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News of the Competition (12/31/2007)

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MADISON, Wis. (1/2/08)
* U.S. banks' derivatives trading revenue dropped 62% during third quarter 2007, said the Office of the Comptroller of the Currency (OCC) in a report released Friday (American Banker Dec. 31). Banks' trading revenue totaled $2.3 billion in third quarter, compared with $6.2 billion in second quarter. OCC attributed the decline on the credit market, including increased credit spreads, ineffective hedging and poor liquidity. Growth in the net current credit exposure, which OCC monitors to measure credit risk for derivatives, rose 27% during third quarter, to $252 billion. Banks totaled $223 million in contracts at least 30 days past due during third quarter, up from $48 million in second quarter. However, that amount is roughly 0.09% of net current credit exposure from derivatives contracts. Banks also charged off $119 million of derivatives receivables--or 0.05% of the exposure from derivatives. OCC also said the notational amount of derivatives held by banks rose 13% to $172 trillion. Revenue from interest rate contracts grew 3% to a record $3.1 billion while earnings from foreign exchanges increased 59% to $2 billion … * Deutsche Bank may be affected by a court decision last week that ruled as invalid a tax avoidance scheme that creates artificial losses used to offset legitimate gains. The decision by the U.S. Court of Federal Claims handed the Internal Revenue Service another weapon against questionable tax shelters sold to wealthy taxpayers. The "Son of Boss" scheme was widely used as a tax shelter since the late 1990s. The German bank is being investigated in Manhattan over questionable tax shelters similar to the Son of Boss. Jade Trading, a partnership controlled by Robert W. Ervin of Sturgis, Ky., sued the IRS for a refund after the IRS ruled its tax deductions as invalid. Ervin and his brothers used the shelter to offset taxes on their $40 million profits from selling their cable television business. The Ervin brothers paid fees to American International Group and to Sentinel Advisors and others for the shelter to set up the shelters (The New York Times Dec. 27) …

Market News (12/31/2007)

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MADISON, Wis. (1/2/08)
* U.S. existing-home sales rose an unexpected 0.4% in November--to an annual rate of five million from a revised 4.98 million in October, according to the National Association of Realtors (NAR) (realtor.org Dec. 31). It is the first climb in nine months, but it suggests that the housing slump will continue to weigh down the economy. Sales were down 20% from November 2006. Analysts had forecast November's sales to stay steady at 4.97 million with October, which had the lowest sales pace since recordkeeping began in 1999 (Moody's Economy.com and The Wall Street Journal Dec. 31). Median prices fell 3.3% to $210,200 from $217,300 in November 2006 and were down 31% from their peak in July 2005. Total inventory declined 3.6% at the end of November to 4.27 million existing homes available for sale--a 10.3 month supply at the current sales pace, said NAR. "Inventory is still high, and further reduction in prices may be required in some areas to induce buyers back into the market," said Lawrence Yun, NAR chief economist. The national average commitment rate for a 30-year, conventional fixed-rate mortgage dropped to 6.21% from October's 6.38% and 6.24% in November 2006 … * Defaults on privately insured U.S. mortgages rose 35% during November to a record, according to data from the Mortgage Insurance Companies of America, an industry trade group. The number of insured borrowers more than 60 days late on payments rose to 61,033--from 45,325 in November 2006. That figure is a 2.9% increase from October. The missed payments often signal possible foreclosures (Bloomberg.com Dec. 31). MGIC Investment Corp., the largest U.S. mortgage insurer, and PMI Group Inc., the second largest, reported losses during third quarter, their first unprofitable quarter as public companies. MGIC became public in 1991 and PMI in 1995, said Bloomberg.com. The third-largest mortgage insurer, Raddon Group Inc. is down 79% this year. Still, mortgage sales are growing so lenders can spread their risk. Members of the insurance trade group issued 153,865 policies to homeowners last month, up 67% from a year ago … * Great Britain's pound saw its first annual drop in three years against the euro as analysts attempted to forecast whether the Bank of England (BOE) would keep cutting interest rates while the European Central Bank keeps its rates steady. The British pound had its largest drop in 4.5 years this month--3.1%--and dropped 9% against the European common currency during 2007. According to Peter Rosenstreich, chief market analyst at Advanced Currency Markets in Geneva, Britain is now duplicating the trend seen earlier in the U.S. He suggested the BOE take the "same aggressive steps" as the Federal Reserve. The U.S. dollar last week dropped against the euro six consecutive days--the longest decline since October and the biggest weekly decrease against the euro since April 2006 (Bloomberg.com Dec. 31 and Dec. 28) …

Market News (12/28/2007)

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MADISON, Wis. (12/31/07)
* Sales for new homes in the U.S. fell 9%--more than analysts expected--to a 12-year low during November, indicating that more declines in construction will hamper economic growth throughout 2008 (Bloomberg.com Dec. 28). According to the Commerce Department, November sales dropped to 647,000 annualized units. October sales were revised downward to 711,000 from its previous 728,000 units. The month's figures mean that new home sales are down more than 34% from a year ago--the biggest 12-month decline since January 1991's 35.3% decline in sales. Analysts surveyed by Bloomberg had forecast November sales would drop to 717,000 on average. The estimates ranged from 685,000 to 750,000. The median price of a new home dropped 0.4% to $239,100 during November--from $240,100 a year ago and $229,500 in October. The average price grew 0.5% to $293,300, compared with $291,800 a year ago and $307,900 in October (The Wall Street Journal Dec. 27) … * Holiday e-commerce sales were robust--at 19%--but saw their slowest growth ever, said industry analysts. Although a 19% growth would make traditional retailers happy, the figure was down sharply from the 25% to 30% growth rates online retailers have experienced the past few years. American consumers were expected to spend about $29.5 billion at online retailers during the holidays, according to comScore, a market researcher. Offline sales grew 3.6% from Thanksgiving to Christmas, according to estimates by MasterCard Advisors. That compares with 6.6% in previous years. Shop.org has projected that Internet sales will increase 18% overall for 2007, compared with about 25% in recent years (The New York Times Dec. 28) … * Business activity grew in Chicago and New York during December, according to the Chicago Purchasing Managers Index (PMI) and the National Association of Purchasing Managers in New York (Moody's Economy.com Dec. 28). Chicago's index was much stronger than expected--at 56.6 points--for a six-month high. The December index is 3.7 points higher than November's. Expectations had been for a modest decline. The improvement the past two months indicates that factory activity may be stabilizing slightly in the Midwest. In New York's report for December, the Business Conditions Index rose for the third straight month--by 4.1 points to 449.1, its highest level since June. However, the strong activity in the region may be slowing slightly. The rise in the index has slowed from last month and the current and future conditions indices eroded slightly during December … * Gasoline prices rose again to $3 a gallon Friday, lagging slightly behind an increase in oil futures related to concerns about inventories and possible disruptions in supply in the Middle East (The New York Times Dec. 28). Retail gas prices are expected to increase to new record highs in the spring, following oil futures' lead. The Oil Price Information Service predicts prices at the pump will peak at $3.50 to $3.75 a gallon this spring, and the Energy Information Administration expects prices to peak above $3.40 a gallon. Last May gas prices hit $3.227 a gallon--a record. Although prices eased, they rose again in November to more than $3.112 a gallon. The price went back down as supplies grew and demand lightened. However, concerns for the stability in the Middle East now include issues related to Turkish attacks in northern Iraq and Thursday's assassination of Pakistan's opposition leader, Benazir Bhutto. While Pakistan isn't an oil producing country, it plays a key role in regional politics … * The Economic Cycle Research Institute (ECRI) Weekly Leading Index dropped to 135.2 for the week ended Dec. 21, from an unrevised 136.2, and the annualized growth rate was down to -5.2% from an unrevised -4.8%. The growth rate, now at its lowest point in five years, has consistently moved downward the past few months. According to Moody's Economy.com, the path of the growth rate is increasingly looking similar to past recession periods. The readings are affected by the volatile financial market surrounding the subprime housing crisis, but the steady increase in initial jobless claims may indicate a loosening of the labor market at a faster pace. The ECRI index indicates that the Federal Reserve likely will make more interest rate cuts down the road, Moody's said …

News of the Competition (12/28/2007)

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MADISON, Wis. (12/31/07)
* In a 48% drop from a year earlier, insured U.S. commercial banks generated $2.3 billion in trading revenues during the third quarter of 2007, the Office of the Comptroller of Currency (OCC) reported Friday in the OCC’s Quarterly Report on Bank Derivative Activities. “The third quarter trading numbers reflect the effects of the recent turmoil in the credit markets,” Kathryn E. Dick, OCC deputy controller for Credit and Market Risk, said in a press release. “Credit trading books were adversely impacted by rising credit spreads, poor liquidity, and ineffective hedging during the quarter.” Revenues from credit intermediations declined $3.5 billion to a loss of $2.7 billion, the OCC reported. Revenues from interest-rate contracts increased $102 million to a record $3.1 billion, and revenues from foreign exchange transactions increased 59% to $2 billion, the OCC said. “Strong client demand for both interest rate and foreign exchange products boosted revenues in these sectors and helped to soften the impact of the poor performance of credit products,” Dick said … * In an initiative designed to unfreeze money markets, the Federal Reserve held its first auction of $20 billion in loans to banks and drew 93 bidders. Although the numbers of bidders indicate interest from around the country, $16.5 billion of loans went to institutions in the New York District, where many of the largest U.S. banks are headquartered. The Fed auctions offer an alternative to borrowing at the Fed’s discount window. Banks have been reluctant to borrow at the discount window because of the stigma attached to it--as a sign of distress (The Wall Street Journal Dec. 28) … * SLM Corp., commonly known as Sallie Mae, is quickening the pace of its move into private loans not backed by the U.S government. The biggest U.S. student lender said it is dealing with a federal inquiry into its billing practices regarding high-return loans. Sallie also faced a recent lawsuit from customers alleging racial discrimination. By selling common and convertible preferred stock, Sallie said it raised $3 billion--due to strong demand--which is $500 million more than it initially expected. The company is using the proceeds to pay for a bad bet on its stock price and to bolster its credit rating. In the wake of Congress slashing subsidies to student lenders and a failed $25 billion takeover bid by a group of investors--spearheaded by private-equity firm J.C. Flowers & Co.--Sallie’s stock has nosedived this year (The Wall Street Journal Dec. 28) … * Hoping to clear out a $231 billion backlog of loans and high-yield bonds, Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are offering discounts of as much as 10 cents on the dollar. Lenders still are struggling to rid themselves of debt incurred by this year’s record $438 billion of leveraged buyouts. The buyouts are the result of losses from securities related to subprime mortgages, which reduced the demand for higher yielding assets, according to data compiled by Bloomberg. Some bonds were sold at a 10%-to face-value discount, and loans were sold at 5% below par, according to London-based Barclays Plc. Leveraged buyouts declined to $101.9 billion in the second half of 2007, from $336.4 billion in the first half, as the subprime market imploded (Bloomberg.com. Dec. 28) …

Market News (12/27/2007)

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MADISON, Wis. (12/28/07)
* U.S. consumers' overall confidence in the economy nudged up on the Consumer Confidence Index during December--to 88.6 from a revised 87.8 in November, said the Conference Board Thursday. It was the first increase in the overall index since July. Still the December reading remains just above the overall index's lowest point since Hurricane Katrina in 2005 (The New York Times and Moody's Economy.com Dec. 27). The increase in December is due largely to an increase in the expectations index, which monitors consumer expectations over the next six months. It rose to 75.5 in December from November's 69.1. However, persistent declines in the present situation index, which measures how consumers feel about the current economy, indicate that measure is weakening. December's reading for the present situation index was 108.3, down from 115.7 in November. More respondents (23.5%) noted that jobs were harder to get in December than in November (21.4%). Fewer said jobs were plentiful (22.7% in December, down from 23.3% in November) … * Applications for mortgages for the week ending Dec. 21 dropped 7.6% on a seasonably adjusted basis to 603.8--or 7% lower than four weeks ago, according to the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey (mortgagebankers.org Dec. 27). The reading is 9% more than its level one year ago. Purchase applications declined 6.6% to 394.5 from 422.2--which is 2% lower than four weeks ago and 1% above a year ago. Refinance applications were down 8.5% to 1,915.3--or 8% lower than four weeks ago and 19% above refinances a year ago. The four-week moving average is down 1.5%, to 715.3 from 725.9, for the Market Index; down 0.5% to 438.2 from 440.4 for the Purchase Index; and down 1.8% to 2412.5 from 2456.9 for the Refinance Index. Refinancings accounted for 53% of total mortgage applications, slightly less than the previous week. Adjustable-rate mortgages accounted for 10.4% of the activity, compared with 9.9% the previous week … * Orders for durable goods--those items that are build to last at least three years--increased by 0.1% during November in a weaker-than-expected performance, reported the Commerce Department Thursday. Analysts had expected durable goods to increase 3% (The Wall Street Journal and Moody's Economy.com Dec. 27). Orders increased to a seasonally adjusted $214.67 billion. In October, durables orders dropped by 0.4%, revised from the previous estimate of 0.2%. They also declined in August and September. Orders for nondefense capital goods excluding aircraft, considered a gauge of business equipment spending, dropped 0.4% after a dive of 2.9% in October. Year-over-year orders dropped 1.8%, and November shipments of these goods, which help calculate gross domestic product, rose 0.2% after a 1.2% drop during October. Bloomberg.com (Dec. 27) noted the orders were restrained by a drop in defense procurement and a waning demand for machinery. … * The number of the nation's workers filing for new unemployment benefits rose unexpectedly by 1,000 to 349,000 claims for the week ending Dec. 22, according to the Labor Department. Analysts had expected claims to fall to 342,000 (The New York Times Dec. 27). The previous week's claims were revised upward to 348,000 from the originally reported 346,000 claims. There were no special factors responsible for the claims, said the department (The Wall Street Journal Dec. 27). The four-week moving average for initial jobless claims dropped to 342,500 from 343,500 the previous week. The number of people remaining on the unemployment rolls for the week ending Dec. 15 increased by 75,000 to 2.713 million from a downwardly revised 2.638 million. Missouri, Arkansas and Kansas each increased more than 1,000 in claims; California, Pennsylvania, Georgia and Michigan claims decreased by more than 1,000 (Moody's Economy.com Dec. 27) … * The fastest-growing states are slowing down in population growth, likely because of the housing market slowdown, according to the Census Bureau's annual estimate of state population changes for the 12 months ended July 1. Nevada was the fastest-growing state, overtaking Arizona, but both grew more slowly than the year before. Wyoming bumped Florida from the Top 10 list of fastest-growing states. Florida had the sharpest population drop--with growth at 1.07%. Michigan and Rhode Island both saw their second consecutive annual losses in population. Michigan lost 30,500 residents for a 0.3% decline. People in the Northeast and Midwest continue to leave for the West and South, with Utah and Idaho claiming the third and fourth fourth-fastest growing state spots, respectively. In California, 263,035 people left for another state, bringing its population growth of 0.8%, mostly due to births. In the South, Georgia, North Carolina and Texas had the largest population gains (The Wall Street Journal and The New York Times Dec. 27) …

News of the Competition (12/27/2007)

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MADISON, Wis. (12/28/07)
* In an attempt to avoid bankruptcy, ACA Capital Holdings Inc.--a bond insurer that lost its investment-grade credit rating last week--agreed to give control to regulators. The New York-based ACA Financial Guaranty Corp.--an ACA Capital unit--is seeking approval from the Maryland Insurance Administration before it pledges or assigns assets or pays dividends, according to an ACA filing with the Securities and Exchange Commission Wednesday. The move should buy the company time needed to postpone bankruptcy, although it appears that bankruptcy may be inevitable, said Nigel Sillis, director of fixed income and assets at London-based Baring Asset Management. After posting a $1.04 billion third-quarter loss in November, Standard & Poor’s downgraded ACA’s rating by 12 levels last week to CCC. ACA has $1.1 billion to cover potential losses of $7.1 billion of bonds it insured, according to information posted on ACA’s website regarding data on claims-paying resources or capital. The regulator will not begin delinquency proceedings now because ACA has until Jan. 18 to post collateral on its guaranteed credit derivatives due to agreements it reached (Bloomberg.com Dec. 27) … * An investor increased his stake in investment bank Bear Stearns to 9.57 %, according to a Wednesday regulatory filing. Joseph Lewis has been upping his stake over the past few months from 7% in September, to 8.01% earlier this month. In September, Lewis purchased $860.4 million worth of the bank’s declining stock to become one of its largest shareholders. From Dec. 6 through Dec. 21, Lewis’s funds bought shares at prices ranging from $89.08 to $110, according to the latest filing with the Securities and Exchange Commission. The Tavistock Group, which is Lewis’s investment vehicle, holds interest in more than 170 companies in 15 countries. He is listed at No. 369 on Forbes’ world ranking of billionaires, with a net worth of $2.5 billion (The New York Times Dec. 27) … * To pay off a failed bet that it made on the price of its own common stock, Sallie Mae said Wednesday it would raise $2.5 billion by selling stock in the public market. No details on pricing or terms of the securities were revealed, nor did Sallie Mae indicate whether the additional $500 million in capital would be sufficient to ensure that the bond rating wouldn’t be lowered. Citibank has given it until Feb. 22, to satisfy the forward purchase contract for stock, Sallie Mae disclosed last week. Sallie has put up cash to satisfy the promise, according to a Wednesday filing with the Securities and Exchange Commission. With regulation of the student loan business increasing, Sallie is finding it more difficult to sell student loan-backed securities (The New York Times Dec. 27) … * A combined $33.6 billion in writedowns for three U.S. financial behemoths was predicted Wednesday by Goldman Sachs Group Inc. The amount is a sharp increase in estimates for Citigroup Inc., Merrill Lynch & Co., and J.P. Morgan Chase & Co. Goldman Sachs also joins a list of financial analysts who predict a significant cut in Citi’s dividend. Writedown estimates for Citi, Merrill and J.P. Morgan were increased to $18.7 billion, $11.5 billion and $3.4 billion, respectively, from prior forecasts of $11 billion, $6 billion and $1.7 billion, respectively. Collateralized debt obligations (CDOs)--which use an assortment of assets to create customized products with varying levels of risk--are a driving force for many of the writedowns for the three big banks. CDOs also have caused significant writedowns at other big banks and brokerage firms (The Wall Street Journal Dec. 27) …

Market News (12/26/2007)

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MADISON, Wis. (12/27/07)
* Existing home prices for October in the nation's largest cities fell at a record rate, with both the 10-city and 20-city indices dropping 1.4% from September, according to Standard & Poor's/Case-Shiller Home Price Indices (The Wall Street Journal Dec. 26). However, the bigger story is in the annual decline. A composite of 10 cities in the index showed an annual decline of 6.7%--a record low--while a 20-city index fell by an annual rate of 6.1%. It was the 23rd consecutive month of decline from the previous month's prices. "No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert J. Shiller, chief economist at MacroMarkets LLC. Prices in every city surveyed fell in September and October. Eleven of the 20 cities had their single-largest monthly decline on record in October. Moody's Economy.com (Dec. 26)indicated that "prices are in a free fall, with no signs of stabilization." Prices are dropping the most in areas where the earlier housing boom was the biggest. Falling home prices will be a significant weight on consumer spending throughout 2008, said Moody's … * Holiday sales at retailers open more than 12 months increased 2.8% for the week ended on Dec. 22--double the 1.4% pace set the previous week, said the International Council of Shopping Centers (ICSC) and UBS Securities LLC. Year-over-year growth increased to 2.8% also, up from 2.1% the previous week (Moody's Economy.com Dec. 26). Last-minute purchases over the weekend failed to salvage what may be the slowest-growing holiday spending season in five years, said Bloomberg.com (Dec. 26). Although ICSC characterized the spending results as "solid," it has lowered its projections for spending for November and December sales growth slightly, to under 2.5%. Seasonable adjustment is difficult at this time of year, and the results are affected by shifts in the calendar, which moved between 0.75 and 1 percentage point of growth from December to November … * An 11th-hour weekend rush helped bolster the weak holiday shopping season, but sales still fell short of expectations. From the day after Thanksgiving to midnight on Monday, total retail sales--excluding autos--increased 3.6% over last year's sales, said MasterCard Spending Pulse, a unit of MasterCard Advisors (The Wall Street Journal Dec. 26). But with gasoline factored out, retail sales increased a lackluster 2.4% Analysts had forecast gains of 3.5 to 4.5%. SpendingPulse monitors data for sales both in stores and online. It also covers spending at restaurants and on gift cards, although retailers don't realize the revenue until the gift cards are redeemed. Among the strongest performers of the season was e-commerce, which gained 22.4% in online sales over last year. Luxury retailers gained 7.1%, excluding jewelry sales, which were weak. Women's apparel declined 2.4%, while electronics gained only 2.7% On Wednesday, retailers began deep discounting to move merchandise …

News of the Competition (12/26/2007)

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MADISON, Wis. (12/27/07)
* The structured-investment-vehicle (SIV) bailout plan that banks were working on to bail out investment vehicles affected by the crisis in subprime mortgages is dead, according to a source working with JP Morgan Chase & Co. (American Banker Dec. 21). The Master-Enhanced Liquidity Conduit (M-LEC) plan by Citigroup Inc., Bank of America Corp., and JP Morgan hit a barrier after struggling to raise money for the fund. The Treasury Department had recommended a fund to buy assets from the affected SIVs … * Bank investors expecting a large rebound in earnings growth after the crisis of 2007 likely will be disappointed, according to The Wall Street Journal (Dec. 26). The subprime market's woes and credit tightening have affected the highly profitable bank business model of selling off loans to investors while arranging corporate financing through off-balance-sheet loans that keep banks' capital costs down. The overall impact is expected to be negative. The three big banks' (Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase) average annual profits grew roughly 20% for three years until 2006, said Capital IQ. However, through 2009, their combined earnings are expected to be just 5.5% greater than their 2006 earnings. Investors also can expect banks' profits to swing wildly from quarter to quarter because banks are using more volatile market values for more of the assets they hold … * In a move to give it more time to secure additional capital, tax preparer H&R Block Inc. has extended the terms of its two loans--totaling $500 million--from HSBC Holdings PLC and BNP Paribas SA. Block borrowed the funds after losing more than $1 billion with its mortgage unit. HSBC agreed to extend its $250 million loan to April 30, while BNP Paribas extended its $250 million loan until Feb. 29. Although H&R Block said it has adequate liquidity because its capital needs are lower than in 2006, analysts said it may be running short on cash (American Banker Dec. 26) … * American Express Co. and Discover Financial Services are aggressively signing up retailers to close the merchant acceptance gap with industry leaders Visa Inc. and MasterCard Inc. during 2008. Barry McCarthy, president of product and business development for First Data Corp., which works with all four networks, predicted a significant increase in merchant acceptance of all four brands. Analysts say most merchants will accept all four brands within two to three years (American Banker Dec. 26) …

Market News (12/21/2007)

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MADISON, Wis. (12/26/07)
* Continuing its efforts to ease the credit crunch, the Federal Reserve announced Friday that it auctioned off another $20 billion of funds to commercial banks at a 4.67% interest rate on Dec. 20. The Fed said it received requests for $57.7 billion worth of loans from 73 bidders. In the first of its planned four special auctions on Monday, the central bank said it received requests for $63.6 billion in loans from 93 bidders. Fed officials also announced that they planned to continue the auctions “for as long as necessary to address elevated pressures in short-term funding markets.” Two more auctions are scheduled for Jan. 14 and Jan. 28. The Fed wanted to try the new method of injecting funds, after many banks remained reluctant to borrow from the discount window because they feared being seen as desperate. The auction rates are slightly less than the discount rate of 4.75% (CNNMoney.com Dec. 21) … * Discount-window borrowing by banks jumped to a six-year high last week, according to Federal Reserve data. Loans at the discount window increased $1.6 billion to a daily average of $4.6 billion in the week ending Dec. 20--the highest level since September 2001. Fed officials have voiced concern in recent weeks that banks have been reluctant to borrow from the discount window because of a perceived stigma. Financial services firms have reported charges of more than $80 billion from the subprime-mortgage collapse. The Fed has lowered the discount rate four times--to 4.75%. The gap with the fed funds rate (4.25%) has narrowed--to 50 basis points from the typical spread of 100 basis points (Bloomberg.com Dec. 21) … * More subprime mortgage loans originated during the first six months of this year were fixed rate, according to the Mortgage Bankers Association’s Subprime Mortgage Originations Survey. In the first half of the year, 31% of the subprime loans originated were fixed rate--up from 25% during the last half of 2006. The average loan amount was $185,109--down 8.4% from $202,295. More subprime loans were for refinancing this year--64% compared with 55%. And fewer were adjustable-rate mortgages (ARMs)--69% compared with 75%. Although most subprime loans continued to be originated through brokers, the percentage declined--to 58% from 72% (mbaa.org Dec. 21) … * Consumers shrugged off concerns about the housing slump and high energy costs to spend more in November (Associated Press via CNNMoney.com Dec. 21). Personal spending jumped 1.1%--accelerating from a 0.4% increase in October, the Commerce Department reported Friday. It was the largest gain since a 1.2% increase in May 2004. Personal income rose 0.4% after a 0.2% increase. An inflation measure tied to the report accelerated in November. The core PCE deflator rose 2.2% over the twelve months ending in November--up from a 2% year-over-year gain in October and above the upper limit of the Federal Reserve’s comfort zone for inflation. Topline inflation (including food and energy) also is accelerating quickly--harming consumer-spending power, noted Moody’s Economy.com (Dec. 21). The overall PCE deflator was up a sharp 3.6% over the 12 months ending in November. Soaring energy prices, declines in real income, and the continued housing slump will weigh on consumer spending and confidence going forward, said the research firm … * Consumer confidence weakened in December for a third consecutive month amid rising energy costs and the continued credit crunch. The Reuters/ University of Michigan Surveys of Consumers index of confidence fell to 75.5 from 76.1 in November. The index of current economic conditions fell to 91 from 91.5, while the index of consumer expectations declined to 65.6 from 66.2. More consumers expect the economy and job market to weaken. And the gulf between rich and poor Americans persists. Record differences remained between consumers in the bottom third of the income distribution and the top third. Half of all respondents in the bottom rung said they had weakening finances, while half of the respondents in the top rung reported improving finances. Higher food and energy costs were cited much more by lower-income respondents as the reason for weakening finances (Reuters via The New York Times Dec. 21) …

News of the Competition (12/21/2007)

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MADISON, Wis. (12/26/07)
* The Securities and Exchange Commission (SEC) and other regulators are investigating how financial-services firms priced mortgage securities on their books and whether they should have informed investors earlier about the securities’ declining value, said people familiar with the matter. The regulators also are investigating whether the firms placed higher values on their own securities than their customer holdings, and whether the firms should have shifted some off-balance-sheet entities containing mortgage securities to their books more quickly. The SEC has more than three dozen investigations related to subprime mortgages. Financial firms have announced more than $80 billion in writedowns on mortgage-related assets over the past few months (The Wall Street Journal Online Dec. 21) … * The Securities and Exchange Commission is investigating how Washington Mutual managed mortgages that possibly had inflated home appraisals. Last month, the New York attorney general’s office filed a lawsuit against one of WaMu’s appraisers, claiming the firm conspired to inflate home values. “After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals,” said the company in a statement. Shares of the nation’s biggest savings and loan have plunged 65% since mid-September. Earlier this month, the Seattle-based thrift announced that it is eliminating more than 3,100 employees and exiting the subprime-loan business (Associated Press via Yahoo! News Dec. 21) … * Cleveland-based KeyCorp announced Friday that it plans to eliminate 870 jobs as its home-builder portfolio continues to deteriorate. The company said it expects its loan-loss provision to top net charge-offs by $250 million to $270 million in the fourth quarter. “Like most banks, Key’s home-builder loan portfolio has been adversely impacted by the downturn in the U.S. housing market, and our participation in the capital markets through various lines of business has adversely impacted market values, and therefore, financial results,” said KeyCorp Chairman and Chief Executive Henry L. Meyer III. The company plans to shift $1.1 billion of home-builder loans and $800 million of condominium exposure to its special asset-management group (Dow Jones Newswires Dec. 21) … * The federal banking agencies on Friday announced their annual adjustment to the asset-size thresholds used to define “small bank, “small savings association,” “intermediate small bank,” and “intermediate small savings association” under Community Reinvestment Act (CRA) regulations. The adjustments are based on the year-over-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, which rose 2.7% over the 12 months ended in November. The revisions mean that financial institutions with less than $265 million of assets can quality for a fairly simple CRA exam (American Banker Dec. 21). Intermediate-small institutions ($265 million to $1.061 billion in assets) also qualify for an easier review, but still must meet CRA requirements for their area …

News of the Competition (12/20/2007)

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MADISON, Wis. (12/21/07)
* Bear Stearns reported Thursday that a larger-than-expected writedown in its mortgage portfolio prompted the first quarterly loss in its 84-year history (Associated Press via Yahoo! News Dec. 20). After paying preferred dividends, the firm saw a loss of $859 million for the fiscal fourth quarter, compared with a $558 million profit in the same period last year. Bear said members of its executive committee won’t receive bonuses this year. In other news, Barclays Bank filed a lawsuit against Bear Stearns Wednesday, alleging that the investment bank loaded one of its hedge funds with $500 million in distressed assets only weeks before it and another fund failed (Reuters via The New York Times Dec. 20). The two funds had more than $20 billion in assets before their collapse. Bear said it hadn’t seen the suit, but that it was without merit … * Wall Street year-end bonuses jumped 14% as gains at Goldman Sachs, Morgan Stanley, and Lehman Brothers Holdings offset a decline at Bear Stearns. The four companies are paying $49.7 billion in salaries, benefits and bonuses this year--compared with $43.5 billion in 2006. Bonuses increased to $29.8 billion from $26.1 billion. At the same time, investors aren’t having a banner year. Morgan Stanley’s shares have tumbled 26% this year, while Lehman Brothers slumped 21%, and Bear Stearns plunged 44%. Goldman’s shares edged up 2.4%. Merrill Lynch, which lost 41% of its equity value this year, will report its annual results in January (Bloomberg.com Dec. 20) … * Atlanta-based SunTrust Banks Inc. said Thursday that it will take another $50 million in charges related to its share of the $2.3 billion settlement between Visa Inc. and American Express (bizjournals.com Dec. 20). That amount brings the total for the quarter to $76 million. In other news, SunTrust said it will sustain a big hit because of higher losses on mortgage loans and writedowns of securities in the fourth quarter (The Atlanta Journal-Constitution via Yahoo! News Dec. 20). The firm said it will boost its allowance for loan and lease losses to 1.06% of total loans. It expects charge-offs of about $170 million. The company said it will purchase $1.4 billion of securities issued by two of its structured investment vehicles--resulting in a write-off of $225 million to $250 million in the fourth quarter … * Bond insurer MBIA Inc. said Thursday that it has $8.1 billion in exposure to the complex securities backed by mortgage loans. The disclosure prompted a plunge in the firm’s shares. MBIA’s exposure to these collateralized debt obligation (CDO)-squared transactions is “massive,” said Morgan Stanley Analyst Ken A. Zerbe. “We are shocked that management withheld this information for as long as it did,” added Zerbe. Standard & Poor’s, which affirmed MBIA’s AAA rating with a negative outlook on Wednesday, said yesterday that its rating already considered the firm’s $8.1 billion CDO-squared exposure, as well as its $30 billion in total CDO exposure (The Wall Street Journal Online Dec. 20) … * Advance America Cash Advance Centers said it is closing its 66 remaining payday cash advance centers in Pennsylvania as it waits for the state’s Supreme Court to rule on a lower court’s decision that directed the firm to suspend its operations. The firm shut down 31 of its centers in September. “While we remain hopeful for a favorable outcome on our appeal, the timetable remains uncertain and we have decided that closing our remaining Pennsylvania centers at this time is in the best interest of our stockholders,” said President and Chief Executive Ken Compton. The company said it expects to record a $1.5 million charge related to the closures (Associated Press via Yahoo! News Dec. 20) …

Market News (12/20/2007)

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MADISON, Wis. (12/21/07)
* The economy expanded at an unrevised 4.9% pace in the third quarter, the Commerce Department said Thursday in its final report for the period (AFP via Yahoo! News Dec. 20). However, analysts expect economic growth to slow sharply going forward as the credit crunch, housing slump, rising foreclosures, and high energy costs slow consumer and business spending. During the third quarter, residential investment plunged 20.5%--the biggest decline since early 1991. Consumer spending rose 2.8%. Economic growth was buoyed by exports--which jumped 19.1%. Economic growth will slow sharply--to under 2% at an annual pace in the fourth quarter and first half of next year--well under the economy’s potential, predicts Moody’s Economy.com (Dec. 20). While strong investment and export growth should help the economy avoid a downturn, the risk of recession still is about 50% because of the credit crunch and housing slump, noted the research firm … * The risk of recession is increasing, according to a Conference Board report. The New York group’s index of leading economic indicators--which signals the direction of the economy over the next three to six months--declined by 0.4% in November, the third decline in four months. Seven of the index’s 10 indicators were negatives: stock prices, average unemployment claims, consumer expectations, real money supply, building permits, interest-rate spread, and manufacturers' new orders for consumer goods and materials. The factory workweek, orders for capital equipment, and slower supplier deliveries limited the decline. Over the past six months, the leading index is down at a 2.3% annual pace--smaller than the 4% to 4.5% decline that board economists say indicates a recession. However, analysts expect economic growth to slow further next year, as the credit crunch continues (Bloomberg.com and Associated Press via Yahoo! News Dec. 20) … * The labor market continues to show signs of softening. New claims for unemployment benefits increased by 12,000 during the week ending Dec. 15 to 346,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, increased by 4,250 to 343,000--the highest level since after Hurricane Katrina hit in 2005. In another weak sign, continuing claims, the number of people still on the benefit rolls after an initial week of aid, rose by 12,000 during the week ended Dec. 8 to 2.646 million. So far this year, jobless claims have averaged 320,300--up from 313,000 in 2006. Analysts say the housing slump will continue to weigh on the economy, slowing growth and prompted further layoffs (Bloomberg.com Dec. 20) … * Mortgage rates were little changed this week as economic reports shifted, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) inched up 3 basis points to 6.14%, while the 15-year FRM edged up 1 basis point to 5.79%, and the one-year, adjustable-rate mortgage (ARM) rose 1 basis point to 5.51%. “Stronger-than-expected inflation reports and retail sales for November put upward pressure on long-term interest rates late last week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “However, ensuing data releases suggested further weakness in the housing market over November and December and allowed interest rates to drift back down. The net effect left mortgage rates little changed this week.” Rates are about even with year-ago levels. The 30-year FRM averaged 6.13% at this time last year, while the 15-year FRM was at 5.89%, and the one-year ARM stood at 5.44% (MarketWatch and CNNMoney.com Dec. 20) … * U.S. merger volume jumped to a record high in 2007 despite a plunge in transactions later in the year, as the credit crisis began. Merger volume totaled $1.57 trillion--up 5.5% from the previous year, according to preliminary data from Thomson Financial. However, U.S. merger volume lagged Europe for the first time in five years. Mergers in Europe totaled $1.78 trillion. Worldwide, mergers totaled a record-high $4.38 trillion this year. In the U.S., the acquisition of power firm TXU Corp. ($44.4 billion) was the largest deal of the year, followed by the buyout of payment processor First Data Corp. ($27 billion). Easy credit that helped private-equity firms and other buyers fueled activity in the first six months of the year. Private-equity purchases represented about 41% of merger activity during the period. Goldman Sachs, Morgan Stanley, and Citigroup were the top advisers for deals during the year--in both the U.S. and worldwide (Reuters via The New York Times Dec. 20) …

Market News (12/19/2007)

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MADISON, Wis. (12/20/07)
* Foreclosures in November soared from a year earlier but were down from the previous month, according to a report by RealtyTrac Inc. Foreclosures--including default notices, auction notices, and bank repossessions--totaled 201,950 last month--down 10% from October but 68% higher than a year earlier. Foreclosures probably will surge next year as payments increase on 1 million mortgage loans, said Rick Sharga, executive vice president for marketing at RealtyTrac. “I wouldn’t be surprised if we’re at the 230,000 to 250,000 level” during the first quarter, added Sharga. Last month, California, Florida and Ohio saw the most foreclosures filings, while Nevada had the highest foreclosure rate. California’s 39,992 filings were more than twice the year-ago total. Florida had 29,238 filings--more than three times the year-ago total. At 16,308, Ohio’s filings were almost double the year-ago total. Nevada had the highest foreclosure rate of any state--at one filing for every 152 households--compared with the national rate of one foreclosure filing for every 617 households (Bloomberg.com, CNNMoney.com, and Associated Press via Yahoo! News Dec. 19) … * Mortgage activity retreated sharply last week as interest rates continued to rise. The Mortgage Bankers Association’s (MBA) Market Composite Index plunged 19.5% during the week ending Dec. 14 to 653.8, as both purchase and refinancing applications tumbled (mbaa.org Dec. 19). Mortgage rates increased across the board. The average 30-year, fixed-rate mortgage (FRM) jumped 11 basis points to 6.18%, while the 15-year FRM rose 6 basis points to 5.78%, and the one-year, adjustable-rate mortgage (ARM) surged 17 basis points to 6.48%. Higher interest rates, especially for ARMs, are weakening mortgage demand, said Moody’s Economy.com (Dec. 19). The research firm also noted that refinancings continue to dominate mortgage activity. The MBA said refinancings made up 53.2% of overall applications in the latest week. ARMs made up only 9.9% of overall activity … * The Federal Reserve received strong demand for short-term funding in the first of its four special auctions intended to help ease the credit crunch. The central bank will lend $20 billion to banks in its first anonymous auction, which was created to encourage banks to seek funds directly from the Fed. The central bank said it received requests for $61.6 billion in loans from 93 bidders. The winners will receive their loans on Thursday. They mature in 28 days. The Fed announced that the interest rate on the loans will be 4.65%--slightly less than the 4.75% discount rate the Fed charges for emergency loans through its discount window. Many banks have been reluctant to borrow from the discount window because they fear being seen as desperate. A second auction will be conducted on Thursday, giving banks a chance to get part of $20 billion in 35-day loans. The central bank will conduct two more auctions next month and then decide whether to continue (CNNMoney.com and Associated Press via Yahoo! News Dec. 19) … * The government should consider a $50 billion to $75 billion tax cut and spending package to help the economy avoid recession, said former Treasury Secretary Lawrence Summers. In an interview before a speech to the Brookings Institution on Wednesday, Summers also said the Federal Reserve should make more aggressive moves to stimulate consumer spending. He said banks’ reluctance to extend credit has offset the Fed’s rate-cutting moves. “I believe that slow growth is a near certainty, that a recession is more than a 50% chance, and that there’s a distinct possibility of a more serious recession that will lead to the worst economic performance since the late 1970s and early 1980s,” said Summers, who is now a professor at Harvard University. He said the average family of four would lose $4,000 to $5,000 in income each year with only a mild recession. Summer said such a downturn also would boost the federal government’s annual deficit by $100 billion (The Wall Street Journal Online Dec. 19) … * Municipal bonds are on track for their worst year since 1999, according to Merrill Lynch data. The debt sold by states and cities had given investors bigger returns than corporate debt and Treasuries did the previous few years. However, munis returned 3.02% this year--compared with 3.85% for corporate securities and 8.42% for government debt. After $62 billion in writedowns related to subprime mortgages, securities firms are putting less into municipal bonds. Citigroup, Goldman Sachs and other firms have cut their holdings of municipal bonds by 16%--to $45 billion at the end of the third quarter from $53.9 billion in the previous quarter, according to Federal Reserve data. And the housing slump already is hitting states and cities hard. Declining property values may cut the tax revenue of states and cities by more than $6.6 billion next year, according to the U.S. Conference of Mayors (Bloomberg.com Dec. 19) …

News of the Competition (12/19/2007)

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MADISON, Wis. (12/20/07)
* MasterCard must stop charging fees for cross-border transactions or face daily fines of 3.5% of its daily global volume, said European Union regulators on Tuesday. The European Commission said the fees unfairly inflate merchants’ costs. The interchange fees of payment cards cost consumers as much as $19.4 billion each year, according to the Brussels-based European Retail Round Table. The Commission gave MasterCard six months to create a new system. “Consumers foot the bill, as they risk paying twice for payment cards,” said European Competition Commissioner Neelie Kroes. “Once through annual fees to their bank. And a second time through inflated retail prices, given that retailers set their prices taking account of all costs,” said Kroes. She also plans to reopen an investigation of Visa’s fees on Dec. 31. MasterCard said it plans to appeal to the courts. But retailers hailed the regulator’s action. “It is incomprehensible that in 2007, despite all technological progress, accepting cash in our stores is still substantially more cost efficient that accepting credit cards,” said Ikea Chief Executive Soren Hansen (Associated Press via The New York Times and Bloomberg.com Dec. 19) … * Morgan Stanley reported the first quarterly loss in its 72-year history on Wednesday and announced that it will take an additional $5.7 billion in writedowns related to the mortgage market. The company posted a $3.59 billion loss for its fourth quarter, which ended Nov. 30. That compares with a $2.21 billion profit a year earlier. Morgan Chairman and Chief Executive John Mack said a small trading team at the firm was responsible for the losses. He also announced that he won’t accept a bonus this year. The company’s stock gained in morning trading, as investors bet that the worst is over for Morgan Stanley. The firm also announced that it is selling a $5 billion stake in the company to the sovereign wealth fund China Investment Corporation. The fund will be a passive investor and have no management role. “They needed the capital given the losses,” said Sandler O’Neill & Partners Analyst Jeff Harte (CNNMoney.com Dec. 19) … * Sallie Mae (SLM Corp.) shares tumbled Wednesday after Chairman/CEO Albert L. Lord said a dividend cut may be needed in 2008 to boost the firm’s finances, which have been weakened by rising loan defaults and borrowing costs. Sallie’s shares declined as much as 19% after he spoke during a conference call. Its shares have lost nearly 60% of market value since July 10. A group led by private-equity firm J.C. Flowers backed out of a deal to acquire the company, saying its shares have lost value and new rules to cut loan subsidies for student lenders would weaken profits going forward. Sallie has filed a lawsuit against the group, saying it should pay a $900 million breakup fee (Associated Press via Yahoo! News and Bloomberg.com Dec. 19) … * Fifth Third Bancorp’s rating was lowered by Fitch Ratings Wednesday after the bank forecast rising credit costs and lower earnings for the fourth quarter. Fifth Third expects fourth-quarter loan and lease losses of about $275 million--compared with $135 million in the third quarter. Net charge-offs are forecast at $170 million. Fitch cut the Cincinnati bank’s individual rating to B from A/B and revised its rating outlook to negative from stable. The bank reported continued credit deterioration, and Fitch said it expects this trend to continue into 2008. Still, the ratings agency noted that Fifth Third has remained fairly insulated from the recent credit crunch, reporting only $3 million in market-to-market losses for the third quarter. And it has no exposure to wholesale subprime loans (The Wall Street Journal Online and BUSINESS WIRE Dec. 19) …

New broker rules wont stop all fraud Hampel tells CNBC

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WASHINGTON (12/19/07)--Bill Hampel, the Credit Union National Association’s (CUNA) chief economist, was interviewed by CNBC Tuesday about the Federal Reserve Board’s new rules that would curb deceptive lending. “The change is that the Fed came with rules that extend to brokers,” Hampel said. Typically, rules affect regulated financial institutions, such as banks, thrifts, and credit unions. But the brokers “are where most people agree the subprime mess came from,” he added. Under the Fed’s rule, which was approved Tuesday, lenders are prohibited from lending to borrowers without considering their ability to pay. Prepayment penalties would be restricted, and lenders would be required to create escrow accounts for taxes and insurance (The Wall Street Journal Dec. 18). “You can’t always stop all fraud,” Hampel noted during the interview. “The brokers will be covered here.” In a rare move, the Fed also allowed cameras in its board room while the proposals were discussed Tuesday. “They’re looking for a big announcement effect,” Hampel said.

Market News (12/18/2007)

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MADISON, Wis. (12/19/07)
* The European Central Bank (ECB) issued $500 billion in loans to the world’s commercial banks Tuesday in an effort to ease the global credit crunch. The huge 17-day tender helped increase investor optimism, and stock markets rebounded modestly from recent downturns. The Bank of England said it would offer more reserves to lenders Tuesday. In mid-morning trading, the Dow Jones Industrial Average jumped 26.17 to 13,193.37. The ECB’s moves followed similar initiatives by the U.S. Federal Reserve and the Swiss National Bank on Monday. However, analysts say the lending alone probably won’t solve the credit crunch. “Large banks are now awash with cash,” said Bank of England Governor Mervyn King. “The issue is not whether they have enough cash, it is whether they are inclined to lend,” said King (Associated Press via Yahoo! News and Reuters via The New York Times Dec. 18) … * Housing starts plunged and permits for future construction fell to a 14-year low in November as the housing slump and credit crunch continued. Construction began on 1.187 million homes at an annual rate last month, while permits declined 1.5% to a 1.152 million pace, the Commerce Department reported Tuesday. The decline in construction was led by a 5.4% plunge in the building of single-family homes, to an 829,000 annual pace--the lowest since 1991. Construction of multi-family homes edged up 0.6%. Builders don’t expect a rebound in the housing market any time soon. The National Association of Home Builders (NAHB)/ Wells Fargo Index was unchanged at 19 in December for a third consecutive month. It was the lowest reading since the NAHB launched the index in January 1985 (Bloomberg.com and Economy.com Dec. 18) … * The global food supply is declining quickly and food prices are surging to record highs as demand soars and the early impact of global warming decreases crop yields, warned Jacques Diouf, head of the United National Food and Agriculture Organization, on Monday. A shift towards biofuels also has contributed to the problem. In addition, the increased consumption of meat in developing nations has diverted more wheat and corn away from people to feed cattle. The UN agency’s food price index jumped more than 40% this year following a 9% gain in 2006. The cost of food imported by the world’s poorest nations surged 25% over the past year to $107 million. At the same time, global wheat stocks tumbled 11% to the lowest level since 1980. “We’re concerned that we are facing the perfect storm for the world’s hungry,” said World Food Program Executive Director Josette Sheeran (The New York Times Dec. 18) … * Food prices in the U.S. have soared this year, a trend analysts say will continue as the nation increasingly shifts toward biofuels. Congress’s new energy bill mandating higher ethanol use will exacerbate the problem. Higher fuel costs to transport food and developing nations’ increased demand for food imports also are factors. Grocery prices as measured by the Labor Department’s consumer price index are up 5.4% over the past year--outpacing the overall inflation rate of 4.3%. Grocery prices will surge another 3% to 4% next year, say government economists. A study by Iowa State University researchers found that higher corn prices resulted in an increase of $47 per person in retail food prices over the past year. The study predicts that food prices will continue rising as corn prices soar (The New York Times Dec. 18) … * The U.S. government isn’t receiving the full value it’s owed for the mineral rights it sells to private companies, according to a report presented by a panel of outside experts to the U.S. Department of the Interior. The report recommends that Congress create a trust fund to help pay for improved management and auditing. Revenue collected by the Department of the Interior’s Minerals Management Service would help pay for the mandate. The government collected $11 billion in royalties from private companies for their use of oil, natural gas, and other minerals on federal lands during the last fiscal year. The report said that figure should be much higher--and taxpayers are footing the bill. In 2004, four auditors from the Minerals Management Service filed lawsuits against the government. They claimed the service retaliated against them after they reported that oil companies weren’t complying with reporting mandates (The Wall Street Journal Online Dec. 18) …

News of the Competition (12/18/2007)

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MADISON, Wis. (12/19/07)
* Thirty-one people--including a bank employee, title agents, and phony buyers--have been indicted by federal prosecutors in connection with a mortgage fraud ring that involved about 28 South Florida properties and more than $14.2 million worth of loans. Prosecutors allege that Juan Torrens, an owner of two real-estate investment firms, recruited homeowners willing to overstate their homes’ sales price. Torrens along with co-defendant Daniel Ramos would then recruit confederates to pretend they were buyers. Prosecutors say fraudulent loan applications were prepared, and appraiser Alonso A. Muxo created fraudulent appraisals. The indictment also alleges that Regions Bank employee Roger Rosario, in at least one case, gave a phony deposit verification for a loan application. The defendants took the difference between the mortgage loan and sales price to pay off participants. Florida is the top state for mortgage fraud, according to the Mortgage Asset Research Institute. Officials note that mortgage fraud inflates property values and makes it harder for real homebuyers to obtain loans (The New York Times Dec. 18) … * Bank of America, Citigroup, and JPMorgan Chase said Tuesday that their “SuperSIV” fund, designed to rescue the short-term debt markets, will begin making purchases from structured investment vehicles “within weeks.” Asset manager BlackRock Inc. will oversee the fund, which was originally estimated at $80 billion. However, the pressure to create the SuperSIV has lessened after banks separately orchestrated SIV rescues. Citigroup itself announced last week that it plans to take over seven SIVs with $58 billion in debt. SIVs have lowered their holdings by more than 25% to $298 billion since the credit crisis began in August, according to Moody’s Investors Service. Since then, financial institutions have announced more than $70 billion in losses and writedowns (Bloomberg News Dec. 18) … * Goldman Sachs issued a cautious forecast for its prospects next year, even as it reported recording-breaking earnings for the fiscal fourth quarter and for the full year. The world’s biggest investment bank reported profit of $3.17 billion for the quarter--boosted by strong fees, one-time asset sales, and robust debt-trading earnings. Goldman has reported record earnings for the past four years. However, Goldman Chief Financial Officer David Viniar said he remains “cautious about the near-term outlook,” a statement that sent the firm’s shares tumbling yesterday despite the strong earnings report. Other investment banks have reported much weaker results. Last week, Lehman Brothers Holdings said its profit tumbled 12% in the fourth quarter. Morgan Stanley plans to report its earnings on Wednesday. Bear Stearns’s report is due Thursday (Associated Press via Yahoo! News Dec. 18) … * Investor confidence plunged to a record low in December, according to a report by State Street Corp. The bank’s Investor Confidence Index fell to 65.9--from 75.8 in November and the lowest level since the index was launched in September 1998. North American investors led the decline. That regional index slumped to a record-low 65.3 from 75.4. “Global investor confidence established a new low, cementing the evidence that investor risk appetite has been strongly impacted by the one-two punch of the August and November credit crises,” said index co-developer Ken Froot (Reuters via The New York Times Dec. 18) …

News of the Competition (12/17/2007)

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MADISON, Wis. (12/18/07)
* “Unprecedented stress” in the mortgage market is threatening the top ratings of four bond insurers, said Moody’s Investors Service on Monday. The ratings agency said it is testing Financial Guaranty Insurance Co. and XL Capital Assurance for higher losses that may lower the top “Aaa” ratings of the firms. Moody’s also placed a negative outlook on the Aaa ratings of MBIA Insurance and CIFG Guaranty, but affirmed their ratings. “It’s clear that the mortgage-related risk of some financial guarantors has pressured their capitalization levels,” said Moody’s Managing Director Jack Dorer. Moody’s said its “stress test” that models worst case scenarios assumes 19% cumulative losses for mortgages that were originated last year (Reuters via Yahoo! News Dec. 17) … * Merrill Lynch, which reported a record $2.24 billion loss for the third quarter, has told its fixed-income managers to slash bonuses by an average 40% this year, according to people briefed on the situation. Bonuses account for about 60% of the total compensation of employees at Wall Street firms. Bonuses could decline by as much as 80% for the traders specializing in mortgage bonds and collateralized debt obligations at Merrill. Interest-rate traders may see their bonuses fall 20%, and employees in the corporate bond unit could see their bonuses tumble 60%. Shares of Merrill Lynch, the nation’s largest brokerage, have plunged 39% so far this year--the worst decline among the five largest securities firms except for Bear Stearns, which saw its shares tumble 41% (Bloomberg.com Dec. 17) … * National City Corp., the nation’s 9th-largest bank, announced Monday that it anticipates loan-loss provisions totaling $700 million for the fourth quarter. The bank noted that home-equity loans and non-prime mortgages have continued to deteriorate since the third quarter. About $200 million of charges occurred in October and November. National City said its credit problems stemmed from the run-off portfolio of mortgage lender First Franklin Financial Corp., the subprime unit it sold to Merrill Lynch in January. The firm kept several billion dollars worth of loans from the unit and is winding them down. The company previously announced that it is cutting about 2,500 positions--1,700 of them in its mortgage-banking business (Reuters and bizjournals.com via Yahoo! News Dec. 17) … * Downey Financial, a California-based thrift, said Friday that its mortgage delinquencies jumped 27% to $105.4 million in November. The company said its non-performing assets represented $493.6 million--or almost 4% of its total assets for the month. According to company filings, 74% of Downey’s residential held-for-investment loan portfolio this year experienced negative amortization, in which assessed property values decline to less than the value of the loans. The company has seen steadily rising delinquencies due to the housing downturn in the West and the risks associated with option adjustable-rate mortgages (FT.com via Yahoo! News Dec. 17) … * Chicago-based Aon Corp. said Monday that it has sold two insurance units for $2.75 billion in separate cash transactions. The company sold its Combined Insurance Company of America unit to Ace Ltd. for $2.4 billion, and its Sterling Life Insurance unit to Munich Re AG for $352 million. Aon said the sales will help boost its share buyback power to $2.78 billion. “Our core assets will now be more strategically aligned as we expand our capabilities to better serve our risk brokerage and consulting clients,” said Aon President/ CEO Greg Case (Associated Press via The New York Times Dec. 17) …

Market News (12/17/2007)

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MADISON, Wis. (12/18/07)
* The risk of recession has increased significantly since the credit crunch began in August, according to a report by Moody’s Economy.com (Dec. 17). The probability of recession occurring in the U.S. within the next six months jumped to 52% in November--from 44% in October and the highest reading since 2001. The continuing housing slump, weak consumer and business confidence, slowing job growth, high energy prices, and stock-market volatility all have increased the odds of recession. With 3-month and 10-year Treasury bills both lower than the fed funds target rate of 4.25%, the financial markets obviously are worried about an economic downturn. Further Federal Reserve easing will be necessary to help the economy avoid recession, noted the research firm … * Facing a gloomy holiday season, retailers aren’t hiring as many temporary workers this season, according to a report by the outplacement firm Challenger, Gray & Christmas. Only an estimated 509,000 temporary retail jobs were created during the October through November period--down 9% from the same period in 2006 and portending the weakest holiday hiring period since 2001 (unless hiring picks up considerably in December). The last significant downturn in holiday hiring occurred after the Sept. 11, 2001, terrorist attacks. Temp hiring tumbled 26% to 585,000--the lowest level in 10 years. Holiday hiring has increased every year since 2003. But the National Retail Federation predicts that holiday sales will expand just 4% to $474.5 billion this year--the weakest gain since 2002. The hiring cutback could boomerang on retailers, said Brit Beemer, founder of America’s Research Group. He noted that a record number of shoppers have walked out of stores empty-handed this season because they couldn’t find a clerk to help them (Fortune Magazine via CNNMoney.com Dec. 17) … * Homebuilders remained gloomy about the housing market in December, the National Association of Home Builders reported Monday. The NAHB/Wells Fargo Housing Market Index (which measures builders’ perceptions of conditions and expectations for home sales over the next six months) remained unchanged at 19 for a third consecutive month--the lowest reading since the trade association started the index in January 1985. Many homebuilders “are bracing themselves for the winter months when home buying traditionally slows, scaling down their inventories and repositioning themselves for the time when market conditions can support an upswing in building activity,” said NAHB Chief Economist David Seiders. He predicts that home construction will begin to rebound during the last half of 2008 (nahb.org and Associated Press via CNNMoney.com Dec. 17) … * Foreign demand for U.S. stocks and bonds increased for a second consecutive month in October after the credit crunch prompted record sales in August, according to Treasury Department data. Foreign purchases of U.S. financial assets (stocks, notes, and bonds) rose a net $114 billion in October--the most in almost two years. Including short-term securities and non-market trades such as stock swaps and repayment on asset-backed securities, foreigners purchased a net $97.8 billion. Foreign holdings of U.S. stocks rose a net $30.2 billion--accelerating from a net $2.6 billion gain in September. Economists say the difference between foreign purchases of U.S. assets and the nation’s trade gap indicates how easily the country can finance its external obligations. Analysts have been concerned that the credit crunch might prompt a long-term shift out of U.S. assets. “U.S. assets are still viewed as a safe place to be in times of turmoil, which is good news for the dollar,” said Jennifer Lee, an analyst at BMO Capital Markets (Bloomberg.com and The Wall Street Journal Online Dec. 17) … * The nation’s trade deficit fell to a two-year low in the third quarter as record exports offset rising oil imports due to higher prices. The current account trade deficit (which includes trade in products and services as well as investment flows) narrowed by 5.5% to $178.5 billion--the smallest gap since a $173.4 billion trade deficit in the third quarter of 2005, the Commerce Department reported Monday. A weaker U.S. dollar has helped buoy exports by making them cheaper. At the same time, a cheaper dollar makes foreign goods expensive for domestic consumers. Last quarter, the nation’s deficit in goods narrowed by 2.2% to $199.7 billion, while the surplus in services rose 3% to $26.5 billion. The surplus in investment income flows jumped 61.5% to $20.5 billion (Associated Press via Yahoo! News Dec. 17) …

Market News (12/14/2007)

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MADISON, Wis. (12/17/07)
* Consumer prices surged last month amid record energy costs, the Labor Department reported Friday (Bloomberg.com Dec. 14). The consumer price index rose 0.8% in November--accelerating from a 0.3% gain the previous month and the biggest increase in more than two years. Energy prices surged 5.7% while food prices edged up 0.3%. Excluding the volatile food and energy categories, the core CPI rose 0.3% and was up 2.3% over the 12 months ending in November--compared with a 4.3% jump in the overall CPI. Inflation should slow in coming months as economic growth weakens--giving the Federal Reserve room to ease monetary policy further, said Moody’s Economy.com (Dec. 14). The research firm predicts that core year-over-year inflation will range between 2% and 2.5%--within the central bank’s comfort zone … * The housing market won’t recover until at least late 2009, said Fannie Mae Chief Executive Daniel Mudd (Dow Jones Newswires Dec. 14). At a shareholder meeting Friday, Mudd said the housing slump and credit crunch hit his company hard, prompting a 15-cent cut in its dividend beginning next year to 35 cents. “This is the worst housing and mortgage market in recent memory, and we are still working our way to the bottom, in our view,” noted Mudd. His statements echo the gloomy statements of other analysts. Lehman analysts predict that nearly 1 million mortgage loans will default next year, following an estimated 300,000 defaults this year (Bloomberg.com Dec. 14). “We’re only halfway through the housing shock,” said Lehman Chief U.S. Economist Ethan Harris. Analysts at CreditSights Inc. don’t expect a housing rebound until “2009, at best.” This will mean more pain for banks and brokerages. Already writedowns and losses related to subprime loans at banks and brokerages have totaled $80 billion, noted Bloomberg.com … * Mortgage rates reversed course last week as job and wage growth strengthened, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) jumped 15 basis points to 6.11%, while the 15-year FRM surged 13 basis points to 5.78%. The one-year, adjustable-rate mortgage (ARM) edged up 4 basis points to 5.50%. Mortgage rates had declined in previous weeks. “November’s employment report showed stronger job growth, no change in the unemployment rate and a jump in wages, suggesting to some market participants that the probability of an upcoming recession might be lower than originally thought,” said Freddie Mac Chief Economist Frank Nothaft. However, he noted that the housing market “still has a way to go before bottoming out.” Mortgage rates last week were quite close to year-ago levels. A year ago, the 30-year FRM stood at 6.12%, while the 15-year FRM was at 5.86%, and the one-year ARM averaged 5.45% (Associated Press via USAToday.com and CNNMoney.com Dec. 13) … * More than one in five homeowners predict that their home values will decline over the next year, according to a Reuters/ University of Michigan survey released last week. At the same time, the 60% of respondents who expect rising prices predict a mean gain of only 2.9%--down from a 3.9% prediction six months ago and slower than overall consumer inflation. The survey findings “indicate a broader and more lasting slump in home prices, and as a result, the data also points toward broader and deeper cuts in spending,” noted Survey Director Richard Curtin (Reuters via The New York Times Dec. 14) … * Industrial production posted a modest rebound last month, the Federal Reserve reported Friday. Output at the nation’s factories, mines, and utilities rose 0.3% following a 0.7% drop in October. Increased production at auto plants helped boost manufacturing output by 0.4% last month. Production in the mining sector rose 1.1% while utility output declined 1.3% amid mild weather. The overall plant-use rate edged up to 81.5% from 81.4%. The rate has averaged about 81% over the past 30 years (Associated Press via CNNMoney.com and The Wall Street Journal Online Dec. 14) … * The Senate passed a revised energy bill Friday that would boost mileage standards for gas-guzzling sport utility vehicles--the first increase in fuel efficiency in 32 years. The bill was passed 86 to 8 after Democrats removed a provision to impose billions of dollars of new taxes on the nation’s largest oil companies. President Bush had promised to veto a bill that included higher taxes on the oil firms. The House is expected to approve the measure this week (Associated Press via Yahoo! News Dec. 14) …

News of the Competition (12/14/2007)

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MADISON, Wis. (12/17/07)
* Citigroup’s debt ratings were lowered by Moody’s Investors Service on Friday, putting further pressure on the bank to boost its capital base. Noting that it doubted the biggest U.S. bank could soon increase its capital ratios, the ratings agency lowered its rating to “Aa3.” Moody’s also warned that it may lower the rating further if the bank’s capital ratios don’t improve. The agency suggested that Citigroup cut its dividend or raise more outside capital. Last month the bank raised $7.5 billion from the gulf emirate of Abu Dhabi. However, soft earnings have kept it from adding to its capital cushion, said Moody’s Analyst Sean Jones. In other news, Citigroup announced last week that it plans to assume control of the seven structured investment vehicles (SIVs) the bank advises. The bank will provide a “support facility” for the SIVS with $49 billion in investments, incorporating them onto its balance sheet (Reuters via The New York Times and Associated Press via CNNMoney.com Dec. 14) … * The size of the U.S. asset-backed commercial paper (ABCP) market declined for an 18th consecutive week--lowering this major source of funding for financial institutions to the lowest level in two years. The amount of outstanding ABCP fell by $10.3 billion during the week ending Dec. 12 to $791 billion. The market has declined by more than one-third since peaking at $1,200 billion in early August. At the same time, the issuance of financial commercial paper increased $9 billion to $863.5 billion. The volume of outstanding financial commercial paper has risen since late last month, while the volume of ABCP has declined--indicating that banks are funding more assets directly instead of via structured investment vehicles and other off-balance sheet entities (FT.com Dec. 14) … * Banks more than doubled their borrowing at the Federal Reserve’s discount window last week. Borrowing totaled $4.547 billion as of Dec. 12--up from $2.146 billion the previous week. Most of the loans ($4.514 billion) were distributed as primary credit to healthy financial institutions, and the Federal Reserve Bank of New York district continued to dominate lending ($4.514 billion). There were no loans as secondary credit to weaker financial institutions. On Dec. 17, the Fed will offer $20 billion in 28-day credit through its Term Auction Facility (Dow Jones Newswires, American Banker, and federalreserve.gov (Dec. 14) … * Charlotte, N.C.-based Bank of America was ranked as the nation’s top mortgage originator for the first nine months of this year, according to a study by the newsletter Inside Mortgage Finance. The bank originated $119.2 billion in mortgage and home-equity loans via its retail outlets during the period--ahead of both Countrywide Financial and Wells Fargo. “Several years ago, we moved forward with a strategy that leveraged the size and scale of the Bank of America retail franchise to provide our customers with innovative products,” said Floyd Robinson, president of Bank of America’s consumer real estate and insurance services group. He said the ranking confirms the success of that strategy. Retail mortgage results don’t include originations by independent mortgage brokers. In November, Bank of America said it would exit the wholesale mortgage business effective Jan. 1 (bizjournals.com via MSN.com and New Mexico Business Weekly via Yahoo! News Dec. 13) … * Cleveland-based KeyCorp said last week that it plans to cut 415 jobs in Ohio next year--more than twice the number it previously announced. KeyCorp’s stock has plunged 40% this year as soured construction loans in Florida and Southern California prompted a 73% jump in nonperforming assets, to $570 million in the third quarter. However, company spokesman William Murschel said the bank’s financial outlook remains strong. He noted that last year, KeyCorp exited the subprime mortgage business, which has eroded earnings at many U.S. lenders this year (Reuters via MSN.com Dec. 14) …

News of the Competition (12/13/2007)

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MADISON, Wis. (12/14/07)
* Countrywide Financial, the nation’s largest mortgage lender, said Thursday that its mortgage-loan funding plunged 40% to $23 billion in November (Reuters via Yahoo! News Dec. 13). Most of the decline comes from the near-shutdown of the firm’s subprime lending and a plunge in adjustable-rate mortgages. Subprime-mortgage funding fell to $17 million in November from $3.06 billion in the same month last year, while adjustable-rate fundings declined to $3.33 billion from $14.3 billion. In September, Countrywide announced that it plans to slash up to 12,000 jobs (CBS News Dec. 13). The company also has been hit by shareholder lawsuits that claim the firm hid its weak financial condition. And this week, Illinois Attorney General Lisa Madigan subpoenaed documents from Countrywide’s home loan unit as part of a widening investigation into dubious lending practices (The New York Times Dec. 13). Her office also is investigating One Source Mortgage, a Chicago-based mortgage broker that recently shut down. Countrywide was that company’s main lender. Countrywide Spokesman Rick Simon said his firm is cooperating in the investigation … * In a regulatory filing, tax-preparer H&R Block said Thursday that it has been “significantly and negatively impacted” by the subprime-mortgage crisis, and it may have to issue more debt or equity because its borrowing capacity may not be enough to meet its financing requirements. In July, the Office of Thrift Supervision implemented a plan for the company to have a higher minimum capital ratio. In its filing, H&R Block said the agency could impose penalties or force the firm to sell assets if it can’t meet the requirements. The company also said it will take a $74.8 million pretax charge for the closure of its Option One Mortgage subprime-lending subsidiary. In addition, H&R Block is facing lawsuits that claim the firm marketed expensive loans to people waiting for their tax refunds (Reuters via Yahoo! News Dec. 13) … * Lehman Brothers Holdings, the 4th-biggest investment bank in the U.S. and the largest U.S. underwriter of mortgage-backed bonds, said Thursday that its fourth-quarter earnings declined 11%--hampered by writedowns in bond trading. Its earnings were $886 million--compared with $1 billion a year earlier. Writedowns from mortgage-backed securities and real-estate holdings lowered revenue by $830 million. Writedowns were partly offset by gains on hedges, declines in liability values, and realized gains from selling some loans. Other Wall Street firms are expected to post weaker results, as the housing slump and credit crunch hammer earnings. Morgan Stanley has cautioned that it expects about $3.7 billion in writedowns, and Bear Stearns has said it expects $1.2 billion in writedowns. Those firms will report their fourth-quarter results next week (Associated Press and Reuters via Yahoo! News Dec. 13) … * The financial guarantors that offer insurance on bonds and securities backed by subprime loans are rushing to beef up their capital amid expectations that ratings agencies will ask them to raise more capital to meet potential losses. Reinsurance is one of the cheaper ways insurers have to boost capital. Ambac Financial Group signed a reinsurance agreement with Assured Guaranty’s reinsurance AG Re unit that will have the firm reinsure a $29 billion Ambac Financial portfolio. Assured Guaranty is in a strong position to offer capital to other guarantors because it has limited exposure to subprime loans. The ratings agencies already are beginning to push for higher capital. Fitch Ratings on Wednesday said it will downgrade Security Capital Assurance by two grades to AA if it can’t raise more than $2 billion in additional capital over the next four to six weeks (The Wall Street Journal Online Dec. 13) …

Market News (12/13/2007)

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MADISON, Wis. (12/14/07)
* Wholesale prices soared last month, driven by record oil prices. The producer price index (PPI) jumped 3.2% in November--the largest monthly increase since August 1973, the Labor Department reported Thursday. Wholesale energy prices surged a record 14.1%. Gasoline prices soared a record 34.8%. Food prices were unchanged. Excluding the volatile food and energy categories, the core PPI rose a tamer 0.4%. Over the 12 months ending in November, the overall PPI was up 7.2%--the largest gain since November 1981. The core PPI rose 2% over the period, barely within the Federal Reserve’s comfort zone for inflation (Bloomberg.com and The Wall Street Journal Online Dec. 13) … * Oil prices will average $67 per barrel in 2010, as more production helps ease prices from the current level of more than $90 per barrel, the Energy Information Administration (EIA) said Wednesday. Still, that’s more than 13% higher than last year’s forecast. And the agency said high oil prices will dampen economic growth. The EIA forecasts that the economy will expand by 2.6% per year from this year though 2030--down from last year’s forecast of 2.9% growth. And the agency said that without new energy policies, the U.S. will emit 25% more carbon dioxide in 2030 than it did last year. On Thursday, Senate Republicans blocked an energy bill that would have boosted vehicle fuel efficiency because it called for $13 billion in taxes on large oil and gas companies. Democrats said they would cut the taxes from the bill to move it forward (CNNMoney.com and Associated Press Dec. 13) … * Retail sales jumped 1.2% in November, rebounding from a small 0.2% gain in October, according to the Commerce Department. Growth was led by a 6.8% jump in gasoline-stations sales, reflecting high prices. Sales of motor vehicles and parts declined 1%. However, excluding gasoline and autos, demand at other retailers rose a strong 1.1% amid robust sales at electronic stores, department stores, building-material suppliers, department stores, furniture stores, and other retailers. Restaurant sales were weak as consumers facing high energy costs avoided eating out. Going forward, retail sales may moderate as consumers cope with the housing slump, high energy costs, and high debt burdens (The Wall Street Journal Online and Reuters via Yahoo! News Dec. 13) … * First-time claims for unemployment insurance edged down by 7,000 during the week ending Dec. 8 to 333,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, declined by 2,000 to 340,000. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 38,000 during the week ended December 1 to 2.639 million. The four-week moving average began the current quarter at about 310,000 and now is at 340,000, noted Moody’s Economy.com (Dec. 13). The research firm said continuing claims also have trended upward recently, consistent with weakening economic growth and declining business confidence … * Business inventories rose by just 0.1% to a seasonally-adjusted $1.431 trillion in October, the Commerce Department reported Thursday--suggesting that companies may be cutting back on stockpiling in anticipation of slower sales. The increase was the smallest in seven months and followed a 0.4% gain in September. Sales haven’t yet slowed, however. Sales rose 0.7% to $1.135 trillion in October and were up 6.9% over the past year, compared with a 3.2% increase in inventories (The Wall Street Journal Online and Associated Press via Yahoo! News Dec. 13) …

Market News (12/12/2007)

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MADISON, Wis. (12/13/07)
* The Federal Reserve announced a plan Wednesday to cooperate with other central banks in an effort to ease the global credit crisis. The Fed said it has agreed with the central banks of England, Canada, and Switzerland and the European Central Bank to create a temporary auction facility to make funds available to banks. The plan will let the Fed provide liquidity directly to many financial institutions without the stigma that is attached to existing discount-window loans. The first auction of $20 billion will be conducted Monday. Another auction of up to $20 billion is scheduled for December 20. The Fed said it may schedule more auctions dependent “on evolving market conditions.” The stock markets, which had plunged Tuesday after the Fed cut the target for the fed funds rate by a smaller-than-expected 25 basis points, rallied Wednesday after the Fed’s announcement (Associated Press via Yahoo! News and MarketWatch Dec. 12) … * The risk of a recession has increased, according to the latest Wall Street Journal Online survey (Dec. 11). On average, the economists surveyed by the newspaper put the odds of a recession at 38%--up from 33.5% in November and the highest in more than three years. Respondents also lowered their forecasts for economic growth. They expect the economy to expand by just 0.9% during the current quarter, weaker than a 1.6% forecast last month. On average, respondents expect at least one 25 basis-point cut in the fed funds rate next year. And they now predict a 3.5% decline in 2008 home prices, as measured by the Office of Federal Housing Enterprise Oversight--compared with the 2.6% decline predicted in November. Respondents expect the economy to add only 83,958 jobs per month over the next year, while the unemployment rate is forecast to increase to more than 5%, from the current 4.7% rate … * Mortgage activity surged to the highest level in two years last week, according to a report by the Mortgage Bankers Association (MBA). The trade group’s Market Composite Index rose 2.5% during the week ending Dec. 7 to 811.8, as both purchase and refinancing applications increased. However, analysts noted that the data is distorted because borrowers are filing several applications. “Buyers out there are scared about their mortgage applications being turned down, and anecdotes show they are actually applying for more mortgages with more companies,” said Steve Wyatt, a finance professor at Miami University. The MBA also reported that the average 30-year, fixed-rate mortgage jumped 25 basis points to 6.07% last week, while the one-year, adjustable-rate mortgage edged up 3 basis points to 6.31% (Reuters and mbaa.org Dec. 12) … * The Federal Reserve’s decision to cut the target for the fed funds rate by 25 basis points to 4.25% is good news for credit cardholders. The decision prompted a decline in the prime rate, a benchmark for many credit cards, to 7.25%--compared with 8.25% a year ago. With a median revolving card balance of $6,600, the average household will save about $70 in interest costs next year (CardTrak.com Dec. 12) … * Only 22% of employers said they plan to add jobs during the first quarter--little changed from a year earlier, according to a survey by Milwaukee-based Manpower Inc. Just 12% of firms said they plan to cut jobs, also little changed from a year ago. Sectors with the strongest hiring plans include mining, transportation and utilities. Those with the weakest plans include construction, education and non-durable goods manufacturing. In the construction sector, 23% of employers said they plan to cut jobs, compared with just 16% in the same period last year (Associated Press and Reuters via Yahoo! News Dec. 12) … * Import prices jumped 2.7% in November--the largest increase in 17 years, the Labor Department reported Wednesday. The surge reflected higher energy prices and a weak dollar. Excluding energy prices, import prices rose 0.5%. Overall, import prices were up 11.4% over the 12 months ending in November--the biggest year-over-year gain in the 25 years of the report. However, analysts said competitive pressures have limited the ability of companies to pass along higher input costs (MarketWatch Dec. 12) … * The nation’s trade deficit widened by 1.2% to $57.8 billion in October as oil prices jumped, the Commerce Department reported Wednesday. Imports rose 1% to $199.5 billion--reflecting a surge in oil demand and prices. Exports increased 0.9% to $141.7 billion. The weaker dollar and expanding overseas economies have boosted demand for U.S. goods during the past eight months. The dollar was down 8.2% against a basket of currencies from U.S. trading partners over the 12 months ending in October, according to the Federal Reserve (Bloomberg.com Dec. 12) …

News of the Competition (12/12/2007)

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MADISON, Wis. (12/13/07)
* Citing the weak housing market and credit crunch, Standard & Poor’s announced Tuesday that it has cut IndyMac Bancorp’s credit rating to “junk” status. “This action was taken in response to concerns about IndyMac’s exposure to deteriorating housing markets and the effect credit losses will have on capital levels,” said S&P Credit Analyst Robert Hoban Jr. The ratings agency said it may cut the firm’s rating further if credit losses increase and limit the firm’s access to capital. Pasadena-based IndyMac reported a $202.7 million loss for the third quarter, as mortgage delinquencies rose (Associated Press via Yahoo! Finance Dec. 11) … * Several banks reported increased loan losses and a weaker outlook on Wednesday. Charlotte, N.C.-based Wachovia Corp. doubled its estimate of loan-loss provisions to $1 billion for the fourth quarter. PNC Financial Services of Pittsburgh said its loss provisions for the fourth quarter will be more than twice as large as in the previous quarter. The firm said its losses are expected to be about $110 million, up from $45 million. Bank of America said it plans to liquidate an institutional cash fund because of losses on asset-backed securities. “Based on conditions today, we expect those writedowns will be larger than have already been reported--although obviously we won’t know our final numbers until we close the fourth quarter,” said CEO Ken Lewis. He said the company expects to set aside $3.3 billion for losses and writedowns in the fourth quarter (Associated Press and Reuters via The New York Times Dec. 12) … * Sallie Mae slashed its profit forecast for the current quarter and for 2008, as it faces rising delinquencies and lower federal subsidies. The nation’s largest student lender also announced that an investor group led by private-equity firm J.C. Flowers has formally dropped its offer to acquire Sallie Mae. The firm’s shares plunged more than 12% to $28 a share after the announcements. That compares with the original $60-a-share offer by the investor group. Salle Mae wrote off $142.6 million for borrowers missing payments on their loans in the third quarter--double the $67.2 million writedown in the third quarter of 2006 (Associated Press and Reuters via Yahoo! News Dec. 12) … * Capital One Financial Corp. said Wednesday that it plans to take an $80 million charge in the fourth quarter, which is related to the settlement of an anti-trust lawsuit brought by American Express against credit-card associations (Reuters via Yahoo! News Dec. 12). In November, the $2.1 billion settlement resolved a lawsuit involving Visa, MasterCard, and eight banks. In other news, Capital One said its charge-off and delinquency rates continued to increase in November (Associated Press via Yahoo! News Dec. 12). Net charge-offs of managed loans rose to 3.52%, from 3.36% in October. Loans 30 days or more overdue edged up to 3.68% from 3.64%. Credit card delinquency rates surged to 4.93% in November, continuing a string of monthly increases since bottoming out in June at 3.41% …

News of the Competition (12/11/2007)

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MADISON, Wis. (12/12/07)
* H&R Block Inc. expects a sizeable second-quarter loss from its plummeting mortgage business segment, according to a preliminary earnings report issued Tuesday by the company. Citing a decision to change accounting firms earlier this fall, the U.S. largest tax preparer said in a securities filing that it was submitting its quarterly report late. Block said it expects a net loss of $502.3 million, or $1.55 per share, for the quarter ending Oct. 31. This compares with a loss of $156.5 million, or 49 cents per share, for the same period a year ago. The company typically experiences a loss in the second quarter. It generally realizes most of it revenue and earnings during the tax filing season from January through April (The New York Times Dec. 11) … * Due to possible losses related to the U.S. housing downturn, Genworth Financial Inc. said its 2008 profit likely will be below analysts’ expectations. The company forecast operating earnings of $2.65 to $3.10 per share, compared with the average estimates of $3.28, according to 17 analysts surveyed by Bloomberg. Genworth’s U.S. mortgage insurance operation may contribute a loss of 25 cents per share, the Richmond, Va.-based company said on it website Tuesday. Genworth has been involved in too many mortgages in Florida where the foreclosure rate is significantly above the national average, according to Genworth CEO Michael Frazier (Bloomberg.com Dec. 11) ... * After announcing it will cut 6% of it work force and write down the value of it home-lending unit by $1.6 billion, Washington Mutual Inc.’s stock fell as much as 9.4% in trading Tuesday. The nation’s largest savings and loan also cut its quarterly dividend to 15 cents a share from 56 cents, and forecast a loss for the fourth quarter, according to a statement from the Seattle, Wash-based company Tuesday. Bad loans will result in losses from $1.5 billion to $1.6 billion--more than the $1.3 billion the company had predicted. WaMu said it plans to close 190 of 336 home-loan centers (Bloomberg.com Dec. 11) … * Through a change in the way it deals with delinquent mortgages that back securities it guarantees, Freddie Mac is delaying the impact of market losses, to preserve its capital. Capital concerns have forced Freddie to raise standards for buying past-due loans out of securitized pools, the government-sponsored enterprise (GSE) said Monday. Previously, Freddie would generally repurchase loans after four months of delinquency. Now the policy is to repurchase only under more extreme situations, such as modification or foreclosure. The GSE wants to advance principal and interest payments on nonperformers that remain in its pools to bondholders. The company said it is choosing to do that rather than taking a hit when it records a delinquent loan on its balance sheet. These types of loans eventually are cured or prepaid, while market losses deplete capital, which Freddie is trying to avoid, analysts said (American Banker Dec. 11) ...

Market News (12/11/2007)

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MADISON, Wis. (12/12/07)
* Wall Street registered disappointment with the Federal Reserve's decision Tuesday to cut the target federal funds rate by a quarter percentage point. Stocks plunged following the Fed's announcement, indicating some investors wanted a half-percentage cut, according to CNN.Money (Dec. 11). The Dow Jones industrial average dropped 300 points or 2.1%, while Standard & Poor's and Nasdaq each fell about 2.5%. Economists surveyed indicated that the Fed may need to lower rates several more times in early 2008 to keep the economy from a prolonged slump … * More than half of Americans (52%) say they cannot afford to save or are not saving enough, reports a survey released by the Consumer Federation of America (CFA) and Wachovia Monday (PRNewswire Dec. 10). Seventeen percent cannot afford to save at all, while 35% save, but not enough for short- or long-term financial needs. Sixty-eight percent said they have "adequate" savings for unexpected expenses such as car repairs or emergency dental treatment, while 58% have enough to pay for regular household expenses for several months and 53% are saving adequately for retirement. Roughly 79% said Americans aren't saving enough, with 47% indicating Americans are saving "very inadequately." Among the factors cited as barriers to saving were: economic factors such as large regular expenses (72%), unexpected expenses (42%), low or unreliable incomes (66%), and large consumer debts (60%). Social and psychological factors included impulse spending (37%); credit cards (42%); spending to feel good (29%); social pressure from friends and family (20%); trips to the mall (15%), and playing the lottery/gambling (8%). The survey was based on interviews with more than 2,000 adults conducted in November by Opinion Research Corp. … * Economic growth in the U.S.--which grew at a 4.9% pace from July through September--will slow to 1% during fourth quarter while consumer spending declines and the nation enters its third year in a housing slump, according to a Bloomberg News survey of 63 economists last week. That median figure is lower than their November forecast of 1.5% growth. They also predicted gross domestic product during the first three months of 2008 will be less than originally forecast. Higher fuel prices and lower housing values will limit spending in 2008. Spending, which accounts for more than two-thirds of the economy, will grow at its slowest pace in 17 years. A 1.7% increase on average in spending this quarter and next would be the weakest quarter-to-quarter increase in the past five years. Economists project a 2.1% increase for all of 2008--the smallest increase since 1991's recession, which had a 0.2% gain (Bloomberg.com Dec. 11) … * Sales at chain stores increased 0.2% for the week ending Dec. 8 but were 2.3% less than a year ago, reported the International Council of Shopping Centers (ICSC) Tuesday. Comparisons were difficult because consumers continued to delay holiday purchases compared with other years. Only 33% of consumers had completed more than half of their holiday shopping, a lower share than the previous three years. ICSC continues to project growth of about 1.5% for December and 2.5% for the combined November-December holiday shopping period. Results are affected by calendar shifts, which moved between 0.75 and one percentage point of sales growth from December to November. Last year, holiday sales grew 2.9% using this measure (Moody's Economy.com Dec. 11) …

Fed rate provides bit of relief Hampel tells IBloomberg TVI

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WASHINGTON (12/12/07)--The Federal Open Market Committee (FOMC) decision Tuesday to cut the target for the federal funds rate another 25 basis points--to 4.25%--won't solve the credit crisis problem, but it is a "little bit of relief," Credit Union National Association Chief Economist Bill Hampel told Bloomberg TV Tuesday night. Hampel was one of two economists interviewed on Bloomberg TV's "Evening Edition" by host Mike Schneider about the implications of the Fed's decision. When asked whether the quarter-point drop was adequate, Hampel responded that by next summer, consumers can expect rate cuts to cover up to 100 basis points. "The Fed could have sped up that process (Tuesday). The Fed fund rate is twice that of the core inflation rate. However, the changes made today will affect the economy six to 12 months down the road." he said. "With weakness in the economy and credit problems, a stronger signal would have helped, but the Fed can catch up later," he said. Hampel noted that the Fed can't control the world in which the economy operates. "Lenders and borrowers look at several factors. You can lower the interest rates but can't push on a string. Lower rates may get a consumer to borrow when he otherwise wouldn't," he said. The decision to lower rates won't impact credit unions as much as their members. "Consumers fall into two categories: savers and borrowers," Hampel said. "For savers, lowering the rate is bad news because many have fixed incomes and receive a lower return on their income." The lower rates will help borrowers, after a lag, when they buy their next car or take out other loans. "The Fed changes short-term rates, but long-term rates will follow. It won't solve the problem, but it is a little bit of relief." It was the third consecutive time the Fed has cut the short-term rate. A quarter-point rate cut, which follows an accumulated 0.75 percentage point reductions in September and October, lays the groundwork for possibly more rate cuts to prevent the economy from sliding into a recession. The cut marks the greatest easing of the costs of borrowing since the nation's last recession in 2001, said Bloomberg.com. In announcing the decision, FOMC cited information that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending, and that "strains in financial markets have increased in recent weeks." Although readings on core inflation improved modestly this year, elevated energy and commodity prices, among other factors, may put upward pressure on inflation. FOMC noted that "some inflation risks remain" and that it would "continue to monitor inflation developments carefully." The FOMC left open the possibility of future rate cuts. "The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth." The committee voted nine to one for the rate cut. Voting against the cut was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at the meeting. The Board of Governors, in a related action, unanimously approved a 25-basis-point decrease in the discount rate, to 4.75%.

Market News (12/10/2007)

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MADISON, Wis. (12/11/07)
* The housing market won’t recover until 2009, but sales will trend up next year, according to the latest forecast by the National Association of Realtors (NAR). The trade group’s Pending Home Sales Index, which is based on contracts signed in October, rose 0.6% to 87.2--from 86.7 in September and the second consecutive increase. However, the index was 18.4% lower than in October 2006. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” said NAR Chief Economist Lawrence Yun. The trade group predicts that existing-home sales will total 5.67 million in 2007--down from 6.48 million last year but still the 5th-highest total on record. Sales are expected to edge up to 5.70 million in 2008. Prices are expected to decline 1.9% to a median $217,400 for all of this year, and then edge up 0.3% to $218,300 in 2008. New-home sales are forecast to total 788,000 this year and 693,000 next year, while the median new-home price is expected to decline 3% to $239,100 this year and then dip 0.2% to $236,600 in 2008 (realtor.org Dec. 10) … * The housing slump has eroded many states’ revenue--prompting shortfalls in some, the National Conference of State Legislators (NCSL) reported Monday. Legislative fiscal directors of 24 states reported that the housing slump affected their state’s revenue streams last quarter. “Many states anticipated a slowdown in this revenue source, but the drop is even higher than expected,” said the report. California, Florida, and New York lowered their fiscal 2008 forecasts while some states in the West and Midwest increased their forecasts. The NCSL report noted that surpluses from past years in some states will help them weather the downturn (Reuters Dec. 10) … * Business sentiment tumbled last summer during the subprime crisis and hasn’t yet recovered, according to the latest Moody’s Economy.com Survey of Business Confidence (Dec. 10). U.S. business confidence is especially weak and consistent with a recession. But while confidence outside the U.S. is better, it has softened considerably during the past month. A softer global economy also makes the U.S. more vulnerable to recession. Weak sales have kept firms from boosting prices despite higher oil prices. And while businesses have been cutting inventories and office demand remains weak, hiring and equipment investment has remained fairly strong … * The U.S. economy is slowing considerably, but not sliding into a recession, the Organization for Economic Cooperation and Development (OECD) said Friday. The OECD applauded the Federal Reserve’s decision to cut interest rates to help the world’s biggest economy cope with the housing slump and credit crunch. The OECD predicts economic growth of 2.2% in the U.S. this year and just 2% growth next year. Growth in the 13-nation euro zone is expected to slow to 1.9% next year from 2.6% in 2007. However, China’s economy is expected to expand by 10.7% and Russia’s economy is forecast to grow 6.5%--providing support for global economic growth despite the U.S. slowdown (Reuters Dec. 7) … * Venezuelan President Hugo Chavez and the leaders of six other nations in South America have launched a regional development bank that they say will counter U.S.-influenced lenders such as the World Bank and the International Monetary Fund. Bolivian President Evo Morales said the new bank will help fight inequality and poverty. Morales criticized the international lenders for their insistence on austerity measures before granting loans. As much as $7 billion is expected in startup capital for the new regional bank. The finance ministers of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela will sit on the bank’s board. It will be headquartered in Caracas (Associated Press via The New York Times Dec. 10) …

News of the Competition (12/10/2007)

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MADISON, Wis. (12/11/07)
* UBS AG announced Monday that it plans to write off another $10 billion in losses on the U.S. subprime mortgage market. The bank wrote down $3.4 billion in October because of the subprime collapse. The Zurich-based bank now expects to record a loss for the fourth quarter. UBS plans to borrow $11.51 billion from outside investors, sell Treasury shares, and replace its cash dividend with a stock dividend. UBS also said the Government of Singapore Investment Corp. will invest 11 billion francs, and an unnamed investor in the Middle East will invest 2 billion francs. “Conditions in the U.S. mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities,” said UBS Chief Executive Marcel Rohner (Associated Press via CNNMoney.com Dec. 10) … * MBIA Inc., a New York-based bond insurance firm, said Monday that buyout firm Warburg Pincus has agreed to invest $1 billion in the company. Initially, Warburg will invest $500 million by acquiring 16.1 million MBIA shares for $31 each. Then it will receive warrants to acquire stock for a rights offering. MBIA has warned it may face a liquidity crisis as the value of bonds backed by subprime mortgages collapse (Reuters via The New York Times Dec. 10) … * The Qatar Investment Authority said Monday that it sees “tremendous opportunities” for sovereign wealth funds to invest in U.S. financial-services firms that have been hit hard by the credit crunch and housing slump. Last month, the Abu Dhabi Investment Authority agreed to invest $7.5 billion in Citigroup, which was hit by subprime writedowns. “The financial institutions sector should be one that investors should be looking at,” said Kenneth Chen, head of strategic and private equity at Qatar Investment Authority. He said the U.S. housing crisis is “the worst in 20 to 25 years.” The top 20 sovereign wealth funds control about $2 trillion in assets (Reuters via The New York Times Dec. 10) … * Reading State Bank of Reading, Kan., is requesting regulatory permission to launch a branch in Tightwad, Mo., the former headquarters of the Tightwad branch of UMB Bank. Earlier this year UMB shut down the original Tightwad Bank branch, which had lured customers from all across the U.S., wanting to see the Tightwad brand on their checks. Former UMB banker Don Higdon is chairman of Reading State Bank (The Kansas City Star Dec. 10) …

News of the Competition (12/07/2007)

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MADISON, Wis. (12/10/07)
* Merrill Lynch analysts downgraded three credit-card firms--American Express, Capital One Financial, and Discover Financial Services--to “sell” from “neutral” on Friday after predicting that consumer spending will weaken next year and prompt a recession. “We are taking a more cautious view on the consumer finance stocks as the serial negative economic news suggests that the risk of a consumer recession is all but certain, in our view,” wrote the analysts. American Express shares declined 3.4%, while Discover shares fell 2.7%, and Capital One lost 2%. Merrill analysts predicted that chargeoffs at Capital One, which is most exposed to consumer-credit trends,” will represent about 5% to 6% of its balances. The analysts put the odds of a recession next year at 65% (MarketWatch and Bloomberg.com Dec. 7) … * Borrowing from the Federal Reserve’s discount window rebounded last week--possibly reflecting further tightening in the credit markets. Total lending hit $2.14 billion on December 5--up from $54 million the previous week and the highest level since mid-September. Borrowing was concentrated in the New York region. Most loans--$2.108 billion--were primary credit to healthy financial institutions, while no loans were made as secondary credit to weaker firms. The remainder of the loans were seasonal. A jump in the London interbank lending rate (Libor) may have prompted financial institutions to turn to the Fed, said JPMorgan Economist Michael Feroli. This week, Fed policymakers meet to decide whether to lower the discount rate again (Reuters via Yahoo! News and American Banker Dec. 6) … * Citigroup, Bank of America, and JPMorgan Chase are scaling back the size of the “super fund,” designed to ease the credit crunch because the financial firms that are supposed to take advantage of the plan aren’t interested, say people familiar with the matter. The plan originally was seen as a $100 billion fund that would purchase assets from structured investment vehicles (SIVs). That fund could end up at just half that size, said the people. The fund would purchase high-quality assets from the SIVs, which have been harmed by the credit crunch. Financial institutions in some instances are trying to address their own problems. Britain’s HSBC Holdings plans to shut down two SIVs and take $45 billion in mortgage-backed securities and other fund assets onto its balance sheet (The Wall Street Journal Online Dec. 7) … * The credit crunch will prompt a wave of bank mergers in the U.S. and Germany, predicts JPMorgan Chase Chairman and Chief Executive Jamie Dimon. “Companies recognize, after such a collapse, that they need more weight, more capital and access to good, long-term financing, and the people there say to themselves: ‘Now it is time to do something,’ ” Dimon told German newspaper Boersen-Zeitung on Friday. In other remarks, Dimon said his company was taking part in the planned super fund for structured investment vehicles in the U.S. in order to stabilize the financial systems, but said he wasn’t very concerned if it didn’t come about (Reuters Dec. 7) …

Market News (12/07/2007)

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MADISON, Wis. (12/10/07)
* Job growth slowed last month while the unemployment rate held steady, the Labor Department reported Friday. The economy created 94,000 jobs in November following a 170,000 gain in October. The unemployment rate, which is based on a separate survey, held steady at 4.7% for a third consecutive month. Job growth last month continued in health care, food services, and professional and technical services. However, employment growth continued to decline in manufacturing and in housing-related industries including construction, real estate, and credit intermediation. Revisions to October and September data brought job growth for those months to 214,000--or 48,000 lower than the government last estimated. (Bloomberg.com Dec. 7). The job market will weaken further over the next several quarters as the credit crunch and housing slump affect the broader economy, said Moody’s Economy.com (Dec. 7). The research firm also predicted that the government will revise past data downward during its annual benchmark in January … * Average hourly wages among rank-and-file workers --which represent about four-fifths of the workforce --edged up 8 cents to $17.63 in November--keeping wage growth only slightly ahead of increased prices, according to the Labor Department. After adjusting for inflation, wages have declined over the last year--from $17.69 in November 2006. Wage increases during the current economic expansion have been softer than during most expansions. Over the last four years, the inflation-adjusted hourly wage has risen by only one cent--from $17.62 in November 2003 (The New York Times Dec. 7) … * Salary increases are barely keeping up with inflation, according to a report by Towers Perrin. Base salaries are expected to rise an average 3.9% in 2008, matching this year’s average pay gain. In comparison, consumer inflation increased at a 3.5% annual rate in October, according to government data. Next year’s expected salary gain is “very mild growth,” noted John Irons, director of research and policy at the liberal Economic Policy Institute. He also noted that looking at an average increase in wages is misleading because higher-income people are seeing larger salary gains while middle- and lower-income people have lagged. “We would hope for wages and salaries to increase with productivity growth… but we see productivity growth is stronger while wage growth is weaker,” added Irons. Irons said weak job growth is dampening wage gains. Outsourcing, immigration, a loss of union bargaining power, and technological changes in the workplace also are factors (MarketWatch Dec. 5) … * Health care is a major concern for Americans in the current presidential debate. Growth in health-care spending is outpacing growth in both wages and inflation, according to the Kaiser Family Foundation. Health-insurance premiums surged 78% over the past five years--compared with a 19% gain in wages and a 17% increase in inflation. Health-care spending per person rose to about $6,700--up around 77% from 2005. As costs rise and fewer employers offer health-care coverage, more Americans are going without insurance. Kaiser estimates that 47 million Americans are uninsured. “The prevailing feeling is that people are paying more and more, and receiving less and less,” said Ron Pollack, executive director of the advocacy group Families USA (MarketWatch Dec. 7) … * Consumer optimism is now at the lowest point since Hurricane Katrina as the housing slump and rising energy costs hit pocketbooks hard. The Reuters/ University of Michigan consumer sentiment index dropped to 74.5 in December--from 76.1 in November and the lowest level since October 2005. Before that, consumer sentiment hadn’t been so weak since 1992--when the economy was emerging from a recession. While the poll’s index of current economic conditions edged up to 92.1 from 91.5, the expectations index dropped to 63.2 from 66.2. The study also revealed a growing gap in sentiment between rich and poor Americans. “Additional losses among lower-income households more than offset the gains among upper-income households,” said survey director Richard Curtin. “The data document a widening gap across income groups from what was already an all-time record,” added Curtin. Consumers are concerned that food and energy costs will continue to increase. Inflation expectations for the next year jumped to 3.5% in December--from 3.4% in October and the highest reading since August 2006 (Reuters and MarketWatch Dec. 7) … * Chief executives are optimistic about their companies even though they expect an economic slowdown over the next year, according to the latest Business Roundtable survey. More than two-thirds of the nation’s top CEOs polled by the group anticipate higher sales over the next six months. Yet CEOs on average expect economic growth of only 2.1% next year. “Although credit-market pressures have raised many concerns about the economy, CEOs do not appear to be cutting back on investment or employment and do not see slower revenue growth,” said Business Roundtable Chairman Harold McGraw III. “I wouldn’t read into it that they aren’t concerned about the credit crunch, energy prices, or housing--but taking it all in, they think they’ll be in reasonably good shape for the next six months,” added McGraw (The Wall Street Journal Online Dec. 5) …

News of the Competition (12/06/2007)

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MADISON, Wis. (12/5/07)
* Delta Financial Corp, a Long Island, New York-based mortgage lender, said Thursday that it plans to file for bankruptcy protection after it failed to package and sell $500 million in mortgages. The company said its credit-losses tripled in the third quarter--prompting a loss of $39.6 million. Delta already has laid off most of its 1,395 employees. More than a dozen mortgage lenders have failed this year amid the credit crunch and housing downturn (Reuters and Associated Press via Yahoo! News Dec. 6) … * Canadian Imperial Bank of Commerce said Thursday that it posted an 8% increase in earnings for the fourth quarter. However, it projects C$225 million in additional writedowns for November because the U.S. mortgage market has weakened. Canada’s 5th-largest bank also said it may face “significant future losses,” in U.S. mortgage-derivative contracts. It has the biggest exposure among Canadian banks to the U.S. subprime sector. In other news, shares of Royal Bank of Scotland jumped 8% Thursday after the firm reported a smaller-than-expected $2.5 billion writedown due to the credit crunch. Its shares had plunged more than 25% since mid-year, as investors predicted a much larger writedown (Reuters Dec. 6) … * The Association of Mexican Banks predicts that bank loans will increase by 15% to 20% next year if the U.S. economy avoids a recession. The association expects growth of 10% to 15% if the U.S. falls into recession. The U.S. is crucial to Mexico because it accounts for more than 85% of Mexican exports. The Mexican economy last saw a sharp economic slowdown during the U.S. recession in 2001. However, its economy is less dependent on the U.S. today because high oil prices have increased earnings and domestic demand has strengthened (Dow Jones Newswires Dec. 6) … * American Express announced an agreement with Bank of America Wednesday in which the bank will offer Amex gift cards at the bank’s retail centers. “We want to make our gift cards available where consumers expect to find them for sale, and many of our customers prefer to buy gift cards at their local bank branch,” said Alpesh Chokshi, president of Amex Travelers Cheques and Prepaid Services. With the Bank of America branches, Amex gift cards will be available at more than 65,000 locations (BUSINESS WIRE via Yahoo! News Dec. 5) …

Market News (12/06/2007)

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MADISON, Wis. (12/5/07)
* The percentage of homeowners going into foreclosure jumped to a record high in the third quarter while the mortgage delinquency rate increased to the highest level since 1986, according to a report by the Mortgage Bankers Association (MBA). The trade association said 0.78% of mortgages entered the foreclosure process--up from 0.65% in the second quarter and 0.32% in the third quarter of last year. Those homeowners entering the foreclosure process pushed up the total share of loans in the foreclosure process to a record-high 1.69%--from 1.40% in the second quarter and 1.05% a year earlier. The MBA also reported that the percentage of all mortgage loans with payments 30 days or more overdue rose to 5.59% in the third quarter--the highest level in more than 20 years. About 994,000 households are in the process of foreclosure, said MBA Chief Economist Doug Duncan. “Not all of them will lose their house, but that’s how many are currently at serious risk of losing their home,” added Duncan. For all of this year, the trade association predicts that 1.5 million loans will enter the foreclosure process--up from 960,000 last year and 704,000 in 2005. Most (660,000) will be subprime adjustable-rate mortgages (ARMs). However, prime loans also are significant--at 285,000 for fixed-rate loans and 274,000 for ARMs (CNNMoney.com, Bloomberg.com and Reuters via The New York Times Dec. 6) … * Many housing markets will crash and see price declines of more than 30% before the housing slump has ended, according to a report by Moody’s Economy.com. Nationwide, home prices are predicted to decline 13% from their peak through early 2009. The two hardest-hit housing markets will be Punta Gorda, Florida, where prices are expected to plunge 35.3%, and Stockton, California, where prices are predicted to tumble 31.6%. These markets have seen prices plunge as investors exited the market, said Economy.com Chief Economist Mark Zandi. Overbuilding and an increase in foreclosures of subprime-mortgage holders also have contributed to the problem. “The housing market’s most fundamental problem is it is awash in unsold inventory,” said the report. There were about 2.1 million vacant unsold homes for sale in the third quarter--or 2.6% of the stock of owner-occupied houses, according to Census Bureau data. That compares with a vacancy rate of around 1.7% from the early 1980s to the mid-2000s. The research firm predicts that the housing slump will subtract about one percentage point from economic growth in 2007 and one-and-a-half points from growth in 2008 (Reuters via The New York Times Dec. 6) … * Auto loans also are seeing rising delinquencies during the housing slump as consumer stress builds up. About 4.5% of auto loans made to top-rated borrowers last year were 30 days or more overdue at the end of September--up from 2.9% in August and the largest monthly increase in about eight years, according to a Lehman Brothers survey. The poll also found that 12% of subprime borrowers were delinquent on their auto loans--up from 11.1% the previous month and the highest level since 2002. Lenders say they are seeing auto-loan delinquencies rise the most in regions where home prices are posting big declines. Higher gasoline prices and slower job growth push up delinquency rates as well. Rising delinquencies also mean trouble for investors because, like mortgage loans, auto loans are often pooled together and sold as securities. According to Standard & Poor’s, $80 billion of auto loans were packaged into asset-backed securities and sold to investors last year (The Wall Street Journal Online Dec. 6) … * Fixed-rate mortgages (FRMs) continued to decline this week--falling to 2005 levels, according to Freddie Mac. The average 30-year FRM dropped 14 basis points to 5.96%--the lowest level since the week ended Sept. 29, 2005. The 15-year FRM fell 8 basis points to 5.65%--the lowest level since the week ended Oct. 13, 2005. “With lower consumer spending and personal income gains in October, interest rates on U.S. Treasury securities fell lower this week and mortgage rates followed,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He said that weak home prices and expectations for another rate cut by the Federal Reserve also eased pressure on rates, a trend that probably will continue over the next few months. “Currently, the federal funds futures market has almost a 100% probability that the Fed will lower rates in its Dec. 11 policy committee meeting,” said Nothaft. Freddie also reported that the one-year, adjustable-rate mortgage edged up 3 basis points to 5.46% this week (MarketWatch and CNNMoney.com Dec. 6) … * Company default rates will surge next year as the credit crunch spreads to the broader economy, according to a report by Moody’s Investors Service. The agency said the global default rate will increase to 4.2% by the end of 2008, assuming the U.S. economy slows, but doesn’t fall into recession. If a U.S. recession does occur, Moody’s predicts that default rates will increase to 10% by the end of next year. Moody’s default rates, which are based on the performance of the bonds of 2,000 junk-rated firms, fell to 1% in November. “Currently low default rates reflect the easy credit conditions of the past couple of year, which allowed most issuers to refinance on favorable terms, and strong economic growth which has allowed issuers to make their debt service payments,” said Kenneth Emery, director of corporate default research at Moody’s (Reuters and FT.com Dec. 6) …

News of the Competition (12/05/2007)

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MADISON, Wis. (12/5/07)
* Several Wall Street firms--including Merrill Lynch, Bear Stearns, and Deutsche Bank--have received subpoenas from New York state prosecutors seeking information about the packaging and selling of debt linked to risky mortgages, say people familiar with the situation. The prosecutors want to determine how effectively the investment banks review the quality of mortgages before they package them to be sold to investors. They also want information about how debt is pooled into securities and about the firms’ relationships with credit rating agencies. The investment banks declined to comment on the matter (The Wall Street Journal Online Dec. 5) … * Another round of investor claims have been filed against Bear Stearns related to its role in managing two hedge funds that failed earlier this year, said securities attorneys. The claims will be submitted to the Financial Industry Regulatory Authority for arbitration. Last July, Bear’s High Grade Structured Credit Strategies Fund and the High Grade Structured Enhanced leverage Fund failed--destroying $1.6 billion worth of investments. The investors claim the company continued to sell shares of the funds when they knew they were going sour. “Officials at Bear Stearns engaged in a concerted effort to conceal the true state of affairs at both of these hedge funds for an extended period of time before they imploded,” said attorney Steve Caruso (Reuters via The New York Times Dec. 5) … * The national labor union UNITE HERE launched a campaign Monday against Countrywide Financial Corp., calling for its members and other consumers to boycott the firm’s banking unit until it pledged it won’t foreclose on borrowers who are delinquent on the adjustable-rate mortgage loans that reset this year and last year. The union is urging consumers to send e-mails to Countrywide Bank asking for the pledge. Countrywide announced in October that it plans to offer refinancing or loan modifications on $16 billion of loans with rates that are set to adjust by the end of next year. The union is concerned that those homeowners who already have fallen behind on their payments are left out of the plan. UNITE HERE represents 450,000 employees in the hotel, restaurant, and apparel industries (Associated Press via Yahoo! News Dec. 4) … * UBS AG and Goldman Sachs were the top earners as investment banking fees in the Asia Pacific region jumped 36% to a record $11.7 billion so far this year, according to statistics from Thomson Financial and Freeman & Co. Merger and acquisition (M&A) deals accounted for 53.1% of the fees. Despite the credit crunch, global M&A activity has surged to a record $4.3 trillion so far this year--compared with $3.9 trillion last year, according to Dealogic. UBS earned $701.7 million in fees so far this year, while Goldman Sachs earned $523.8 million. Morgan Stanley ranked third, earning $495.5 million, followed by Citigroup, with $447.8 million in fees (Reuters via The New York Times Dec. 5) …

Market News (12/05/2007)

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MADISON, Wis. (12/5/07)
* Mortgage demand surged last week as long-term rates eased, according to a report by the Mortgage Bankers Association (MBA) (mbaa.org Dec. 5). The Market Composite Index jumped 22.5% during the week ending Nov. 30 to 791.8, as both purchase and refinancings surged. The average 30-year, fixed-rate mortgage fell 27 basis points to 5.82%, while the 15-year FRM dropped 31 basis points to 5.38%. The one-year, adjustable-rate mortgage (ARM) edged up 4 basis points to 6.28%. The 30-year FRM is now 16 basis points lower than a year ago, while the one-year ARM is 49 basis points higher, noted Moody’s Economy.com (Dec. 5). The research firm said upcoming MBA surveys probably will moderate from last week’s high level, which likely reflected both lower fixed rates and a favorable comparison with the Thanksgiving holiday week … * Credit losses from bad loans will worsen in 2008, Fannie Mae told investors and regulators Wednesday. Fannie also announced it is cutting its dividend by 30% to 35 cents a share, beginning in the first quarter, and is issuing $7 billion in preferred stock this month to shore up the firm’s balance sheet against rising credit losses. Fannie, which reported a $1.4 billion loss for the third quarter, said its mortgage investment portfolio declined about 1% in November. The government-sponsored enterprise said its expects home prices to decline by 10% to 12% from their peak before the housing market begins to recover (Associated Press via Yahoo! News Dec. 5) … * The service sector continued to expand in November but at a slower pace, according to the Institute for Supply Management (ISM). The group’s index of non-manufacturing businesses (including retailers and banks) edged down to 54.1-- from 55.8 in October and the lowest reading since March. New orders and employment expanded at a slower pace, while prices increased at a larger pace. “The overall indication in November is continued economic growth in the non-manufacturing sector, but at a slower pace than in October,” said Anthony Nieves, chairman of the ISM’s business survey committee. He also noted that respondents in the service sector are “concerned about the economy.” (Associated Press via Yahoo! News Dec. 5) … * Worker productivity accelerated in the third quarter and labor costs posted the largest decline in four years. Productivity rose at an annual rate of 6.3%--the largest increase since 2003, the Labor Department reported Wednesday. Labor costs declined at a 2% pace. Lower labor costs give the Federal Reserve room to lower interest rates again next week, said economists following the report. Over the past 12 months, labor costs increased 3%, while productivity rose 2.7%. Productivity has slowed since peaking at 4.1% in 2002. Productivity rose only 1% in 2006--the smallest gain since 1995 (Bloomberg.com Dec. 5) … * Job layoffs surged in November as cuts in the auto and energy sectors rose, according to a report by the outplacement firm Challenger, Gray & Christmas. The number of workers affected by job cut announcements rose to 73,140--up 16% from October and higher than the average 65,000 layoffs announced during the first 10 months of this year. The industries that led the November increase in layoffs were automotive, at 19,144, and the energy sector, at 10,018--followed by financial (6,953), construction (4,874) and industrial goods (4,539). While job cuts slowed in the financial sector in November, the sector still leads year-to-date--with 147,395 cuts. The auto sector is the second highest, with 71,078 layoffs (Economy.com Dec. 5) … * Worker confidence fell to a record low in November, according to a survey released Wednesday. The Hudson Employment Index fell to 91.9--from 100.8 in October and 105.3 a year earlier. The number of workers who expect hiring at their firms dropped 3 points to a record-low 25% in November, while the percentage who expect their employers to cut jobs rose 2 points to 17%--the highest percentage in two years. Just 34% said their personal finances are improving--down 5 points from October and 8 points from a year ago. “Simply put, U.S. workers are worried that job growth is going to slow significantly in the coming months,” said Robert Morgan, co-president of recruitment and talent management at Hudson (Reuters via The New York Times Dec. 5) …

Market News (12/04/2007)

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MADISON, Wis. (12/5/07)
* Food prices will soar in the years ahead, prompted by growing demand in developing nations and climate change, according to a report by the International Food Policy Research Institute. The report predicts that global agricultural production will plunge 16% by 2020 because of global warming--increasing hunger and malnutrition in the poor communities that are most dependent on the environment. It said increased demand for meat and dairy products and processed food in China, India, and other developing countries is boosting demand and prices for the grains used to feed cattle. The use of crops as biofuels also is increasing food prices and cutting the amount of food available for people. “The last time the world experienced such food price increases was in 1973 to 1974--but today the situation is completely different,” said Joachim von Braun, director of the Washington-based institute. “For one, the climate risk and climate change situation has increased, the climate vulnerability has increased.” (Associated Press via Yahoo! News Dec. 4) … * Lenders should reconsider the practice of using the Libor, or London interbank offered rate, as the benchmark for adjustable-rate mortgages (ARMs), said Federal Reserve Bank of Boston President Eric Rosengren. In a speech Monday, Rosengren noted that the Libor has increased recently even as the Federal Reserve has lowered the target for the fed funds rate--making ARM resets even more difficult for homeowners. He said resets on many subprime ARMs are about 6.1% over Libor--bringing some loans up to 12% or higher. “I can’t explain why Libor has been elevated,” said Rosengren. “Most subprime loan holders have no idea what Libor is,” added Rosengren (Dow Jones/ Associated Press via CNNMoney.com Dec. 4) … * Vehicle sales improved slightly in November--rising to a 16.2 million annual rate from a 16 million pace in October (Economy.com Dec. 4). However, for the full year sales are running at a 16.1 million pace--the lowest since 1998--as the housing slump lowered home-equity withdrawal and support for consumer spending. General Motors and Ford Motor both announced Monday that they plan to cut production in the first quarter due to slower sales growth (The New York Times Dec. 4). GM’s sales plunged 10.9% in November, while Ford posted a meager 1.3% gain. Chrysler’s sales fell by 2.1%. For the second time this year, the domestic automakers accounted for less than half the U.S. market, according to Autodatastatistics, as higher fuel costs prompted consumers to choose more energy-efficient foreign models … * Soaring fuel prices and declining consumer confidence prompted Delta Air Lines to caution Tuesday that it may face an earnings loss. Delta cut the target for its operating profit margin to 0% to minus 2%. Southwest Airlines also warned that it plans to curb capacity growth. “We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices,” said Southwest CEO Gary Kelly. Both airlines are cutting aircraft orders. The Amex airline index fell 1.8% following the announcements (Reuters via The New York Times Dec. 4) … * Chain-store sales declined 2% over the week ending Dec. 1, but rose 3.1% year-over-year--the strongest gain since the week ended August 4, according to the International Council of Shopping Centers (ICSC). The trade group said weather was favorable in the latest week, but customer traffic was sluggish, as consumers delayed their holiday shopping. High energy prices, the housing slump, slower job growth, and high debt burdens will remain constraints on consumer spending in the months ahead (Economy.com Dec. 4) …

News of the Competition (12/04/2007)

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MADISON, Wis. (12/5/07)
* Tax-preparer H&R Block announced Tuesday that the sale of its Option One Mortgage subprime-mortgage unit to Cerberus Capital Management was terminated. Block said the two firms failed to renegotiate the terms of their agreement since market conditions turned down in April. Option One, which was the biggest U.S. subprime lender during the first nine months of this year, has seen its lending slump since then. Block said Option One no longer will accept loan applications. The company also will eliminate 620 jobs at the unit and shut down three of its offices. Block also will try to sell the unit’s servicing business, said H&R Block Chairman Richard Breeden. The company expects a writedown of as much as $125 million for the quarter ended Oct. 31 (Reuters Dec. 4) … * Citigroup and the nation’s biggest securities firms had their earnings estimates lowered by analysts this week amid anticipated writedowns and an expected slowdown in mergers and acquisitions. “Large writedowns reflect failed risk-management and business strategies and should negatively impact valuation longer term,” wrote JPMorgan Chase Analyst Kenneth Worthington. So far this year, securities firms and banks have announced $66 billion of losses and writedowns for assets linked to the subprime mortgage market. Punk Ziegel & Co. Analyst Richard Bove changed his ratings for the nation’s top five securities firms to “sell.” And UBS AG Analyst Glenn Schorr cut his profit estimate for Citigroup next year and said its stock is “still not compelling” after a 42% plunge this year (Bloomberg.com Dec. 4) … * After enduring rising defaults and lower origination volume, mortgage lenders now are facing risk from their loss-sharing arrangements with mortgage insurers. As of Sept. 30, Countrywide Financial said it had reinsured $109.5 billion of mortgages in its servicing portfolio and could lose as much as $1 billion on that coverage. The $235.9 million of premiums Countrywide collected in 2006 made up 30.4% of the total amount paid to all reinsurers, according to Inside Mortgage Finance. PMI Group expects reinsurance on its book to pay out about $30 million next year, and $170 million in 2009, as losses on loans made in 2000 and 2001 expand, and coverage on loans made in 2002 and 2003 comes into effect (American Banker Dec. 4) … * European Union Antitrust Chief Neelie Kroes warned banks Monday that the new continent-wide payment system shouldn’t be allowed to boost costs or lower choices for consumers. She said retailers and customers are “increasingly worried” that the way banks are moving towards SEPA (the single euro payments area) will make them shift to more costly payment plans from cheaper national systems. She said leaving behind national systems could result in just one or two players for payments. This would mean “less competition, not more--with all the negative knock-on effects that can be expected from such a development,” said Kroes. “And this is not something I am willing to let happen,” she added (Associated Press via Yahoo! Finance Dec. 4) … * Lehman Brothers announced Tuesday that it has agreed to acquire the assets from Dutch specialist market maker Van der Moolen Holding, including its New York Stock Exchange portfolio. Lehman said the deal will make it the 4th-largest specialist firm on the exchange. The sale will shrink Van der Moolen’s presence in the U.S. The company will make most of its earnings in Europe (Reuters Dec. 4) …

News of the Competition (12/03/2007)

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MADISON, Wis. (12/4/07)
* E*Trade Financial Corp. has boosted rates of several of its banking products to lure more deposits. Last week, the company received a $2.55 billion cash infusion from Citadel Investment Group to increase its capital position after taking a hit on mortgage-securities investments. E*Trade increased the yield on its Complete Savings Account to 5.05% from 4.70%, and boosted the yield on its six-month CD to 5.25% from 4.75%. Consumers have seen savings rates hold up despite falling market rates, because banks want to attract consumer deposits (The Wall Street Journal Online Dec. 1) … * MetLife Inc., the nation’s largest life insurer, announced Monday that it expects fourth-quarter and 2008 earnings that will be below analysts’ expectations. As of Oct. 31, the company had $204 million of unrealized losses on an Alt-A and subprime mortgage portfolio. That portfolio totaled $8.83 billion as of Sept. 30--including $6.58 billion of Alt-A residential mortgage-backed debt, $2.18 billion of subprime mortgages, and $62 million of collateralized debt obligations related to subprime mortgage loans. MetLife expects revenue of $34.8 billion to $35.2 billion this year, and $37.7 billion to $38.7 billion for 2008 (Reuters via The New York Times Dec. 3) … * Discover Financial Services, the credit-card firm spun off by Morgan Stanley earlier this year, said Monday that it plans to take a charge to write off part of its Goldfish credit card business in Britain, which has seen deteriorating consumer-credit conditions. “Continued disruption in the UK financial markets, higher interest rates and our decision to reduce our loan exposure to the UK market have negatively affected the book value of our Goldfish business,” said CEO David Helms (Reuters via The New York Times Dec. 3) … * MasterCard Worldwide on Monday announced the launch of its prepaid reloadable travel card marketed via Airlines Reporting Corp. (ARC), a specialist in financial settlements for travel suppliers. The MasterCard Travel Card will be available at ARC’s network of more than 20,000 travel-agent locations in the U.S. It is the first prepaid travel card in the nation to be equipped with contactless technology. The card is a convenient substitute for cash and travelers checks and is safer than credit and debit cards, said Mike Brunner, MasterCard’s vice president of prepaid. The travel card market in North America will expand to almost $9 billion in gross dollar volume by 2010, according to research commissioned by MasterCard (PRNewswire-FirstCall/ and American Banker Dec. 3) …

Market News (12/03/2007)

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MADISON, Wis. (12/4/07)
* Many borrowers with subprime mortgages have fairly good credit and could refinance into a cheaper mortgage by using government programs, said Federal Reserve Bank of Boston President Eric Rosengren. He noted that 55% of subprime adjustable-rate mortgages--about 1.2 million borrowers--haven’t missed any mortgage payments during the past year. “These subprime borrowers may meet the credit standards required for FHA guarantees or for similar state programs, with potentially a significant savings,” said Rosengren. He said borrowers who obtained a subprime loan in many cases “may have been better off with an FHA product,” which has rates about two percentage points lower than subprime-loan rates (The Wall Street Journal Online Dec. 3) ... * Many people with good credit were given subprime mortgage loans when they could have qualified for conventional mortgages with better terms, according to a study of more than $2.5 trillion in subprime loans made since 2000 by The Wall Street Journal Online (Dec. 3). The study found that 55% of all subprime mortgages made in 2005 that were eventually packaged into securities went to borrowers with good credit scores. Soaring home prices and a surge in the number of lenders specializing in subprime loans prompted more borrowers with good credit scores to obtain subprime loans. In many cases, mortgage brokers had strong incentives to originate subprime loans. Mortgage brokers on average collected 1.88% of the total loan amount for originating a subprime loan--higher than the 1.48% fee for conforming loans, according to mortgage-research firm Wholesale Access … * The worst of severe ratings cuts of collateralized debt obligations (CDOs) tainted by subprime mortgages probably is over, and next year should see a “healing process,” said Fitch Ratings Senior Director Richard Hrvatin. The deteriorating value of subprime mortgage debt resulted in $67 billion of ratings cuts of CDOs by Fitch. “We think that we’ve taken enough severe action that the ratings that are there now are going to hold up,” said Hrvatin (Reuters via The New York Times Dec. 3) … * The manufacturing sector continued to expand in November as new orders and production improved, but the pace of growth weakened, according to a report by the Institute for Supply Management (ISM) (Associated Press via Yahoo! News Dec. 3). The ISM’s manufacturing index edged down to 50.8 from 50.9 in October. “While other segments of the economy are struggling, manufacturing continues to grow due to continuing strength in new orders, and a recovery in production from last month,” said Norbert Ore, chairman of the ISM’s business survey committee. “Prices, driven higher by energy prices, are once again the major concern,” added Ore. The prices-paid index rose 4.5 points to 67.5. Facing higher costs, employers are reluctant to hire. The ISM’s employment index fell to 47.8 from 52. The overall ISM reading is close to the 50 level that would signal a contraction, noted Moody’s Economy.com (Dec. 3). Weaker consumer spending and the housing slump will continue to weigh on manufacturing activity, giving the Federal Reserve reason to lower interest rates further … * Corporate profits are now in a recession, and weaker sales and higher costs are prompting firms to cut spending and hiring. Corporate profits declined at an annual rate of $19.3 billion in the third quarter, compared with the previous quarter, according to the Commerce Department. Profits for the Standard & Poor’s 500 firms tumbled about 25% on a per-share basis during the third quarter--the largest year-over-year drop in nearly five years. Earnings of these companies will decline as much as 30% in the final quarter of the year, predicts S&P Chief Economist David Wyss. Much of the decline is occurring in the financial sector, which has a ripple effect on the economy, as credit standards tighten. Orders for non-defense capital goods excluding aircraft, a measure of future business investment, fell 2.3% in October (Bloomberg.com Dec. 3) … * U.S. business confidence plunged again last week--signaling that the economy probably is contracting, according to Moody’s Economy.com Survey of Business Confidence. U.S. business’s confidence about current conditions and expectations for the next six months are the lowest they’ve been in the five years of the survey. Businesses are cutting inventories, and demand for office space is weak. Overseas businesses also have become less optimistic, in turn undermining any optimism about growth in U.S. exports. Overall, the survey indicates that a U.S. recession seems increasingly probable, as the global economy struggles …