Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

Market Archive

Market

News of the Competition (11/30/2008)

 Permanent link
MADISON, Wis. (12/1/08)
* The world’s second-largest maker of luxury cars said “exaggerated demands” threaten the sale of its remaining stake in Chrysler LLC. Daimler AG said in a statement Wednesday that demands made by Cerebrus Capital Management LP concerning Daimler’s 19.9% holding in Chrysler exceed the value of the $7.2 billion that private-equity firm Cerebrus invested to attain its 80.1% stake. Daimler wants to cut its association with Chrysler because the third-biggest U.S. automaker is dragging down Daimler’s earnings, erasing $483 million from second-quarter profits, analysts said (Bloomberg.com Nov. 26) … * General Motors Corp. may ask unsecured debt holders Franklin Resources Inc. and Pimco Advisers LP to accept as much as two-thirds less than the face value of their bonds. GM hopes to cut its debt in efforts to win U.S. government financial aid. GM needs to reduce its debt below the current $43 billion level, even if it gets the $12 billion it seeks in government loans, said people familiar with situation. GM CEO Rick Wagoner has a Tuesday deadline--set by Senate Majority Leader Harry Reid (D-Nevada) and House Speaker Nancy Pelosi (D-California)--to indicate how he’ll reconstitute operations as a condition for a $25 billion industry rescue. Congress could vote Dec. 8 on the package (Bloomberg.com Nov. 26) … * Interest rates dropped and refinancing activity quickened with borrowers looking to lower mortgage costs as a result of the Federal Reserve’s attempt to stabilize the housing market Tuesday. Although there was no way to determine the volume of refinancing, some brokers said it was the most activity they’ve seen in at least a year. Rates on 30-year fixed-rate mortgages fell about a half-percentage point to roughly 5.5% for borrowers with substantial equity in their homes and good credit scores, said mortgage brokers and lenders (The Wall Street Journal Nov. 26) … * Amalgamated Bank of New York has sued Countrywide Financial Corp. over bad mortgages. Amalgamated claims that Countrywide--which is now owned by Bank of America (BofA)--sold it $212 million worth of high-risk, nonperforming mortgages that skirted underwriting guidelines. In a lawsuit filed Nov. 24 in New York State Supreme Court, Amalgamated said it stands to sustain losses because of the deterioration in the loans it bought from Countrywide--which was the largest U.S. mortgage lender before BofA bought it July 1 for $2.5 billion (Reuters Nov. 25) ... * Of the nearly 31 million mortgages owned and guaranteed by Fannie Mae and Freddie Mac, servicers made 4,402 loan modifications in August, the Federal Housing Finance Agency said Tuesday. The agency said it completed 18,693 loss-mitigation actions. However, delinquencies on mortgages held and guaranteed by the government-sponsored enterprises (GSEs) continued to rise--reaching 2.03% of total loans by the end of August--up from 1.43% in January. The agency--which took over Fannie and Freddie in September--said the data indicate a need for the GSEs to hasten loan-modification efforts (American Banker Nov. 26) ...

Market News (11/30/2008)

 Permanent link
MADISON, Wis. (12/1/08)
* Exceeding expectations, personal income rose 0.3% in October, after increasing 0.1% in September, according to the Bureau of Economic Analysis. Hurricane adjustments led to a modest rise in income growth in October, after the adjustments had reduced income in September. Wage growth was positive yet weak, despite the large job loss in October. Spending dropped 1% after falling 0.3% the prior month. Real spending fell 0.5%--the fifth consecutive decline. The savings rate rose to 2.4% in October from 1% in September. Consumers are choosing to save rather than spend the windfall they are receiving in the form of lower gasoline prices, analyst said (Moody’s Economy.com Nov. 26) … * Initial claims for unemployment insurance dropped 14,000 for the week ending Nov. 22, to 529,000 from a revised 543,000 (previously 542,000) the previous week, according to the Employment Training Administration. Although a decrease, initial claims still remain highly elevated, and suggest a labor market under stress, analysts said. Illinois and Michigan reported increases in claims of more than 1,000. California, Tennessee, North Carolina and New Jersey reported decreases in claims of more than 1,000. In light of the fact that labor market conditions lag economic conditions, elevated claims and therefore increased labor market slack is expected well into 2009, analysts said (Moody’s Economy.com Nov. 26) … * New orders for manufactured durable goods declined 6.2% in October to $193.02 billion, on the heels of a 0.2% decline in September and a larger decline in August, according to the Census Bureau. Excluding transportation, orders dropped 4.4%. Shipments fell 2.4%, marking the third consecutive monthly decline. New orders for capital goods dropped 4%, and shipments were down 2.4%. The October report reflects a dramatic retrenchment in factory activity, analysts said. The weakness across manufacturing is now pervasive and similar to past recessions, analysts said (Moody’s Economy.com Nov. 26) … * October new home sales dropped to the lowest level in almost 18 years, and the median new home price fell to the lowest level since 2004, the Commerce Department said Wednesday. October new home sales decreased 5.3% to a seasonally adjusted annual sales pace of 433,000 homes--which marks the lowest level since January 1991--another period when the U.S. was experiencing a sharp housing downturn, analysts said. In October, the median price of a new home dropped to $218,000--down 7% from a year ago and the lowest median price since September 2004. The decline in new home sales was larger than expected, analysts said, with sales 40.1% below the mark of a year ago. A weak job market, along with receding non-farm payrolls for 10 straight months, and stricter mortgage financing are hurting home-buying, analysts said (The New York Times and The Wall Street Journal Nov. 26) … * The Mortgage Bankers Association (MBA) composite market index for mortgage applications rose slightly to 404.4 during the week ending Nov. 21. The week also saw mixed results in the purchase and refinance indices. The refinance index fell 2.1%, underlining a 1.5 % increase in the market index. The only substantial change occurred in the purchase index, which increased 5.3%, but still remained at a historic low. Overall, housing market news was bad last week, analysts said. Home sales--propped up by foreclosure auctions--have stagnated and new construction has nosedived, they added (Moody’s Economy.com Nov. 26) … * The University of Michigan Consumer Sentiment Index dropped slightly in November, falling 2.3 points to 55.3. This leaves the index at its lowest level since 1980. Expectations led the decline in October, although the current conditions component received a larger revision from the preliminary report. Plummeting gasoline prices caused inflation expectations to fall in October, analysts said. However, the steep declines in gasoline prices have not lifted the spirits of consumers as they watch their jobs, wealth and ability to borrow evaporate, they added (Moody’s Economy.com Nov. 26) ... * Led by declines in new orders, U.S. business activity contracted in November at the quickest pace since April 1982, according to the Institute for Supply Management-Chicago’s Business Index. The index decreased lower than forecast to 33.8 in November from 37.8 in October. The dividing line between growth and contraction is 50. Last year, the index averaged 54.4. With weakening global demand, businesses are cutting payrolls and rolling back production, analysts said. Companies are scaling back investments due to the deepening credit crisis. This means the U.S. economy likely will contract for a second consecutive quarter, analysts said. Manufacturing expected to experience the mildest recession ever due to the weak dollar and robust exports, but now finds itself dealing with the worst business environment in 25 years, said Christopher Low, chief economist at New York-based FTN Financial, before the report was released (Bloomberg.com Nov. 26) …

CUNA posts 3Q CU Profile report

 Permanent link
MADISON, Wis. (12/1/08)--The Credit Union National Association (CUNA) Economics and Statistics Department reports that its third-quarter Credit Union Profile report has been posted on CUNA’s website. The newly posted profile report includes a credit union financial summary, based on recently released National Credit Union Administration call report data; a summary of recent economic data; and a consensus forecast that was completed last week by CUNA economists. “The third-quarter credit union financial results reflect a continuation of earnings pressures stemming, in large part, from declines in asset quality,” said Mike Schenk, CUNA senior economist and vice president of the department. “The profile report notes, however, that credit unions have near-record levels of capital and seem well-positioned to weather the current storm. More than 98% of credit unions are ‘well capitalized’ with Prompt Corrective Action net worth-to-asset ratios greater than 7%," Schenk said. “CUNA’s outlook calls for slower economic growth, with substantial deterioration in labor markets over the forecast horizon. The economic weakness will mean that short-term rates will remain low through 2009, and the resulting fairly steep yield curve should ease some credit union bottom-line pressures,” Schenk said. Compared to the previous consensus outlook, CUNA’s new 2009 forecast reflects slightly faster credit union savings growth, slightly slower loan growth, marginally lower asset quality and healthy but lower earnings, he added. Credit unions can download the report by using the link.

News of the Competition (11/25/2008)

 Permanent link
MADISON, Wis. (11/26/08)
* American International Group, the U.S. insurer that has received more than $150 billion in federal bailout money, announced Tuesday that its top seven executives won’t receive salary increases or bonuses this year (Bloomberg.com Nov. 25). CEO Edward Liddy will take a $1 salary this year and in 2009. Another 50 executives will forego pay raises through next year. “We understand our obligation to taxpayers and shareholders,” said Liddy. In other news, three former top executives who presided over huge subprime losses at Zurich-based UBS AG said Tuesday that they will forego $27.7 million in salary and other payments (Associated Press via The New York Times Nov. 25). The Swiss government gave UBS almost $60 billion in bailout money last month … * Ten executives at Charlotte, N.C.-based Wachovia Corp. are eligible to reap as much as $98.1 million in severance pay if Wells Fargo completes its acquisition of the bank by Dec. 31, according to a regulatory filing. The potential windfalls could come under criticism. Calling the acquisition “highway robbery,” North Carolina’s state treasurer has said he will urge the state pension fund to vote against the deal (The Wall Street Journal Online Nov. 25) … * Debt-collection firm Academy Collection Services and its owner, Keith Dickstein, have agreed to pay the Federal Trade Commission (FTC) $2.25 million in fines for allegedly misleading, threatening, and harassing consumers (Dow Jones Newswires Nov. 21). The firm’s employees “allegedly engaged in false or deceptive threats of garnishment, arrest and legal action,” the FTC said in a statement. The agency also said the firm and its owner violated federal law by disclosing consumers’ debt to third parties and depositing post-dated checks prior to the dates on the checks. The $2.25 million fine is the largest civil penalty obtained by the FTC in a collection case, noted American Banker (Nov. 25) … * Freddie Mac increased its support for the nation’s mortgage-loan market in October. The company said Tuesday it purchased $27.7 billion in mortgage-backed securities during the month, growing its portfolio at a 44% annual pace. There were a few warning signs in Freddie’s report. Delinquencies on loans guaranteed by the firm rose to 1.34% in October, from 1.22% in September. And Freddie shifted to using short-term debt for funding its operations, which can expose it to risk. The company issued $58 billion in such debt during the month (washingtonpost.com Nov. 25) … * In a bulletin to lenders Monday, Freddie Mac said next year it plans to eliminate or reduce the up-front fees it charges lenders on the largest loans it guarantees. The firm said it will eliminate up-front fees for fixed-rate mortgage loans and no-cash-out refinancings with balances of more than $417,000. Freddie will lower fees for some other big loans by 25 basis points, to 50 basis points. “Anything that’s adding to the expense or burden of obtaining a home loan right now is really not welcome,” said HSH Associates Vice President Keith Gumbinger (American Banker Nov. 25) …

Market News (11/25/2008)

 Permanent link
MADISON, Wis. (11/26/08)
* The Federal Reserve on Tuesday announced $800 billion in new loans and debt purchases to help unfreeze the credit markets. The Fed said it will purchase as much as $600 billion in mortgage-backed assets from Fannie Mae and Freddie Mac. Separately, under the new Term Asset-Backed Securities Loan Facility (TALF), the Fed will lend up to $200 billion to holders of AAA rated asset-backed securities supported by “newly and recently originated” auto loans, credit-card loans, student loans, and business loans guaranteed by the Small Business Administration. Lenders providing credit under TALF “must have agreed to comply with, or already be subject to,” executive-compensation restrictions in the October bailout law, said the Fed in a statement. “The economy is turning down pretty dramatically,” said Treasury Secretary Henry Paulson at a press conference. “It’s very important that lending continue to be available” (Bloomberg.com and The New York Times Nov. 25) … * Home prices dropped 1.8% in the third quarter from the previous quarter, according to the Federal Housing Financial Agency’s (FHFA) purchase-only house price index, which is based on statistics from repeat home sales. It was the largest decline in the 17-year history of the index. Over the past year, home prices tumbled 6%. FHFA’s all-transactions house price index--which includes statistics from home sales and appraisals for refinancings--fell 2.7% in the latest quarter and was down 4% over the four-quarter period. “The impact of foreclosures and tightening credit conditions weighed heavily on house prices in the third quarter,” said Agency Director James B. Lockhart. The FHFA indexes probably underestimate declines in home prices because they rely on data collected by Fannie Mae and Freddie Mac … * The S&P Case-Shiller home price index posted a 16.6% decline in the third quarter compared with a year earlier (CNNMoney.com Nov. 25). Prices in Case-Shiller’s separate index of 10 major cities plunged a record 18.6%, while the 20-city index tumbled a record 17.4%. “Prices are back to where they were in early 2004,” noted David Blitzer, Standard & Poor’s spokesman for the indexes. Tight credit and mounting job losses probably will keep home sales from increasing significantly before the middle of 2009, said Moody’s Economy.com (Nov. 25). Home prices probably will stabilize at that point … * Mortgage lenders helped save a record 225,000 at-risk mortgage borrowers from losing their homes during October--up from 212,000 in September, the Hope Now coalition of lenders, mortgage servicers, investors, and counselors reported Tuesday. The coalition said its members have helped 2.7 million homeowners keep their homes since July 2007. “Our efforts to streamline the foreclosure prevention process are clearly working,” said Coalition Director Faith Schwartz. Over the past three months through October, the number of modifications--in which loan terms are rewritten--jumped 24%. The number of repayment plans--in which borrowers may be allowed more time to make payments--rose just 9.8%. “The U.S. economy is still troubled and that means that changing the terms of a loan is an increasingly appropriate way to keep more homeowners in their homes,” said Schwartz (CNNMoney.com Nov. 25) … * Consumer confidence rebounded in November from a record low the previous month as declining gasoline prices helped offset worries about the financial crisis and rising job losses. The Conference Board’s index of consumer confidence increased to 44.9, from 38.8 in October. The October reading was the lowest since the monthly index was launched in 1967. The Expectations Index--the outlook for the economy over the next six months--rose to 46.7 from 35.7. The Present Situation Index fell to 42.2--from 43.5 and the lowest reading since June 1993. “The persistent declines in the Present Situation Index suggest that the economy has weakened further in the final months of this year,” said Survey Director Lynn Franco. “Despite the improvement in the expectations index this month, consumers remain extremely pessimistic and the possibility that economic growth will improve in the first half of 2009 remains highly unlikely,” added Franco. Consumers are gloomy about the job market. The share of respondents who said jobs are “hard to get” rose to 37.2% from 36.6% (Bloomberg.com and Associated Press via Yahoo! News Nov. 25) … * Economic growth was even weaker in the third quarter than the government first estimated. Real gross domestic product (GDP) declined at an annual rate of 0.5%, the Commerce Department reported Tuesday. In the advance estimate in October, the reported decline was 0.3%. Real GDP increased at a 2.8% pace in the second quarter. The decline in GDP during the third quarter mostly reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software. These were partly offset by positive contributions from federal government spending, private inventory investment, exports, nonresidential structures, and state and local government spending. Inflation accelerated slightly in the third quarter. Excluding food and energy, the core PCE price index, the Federal Reserve’s preferred inflation gauge, increased at a 2.7% rate, up from a 2.2% pace in the second quarter. The GDP report confirms that the economy will remain in recession through the first half of 2009, said Moody’s Economy.com (Nov. 25). The downturn will become much more severe if the credit markets don’t stabilize soon …

Schenk to IBloombergI Consumers welcoming change

 Permanent link
NEW YORK (11/26/08)--Consumers are welcoming political change, Mike Schenk, senior economist at the Credit Union National Association, told Bloomberg.com Tuesday. In an article that focused on consumer confidence, Schenk said the end of the political uncertainty surrounding the presidential election earlier this month and the change it brought might bolster the comfort level and confidence of consumers. “Change is something many welcome, no matter who they supported,” Schenk told the news agency. U.S. consumer confidence probably remained at a record low level in November, economists said before the most recent reports were issued Tuesday, Bloomberg reported. Actually, the reports Tuesday indicated consumer confidence rose slightly (The New York Times Nov. 25).

CUNAs Hampel addresses economy on IBloomberg TVI

 Permanent link
NEW YORK (11/26/08)--Bill Hampel, chief economist for the Credit Union National Association (CUNA), discussed the state of the U.S. economy--mostly through the prism of consumer spending and the housing market--Tuesday on Bloomberg TV’s “Open Forum” show with host Rhonda Schaffler.
Click to view larger image CUNA Chief Economist Bill Hampel during a live Bloomberg TV broadcast Tuesday. (Photo provided by CUNA)
Regarding the government’s efforts to unfreeze credit markets, Hampel said the federal government’s Troubled Assets Relief Program was started about six weeks ago and hasn’t done much to buy troubled assets yet to help free up credit. However, the Federal Reserve announced Tuesday that it will “buy the paper of conforming mortgages,” he said. “We already have a sharp decline in demand for credit by the household sector,” Hampel said. “[The household sector] wants to control spending.” The Federal Reserve and Treasury are hoping to control the contraction in spending from contracting more, he added. “For the overall economy, this will not be the 1930s,” Hampel said. “We are in a nasty recession, but the Fed and Treasury will keep it from getting worse.” Housing is now approaching affordability in many U.S. markets, and lower mortgage interest rates will help minimize foreclosures, Hampel said. The housing crisis started in markets in California and Florida, spreading to the rest of the U.S., Hampel said. Higher credit losses will feed through the financial system and eventually impact smaller institutions such as thrifts and credit unions, he added. Most consumers ignore the day-to-day economic news, but their big concern with the current economic downturn is job losses. “There have been 1.2 million so far, and at least that much to come perhaps,” Hampel said. Also, the household sector has experienced losses in housing values and in 401(k) retirement accounts, Hampel said. “The 401(k)s are about 250(k)s now,” he added.

News of the Competition (11/24/2008)

 Permanent link
MADISON, Wis. (11/25/08)
* The federal government agreed Sunday night to rescue Citigroup by absorbing potentially hundreds of billions of dollars of losses on bad assets and infusing capital into the company. Citigroup and the government identified about $306 billion in troubled assets. In the plan, Citigroup would absorb the first $29 billion in losses, and then the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. would take on any additional losses. In turn, Citigroup would give the government warrants to purchase shares in the firm. The Treasury Department also will inject $20 billion in new capital into Citigroup, on top of the $25 billion the firm already has received as part of the $700 billion bailout program. Citigroup’s shares rebounded following the announcement Monday, after sinking 60% last week to a 16-year low (The Wall Street Journal Online Nov. 24) … * The Federal Deposit Insurance Corp. (FDIC) seized three financial institutions Sunday night. Downey Savings and Loan Association, a big originator of option adjustable-rate mortgages, is the third-largest financial institution to fail this year--after Washington Mutual and IndyMac Bancorp. The FDIC said holders of $1.9 billion in Downey mortgage loans who have become delinquent on their payments will be eligible for lower payments to help them avoid foreclosure. The FDIC also seized PFF Bank and Trust, another California thrift that made bad loans to residential developers. The agency sold Downey and PFF to U.S. Bancorp of Minnesota, which will absorb as much as $1.6 billion in loan losses. U.S. Bancorp agreed to use an FDIC formula to offer loan modifications to customers of the two thrifts. The FDIC sold the third failed financial institution, Community Bank of Loganville, Ga., to Tappahannock, Va.-based Bank of Essex. Regulators have shut down 22 financial institutions so far this year (washingtonpost.com Nov. 24) … * The downsizing by Wall Street firms may prompt the loss of 225,000 jobs in New York and $6.5 billion in securities industry-related tax revenue over the next two years, according to state Comptroller Thomas DiNapoli. His report predicts that the securities industry will lose 38,000 jobs by October 2009, with 10,000 more jobs lost in banking, insurance, and real estate. Those losses would reverberate through the private sector, prompting the loss of as many as 225,000 jobs statewide. For each financial-sector position eliminated, two positions will be lost in other industries in New York City, and 1.3 jobs will disappear elsewhere in the state, estimates the report. New York City’s six biggest securities firms saw revenue declines of 63% during the second half of 2007 and 48% in the first three quarters of this year. They reported more than $140 billion in write-offs over the period (Bloomberg.com Nov. 24) … * Visa Inc. disclosed an antitrust investigation by the Justice Department in a filing with the Securities and Exchange Commission on Friday (Bloomberg.com Nov. 21). The department’s document requests “focus on certain Visa USA policies relating to merchant acceptance practices, including Visa USA’s policies regarding merchant surcharging and merchants’ ability to steer customers to other forms of payment,” said Visa. American Express, MasterCard, and Discover Financial Services have said they are cooperating with similar investigations (American Banker Nov. 24). Rules against steering prompted three drugstores to sue Amex in June, alleging that rules violated antitrust laws by keeping them from steering customers to other payment cards, which often carry a lower discount rate for merchants …

Market News (11/24/2008)

 Permanent link
MADISON, Wis. (11/25/08)
* Sales of previously owned homes fell in October following a strong increase in September, the National Association of Realtors (NAR) reported Monday. Existing-home sales--including single-family homes, townhomes, condos, and coops--dropped 3.1% to an annual rate of 4.98 million units in October. Sales were down 1.6% from a year earlier. “Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” said NAR Chief Economist Lawrence Yun. He added that a housing stimulus program is “critical,” and an economic recovery won’t occur until home prices stabilize. The national median existing-home price was $183,300 in October--down 11.3% from a year earlier. NAR noted that prices are being distorted by a large number of distressed sales at discounted prices (realtor.org Nov. 24) … * President-elect Barack Obama on Monday urged the new Congress to quickly pass an economic stimulus plan after it opens its session on Jan. 6. He also pledged aid for the auto industry and said he would “honor the commitments made by the current administration,” signaling approval of the government’s bailout plan and its latest decision to rescue Citigroup. In addition, he outlined a plan to create 2.5 million jobs by 2011, as workers rebuild roads and bridges, modernize schools, and create more sources of alternate energy. “These are long-term investments in our economic future that have been ignored for far too long.” Obama also announced the top members of his economic team. New York Federal Reserve President Timothy Geithner will be his treasury secretary. Lawrence Summers, who was treasury secretary under former President Bill Clinton, will be director of his National Economic Council (Associated Press via Yahoo! News and CNNMoney.com Nov. 24) … * Workers are increasingly cautious about investing their money in corporate retirement funds, according to a survey by Hewitt Associates. In response to the stock-market slump, 4% of workers have stopped contributing to their 401(k) retirement plans. Stock holdings in the plans now make up 53.8% of assets--down from 68.1% a year ago and a high of 74.2% in 2000. The average plan balance is down 14% this year to $68,000, from $79,000 last year. In just the last two months, employees have lost an average of almost 18% of their 401(k) plan savings, and some have lost more than 30%. “The concerning behavior we are seeing … is some evidence of knee-jerk investment decisions, with a significant increase in the number of investment transfers immediately after the market drops,” said Pamela Hess, director of retirement research at Hewitt. “In the vast majority of cases, employees who impulsively respond to the fluctuations of the market can dramatically reduce their overall retirement savings, as employees are unlikely to readjust their investment portfolio when the market makes a turn for the better,” added Hess (BUSINESS WIRE and Reuters via Yahoo! News Nov. 24) … * Private health insurance plans, which serve almost one-fourth of all Medicare beneficiaries, have boosted the cost and complexity of the Medicare program without improving patient care, according to a study by two analysts from the Medicare Payment Advisory Commission. Private plans have boosted costs because the government pays them an average of 13% more than it would spend for the same beneficiaries in traditional Medicare. “The higher payment rates have financed what is essentially a Medicare benefit expansion for Medicare Advantage enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all beneficiaries and taxpayers,” wrote analysts Carlos Zarabozo and Scott Harrison (The New York Times Nov. 24) … * The U.S., China, Japan, and 18 other nations in the Asia-Pacific Economic Cooperation forum (APEC) pledged quick action Sunday to avert a severe global recession. APEC members, which account for more than half the world’s economic output, said higher government spending and free trade were the main ways to resolve the crisis. “We are convinced that we can overcome this crisis in a period of 18 months,” said APEC members in a statement. Governments already have cut interest rates and spent hundreds of billions of dollars to boost their economies after the U.S. credit crisis prompted a global panic (Reuters via Yahoo! News Nov. 24) …

News of the Competition (11/21/2008)

 Permanent link
MADISON, Wis. (11/24/08)
* The thrift industry lost $4 billion during the third quarter--the fourth consecutive loss and the third-biggest on record, the Office of Thrift Supervision (OTS) reported last week. Thrifts set aside $7.9 billion for future loan losses, compared with $14 billion in the second quarter. Average return on assets fell to a negative 1.35% from a negative 0.57%. “The housing sector is at the eye of the nation’s economic storm and the thrift industry, which focuses on home mortgages and other consumer retail lending, is feeling a strong impact,” said OTS Director John Reich. “This storm will pass, but we’ve already seen some damaging effects,” added Reich. The OTS added six thrifts to its list of troubled firms in the third quarter, boosting the total to 23 (American Banker Nov. 21) … * Washington Mutual announced Thursday that it plans to cut 1,600 jobs in the San Francisco area. WaMu will still employ 11,000 people in California after the layoffs, said spokesman Gary Kishner. The Seattle-based thrift failed Sept. 29, the largest bank failure in U.S. history. Federal regulators sold the firm’s operations to JPMorgan Chase (CNNMoney.com Nov. 21) … * Several large life insurance firms are seeking to purchase thrifts so they can qualify for some of the government’s $700 billion bailout money. Letting insurers participate in the program would help thaw the credit freeze, said Gary E. Hughes, general counsel of the American Council of Life Insurers. He noted that life insurers are large buyers of corporate bonds. Lincoln Financial Group, the Phoenix Cos., and Genworth Financial are among the insurers trying to become savings and loan holding companies (washingtonpost.com Nov. 21) … * Fannie Mae and Freddie Mac announced Thursday that they will suspend foreclosure sales and evictions on some properties until after the holiday season. The temporary suspension applies to 10,000 borrowers with Fannie-owned mortgages and 6,000 borrowers with Freddie-owned mortgages. The two firms are implementing loan-modification programs that will let some borrowers receive more affordable loans. The monthly payments on such loans would total no more than 38% of a borrower’s monthly income (The Wall Street Journal Online Nov. 21) … * The Education Department announced Thursday that it plans to purchase up to $6.5 billion of federally guaranteed student loans made in the 2007-08 academic year. “We have full confidence that the programs we’ve announced will work in bringing liquidity to the marketplace,” said Sara Martinez Tucker, undersecretary of education. She said eligible loans are federal Stafford loans and parent PLUS loans, but not consolidation loans (The New York Times Nov. 21) … * Commercial banks and investment firms borrowed less from the Federal Reserve last week. Commercial banks averaged $91.6 billion in daily borrowing--down from $95.4 billion the previous week. Investment firms averaged $50 billion in daily borrowing, down from $64.9 billion. However, net holdings of commercial paper totaled $270.9 billion, up from $257.3 billion (Associated Press via CNNMoney.com Nov. 21) …

Market News (11/21/2008)

 Permanent link
MADISON, Wis. (11/24/08)
* Top officials of major financial firms and home-building companies raked in huge amounts of money before the credit bubble burst, according to a study by The Wall Street Journal (Nov. 20). Fifteen corporate heads each took in more than $100 million in cash compensation and proceeds from stock sales during the last five years. Four of the executives headed companies that have since filed for bankruptcy protection or seen their share price plunge more than 90% from their peak. In its study of 120 public companies, the newspaper found that top executives and directors cashed out a total of more than $21 billion. “The system tends to reward people for participating in bubbles,” said Roy Smith, a professor of finance at New York University’s business school … * Consumers struggling with high food and energy costs are seeing their health-care costs soar. After holding steady at $500 for seven consecutive years, the median deductible for individuals who have health insurance through their employer jumped to $1,000 this year, according to a poll by consultant Mercer. Increasing deductibles is “the easiest way to reduce cost without taking more out of every employee’s paycheck,” said Mercer partner Blaine Bos. In other news, a study by the Kaiser Family Foundation found that employees of small firms (less than 200 workers) typically face higher deductibles and pay more out-of-pocket for their medical expenses than employees of large companies. Small firms also are less likely to offer health insurance to their employees. Deductibles probably will continue increasing over the next two years as unemployment rises, said Gary Claxton, a vice president at Kaiser. “When unemployment goes up, workers just have less ability to push for good benefits,” said Claxton (The Wall Street Journal Online Nov. 20) … * Households will slash holiday spending by about 11.3% this year, according to a Conference Board survey. Consumers plan to spend an average $418 on gifts, compared with $471 last year. “This is shaping up to be one of the most challenging holiday seasons in years and it’s going to take more than the usual discounts and incentives from retailers to get consumers to spend more freely,” said Lynn Franco, director of the Board’s Consumer Research Center. In other news, consumers expect the unemployment rate to top 8.5% by the end of 2009--consistent with a decline of 1% in personal consumption expenditures, the Reuters/University of Michigan Surveys of Consumers found. “Although consumers began voicing their concerns about rising unemployment in early 2007, fears of rising joblessness spread more rapidly in recent months as consumers became convinced that the recession will be deeper and last longer than they had initially anticipated,” said survey director Richard Curtin (Reuters via The New York Times Nov. 21) … * The Conference Board’s index of leading economic indicators fell 0.8% in October, the fourth consecutive decline, as stocks, housing starts, and consumer confidence tumbled. The declines signal a deepening downturn over the next three to six months. The pace of housing starts and building permits plunged to record lows in October, indicating that the housing downturn will continue into next year. The only positives in the index were the money supply, new orders for consumer goods, and interest-rate spreads (Bloomberg.com Nov. 21) … * A bankruptcy of one of the nation’s automakers could deepen the credit crisis, say analysts, because many financial institutions hold bonds issued by the automakers. In addition, $290 billion in credit-default swaps have been written on that debt, according to the Depository Trust & Clearing Corp. Bonds issued by General Motors, Ford, and their lending units make up about 10% of the high-yield bond market, noted JPMorgan Chase analyst Eric Selle (washingtonpost.com Nov. 21) … * General Motors plans to extend its holiday shutdown and make production cuts at as many as 10 factories as it struggles to remain solvent. Workers at the Lordstown, Ohio, plant were told that the holiday closure would extend until Jan. 20, said Dave Green, president of the local United Auto Workers union. The plant will then resume production at a slower speed. The automaker has warned that it could run out of cash by the end of this year (Associated Press via The New York Times Nov. 21) …

News of the Competition (11/20/2008)

 Permanent link
MADISON, Wis. (11/21/08)
* The banking industry may need another $1.2 trillion to boost liquidity and allow institutions to begin lending again, predicts Friedman Billings Ramsey Analyst Paul Miller. Firms with the greatest need of capital are Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, AIG, Bank of America, and GE Financial. The firms, with combined assets of $12.2 trillion, have only $406 billion in tangible common capital. “Debt or TARP [Troubled Assets Relief Program] capital is not true capital,” said Miller. “Long-term debt financing is not the solution. Only injections of true tangible common equity will solve the current crisis.” Miller predicts that it will take another three-to-five years for the financial system to work through the crisis (msn.com Nov. 20) … * The federal government is investigating whether homeowners were misled by Golden West Financial, the California bank that was acquired by Wachovia Corp. The Securities and Exchange Commission and the Justice Department are “looking at the sale of Golden West as well as Golden West’s lending practices,” said U.S. Attorney Joseph Russoniello. He said the government wants to know if Golden West misled borrowers and it if the firm misrepresented the quality of its loan portfolio in its sale to Wachovia. Charlotte, N.C.-based Wachovia, which says its loan losses could total $74 billion, has agreed to be acquired by Wells Fargo (Reuters via The New York Times Nov. 20) … * GMAC Financial Services, the financing arm of General Motors, has applied to become a bank holding company, a move that will let the firm be eligible for help from the $700 billion bailout program. GMAC is majority owned by private-equity firm Cerberus. GM owns a 49% stake. Earlier this month, GMAC cautioned that its ResCap mortgage unit could fail. GMAC posted a $2.52 billion loss for the third quarter, up from a $1.6 billion loss in the same period last year (Associated Press via The New York Times Nov. 20) … * JPMorgan Chase is eliminating about 10% of its investment-banking workforce as the credit crisis and economic slowdown erode earnings, say people familiar with the matter. The company took on about 6,000 employees from Bear Stearns in March and about 40,000 staff from its acquisition of Washington Mutual. JPMorgan has weathered the credit crunch well, allowing it to make acquisitions, because it had less exposure to subprime loans. However, CEO Jamie Dimon has cautioned that the economic slump may be harder on the firm because it will affect prime customers (Reuters via Yahoo! News Nov. 20) … * More consumers plan to use debit cards and cash instead of credit cards for their holiday purchases this year, according to a survey by the National Retail Federation. Of the 8,758 consumers polled, 41.5% said they will use debit cards for most of their holiday purchases--up from 40.1% last year. And 22.8% said their preferred to use cash, up from 22.1%. Credit cards were the main choice for 31.5% of respondents, down from 32.3%. Just 4.3% plan to use checks, compared with 5.5% last year. The trade group predicts that consumers will spend $470.4 billion on holiday purchases in 2008, up just 2.2% from last year (CardLine Nov. 20) …

Market News (11/20/2008)

 Permanent link
MADISON, Wis. (11/21/08)
* The job market is deteriorating as the economic downturn deepens. First-time claims for unemployment benefits jumped by 27,000 during the week ending Nov. 15 to 542,000, the Labor Department reported Thursday. That’s the highest level since 1992. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, surged by 109,000 during the week ended Nov. 8 to 4.012 million--the highest level since December 1982. Initial unemployment claims averaged 416,000 a week during the last recession in 2001. So far this year, claims have averaged 404,000--compared with a 321,000 average for all of last year (Bloomberg.com Nov. 20) … * Federal Reserve policymakers expect the economy to contract for as long as one year, according to minutes of the Oct. 28-29 meeting of the Federal Open Market Committee, released yesterday. A one-year downturn would be the longest since the 1981-82 recession. Fed policymakers also said they expect inflation to “diminish materially in coming quarters … to levels consistent with price stability.” They expect the economy to expand between 0% and 0.3% in 2008. Growth next year is expected to range between a negative 0.2% and a positive 1.1%. The unemployment rate is projected to increase to as much as 7.5% next year (MarketWatch Nov. 20) … * The Federal Open Market Committee (FOMC) announced Thursday that it will expand its December meeting from one day to two days to allow more time for discussion. The meeting will begin on Monday Dec. 15 and end on Tuesday Dec. 16. The FOMC said its statement will be released at about 2:15 p.m. EST on Tuesday. At its October 29 meeting, the FOMC lowered its target for the federal funds rate by 50 basis points to 1%, and cautioned that further rate reductions may be coming to aid the weak economy … * The Federal Housing Administration (FHA) announced yesterday that after just two months it is easing terms of its Hope for Homeowners program because it hasn’t been effective. The changes will make it easier for borrowers to refinance into fixed-rate, government-backed mortgages, said FHA officials. The agency received applications from just 111 borrowers during the first month of the program. The FHA will now insure a loan for 96.5% of the home’s value, up from the previous 90% limit, making it less likely that lenders will suffer losses. The agency also will offer second-loan holders an immediate payment when they release their liens, said Housing and Urban Development Secretary Steve Preston. Lenders also can extend loan terms from 30 years to 40 years to lower borrowers’ monthly payments (washingtonpost.com Nov. 20) … * Mortgage rates declined again this week as economic worries intensified, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) declined 10 basis points to 6.04%, while the 15-year FRM dropped 8 basis points to 5.73%, and the one-year, adjustable-rate mortgage (ARM) dipped 4 basis points to 5.29%. “Long- and short-term mortgage rates fell for the third consecutive week amid continuing signs of a slowing economy,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “Retail sales fell for the fourth straight month in October and consumer sentiment remained near a 28-year low in November,” added Nothaft. Mortgage rates are slightly lower than a year ago. At this time last year, the 30-year FRM averaged 6.20%, while the 15-year FRM stood at 5.83%, and the one-year ARM was at 5.42% (MarketWatch Nov. 20). For CUNA's Daily Financial Rates, use the link. … * Oil prices fell below $50 a barrel on Thursday for the first time in 22 months as the global economic slowdown eroded consumption. Crude oil fell $3.71 to $49.91 a barrel at one point in trading yesterday. Oil futures have declined more than two thirds since peaking at $145 a barrel in July. Analysts predict that global oil demand will decline this year, for the first time in 25 years, as the economies of the U.S., Japan, and Europe contract. Deutsche Bank Analyst Adam Sieminski predicts that oil prices will decline to $30 to $35 a barrel in 2009, the lowest level since December 2003 (The New York Times Nov. 20) …

News of the Competition (11/19/2008)

 Permanent link
MADISON, Wis. (11/20/08)
* Banks will stop lending, and weak banks needing capital will begin failing at a rate of about a dozen a week, predicts Ladenburg Thalmann Banking Analyst Dick Bove. Banks most a risk are those not qualifying for government capital infusions. In a bright spot, Bove said he expects the lending downturn and bank failures to restore the health of the financial system. So far, 69 financial firms have said they’ve been approved to receive money, 59 have said they’ve applied and expect approval, and 65 have said they don’t plan to seek government money. That leaves about 5,000 or more banks supervised by the Federal Deposit Insurance Corp. and thousands more that don’t operate under the FDIC. Bove said banks will be able to obtain deposits from the failed banks at a cheaper rate than they could obtain from public deposits, and this will let them lower their interest rates and begin lending again. The lending drought also will force banks to search for bargains in the secondary loan markets, which is turn will cause the frozen markets to thaw (Dow Jones Newswires Nov. 18) … * Fannie Mae disclosed Tuesday that it is at risk of being delisted by the New York Stock Exchange. The firm’s share price has declined to less than $1, a violation of the exchange’s rules. Fannie has until Nov. 26 to let the exchange know if it plans to enact measures to boost its share price. Fannie shares, which were trading as high as $40.45 a year ago, closed at 47 cents on Tuesday. Fannie said it is working with the Federal Housing Finance Agency to explore ways to increase its share price. Last week, Fannie reported a $29 billion loss for the third quarter (washingtonpost.com and Associated Press via Yahoo! News Nov. 19) … * Citigroup said losses in its consumer loan portfolio could increase $1 billion to $2 billion each quarter through the first half of 2009 (Dow Jones Newswires Nov. 18). The company reported $4.6 billion of consumer credit losses for the third quarter. Citigroup, which once was the largest U.S. bank by market value, has declined to fifth (Reuters via Yahoo! News Nov. 19). Citigroup’s market value fell as low as $42.2 billion early Wednesday, compared with more than $270 billion in late 2006. Citigroup is now just behind U.S. Bancorp, which is one-eighth as large by assets. Larger U.S. banks by market value include JPMorgan Chase, Wells Fargo, and Bank of America … * General Electric announced Tuesday that it is reorganizing its GE Capital finance unit, a move that the firm says will save $2 billion next year and create “a more focused set of higher return businesses.” (The Wall Street Journal Online Nov. 19). GE said the reorganization will result in an unspecified number of layoffs. In other news, Deutsche Bank AG said it plans to eliminate about 900 jobs, mostly in New York and London, as the credit crisis deepens (Bloomberg.com Nov. 19). The bank already has cut more than 1,500 jobs this year …

Market News (11/19/2008)

 Permanent link
MADISON, Wis. (11/20/08)
* Inflation eased dramatically in October as economic growth slowed. The Consumer Price Index (CPI) fell 1% last month--the largest monthly decline since the Labor Department began reporting seasonally adjusted changes in February 1947. The CPI was up 3.7% year-over-year in October, down significantly from a 4.9% year-over-year increase in September. The energy index tumbled 8.6% last month following declines of 1.9% in September and 3.1% in August. The food index rose 0.3% after a 0.7 gain. Excluding food and energy, the core CPI edged down 0.1% in October and was up a modest 2.2% from a year earlier … * Housing starts and permits for future construction both declined to record lows in October--suggesting that the housing downturn may continue into a fourth year. Construction on new housing fell 4.5% last month to an annual rate of 791,000--the lowest since record keeping began in 1959, the Commerce Department reported Wednesday. Building permits plunged 12% to a 708,000 pace, also the lowest level on record. Year-over-year, permits were down by 40%. Builder confidence is at a record low. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell 5 points to 9 in November--the lowest level since the index was launched in January 1985. “We are in a crisis situation,” said NAHB Chairman Sandy Dunn. “Tremendous economic uncertainties have driven consumers from the housing market, and it’s going to take some major incentives to bring them back,” added Dunn (Bloomberg.com and Economy.com Nov. 19) … * Mortgage activity declined last week as a drop in purchase applications offset an increase in refinancings, the Mortgage Bankers Association reported Wednesday (realtor.org Nov. 19). The trade group’s Market Composite Index fell 6.2% to 398.6. The Purchase Index plunged 12.6% to 248.5, while the Refinance Index rose 2.6% to 1281.2. The average 30-year, fixed-rate mortgage (FRM) declined 8 basis points to 6.16%, while the one-year, adjustable-rate mortgage edged up 3 basis points to 6.80%. Although the 30-year FRM is at the same level as a year ago, the three indexes are about half of their year-ago levels--suggesting that rates aren’t the main deterrent to mortgage loans, noted Moody’s Economy.com (Nov. 19). Instead, tight credit standards, falling home prices, mounting job losses, and the weak economy are making consumers wary about purchasing homes … * The U.S. has been in recession since April and will remain there until mid-2009, according to a survey of economic forecasters by the Federal Reserve Bank of Philadelphia. Respondents predict that the economy will contract at a 2.9% annual rate in the current quarter and a 1.1% rate in the first quarter. That’s much more pessimistic than a forecast made three months ago, in which respondents predicted that the economy would expand at a 0.7% annual rate in the fourth quarter and a 1.6% pace in the first quarter. About two-thirds of respondents said their forecast assumes that the federal government will enact a new fiscal stimulus package of about $211 billion, much more than the $150 billion stimulus package enacted earlier this year (FT.com Nov. 18) … * States struggling in the credit crisis are losing out on about $1 billion a year in tax revenue because of laws that allow retailers to keep a portion of the sales taxes they collect for the government, according to a study by Good Jobs First, a Washington-based nonprofit research group. Laws in 26 states, which mostly date back to an era before cash registers were computerized, let retailers retain a portion of sales-tax revenue to compensate them for collecting the money. Thirteen of these states have no limit on the amount retailers can retain. The study found that Illinois, which has no cap, lost out on $126 million in sales-tax revenue last year. The Illinois revenue department has tried to get legislators to cap the program, but opposition from retailers derailed such attempts, said a revenue department spokesman. Wal-Mart Stores retained about $60 million last year through the vendor-compensation programs in 26 states, the study found (The Wall Street Journal Online Nov. 18) … * China outpaced Japan in September to become the largest foreign holder of U.S. Treasuries, according to Treasury Department data. Total net purchases of long-term equities, notes, and bonds rose a net $66.2 billion during the month, from $21 billion in August. China topped all foreign investors in September by posting a net increase in U.S. Treasuries for the sixth out of the past seven months. China boosted its Treasury holdings by $43.6 billion to $585 billion. Japan lowered its holdings by $22.8 billion to $573.2 billion. Japan’s holdings of U.S. government debt are down from a peak of $699 billion hit in August 2004. China’s holdings have doubled since July 2005 (Bloomberg.com Nov. 18) …

News of the Competition (11/18/2008)

 Permanent link
MADISON, Wis. (11/19/08)
* Banks modifying homeowners’ mortgage terms could undermine the banking sector’s return to health by disguising possible losses. Banks can reclassify modified delinquent loans as current loans if the borrower resumes payments. However, many borrowers historically default on their loans soon after they’ve been modified. According to a Fitch Ratings report last year, 35% to 40% of borrowers default on their modified loans within 12 to 24 months. And many subprime borrowers so vastly overstated their income during the housing boom that they won’t be able to afford loans even if they’re modified. Dr. Joseph Mason, a banking professor at Louisiana State University’s business school, cites research showing that borrowers substantially inflated their incomes in about 70% of loans. “If modifications are given to borrowers that are not well-suited for homeownership in the long term, the loan modification only serves to delay the inevitable,” said Mason. Some lenders including Wells Fargo and Wachovia Corp. wait to classify a modified loan as current until the borrower has made six consecutive payments. Most other banks have no such rules (Dow Jones Newswires Nov. 18) … * UBS AG said Tuesday that its chairman and 12-member management team will forgo bonuses for 2008 after accepting aid from the Swiss government to recover from more than $46 billion in mortgage-related writedowns. The seven top executives at Goldman Sachs Group announced on Monday that they will forego their 2008 bonuses. Going forward, UBS said its bonuses will be much more strongly linked to the bank’s performance than in the past. “Those who are rewarded will be those who deliver good results over several years without assuming unnecessarily high risk,” said the bank. UBS also is examining the legality of asking executives to pay back some bonus money given to them in past years (The Wall Street Journal Online Nov. 18) … * The Treasury Department announced Monday that it made investments in four banks with a presence in the Washington, D.C. area. Capital One, one of the nation’s largest issuers of credit cards, received about $3.6 billion from the government. SunTrust received $3.5 billion, while BB& T obtained $3.1 billion, and Provident received $151.5 million. Capital One will use the money “consistent with restoring the liquidity and stability of our financial system,” said company spokeswoman Tatiana Stead. Provident probably will use the money to boost its lending in the Washington area, said Jeff K. Davis, an analyst who tracks the company for Memphis-based Wolf River Capital. Provident may also use the money to fund acquisitions next year if the economy strengthens, added Davis. Neither SunTrust nor BB&T issued statements concerning how they would use the government money (washingtonpost.com Nov. 18) … * Target Corp. reported a fourth consecutive decline in profit on Monday as consumers defaulted on their credit-card payments. Bad-debt costs more than doubled from a year earlier to $314 million in its fiscal third quarter. Its profit declined 24% during the quarter, as its credit-card profit plunged 83%. The company sold almost half of its credit-card receivables to JPMorgan Chase in May. The firm is now issuing fewer credit cards and lowering spending limits. Target’s same-store sales fell 3.3% in the latest quarter, as the credit crisis and mounting job losses prompted consumers to search for the lowest prices on basic goods. That trend helped Wal-Mart Stores post a 10% gain in third-quarter profit as its sales rose 3% (The Wall Street Journal Online Nov. 18) …

Market News (11/18/2008)

 Permanent link
MADISON, Wis. (11/19/08)
* The $700 billion taxpayer-funded bailout program shouldn’t be used to help domestic auto manufacturers, said Treasury Secretary Henry Paulson. In Congressional testimony Tuesday, Paulson said the purpose of the program is to stabilize the financial markets and unfreeze lending. He also defended the decision to abandon the bailout plan’s original goal of purchasing toxic assets. Buying those bad assets would have taken a “massive commitment” of the bailout money, said Paulson. He said Treasury instead will focus on pouring $250 billion into banks in return for partial ownership stakes. The department confirmed Monday that it gave $33.45 billion to 21 banks in its second course of payments. Also in congressional testimony yesterday, Federal Deposit Insurance Corp. Chairman Sheila Bair pressed again for using $24 billion of the bailout money to help some households avoid foreclosure. As foreclosures continue to mount, the government is “clearly falling behind the curve,” said Bair (Associated Press via The New York Times Nov. 18) … * Median existing-home prices fell a record 9% year-over-year in the third quarter, to $200,500--reflecting a flood of foreclosures and short sales, the National Association of Realtors (NAR) reported Tuesday. Distressed sales accounted for 35% to 40% of all transactions during the quarter. Existing-home sales totaled 5.04 million at a seasonally adjusted annual pace in the third quarter--up 2.6% from the second quarter but down 7.7% from the third quarter of 2007. “A pattern of sharply higher sales in areas with large price declines is well established,” said NAR Chief Economist Lawrence Yun. “Affordability conditions have consistently been a major factor in driving sales” (realtor.org Nov. 18) ... * Four out of five metropolitan areas recorded lower home prices in the third quarter, compared with a year earlier, according to the National Association of Realtors report. The largest declines in single-family home prices during the third quarter were in three California markets: the Riverside-San Bernardino-Ontario area, where the median price tumbled 39.4% to $227,200; followed by the Sacramento-Arden-Arcade-Roseville area, where the price plunged 36.8% to $212,000; and the San Diego-Carlsbad-San Marcos area, where the price fell 36% to $377,300. The largest gain was in the Elmira, N.Y. area, where the median price jumped 12.5% to $105,000. Next was Decatur, Ill., where the median price jumped 8.7% to $93,400 (realtor.org Nov. 18) … * Declining home prices and historically low interest rates boosted housing affordability to the highest level in four years during the third quarter, according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Opportunity Index (HOI). According to the HOI, 56.1% of all new and existing homes that were sold during the third quarter were affordable to families earning the national median income of $61,500. That’s up from 55% in the second quarter and 40.4% in the third quarter of 2006, at the peak of the housing boom. “If there is a silver lining to this crisis, it would be that some housing markets have become more affordable with a larger inventory to choose from,” said NAHB Chairman Sandy Dunn. The two most affordable major housing markets were Indianapolis, Ind. and Youngstown, Ohio, where 91% of homes sold were affordable to families earning the areas’ median household incomes of $65,100 and $52,000, respectively (nahb.org Nov. 17) … * Builder confidence in the new single-family home market tumbled to a record low in November as the financial crisis deepened, job losses mounted, and consumer confidence faltered, according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI) released Tuesday. The HMI dropped 5 points to 9--the lowest level recorded since the index was launched in January 1985. “Today’s report shows that we are in a crisis situation,” said NAHB Chairman Sandy Dunn. “If there’s any hope of turning this economy around, Congress and the Administration need to focus on stabilizing housing,” added Dunn. Two of the three component indexes of the HMI fell in November. The index measuring current sales conditions dropped 6 points to a record-low 8, and the index gauging the traffic of prospective buyers dropped 4 points to a record-low 7. The index measuring sales expectations for the next six months held steady at a record low of 19 (nahb.org Nov. 18) … * Weak demand and the economic downturn dampened wholesale prices in October. The Producer Price Index (PPI) plunged 2.8% last month, the Labor Department reported Tuesday. The decline followed a 0.4% drop in September and a 0.9% decline in August. At earlier stages of processing, prices received by manufacturers of intermediate goods dropped 3.9% in October, while the crude goods index tumbled 18.6%. Among finished goods, prices for energy products dropped 12.8%, and the index for consumer foods edged down 0.2%. Excluding food and energy, the core PPI rose 0.4% for a second consecutive month. The overall PPI was up 5.2% year-over-year in October, compared with a 4.4% gain in the core PPI. Wholesale and consumer prices will continue to ease in coming months as the economy remains weak, giving the Federal Reserve room to keep interest rates low …

News of the Competition (11/17/2008)

 Permanent link
MADISON, Wis. (11/18/08)
* Goldman Sachs Group’s top seven executives have decided to give up their bonuses for 2008. The board approved their request on Sunday. They will only be eligible for their base salaries of $600,000 each. Goldman is among the nine initial companies receiving a combined $125 billion in government capital. “While the firm has distinguished itself through many aspects of the crisis, we cannot ignore the fact that we are part of an industry that is directly associated with the ongoing economic distress,” said a Goldman spokesman. Goldman CEO Lloyd Blankfein took home $68.5 million in cash and stock in 2007--record compensation for the head of a publicly-traded securities firm. Some analysts expect other financial firms to take the lead of Goldman, and also suspend bonus payments after receiving government funds. Critics say taxpayer funds shouldn’t be used to subsidize bonuses (The Wall Street Journal Online Nov. 17) … * The credit crunch is hitting some of the U.S. Federal Home Loan Banks, the cooperatives owned by more than 8,000 commercial banks, thrifts, credit unions and insurers. On Friday, the Federal Home Loan Bank of Atlanta reported a loss of $46.1 million for the third quarter, in part reflecting a reserve for a credit loss on money owed by a unit of Lehman Brothers Holdings, which filed for bankruptcy in September. The bank also reported an $87.3 million writedown on mortgage-backed securities. The Federal Home Loan Bank of Pittsburgh has exposure to Lehman as well. The bank said a Lehman unit owes it $41.5 million. The Federal Home Loan Bank of New York reported a $64.5 million provision related to possible losses on its derivative contracts with Lehman (The Wall Street Journal Online Nov. 17) … * Citigroup announced Monday that it plans to slash more than 50,000 jobs as it cuts costs during the credit crisis. The bank already has eliminated 23,000 positions over the last four quarters as it lost more than $20 billion. Citigroup’s shares have lost about 68% of their value so far this year. The Treasury Department has injected $25 billion into Citigroup as part of its rescue plan (CNNMoney.com Nov. 17) … * Troubled insurer Hartford Financial Services Group wants to transform itself into a savings and loan to obtain access to the Treasury Department’s capital-infusion plan. The company has agreed to spend $10 million to acquire Federal Trust Corp., a small Florida thrift, to realize that goal. Hartford estimates it will be eligible for a $1.1 billion to $3.4 billion investment from the Treasury if its application is approved (The Wall Street Journal Online Nov. 17) … * Webster Bank announced that it will place a 90-day moratorium on foreclosures and expand its loan-modification program. Eligible homeowners must occupy the home as their main residence, be working in good faith to stay current on their mortgage payments, and must offer evidence of income sufficient to meet affordable mortgage payments. The bank said it will consider temporarily lowering payments, reducing interest rates, and extending payment periods (American Banker Nov. 17) …

Market News (11/17/2008)

 Permanent link
MADISON, Wis. (11/18/08)
* Industrial production rebounded by 1.3% last month--reflecting a return to more typical output following hurricanes and a strike at Boeing the previous month, the Federal Reserve reported Monday (Associated Press via The New York Times Nov. 17). Production plunged by 3.7% in September--the largest monthly decline since February 1946. The Fed estimates that--excluding the impact of the Boeing strike and the hurricanes--production would have declined by 0.6% in both September and October. Manufacturing production will decline at a 7% annual rate in the current quarter--the worst quarterly performance since 1991, predicts Moody’s Economy.com (Nov. 17). The research firm noted that the Institute for Supply Management’s manufacturing index fell to its lowest level since 1982, and export orders dropped to a record low--showing that foreign demand is quickly weakening … * The U.S. has entered a recession that will continue into 2009, with the economy contracting by 0.2% after growing by just 0.2% this year, according to the median estimate of economists polled by the National Association for Business Economics (NABE). Most respondents say the U.K. euro zone, Japan, Canada, and Mexico also are currently in a recession, or soon will enter one. The U.S. unemployment rate is projected to increase to 7.5% by year-end 2009, from the current 6.5% rate. Auto sales are expected to drop 6.7% next year following a 17% plunge this year. Home prices are projected to decline another 3.5% next year following a 6% drop in 2008. “Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy,” said NABE President Chris Varvares (Bloomberg.com and CNNMoney.com Nov. 17) … * Cash-strapped cities are seeking funds from the Troubled Asset Relief Program (TARP) as revenues decline and city pension plans post steep losses. The mayors of Philadelphia, Phoenix and Atlanta asked the Treasury Department Friday to set aside $70 billion from the $700 billion TARP to help create jobs and stimulate local economies. They also asked for loans to cover borrowing and payroll costs. However, they aren’t likely to receive such funding, and other cities are asking instead for the government to fund local infrastructure projects. The U.S. Conference of Mayors has identified 4,591 infrastructure projects that its says will cost $24.4 billion and create more than 250,000 new jobs (The Wall Street Journal Online Nov. 17) … * The Group of 20 (G20) leaders from industrialized and developing countries meeting this weekend agreed on a broad outline to help the global economy recover from the financial crisis. The consensus calls for creating stricter standards for bank oversight, studying limits on banker compensation, and enacting further stimulus plans. “Economic momentum is slowing substantially in major economies,” said the G20 in a statement. The group also agreed to give emerging market economies a place on the Financial Stability Forum, and agreed for developing countries to have more seats at the International Monetary Fund and the World Bank (Reuters via The New York Times Nov. 17) … * Freddie Mac may post losses totaling $20 billion to $40 billion next year amid rising credit costs and writedowns on mortgage assets, according to Friedman Billings Ramsey Analyst Paul Miller. The losses will postpone any plans to spin the company back as a publicly traded one until 2010, said Miller. “Given the severity of the housing crisis and the ongoing turmoil in the mortgage market, we believe conservatorship will last beyond 2009, and that our price target accurately reflects little value in the common shares” (Reuters via The New York Times Nov. 17) …

News of the Competition (11/14/2008)

 Permanent link
MADISON, Wis. (11/17/08)
* Citigroup is eliminating at least 10,000 employees in its investment bank and other units worldwide and is boosting interest rates on millions of credit-card customers in a bid to return to profitability, say people familiar with the matter. Citigroup already has cut about 23,000 positions during the last four quarters. “We will continue to carefully manage our head count levels as we re-engineer the company in line with our stated goal and market realities,’ said Citi spokeswoman Christina Pretto. Citigroup, one of the largest credit-card issuers in the U.S., also is boosting interest rates for some customers by an average of three percentage points. American Express, another top issuer, recently boosted rates for some of its customers also, by an average of two to three percentage points (The Wall Street Journal Online Nov. 14) … * The Federal Reserve slowed the pace of commercial-paper purchases from U.S. corporations last week--boosting holdings by $13.9 billion, or 5.7%, to $258.5 billion. That followed a $98.9 billion increase the prior week. Direct loans to commercial banks declined to $99.2 billion from $108.6 billion, while borrowing by securities firms fell to $56.7 billion from $71.6 billion. However, total Fed lending still increased because outstanding loans to banks via the Term Auction Facility increased to $415.3 billion from $301.4 billion. The outstanding loan balance of troubled insurer American International Group stood at $83.6 billion as of Nov. 12, up from $81.2 billion the previous week (Bloomberg.com Nov. 13) … * Money market funds posted net inflows of $21.21 billion during the week ending Nov. 11, and the amount of money in funds rose to a record $3.54 trillion, according to iMoneyNet’s Money Fund Report. Taxable funds rose by $19.63 billion to a record-high $3.043 trillion. The Federal Reserve announced Monday that its program to help money market funds, scheduled to begin last week, will instead be enacted in two weeks. The Fed will finance as much as $540 billion of money market funds’ short-term debt (Dow Jones Newswires Nov. 14) … * Nowell, Mass.-based Wedding Payment Plan LLC is offering engaged couples loans up to $25,000 to pay for their wedding receptions. CEO Scott Almeida said he hopes to expand the program to four other states in New England within the next one or two years, and to eventually expand it nationwide. He said the loans have a big potential for “relationship-building.” Wedding Payment Plan partnered with HarborOne CU and East Cambridge Savings Bank, each of which has its own underwriting standards for the loans, which are marketed at about 70 hotels and country clubs that host wedding receptions (American Banker Nov. 14) …

Market News (11/14/2008)

 Permanent link
MADISON, Wis. (11/17/08)
* In a surprise move that breaks with the White House’s official stance, Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair on Friday announced a plan to have the government help delinquent homeowners. Under the proposal, housing payments would be lowered to 31% of a homeowner’s gross monthly income by setting mortgage rates as low as 3% for five years, before they increase at 1% per year until hitting the current market rate. Loan terms may be extended to as long as 40 years. Bair said the plan would help 1.5 million people avoid foreclosure. As incentives, the government would share up to 50% of losses if a borrower defaults after the loan modification, and servicers would be paid $1,000 for each modified loan. “It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures,” said the FDIC in a statement. The plan would cost an estimated $24.4 billion, which could come from the government’s $700 billion bailout plan (CNNMoney.com and Associated Press via Yahoo! News Nov. 14) … * Central banks worldwide are ready to do more to ease the credit crisis and buoy economic growth, said Federal Reserve Chairman Ben Bernanke (Reuters via Yahoo News Nov. 14). A “credit squeeze is … a principal cause of the economic slowdown taking place in many countries,” said Bernanke in a speech during a European Central Bank conference in Frankfurt. The economy of the euro zone fell into recession for the first time during the third quarter, the European Union’s statistics agency confirmed Friday (The New York Times Nov. 14). Gross domestic product fell 0.2% in the third quarter in both the euro zone and in the European Union. Many analysts predict a prolonged downturn in global economies. “Historically, recessions preceded by episodes of banking-related financial stress have tended to be more profound and long lasting,” said ING Economist Martin van Vliet. Still, he predicts that central banks’ steep interest rates cuts and capital injections into banks will “pave the way for a gradual recovery in the second half of next year” … * U.S. retail sales tumbled a record 2.8% in October as sales of vehicles and gasoline plunged, the Commerce Department reported Friday. Declining gasoline prices accounted for almost half the drop in retail sales for the month. Drug stores and restaurants were the only major categories to post gains in October. The overall sales decline followed a 1.3% drop in September and a 0.7% dip in August. Retail sales were down 4.1% year-over-year in October. Sales will remain weak as job losses continue to mount, and consumer confidence erodes. Lower gasoline prices are a bright spot in the otherwise bleak picture for the economy (MarketWatch and Economy.com Nov. 14) … * Consumer confidence rebounded modestly in November from a record decline the previous month as falling gasoline prices reversed inflation expectations. The Reuters/ University of Michigan Surveys of Consumers said its index inched up to 57.9 from 57.6 in October. Still, the index remains below the lowest levels seen during the past two recessions. “Lower gas prices and sizable discounts at retailers helped to slightly improve consumers’ assessments of current economic conditions, while higher unemployment and a deepening recession dimmed their expectations for future gains,” said the survey report. Consumers’ one-year inflation expectations plunged to 2.9%--from 3.9% in October and the lowest level since December 2006. “Unfortunately, lower inflation was viewed as a consequence of a weakening economy,” said the report. A record 97% of respondents said the economy is in recession (Reuters via Yahoo! News Nov. 14) … * Long-term mortgage rates declined for a second consecutive week, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) fell 6 basis points to 6.14%, while the 15-year FRM dropped 7 basis points to 5.81%. The one-year, adjustable-rate mortgage (ARM) rose 8 basis points to 5.33%. “Long-term mortgage rates fell slightly this week as signs the overall economy is weakening brought interest rates down market-wide,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “In addition, the actions of the Fed in recent weeks to assist commercial paper markets appear to be thawing part of the credit freeze that has gripped capital markets in the U.S., giving banks some breathing room,” added Nothaft. Mortgage rates remain slightly lower than a year ago. The 30-year FRM averaged 6.24% at this time last year, while the 15-year FRM was at 5.88%, and the one-year ARM stood at 5.50%. For CUNA's Daily Financial Rates, use the link … * Rates on most types of credit cards edged up last week, according to CreditCards.com. Annual percentage rates (APRs) on business, instant approval, airline, balance transfer, low interest, cash back, and rewards cards all increased. Rates on subprime cards were unchanged at an average 10.82%, while rates on student cards fell to 13.9% from 14.02%. Most of the rate increases reflected sharp increases on select American Express cards--which outweighed some lower APRs by other top card issuers, said Ben Woolsey, spokesman for CreditCards.com (Associated Press via Yahoo! News Nov. 14) …

News of the Competition (11/13/2008)

 Permanent link
MADISON, Wis. (11/14/08)
* The financial sector’s losses from the credit crisis since the beginning of 2007 total $918 billion, according to statistics compiled by Bloomberg News. The International Monetary Fund in October boosted its estimate of the financial sector’s total losses to $1,400 billion, from $945 billion in April. Analysts say losses from mortgage-backed and other securities will further pressure financial firms in the U.S. and Europe to raise capital, even as the capital markets remain mostly frozen (FT.com Nov. 13) … * Credit-card chargeoffs declined in September--the first drop since June 2007, according to a Standard & Poor’s report. The chargeoff rate dropped 20 basis points to 6.3%. However, the balance percentage paid by cardholders declined an average 60 basis points to 18.3%, while the 30-day delinquency rate increased to 4.7%, and the 60-day delinquency rate rose to 3.3% (Dow Jones Newswires Nov. 13) … * Morgan Stanley plans to lay off 10% of its institutional securities employees--about 2,000--said Chief Financial Officer Colm Kelleher. The company already has eliminated about 10% of its overall workforce-- about 4,500 employees--this year. Morgan Stanley, which became a bank holding company in September, also is launching new bank products and business lines, said Kelleher (Dow Jones Newswires via The Wall Street Journal Online Nov. 13) … * New York Attorney General Andrew Cuomo has subpoenaed Bank of America for a list of every executive who received a bonus of more than $250,000 during the last two years. The subpoena is part of Cuomo’s investigation of whether banks receiving federal bailout funds are using the money to fund bonuses. His office sent the subpoena after a letter seeking similar information failed to obtain the data, said a personal familiar with the investigation (Associated Press via msn.com Nov. 13) … * Zurich-based UBS AG confirmed late Wednesday that Raoul Weil, head of the company’s private bank, will step down from his duties while he faces an indictment by a U.S. federal grand jury related to an investigation of alleged tax evasion. “Mr. Weil denies any suggestion that he was aware of, engaged in or tolerated any illegal conduct in the operation of UBS’ U.S. cross-border business,” said Weil’s Attorney, Aaron Marcu. In July, UBS Executive Mark Branson testified before the U.S. Senate about how banks allegedly helped wealthy U.S. citizens hide assets. UBS’ offshore business has been shut down since then (Dow Jones Newswires Nov. 13) …

Market News (11/13/2008)

 Permanent link
MADISON, Wis. (11/14/08)
* Foreclosure filings jumped 25% from a year earlier to 279,561 in October, according to a report by RealtyTrac. Filings--including default notices, auction-sale notices, and bank repossessions--increased 5% from September. One in every 452 households received a foreclosure filing during the month. “October marks the 34th consecutive month where U.S. foreclosure activity has increased compared to the prior year,” said RealtyTrac CEO James Saccacio. A total of 936,439 homes have been lost to foreclosure since the housing crisis began in August 2007. Some states have enacted legislation to encourage mortgage modifications or freeze foreclosures. “The really sobering reality for us is that despite these various state programs that are artificially keeping the numbers down, we still are up 25% from a year ago,” noted RealtyTrac Senior Vice President Rick Sharga (Reuters and CNNMoney.com Nov. 13) … * The states that led the housing boom had the highest foreclosures in October, according to the RealtyTrac report. California still had the highest number of foreclosures in the nation--at 56,954--despite enacting a law that requires banks to contract homeowners 30 days before delivering a default notice. Nevada had the highest foreclosure rate in the nation for a 22nd consecutive month--with 14,483 households--or one in every 74--receiving a foreclosure filing during the month. Arizona followed, with one in every 149 households in default. Florida ranked third, with one in every 157 households in default. The government announced a plan Tuesday that could permanently lower the number of foreclosures nationwide, noted Rick Sharga, senior vice president at RealtyTrac. Under that plan, homeowners facing foreclosure who are spending more than 38% of their income on mortgage payments could have their payments lowered by Fannie Mae and Freddie Mac. However, Sharga doesn’t expect that plan to have a big impact on foreclosures until late in the third quarter of 2009 (Reuters and CNNMoney.com Nov. 13) … * Mortgage activity rebounded last week as rates declined, the Mortgage Bankers Association reported Thursday (mbaa.org Nov. 13). The trade group’s Market Composite Index rose 11.9% during the week ending Nov. 7 to 425. The Refinance Index jumped 16.1% to 1248.4, while the Purchase Index rose 9% to 284.4. The average 30-year, fixed-rate mortgage (FRM) declined 23 basis points to 6.24% last week, while the one-year, adjustable-rate mortgage (ARM) dropped 9 basis points to 6.77%. The decline in mortgage rates helped propel refinancings--which made up 45.1% of all applications last week, up from 42.9% the previous week, noted Moody’s Economy.com (Nov. 13). However, the research firm predicts that home sales will continue to decline until the second quarter of 2008, while home prices will continue falling into the second quarter of 2010--suggesting no upcoming rebound in mortgage applications … * The job market weakened further last week, according to a Labor Department report. First-time claims for unemployment benefits jumped by 32,000 during the week ending Nov. 8 to 516,000--the highest level since September 2001. The four-week moving average, which smoothes out weekly volatility, rose by 13,250 to 491,000--the highest level since March 1991. In another bleak sign, continuing claims--the number of people still on the benefit rolls after an initial week of aid--jumped by 65,000 during the week ended Nov. 1 to 3.89 million--the highest level since 1983. People are having a tough time finding new jobs as employers pessimistic about the economy continue to curb hiring (MarketWatch and Economy.com Nov. 13) … * The U.S. economy will decline by 0.9% in 2009 after 1.4% growth this year, the Organization for Economic Cooperation and Development (OECD) predicted Thursday. The OECD lowered its forecast for U.S. and global economic growth for the second time this year. The group expects the economy of the OECD’s 30 members to contract 0.3% in 2009 after expanding by 1.4% this year. “The OECD as a whole is currently in recession,” said Jorgen Elmeskov, director of policy studies at the OECD. He predicted that the global economy will begin recovering during the second half of 2009. “The important thing in the current situation is to do something that is effective in stimulating demand,” said Elmeskov. He noted that reducing taxes for households will help stimulate consumer spending (Bloomberg.com Nov. 13) … * The nation’s trade deficit declined by 4.4% to $56.5 billion in September--the smallest deficit since October 2007--as crude-oil prices fell, the Commerce Department reported Thursday. The price for imported crude oil plunged by a record $12.41 a barrel during the month. Overall demand for imported goods also declined, reflecting the slowdown in economic growth in the U.S. Still, the trade deficit is running at an annual rate of $712.7 billion for far this year--up from last year’s deficit of $700.3 billion (Associated Press via Yahoo! News Nov. 13) …

Market News (11/12/2008)

 Permanent link
MADISON, Wis. (11/13/08)
* The U.S. downturn will be the longest in three decades and the slump in consumer spending will be the worst on record, according to a survey of economists by Bloomberg News (Nov. 12). The government reported Oct. 30 that the economy declined at a 0.3% annual rate during the third quarter. The survey’s median forecast calls for the economy to decline at a 3% annual rate in the fourth quarter and a 1.5% pace in the first quarter. Those three consecutive declines would be the longest since 1974-75. After falling at a 3.1% rate in the third quarter, consumer spending is projected to fall at a 2.9% pace during the current quarter and a 1.3% rate during the first quarter as the credit crunch chokes confidence and hiring. That would be the first time in the postwar era that consumer spending has fallen for three consecutive quarters. The nation’s unemployment rate is expected to rise to 7.7% by year-end 2009--from the current 6.5% rate and the highest level since 1992. The economic slump will be good news for inflation, at least. Consumer prices are projected to increase just 1.8% in 2008--the smallest increase since the recession of 2001 … * Treasury Secretary Henry Paulson announced Wednesday that the government won’t purchase assets, as originally planned, but will instead buy stock in banks and infuse money into other financial institutions (The New York Times Nov. 12). The Dow Jones Industrial Average fell more than 200 points in early afternoon trading following the announcement. In other news, the Treasury Department is considering requiring companies that seek future government funds to raise private capital to qualify for the assistance, say people familiar with the matter. (The Wall Street Journal Online Nov. 12). The requirement wouldn’t apply to the current $250 billion capital-infusion plan. “This idea has the great virtue of incorporating private-sector judgment on the viability and management of these financial firms,” said Douglas Elmendorf, a senior fellow at the Brookings Institution. Bank regulators also may announce new guidelines that would encourage lenders to extend credit … * Credit-card losses will hit new highs in 2009 as unemployment increases, energy prices remain volatile, and consumers have fewer refinancing options, Fitch Ratings reported Tuesday. Credit-card losses rose to a range of 5% to 7% this year as the economy weakened. “Fitch expects credit metrics will continue to deteriorate in fourth-quarter 2008 and into 2009, with some issuers surpassing historical loss peaks before 2009 is over,” said the ratings agency. “Declines in profitability which are not offset by enhanced liquidity and capitalization could prompt negative rating actions,” warned Fitch (Reuters via The New York Times Nov. 12) … * Home values declined for a seventh consecutive quarter--and almost one-third of homeowners who sold their homes during the past year lost money, according to a report by Zillow.com. Home values tumbled 9.7% year-over-year in the third quarter following an 8.8% year-over-year drop in the second quarter. Over the past year, 30.2% of homes sold were sold at a loss--up from 23.7% in the second quarter. An estimated 14.3% of homeowners nationwide had negative equity--or owed more on their mortgage than their home was worth. Almost one-third of homeowners who purchased their home within the past five years had negative equity. Home values will continue to decline at least until mid-2009, said Stan Humphries, vice president of data and analytics at Zillow (Reuters via The New York Times Nov. 12) … * The residential remodeling market stalled during the third quarter as the economic slump deepened, according to a report by the National Association of Home Builders. NAHB’s Remodeling Market Index fell to a record-low 33.5--from 41.8 in the second quarter. Future expectations dropped to 27.7, from 38--also a record low. “The remodeling market declines follow the pattern of the home building slowdown to a lesser degree,” said David Seiders, chief economist at the trade association. NAHB also noted that homebuilders are taking on more remodeling work, creating a more competitive marketplace (mbaa.org Nov. 12) … * Global oil demand will increase an average 1.6% per year between 2006 and 2030--with the cost of crude oil hitting $200 a barrel by 2030, the International Energy Agency said Wednesday. The agency said China and India will continue to be the main drivers of energy demand, and massive investments in energy infrastructure will be needed to avoid a supply squeeze. “The era of cheap oil is over,” said Nobuo Tanaka, executive director at the agency (Associated Press via CNNMoney.com Nov. 12) …

News of the Competition (11/12/2008)

 Permanent link
MADSION, Wis. (11/13/08)
* The well-established consumer shift away from credit cards and toward debit and prepaid cards in the electronic-payments industry likely will continue in today’s tough economic times, according to Mercator Advisory Group. However, with the rapidly changing financial landscape, other changes are imminent, Mercator said. Some of the most noteworthy could be banks re-evaluating their ATM strategies, and the surfacing of merchant-funded discount networks that retailers believe could help them retain customers and credit-card issuers hope would get customers to increase spending on their cards. If large financial institutions develop such networks with big merchants, smaller financial institutions likely will attempt to compete by increasing rewards on both credit and debit cards--and even attaching rewards onto prepaid cards, Mercator said. However, the possibility of credit-card issuers implementing new transaction-generating perks with merchants likely won’t change the trend of consumers putting more transactions onto debit cards--a trend made evident in recent MasterCard Inc. and Visa Inc. operating data, Mercator added (Digital Transaction News Nov. 10) … * One of the biggest specialists in “option” adjustable mortgages (ARMs)--Downey Financial Corp.--said Monday its survival is tenuous because it could fail to raise enough capital to satisfy its regulators. Option ARMs allow borrowers to pay less than the interest and principal due each month. The loans are considered among the most risky offered during the past housing boom--leaving many borrowers owing more than their homes are worth, analysts said. Downey stated in a quarterly report submitted to the U.S. Securities and Exchange Commission that there is “substantial doubt” about its ability and that of its banking unit “to continue as going concerns for a reasonable period of time.” On Sept. 5, Downey agreed with the Office of Thrift Supervision to raise new capital by year-end and to come up with an alternative strategy to ensure it would operate safely if it failed to raise enough new capital. Although Downey sold some real estate assets to enhance its capital, it added that “in the current economic environment, there was a significant risk” that not enough capital will be raised by year-end (Reuters Nov. 10) … * The Housing and Economic Recovery Act of 2008--which gives first-time homebuyers tax credits up to $7,500 for buying a home between April 8, 2008,and July 1 2009--hasn’t resulted in prompting enough people to buy homes and reduce excessive inventory on the market, analysts said. The credit’s repayment requirement is a sticking point, buyers said. The credit has to be repaid over a 15-year period, beginning on a buyer’s 2010 tax return--making it essentially an interest-free loan, analysts said. Even though the credit is a clear benefit in economists’ estimations, homebuyers don’t see it that way, said Lawrence Yun, chief economist for the National Association of Realtors (NAR). To attract more first-time buyers, NAR is lobbying lawmakers to adjust the tax credit by removing the repayment aspect. NAR also wants to expand the program to make all homebuyers eligible--not just those who haven’t owned a home for the past few years. The National Association of Home Builders (NAHB) wants to up the ante even more by giving home buyers a 10% credit up to $22,000, depending on the loan limit in the market, set by the Federal Housing Administration, according to an NAHB news release (Alibaba.com Nov. 12) … * After a report indicated that United Kingdom (U.K.) lending rates charged to bank and credit card customers rose, even though the U.K central bank lowered them, Prime Minster Gordon Brown put pressure on bank officials and credit card lenders to lower borrowing costs. A study of 240 credit cards said the average interest rate rose 0.4% between May and November--with some lenders increasing their rate to 16.9% from 13.9%--according to research group Defaqto Media Ltd. “We’ve got to bring the credit card industry in, to join with them and talk to them,” Brown said Tuesday at a London press conference. “This new responsible approach to lending that I think the credit-card industry wants to support will help households” (Bloomberg.com Nov. 11) …

Market News (11/11/2008)

 Permanent link
MADISON, Wis. (11/12/08)
* Almost 90% of homeowners in Mountain House, Calif. are “underwater,” on their mortgages--meaning they owe more on their mortgage than their home is worth--the highest percentage in the nation, according to First American CoreLogic. The real-estate firm estimates that 7.6 million homes in the U.S. were underwater at the end of the third quarter, and another 2.1 million homes were almost underwater. That represents nearly one-fourth of all homes with mortgages. The 20 ZIP codes that are furthest underwater are in California, Florida, Nevada and Arizona. In Mountain House, the average homeowner is underwater by $122,000. The first homes in that town were sold in 2003, when the housing boom was really taking off. Now house values have declined, and some homeowners are walking away from their homes. Banks took control of 101 properties in the Mountain House area during the third quarter, according to DataQuick Information Systems (The New York Times Nov. 11) … * Most consumers say the economy is in poor shape and becoming weaker, according to a survey by Discover Financial Services. The Discover U.S. Spending Monitor dropped a record 6 points to 80.4 in October, as consumers’ confidence in the economy hit record lows and views of personal finances deteriorated. In the poll, 63% of respondents said the economy is poor, and 72% said conditions are deteriorating. In comparison, only 19% gave the economy a poor rating a year ago, while just 52% said conditions are deteriorating. A record-low 60% of consumers now rate their own finances as fair or poor, and 56% said their finances are getting worse. In addition, 66% said their October spending is the same or less than in September, up from 54% a year earlier. “All the negative news about bank rescues, job reductions, mortgage foreclosures and stock market volatility are giving consumers no reason to abandon the caution they’ve employed in terms of their spending,” noted Margo Georgiadis, executive vice president and chief marketing officer at Discover Financial Services (BUSINESS WIRE via Yahoo! News Nov. 10) … * Consumers concerned with mounting job losses and eroding retirement funds kept their wallets shut in early November (Associated Press via Yahoo! News Nov. 11). Chain-store sales declined 1% during the week ending Nov. 8, according to the International Council of Shopping Centers (ICSC). “A confluence of factors will hold back November 2008 year-over-year sales growth including strong demand in November 2007 and fewer post-Thanksgiving days in this year’s shopping period,” said ICSC Chief Economist Michael Niemira. Sales have shown little response to the recent plunge in gasoline prices because households face many other restraints, said Moody’s Economy.com (Nov. 11). These constraints include rising unemployment, slower wage growth, falling home prices, soaring food prices, and heavy debt loads … * Global business confidence dropped to a new record low during the first week of November--indicating that the global economy is now in recession, according to the latest Moody’s Economy.com Survey of Business Confidence. Sales strength, hiring plans, and investment in inventory and equipment all have turned negative, and the weakening economy has eroded pricing pressures. The net percentage of respondents who say they are increasing prices is now about 20%, compared with a high of almost 50% this summer. Almost all respondents say business conditions won’t be better six months from now … * Toll Brothers Inc., the nation’s largest luxury-home builder, announced Tuesday that its revenue tumbled 41% in its fiscal fourth quarter as the financial crunch exacerbated housing-market weakness. Home-building revenue fell to $691 million from $1.17 billion. Net signed contracts dropped 27% to $266.7 million. “Unfortunately, the preliminary signs of stability we had discussed in early September were upended by the past month’s financial crisis,” said CEO Robert Toll. He noted that the crisis pushed homebuyer confidence and demand to record lows (Associated Press and Reuters via The New York Times Nov. 11) … * Credit-card companies are on track to send 1 billion fewer unsolicited mail offers to consumers by the end of this year, according to Synovate Mail Monitor. Firms sent 5.2 million offers in 2007. Home-equity mailings plunged 66% to 72.9 million in the third quarter, compared with a year earlier, according to Mintel Comperemedia. Mortgage mailings tumbled 44% to 182.4 million (washingtonpost.com Nov. 10) …

News of the Competition (11/11/2008)

 Permanent link
MADISON, Wis. (11/12/08)
* The Federal Reserve gave approval Monday to American Express Co. to become a bank holding company--a structure that is similar to most commercial banks. The change in status permits the credit card company to have permanent access to Fed financing and to create a big deposit base, analysts said. With the change, American Express also is allowed to take part in recent government-initiated programs aimed at reducing turmoil in global credit markets. The programs include the Treasury Department’s program to directly invest in banks. American Express’ third-quarter profit dropped 24% because cardholders are reducing their expenditures and because a growing number of customers fell behind in paying off their card balances, analysts said. Now American Express will be able to more easily roll over maturing debt in future quarters, since it will have access to cheaper funding derived from federal programs, said Scott Valentin, analyst for Friedman, Billings, Ramsey & Co. American Express joins investment banks Morgan Stanley and Goldman Sachs Inc. in becoming bank holding companies (Associated Press Nov. 1) ... * Visa Inc., in conjunction with the Los Angeles transit authority, is developing payWave-enabled contactless cards that will allow bus, train and subway riders to pay for fares. The initiative employs technology based on a chip embedded in a payment card that communicates with contactless card readers. When a consumer purchases a ticket with the card, it is processed through VisaNet--Visa’s global processing network. By attaching a unique code to each transaction, payWave technology provides added security, Visa said. Visa also is working with the Los Angeles Metro system to offer special Visa payWave cards that also incorporate the transit system’s “TAP” fare application. The prepaid dual-use cards allow riders to pay for fares and purchase fare products through their Visa accounts, while also allowing cardholders to purchase items anywhere that Visa is accepted. The cards will be sold through automated ReadySTATION kiosks within the Los Angeles Metro system, and will be immediately ready for use with transit fares and Visa purchases. Riders can add up to $500 in value on the cards at the kiosks (ATMmarketplace.com Nov. 4) … * The biggest portion of Fannie Mae’s workouts last quarter were completed through the HomeSaver Advance program--in which a servicer makes a personal loan to a homeowner, then sells the loan to Fannie and brings the mortgage current. The advances --average loans are roughly $6,700--far surpassed all other types of workouts, including modifications of mortgage terms, analysts said. These unsecured bridge loans are designed to help delinquent homeowners avoid foreclosure. Fannie provided roughly 27,000 unsecured advances last quarter through its servicers, compared with about 16,000 in the second quarter, according to the government-sponsored enterprise. The extension of copious short-term credit is a stopgap procedure, and what will come next for Fannie is an open question, analysts said (American Banker Nov. 11) … * Citigroup will place a moratorium on most foreclosures as part of a group of initiatives geared to help at-risk borrowers remain in their homes. The move makes Citi the most recent large bank to announce major efforts to attempt to mitigate losses from bad mortgages. Citi said it won’t initiate a foreclosure or complete a foreclosure sale on any eligible borrowers who want to stay in their homes if it is their principal residence, the homeowners are dealing in good faith with Citi, and the borrowers have enough income to make affordable mortgage payments. The bank said it also is attempting to enlarge the program to include mortgages that Citi services but does not own. Also, during the next six months, Citi plans to help out 500,000 homeowners who are behind on their mortgage payments, and who are in potential need of assistance to keep their payments current. This would represent roughly one-third of all mortgages the bank owns, Citi said. A cadre of 600 salespeople will assist targeted homeowners, Citi said, by adjusting their rates, and reducing principal or increasing the term of their loan--a process known as a workout (The New York Times Nov. 11) … * American International Group (AIG), the world’s largest insurance company, lost nearly $25 billion in the third quarter and has secured a new $150 billion government assistance package intended to help fix the problems caused by complex financial contracts, the company said Monday. A major element of the new package involves removing the worst assets of the company to stem the collateral calls that have been depleting AIG’s cash. The process should allow AIG’s trading partners in these financial contracts to recoup most of their losses, analysts said. AIG reported $38 billion in losses this year--which negated the company’s total reported earnings for the preceding three years (The New York Times Nov. 1) …

News of the Competition (11/10/2008)

 Permanent link
MADISON, Wis. (11/11/08)
* Struggling insurer American International Group (AIG), which reported a $24.5 billion loss for the third quarter, received an expanded government bailout on Monday. The Federal Reserve announced that it will lower AIG’s original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points, and lengthen the borrowing period to five years from two years. The Treasury Department also will use its authority under the Troubled Asset Relief Program to buy $40 billion in preferred stock. In addition, the Fed is creating a new program that will buy up to $22.5 billion of AIG’s mortgage-backed securities and will post $30 billion to backstop its credit-default swap agreements. “This action was necessary to maintain the stability of our financial system,” said Neel Kashkari, head of the Treasury’s bailout operation. “We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures,” added Kashkari (CNNMoney.com and AFP via Yahoo! News Nov. 10) … * Regulators seized two banks late Friday--boosting the number of bank failures this year to 19 (The Wall Street Journal Online Nov. 10). The $3.7 billion of deposits held by Houston-based Franklin Bank will be assumed by Prosperity Bank of El Campo, Texas, and the $450 million of deposits in Security Pacific Bank of Los Angeles will be assumed by Los Angeles-based Pacific Western Bank. The largest bank failure this year was the Sept. 25 failure of Washington Mutual, a Seattle-based thrift. In other news, the Federal Reserve has issued a cease-and-desist order to CapitalSouth Bancorp of Birmingham, Ala., requiring the firm to strengthen its board, improve credit oversight, and hire an independent consultant to evaluate management (American Banker Nov. 10). CapitalSouth posted a $5.3 million loss for the third quarter and a $16 million loss for the second quarter … * Fannie Mae on Monday reported a record $29 billion loss for the third quarter--its fifth consecutive loss. Fannie’s credit expenses jumped to $9.2 billion during the quarter. The company warned that the worst housing crisis since the Great Depression could destroy its net worth by the end of the year. Fannie Mae and Freddie Mac both are operating under a conservatorship that allows the federal government to inject up to $100 billion in each company. The two firms are facing an investigation into their accounting practices by a federal grand jury (Reuters and Associated Press via Yahoo! News Nov. 10) … * The U.S. government has obtained the names of about 70 American clients of Zurich-based UBS AG from Swiss authorities, as part of an investigation into the use of foreign banks to evade taxes. Investigators also have obtained the names of about 30 U.S. holders of undeclared UBS accounts from other parties. In June, former UBS Banker Bradley Birkenfeld pleaded guilty to helping a California real estate developer evade millions of dollars in taxes. The client, Igor Olenicoff, pleaded guilty to one count of filing a false tax return. The 70 names UBS has provided are far from a complete disclosure. UBS told Senate investigators in July that about 19,000 Americans hold undeclared accounts with the bank in Switzerland (washingtonpost.com Nov. 10) …

Market News (11/10/2008)

 Permanent link
MADISON, Wis. (11/11/08)
* Pending home sales declined in September following a robust gain the previous month, the National Association of Realtors (NAR) reported Friday. The Pending Home Sales Index fell 4.6% to 89.2, from 93.5% in August. However, the index was up 1.6% from 87.8 a year earlier. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” said NAR Chief Economist Lawrence Yun. The trade group expects new-home sales to total 487,000 this year and 413,000 in 2008 before rebounding to 520,000 in 2010. Existing-home sales are expected to total 5.02 million this year, increasing to 5.32 million next year and 5.62 million in 2010. “Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced,” said Yun … * Most people who are “underwater” on their mortgages--meaning they owe more than their home is now worth--won’t default on their mortgages, according to a study by the Boston Federal Reserve Bank. In an analysis of more than 100,000 homeowners who were underwater on their mortgages in Massachusetts during 1991, the study found that only 6.4% lost their homes to foreclosure during the following three years. Homeowners lost their homes only after their home values declined and they couldn’t afford monthly payments or they lost hope that home values would rebound and stopping paying their mortgages. The study predicts that a larger 8% of underwater homeowners will lose their homes between now and 2010 because more homeowners went beyond their means to purchase homes in the recent housing boom (The Wall Street Journal Online Nov. 7) … * Global stock markets rallied Monday after China announced a $586 billion stimulus package designed to counter a slowdown in its export-driven economy. The stimulus package includes an easing of credit restrictions, tax cuts, a huge infrastructure-spending plan, and increased aid to poor people and farmers. Chinese economic growth declined to a five-year low of 9% in its latest quarter as export growth slowed. Analysts hope China’s huge stimulus will contribute to global stability. China is the world’s fourth-largest economy (CNNMoney.com and Associated Press via The New York Times Nov. 10) … * Circuit City Stores, the second-largest electronic retailer in the U.S., filed for bankruptcy protection on Monday. The Richmond, Va.-based company will continue operations while it develops a reorganization plan. An erosion of vendor confidence, declining liquidity, and the global economic crisis prompted the bankruptcy, said Chief Financial Officer Bruce Besanko in court documents. Circuit City is eliminating about 7,300 employees, or 17% of its domestic workforce. The firm has lined up $1.1 billion in loans to give it working capital while in bankruptcy protection (Associated Press via The New York Times Nov. 10) … * German mail company Deutsche Post AG announced Monday that it plans to cut 9,500 jobs at its DHL unit in the U.S. and eliminate U.S.-only domestic express shipping by land and air. The firm blamed stiff competition and large losses for its decision to cut the jobs, which are on top of 4,500 job cuts already announced. In May, DHL announced a deal with Atlanta-based UPS in which UPS would carry some air packages for DHL. The company has failed to gain significant share in a market dominated by UPS and Federal Express. “We think the unfolding U.S. recession dramatically extended DHL USA’s timeframe for potential break-even and increased the financial pain that would have to be absorbed until then,” said UBS Analyst Rick Paterson (Associated Press and Reuters via Yahoo! News Nov. 10) … * Only one month into the new fiscal year, the financial bailout has boosted the federal budget deficit to $232 billion, the Congressional Budget Office estimates. Corporate tax receipts declined by $5 billion in October. Economists say the deficit will soar to a record high this year as the recession deepens (Associated Press via Yahoo! News Nov. 10) …

News of the Competition (11/07/2008)

 Permanent link
MADISON, Wis. (11/10/08)
* Auto- and home-lender GMAC LLC could leave thousands of people holding a total of $15 billion worth of junk-related debt unless the firm’s financial status improves. GMAC issued more than $25 billion of securities called SmartNotes to retail investors over the past 10 years. Those due in July 2020 have lost about two-thirds of their value as the automaker’s profits plunged. Soaring home foreclosures and slumping auto sales have pushed GMAC’s losses since the middle of last year to $7.9 billion. Small investors--many of them retirees--were told by their brokers that the securities were safe. The securities were rated investment grade just a few years ago, when GMAC was still a wholly-owned unit of General Motors. GMAC’s debt was cut to junk by 2005, but the firm continued offering SmartNotes through last year. “You’re selling [SmartNotes] to the widows and orphans who think of GMAC as being this strong, long-standing corporation when the reality is far from that,” said Sean Egan, president of Egan-Jones Ratings Co. (Bloomberg.com Nov. 7) … * Hedge-fund selling contributed to a stock-market plunge of almost 10% in a two-day period last week. The Dow Jones Industrial Average tumbled 929.49 points on Wednesday and Thursday--the largest two-day decline since Oct. 20, 1987. Hedge funds are selling billions of dollars of stocks to meet the cash demands of their investors and lenders. In one instance, several large banks asked Citadel Investment Group to post more collateral to cover huge losses on its investments, say people familiar with the matter. And large institutional investors, which dived into hedge funds in recent years, are now fleeing them in droves--exacerbating the downward spiral in stocks. In one example, investors in Highbridge Capital Management--one of the nation’s biggest hedge funds--have asked for 15% of their money back. Some investors are bailing out because hedge funds have declined 20% this year. Still, that’s better than the 34% plunge in the Standard & Poor’s 500 (The Wall Street Journal Online Nov. 7) … * In its ongoing effort to ease the credit crisis, the Federal Reserve pumped another $100 billion into the Commercial Paper Funding Facility last week. The new facility, launched by the central bank Oct. 20, has helped lower rates on commercial paper, which businesses use for short-term financing. In another program, the Fed reported that commercial banks borrowed an average $110 billion a day last week--down 1.7% from the previous week. Investment banks borrowed an average $77 billion a day--down 11.9%. Analysts say investment banks are borrowing less from the discount window because of the Fed’s new Commercial Paper Funding Facility and the Treasury Department’s $250 billion capital infusion program. The central bank also reported last week that American International Group--the world’s largest insurer-- paid back $2.3 billion of its emergency loan from the Fed. The struggling insurer still owes $81.2 billion (CNNMoney.com Nov. 7) … * Goldman Sachs and Citigroup started eliminating employees last week as part of their efforts to slash more than 12,000 jobs, say people familiar with the situation. Goldman, which converted from the largest U.S. securities firm to a commercial bank last month, started informing about 3,200 employees, 10% of its workforce, that they would be laid off. Citigroup began notifying employees affected by its plan to cut 9,100 jobs, or 2.6% of its workforce. Banks and securities firms worldwide already have slashed about 150,000 jobs since the credit crisis began. Top executives at Wall Street firms also are seeing steep cuts in their bonus pay amid declining revenue and increased political pressure. The most senior executives will have their bonuses cut by as much as 70%, according to a report by Johnson Associates (Bloomberg.com Nov. 7) …

Market News (11/07/2008)

 Permanent link
MADISON, Wis. (11/10/08)
* Nonfarm employment plunged by 240,000 in October--the 10th consecutive decline, the Labor Department reported Friday. Employment has tumbled by 1.2 million during the first 10 months of this year, with more than half of that decline occurring in the past three months. The data suggest a deep recession. The unemployment rate jumped to 6.5% last month--up sharply from 6.1% in September and the highest level since early 1994. The number of unemployed people surged by 603,000 to 10.2 million in October. The number of unemployed would be even higher except that many people who wanted full-time work gave up looking and accepted part-time jobs. The number of people who worked part-time for economic reasons--involuntary part-time workers--surged by 645,000 to 6.7 million in October. That number, which also includes workers whose hours have been cut back, has surged by 2.3 million over the past 12 months. The number of long-term unemployed--those jobless for 27 weeks or longer--jumped by 249,000 to 2.3 million in October--accounting for 22.3% of total unemployment … * Job losses continued in manufacturing, construction, and some service-providing sectors last month, while health care and mining continued to expand employment, according to the Labor Department report. Manufacturing employment fell by 90,000, with almost one-third of that decline reflecting a strike in the transportation-equipment industry. Construction employment dropped by 49,000 last month. Employment in that sector has tumbled by 663,000 since peaking in September 2006. Within the service sector, the employment-services industry lost 51,000 jobs, while retail-trade employment fell by 38,000. Employment in financial activities fell by 24,000 in October and has plunged by 200,000 since peaking in December 2006. Health-care employment rose by 26,000 and has grown by 348,000 over the past year. The mining sector added 7,000 jobs and has expanded by 246,000 since hitting a low in April 2003 … * State unemployment insurance trust funds are quickly running out of cash as job losses soar. The number of people collecting state jobless benefits hit a 25-year high of 3.84 million during the week ending Oct. 25, the Labor Department reported Thursday. The trust funds of five states are insolvent--with reserves of three months or less--and another eight states have funds that are almost insolvent, according to the National Employment Law Project. State officials face raising employer taxes, cutting benefits, or borrowing more from the federal government to meet claims. “Some states didn’t have adequate reserves built up,” noted Andrew Stettner, deputy director of the National Employment Law Project. “They are having significant problems paying out the increased number of benefits” (CNNMoney.com Nov. 7) … * Ford Motor Co. reported a $3 billion operating loss for the third quarter on Friday and said it will cut another 2,600 hourly employees through a voluntary buyout program (CNNMoney.com Nov. 7). The automaker also said it will slash salaried employment costs 10% by eliminating merit pay, bonuses, and matching contributions to white-collar workers’ retirement plans. Ford plans to cut production in the fourth quarter by an additional 40,000 from its previously-announced goals. In other news, General Motors said it lost $2.5 billion in the third quarter and cautioned that it could run out of cash next year (Associated Press via Yahoo! News Nov. 7). GM also said it has suspended negotiations to acquire Chrysler. The company said a severe sales slump accelerated its cash burn to $6.9 billion … * Sales at the largest U.S. retailers plunged in October--reflecting the increasingly weak job market and signaling a bleak Christmas shopping season and a deep recession. Year-over-year, sales plunged 28% at Neiman Marcus, 20% at Abercrombie & Fitch, and 16% at Gap. Only chains offering deep discounts posted gains, but they were small. Wal-Mart, which reported a 2.5% increase, launched a huge discount program on Thursday. Analysts say retailers will have to cut prices further to stimulate sales and work- down inventories, offering bargains to those consumers who have the resources to buy. “This is the year the consumer has been given a holiday gift beyond belief,” said Marshal Cohen, chief industry analyst at NPD Group (The New York Times Nov. 7) …

News of the Competition (11/06/2008)

 Permanent link
MADISON, Wis. (11/7/08)
* Banks and other financial firms that make loans to consumers are having very little success selling those loans to other investors. The market for packaging the loans into bonds had only one $500 million deal during all of last month, according to Barclays Capital. In comparison, $50.7 billion worth of securitization deals were made in October 2007, says Dealogic. Financial firms that are stuck holding more loans on their balance sheets are less likely to make new loans, thus exacerbating the credit crisis. The shutdown in securitization markets has been especially hard on non-bank companies such as Ford Motor Credit and Salle Mae because they have less capital to offer new loans to consumers. And banks are forced to turn to more-costly sources of funding such as certificates of deposits, making the cost of obtaining loans higher (The Wall Street Journal Online Nov. 6) … * The Swiss government announced a set of tougher capital rules for its major banks on Wednesday, as part of an emergency set of measures designed to address the global financial crisis. The nation’s banking regulator wants UBS AG and Credit Suisse Group to keep their “leverage ratios” at more than 4%. It also will boost guarantees on client deposits to 100,000 Swiss francs [about $85,300], from 30,000 francs [about $25,500], and it plans to increase regulation over executive compensation. The government said it needed to enact the measures to ensure confidence in the Swiss banking system. “The potential collapse of a major bank would have destabilized liquidity and payments in Switzerland, which would have prolonged and grave consequences for the economy,” said the government in a statement (The Wall Street Journal Online Nov. 6) … * JPMorgan Chase announced Thursday that it has prevented 250,000 home foreclosures since it began actively modifying mortgages early last year. However, the bank said delinquencies will continue to increase, even among prime-mortgage borrowers. Losses on prime mortgage loans could hit $300 million in early 2009, predicts Charles Scharf, head of retail banking at JPMorgan. The company announced last week that it plans to expand its loan-modification program after its acquisition of Seattle-based Washington Mutual. That expansion is expected to help another 400,000 people who are struggling with their mortgages (Dow Jones Newswires Nov. 6) … * Fidelity Investments, which has seen its client assets plunge 13%, plans to eliminate about 1,290 jobs in November and will lay off more employees in the first quarter. Assets under management at the world’s largest mutual-fund manager have fallen to $1.4 trillion, from $1.6 trillion at year-end 2007. Stock and bond funds tumbled 23% to $717 billion, according to Financial Research Corp. “These are extraordinary times,” said Fidelity in a statement (Bloomberg.com Nov. 6) … * Customers of American Express were charged hundreds of millions of dollars for travel insurance that never was provided, attorneys for cardholders told a California judge this week. Attorney Max Folkenflik claims the firm over-billed for travel-insurance premiums and then failed to refund fees when clients canceled flights. American Express denies the claims. The company has “a robust system in place to allow a refund to be easily obtained by any cardmember who is charged a premium and then subsequently does not receive the benefit of the insurance,” said Amex Spokeswoman Joanna Lambert. The lawsuit, which was originally filed in 2001, is on behalf of 6 million current and former Amex cardholders who bought fee-based travel insurance from September 1995 to February (Bloomberg.com Nov. 5) …

Market News (11/06/2008)

 Permanent link
MADISON, Wis. (11/7/08)
* The Bank of England led European central banks on Thursday in cutting interest rates to help ease the global financial crisis. The U.K.’s central bank slashed its benchmark rate by 1.5 percentage points to 3%--the largest reduction since 1992 and the lowest level since 1955. The European Central Bank lowered its rate by 50 basis points to 3.25%. Switzerland’s central bank cut by the same degree following an unscheduled meeting. “It’s absolutely staggering and deeply impressive,” said Brian Hilliard, director of economic research at London-based Societe Generale. With the International Monetary Fund predicting contractions in the economies of the U.S., England, the euro region, and Japan next year, more rate cuts may be in the offing (Bloomberg.com Nov 6) … * Mortgage rates declined this week amid a continued weak job market and a drop in consumer spending, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) plunged 26 basis points to 6.20%, while the 15-year FRM tumbled 31 basis points to 5.88%, and the one-year, adjustable-rate mortgage (ARM) fell 13 basis points to 5.25%. “Mortgage rates fell this week amid new indications of a pullback in consumer spending and a weaker jobs market,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The economy shrank by 0.3% in the third quarter, led by the first decline in consumer spending since the fourth quarter of 1991. In September alone, consumer spending fell by the most since June 2004. More recently, job layoffs more than doubled in October compared to September on a year-over-year basis.” Nothaft also noted that lenders have tightened loan standards (UPI and MarketWatch Nov. 6). For CUNA's Daily Financial Rates, use the link … * The job market remains weak as the economic slowdown deepens. First-time claims for unemployment insurance edged down by 4,000 during the week ending Nov. 1 to 481,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, was unchanged at 477,000. Continuing claims--the number of people still on the benefit rolls after an initial week of aid-- increased by 122,000 during the week ended Oct. 25 to 3.843 million. That’s the highest level since February 1983 (Bloomberg.com Nov. 6), suggesting that people are having a difficult time finding new jobs after they’re been laid off. In another report, the Labor Department said nonfarm worker productivity increased at a 1.1% annual pace in the third quarter--slowing sharply from a 3.6% gain in the second quarter. Unit labor costs accelerated at a 3.6% pace after a 0.1% decline. Despite the surge in labor costs last quarter, inflation isn’t a concern because wage pressures will ease as unemployment continues to increase (Economy.com Nov. 6). Inflation also will slow in response to tamer energy prices … * Oil prices slumped yesterday after the International Monetary Fund (IMF) cautioned that developed nations could experience their worst economic performance since World War II. The agency predicts global economic growth of just 2.2% in 2009. The U.S. economy is expected to contract by 0.7% next year, while the euro zone is forecast to shrink by 0.5%, and the British economy is expected to decline by 1.3%. The IMF now expects economic growth of 5.1% in emerging and developing economies--down a full percentage point from an October forecast, partly reflecting the recent plunge in commodity prices. The agency cautioned that conditions could worsen as financial firms unload debt and consumers slash spending. “The forceful policy responses in many countries have contained the risks of a systemic financial meltdown,” said the IMF. “Nonetheless, there are many reasons to remain concerned about the potential impact on activity of the financial crisis” (Reuters and Associated Press via The New York Times Nov. 6) …

Economic Forum Zero household liquidity a haunting problem

 Permanent link
FARMERS BRANCH, Texas (11/7/08)--A basic issue that is contributing to troubles in the U.S. economy is that consumers spend more than they earn, financial expert Charles Idol told attendees at Southwest Corporate FCU’s 31st Economic Forum. “A basic haunting problem in the U.S. over the last five years has been zero household liquidity,” Idol told the forum. “U.S. households need to increase their savings, which would improve their credit and reduce the U.S.’s dependence on foreign capital.” Other lessons from the credit crisis include the need for additional criteria into mark-to-market investment accounting, and the need for loan originators to retain some degree of credit exposure to establish stricter underwriting standards, Idol said (LoneStar Leaguer Nov. 6). Credit unions can expect negative gross domestic product growth during the next three quarters, with weak domestic drivers, and the export sector--which has aided the depressed U.S. economy--will “slow as foreign economies weaken and the dollar strengthens,” Idol said. He predicted that “the housing market will remain soft and job losses will continue, but inflation should not be a concern.” Credit union loan growth should be 8% for 2008 and 2009, and share growth should be 8.5% in 2008 and 9% in 2009, Idol said. Share growth is predicted to be 6% in 2008 and 8% in 2009, according to Credit Union National Association economists.

News of the Competition (11/05/2008)

 Permanent link
MADISON, Wis. (11/6/08)
* Credit-card chargeoffs and delinquencies will continue to increase through the first half of 2009 as consumers cope with declining home values, volatile energy prices, higher unemployment, and lower credit availability, according to a Fitch Inc. report released Monday. Fitch noted that issuers are slowing portfolio growth and attempting to dampen chargeoffs by reducing promotional programs, adjusting interest rates and fees, and fine-tuning rewards programs. Fitch said the risk for high chargeoffs and delinquency rates is strongest in states such as California and Florida that have been hit hardest by the home-price collapse. “The degree of relative deterioration will be dependent upon an issuer’s ability to manage portfolio growth, control exposure to unused credit lines, and collect delinquent accounts,” said Fitch (CardLine via American Banker Nov. 5) … * GMAC LLC, the financing unit of General Motors Corp., reported a fifth consecutive quarterly loss on Wednesday amid slumping auto sales and rising foreclosures, and said its mortgage unit may fail. The firm’s net loss widened to a record $2.52 billion in the third quarter, from $1.6 billion a year earlier. Its Residential Capital mortgage-loan unit lost $1.9 billion during the period, while its auto-finance business lost $294 million. Without more GMAC support, “substantial doubt exists regarding ResCap’s ability to continue as a going concern,” said GMAC, which has said it may convert to a bank holding company. Minneapolis-based ResCap ranked 12th in subprime mortgage loans in 2006. However, its mortgage production plunged 59% to $11.9 billion during the third quarter as it shut down offices and curbed lending (Bloomberg.com Nov. 5) … * The Federal Reserve announced Wednesday that it will change the formulas used to set the interest rates paid to depository institutions on required reserve balances and on excess reserve balances. “The rate on required reserve balances will be set equal to the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest Federal Open Market Committee target rate in effect during the reserve maintenance period,” said the Fed in a statement. The central bank is trying to fine-tune their interest-on-reserves rate as their liquidity facilities continue to over-supply the banking system with cash, noted Bloomberg.com (Nov. 5). The Fed began paying banks interest on reserves in September after receiving authority under the $700 billion financial-bailout plan … * The Treasury Department announced Wednesday that it plans to resurrect sales of the 3-year note and conduct more frequent auctions of 10-year notes and 30-year bonds to address the government’s massive borrowing needs. The new 3-year note auctions will be held monthly, as will auctions of 10-year notes, while 30-year bond auctions will be held on a quarterly basis instead of twice a year. “Over the last several months, changes in economic conditions, financial markets and fiscal policy, as well as a decline in nonmarketable debt issuance have contributed to an increase in Treasury’s marketable borrowing needs,” said the department in a statement. “Some financial market indicators suggest that financial markets have seen the worst and that credit market deterioration has at least stabilized and may even be improving,” said the Treasury on a hopeful note (Reuters via The New York Times Nov. 5) … * JPMorgan Chase, the largest U.S. bank by market value, plans to shut down its global proprietary trading desk and eliminate some employees as the firm prepares for a recession, according to a person familiar with the situation. Other members of the 75-member group will move to desks in the equities, fixed income, foreign exchange, commodities and emerging markets businesses that trade for clients and the firm’s own account, said the person. The retreat from proprietary trading probably will be temporary because companies will make “decent returns” when the markets stabilize, said Sandler O’Neill & Partners Analyst Jeffery Harte (Bloomberg.com Nov. 4) …

Market News (11/05/2008)

 Permanent link
MADISON, Wis. (11/6/08)
* Mortgage borrowers strongly preferred fixed-rate mortgages (FRMs) in the first half of this year as rates declined and lenders continued to tighten lending standards, according to a survey by the Mortgage Bankers Association. FRMs made up 78.5% of the dollar volume of first mortgages originated during the first six months of this year--up sharply from 63.6% in the second half of 2007. In the latest period, 82.7% of all originations were for prime loans--compared with 79% in the second half of 2007, while 3.8% were non-prime, compared with 7.5%. Refinancings made up 61.7% of all mortgage originations, up from 54.8%. And the survey found that the government share of originations more than doubled to 11.8% from 5.7% (mbaa.org Nov. 5) … * Mortgage applications declined last week as fixed interest rates surged, according to the latest survey by the Mortgage Bankers Association (mbaa.org Nov. 5). The trade group’s Market Composite Index fell 20.3% during the week ending Oct. 31 to 379.9. The Refinance Index plunged 27.8% to 1075.4, and the Purchase Index dropped 13.9% to 260.9. The average 30-year, fixed-rate mortgage (FRM) jumped 21 basis points to 6.47% last week, while the one-year, adjustable-rate mortgage (ARM) edged down 4 basis points to 6.86%. The purchase and mortgage indexes are now at lows not seen since the first quarter of 2001, noted Moody’s Economy.com (Nov. 5). The research firm predicts that home sales won’t rebound until the middle of 2009 as consumer confidence remains weak and mortgage delinquencies continue to increase … * Job losses continued to mount in October, the outplacement firm Challenger, Gray & Christmas reported Wednesday. Employers announced 112,884 job cuts last month--up 19% from September and the highest number since January 2004. Layoffs in October were 79% higher than in the same month last year. So far this year, employers have announced 875,974 layoffs--up 14% from all of last year and the biggest 10-month total since 2003. Eighteen of the 25 industry categories tracked by the survey reported higher layoffs in October. “The fact that nearly three-out-of-four industry categories are cutting more jobs is proof of how widely the impact of this downturn has spread,” said John Challenger, chief executive of the Chicago-based firm. “Even if the economy begins to rebound in the spring or summer, it could be months before we start to see net gains in employment and a decline in the unemployment rate,” added Challenger (CNNMoney.com Nov. 5) … * In another sign of the economic downturn, the service sector contracted sharply in October, according to a report by the Institute for Supply Management. ISM’ s index of nonmanufacturing activity, which makes up nearly 90% of the economy, fell to 44.4--from 50.2 in September and the lowest level since records began in 1997. It also was the largest decline on record. The employment index fell to 41.5 from 44.2, while the new-orders index dropped to 44 from 51.8. Inflationary pressures cooled as growth slowed. The prices index tumbled to 53.4, from 70 the previous month and the lowest reading since July 2003. It was the largest decline on record for the prices index (Bloomberg.com and The Wall Street Journal Online Nov. 5) … * Consumers cut their spending sharply in October as the financial crisis hit savings accounts and battered consumer confidence, according to MasterCard Advisors’ SpendingPulse survey released Wednesday. Specialty apparel sales plunged 12.2% from a year earlier, while sales of electronics and appliances tumbled 19.9%. Luxury sales dropped 20.1%. “The numbers for October are very negative across the board,” said MasterCard Advisors Vice President Michael McNamara. In one bright spot, restaurant sales edged up 0.3% in October. “Anything related to food, gas or drugstores--if you’re selling those types of goods, you’re probably holding up a little better,” said McNamara (Reuters via Yahoo! News Nov. 5) …

Market News (11/04/2008)

 Permanent link
MADISON, Wis. (11/5/08)
* Banks keep tightening lending standards, boosting the risk of a long recession. About 95% of banks said they tightened price terms on commercial and industrial loans to big and midsize companies during the past three months, according to the Federal Reserve’s latest survey of banks’ senior loan officers. About 60% tightened lending standards on credit cards and other types of consumer loans, and half said they increased the minimum required credit scores for consumer loans. In addition, 75% reported stricter lending standards for home equity lines of credit, while 70% reported stricter standards for prime mortgages. The results suggest the economic downturn probably will be “deep and will last longer than anything we’ve seen in a long time,” said MKM Partners Chief Economist Michael Darda (The Wall Street Journal Online Nov. 4) … * The Treasury Department is considering using some of the $700 billion of funds in the Troubled Asset Relief Program to purchases stakes in a wide range of financial firms, including bond insurers and specialty-finance companies--not just banks and insurers, say people familiar with the situation. “We are looking at many ideas for strengthening the financial system and for restoring lending,” said Treasury Spokeswoman Jennifer Zuccarelli. The department already has invested $163 billion in banks. However, other non-bank financial firms have remained reluctant to lend as well, intensifying the credit crisis. An extension of funds to non-bank financial companies probably would include restrictions on dividends and severance payments (The Wall Street Journal Online Nov. 4) … * The Federal Reserve’s balance sheet could total $3 trillion--or about 20% of the nation’s gross domestic product (GDP)--by year end as it continues efforts to help ease the credit crisis, said Dallas Fed President Richard Fisher (MarketWatch Nov. 4). Assets on the books of the Fed currently total $1.9 trillion--up from $890 billion at the beginning of the year. In other news, the Treasury Department estimates that it will borrow a record $550 billion in marketable debt in the fourth quarter to pay for its efforts to help ease the credit crisis (The Wall Street Journal Online Nov. 4). The projection would leave the department with a year-end cash balance of $300 billion. “The increase in borrowing is primarily due to higher outlays related to economic assistance programs, lower receipts, and lower net issuances of state and local government series securities,” said the Treasury … * More overseas nations are enacting stimulus plans to help support their struggling housing markets and economies. Spain on Monday announced a program to let jobless homeowners defer their mortgage payments. The relief package also will include incentives for companies to hire unemployed workers, said Prime Minister Jose Luis Rodriguez Zapatero. South Korea on Monday announced a plan to cut taxes and boost government spending. China said it is loosening limits on bank lending to help stimulate economic growth. And Australia on Tuesday cut interest rates by 75 basis points to 5.25% in an effort to jumpstart its economy (The New York Times and Dow Jones Newswires Nov. 4) … * U.S. vehicle sales plunged in October to the slowest pace since the early 1980s as consumer confidence declined, job losses mounted, and access to credit tightened. Vehicles sold at an annual rate of 10.5 million units (seasonally adjusted)--down from a 12.5 million pace in September and the weakest since February 1983. Sales have been declining on a year-ago basis each month since December. Auto sales aren’t expected to rebound to the 16-million unit pace that is necessary for the industry to remain profitable until 2011. In the meantime, the number of dealerships will continue to dwindle, and automakers will keep cutting production, closing plants, and laying off workers (Economy.com Nov. 3) … * Factory orders tumbled 2.5% in September following a 4.3% decline in August, the Commerce Department reported Tuesday. Orders for durable goods rose 0.9%, the fourth increase in the past five months, while bookings for non-durable goods fell 5.5%--the largest decline in two years. Excluding transportation, new orders fell 3.7% in September--the largest decline since the comparable series was launched in 1992. The outlook for future business spending remains grim (Economy.com Nov. 4). Nondefense capital goods orders excluding aircraft, a proxy for future business spending, declined by 1.5% in September following a 2.3% drop in August …

News of the Competition (11/04/2008)

 Permanent link
MADISON, Wis. (11/5/08)
* After posting a record profit last year, Goldman Sachs Group Inc. likely will report a fourth-quarter loss due to the effects of a “terrible” stock market, said Merrill Lynch & Co. analyst Guy Moszkowksi. In the quarter, which ends Nov. 30, Goldman will lose 49 cents per share, instead of making the $2.98 profit that he predicted earlier, Moszkowski said in a note to investors Monday. Since it became a public company in 1999, Goldman has never reported a quarterly loss. So far this year, most of the major global stock indexes have declined more than 25%, with Standard and Poor’s dropping 34 % and the Hang Seng falling 48%. Goldman’s investment in the Industrial & Commercial Bank of China, along with its private equity positions, likely will be negatively impacted by the market performance, Moszkowski added (Bloomberg.com Nov. 3) … * A proposed merger of Bank of America Corp. (BofA) and Merrill Lynch & Co. will be voted on by shareholders of the two companies Dec. 5. BofA agreed on Sept. 15 to acquire Merrill, a move that would create the biggest U.S. bank by assets. The transaction would be valued at $50 billion, the companies said. Owing to a 30% drop in BofA shares, the transaction value has since declined. BofA has agreed to issue 0.8595 of a share for each Merrill share. Shareholders of record as of Oct. 10 can vote on the merger. BofA shareholders must approve the merger because of the large number of shares the bank intends to issue. Also, BofA shareholders will vote on increasing the number of authorized shares outstanding to 10 billion from 7.5 billion. The merger is expected to be finalized by year end, the company said (Reuters Nov. 3) … * MasterCard Inc.’s third-quarter loss is due to a substantial settlement charge to satisfy an anti-trust lawsuit brought by Discover Financial Services. MasterCard lost $193.6 million-- $1.49 per share--in the July-to-September period, compared with earning a profit of $314.5 million--$2.31 per share--a year earlier. MasterCard and rival Visa Inc. agreed last week to pay Discover up to $2.75 billion to settle the suit it filed in 2004. The suit alleged that Master Card and Visa prevented their member banks from issuing credit cards from Discover’s network, which hurt its business, Discover said. Due to consumers’ migration to plastic payments, MasterCard is on track to meet revenue and profit targets this year. However, revenue in 2009 is anticipated to fall below the company’s long-term growth target of 12% to 15%, analysts said (Associated Press Nov. 3) ... * Slow, steady growth has helped Discover Financial Services emerge with one of the stronger portfolios in the credit card issuer industry, while other credit card issuers post escalating losses on bad card debt, analysts said. A strategic decision made several years ago to be less aggressive than it rivals in pursuing new cardholders has garnered Discover relatively good credit quality today, the company said. Discover has focused more aggressively on merchant acquisition--a long-time weak spot, analysts said. In attempting to attract new customers, rival issuers have, on occasion, weakened their lending standards--a decision that has come back to hurt them, analysts added. Even though Discover’s charge-off rates are up, they are increasing more slowly than those of its rivals. Also, the company said it is becoming more cautious about granting new credit. Owing to all these factors, Discover’s portfolios could continue to outperform the rest of the industry, according to observers (American Banker Nov. 4) ... * Amid continuing weakness in the sector as several European banks reported poor earnings, Frankfurt-based Commerzbank became the first commercial lender in Germany to accept government cash aid. To stabilize its capital base, Commerzbank said it would take $10.5 billion from Germany’s financial market stabilization fund. Martin Blessing, CEO of Commerzbank, said the government’s aid would be “silent participation.” This would result in minimal dilution to shareholders’ interest, analysts said. Government’s cash assistance will bolster the bank’s core capital ratio--a key measure of financial strength--to 11.2%, the bank said. Also, it will pay not dividends in 2009 and 2010, and will cap Blessing’s annual salary at $648,000 (The New York Times Nov. 4) …

News of the Competition (11/03/2008)

 Permanent link
MADISON, Wis. (11/4/08)
* Mortgage insurance companies saw defaults on insured homes soar in September while the number of insurance applications they received plummeted, said the Mortgage Insurance Companies of America (MICA), a trade organization. Primary insurance defaults were 76,776, up from 72,818 in August and well beyond the 54,699 for September 2007. The data covers reports from AIG United Guaranty, Genworth Mortgage Insurance Corp., Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co., and Republic Mortgage Insurance Co. (Housingwire.com Nov. 3) … * Freedom Bank, a Bradenton, Fla.-based bank, was declared insolvent by regulators Friday, and Cincinnati-based Fifth Third Bancorp has assumed about $250 million in deposits from the closed bank. The Federal Deposit Insurance Corp. had stepped in as receiver. Fifth Third also will purchase about $36 million of Freedom's $287 million assets. Freedom is the 17th U.S. bank seized this year. Another bank in Bradenton, First Priority Bank, was shut down on Aug. 1, with SunTrust Bank assuming its deposits. Both the failed banks struggled with Florida's weakening real estate market. As of June 30, Freedom's risk-based capital was 4.97%, the minimum for a well-capitalized bank. Its four branches opened Monday under the Fifth Third name (Dayton Business Journal Nov. 3) … * A new mortgage program from JPMorgan Chase & Co. will help 400,000 homeowners avoid foreclosure on $70 billion in loans in the next two years, says the company. JP MorganChase plans to expand the program within 90 days and says it will not place new defaulted mortgages into the foreclosure process while the changes are implemented. Instead it will independently review each loan before moving it into foreclosure. It will introduce new financing alternatives, open regional counseling centers, hire more loan counselors and offer prequalified modifications to borrowers (American Banker Nov. 3) … * American Express Co. is under a government antitrust investigation of its merchant pricing and "anti-steering" policies, it said in a regulatory filing Friday. The New York-based card company said it no longer expects to meet its on-average and over-time financial targets. Thursday it announced it would lay off 10% of its work force globally to help cut costs by $1.8 billion. The Justice Department's antitrust division has demanded information and documents about Amex's policies on merchant surcharging and its "anti-steering" policies. The policies prevent merchants from charging customers extra for paying with Amex cards and from encouraging payments using other cards that may carry a lower merchant discount rate. The policies prompted a lawsuit by three drugstore companies in June. The investigation is not directly related to the lawsuits, lawyers aid (American Banker Nov. 3) …

Market News (11/03/2008)

 Permanent link
MADISON, Wis. (11/4/08)
* Manufacturing activity in the U.S. contracted sharply in October, to 38.9--its lowest in 26 years--as the credit crisis and Hurricane Ike disrupted businesses. According to the Institute for Supply Management (ISM), the 38.9 October reading was the worst since September 1982 (The New York Times Nov. 3). Economists had expected it to be 41.5. A reading of below 50 signals contraction. "It appears that manufacturing is experiencing significant demand destruction as a result of recent events," said Norbert J. Ore, chairman of ISM's manufacturing business survey committee. The report raises the risk that the current economic slump will become deeper than the last two recessions in 2001 and 1991. Several analysts said that manufacturing is in a deep recession (Bloomberg.com Nov. 3). The one bright spot in the report was that the prices-paid measure--which is the main gauge of inflation--recorded its largest drop in a single month. This should allow the Federal Reserve to keep interest rates low to fight off what many assume will become a deep recession (Reuters via The New York Times Nov. 3) … * Construction spending dropped 0.3% in September, which is less than the 0.8% drop economists had expected, according to the Commerce Department. In August, spending had risen by 0.3% after plummeting in July by 2.4%. September's weakness was attributed to a 1.3% drop to $336.5 billion in housing construction, which has dropped every month but two in the past 30 months. Year-over-year, residential construction declined by 27.1% in September. Spending on government projects also fell, by 1.3%, its biggest drop since January. September's drop left total building activity at an annual rate of $1.06 trillion, down 6.6% from the year before (The New York Times and The Wall Street Journal Nov. 3) … * Global business confidence dropped at the end of October to a new record low, largely due to the ongoing global financial panic, according to Moody's Economy.com Survey of Business Confidence (Nov. 3). Across the globe, the difference between the percentage of all positive responses and all negative responses to the survey questions was -15% last week and -12% on a four-week moving average. Business confidence in the U.S. was at -18% last week and at -17% on a four-week moving average basis. Readings between 25% and 30% are consistent with an expanding economy. Those below 10% are consistent with recession. The all-time peak was nearly 40% at year-end 2005. Businesses said their sales are falling and they showed weak readings on intent to hire and investment in equipment and software. Throughout the past year, businesses, while concerned broadly about economic conditions, were upbeat about their hiring and investment. This is no longer the case, said Moody's … * Auto sales dropped dramatically all around for auto manufacturers in October, indicating that sales for the industry may be the worst in 25 years (Associated Press Nov. 3). General Motors Corp.'s sales in the U.S. plummeted 45%, and Ford Motor Co. sales dropped 30%. Toyota Motor Corp. sales slid 23%, and Honda reported a 25% decline. General Motors said sales of light trucks plunged 51%, compared with October of 2007. Ford said its Ford, Lincoln and Mercury car sales dropped 27% while light truck sales for those brands dropped 30%. GM sold 168,719 vehicles, down from 307,408 in October 2007. Ford sold 132,278 light vehicles in October, down from 189,515 in the same month last year. At Toyota, trucks sales were off by 57,865 units from 87,334 a year earlier, and car sales dropped to 94,236 sales from 110,258 a year ago. Only the Corolla compact saw a gain (MarketWatch Nov. 3). Mike DiGiovanni, executive director of global market and industry analysis at GM, said the credit crisis and financial market turmoil are affecting the auto industry to a "frightening" level … * The Treasury Department turned down General Motors Corp.'s request for up to $10 billion to help finance its potential merger with Chrysler, said The New York Times (Nov. 3). The department told GM Friday that the Bush administration would instead focus on speeding up the $25 billion loan program for fuel-efficient vehicles approved by Congress in September. The loans would be administered by the Energy Department. According to people familiar with the talks, officials were reluctant to broaden the scope of the $700 billion financial rescue program to include industrial companies or to play a part in a merger that could cost tens of thousands of jobs. GM and Chrysler are still discussing the merger but no deal is expected until they know what role, if any, the government would play (The New York Times Nov. 3) … * Ford Motor Co., GMAC LLC and Chrysler LLC have been shut out of the market for bonds backed by auto loans for the fifth consecutive month, according to Merrill Lynch & Co. data. Sales of auto bonds slumped to $500 million last month, compared with $9 billion in October 2007. This adds pressure on the manufacturers to consider mergers and seek taxpayer funding. The cost to sell the debt surged to record highs over benchmark rates while concern increases that car owners may go delinquent while food and fuel costs increase and property values slide. The credit market seizure forced the automakers to reduce loans to dealers and auto buyers, a factor contributing to weakened auto sales this year (Bloomberg.com Nov.3) …

Economic forum speaker Recovery could take 10 years

 Permanent link
FARMERS BRANCH, Texas (11/4/08)--Economic recovery could take 10 years, according to a speaker at Southwest Corporate FCU’s 2008 Economic Forum in Dallas. “There is no Wall Street anymore--no Bear Stearns, no Lehman Brothers, no Goldman Sachs or Morgan Stanley,” said Chris Low, FTN Financial chief economist. He noted that the financial turmoil created by “excessive leverage” at the nation’s investment banks could prevent the return of a healthy economy for 10 years (LoneStar Leaguer Nov. 3). However, credit unions have sound financial practices, Low said. “Credit unions are not having problems, because they are more conservative and don’t have Barclays-style leverage,” he said. “In addition, they’re not asking for billions of dollars in handouts from the federal government. Hopefully what we will see in the future is other borrowers and lenders working under the regulations you have been working under, because it has worked,” he added. Credit unions can become confident recovery is near when the U.S. has a stable banking system, Low said.