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News of the Competition (11/30/2010)

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MADISON, Wis. (12/1/10)
* WikiLeaks said it intends to post potentially harmful documents from a major U.S. bank early in 2011 on it controversial website (American Bankers Nov. 30). This week, WikiLeaks released thousands of classified State Department cables. Julian Assange, founder of the site, told Forbes of his intentions earlier this month, the magazine said Monday. Assange didn’t specify which bank the documents are from or when they would be made public, but “it will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume,” he told Forbes. “For this, there's only one similar example. It’s like the Enron e-mails.” However, speculation that the bank is Bank of America led to its stock price falling throughout the day, the Banker said …

Market News (11/30/2010)

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MADISON, Wis. (12/1/10)
* U.S. home prices in 20 major cities increased at the slowest pace in eight months during September, indicating the most recent sales downturn is destabilizing the housing market (Bloomberg.com Nov. 30). Property values rose 0.6% from September 2009--the smallest gain since January, according to the S&P/Case Shiller index of property values. The seasonally adjusted 10-city index experienced a bigger gain, rising 1.5% on a year-ago basis (Moody’s Economy.com Nov. 30). “[Housing] is on the brink of another substantial downturn,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “Supply far exceeds demand and the only remedy is further price declines.” Escalating foreclosures and falling home values could undercut the consumer confidence improvement that is helping to bolster spending and speed up economic growth, Bloomberg said … * Cyber Monday online sales were 31% higher than on Black Friday, according to data from International Business Machines Corps’ Coremetrics, which tracks shopper behavior on more than 500 e-commerce sites ( The Wall Street Journal Nov. 30). The average order increased 8.3% to $194.89, and sales of luxury goods went up 24% Monday (Bloomberg.com Nov. 30). “Consumers this year appear much more willing to open their wallets and are turning to online stores for the convenience,” said John Squire, Coremetrics chief strategy officer. “Retailers have done an exceptional job across the board of appealing to consumers with highly personalized promotions and a slew of free shipping promotions” … * U.S consumer confidence went up in November to the highest level in five months, indicating the largest component of the U.S. economy may be gaining steam ( Nov. 30). The Confidence Board index of consumer confidence rose to 54.1 from 49.9 in October. The expectations component spearheaded the gain (Moody’s Economy.com Nov. 30). More robust assessments of labor markets and future business conditions were the forces behind the gain, Moody’s said …

News of the Competition (11/29/2010)

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MADISON, Wis. (11/30/10)
* Because U.S. banks are preparing for new regulations of derivatives, trading in credit-default swaps has fallen 40% to 60% from three years ago, according to estimates by executives at four of the largest dealers of swaps (Bloomberg.com Nov. 29). The swaps were the fastest growing business on Wall Street before the credit crisis, Bloomberg said. “This was a major profit center for a lot of banks,” said Hal Scott, Harvard Law School professor and director of the Committee on Capital Market Regulation. “It’s part of a bigger picture of reduced financial activity due to uncertainty and regulatory reform.” Pending swap rules could result in job cuts of as much as 50% in groups that trade the contracts, said Moody’s Investors Service … * Mobile banking is becoming a larger component in the developing world. More than 90% of people carry at least one mobile phone in parts of Africa, Asia, Latin America and the Middle East (The New York Times Nov. 28). Nearly all mobile banking customers worldwide--78%, or 697 million people--are in those four areas, according to Berg Insight, a Stockholm, Sweden-based industry research firm. Only about 10% of U.S. bank customers use mobile banking--generally to make payments, monitor bank accounts or transfer money--said Teresa A. Epperson, a partner at Mercatus, a Boston-based consulting company for banks and financial institutions. Because more U.S. consumers are purchasing smartphones, the market penetration of mobile phones is anticipated to pass online banking--which is roughly 50%--by 2015, Epperson said. “This is only going to get bigger, in our opinion,” she added. (See related story in CU System News: “WOCCU alliance to broaden remittance services” ...

Market News (11/29/2010)

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MADISON, Wis. (11/30/10)
* Spurred by the economic rebound, U.S. shoppers spent more this year during the Thanksgiving weekend compared with last year, with online shopping constituting the highest percentage of the weekend’s sales (The New York Times Nov. 28). The average shopper spent 6.4% more this year than last year, with the average amount spent per person totaling $365, according to a survey of about 4,200 consumers by the National Retail Federation. Roughly 212 million shoppers frequented stores and websites during the holiday weekend, driving the weekend total of sales to roughly $45 billion--up from about $41.2 billion recorded in the past two years--the federation said. Promotions such as J.C. Penney Co.’s $10 diamond-accent earrings and WalMart Stores Inc.’s $5 Barbie doll, helped retailers get consumers into their stores (Bloomberg.com Nov. 29). “Consumers are more confortable spending again, and that trend has held up,” said Maggie Taylor, a vice president at Moody’s Investors Service in New York. “I don’t think people are as worried about losing their jobs anymore” … * Commercial real estate markets are flattening out, with modestly improving fundamentals expected in 2011, according to the National Association of Realtors (NAR). Lawrence Yun, NAR chief economist, said commercial real estate sectors appear to be stabilizing. “The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out,” he said. “The outlook for the office and industrial markets has moderated with modestly declining vacancy rates expected as 2011 progresses, while the retail sector should hold fairly steady. Still, high vacancy rates imply falling rents.” Yun anticipates a rise in household formation from an improving economy, which will increase demand for housing--both ownership and rental. “Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011,” Yun said. “Apartment rents could rise by 1% to 2% in 2011, after having fallen in 2009 and no growth in 2010,” he added. “This rent rise therefore could start to force up broader consumer prices as well.” The housing shelter cost of primary rent, and owner’s rental equivalence, is the biggest component in the Consumer Price Index, accounting for 32% of its total weight, Yun said. For the NAR report, use the link …

News of the Competition (11/24/2010)

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MADISON, Wis. (11/29/10)
* Private-equity firm Cerberus Capital Management LP is looking for buyers to purchase auto lender Chrysler Financial, said sources familiar with the matter (Bloomberg.com Nov. 24). Cerberus acquired Chrysler Financial as part of it takeover of Chrysler LLC in 2007. The book value--assets minus liabilities--for the former Chrysler lending arm is roughly $6 billion to $7 billion, the sources said. In the first half of 2010, Chrysler Financial had $26 billion of loans and had issued less than $100 million of new loans, a source familiar with the company’s business said in July … * Community Reinvestment Act (CRA) lending is down among banks, according to the Home Mortgage Disclosure Act (HMDA) statistics (National Mortgage Professional.com Nov. 22). Small business loans for 2009 declined 42% from 2008, while community development loans decreased 29% to 15,882 last year. The CRA data was collected from 941 lenders, compared with 965 lenders in 2008 …

Market News (11/24/2010)

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MADISON, Wis. (11/29/10)
* Sales of new U.S. homes unexpectedly declined in October, indicating that borrowing costs that are near record-low levels are not sufficient to buoy the housing industry, whose implosion sparked the recession (Bloomberg.com Nov. 24). Purchases fell 8.1% to an annualized rate of 283,000, the Commerce Department said Wednesday. Economists had forecast an increase to a 312,000 annual pace, according to a Bloomberg News survey. “Lending conditions remain tight and there is concern that there’s another down leg in home prices,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. House prices fell in the third quarter of 2010, according to the Federal Housing Finance Agency’s (FHFA). Its seasonally adjusted purchase-only house price index, calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 1.6% lower on a seasonally adjusted and unadjusted basis in the third quarter than in the second. During the past year, seasonally adjusted prices fell 3.2% from the third quarter of 2009 to the third quarter of 2010. The quarterly report analyzing housing price appreciation trends was released Wednesday by FHFA. For The FHFA report, use the link … * Mortgage loan application volume increased 2.1% on a seasonally adjusted basis for the week ended Nov. 19 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 1.1%. The Refinance Index decreased 1% and is the lowest Refinance Index observed since the end of June. The seasonally adjusted Purchase Index rose 14.4% from a week earlier, which included Veterans Day. No adjustment was made for the holiday. On a seasonally adjusted basis, this is the highest Purchase Index recorded since the week ending May 7. The unadjusted Purchase Index went up 9.6%, and was 7.4% lower than the same week one year ago. “The increase in purchase applications last week aligns with other incoming data suggesting that consumers are feeling somewhat more confident with their financial situation,” said Michael Fratantoni, MBA vice president of research and economics. “While the increase was magnified somewhat by the comparison to the holiday week, the level of purchase applications on a seasonally adjusted basis is now at its highest level since the expiration of the homebuyer tax credit.” For the MBA report, use the link … * Initial U.S. claims for unemployment benefits declined more than anticipated for the week ended Nov. 20--reaching the lowest level since July 2008 and adding to the evidence that the labor market is on the mend (Bloomberg.com Nov. 24). Claims fell 34,000 to 407,000 for the week, the Labor Department said Wednesday. Economists had forecast a decline to 435,000, according to a Bloomberg News survey. “The labor market is clearly improving,” said John Silvia, chief economist at Charlotte, N.C.-based Wells Fargo Securities LLC. “We’re seeing consistent job gains in the private sector. This suggests we’ll have a good holiday spending season.” Meanwhile, continuing claims for unemployment benefits declined by 142,000 to roughly 4.18 million for the week ended Nov. 13. However, millions more people on emergency and extended benefits are not included in the count (Moody’s economy.com Nov. 24) … * U.S. consumer spending increased in October--a fifth consecutive monthly gain. The increase was buoyed by a rebound in personal incomes (Bloomberg.com Nov. 24). Household purchases increased 0.4%, following a 0.3% gain in September, the Commerce Department said Wednesday. Also, personal income rose 0.5% in October after slightly dropping in September. Wage income saw its most robust growth since May, and proprietors’ income growth was strong (Moody’s Economy.com Nov. 24). “It really looks like a recovery here,” Mark Vitner, a senior economist at Charlotte, N.C.-based Wells Fargo Securities LLC, told Bloomberg. “Wages and salaries are strengthening, and we have really good momentum going into the holiday season” …

FOMC minutes Fed cut growth forecast for economy

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WASHINGTON (11/24/10)--The Federal Reserve's policymakers downgraded their assessment of the U.S. economy at their Nov. 2-3 meeting, according to the minutes of the Federal Open Market Committee (FOMC), released Tuesday. The Fed expects economic growth to be 2.4% to 2.5% this year, down from expectations in June of 3%. During 2011, the policymakers, which include the Fed's governors and regional presidents, said they expected a "moderate pickup" in the economy to a 3% to 3.6% growth pace. However, they added that unemployment during the year will stay disappointingly high with inflation uncomfortably low. During 2012, growth is expected to accelerate to 3.5% to 4.5%, and in 2013, to between 3.5% to 4.6% growth, said the minutes. Some policymakers indicated that it could take six more years for the jobless rate to return to normal levels. "Though the economic recovery was continuing, members considered progress toward meeting the committee's dual mandate of maximum employment and price stability as having been disappointingly slow. Moreover, members generally thought that progress was likely to remain slow," said the minutes. "Accordingly, most members judged it appropriate to take action to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the committee's mandate." Nearly all committee members agreed to keep the federal funds rate at its effective lower bound by maintaining the immediate target range for that rate at 0% to 0.25%. They also agreed to expand the Federal Reserve's holdings of longer-term securities by continuing its policy of reinvesting principal payments from its securities holdings into longer-term Treasury securities and by purchasing $600 billion more of longer-term Treasury securities at a pace of about $75 billion per month through the second quarter of 2011. One member dissented from this action, saying the risks of additional securities purchases outweighed the benefits. Members agreed that the committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster its goals of maximum employment and price stability. The committee members agreed that the FOMC statement after the meeting would be adjusted to "make it clear that the unemployment rate was elevated, and that measures of underlying inflation were somewhat low, relative to levels that the committee judged to be consistent, over the longer run, with its dual mandate." They also noted the statement released after their meeting "should reiterate the expectation that economic conditions were likely to warrant exceptionally low levels of the federal funds rate for an extended period" and that the committee would "employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate." For the full minutes, use the link.

Economy heading in right direction CUNA tells ICNNMoneyI

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WASHINGTON (11/24/10)--Tuesday's report of an increase in the nation's gross domestic product (GDP) at a faster pace than expected for the third quarter means the economy is headed in the right direction, a Credit Union National Association (CUNA) senior economist told CNNMoney yesterday. "We're headed in the right direction, and a good deal of the concern that was evidence with the initial release [of the report] has undoubtedly diminished," said Mike Schenk, CUNA senior economist and vice president of statistics and economics, in the article. However, Schenk cautioned, "it doesn't really get us to where we need to be." GDP, which provides the broadest gauge of the U.S. economy by measuring goods and services produced in the nation, grew at an annual rate of 2.5% during the three months ending in September. While better than the 2.4% economists had forecast, the figure is still less than robust. The first reports for the period had pegged the growth at 2%. The 2.5% third-quarter growth compares with growth of 1.7% during second quarter. CNNMoney noted the growth isn't fast enough to increase inflation or lower unemployment.

News of the Competition (11/23/2010)

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MADISON, Wis. (11/24/10)
* While the number of banks on the Federal Deposit Insurance Corp.’s (FDIC) confidential “problem” list expanded in the third quarter to 860 from 829 in second quarter, the overall banking industry saw solid gains in net income (The New York Times Nov. 23). Commercial banks and savings institutions insured by the FDIC reported an aggregate profit of $14.5 billion in the third quarter of 2010, a $12.5 billion improvement from the $2 billion the industry earned in the third quarter of 2009, the FDIC said in a Tuesday release. That marks the fifth consecutive quarter that earnings have registered a year-over-year increase. “The industry continues making progress in recovering from the financial crisis,” said FDIC Chairman Sheila C. Bair. “Credit performance has been improving, and we remain cautiously optimistic about the outlook. Lower provisions for loan losses are driving bank earnings by allowing a larger share of revenues to reach the bottom line.” However, Bair also said: “At this point in the credit cycle it is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduced loss rates. When it comes to the adequacy of reserves, institutions should always err on the side of caution” … * Alwaleed bin Talal, a Saudi billionaire prince, has invested $500 million in General Motors (GM), the U.S. automaker whose stock returned to trading last week following bankruptcy and a federal taxpayer bailout (The New York Times Nov. 23). Kingdom Holding Co. (KHC), Alaweed’s investment firm, said Tuesday that Talal’s investment amounts to 1% of GM’s value, and was predicated on GM’s brand strength and growth potential in Brazil and China. KHC did not offer specifics on how it calculated the 1% or how many shares of GM it bought, the Times said … * The American Bankers Association (ABA) announced it has selected former Oklahoma Gov. Frank Keating to succeed Edward Yingling as ABA president/CEO next year (American Banker Nov. 24). Keating, a well-known Republican, has cast doubt on President Barack Obama’s honesty during the past year, the Banker said. While governor of Oklahoma, Keating was accused of accepting financial gifts from retired mutual fund maven Jack Dreyfus, totaling $250,000 as compensation for lobbying in support of a drug created to mitigate violent behavior in prison inmates, the Banker said ...

Market News (11/23/2010)

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MADISON, Wis. (11/24/10)
* Although the U.S. economy grew more quickly than previously estimated in the third quarter, it was not sufficient to mitigate persistently high unemployment (The New York Times Nov. 23). Gross domestic product (GDP) growth was revised upward to a 2.5% annualized rate from 2%, because consumer and government spending and exports were more robust than initially thought, the Commerce Department said Tuesday. Economists had forecast GDP growth--which calculates the country’s total goods and services output--to be revised up to a 2.4% pace, the Times said. While earnings gains are allowing companies to hire, the growth pace is not enough to significantly reduce a high jobless rate near 10% (Bloomberg.com Nov. 23). “This is still, by the standards of history, only a half-speed expansion,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. “[Inflation] is very tame and 2.5% growth is not fast enough to put Americans back to work by any extent.” In a related matter, U.S. third-quarter corporate profits tallied $1.66 trillion at annualized rate--the highest figure recorded since the government began tracking such data more than 60 year ago--according to a Commerce Department report released Tuesday, the Times said (See related story, “Economy heading in right direction, CUNA tells CNN Money.”) ... * Existing-home sales retreated in October following two strong monthly gains, according to the National Association of Realtors (NAR). The sales--which are completed transactions that include single-family, townhomes, condominiums and co-ops--declined 2.2% to a seasonally adjusted annual rate of 4.43 million in October from 4.53 million in September. They are 25.9% below the 5.98 million-unit level in October 2009 when sales were surging prior to the initial deadline for the first-time buyer tax credit. Year-to-date there were 4.149 million existing-home sales, down 2.9% from 4.272 million at this time in 2009. The recent sales pattern can be expected to continue, according to Lawrence Yun, NAR chief economist. “The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales,” Yun said. “Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels. Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above five million by spring of next year.” For the NAR report, use the link … * U.S. mass layoffs--those involving at least 50 workers from a single establishment--increased to 1,651 in October from 1,486 in September, according to the Bureau of Labor Statistics (Moody’s Economy.com Nov. 23). The layoffs involved 148,059 workers, compared with 133,379 in September. The increase in mass layoffs likely isn’t significant--given that it is inconsistent with escalating payroll employment, Moody’s said. During the past year, mass layoffs have fallen fastest in the Midwest because the manufacturing base is stabilizing, Moody’s said. The West is recovering at the slowest pace, with layoffs increasing during the past year in states most impacted by the housing crisis such as Arizona and Nevada, Moody’s said …

News of the Competition (11/22/2010)

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MADISON, Wis. (11/23/10)
* Three banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 149, compared with 140 for all of 2009. The banks include Gulf State Community Bank, Carrabelle, Fla., assumed by Centennial Bank, Conway, Ark.; Allegiance Bank of North America, Bala Cynwyd, Pa., assumed by VIST Bank, Wyomissing, Pa.; and First Banking Center, Burlington, Wis., assumed by First Michigan Bank, Troy, Mich. The three closed institutions held roughly $969 million in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $200 million ... * Mortgage giant Countrywide--now part of Bank of America Corp. (BofA)--routinely failed to send necessary documents for loans sold to investors, an employee testified before a New Jersey bankruptcy judge (American Banker Nov. 22). The judge cited the testimony in dismissing a BofA claim against a debtor. The testimony could complicate BofA’s attempts to foreclose on bad loans that Countrywide originated and sold in better economic times, the Banker said. Also, the employee’s admission that BofA usually held on to promissory notes could undercut the lending industry’s stance that document transfers to securitization trusts are basically sound, the publication added … * Continental Bank Holdings Inc. has become at least the third bank in the past two weeks to end a planned acquisition because of failure to get regulatory approval (American Banker Nov. 22). Continental cancelled its proposed purchase of Exton, Pa.-based First Resource Bank because the companies said last week they would not be able to obtain approval from the Office of Thrift Supervision (OTS) before the merger deadline. Continental gave no reason why it said OTS would reject its application, the Banker said …

Market News (11/22/2010)

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MADISON, Wis. (11/23/10)
* Thanksgiving Day was not considered a shopping day a few years ago because most stores are closed for the holiday. However this year, several retailers are driving customers to the Internet with more specials than ever, engendering an online prestart to the traditional Black Friday shopping frenzy (The New York Times Nov. 21). “It’s going to be a competitive day,” said Kevin Mansell, chairman and CEO of Kohl’s, a department store chain with more than 1,000 outlets nationwide. He added, “Just because [shoppers] are at home on Thanksgiving and most stores are closed, that doesn’t mean they don’t want the opportunity to go online, to shop, to build their gift list.” Beginning Thursday, Kohl’s intends to offer nearly all of its Black Friday sales specials online. Other large retailers starting Web deals on Thursday include Walmart, Radio Shack, Best Buy, Macy’s and J.C. Penney, the Times said … * With companies limiting hiring and consumers cutting back on spending, the U.S. economy will fail to strengthen next year, according to a survey by the National Association for Business Economics (Bloomberg.com Nov. 22). Gross domestic product will rise 2.6% in 2011 after growing 2.7% in 2010, per the association’s survey of 51 economists from Oct. 21 through Nov. 4. “Growth is expected to be moderate,” said Richard Wobbekind, association president and dean of the business school at the University of Colorado-Boulder. “Panelists remain concerned about high levels of federal debt, a continuing high level of unemployment, increased business regulation and rising commodity prices” … * The agricultural Midwest--especially Kansas, Nebraska, North Dakota and South Dakota--has been in the forefront of the U.S. economic recovery because the region’s banks, businesses and households sidestepped the worst of the housing industry collapse and financial crisis that ensued (Bloomberg.com Nov. 21). The area is receiving an additional lift from record exports of commodities brought on by demand in China and Russia and the declining value of the U.S. dollar, Bloomberg said. “This has been the brightest spot in the U.S. economy throughout the recession, the only part of the country that has held up reasonably well,” said Mark Zandi, chief economist at Moody’s Analytics Inc. “The rise in commodities prices has been a very significant tailwind for the entire region.” The surge in demand for commodities also drove sales of agricultural equipment, financial services and fertilizer, Zandi added …

News of the Competition (11/19/2010)

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MADISON, Wis. (11/22/10)
* Pacific Investment Management Co. (Pimco)--which manages the largest mutual fund in the world--is aiming to raise a minimum of $1 billion to create a private fund to purchase troubled loans from banks that are divesting assets to comply with the new rules, said sources briefed on the plans (Bloomberg.com Nov. 19). The Bank Recapitalization and Value Opportunities Fund, dubbed the Pimco Bravo fund, will buy residential and commercial mortgage loans and other debt, a source told Bloomberg. In attempts to renegotiate the terms of the acquired debt directly with creditors, Pimco intends to work with a loan servicer, the source added. “Valuation is in Pimco’s wheelhouse, and valuation is really the main challenge to this type of investing,” said Geoff Bobroff, an independent fund consultant in Rhode Island … * The Securities and Exchange Commission (SEC) reportedly is looking into a complicated $1 billion investment deal that Citigroup Inc. masterminded in advance of the financial crisis (American Banker Nov. 19). The SEC is investigating whether Citi improperly persuaded an independent manager to place specific assets into the deal--a collateralized debt obligation referred to as Class V Funding III, according to online news organization ProPublica, citing unnamed sources. Citi issued a statement saying it had no comment on the matter …

Market News (11/19/2010)

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MADISON, Wis. (11/22/10)
* Available data suggest fewer new U.S. businesses have been able to take hold, which could hamper job growth and innovation (The Wall Street Journal Nov. 18). Start-ups of job- creating firms have not kept pace with closings in the early stages of the economic recovery, and companies that started up are hiring less than in the past, the Journal said. The number of companies with a least one employee decreased by 100,000, or 2%, in the year ended March 31--the second worst performance in 18 years--the Labor Department said Thursday. The worst was the 3.4% decline in the previous year. “Historically, it’s the young, small businesses that take off that add a lot of jobs,” John Haltiwanger, an economist at the University of Maryland told the Journal. “That process isn’t working very well now” … * Mortgage delinquencies for U.S. households declined during the third quarter, but the number of newly initiated foreclosures increased because banks are continuing to close out a backlog of delinquent loans, reported The Wall Street Journal (Nov. 19). At the end of September, nearly 13.5% of home loans were either 30 days past due or in foreclosure--constituting roughly seven million households, according to a quarterly survey by the Mortgage Bankers Association. That rate is down from 14.4% one year ago, but still higher than the 10% level two years ago. Although the third-quarter decline indicates an improving economy, the housing market still has to contend with weak job growth and a backlog of unsold homes putting downward pressure on home prices, the Journal said …

Market News (11/18/2010)

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MADISON, Wis. (11/19/10)
* For a fourth consecutive month, the index of U.S. leading economic indicators rose in October, buoyed by signs that the Federal Reserve is gearing to take additional steps to bolster the world’s largest economy (Bloomberg.com Nov. 18). The New York-based, private research firm The Conference Board’s gauge of the outlook for the next three to six months rose 0.5% for the second consecutive month. Low borrowing costs, more cash in the banking system and a longer workweek are helping U.S. consumers improve their finances and increase spending, Bloomberg said. “The economy seems to be getting a little bit of momentum,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “We are seeing job growth and the private sector picking up a little bit.” In a related matter, the probability that the U.S. will be in recession in six months declined in October for the second consecutive month (Moody’s Economy.com Nov. 18). The probability dropped two percentage points to 30% in October … * Although initial claims for U.S. unemployment benefits rose last week, they did so less than forecast, indicating the labor market is on the mend (Bloomberg.com Nov. 18). Claims increased by 2,000 to 439,000 for the week ended Nov. 13, the Labor Department said Thursday. Claims were forecast to rise to 441,000, according to economists surveyed by Bloomberg. Also, the total number of people collecting unemployment benefits fell to the lowest level in two years, although the number receiving extended benefits rose. Companies are slowing job cuts and starting to increase hiring--which is crucial to bringing unemployment down from its near-10% level and bolstering consumer confidence and spending, Bloomberg said. Thursday’s report indicates that the job market recovery is proceeding at a slow pace, said The Wall Street Journal Nov. 18). Even though private sector jobs helped spark overall hiring in October, the unemployment rate remains at 9.6%, the Journal added. “It is indicative of some mild improvement in the labor market,” Stephen Stanley, chief economist at Pierpont Securities LLC, told Bloomberg. “It’s moving in the right direction, but it still leaves the claims number very high” … * The delinquency rate for mortgage loans on one-to-four-unit residential properties dropped to a seasonally adjusted rate of 9.13% of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decline of 51 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate fell one basis point to 9.39% this quarter from 9.4% last quarter. The delinquency rate includes loans that are at least one payment past due, but does not include loans in the process of foreclosure. The declines are due “primarily to a large decline in the 90-plus-day delinquency rate,” said Michael Fratantoni, MBA vice president of research and economics. He added: “Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. Because MBA expects little change in the unemployment rate during next year, “we also expect only modest improvements in the delinquency rate,” Fratantoni added. For the MBA report, use the link …

News of the Competition (11/18/2010)

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MADISON, Wis. (11/19/10)
* Discover Financial Services has 97% coverage at U.S. merchant locations because of merchant acquiring agreements it signed in recent years. However, merchant and consumer awareness of the brand’s acceptance is not that high, Roger Hochschild, Discover president and chief operating officer, told analysts Tuesday (American Banker (Nov. 18). Nationwide card acceptance implementation has been more difficult than anticipated, he said, adding that it’s not just sufficient for merchant acquirers to simply accept the card at their store. For the card to gain a foothold, retailers’ checkout staffs also need to promote Discover card acceptance at the point of sale, and improve Discover signage and a stickers at checkout stations, Hochschild said ... * The market for bank initial public offering (IPOs), though trending upward recently, may be short-lived, reported American Banker (Nov. 18). Industry observers are saying the trend is not permanent, and investment bankers anticipate that it could be several years before IPO activity becomes meaningful again, the publication said. Not until after-tax profitability returns and devaluations of assets ends, will there be many bank IPOs, Ben Bishop, chairman of Florida investment bank Allen C. Ewing & Co., told the Banker, adding that such an environment won’t take shape for at least two years … * Coming amid its foreclosure freeze in 27 states, Bank of America (BofA) said it modified 25,000 home loans in October--a 52% rise from the prior month (Bloomberg.com Nov. 18). Roughly 90% of the modifications were approved through its own programs, BofA said. The remainder of the revisions was approved through the government-sponsored Home Affordable Modification Program, or HAMP. Usually, modifications comprise reduced interest rates or an extension of time for loans to be repaid, Bloomberg said …

News of the Competition (11/17/2010)

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MADISON, Wis. (11/18/10)
* The Federal Reserve Board took action Tuesday against three community banks and their parent companies, issuing written agreements against them, reported American Banker (Nov. 17). The Fed ordered the $449.4 million asset, Fenton, Mich.-based Fentura Financial Inc. to take necessary steps to ensure that West Michigan Community Bank complies with a Feb. 19, 2009, cease-and-desist order. Another Fed agreement requires First Personal Financial Corp. in Orland Park, Ill., to take measures to ensure that the $179.8 million-asset First Personal Bank is in compliance with a March 30 consent order. A third agreement with St. Charles, Ill.-based Valley Community Bancorp Inc. requires the company to help the $136.1 million-asset Valley Community Bank comply with an April 29 consent order … *David Johnson plans to resign as Fannie Mae chief financial officer by year-end, according to a Tuesday regulatory filing (American Banker Nov. 17). David Hisey, deputy chief financial officer, will serve as interim chief financial officer until a successor is found. Johnson joined Fannie in 2008--becoming its third chief financial officer that year--two months after the government-sponsored enterprise was put into federal conservatorship. Fannie posted a $3.46 billion loss for the third quarter, due partially to a $2.12 billion dividend it paid to the government. In January, the Obama administration is slated to unveil its plans for Fannie and Freddie Mac … * In a move that could make it the largest global initial public offering (IPO) in history, General Motors Co. (GM) said Wednesday it will expand the size of its IPO by roughly 30% to 478 million shares (The Wall Street Journal Nov. 17). The move is in response to stronger-than-expected demand for shares of GM--which is experiencing strong profits after last year’s government-run bankruptcy, the Journal said. “Treasury is confident demand is there for these shares to get soaked up,” Michael Yoshikami, who manages $1 billion at YMCNet Advisors in Walnut Creek, Calif., told Bloomberg.com (Nov. 17). “It makes a lot of sense for them to do this because we’re already talking about shares going out at a price that is far above what everybody thought would be in demand,” he added …

Market News (11/17/2010)

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MADISON, Wis. (11/18/10)
* Mortgage loan application volume for the week ended Nov. 12 decreased 14.4% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). The results do not include an adjustment for Veterans Day. On an unadjusted basis, the index declined 15%. The Refinance Index dropped 16.5% and is at the lowest level observed since July of this year. The seasonally adjusted Purchase Index fell 5%--the first decrease after three consecutive weekly increases. The unadjusted Purchase Index went down 8.2% and was 11.3% lower than the same week one year ago. “Rates increased sharply last week due to stronger economic data and lingering uncertainty regarding the structure and impact of the Fed’s QE2 (quantitative easing) program,” said Michael Fratantoni, MBA vice president of research and economics. “Mortgage applications, particularly for refinances, dropped in response.” For the MBA report, use the link … * U.S. homebuilders started construction on fewer homes than expected in October because the housing industry still is stuck near the nadir it reached in April 2009 during the recession (Bloomberg.com Nov. 17). Housing starts declined 11.7% from September to 519,000--placing them within the lower boundary of the range they have been in since early 2009 (Moody’s Economy.com Nov. 17). “Starts are a reminder of just how miserable the situation is in housing,” Chris Low, chief economist at FTN Financial in New York, told Bloomberg. “Sales have been so weak for so long that we continue to see starts bouncing along the bottom.” Record-low mortgage rates have failed to bolster housing demand, Bloomberg said … * The U.S. consumer price index rose 0.2% in October from the prior month--less than the 0.3% forecast by economists in a Bloomberg News survey (Bloomberg News Nov. 17). Consumer prices excluding food and fuel--the so-called core prices--failed to rise for the third consecutive month--mostly because of weakness in the transportation index (Moody’s Economy.com Nov. 17). Core prices increased 0.6% from October 2009--the smallest year-over year gain--in data going back to 1958, the Labor Department said Wednesday. In a related matter, core inflation was at its lowest level on record in October--at 0% for the third consecutive month, according to a Bureau of Labor Statistics report issued Wednesday (The New York Times Nov. 17). The year-over-year change was 0.6%--the lowest measure since the government began collecting such data in 1957 …

News of the Competition (11/16/2010)

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MADISON, Wis. (11/17/10)
* The Federal Deposit Insurance Corp. (FDIC) today announced the selection of nine banks to participate in a case study to help the agency identify best practices of banks offering safe and low-cost transactional and savings account products, particularly for underserved consumers. The selected banks vary in size, location, and business focus. For the FDIC release, use the link. “Our goal is to highlight accounts that are not only safe and affordable for the over one-quarter of consumers who are not fully utilizing mainstream banks but also are feasible for banks' bottom lines,” said FDIC Chairman Sheila C. Bair. Key features of model safe accounts are that they are largely electronic, are FDIC insured, have reasonable rates and fees proportional to their cost, and are subject to applicable consumer protection laws, regulations and guidance. The transactional accounts will be “checkless” and will not charge overdraft or non-sufficient funds fees … * Although the wave of U.S. bank acquisition deals has been deemed a result of increased industry regulation, recent moves by regulators have caused a rise in deal delays and cancellations, reported American Banker (Nov. 16). After failing to obtain regulatory approval, Naugatuck Valley Financial Corp. in Connecticut on Friday became the second banking company in a week to cancel a bank deal. Also in November, a third acquirer delayed its deal--for a third time--as regulators considered its values, the Banker said. “I think, all other things being equal, as you see more and more banks having problems obtaining regulatory approval, it’s going to make you think twice,” John Roman, Naugatuck Valley's CEO, told the publication Monday. “It’s an expensive path to go down, so I think you've got to look closely … at the probability of success and the probability of obtaining the approvals that you need” …

Market News (11/16/2010)

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MADISON, Wis. (11/17/10)
* Worldwide demand for U.S. stocks, bonds and other financial assets declined in September from October, the Treasury Department said Tuesday. Net buying of long-term equities, bonds and notes tallied $81 billion for the month, compared with net buying of $128.7 billion in August (Bloomberg.com Nov. 16). “The U.S. is still an attractive place for foreign investors, but U.S. yields were pushed lower relative to some foreign markets in anticipation of the Federal Reserve’s quantitative easing,” said Gary Thayer, chief macro strategist at Wells Fargo LLC in St. Louis. “That may have reduced the attractiveness a bit. Longer-term, we’re still the reserve currency of the world and that continues to support inflows.” Private foreign investors were the big buyers in September (Moody’s Economy.com Nov. 16). Their main interest was split between Treasury bonds and notes, equities, and government agency bonds. However corporate bonds were shown scant interest, Moody’s said … * Industrial production was unchanged in October after falling 0.2% in September, according to the Federal Reserve’s release on Industrial Production and Capacity Utilization. For the manufacturing sector, output gained 0.5% in October after rising 0.1% in September. Factory production in September was initially reported to have decreased 0.2%, but incoming data on steel, fabricated metal products, machinery and chemicals helped boost the index. The output of utilities dropped 3.4% in October, as unseasonably warm temperatures reduced demand for heating. Production at mines fell 0.1%. At 93.4% of its 2007 average, total industrial production in October was 5.3% above its year-earlier level. The capacity utilization rate for total industry was flat at 74.8%, a rate 6.6 percentage points above the low in June 2009 and 5.8 percentage points below its average from 1972 to 2009. For the Fed release, use the link … * U.S. producer prices for finished goods (wholesale costs) increased less than predicted in October, indicating decreases in prices of cars, computers and trucks that shows lessened demand is keeping inflation in check (Bloomberg Nov. 16). The producer price index rose 0.4% from the previous month, the Labor Department said Tuesday. Economists had forecast 0.8% October gain, according to a Bloomberg News survey. The core measure--which excludes volatile food and energy costs--dropped 0.6%, the most since July 2006. “Wage pressure is very little and this has only limited potential for boosting price levels,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “If you look at specific sectors like commodities, we are seeing some inflation.” Core prices for crude and intermediate goods also showed gains (Moody’s Economy.com Nov. 16) …

News of the Competition (11/15/2010)

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MADISON, Wis. (11/16/10)
* Three banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 146, compared with 140 for all of 2009. The banks include Tifton Banking Company, Tifton, Ga., and Darby Bank & Trust Co., Vidalia, Ga., assumed by Ameris Bank, Moultrie, Ga.; and Copper Star Bank, Scottsdale, Ariz., assumed by Stearns Bank National Association, St. Cloud, Minn. The three closed institutions held roughly $1 billion in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $204 million ... * In attempts to push down borrowing rates to help reduce unemployment and avoid deflation, the Federal Reserve Friday started a second round of unconventional monetary easing by purchasing roughly $7.23 billion of Treasuries (Bloomberg.com via American Banker Nov. 15). The acquisitions are a component of the Fed’s plan to acquire $600 billion of Treasuries through June and to reinvest mortgage holdings, Bloomberg said. The policy, which is called quantitative easing, has engendered criticism from officials in several nations--including China, Germany and Brazil--who said the infusion of cash into the banking system could hurt economies worldwide … * General Motors Co.’s (GM) initial public offering (IPO) this week will involve a sale of 365 million shares, or a 24% stake, priced at $26 to $29 per share, according to a filing with the Securities and Exchange Commission (Bloombeg.com Nov. 15). The automaker also is offering $3 billion of preferred shares that will become common stock, Bloomberg said. About 90,000 active workers in the U.S. and Canada, 3,000 dealers and more than 500,000 retirees and surviving spouses are being given the opportunity to buy shares in GM’s IPO (The New York Times Nov. 14). Many retirees are trying to decide if they should put the reorganized company’s stock back in their retirement investment mix after seeing their GM stock vanish in bankruptcy last year, the Times said ...

Market News (11/15/2010)

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MADISON, Wis. (11/16/10)
* In a sign that consumers may have a larger role in the economic recovery, U.S. retail sales rose in October by the most in seven months (Bloomberg.com Nov. 15). Sales rose 1.2% following a 0.7% increase in September, the Commerce Department said. “We expect the holiday shopping season to really ramp up in November,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The breadth of discounting” [and steady income gains] are “providing some support.” Stock gains during the past two months and growing employment may boost consumer spending--the biggest component of the economy--in the next few months, Bloomberg said. Purchases of motor vehicles and building materials helped raise sales in October (The New York Times Nov. 15). Sales were 7.3% higher than their year-ago level--the second consecutive month of sales being above 7% growth (Moody’s Economy.com Nov. 15) … * Total business inventories in the U.S. rose more than anticipated in September because companies were stockpiling in anticipation of the holiday season (Bloomberg.com Nov. 15). The 0.9% gain announced Monday by the Commerce Department matched the August increase. Economists surveyed by Bloomberg had forecast a 0.8% increase in September. “As we see inventory investment decelerate in coming quarters, the impact on gross domestic product will be negative,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “[At the same time], inventory levels remain fairly lean and companies will need to continue restocking shelves and warehouses.” The steepest increase was in the wholesale sector, which saw a 1.5% gain, although strong improvements were seen in the manufacturing and retail areas (Moody’s Economy.com Nov. 15) …

Market News (11/12/2010)

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MADISON, Wis. (11/15/10)
* Consumer sentiment in the U.S. climbed to a five-month high during November, with consumers gaining confidence for the first time in three months, according to the Thomson Reuters/University of Michigan preliminary sentiment index. The index rose to 69.3 and is in line with forecasts by economist surveyed by Bloomberg News. November's index reading, which is the highest level since June and an increase from 67.7 in October, raises the odds of an improving job market and increasing wages and stock prices will boost consumer spending, said the report. The measure averaged 88.9 in the five years preceding the beginning of the last recession in December 2007 (MarketWatch and Bloomberg.com Nov. 12) … * Home prices dropped in almost half of the nation's metropolitan areas during third quarter, which indicates the market is losing steam without government tax credits, reported The Wall Street Journal Nov. 12). The median price for resales decreased in 76 out of 155 areas, increased in 77 areas and stayed the same in two areas, said the National Association of Realtors (NAR) at www.realtor.org. The national median price for single-family homes--$177,900--was basically unchanged from the July-September period and down 0.2% from a year earlier. Areas with the biggest declines from a year ago were Ocala, Fla. (20% decline), Melbourne, Fla. (15%), and Tucson, Ariz. (15%) …

News of the Competition (11/12/2010)

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MADISON, Wis. (11/15/10)
* Morgan Stanley is discussing spinning its largest proprietary-trading division, Process Drive Trading (PDT), into a separate company; however, an agreement has not been reached yet, said people familiar with the discussions (Bloomberg Nov. 12). The sixth-largest bank in the U.S. has dropped all but one of its major proprietary businesses. The Volcker rule, which became part of the Dodd-Frank bill in July, prohibits banks from risking capital by wagering for their own accounts, said the article. Morgan Stanley has discussed keeping a stake in the new company. PDT brought in a quarter of Morgan Stanley's earnings during the late 1990s and early 2000s but lost as much as $500 million in less than a month during third quarter 2007, the article said. It rebounded in 2008 and returned 25% when the Standard & Poor's 500 Index had its worst drop in seven decades. Morgan Stanley reported $9.4 billion of writedowns related to mortgage holdings in fourth quarter 2007 … * The number of properties seized by banks in October fell 9%-- the biggest decline all year--to 93,236. That is down from the record foreclosures totaling 102,134 in September, according to RealtyTrac Inc., an Irvine, Calif.-based firm that tracks the data (Bloomberg.com Nov. 11). Foreclosure filings--including auction notices and defaults--dropped 4% to 332,172 from September. One in 389 households received a filing. Last month's foreclosures "probably would have been higher except for the fallout from the recent 'robo-signing' controversy," said RealtyTrac CEO James J. Saccacio. An investigation by the attorneys general of 50 states into banks' foreclosure practices is underway and includes determining whether banks and loan servicers used false documents and signatures. The probe is on a "fast track," said Iowa Attorney General Tom Miller, who is heading the probe. Bank of America Corp. temporarily halted its repossessions nationwide as it reviewed its processes, and Ally Financial Inc.'s GMAC unit and JPMorgan Chase & Co. each froze home seizures in states where courts oversee foreclosures, the article said …

News of the Competition (11/11/2010)

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MADISON, Wis. (11/12/10)
* Debit card issuers are planning to reduce or eliminate rewards programs as they await the Federal Reserve’s new interchange rules (American Banker Nov. 10). A drop-off in interchange revenue--the major source of funding for rewards programs--is forcing banks to make reductions, said analysts and payment executives. “I think this is the first step of what most in the industry see as inevitable--and that is the demise of rewards on debit cards,” Bill McCracken, CEO of Synergistics Research Corp., told the Banker. If rewards programs are not eliminated, then specific customer segments likely will be denied certain debit rewards, the publication said …

Market News (11/11/2010)

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MADISON, Wis. (11/12/10)
* Initial U.S. claims for unemployment benefits dropped last week to the lowest level in four months, adding to growing evidence that the U.S. labor market is on the mend (Bloomberg.com Nov. 10). Claims decreased 24,000 to 435,000 for the week ended Nov. 6, the Labor Department said Wednesday. The total number of people receiving unemployment benefits dropped to the lowest level since November 2008, and those receiving extended benefits also decreased. “This is further confirmation that the job market is slowly improving,” said Russell Price, a senior economist at Ameriprise Financial Inc. “We are now headed in the right direction and may make some progress in breaking free of the range we’ve been stuck in since the beginning of the year.” Meanwhile, continuing claims fell 85,000 to roughly 4.3 million for the week ending Oct. 30, although there are millions more not tallied in this figure who are on extended and emergency benefits (Moody’s Economy.com Nov. 10) … * Mortgage loan application volume increased 5.8% on a seasonally adjusted basis for the week ended Nov. 5 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Index rose 5.4%, compared with the previous week. The Refinance Index went up 6%. The seasonally adjusted Purchase Index rose 5.5%. This is the third consecutive weekly increase in purchase applications. The unadjusted Purchase Index went up 3.1% and was 14% lower than the same week one year ago. The conventional purchase index increased 5.4% to its highest level since May of this year, on a seasonally adjusted basis. On a non-seasonally adjusted basis, the conventional purchase index was at the highest level observed since early October. “Although mortgage rates were little changed following the Federal Reserve’s decision to purchase $600 billion of Treasury bonds over the next eight months, mortgage applications increased last week,” said Michael Fratantoni, MBA vice president of research and economics. “The increases in purchase applications we have seen over the past couple of weeks align with the better-than-expected news from October’s employment report and other data indicating some improvement in the economy’s growth prospects. Refinance applications increased as rates continued to hover near record lows.” For The MBA Report, use the link … * The U.S. trade deficit substantially narrowed in September because gaps with major trading partners shrank as overall U.S. imports declined (The Wall Street Journal Nov. 10). The gap contracted 5.3% to $44 billion, the Commerce Department said Wednesday. Exports rose 0.3% due to foreign demand for aircraft, food and generators (Bloomberg.com Nov. 10). “Exports are probably going to be supported by the weaker dollar,” said Ed Kashmarek, an economist at Wells Fargo Securities LLC in Minneapolis. “The weaker dollar also is going detract a little bit from imports” …

News of the Competition (11/10/2010)

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MADISON, Wis. (11/10/10)
* First-time defaults among U.S. homeowners who have never fallen two months behind on mortgages backing non-agency securities are rising for the first time in a year, according to Amherst Securities Group LP (Bloomberg News via American Banker Nov. 9). In September, first-time defaults increased to 1.1% of previously “always performing” mortgages, based on payments due in September--from 1% the prior month, said the securities firm. Though the recent rise is likely due in part to seasonal fluctuations, it also portends that a return to home-price declines may cause more homeowners to halt their home payments, said Amherst analyst Laurie Goodman. “Negative equity is the single most important driver of defaults,” Goodman said, referring to borrowers who owe more than their properties are worth. “We’ve got to see what happens over the next few months” … * A Federal Reserve survey indicates that banks have reported a slow loosening of credit standards in recent quarters, but that it may take time before lending standards return to normal (American Banker Nov. 9). The October report indicates that only 10 out of 52 banks (19.2%) surveyed expect loan standards to remain tight in the foreseeable future for commercial and industrial lending to middle- and large-market firms that have yearly sales of $50 million or more …

Market News (11/10/2010)

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MADISON, Wis. (11/10/10)
* For a second consecutive month, U.S. job openings declined in September, indicating that a sustainable labor market recovery will need time to take hold, according to a Labor Department report issued Tuesday (Bloomberg.com Nov. 9). Openings slid down 5.3% by 163,000 to 2.93 million from roughly 3.1 million. “The labor market will be weak for many years,” said Paul Dales, a U.S. economist at Capital Economics Ltd. “We won’t see strong, sustained growth for a while. The unemployment rate will stay at high levels.” Job separations inched down to 4.19 million from 4.2 million--thereby offsetting hires for the month (Moody’s Economy.com Nov. 9) ... * U.S. CEOs gained confidence at the start of the fourth quarter because more of them forecast increased sales and spending on equipment, according to a recent survey (Bloomberg.com Nov. 9). The Young Presidents’ Organization (YPO) gauge of sentiment increased to 59.9 in October from 57. 5 in July. Readings greater than 50 indicate the outlook of executives is more positive than negative. Also, 49% of CEOs surveyed said they anticipate economic conditions to improve in six months, while 60% expect sales to increase in the coming year. “Particularly encouraging was the improvement in hiring expectations, the brightest outlook yet for fixed investment, and the first signs of improvement we’ve seen in the construction sector since YPO began the survey,” said David Maney, spokesman for the survey. In a related matter, small-business confidence is slowly recovering, according to the National Federation of Independent Business (NFIB). The NFIB Small-Business Economic Trends Index rose by 2.6 points to 91.7 in October from the prior month …

News of the Competition (11/08/2010)

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MADISON, Wis.
* Four banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 143, compared with 140 for all of 2009. The banks include K Bank, Randallstown, Md., assumed by Manufacturers and Traders Trust Company (M&T Bank), Buffalo, N.Y.; Western Commercial Bank, Woodland Hills, Calif., assumed by First California Bank, Westlake Village, Calif.; Pierce Commercial Bank, Tacoma, Wash., assumed by Heritage Bank, Olympia, Wash.; and First Vietnamese American Bank, Westminster, Calif., assumed by Grandpoint Bank, Los Angeles. The four closed institutions held roughly $906 million in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $255 million ... * Fannie Mae reported Friday that it experienced nearly a $3.5 billion loss in the third quarter and it will request an additional $2.5 billion from the Treasury Department (American Banker Nov. 8). A $2.12 billion dividend payment to the government was a major component of Fannie’s $2.4 billion deficit at the end of the quarter, and led to the government-sponsored enterprise’s request for the additional money from the Treasury, the Banker said. Credit-related expenses, which included provisions for future loan losses and foreclosed property expenses, totaled $5.56 billion, down significantly from $21.96 billion in third quarter 2009, but up somewhat from $4.85 billion in the second quarter, partly because of increased acquisitions of foreclosed properties, Fannie said …

Market News (11/08/2010)

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MADISON, Wis. (11/9/10)
* Buoyed by nearly $2 trillion of Federal Reserve spending and a global economic recovery, more U.S. CEOs than ever are raising their earnings forecasts, compared with those lowering them (Bloomberg.com Nov. 8). “It is important for the rally and for the general health of the market that investors continue to anticipate higher earnings,” said Dean Gulis, who manages $3 billion for Loomis Sayles & Co. in Bloomfield Hills, Mich. “That companies themselves are expecting better profits is very positive. As we see rising earnings, we’ll see improving stock prices.” EBay Inc., United Parcel Service Inc. and 196 other firms increased profit estimates above analysts’ forecasts in October, while 130 companies cut them--creating the biggest gap since Bloomberg began tracking such data in 1999 … * U.S. bankruptcy filings dropped in the third quarter--marking the fifth consecutive quarterly decline for business filings and the second decline in the past four quarters for personal filings, according to U.S. Bankruptcy Courts (Moody’s Economy.com Nov. 8). Business bankruptcies were down 8% from last year. Year-over year growth in personal filings continued to decline. Person filings were 6.7% higher than last year--and only 3.2% higher than the average level of filings from 2001 through 2004--before reform legislation was enacted, and in a significantly better credit environment, Moody’s said …

News of the Competition (11/05/2010)

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MADISON, Wis. (11/8/10)
* JPMorgan Chase & Co. said it will resume filing paperwork in the “next couple of weeks” related to 127,000 foreclosures it had suspended because of documentation errors, said a company spokesman (American Banker Nov. 5). It would require “three to four months to get all of these documents” refiled because of time needed to reprocess affidavits and other legal documents in 40 states, said Charlie Scharf, CEO for the company’s retail bank. The average mortgage it seizes hasn’t been paid in more than 14 months, Scharf said, adding that half the homes taken back are either occupied by a renter or vacant … * Chrysler Group LLC today may report its smallest quarterly loss since emerging from bankruptcy protection--bolstered by the largest sales gain among domestic automakers (Bloomberg.com Nov. 5). Chrysler is controlled by Italian automaker Fiat SpA. Chrysler is expected to report a loss of $129 million for the third quarter, which would be less than the company’s $172 million second-quarter loss and an indication Chrysler is recovering nearly 18 months after coming out of bankruptcy, Bloomberg said …

Market News (11/05/2010)

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MADISON, Wis. (11/8/10)
* U.S. nonfarm payrolls increased more than anticipated in October, indicating businesses may be starting to become more confident about prospects for faster economic growth (Bloomberg.com Nov. 5). Payrolls rose 151,000, following a revised 41,000 decline in September, the Labor Department said Friday. “This is very optimistic news and it comes in the wake of other fairly good news,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass. “It looks like the last month or two things have started to move upward again, and the momentum is hopefully building.” October’s gain was led by a 159,000 increase in private employment, with government employment falling 8,000 (Moody’s Economy.com Nov. 5). However, more improvement is needed in the labor markets to lower the unemployment rate, which remained at 9.6% in October, Moody’s said … * The Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 123.2 for the week ended Oct. 29--the second consecutive weekly gain--from a revised 123, previously 123.1, according to ECRI (Moody’s Economy.com Nov. 5). The smooth annualized rate remained at -6.5%, with no revisions to the previous week. Since July, the index has shown a gradual upward trend, portending that the economy will not return to recession in 2011, ECRI said. For the recovery to remain on track, the recent trend of net jobs gains will have to continue, Moody’s said …

News of the Competition (11/04/2010)

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MADISON, Wis. (11/5/10)
* Freddie Mac is not likely to be stringent in enforcing contracts with mortgage servicers that have identified defects in foreclosure documentation in recent weeks, even though the government-sponsored enterprise (GSE) said it thinks some contracts may have been violated (American Banker Nov. 4). “While we believe that our seller/servicers would be in violation of their servicing contracts with us [if] they improperly executed documents in foreclosure or bankruptcy proceedings … it may be difficult, expensive and time-consuming for us to enforce our contractual rights,” Freddie said in its third-quarter report filed with the Securities and Exchange Commission Wednesday. The GSE said its relationships with big lenders could be harmed by enforcing those contractual rights. Freddie also said that foreclosure delays related to document deficiencies could substantially increase its costs and lead to larger losses, according to the Banker … * Although Ally Financial Co. “screwed up on robo-signing affidavits,” the company will alter its foreclosure practices and will complete a review of roughly 25,000 affidavits by the end of 2010, said CEO Michael Carpenter (American Banker Nov. 4). Ally is taking a “second and third look” in advance of foreclosure sales in all 50 states, Carpenter said. The company also hired three law firms and an accounting firm to examine “what went wrong” and to mastermind process changes, the publication said …

Market News (11/04/2010)

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MADISON, Wis. (11/5/10)
* Initial claims for unemployment benefits rose more than anticipated last week, indicating the labor market will need more time to improve (Bloomberg.com Nov. 4). Claims increased 20,000 to 457,000 for the week ended Oct. 30, from an upwardly revised 437,000 the previous week, the Labor Department said Thursday. “[Claims have] been relatively steady, consistent with lackluster-to-moderate labor market conditions,” said Scott Brown, chief economist at Raymond James & Associates Inc. Meanwhile, continuing claims fell 42,000 to 4.34 million for the week ended Oct. 23, although that figure does not include millions more who are on extended and emergency benefits. In a related matter, online help-wanted ads decreased by two points in October from September, according to the Monster employment index released by Monster Worldwide Inc. (Moody’s Economy.com Nov. 4). Although half of all U.S. industries posted a net increase in help-wanted ads in October, those gains were more than obviated by declines in goods-producing industries and management and accommodation services … * Because companies have stepped up efforts to control costs, third-quarter worker productivity increased more than forecast (Bloomberg.com Nov. 4). Companies have ramped up cost-cutting measures because of signals the economic recovery is slowing, Bloomberg said. Nonfarm business productivity increased at a 1.9% annualized rate in the third quarter, with unit labor costs dropping 0.1%, the Labor Department said Thursday (Moody’s Economy.com Nov. 4). “[The productivity gain] is a double-edged sword,” said John Herrmann, senior fixed-income strategist at State Street Global Markets. “On one hand, it slows the pace of hiring, but it’s a strong plus for business-operating results.” From the standpoint of the Federal Reserve, “very low unit-labor costs mean there is very little inflation pressure in the economy,” Herrmann added …

Feds second round of quantitative easing no shock and awe

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WASHINGTON (11/4/10)--Wednesday's announcement by the Federal Reserve's policymakers regarding their second round of quantitative easing (QE-2) was "not really the shock and awe some were expecting," said Steve Rick, Credit Union National Association (CUNA) senior economist. The Federal Open Market Committee (FOMC) announced the Fed intends to purchase $600 billion of longer-term Treasuries but kept the targeted federal funds rate the same, at 0% to 0.25%. "The Fed intends to purchase $600 billion of longer-term Treasury securities over the next eight months, or $75 billion per month. The Fed decided against a more aggressive move because of concerns that a larger purchase program could send a signal to investors that the Fed was panicking," Rick told News Now. "This new policy is set against an economic backdrop of already low interest rates, strong global growth, business risk aversion and upward cyclical momentum. "By pushing longer-term interest rates down, the Fed is creating the necessary conditions for faster growth, but not the sufficient conditions, like a jump in business and consumer animal spirits. The policy should help prevent the recent disinflation from becoming deflation," Rick added. "This monetization of Treasury debt will lead to lower interest rates, a lower value of the dollar, higher stock prices and rising inflation expectations," he said. "These four effects should help support consumer spending, business investment and foreign spending on U.S. exports. Lower interest rates will also help firms and households repair their balance sheets through the refinancing of existing debt." However, the activity will affect credit unions. "This refinancing activity will have downward pressure, however, on credit union asset yields and ultimately net interest margins," Rick said. The targeted federal funds rate, which has been near zero for nearly two years, can't go any lower. FOMC said it will maintain the target range for the federal funds rate at 0% to 0.25% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The FOMC noted that household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. "Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate. Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow," the committee said. FOMC will monitor the pace of securities purchases and size of the asset-purchase program and "will adjust the program as needed to best foster maximum employment and price stability." It continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen. Voting against the policy was Thomas M. Hoenig, who believed the risks of additional securities purchases outweighed the benefits, and was concerned that a continued high level of monetary accommodation increased the risks of future financial imbalances and over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

Market News (11/03/2010)

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MADISON, Wis. (11/4/10)
* Third-quarter 2010 homeownership rates dropped 0.7 of a percentage point from a year ago, but the 66.9% ownership rate remained unchanged from the previous quarter. Still it is the lowest rate since 1999. The bad homeownership news hit minority Americans the hardest (American Banker Nov. 3). While the rate for whites was down 0.3 of a percentage point, to 74.7%, homeownerships rates for blacks was 45%, down from 46.4% a year ago. And for Hispanics it was 47%, down from 48.7%. The figures are based on U.S. Census Bureau reports … * In a good news-bad news scenario on the job front, Chicago-based Challenger, Gray & Christmas Inc. reported that while job cuts in October were the lowest in a decade, a lack of hiring--fueled by depressed consumer and business spending--is continuing to restrain the job market. Planned firings fell 32%, to 37,986 layoffs last month from 55,679 in October 2009 (Bloomberg Nov. 3). The entertainment and leisure industries announced the biggest number of job reductions, with 5,059 cuts. Government and non- profits came in second with 4,749 planned firings. And the state with the most cuts, New York, led all with 7,363 reductions, followed by its neighbor, New Jersey, with 5,410. The Wednesday Challenger report also showed the following planned gains: companies announced plans to add 124,766 workers …

News of the Competition (11/03/2010)

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MADISON, Wis. (11/4/10)
* Banks are attempting to lift their net interest margins by reducing short-term debt, and in the past six months the 25 biggest banks have shrunk their senior debt by about 9% (American Banker Nov. 3). Gerard Cassidy, an analyst at Royal Bank of Canada’s RBC Capital Markets, offers a checklist of things bank financial officers might do to if awash with low-cost deposits, but each presents its challenges. First among them would be to increase assets, though banks claim there is a paucity of creditworthy borrowers. A second option would be increased investments in securities, but the reality is that low rates on government bonds are not luring bank purchases. The article, which relates the strategies of some of the country’s major banks, also noted that some approaches could backfire should the current, historically low, interest rates start rising. D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte, said that increasing rates are not likely to become an issue this year, or even in 2011. Plath also said banking companies could invest in subordinated debt if the Federal Reserve meets expectations that it would buy longer-term bonds from financial institutions … * Housing market weakness led to a third-quarter loss of $4.1 billion and another draw from the U.S. Treasury, reported housing giant Freddie Mac on Wednesday. The loss included a $1.6 billion dividend payment on senior preferred stock that was purchased by the Treasury to bolster Freddie Mac since the housing slump and troubled economy pushed Freddie Mac into conservatorship in 2008 (The New York Times Nov. 3). The mortgage-purchasing government-sponsored enterprise warned that its troubles are not yet over and said snags causing delays in the foreclosure processes at major loan servicing companies could increase costs “significantly.” “As we near the end of 2010, the housing market remains fragile and has recently come under renewed pressure from slowing economic growth, weaker employment and foreclosure uncertainties,” Freddie Mac Chief Executive Charles E. Haldeman Jr. said …

News of the Competition (11/02/2010)

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MADISON, Wis. (11/3/10)
* With more consumers paying for purchases with credit and debit cards, MasterCard Inc.--the second-largest payments network in the world--recorded a third-quarter profit that exceeded analysts’ forecasts (Bloomberg.com Nov. 2). Net income rose 15% to $518 million, or $3.94 per share, from $452 million, or $3.45 per share during the same period a year earlier, the company said. The average estimate of analysts surveyed by Bloomberg was $3.54 per share. MasterCard CEO Ajay Banga is trying to bolster revenue growth by targeting markets beyond the U.S. and hastening the global consumer shift to plastic from cash and checks, while seizing market share from larger rival Visa Inc., Bloomberg said … * The U.S. government will lessen its ownership stake in General Motors Co. (GM) below a symbolically important 50% to roughly 35% when the automaker relists its stock later this month, according to figures GM was set to disclose Tuesday (The Wall Street Journal Nov. 2). However, it will be difficult for the government to break even on its investment. To do so, its share price may need to increase more than 60% from its initial level to about $50, the Journal said. The initial public offering would have share prices in the range of $26 to $29 each, sources told the Journal … * The Securities and Exchange Commission (SEC) is looking into a transaction that transpired between JPMorgan Chase & Co. and the Magnetar Capital hedge fund, according to ProPublica, which cited sources familiar with the matter (Dow Jones via American Banker Nov. 2). The SEC is investigating whether the hedge fund improperly selected assets for a $1.1 billion deal backed by subprime mortgages, said ProPublica. The deal, finalized in May 2007, was a collateralized debt obligation (CDO) that included parts of other CDOs, ProPublica reported …

Market News (11/02/2010)

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MADISON, Wis. (11/3/10)
* The third-quarter U.S. home ownership rate remained unchanged at a 10-year low while banks ramped up property seizures from borrowers who defaulted on mortgage loans (Bloomberg.com Nov. 3). The rate was 66.9%--the same as the second-quarter level that was the lowest since 1999--the U.S. Census Bureau said in a report Tuesday. Also, the homeowner vacancy rate, which is the portion of properties vacant or for sale--was unchanged at 2.5%, the report indicated. “A lot of foreclosed homes are sitting on the market,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight in Lexington, Mass. “Demand for them is weak because of the economy.” The home ownership rate dropped from 67.6% in third quarter 2009. The rate reached its zenith in the second and fourth quarters of 2004 at 69.2% … * U.S. chain store sales inched up 0.1% for the week ended Oct. 30--recording the first back-to-back weekly sales gains since July, according to the International Council of Shopping Centers (ICSC). Year-over-year growth rose to 2% from 1.9%. Consumers are only slightly elevating their spending, ICSC said. Weak consumer fundamentals are holding back spending growth, with the biggest drag being the slow improvement of the U.S. labor market (Moody’s Economy.com Nov. 2) …

News of the Competition (11/01/2010)

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MADISON, Wis. (11/2/10)
* Hundreds of Bank of America (BofA) employees are trying to fix any problems that arise with 102,000 foreclosure files at five of its offices nationwide (The Wall Street Journal Nov. 1). Handling the foreclosure mess is a difficult task for BofA, which was a small participant in the mortgage-servicing industry before its 2008 acquisition of Countrywide Financial Corp., the Journal said. The Treasury Department-encouraged takeover swelled the size of the combined company’s servicing unit to 14 million loans from four million. More than 85% of BofA’s 1.3 million mortgage customers, who are now at least 60 days behind on their payments, obtained their loans from Countrywide, the Journal said … * The Federal Home Loan Bank system’s 12 banks all reported net income for the third quarter--indicating there were fewer writedowns on mortgage-backed securities (Dow Jones via American Banker Nov. 1). The banks’ combined net income for the quarter was $732 million, compared with a combined loss of $165 million a year earlier, when five banks reported losses …

Market News (11/01/2010)

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MADISON, Wis. (11/2/10)
* Despite low prices, U.S. consumer spending rose less than anticipated in September, as personal incomes unexpectedly dropped for the first time in more than a year (The Wall Street Journal Nov. 1). Purchases rose 0.2%--the smallest gain in the third quarter, the Commerce Department said Monday. High unemployment is causing damage to the economy, which may cause Federal Reserve policymakers to inject more money into the economy after they meet this week, as inflation is retreating (Bloomberg.com Nov. 1). “The quarter ended on a softer note,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “[The report] reinforces the case for the Fed to act this week. It’s getting harder and harder to argue inflation is near where the Fed wants it to be.” U.S. personal income declined in September by 0.1% from August--the first decline in a year (Moody’s Economy.com Nov. 1) … * Increases in homebuilding and private projects led to a rise in U.S. construction spending in September (Bloomberg.com Nov. 1). Spending rose 0.5% to $801.7 billion in September, following a revised 0.2% drop--previously 0.4%--in August, the Commerce Department said Monday. “Construction is still a very low- to no-growth scenario for the next nine months at least,” said Russell Price, a senior economist at AmeriPrise Financial Inc. “There’s still a lot of capacity out there to be absorbed. We’ve already been seeing some hit to infrastructure spending from budget cuts on the state and local government, especially as the federal stimulus eases.” Private construction spending stayed roughly the same as its August level--with a substantial rise in residential construction spending being offset by a similar decline in nonresidential construction spending. Public construction spending saw a modest rise in September (Moody’s Economy.com Nov. 1) … * Because factory orders and measures of production rose to five-month highs, U.S. manufacturing grew more than forecast in October (Bloomberg.com Nov. 1). The Institute for Supply Management’s (ISM) factory index increased to 56.9--the highest level since May--from 54.4 in September, ISM said Monday. “Manufacturing is still at the head of this recovery,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. “The numbers are strong across the board. It isn’t just inventory building, it is responding to growth in demand probably both here and abroad.” New factory orders increased by 7.8 points to 58.9, while inventories dropped to 53.9 from 55.6 (Moody’s Economy.com Nov. 1) …