.com Oct. 18) … * The retail holiday shopping season should be better than originally forecast, analysts said. Intel Corp.--the largest computer chipmaker in the world--predicted Oct. 13 that robust consumer demand will spark fourth-quarter sales to the $9.7 billion to $10.5 billion range, compared with a $9.5 billion average prediction in a Bloomberg News survey. Also, TJX, which operates clothing store chains T.J. Maxx and Marshalls, increased its fourth-quarter comparable-sales estimate Oct. 8 to a 3% to 5% gain from an original estimate of an increase of 2% to 4%. “Consumers’ bunker mentality is gradually giving way to more-familiar spending patterns,” said Michael Feroli, an economist at JPMorgan Chase & Co. (Bloomberg.com Oct. 19) …

Market News (10/16/2009)

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MADISON, Wis. (10/19/09)
* In an indication that households still are nervous about the strength of the developing economic recovery, confidence among U.S. consumers dropped more than forecast in October, according to the University of Michigan consumer sentiment index. The index dropped to 69.4 from 73.5 in September--which was the highest level of confidence in more than a year. A 5.9-point drop in the expectations component drove the October decline, analysts said. The current conditions component decreased 1.3 points. Short-term inflation expectations increased steeply. As the U.S. begins the winter-holiday shopping period, the highest unemployment rate in 26 years threatens to undermine consumer spending, analysts said. Federal policymakers still are concerned that rising unemployment will constrain consumer spending and lead to a weak recovery, according to minutes of last month’s Federal Reserve meeting. “This is probably gives us a more accurate reading of what consumers are feeling,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “They’re concerned about how long unemployment is going to stay high, and they’re very concerned about their own personal finances” (Bloomberg.com and Moody’s Economy.com Oct. 16) … * For the third consecutive month, industrial production rose in September--this time by 0.7%, the Federal Reserve said Friday. Economists on Wall Street had anticipated a 0.2% increase. The increase was due to higher production of autos and other goods--which is a positive indicator for the struggling manufacturing sector, analysts said. Auto production has been increasing steadily since June, and similar patterns are developing in other industries, analysts added. The September uptick follows gains of 1.2% in August and 0.9% in July, the Fed said. For Industrial Production and Capacity Utilization, use the link (The New York Times and Moody’s Economy.com Oct. 16) … * Trading desks at global financial institutions will have to hold substantially more capital behind trading books--up to three times as much--when the Basel Committee on Banking Supervision implements a market risk rule by year-end 2010. “Increasingly complex trading-book exposures were a major driver of losses in the recent crisis,” said Nout Wellink, chairman of the committee and president of the Netherlands’ central bank. Once implemented, the new requirements could cause some large banks to pull back from the trading business, even though it has been a big contributor to recent earnings, analysts said (Telegraph.co.uk Oct. 15 and American Banker Oct. 16) … * In the second quarter, U.S. personal income increased 0.2% after registering a 2.3% decrease in the first quarter, according to the Bureau of Economic Analysis. The gain was the first in 2009. However, after adjustments for inflation, income fell 0.1%. During the second quarter, income increased in 36 states--which reflects increased transfer payments from the American Recovery and Reinvestment Act (ARRA) and from rising unemployment insurance payouts, analysts said. Second-quarter earnings gains reflect increases in ARRA payments to Social Security and the federal Old-Age Survivors and Disability Insurance--referred to as OASDI--and for food stamps, analysts added (Moody’s Economy.com Oct. 16) …

News of the Competition (10/15/2009)

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MADISON, Wis. (10/16/09)
* For the first nine months of 2009, Goldman Sachs earmarked $16.7 billion for compensation and benefits--up 46% from a year earlier, and just short of its all-time high of $16.9 billion, allocated in the first three quarters of 2007. The total amount is enough to pay each worker $527,192 for the period, analysts said. Third-quarter earnings results released Thursday by Goldman Sachs indicate that its revenue surged 49% to $35.6 billion this year through September. The company said it put aside 47% to cover compensations and benefits--its largest expense. “Goldman is sort of the maverick of financial services right now and they’re taking the lead as far as, ‘We believe in our people, we’ve done well, we’re going to stay the way we’ve always been and not change,’” said Jeanne Branthover, managing director at recruiting firm Boyden Global Executive Search Ltd. (Bloomberg.com Oct. 15) … * Goldman Sachs Group Inc. announced Thursday it had a solid third quarter because of success with trading operations and investments, resulting in profits rising to $3.19 billion--or $5.25 per share--more than triple Goldman’s earnings for the same period last year. A year ago, the company had to use federal aid to get through the financial crisis. In separate financial news, Citigroup Inc. recorded a narrow third-quarter profit of $101 million on an $851 million gain from its securities-exchange efforts that resulted in the U.S. government owning a one-third stake in the company. Analysts had anticipated a loss (The Wall Street Journal Oct. 15) … * U.S. Bancorp signed a deal to purchase roughly $800 million in deposits of certain branch locations of BB&T Corp.’s Nevada banking operations for an undisclosed sum. The transaction is contingent on federal regulatory approval and is anticipated to close in early 2010, U.S. Bancorp said. The deal includes branch deposits that BB&T recently acquired from the Federal Deposit Insurance Corp. as a receiver for Colonial Bank, U.S. Bancorp said (Reuters Oct. 13) …

Market News (10/15/2009)

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MADISON, Wis. (10/16/09)
* For the week ending Oct. 10, initial U.S. jobless claims for unemployment benefits fell by 10,000 to 514,000. Consonant with less erosion in the labor market than was experienced earlier this year, initial jobless claims are trending downward, analysts said. In the meantime, continuing jobless claims decreased by 75,000 to 5.992 million for the week ending Oct. 3. The labor market is gradually improving, although it is still troubled, analysts said. Layoffs have been progressively abating since March, but they still are significant. With an economic recovery underway, the panic that led to businesses aggressively slashing payrolls is slowly diminishing, analyst said (Moody’s Economy.com Oct. 15) … * A continued reduction in food prices and lower increases in gasoline prices resulted in the consumer price index (CPI) rising at a slower pace in September, analysts said. The top-line CPI for urban consumers rose by 0.2% from August to September. The core CPI also rose by 0.2% for the month and is up 1.5% from September 2008. Rents fell for the first time in 17 years. Although inflation has leveled off for the time being, it still is within the zone for a possible drop into deflation, analysts said. “Inflation remains muted,” said Jennifer Lee, an economist at BMO Capital Markets. “There is still much excess capacity to absorb; retailers are still fighting for their share of consumers’ shrinking wallets” (Bloomberg.com and Moody’s Economy.com Oct. 15) …

News of the Competition (10/14/2009)

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MADISON, Wis. (10/15/09)
* A surge in investment banking revenue allowed JPMorgan Chase & Co. to post its highest profit since the subprime mortgage market imploded in 2007, analysts said. The additional bank revenue helped the company absorb higher losses on consumer loans. Chase’s third-quarter earnings increased to $3.59 billion--or 82 cents per share--from $527 million--or nine cents--in the same period a year earlier at the zenith of the financial crisis, the company said Wednesday. The 65-cent profit per share surpassed the highest estimate in a Bloomberg survey of 20 analysts (Bloomberg.com Oct. 14) …

Market News (10/14/2009)

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MADISON, Wis. (10/15/09)
* Total business inventories fell 1.5% in August--more than forecast--because sales rose, meaning firms will increase orders in the coming months, analysts said. The August decrease in stockpiles, which is the largest so far this year, took the value of goods on hand down to $1.31 trillion--the least since December 2005, according to figures released by the Commerce Department Wednesday. Plummeting retail auto inventories were the driving force behind the large decline, leading overall retail inventories to fall 2.3%, analysts said. The aggregate inventory-to-sales ratio fell further to 1.33. The high was 1.46 in January (Bloomberg.com and Moody’s Economy.com Oct. 14) … * U.S. retail sales fell less than anticipated in September, indicating that households will have a bigger role in the emerging economic recovery, analysts said. The decline happened because of a steep drop in auto sales, they added. The total 1.5% decline in purchases followed a 2.2% gain the previous month, according to figures released by the Commerce Department Tuesday. Sales excluding autos rose 0.5%--more than the median forecast of economists surveyed by Bloomberg News--and increased 0.4%, excluding gas stations. Furniture stores, gas stations, grocery and drug stores, and warehouse clubs led widespread sales growth. The data indicate that consumer spending is becoming more solid, analysts said. The broad improvement signals that U.S. consumers are growing more confident that the country is recovering--even though job losses continue, analysts said (Moody’s Economy.com and Bloomberg.com Oct. 14) … * For the week ending Oct. 9, the Market Composite Index--a measure of mortgage loan application volume--fell 1.8% on seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 1.7% compared with the prior week, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association. The Refinance Index dropped 0.1% from the previous week, and the seasonally adjusted Purchase Index fell 5% from one week earlier. The unadjusted Purchase Index decreased 4.8% compared with the previous week and was 6.8% lower than the same week one year ago. For Mortgage Applications Decrease in Latest MBA Weekly Survey, use the link … * For a third consecutive month, confidence in the global economy rose in October because gains in manufacturing and stocks added to signs of an economic recovery, according to a Bloomberg survey of users on six continents. The Bloomberg Professional Global Confidence Index increased to a record 61.7 from 58.54 in September. For a third month, the index exceeded 50--meaning there were more optimists than pessimists, analysts said. “Conditions have reached a point of stability worldwide,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC. “We’re seeing growth, even in parts of the world that were looking dull earlier. The eurozone is coming out of the recession fairly quickly and in decent shape, and the U.S. is improving” (Bloomberg.com Oct. 14) …

News of the Competition (10/13/2009)

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MADISON, Wis. (10/14/09)
* With U.S. banks preparing to release their third-quarter reports this week, earnings are anticipated to still be significantly down--by roughly 30% from the previous year, analysts said. About 40% of lenders could record a quarterly loss, according to a report from Sandler O’Neill & Partners. The third-quarter recovery that picked up its pace also kept bank losses from getting much worse, analysts said. Huge losses on credit cards and other consumer loans--although high--are growing at a slower pace than in previous quarters, analysts said. Also, home-mortgage losses will be postponed due to federal mortgage modification programs and states’ efforts to stem foreclosures, they added. “There is more pain to come, but [banks] have enough Band-Aids and tourniquets to slow or cut off the bleeding,” said David A. Hendler, a financial services analyst at CreditSights (The New York Times Oct. 13) … * Bank of America (BofA) will hand over documents concerning the legal advice it received during its purchase of Merrill Lynch & Co. It reached an agreement with the Securities and Exchange Commission (SEC) on the documents, the SEC said Tuesday. The agreement will provide investigators with “previously privileged details of BofA’s consideration of whether to involve the material adverse change clause” in its purchase of Merrill, “decisions about whether to disclose impairment of goodwill of Merrill Lynch” and other financial results for Merrill during the fourth quarter 2008, the SEC said. In a related development, Kenneth Lewis, BofA CEO, is taking heat over his retirement package. The Service Employees International Union sent a letter to Kenneth Feinberg, the White House special adviser on executive compensation, asking him to stop any retirement payments to Lewis. On Oct. 1, Lewis announced he would retire at year-end. The union’s letter called Lewis “one of the chief architects” of the financial crisis and takes issue with the way BofA handled loss disclosures and bonus payments at Merrill Lynch & Co. (The Wall Street Journal and American Banker Oct. 13) … * In the week ended Sept. 30--the latest week for which figures are available--U.S. banks’ commercial and industrial loans dropped $12 billion to roughly $1.396 trillion, the Federal Reserve Board said Friday. This follows a $7.4 billion decrease the previous week. In the most recent weekly data available, jumbo certificates of deposit increased $13.9 billion to about $1.890 trillion, after rising $14 billion the previous week. Revolving home equity loans dropped $1.6 billion to $601 billion, after increasing $100 million the previous week (The Wall Street Journal Oct. 9) … * CIT Group Inc. said Chairman/CEO Jeffrey Peek plans to resign. After committing $2.33 billion in taxpayer funds in December to keep CIT solvent, the U.S. government rejected a second bailout for the lender. CIT turned to bondholders after being denied access in July to a program--run by the Federal Deposit Insurance Corp.-- to sell U.S. backed debt. Peek joins Kenneth Lewis of Bank of America Corp., and John Mack of Morgan Stanley as financial leaders who have said in the past month that they will step down (Bloomberg.com Oct. 13) …

Market News (10/13/2009)

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MADISON, Wis. (10/14/09)
* For the week ending Oct. 10, U.S. chain store sales increased 0.6%, marking the third consecutive weekly gain, according to the International Council of Shopping Centers (ICSC) sale index. The index is still below its late summer levels, but that is not unusual for this time of the year, analysts said. Sales were up 1% on a year-ago basis--close to their highest level in a year. Colder-than-normal weather may be part of the gain, analysts said. Despite the end of the recession, consumer fundamentals are mostly weak and unfavorable to spending--with the biggest and most prominent drag being job losses, analysts said (Moody’s Economy.com Oct. 13) … * The U.S. Supreme Court said it will hear former Enron CEO Jeffrey Skilling’s appeal on his conviction of heading up fraudulent activities that led to the implosion of Enron--the biggest global energy trader. In 2006, a jury found Skilling and Enron Chairman Kenneth Lay guilty of deceiving analysts, employees and investors about the company’s eroding financial condition through the use of phony accounting practices and off-the-books partnerships. If the Supreme Court rules in favor of Skilling, he could be granted a new trial, analysts said (Bloomberg.com Oct. 13) … * For the first time in three days, Treasuries rose Tuesday, led by gains in 10-year notes. Investors are betting that the Federal Reserve will maintain interest rates at an all-time low until late in 2010, and that the central bank also will be ready to buy U.S. debt, analysts said. A precondition for increasing the target interest rate from near-zero would be a declining unemployment rate, said James Bullard, president of the Fed Bank of St. Louis. Also, the dollar dropped to its weakest level against the euro since before the Lehman Brothers bankruptcy. This indicates a falling apart of demand for the dollar as a refuge, analysts said (Bloomberg.com Oct. 13) …

News of the Competition (10/12/2009)

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MADISON, Wis. (10/13/09)
* After marking up mortgage collection contracts by $11 billion in the second quarter, the four largest U.S. banks by assets may be forced to take writedowns of $55 billion on the contracts, analysts said. Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. wrote up the value of the contracts--known as mortgage-servicing rights or MSRs--by 26% in the quarter as mortgage rates rose about 0.45 of a percentage point. Wells Fargo experienced net gains on the contract that added more than $1 billion to its record earnings in the quarter. JPMorgan added $1 billion to its first-quarter profit, analysts said (Bloomberg.com Oct. 12) …

Market News (10/12/2009)

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Market News MADISON, Wis. (10/13/09)
* Consumer spending now constitutes 71% of gross domestic product (GDP), according to the latest statistics from the Bureau of Economic Analysis. That percentage is slightly above the year-ago level and substantially higher than the long-term average of about 65%, analysts said. GDP includes personal spending on cars, clothes, food and other items. “It’s somewhat ironic: We keep referring to the less prominent role for consumer spending in this economy,” said John Lonski, Moody’s chief economist. “Yet, in the second quarter ’09, it rose to a post-World War II record high.” During a recession, the consumption component of the economy typically rises, said economist Jim Hamilton of the University of California-San Diego. Most economists expect the consumption share to gradually shrink as the economy emerges from the downturn, analysts said. “I fully expect the consumer share to drop. But it’ll take five to 10 years to happen,” said Nariman Behravesh, chief economist at IHS Global Insight (USA Today Oct. 12) … * With record reserves filling their coffers, central banks worldwide are increasingly eschewing dollars in favor of euros and yen, putting more pressure on the dollar after its biggest rout in nearly two decades, analysts said. In the third quarter, policymakers increased foreign currency holdings by $413 billion--the most since 2003, according to data compiled by Bloomberg. About 63% of the nations that reported their currency breakdowns put new cash into euros and yen in April, May and June--the highest percentage in any quarter with more than an $80 billion increase, according to the most recent data from Barclays Capital. “Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, Barclay’s chief U.S. currency strategist. “It looks like they are really backing away from the dollar” (Bloomberg.com Oct. 12) … * Federal debt and rising unemployment continue to be concerns, even though the recession has all but ended, according to a National Association for Business Economics (NABE) survey of economists released Monday. More than 80% of the economists surveyed said the economic recovery has begun. Real gross domestic product is expected to increase at a 2.9% pace in the second half of this year and at a 3% rate next year--up from its 2.7% forecast in May, NABE said. However, NABE added that the recovery will be more moderate than in previous post-recession periods. “The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return next year without worry about inflation,” said NABE President-elect Lynn Reaser (The Wall Street Journal Oct. 12) …

News of the Competition (10/09/2009)

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MADISON, Wis. (10/12/09)
* Wells Fargo & Co., PNC Financial Services Co. and several other big regional U.S. banks are confronting larger credit challenges than their stock prices would indicate, said UBS AG. On Thursday, UBS began coverage of 10 banks with “sell” or “neutral” ratings. In the near term, Well Fargo and PNC face “meaningful” credit problems that will likely result in their not attaining 2010 and 2011 Wall Street earnings forecasts, UBS said. However, not all regional banks are challenged, UBS said, citing BB&T Corp., M&T Bank Corp. and U.S. Bancorp among those with the most robust outlooks (MarketWatch Oct. 8) … * Citigroup Inc. has agreed to sell its energy trading business--Phibro LLC--to oil producer Occidental Petroleum Corp. In the aftermath of last year’s $45 billion bailout, Citi is shedding assets, analysts said. Occidental said it will pay “net asset value” for Phibro, and expects its “net investment” in Phibro to be roughly $250 million. Citi said the impact of the sale won’t be germane to its earnings. Phibro CEO Andrew Hall earned more than $100 million last year through his contract with Citigroup, making the energy trading unit a target of critics citing excessive executive compensation. Hall was on course to earn similar compensation this year (Bloomberg.com Oct. 9) …

Market News (10/09/2009)

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MADISON, Wis. (10/12/09)
* For the first time in four months, the U.S. trade deficit unexpectedly narrowed to $30.7 billion in August from July’s $32 billion deficit. In August, exports rose to their highest level in 2009, and imports eased despite higher oil prices, analysts said. Exports were up $200 million from the month before, but imports were down $900 million. The recent upsurge in oil prices had forced the trade deficit back up, after a short dip when the recession gutted demand for imports, analysts said. Meanwhile, exports experienced a five-month uptick, which is a good sign for the future economic outlook, they added. “As the global recovery strengthens, it will help exports,” said Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who forecast the trade gap would shrink to $31 billion. “We’ll see a pickup in imports into the fourth quarter as the U.S. consumer stabilizes. The outlook on the trade front is stable to improving for exports, and a bit challenging for imports” (The Wall Street Journal, Moody’s Economy.com and Bloomberg.com Oct. 9) … * For the week ending Oct. 2, the Economic Cycle Research Institute (ECRI) Leading Index rose to 128.3 from an unrevised 127.1 the previous week. The smoothed, annualized growth rate increased to 26.1% from a revised 25%--which was previously 25.1%. The current slow recovery likely will continue into at least the first half of next year, ECRI said. Although recovery is in progress, the economy still remains fragile, analysts said. The economy will grow in the third quarter 2009, but will not reach its potential until the second half 2010, ECRI said. It’s likely recovery will not turn into expansion until 2011--at which time gross domestic product should surpass its pre-recession peak, analysts said (Moody’s Economy.com Oct. 9) … * The number of U.S. job openings in August dropped for the third consecutive month to 2.39 million, according to the Job Openings and Labor Turnover Survey (JOLTS) issued by the Bureau of Labor Statistics. Hiring dropped to 4.03 million in the month. The number of separations also declined, to 4.27 million, but still exceeded the number of new hires. The numbers are consonant with other labor market measures that indicate job separations are diminishing, but employers still are too unsure of the economy to resume hiring, analysts said. The August JOLTS data indicate that the labor market still is weakening, they added (Moody’s Economy.com Oct. 9) …

News of the Competition (10/08/2009)

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MADISON, Wis. (10/9/09)
* For the second consecutive week, U.S. 30-year, fixed-rate mortgage loans dropped, pushing borrowing costs to near-record lows. The average 30-year rate fell to 4.87% from 4.94% for the week ended Oct. 2, and the 15-year rate was 4.33%, Freddie Mac said Thursday. The falling rates helped propel home applications last week to the highest level since May. Mortgage applications to buy a home increased 13% in the week ended Oct. 2, and the refinance gauge jumped 18% (Bloomberg.com Oct. 8) … * Two private equity firms are leading a group of four investors that have joined forces with the Federal Deposit Insurance Corp. (FDIC) to purchase $4.5 billion of Chicago-based Corus Bankshares Inc.’s real estate assets. Starwood Capital Group LLC and TPG led the group that won the auction for loans and properties of the failed Chicago lender. They offered $554 million, the FDIC said Tuesday. The group will assume a 40% stake in Corus and manage the portfolio, while the FDIC will retain 60% and lend the buyers up to $2.39 billion to finalize the sale, analysts said. The FDIC likely will make similar arrangements for future sales, Chairman Sheila Bair said Wednesday (Bloomberg.com Oct. 8) … * FirstFed Financial Corp. obtained approval to increase its share count to five billion from 100 million at a special stockholder meeting last week. An offering is in the works, analysts said. Substantial losses in the past six months have depleted the California company’s capital, and FirstFed is warning that its survival is uncertain, analysts said. The company has a large volume of adjustable-rate mortgages and needs to raise capital, analysts added (American Banker Oct. 8) …

Market News (10/08/2009)

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MADISON, Wis. (10/9/09)
* One year after the U.S. housing bubble burst, triggering the economic downturn, the availability of consumer credit is still being pared down by financial institutions. Total consumer credit outstanding--encompassing everything from credit card debt to loans for recreational vehicles--declined $12 billion in August-- a 5.8% seasonally adjusted annual rate, the Federal Reserve reported Wednesday. The drop constituted the seventh consecutive month of declines--the longest such stretch since 1991. The stretch illustrates how--because of their own exposure to the troubled real estate market--financial institutions are limiting the amount of credit being made available, analysts said. It also is indicative of how reluctant U.S. consumers are to carrying large debt levels at a time when the job market and housing values have turned downward, they added (The Wall Street Journal Oct. 8). Credit unions had $241.5 billion in outstanding consumer credit in August, up from $238.9 billion in July, according to Fed data. At credit unions, outstanding revolving credit increased to $34.1 billion from $33.6 billion in July, and outstanding non-revolving credit--loans for cars and boats--was $207.4 billion, up from July’s revised figure of $205.4 billion in June … * The number of U.S. first-time claims for unemployment benefits fell for the week ended Oct. 3 to the lowest level since January, the Labor Department said Thursday. Applications declined by 33,000 to 521,000--lower than predicted--from a revised 554,000 the prior week. Meanwhile, for the week ended Sept. 26, continuing claims fell 72,000 to 6.04 million. These developments signal the labor market is eroding at a slower pace as the economy comes out of the recession, analysts said. “Companies are now in a situation where they’ve cut enough jobs, but they’re still not hiring enough,” said Harms Babholz, a U.S. economist at UniCredit Global Research. “Consumer spending will be very slow until the middle of next year. We’re in a moderate recovery” (Bloomberg.com Oct. 9, Moody’s Economy.com Oct. 8, and The New York Times Oct. 9) … * For the first time in 13 months, U.S. retail sales rose in September, as discounts enticed shoppers back to stores and sales at Kohl’s Corp. and American Eagle Outfitters bested estimates, analysts said. However, sales in major retailing categories are only at 2005 levels. For U.S. chain stores open for at least one year, sales increased 1.1% last month, according to Retail Metrics Inc. About 70% of retailers reported sales that exceeded average estimates compiled by Retail Metrics, said Ken Perkins, company president. Although shoppers have diverted their spending away from big-ticket items, retailers have had opportunities during the past year to vary their product assortments and offer low prices, said Richard Hastings, a consumer strategist for Global Hunter Securities LLC. “The consumer has less spending capacity, but the industry’s learning ability is very strong,” Hastings said. “The consumer is less frightened than [he or she] was one year ago” (Bloomberg.com Oct. 8 and The New York Times Oct. 9) …

News of the Competition (10/07/2009)

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MADISON, Wis. (10/8/09)
* Stress tests conducted throughout the financial system may not accurately reflect the health of financial institutions, said Nobel Prize-winning economist Joseph Stiglitz. Last week, a test of the European Union’s (EU) 22 largest banks indicated financial institutions are able to weather an even deeper recession. “You worry that the stress test was designed to make sure that they passed,” Stiglitz told Bloomberg News Wednesday. “Given the high level of leverage and the high levels of default, it provided a little bit more comfort than I would have taken.” European officials ordered the five- month stress test after the worldwide credit crisis spurred the U.S. to perform stress tests on its banking system, analysts said (Bloomberg.com Oct. 7) … * Dutch bank and insurer ING Groep said Wednesday it will sell its Swiss private banking unit to Julius Baer, a wealth management company, for $505 million. ING is shedding assets after receiving a $10 billion euro government bailout a year ago, analysts said. The sale is one part of ING’s global downsizing, with units in Asia and possibly North America going up for sale, analysts said. In September, it sold its interest in an Australian joint venture to ANZ (The New York Times Oct. 8) …. * Citing loan write-offs of about $160 million to four banks it wouldn’t identify, Marshall & Ilsley Corp.--Wisconsin’s biggest bank--upsized its provision for expected loan losses in the fourth quarter by 25%. The provision could reach up to $585 million, the bank said Tuesday. Losses in bank-to-bank lending could also be an issue for other financial institutions as the recession continues and more banks fail, analysts said (Bloomberg.com Oct. 6 and American Banker Oct. 7) …

Market News (10/07/2009)

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MADISON, Wis. (10/8/09)
* In 2008, consumer prices rose 3.8% from 2007, but pretax income increased only 0.7%, or $472 per average family, the Labor Department said Tuesday. In response to wages failing to keep up with rising prices, U.S. consumers cut back steeply on transportation and apparel spending last year--reducing spending in less essential areas and opting for thriftier options, such as eating at home, analysts said. Overall spending per consumer unit--including families, single people or people living together who share expenses--increased just 1.7%, or $848, in 2008 to $50,486, not adjusted for inflation. This constituted the smallest spending increase since 2003, analysts said (The Wall Street Journal Oct. 7) … * For the week ending Oct. 2, the Market Composite Index--a measure of mortgage loan application volume--increased 16.4% on a seasonally adjusted basis from a week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). The index also rose 16.4% on an unadjusted basis, compared with the previous week. The Refinance Index increased 18.2% from the previous week, following the third consecutive week in which the 30-year, fixed-rate mortgage was below 5%. Refinancings were at their highest level since mid-May. The seasonally adjusted Purchase Index rose 13.2% from one week earlier--placing it at the highest level since January. For Mortgage Applications Increase in Latest MBA Weekly Survey; Third consecutive Week 30-Year Fixed Rates Below 5%, use the link … * The economic downturn has caused wide-ranging damage to European Union (EU) governments. As a result, the European Commission Wednesday warned nine countries, including Germany and Italy, that their budget deficits are too high. Countries must keep their budget deficits below 3% of gross domestic product under EU rules. About 20 of the union’s 27 member countries are on pace to break that limit this year, said the commission--the EU’s executive arm. Any deficits above the 3% limit should be close to that level and also should be temporary, said Joaquin Almunia, European commissioner for economic and monetary affairs. The commission attributed the downturn to falling tax revenue, and exceptional state pending intended to help the unemployed prop up troubled banks and stimulate economic recovery (The Wall Street Journal Oct. 7) …

News of the Competition (10/06/2009)

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MADISON, Wis. (10/7/09)
* Frontier Financial Corp. said its purchase by SP Acquisition Holdings Inc. fell apart. Federal regulators had ordered Frontier--a Pacific Northwest bank--to obtain more capital. “The parties could not secure the required regulatory approvals” by an Oct. 10 deadline, the two companies said Monday in a statement. SP--a blank-check company created to complete an acquisition--will be liquidated, analysts said. Frontier has 51 branches in northwestern Oregon and western Washington. It reported a six-fold rise in overdue loans from a year earlier, totaling $764.6 million in the quarter ended June 20, according to Federal Deposit Insurance Corp. (FDIC) data. Roughly 43% of Frontier’s delinquent loans were in construction and development, the data indicated (Bloomberg.com Oct. 5) … * Bank of America Corp. (BofA) plans to test a service that allows customers to use mobile phones to deposit checks electronically. Although BofA is not the first company to offer mobile remote capture, it would be the biggest, analysts said. “I think BofA entering the fray is by definition a game-changer,” said Bob Meara, a senior analyst at Celent--a Boston market research company. If BofA enters the market it would transform a niche application into a mainstream offering, analysts said. “This will be a driver for other top 10 banks to do this,” said Nicole Sturgill, the research director for delivery channels at TowerGroup, an independent research firm (American Banker Oct. 6) …

Market News (10/06/2009)

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MADISON, Wis. (10/7/09)
* U.S chain store sales rose 0.3% in the week ended Oct. 3, according to the International Council of Shopping Centers sales index. Sales also improved on a year-ago basis, increasing 1%, compared with 0.9% previously. Cooler weather sparked stronger customer traffic for the week, analysts said. However, spending remains weak, they added. Although sales have gained in each of the past two weeks, the index has not recovered its 2% decline from three weeks ago. Overall, consumer fundamentals continue to be mostly weak and unfavorable to spending, despite the end of the recession, analysts said. Job losses still are the most prominent drag on spending. Also, wage income is more than 5% below year-ago levels, they added (Moody’s Economy.com Oct. 6) … * U.S. apartment vacancies rose to their highest point since 1986 because increased unemployment has reduced rental demand, said Reis Inc., a real estate research firm that monitors vacancies and rents in the top 79 U.S. markets. In the third quarter, vacancies increased to 7.8%. Effective rents--which are accrual rents paid by tenants--dropped 2.7% from a year earlier. Asking rents--what landlords were seeking--fell 1.8% from a year earlier. Declining wages and job losses are eroding the pool of potential tenants, analysts said. The U.S. unemployment rate climbed to its highest level since 1983, recording a 9.8% mark in August, the Labor Department said Friday. Rents are decreasing most steeply in some areas that had been doing well until a year ago when unemployment intensified in places such as Tacoma, Wash.; San Jose, Calif.; and Orange County, Calif., analysts said (The Wall Street Journal and Bloomberg.com Oct. 6) … * Blacks and Hispanic whites are substantially more likely to have their applications for housing refinancing denied than non-Hispanic whites, according to a Federal Reserve report on home mortgage data. The annual report is compiled from data culled from more than 8,000 mortgage lenders nationwide under the Home Mortgage Disclosure Act (HMDA) of 1975. The denial rate was 61% for blacks, 51% for Hispanic whites and 32% for non-Hispanic whites for applications to refinance conventional mortgages--those not insured by the federal government. The Fed report indicated that the differences among races could partially be due to factors that HMDA data doesn’t measure, such as borrowers’ overall debt-to-income ratios and debt records. Also, mortgage lending in some areas is more competitive than in others--and different groups of people may use different methods when looking for home loans, analysts said (The Wall Street Journal Oct. 6) … * It could take the U.S. four years--until 2013--to recoup all the jobs lost during the recession, said JPMorgan Chase & Co. economists, based on their analyses of “disappointing” September employment figures. Labor Department figures reinforce “the message that even our above-trend growth forecast won’t deliver economic health,” wrote Bruce Kasman, chief economist at JPMorgan, and David Hensley, director of global economic coordination in a note Friday to clients. The economy will grow at a 3.5% average pace in the second half of 2009 and will grow 3.2% for all of 2010, said JPMorgan. This forecast still “would represent a very disappointing outcome against the backdrop of damage done during the recession,” Kasman and Hensley wrote. The three steepest recessions in the aftermath of World War II were followed by 5% average growth rates in the first two years of recovery, their research indicated (Bloomberg.com Oct. 6) …

Market News (10/05/2009)

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MADISON, Wis. (10/6/09)
* Federal regulators shut down three more banks Friday, including Warren Bank in Warren, Mich., and two smaller banks--Jennings State Bank in Spring Grove, Minn., and Southern Colorado National Bank in Pueblo, Colo.--pushing the total number of failed banks this year to 98. Rising loan defaults in a poor financial climate are the main reason for the failures, analysts said. The Federal Deposit Insurance Corp. (FDIC) took over Warren Bank, which had roughly $538 million in assets and $501 million in deposits as of July 31. Warren Bank’s six branches will reopen Saturday as offices of Columbus, Ohio-based Huntington National Bank, which agreed to assume the deposits and about $83 million of the assets of Warren Bank. Its failure is expected to cost the FDIC an estimated $275 million. The FDIC will retain the remainder of Warren Bank’s assets for later disposition, FDIC said. Legacy Bank of Wiley, Colo., agreed to assume the deposits and assets of Southern Colorado National Bank. Central Bank of Stillwater, Minn., will assume the assets and deposits of Jennings State Bank (Associated Press Oct. 3) … * Economists should not dismiss employment as a lagging indicator--or merely a sign of where the economy has been--says Mohamed El-Erian, CEO of Pacific Investment Management Co. The current 26-year high unemployment rate also is a harbinger of things to come, he added. “Today’s unemployment rate is much more than a lagging indicator, El-Erian said. “It also is a signal of future pressures on consumption, housing and the country’s social safety net.” Normally, the job market trails the economy in an economic recovery because companies are reluctant to hire more workers until they feel assured the expansion will last. However, in the current economy, the “large and protracted” uptick in joblessness and the likelihood it will stay at a high level for years means unemployment will affect the economy going forward--not just as an indication of where it has been, El-Erian explained (Bloomberg.com Oct. 5) … * The Treasury Department is coming under fire for making some misleading public statements last fall. The allegations made by Neil M. Barofsky, inspector general--who oversees the government’s bailout of the banking system--have brought up the possibility that Treasury has unfairly disbursed money to the biggest U.S. banks, analysts said. A Treasury official made erroneous statements about health of the largest U.S. banks as the government was giving out billions of dollars in aid, according to Barofsky’s report on the Troubled Asset Relief Program. Regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy, said the inspector general’s office. The truth is that regulators were worried about the health of several banks that received the first bailout payments, Barofsky said (The New York Times Oct. 5) …

News of the Competition (10/05/2009)

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MADISON, Wis. (10/6/09)
* For the first time in 13 months, the U.S. service sector grew in September. The Institute for Supply Management’s (ISM) non-manufacturing Index increased a larger-than-anticipated 2.5 points in September to 50.9 from 48.4 in August. Analysts had expected a reading of 50--the dividing line between growth and contraction--according to a Thomson Reuters poll. In September, business activity and new orders both had improved--which is an encouraging sign for future growth, analysts said. However, the employment index is weak and portends a slow improvement in the labor market, they added. As the economic recovery continues, the ISM nonmanufacturing index should increase throughout the fourth quarter, analysts said. The index, which tracks more than 80% of the country’s economic activity, hasn’t grown since August 2008 (Moody’s Economy.com Oct. 4, and The New York Times Oct. 6) … * Alfred F. Kelly Jr., president of consumer business American Express Co., is resigning to pursue a top job at another company, said company spokeswoman Joanna Lambert. Kelly, 51, an American Express employee for 22 years, is leaving because CEO Kenneth Chenault intends to remain at the company for the “foreseeable future,” Lambert added (Bloomberg.com Oct. 5) ...

Banks with 20 unpaid loans hit 18-year high

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NEW YORK (10/5/09)--U.S. lenders unable to collect on at least 20% of their loans now total 26, which is an 18-year high, according to data compiled for Bloomberg News by Charlottesville, Va.-based SNL Financial, a bank research firm. The number indicates that more failures and losses could slow down the economy's recovery, said Bloomberg News (Oct. 2). The 26 firms have more than one-fifth of their loans either 90 days overdue or not accruing interest as of June 30. SNL Financial said the level of distress is nearly five times the national average. The firm based its report on Federal Deposit Insurance Corp. (FDIC) data. Zombie banks may not be forced to close by regulators, but requiring them to raise capital and tighten lending could get in the way of the economic recovery in nine states, said Bloomberg. Seventeen of the 26 banks have been hit with penalties or orders to improve capital and management. The cost of this year's failures to the FDIC equals 25% of the banks' assets. The 26 lenders on the SNL list--with assets totaling $14.1 billion--could cause $3.5 billion more in losses to FDIC. The agency had 416 companies on its "distressed" list at mid-year. Non-current loans averaged 4.35% of the total at U.S. banks as of June 30, according to FDIC data. Regulators typically take note at 5%, according to a former state regulator in California. The last time so many banks had 20% of their loans more than 90 days overdue was in 1991, toward the end of the savings-and-loan crisis. Then the total was 60 banks. In 1991, the number of bank failures was less than half the number at the peak of the 1988 crisis. This year's closings are about four times the number of closings in 2008. The story appeared Friday before the FDIC announced the 96th bank closure of 2009, with Michigan's Warren Bank being assumed by Huntington National Bank of Columbus, Ohio.

News of the Competition (10/02/2009)

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MADISON, Wis. (10/5/09)
* A federal court-appointed examiner is investigating whether the Federal Reserve improperly superseded other creditors in obtaining payment during Lehman Brothers Holdings, Inc.’s $613 million bankruptcy proceedings. The examiner is probing into how the Fed and the New York Fed--which lent $46 billion in cash and securities to Lehman before its bankruptcy filing in September 2008--were quickly paid in full, while the repayment of tens of billions of dollars in other debts were mired in court proceedings (The Wall Street Journal Oct. 2) … * The World Bank could find its funding constrained within a year if demands on the bank wrought by crises continue at their record pace, and wealthier countries don’t infuse more cash into the system, said bank President Robert Zoellick. The World Bank gave a record $33 billion in the fiscal year through the end of June, and is on track to lend another $40 billion this fiscal year, Zoellick said. The bank currently has $100 billion available for middle-income countries. The poorest countries obtain lending from the World Bank through different means and rates, analysts said. If the bank’s money runs short, it may have to ration funds, they added. “By the middle of next year, we will start to face serious constraints,” Zoellick said. “We are seeing, as we look into 2011, that we’ll go through that $100 billion and probably beyond” (The New York Times Oct. 2) … * Bank of America’s (BofA) board sanctioned a $713 million dividend payment on preferred stock issued to the Treasury Department--a component of last year’s $700 Troubled Asset Relief Program (TARP) sponsored by the federal government. BofA received $45 billion in TARP payments in two stages. In exchange, the government will receive preferred stock in the bank and quarterly dividends. BofA will pay the $713 million in dividends Nov. 16 The New York Times Oct. 2) … * A Citigroup Inc. unit will pay a fine to the Commodities Futures Trading Commission (CFTC) for failure to file timely annual reports. Citigroup Private Bank GP Inc.--a commodity pool operator--will pay a $100,000 fine for the violation, CTFC said. Citigroup neglected to file timely reports for fiscal years 2004 through 2007, the commission added. Federal regulations stipulate that annual reports must be filed no later than 90 days from the close of a commodity pool’s fiscal year (Dow Jones Newswires via American Banker Oct. 2) …

Market News (10/02/2009)

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MADISON, Wis. (10/5/09)
* The U.S. unemployment rate rose one percentage point to 9.8% in September from 9.7% in August as the economy lost 263,000 jobs--substantially more than the 175,000 expected--according to the Labor Department’s monthly report issued Friday. September’s figures dampen the prospect of meaningful job growth by the end of the year, analysts said. The biggest job losses were in construction, government, manufacturing and retail trade. September’s unemployment rate is the highest since 1983. “Only profitable firms will hire workers, and we don’t have any assurance that firms will be profitable for the next year,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC. “Consumer spending is going to be constrained by weaker incomes” (Bloomberg.com Oct. 2). Since the beginning of the recession in December 2007, the number of unemployed people has risen by 7.6 million, and the unemployment rate has doubled to 9.8%, analysts said (The New York Times and The Wall Street Journal Oct. 2) … * The U.S. future inflation gauge (FIG) for September rose to 90.6 from 89.7 in August, according to the Economic Cycle Research Institute (ECRI). The smoothed annualized growth rate increased to 12.1% from 6.6%. For the past six months, the FIG has been steadily trending higher, although it remains low overall, analysts said. The FIG is starting to indicate nascent inflation pressures down the road, they added. U.S. economic recovery is either near or already underway, but it will be too weak to cause renewed inflation, analysts said (Moody’s Economy.com Oct. 2) … * Orders for U.S. manufactured goods dropped 0.8% in August after registering a 1.4% rise in July, according to the Census Bureau. Orders, excluding transportation, increased 0.4%. Orders for durable goods fell 2.6% during August, and nondurable goods orders/shipments rose 0.8%. Reversing the July gain, overall shipments fell 0.3% in August. Inventories continued to decrease and the inventory to sales (I/S) ratio slipped down to 1.38 months (Moody’s economy.com Oct. 2) …

News of the Competition (10/01/2009)

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MADISON, Wis. (10/2/09)
* Financial services institutions could cut expenses if they probe more deeply into their operating costs, say bankers and consultants. Some say another 20% of spending can be slashed from annual budgets--especially if they outsource contracts for software, transaction processing and property maintenance. In recent years, PNC Financial Services Group Inc. was among the companies that instituted a major efficiency program. It saved $400 million in annual costs with 30% of the savings connected to third-party relationships, analysts said. Also, financial institutions need to invest more in their departments that monitor and negotiate contracts, analysts said. Technology is another area in which more efficiency gains can be realized, they added (American Banker Oct. 1) … * After three consecutive months of increasing confidence in the economy on the part of U.S small-business owners, September saw a reversal. The most recent Discover Small Business Watch index dropped 2.1 points from August to 87.7. Only 13% of small-business owners surveyed said they think the recession is over for their business, 69% said the recession isn’t over for their business, and 18% said they aren’t sure. “Although slightly lower this month, small-business confidence has been on a gradual climb since May, so this looks more like a pause than a reversal,” said Ryan Scully, director of Discover’s business credit card. “A lot of people are eager for a definitive signal that the economy is on the mend, but America’s small-business owners aren't sending that message yet” (tradingmarkets.com Sept. 30) … * Kenneth D. Lewis, CEO of Bank of America Corp. (BofA), announced Wednesday he will resign at the end of the year. His successor will have to either capitalize on or salvage the acquisitions that engendered Lewis’ downfall, analysts said. BofA has not named a replacement. Lawmakers and regulators have criticized Lewis since he masterminded a $29 billion January takeover of Merrill Lynch & Co., and bought subprime home lender Countrywide Financial Corp. in 2008, said David Hendler, an analyst for CreditSights Inc. Lewis is drifting out to sea, knowing the company can thrive without him, Hendler said. Since Lewis took the BofA helm in 2001, he spent more than $130 billion on acquisitions. The bank more than tripled its size and became the largest U.S. lender by assets and deposits, analysts said (Bloomberg.com Oct. 1) …

Market News (10/01/2009)

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MADISON, Wis. (10/2/09)
* U.S. consumer spending in August experienced its biggest jump since 2001, signaling that the largest piece of the economy--roughly 70%--is bouncing back from the worst slump in nearly three decades, analysts said. The month’s 1.3% increase in purchases was bigger than predicted and came on the heels of a 0.3% July gain that was larger than forecast, the Commerce Department said Thursday. Also, income went up 0.2% for a second consecutive month, and inflation decelerated. Back-to-school sales and the federal government’s “Cash for Clunkers” vehicle rebate program--which expired in August--helped spark spending, analysts said. However, economists predicted weak spending gains for the remainder of the year, which could hamper the economy’s recovery from recession. An unemployment rate that could rise above 10%, and high consumer debt levels could cause people to refrain from spending, analysts said (Bloomberg.com and The Wall Street Journal Oct. 1) … * In a bad sign for the U.S. job market, first-time claims for unemployment benefits jumped by 17,000 to a seasonally adjusted 551,000 for the week ended Sept. 26, the Labor Department said. However, continuing claims stayed on their downward trend, dropping 70,000 to 6.09 million for the week ending Sept. 19. Conditions in the labor market are experiencing uneven improvement, and the most recent numbers are indicative of how gradual progress will be, analysts said. With the Labor Department releasing its monthly report on unemployment today, economists expect the unemployment rate will increase to 9.8% from 9.7%--which is the highest level in 26 years (Moody’s Economy.com Oct. 1 and The New York Times Oct. 2) … * U.S. workers affected by job-cut announcements in September declined for the second consecutive month to 66,404, from 76,456 in August, and 95,094 a year ago, according to the Challenger Report by Challenger, Gray and Christmas Inc. The reduction in the number of announcements is consonant with other labor market indicators that suggest the negative impacts of layoffs on the job market are abating, analysts said. In September, the largest number of job cuts were in the automotive industry (22,114); followed by government and nonprofit organizations (7,583); retails (6,180); pharmaceuticals (5,579); and industrial goods (2,438) (Moody’s Economy.com Oct. 1) … * Bolstering signs of a housing rebound, the number of contracts to purchase previously owned U.S. homes increased more than predicted in August, analysts said. The pending home sales index--that of signed purchase agreements--rose 6.4% in August after a 3.2% July gain and marked the seventh consecutive monthly gain, said the National Association of Realtors. Pending sales increased 12.4%, compared with sales a year earlier. All four U.S. regions shared in the August rise in contract signings, with the West and Northwest experiencing the biggest over-the-month increases. Low mortgage rates, falling home prices and government stimulus programs have helped put an end to the housing-market implosion that spawned the overall financial crisis, analysts said (Bloomberg.com and Moody’s Economy.com Oct. 1) …