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Market Archive

Market

News of the Competition (12/30/2008)

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MADISON, Wis. (12/31/08)
* The U.S. Treasury committed $6 billion Monday to GMAC LLC, the financing division of General Motors Corp., in a growing effort to keep the largest U.S. automaker from going bankrupt. As part of the move, the Treasury will buy a $5 billion stake in GMAC and lend $1 billion to General Motors to allow the automaker to contribute to the lender’s reorganization as a bank holding company, according to a statement issued Monday. The Treasury loan comes on top of the $13.4 billion it agreed to lend to General Motors and Chrysler LLC earlier this month. The capital infusion will allow GMAC to expand its lending to more car buyers and to help save General Motors, analysts said. “The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers,” said GMAC President Bill Muir in a statement (Bloomberg.com and The Wall Street Journal Dec. 30) … * The state of Ohio Attorney General’s (AG) office has settled with two companies--a restaurant near Ohio State University (OSU) in Columbus and a marketing firm--it accused of deceptive advertising practices. The AG’s office alleged the companies violated state consumer laws through a credit card solicitation. Filed more than a year ago, the original suit accused restaurant OSU La Bamba Inc. and Philadelphia-based Campus Dimensions of staging a campus event in which students allegedly were offered free food at La Bamba if they signed up for a credit card. The sign-up requirement allegedly was not disclosed in ads. Ohio also filed suit against Chicago-based Potbelly Sandwich Works LLC, which operates a campus-area restaurant, but the state dropped the case when a settlement was reached earlier this year (Columbus Business First Dec. 12) …

Market News (12/30/2008)

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MADISON, Wis. (12/31/08)
* Consumer confidence dropped to an all-time low in December, due to job layoffs and declining markets for housing, stocks and other investments, analysts said. In December, the Conference Board’s Consumer Confidence Index declined to 38 from a revised 44.7 in November. Economists surveyed by Thompson Reuters had expected the index to rise incrementally to 45. The Present Situation Index, which measures respondents’ feelings about employment prospects and businesses conditions, fell to 29.4 in December from 42.3 in November--levels not seen since the aftermath of the 1990-1991 recession. Consumer optimism garnered from declining gas prices is being negated by increased job insecurity and dwindling asset prices, said Dana Saporta, U.S. economist at investment bank Dresdner Kleinwort. The unemployment rate reached a 15-year high in November at 6.7%. Economists anticipate additional job losses in the first half of 2009 (The New York Times Dec. 30) … * The S&P/Case-Schiller home-price indexes shows U.S. home prices continued to decline in October as the economy worsened. The indexes are a carefully watched gauge of home prices, with prices in the Sun Belt still the hardest hit, analysts said. Prices in 10 major metropolitan areas decreased 19% in October from a year earlier and 3.6% from September, the indexes showed. The drop marks the 13th straight month of decline--a record. In 20 major U.S. metropolitan areas, home prices declined 18% from the previous year--also a record--and 2.2% from September (The Wall Street Journal Dec. 30) … * Retailer Target Corp.’s November credit card data indicate further deterioration in charge-offs and delinquencies. The company’s net charge-offs increased to 11% in November from 10.2% in October, according to a filing with the Securities and Exchange Commission. The increase comes during a time of tighter credit, softening consumer spending, and layoffs, analysts said. “We consider Target to be a well-run, high-quality company, but we continue to think that [Wall] Street expectations for fiscal 2009 are too high and believe there is further downside to our estimates if the current run-rate of sales continues into next year,” wrote John Zoldis, Buckingham Research Groups analyst, in a client note (Associated Press via Forbes.com Dec. 22) … * Total borrowing through the U.S Federal Reserve’s discount window was $186.63 billion as of Dec. 24--down from $206.54 the previous week, the Fed said last week. Average daily borrowing dropped to $196.87 billion from $212.53 billion. Commercial banks’ borrowing decreased to $84.90 billion from $90.24 billion the week before. Average daily borrowing diminished to $86.26 billion from $88.41 billion (Dow Jones Newswires Dec. 29) … * The Federal Reserve conducted an auction Monday of $150 billion in 83-day credit through its Term Auction Facility. Propositions submitted by 72 bidders totaled $102.79 billion. The awarded loans will settle Friday, and will mature March 26. A stop-out rate of 0.2% will apply to all awarded loans. For The Federal Reserve’s Announcement, use the link ...

Banks headed for first quarterly loss since 1990

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NEW YORK (12/31/08)--With troubled loans accumulating quicker than the federal government’s efforts to help, U.S. banks and savings institutions are likely approaching their first overall quarterly loss since 1990, analysts said. About 8,300 financial institutions with deposits backed by the Federal Deposit Insurance Corp. posted a combined profit of $1.7 billion in the third quarter--a 94% drop from a year earlier. Now the situation is getting worse, analysts said (The Wall Street Journal Dec. 30). Mounting unemployment is exacerbating old problems such as unsound mortgages and credit cards, with losses now spreading to commercial real-estate loans, they added. The banking industry’s earnings power has fallen apart, Eric Hovde, chief executive of Hovde Capital Advisors LLC, a money-management firm in Washington that specializes in financial services, told the newspaper. Almost 25% of U.S. financial institutions reported a net loss for the quarter ended Sept. 30. When fourth-quarter results are announced in January, the percentage is likely to increase, the paper said. Even financial heavyweights such as J.P. Morgan Chase & Co. could topple into the red, analysts predicted.

News of the Competition (12/29/2008)

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MADISON, Wis. (12/30/08)
* American Express Co., a credit card company that is converting into a bank, is due to receive $3.39 billion from the U.S. rescue fund to help it survive as the recession heads into 2009. The second phase of the Treasury’s bailout plan for financial firms has seen more than 190 regional banks, commercial lenders, card issuers and insurers seeking at least $75 billion. Rising cardholder defaults led American Express to seek and obtain Federal Reserve approval last month to become a commercial bank, analysts said. The company obtained access to the $700 billion Troubled Asset Relief Program (TARP), it announced last week. The Treasury’s TARP will buy preferred shares that pay annual dividends of 5% for the first five years and 9% in subsequent years, American Express said. Also, the company will sell warrants that permit the Treasury to buy common stock of up to 15% of the preferred purchase (Bloomberg.com Dec. 23) … * Government-sponsored enterprises Fannie Mae and Freddie Mac--the two largest U.S. mortgage finance companies--reached a new agreement with New York Attorney General Andrew Cuomo last week. The accord ensures independent home appraisals and drops a requirement that would have kept lenders from using in-house staff to value houses. Appraisal management companies controlled or owned by banks and thrifts instead will have to establish stringent boundaries between those departments and loan officers--who generally work on commission and get paid only if a loan is issued, Cuomo’s office said last week. The change was sparked by concerns from the lending industry, analysts said. (Washingtonpost.com Dec. 24) … * Freddie Mac said its retained mortgage portfolio grew by a record annual rate of 65.6% in November--the second full month that the second-largest U.S. home-funding provider was under government control. Last month, Freddie’s portfolio grew to $805.4 billion--a 12.8% increase year to date, the company said in its monthly volume summary. November was the second month in row of significant growth in the company’s mortgage investments, following two straight months of significant reductions. The portfolio surged by an annual rate of 43.6% in October. The federal government has relied on Freddie and Fannie Mae to buy mortgage assets to help make up for the absence of private mortgage banks and to help stabilize housing markets, analysts said (Reuters Dec. 23) … * Freddie Mac announced in a press release last week that the Federal Housing Finance Agency (FHFA), as conservator of Freddie Mac, has appointed 10 directors to its board, bringing the total number of directors to 11. The recently appointed members include: Barbara T. Alexander, Linda B. Bammann, Carolyn H. Byrd, Robert R. Glauber, Laurence E. Hirsch, Christopher S. Lynch, Freddie Mac CEO David M. Moffett, Nicolas P. Retsinas, Eugene B. Shanks Jr., and Anthony A. Williams. With the appointments, the company's board now consists of seven new directors, non-executive Chairman John A. Koskinen--appointed by the conservator in September 2008--and three directors who were on the board prior to conservatorship: Barbara T. Alexander, Robert R. Glauber, and Nicolas P. Retsinas … * In the third quarter of 2008, U.S. commercial banks reported $6 billion of revenue from trading foreign exchange, interest-rate and other derivative instruments. Credit spreads deteriorated and accounting rules inflated results in the quarter, the Office of the Comptroller of the Currency (OCC) said Monday. Revenue was significantly up from the second quarter, when banks reported training revenue of $1.6 billion, as market disruptions resulted in widening of credit spreads, OCC said. With credit spreads widening, the value of banks’ trading liabilities declined and trading revenue went up, OCC added (The New York Times Dec. 29) …

Market News (12/29/2008)

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MADISON, Wis. (12/30/08)
* U.S. housing prices in November took their deepest drop in at least 40 years, according to data released last week by the National Association of Realtors (NAR) and the Commerce Department. Sales of existing homes dropped 8.6% to a seasonally adjusted 4.49 million units in November compared with October, and were 10.6 % lower than sales at the same period a year ago, NAR said. Sales of new, single-family homes dropped 2.9% to a seasonally adjusted annual rate of 407,000 in November--the slowest sales rate in 18 years and down 35% compared with a year earlier, the Commerce Department reported. NAR said it hopes that sales rebound from the depressed levels, said Lawrence Yun, NAR chief economist. The price declines heightened concerns that the housing downturn has entered a new phase, sparked by a recession it helped to create, analysts said (Washingtonpost.com Dec. 24) … * Overall business confidence improved slightly at the end of 2008, but remains depressed, with hiring intentions and expectations concerning the outlook in mid-2009 dropping to record lows, according to the Moody’s Economy.com Survey of Business Confidence. Businesses in North America, South America and Europe are about equally pessimistic, while Asian business confidence is slightly better but weakening quickly. Sentiment is poor across all industries, but dropped to a new low among global manufacturing. Businesses have minimal pricing power. The entire global economy is stuck in recession, according to the survey (Moody’s Economy.com Dec. 29) … * The Economic Cycle Research Institute (ECRI) Weekly Leading Index rose to 106.6 for the week ending Dec. 19 from an unrevised 106.2 the previous week. The smoothed, annualized growth rate rose to -29.2% from a revised 30.1% (previously -30%). This is a minor improvement and does not alter the ECRI’s downward trend, analysts said. Significant deterioration in the ECRI suggests a drastic downturn that will last well into 2009, they added. The economy is in recession and is facing difficult times ahead. Housing was the catalyst, but the situation has quickly compounded into concerns that affect the economy as whole, they said (Moody’s Economy.com Dec. 29) … * In the wake of an expired deadline Friday, GMAC, the financing arm of General Motors Corp., did not say Sunday whether bondholders had approved a plan designed to assist in providing GMAC with federal bailout money. Bondholders had a Dec. 26 deadline to approve a bond-exchange program that would have allowed GMAC to obtain sufficient capital--a step necessary to allow GMAC to continue functioning, it said. The company provides loans to car buyers and dealers. GMAC is in the process of becoming a bank holding company--a move that would qualify it for bailout financing from the federal government’s bank rescue fund, and for short-term loans from the Federal Reserve (The New York Times Dec. 29) … * With holiday sales stacking up to be the worst in 40 years, U.S. retailers will be facing a rash of store closings, bankruptcies and takeovers, analysts said. In 2009, retailers will close 12,000 stores, said Howard Davidowitz, chairman of Davidowitz and Associates Inc.--a retail consulting and investment-banking firm. Some chains closing underperforming locations include AnnTaylor Stores Corp., Sears Holdings Corp. and Talbots Inc. Investors will start seeing a wide range of chains--such as department stores, specialty stores, discount stores, grocery stores, drugstores and major chains--seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger, managing director of Strategic Resource Group, a New York-based retail-industry consulting firm (Bloomberg.com Dec. 29) … * Online retail sales did better than the rest of the retail market during the down holiday period. However, the season still likely will result in one of the worst on record for the traditionally flourishing e-commerce sector, analysts said. Even though online spending was down only 2% through Christmas Eve, compared with a drop of 5.5% to 8% for retail as a whole, e-commerce strength was not widespread, analysts said. Sales were focused on several big-name websites such as Amazon.com Inc., Apple Inc. and Wal-Mart Stores Inc. Also, online sales were fed by discounts that are not likely to continue, analysts added (The Wall Street Journal Sec. 29) …

Market News (12/26/2008)

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MADISON, Wis. (12/29/08)
* Steep discounts on prices last week failed to boost retailers’ holiday sales in what amounted to the worst holiday sales season in decades. Total retail sales fell over the year-earlier period by 5.5% in November and 8% through Christmas Eve, according to MasterCard Inc.’s SpendingPulse unit. That was much worse that the predictions of between a 1% drop and an increase of 2.2% in sales. The statistics don’t include automobile sales. When gasoline sales are excluded, the drop in overall retail sales is more modest--2.5% in November and a 4% drop in December. A 40% drop in gasoline prices over the year-earlier period contributed to the sharp decline in overall sales. “Retailers went from ‘ho ho ho’ to ‘uh-oh’ to ‘oh no,’” said Mary Delk, a director in the retail practice at Deloitte LLP. The decline is the worst since MasterCard advisors started tracking the data in 2002. Luxury goods were hardest hit, with sales plummeting 21.2%, compared with last year’s 7.5% decline (Bloomberg.com and The Wall Street Journal Dec. 26) … * Consumer spending dropped 0.6% during November, reflecting mounting job losses and a persistent uncertainty about the economy, the Commerce Department said Wednesday. Analysts had forecast a decline of 0.7% (MarketWatch Dec. 24). Although real consumer spending rose 0.6%, personal income fell 0.2%, after a 0.1% gain for October. Analysts had predicted no income gain for November. Real disposable income increased 1%, after growing 0.7% in October. The core personal consumption expenditure price index remained unchanged and was 1.9% more than November of 2007. October’s index also remained unchanged … * Mortgage applications during the week ending Dec. 19 leapt 48% (seasonally adjusted) from the previous week, according to the Mortgage Bankers Association’s (MBA) weekly survey. Total mortgage loan application volume was 1245.4. Refinances increased 62.6%, making up 83.2% of all applications filed during the week. That compares with 76.9% increase the previous week. The four-week moving average for all mortgage applications rose 28.8%. The hike in application volume was attributed to nearly record-low mortgage rates. The survey indicated rates on 30-year fixed mortgages averaged 5.04% that week, down from 5.18% the previous week. That’s the lowest since the interest rate reached a low of 4.99% during the week ending June 13, 2003 (mbaa.org Dec. 24) …

News of the Competition (12/26/2008)

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MADISON, Wis. (12/29/08)
The Federal Reserve Board announced Wednesday it has decided to make GMAC-LLC a bank holding company. The move means GMAC--a finance company controlled by private equity fund Cerberus Capital Management and General Motors Co.—will potentially get access to billions of dollars in the Treasury Department’s Troubled Asset Relief Program (TARP), which aims to recapitalize troubled financial institutions. The decision was made less than a week after the White House said it would provide $17.4 billion in emergency loans to GM and Chrysler LLC. The Fed’s press release and order stipulates that GM and Cergerus Capital can not continue to hold controlling stakes in the new bank holding company because their business falls outside of financial services (The Wall Street Journal Dec. 26 and American Banker Dec. 25). The Christmas Eve decision further entangles the federal government in areas of the economy it once considered outside its purview, said The Wall Street Journal … * Fannie Mae’s conservator, the Federal Housing Finance Authority (FHFA), has named Fannie’s new board. Fannie Chief Executive Herb Allison is the board’s sole employee member. Others appointed included: Dennis R. Beresford, William Thomas Forrester, Brenda J. Gaines, Charlynn Goins, Frederick B. “Bart” Harvey III, Egbert L.J. Perry, David H. Sidwell and Diana L. Taylor. In September, the company said that Philip A. Laskawy would be its non-executive chairman of the board. The new board was revealed in a regulatory filing (American Banker Dec. 25) … * Banks are complaining that federal regulators keep sending mixed signals on how to handle the current economic environment. Publicly, officials tell banks to lend to boost the economy and free up credit. But privately, banks are told to build up capital to protect against losses. Some bankers are being instructed to build capital cushions much thicker than what is officially required to be considered a healthy institution, said the banks. Others are being required to set aside more money to protect against losses on loans normally considered safe. So far, 25 banks have collapsed this year, with another 200 at risk of collapsing, said The Wall Street Journal (Dec. 26) …

Market News (12/25/2008)

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MADISON, Wis. (12/26/08)
* Home prices continued to decline in October, according to a report by the Federal Housing Finance Agency (FHFA). The FHFA purchase-only home price index fell 1.1% from September. The index is down 7.5% from a year earlier and 8.8% from its April 2007 peak. The FHFA price index understates declines in home prices because it doesn’t track the price of homes on the upper end of the housing market. Home-price declines probably will continue in the months ahead as the job market deteriorates (Moody’s Economy.com Dec. 23) … * Sales of previously owned homes declined by 8.6% in November to an annual pace of 4.49 million units, the National Association of Realtors (NAR) reported Tuesday. Sales were down 10.6% from a year earlier. “The quickly deteriorating conditions in the job market, stock market, and consumer confidence in October and November have knocked down home sales to another level,” said NAR Chief Economist Lawrence Yun. “Sales are rising only in areas with large numbers of distressed properties as bargain hunters take advantage of discounted home prices,” added Yun. The median existing-home prices was $181,300 in November--down 13.2% from a year earlier (realtor.org Dec. 23) … * Sales of new homes fell 2.9% in November to a 17-year low of 407,000 at an annual pace, the Commerce Department reported Tuesday. Sales were down 35% from the same month last year. The median new-home price was $220,400 in November--down 11.5% from a year earlier. Builders have been cutting inventories as sales slumped. The number of homes for sales dropped a record 7% to an annual pace of 374,000--the lowest level since February 2004. “The housing market is still trying to find a bottom, and the rapidly deteriorating economy is making it all the more difficult,” said Moody’s Economy.com Senior Economist Ryan Sweet (Bloomberg.com Dec. 23) … * Migration across the U.S. has slowed due to the recession and housing slump, according to Census Bureau data over the 12 months ending July 1, 2008. That period includes the first seven months of the economic downturn. Some Sun Belt states are seeing fewer migrants, while states such as New York, Massachusetts and New Jersey are keeping more of their residents. Recession usually slows migration because new jobs are the main reason people move, according to the Pew Research Center. In addition, the housing slump has eroded home prices, prompting many people to remain where they are to avoid losing money on a home sale. Despite the recent slowdown in migration, however, longer-term trends prevail. Americans continue to migrate from the Northeast and Midwest in search of jobs and milder weather in the South and West. The report also showed that immigration by foreigners has been slowed by the recession. Immigration fell 10% between 2007 and 2008, compared with its average annual rate between 2000 and 2008 (The Wall Street Journal Online Dec. 23) … * The nation’s economy contracted at a 0.5% annual rate in the third quarter, the Commerce Department reported Tuesday. The rate of decline, which was unrevised from last month’s estimate, was the largest since a 1.4% drop in the third quarter of 2001. Analysts expect a much deeper contraction in the fourth quarter. Corporate after-tax profits for the third quarter declined 3.2% to $1.300 trillion, a slightly bigger drop than previously reported. The core PCE price index (excluding food and energy) rose at a 2.4% annual pace, lower than the government’s previous estimate of 2.6%. The index is the Federal Reserve’s main inflation gauge (The Wall Street Journal Online Dec. 23) … * Forty percent of consumers surveyed by Bankrate.com said they “wouldn’t care at all” if their revolving credit-card lines disappeared. More than one-third said they would be “slightly annoyed.” Most respondents (70.6%) said they “strongly agreed” that issuers should be more closely regulated. Almost 72% of respondents said they had a credit card. However, 31.8% of those with a credit card said they would “probably charge less” on their cards next year (bankrate.com and American Banker Dec. 23) … * U.S. manufacturers are cutting jobs as the global financial crisis continues. Caterpillar Inc. announced Monday that it is offering buyouts to as many as 25,000 of its employees in the U.S. The firm is also reducing white-collar compensation by up to 50%. Textron Inc. said it plans to cut 2,200 jobs worldwide. Last week FedEx Corp. said it was cutting pay for salaried workers by 5% and ending its 401(k) retirement-plan match. According to a Watson Wyatt survey, 11% of firms have either already cut wages or plan to cut wages during the next 12 months. And 10% have either already reduced their 401(k) match or plan to do so (Reuters via Yahoo! News Dec. 23) …

News of the Competition (12/25/2008)

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MADISON, Wis. (12/26/08)
* David Dochow, western director at the Office of Thrift Supervision (OTS), was removed from his job, pending the results on an investigation, after allegedly helping mortgage-lender IndyMac Bancorp alter its records so it appeared to be in better financial shape--only weeks before it was seized by regulators. In a letter sent to Sen. Charles Grassley, a senior Republican on the Senate Finance Committee, Treasury Inspector General Eric Thorson said OTS supervisors let IndyMac record an $18 million capital infusion from its holding company made on May 9 as if it had occurred before the end of March. That put the firm’s risk-based capital ratio over the 10% threshold required to be considered a well-capitalized institution. The letter alleges that Dochow personally approved IndyMac’s request to backdate the capital infusion. Dochow also had a role in the savings-and-loan crisis in the late 1980s. As head of regulation and supervision at the Federal Home Loan Bank Board, he overrode a recommendation by federal bank examiners to seize Lincoln Savings, which became one of the largest institutions to collapse in that crisis (The Wall Street Journal Online and The New York Times Dec. 23) … * More than 1,100 merger-and-acquisition deals were canceled in 2008—up from only 800 in 2007 and a record high, according to Thomson-Reuters data. The total value of deals withdrawn this year was almost $800 billion—with banks losing more than $815 million in fees. At $72.6 million, JPMorgan Chase lost the most in fees from cancelled transactions this year--followed by Goldman Sachs, which lost $63.7 million in fees. Analysts expect merger-and-acquisition activity to pick up next year, generating more fees for banks (Reuters via The New York Times Dec. 23) … * Shareholders of PNC Financial Services Group and National City on Tuesday approved the $5.6 billion merger between the banks. Pittsburgh-based PNC is acquiring Cleveland-based National City with funds it obtained from the government bailout program. PNC is the first bank to use bailout money to make an acquisition (Associated Press via Yahoo! News Dec. 23) … * Commercial-finance company CIT Group announced Tuesday that it has received preliminary approval to receive $2.33 billion in government bailout money. The approval came just after the firm’s application to become a bank holding company was approved. Other firms that have become bank holding companies recently include Goldman Sachs, Morgan Stanley and American Express. The change allows companies to receive bailout money and to gather deposits (Associated Press via Yahoo! News Dec. 23) … * The Federal Home Loan Bank of San Francisco announced Monday that it won’t inform its member financial institutions about fourth-quarter dividends until 2009. In a letter to members included in a securities filing, President Dean Schultz said the bank won’t provide the information because of “uncertainty” about whether it will have to write down mortgage bonds. “Persistent stresses in the credit markets, substantial declines in real estate values, and increasing weakness in the U.S. economy are continuing to affect the loan collateral underlying the bank's nonagency mortgage-backed securities, increasing the risk that some of these securities will require an impairment charge,” wrote Schultz (Bloomberg News via American Banker Dec. 23) …

News of the Competition (12/22/2008)

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MADISON, Wis. (12/23/08)
* Banks that received government bailout money this year gave their executives millions of dollars in compensation last year, according to an analysis of federal securities documents by Associated Press (The New York Times Dec. 22). The 116 banks that have received taxpayer money doled out almost $1.6 billion in salaries, bonuses, and other benefits to top executives in 2007. That money, paid out to 600 top executives, equals the bailout money given to 53 of the banks. The average paid to each of the banks’ top executives was $2.6 million. Some members of Congress want bank executives to be more accountable for what they do with bailout money. Rep. Brad Sherman, D-Calif., says banks should specify how they will spend the money, as the automakers are required to do. “The tougher we are on the executives that come to Washington, the fewer will come for a bailout,” said Sherman … * Money market funds will need to raise fees or close the funds to new investors to remain profitable as yields fall to almost zero, say managers. “You can’t make money in this situation,” said Jim McDonald, who runs taxable money market funds for T Rowe Price. “If short-term interest rates stay where they are, it’s virtually impossible to run a government fund and make any money. You can close the fund; that’s an option.” The average yield on Treasury retail funds was 0.34% at the end of November—down from 2.9% in December 2007, according to iMoneyNet (FT.com Dec. 22) … * Moody’s Investors Service cautioned Friday that $76 billion of U.S. commercial real estate collateralized debt obligations (CDOs) face possible multi-notch downgrades due to deteriorating market conditions. Moody’s said it expects to complete ratings actions on the CDOs by February, beginning with transactions that have more than 75% concentration in commercial mortgage-backed securities collateral. “The market expects to see an increase in delinquencies on commercial real estate loans,” said Precilla Torres, managing director at New York-based New Oak Capital (Dow Jones Newswires Dec. 22) … * Commercial mortgage delinquencies (60 days or more overdue) jumped 13 basis points to 0.64% in November, according to a report by Fitch Inc. Altogether, 29 retail loans totaling $397 million were behind on their payments. All types of properties are at risk next year as the recession deepens, said Susan Merrick, head of U.S. commercial mortgage-backed securities at Fitch. She noted that the retail and hotel sectors pose the greatest risk because they depend on consumer spending (Dow Jones Newswires Dec. 22) … * Lender CompuCredit Corp. announced Friday that is has agreed to pay at least $114 million to settle allegations that it deceptively marketed its credit-card offerings. The firm has agreed to reverse millions of dollars in fees charged to consumers. The Atlanta-based firm allegedly marketed credit cards to consumers with weak credit histories using fees and features that didn’t actually apply. Regulators alleged that solicitations advertised a $300 credit limit, but failed to state that customers would be charged as much as $185 in up-front fees, thus lowering the credit limit to $115. The settlement includes a cease-and-desist order requiring CompuCredit to revise its solicitations so they better explain up-front fees and credit limits (Associated Press via Yahoo! Finance and American Banker Dec. 22) …

Market News (12/22/2008)

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MADISON, Wis. (12/23/08)
* The rate of mortgage borrowers defaulting after their loans are modified is increasing, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The number of mortgage loans modified in the first quarter that were 30 or more days delinquent was 37% after three months and 55% after six months. The number of mortgage loans modified in the first quarter that were 60 days or more delinquent was 19% after three months and almost 37% after six months. “One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months,” noted Comptroller of the Currency John C. Dugan. “This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable,” added Dugan … * Banks and thrifts continued to work with borrowers to keep them in their homes and to mitigate losses, according to the report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The number of new home-retention actions—loan modifications and repayment plans—rose 13% in the third quarter, compared with the second quarter. Loans held on the books of servicing banks and thrifts had the lowest re-default rates (30 or more days delinquent)—at 35.06% after three months and 50.86% after six months, compared with loans serviced for third parties. Servicers’ lower default rates suggest they have more flexibility to modify mortgage loans in sustainable ways than when loans are sold to third parties … * The Hope Now Alliance, a group of banks and lobbying groups that aims to stem foreclosures, plans to double the number of borrowers receiving help next year. The group expects to modify about two million mortgages in 2009 as it launches a new campaign to advertise the program. Hope Now projects that it will have completed 950,000 loans modifications in 2008. The group estimates that it has prevented three million foreclosures since the program began in 2007 (Bloomberg.com Dec. 22) … * Banks are seeing a surge in mortgage-loan applications as mortgage rates decline. In response, many banks are reassigning workers to handle the increased workload. The 30-year, fixed-rate mortgage averaged 5.17% last week—down from 6.14% a year earlier and the lowest since Freddie Mac began tracking the data in 1971. Bank of America spokesman Dan Frahm said mortgage applications have almost doubled through the first half of December, compared with the same period in November. Many other banks report similar trends. However, the surge in mortgage applications doesn’t necessarily indicate an end to the housing slump. Many of the applications are for refinancing. And some loan applicants may not qualify now that lenders are more careful about credit standards (The Wall Street Journal Online Dec. 22) … * Japanese automaker Toyota Motor announced Monday that it expects its first loss in 70 years in its auto-manufacturing business. Toyota anticipates a loss of $1.7 billion for the current fiscal year—its first annual loss since the firm was founded in 1938. In contrast, the company earned $28 billion last year. “The change in the world economy is of a magnitude that comes once every hundred years,” said Toyota President Katsuaki Watanabe. In response, Toyota is delaying the launch of a factory in Mississippi, and moving some production lines to single shifts. The auto slump is deepening Japan’s recession. Japanese exports plunged 26.7% in November, according to the finance ministry, the largest decline since recordkeeping began in 1980 (The New York Times Dec. 22) … * More U.S. companies are cutting labor costs without resorting to layoffs. Alternative measures include four-day workweeks, unpaid vacations and furloughs, wage freezes, pension cuts, and flexible work schedules. Many companies already have pared their work forces in recent years, and don’t want to lose the productive employees that remain. Efforts to cut costs without layoffs can build company loyalty among workers, noted Jennifer Chatman, professor at the Haas School of Business at the University of California, Berkeley. Companies also are betting that the economy will turn around next year, and those employees will be needed (The New York Times Dec. 22) …

News of the Competition (12/19/2008)

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MADISON, Wis. (12/22/08)
* JPMorgan CEO Jamie Dimon won’t seek a year-end bonus, according to a person familiar with the matter. Other Wall Street chief executives not receiving bonuses this year include Goldman Sachs CEO Lloyd Blankfein, Merrill Lynch CEO John Thain, and Morgan Stanley CEO John Mack. Critics say firms posting losses and those receiving federal bailout money should forego paying bonuses this year. They say excess bonuses pushed executives to take big risks, prompting the credit crisis. Credit Suisse Group on Thursday announced an innovative bonus plan for its executives. It will pay senior executives with shaky, illiquid assets, forcing the executives to take on the risk that some of them put on the bank’s books (Reuters via The New York Times Dec. 19) … * Goldman Sachs, UBS AG, Deutsche Bank, and Morgan Stanley are among a dozen financial firms whose ratings or outlook were lowered by Standard & Poor’s on Friday. Citing increased risks for the banking sector, the ratings agency said it expects banks to see more volatility in the funding markets and more stress than during a “typical business-cycle trough.” Banks worldwide have announced more than $745 billion in writedowns and losses since the credit crisis began. The credit downgrades “will increase the price of interbank lending,” noted Oriel Securities Analyst Michael Trippitt (Bloomberg.com Dec. 19) … * A record number of hedge funds were liquidated so far this year as the credit crisis drove investors from risky investments, according to a report by Chicago-based Hedge Fund Research (HFR). A total 693 hedge funds were shut down during the first nine months of this year--representing 7% of all hedge funds. The failures are up 70% from the same period last year. Hedge-fund liquidations are on track to hit 920 for all of 2008--topping the 563 liquidations in 2007 and the previous record of 848 set in 2005. “Risk tolerance is at a historical low,” said HFR President Kenneth Heinz. “Investors are not even distinguishing between a fund that’s up 10% and one that’s down 10%. Both are facing redemptions,” added Heinz (CNNMoney.com Dec. 19) … * Countrywide Financial Corp. is facing a lawsuit by a New Jersey couple, who say the firm allowed a security breach in which financial information was stolen from more than 2 million customers. The suit, which is seeking class-action status, alleges that a Countrywide employee stole financial data from customers, then sold the data to another person, who then sold it to companies. The suit is seeking an injunction to keep the companies who purchased the data from using it and requiring them to return or destroy the information. Countrywide investigators reported the security breach to the FBI and continue to work with investigators, said spokeswoman Shirley Norton. “We have no evidence to date to indicate that any customer has been the victim of identity theft or fraud,” added Norton (Associated Press via msn.com Dec. 19) … * Marshall & IIsley Corp., Wisconsin’s largest bank, announced Thursday that it is placing a moratorium on residential-mortgage foreclosures through March 31. The moratorium will apply to owner-occupied residential mortgages. M&I said it will work with borrowers on repayment plans--which may include lower interest rates, mortgage extensions or lower monthly payments (Associated Press via msn.com Dec. 19) … * The market for short-term corporate debt expanded for an eighth consecutive week last week, but only by $8.3 billion to $1.798 billion, the Federal Reserve reported. Commercial paper outstanding had increased by $48.6 billion during the previous week. Banks borrowed $206.5 billion form the discount window--down from $233.1 billion (Investor’s Business Daily via Yahoo! News Dec. 19) …

Market News (12/19/2008)

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MADISON, Wis. (12/22/08)
* President George W. Bush on Friday announced a $13.4 billion rescue plan for General Motors and Chrysler LLC. The funds will come from the money set aside to bail out Wall Street firms and banks. GM and Chrysler will be signing the loan papers Friday, said a senior administration official. GM will receive $9.4 billion, and Chrysler will get $4 billion. With the automaker loans, the Treasury Department will have used almost all the $350 billion of the bailout fund that it can use without further Congressional approval. Terms of the auto bailout call for the three-year loans to be repaid in full within 30 days if the automakers don’t prove themselves to be viable by March 31. Executives must agree to limit compensation and perks such as corporate jets. The firms also much issue warrants, which convert into non-voting stock, to the government. “Government has a responsibility to safeguard the broader health and stability of our economy,” said President Bush. “If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation of the automakers.” President-elect Barack Obama said the loan was “a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers.” (CNNMoney.com Dec. 19) … * Treasury Secretary Henry Paulson said Friday that Congress must authorize the final $350 billion of the bailout fund because the first $350 billion already has been allotted. He said release of the remaining funds would “support financial market stability.” Some Democrats have vowed to block release of the funds unless the administration uses some of the money to help homeowners. They also want to ensure banks use the money to boost lending. Critics say banks receiving bailout money have used the funds to shore up their balance sheets instead of increasing lending (Associated Press via Yahoo! News Dec. 19) … * Mass layoffs continued to accelerate last month, largely reflecting auto-industry job losses. The number of mass layoffs--involving 50 or more workers--totaled 2,328 in November, up from 2,140 in October, according to Labor Department data. Last month’s layoffs involved 224,079 workers, down slightly from 232,468 the previous month. Manufacturing accounted for 39% of all mass layoffs and 45% of initial unemployment claims in November. Transportation-equipment manufacturing accounted for the biggest share of claims, at 25,042. States with the largest exposure to auto manufacturing continue to see the most layoffs. Michigan, Ohio, Wisconsin, Illinois, and Indiana all had mass layoffs that affected more than 10,000 workers (Moody’s Economy.com Dec. 19) … * The deepest and longest recession since the 1930s will end during the second half of 2009, according to a forecast by senior economists at Wells Fargo. The government’s massive stimulus, along with pent-up consumer demand and rebounding confidence, will prompt an economic recovery during the third quarter. Wells Fargo Senior Economist Scott Anderson said another 3.7 million jobs will be lost in 2009. That would boost the total number of jobs lost in the current recession to 5.5 million--twice as many as were lost during the 1981-82 recession and the second-worst job loss since World War II. Jim Paulsen, chief investment strategist at Wells Capital Management, said “fear mongering” by government officials pushed Congress to pass the $700 billion bailout plan. He said the scare tactics “froze everyone in their tracks” and caused “economic paralysis” (BUSINESS WIRE via msn.com Dec. 19) … * The failure to address volatile oil prices will cost the global economy trillions of dollars--resulting in harm to producers and consumers, said British Prime Minister Gordon Brown. At an energy summit in London on Friday, Brown called for increased regulation of the oil markets to stabilize prices. “The risk now is that investment in oil and other energy sources will once again stagnate, and supply capacity will begin to tighten just as demand responds to improving economic conditions.” Speaking at the conference, Saudi Arabian Oil Minister Ali Naimi agreed that high volatility in prices is a problem. “The world’s present financial climate is clearly one that inhibits innovation. Oil prices must be maintained at a level that encourages investment, especially in alternative energy sources” (Associated Press via The New York Times Dec. 19) … * The European Central Bank (ECB) announced Friday that it has agreed with other central banks in the U.S., Europe, and Japan to keep offering dollars to banks during the first quarter of next year. The central banks will continue providing dollar loans of seven, 28, and 84 days. Citing weak demand, the ECB said it will discontinue euro-dollar foreign exchange swaps at the end of January (Associated Press via The New York Times Dec. 19) …

Money-market funds stay conservative Schenk tells IDow JonesI

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MADISON, Wis. (12/22/08)--Money-market funds are staying conservative with lower yields, a Credit Union National Association (CUNA) economist told Dow Jones Newswires Friday. Although money market funds are generally considered safe, the failure of a well-known fund earlier this year made the market nervous and resulted in the federal government temporarily backing some money-market fund assets, Dow Jones said. Since that time, other “funds are nervous about breaking the buck,” Mike Schenk, CUNA senior economist, told the news service. “They’re staying short term and avoiding credit risks. That’s driving yields down,” even beyond the effect of the Federal Reserve’s rate cuts. With yields on money-market funds down to very thin levels due to the Fed’s rate cutting, certificates of deposit are looking like a better place for investors to put their money, Dow Jones said.

News of the Competition (12/18/2008)

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MADISON, Wis. (12/19/08)
* Credit Suisse Group’s investment bank has found a unique way to lower the risk of losses from its most illiquid loans and bonds. It is using them to pay year-end bonuses to its managing directors and directors--its two top senior ranks, say people familiar with the situation. Securities such as leveraged loans and mortgage-backed debt will be placed into a Partner Asset Facility. Certain bank employees will be given stakes in the facility as part of their compensation. Bonuses will take the first hit if the securities drop further in value. “From a shareholders’ perspective it’s great because you’ve got rid of some of the assets and regulators will be pleased because you’ve organized a risk transfer,” said Sanford C. Bernstein analyst Dirk Hoffman-Becking. “There’s some upside” for employees in that “if the alternative if nothing, it’s a lot better than nothing,” added Hoffman-Becking (Bloomberg.com Dec. 18) … * Citigroup has increased its lending after receiving government bailout money and has appointed a committee of senior executives to ensure the funds are properly used, according to an internal memo obtained by Reuters (The New York Times Dec. 18). Citigroup has received $45 billion in federal bailout money. “Citi remains strongly committed to sound lending to consumers, businesses, and institutions,” said CEO Vikram Pandit in the memo sent to employees. He said a committee will oversee, approve, and monitor how money from the Troubled Assets Relief Program is used … * Credit-card firm Discover Financial Services said Thursday that it swung to a profit in the fourth quarter, buoyed by $535 million of gains from the settlement of an antitrust lawsuit. The company has applied for bank holding company status so it can gain access to government funds. “As part of our capital management, we are seeking to participate in the Treasury’s Capital Purchase Program which will further support out consumer lending operations,” said CEO David Nelms. Discover earned $432 million in its fiscal fourth quarter, compared with a $56 million loss a year earlier. However, the firm noted that its credit card business remains stressed. Accounts 30 days or more overdue rose to 4.56%, up nearly a full percentage point. The chargeoff rate rose to 5.5%, up more than 1.5% (MarketWatch Dec. 18) … * Flagstar Bancorp of Troy, Michigan said Thursday that a private-equity firm has agreed to take a 70% stake in the firm. An affiliate of New York-based MatlinPatterson Global Advisers plans to inject $250 million into the bank. The deal requires that Flagstar receive $250 million from the federal bailout fund. Earlier this week, Flagstar announced that its shares could be delisted from the New York Stock Exchange because its closing price was less than $1 during a consecutive 30-day period (Associated Press via Yahoo! Finance Dec. 18) … * Wachovia Corp. on Wednesday announced the settlement of a lawsuit challenging its proposed merger with Wells Fargo. The suit filed by shareholder Irving Ehrenhaus sought to block Wachovia’s sale to Wells Fargo or force Wachovia to renegotiate a higher price. Judge Albert Diaz denied the shareholder’s request and denied preliminary injunctive relief with respect to the issuance and voting of preferred shares issued by Wachovia to Wells Fargo in connection with the merger (/PRNewswire-FirstCall/ and American Banker Dec. 18) …

Market News (12/18/2008)

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MADISON, Wis. (12/19/08)
* Mortgage rates declined to a 37-year low this week after the Federal Reserve cut interest rates to historic lows, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) tumbled 28 basis points to 5.19%. “Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971,” said Freddie Mac Vice President and Chief Economist Frank Nothaft in a statement. “The decline was supported by the Federal Reserve announcement on Dec. 16, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant,” added Nothaft. The 15-year FRM fell 28 basis points to 4.92% this week--the lowest level in four-and-a-half years. The one-year, adjustable-rate mortgage dropped 15 basis points to 4.94% (CNNMoney.com Dec. 18). For CUNA's Daily Financial Rates, use the link. … * Citing the “continued lack of consumer credit for the American car buyer,” Chrysler LLC announced late Wednesday that it will halt all vehicle production in the U.S. for at least one month. All three of the automaker’s facilities will shut down after the last shift Friday. The shutdown adds about two weeks to the firm’s normal year-end closure. General Motors last week announced that it will idle 30% of its North American plants during the first quarter, taking 250,000 vehicles out of production. Ford is adding one week to its normal two-week seasonal shutdown at many of its factories. The three automakers have asked Congress for loans to help them avert bankruptcy. The effort collapsed in Congress last week, but will be taken up again early next year (CNNMoney.com Dec. 18) … * First-time claims for unemployment benefits held close to a 26-year high last week, the Labor Department reported Thursday. Initial jobless claims fell by 21,000 during the week ending Dec. 13 to 554,000. Claims the previous week were the highest since 1982. The number of people remaining on benefit rolls also fell from an almost three-decade high. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, declined by 47,000 during the week ended Dec. 6 to 4.384 million. Extended seasonal shutdowns by domestic automakers will push jobless claims higher in coming months. Continued economic deterioration also will push claims up well into next year (Bloomberg.com and Economy.com Dec. 18) … * The U.S. economy will pick up in 2009 or early in 2010, said Dominique Strauss-Kahn, managing director of the International Monetary Fund. “We recognize, however, that the possibility of a recovery is plagued with uncertainty,” added Strauss-Kahn. He cautioned that deflation couldn’t be ruled out if the U.S. housing slump continues. Strauss-Kahn also praised the actions of central banks in response to the credit crisis, including the Federal Reserve’s decision to cut its benchmark rate to near zero this week. However, he said the world also needs considerable fiscal stimulus (Reuters via The New York Times Dec. 18) … * Monetary easings by the world’s central banks and various fiscal-stimulus efforts so far have not worked to avert a deep global recession. Economists say many countries were late to turn to fiscal stimulus, so it may take some time for economies to respond. They also point to various policy fumbles and half measures that in some instances have made conditions worse. And banks remain reluctant to lend because they’re still short of capital. “Virtually all of the policy initiatives implemented thus far to underpin financial-market functionality have tended to be partial, rather than comprehensive,” said John Lipsky, deputy managing director of the International Monetary Fund. He said global policymakers haven’t done enough to recapitalize banks and remove toxic debt from the financial system (The Wall Street Journal Online Dec. 18) … * A leading measure of the U.S. economy’s health indicates continued deterioration in the months ahead. The Conference Board’s index of leading economic indicators fell 0.4% in November following a 0.9% drop in October. The index has fallen 2.8% in the six months through November--the steepest decline since the recession of 1991. Declines in building permits and stock prices, along with rising unemployment claims, led the index lower in November. Without an increase in the money supply from government bailouts, the index would have declined even more (Associated Press via The New York Times Dec. 18) …

News of the Competition (12/17/2008)

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MADISON, Wis. (12/18/08)
* Banks’ tangible common equity ratios are being scrutinized by common shareholders these days as the financial crisis continues. Tangible common equity ratios--which compare a bank’s common equity against its tangible assets--show that many banks are much less capitalized than other ratios, such as Tier 1, indicate they are. Many banks--including Citigroup, Bank of America, and Wells Fargo--have common equity ratios of 3% or less, after taking into account pending acquisitions and other factors. In comparison, the top 50 banks historically have held tangible common equity ratios of 6% and above, according to RBC Capital Markets. “We’ve never seen tangible equity ratios get this low,” said Paul Miller, an analyst at Friedman, Billings, Ramsey & Co. “The greater the leverage to common equity, which ultimately determines stock price, the riskier the institution,” added Miller. Common shareholders take losses before preferred shareholders, so they are more at risk of being wiped out by a bank failure. Citigroup had a tangible common equity ratio of just 2.2% right before its November rescue by regulators. In comparison, its Tier 1 capital ratio at the time was a robust 10.4% (Dow Jones Newswires Dec. 17) … * Noting continued credit deterioration, Standard & Poor’s has taken the U.S. out of the highest of its 10 groupings of banks by nation. The shift to Group 2 was predicated by the expectation of continued economic strains in the U.S., said S&P. The ratings agency expects the U.S. economy to contract by 1.2% next year, while the unemployment rate jumps to 8.5%, from the current 6.7% rate. “U.S. banks are vulnerable to these worsening conditions,” due to high leverage, low growth prospects, and increased competition,” said S&P (Dow Jones Newswires Dec. 17) … * Federal banking regulators have increased their oversight of Citigroup and other banks, say people familiar with the situation. Regulators are taking part in internal discussions about banks’ strategic direction and discouraging some from pursuing acquisitions. At Citigroup, the tougher approach essentially includes veto power over key decisions, say people familiar with the matter. Citigroup’s second capital infusion in November left the federal government with a 7.8% stake in the firm, making it the largest shareholder. Citigroup has received a total $45 billion in taxpayer capital infusions this year (The Wall Street Journal Online Dec. 17) … * GMAC Financial Services again extended the early delivery time for its offer to swap $38 billion in debt. GMAC said it’s close to raising enough regulatory capital to become a bank holding company. That would make it eligible for some of the government bailout money. Many analysts predict that the firm will fail if it doesn’t convert to a bank holding company and receive government funds (Associated Press via The New York Times Dec. 17) …

Market News (12/17/2008)

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MADISON, Wis. (12/18/08)
* The Federal Reserve’s aggressive rate cut on Tuesday did little to lower U.S. mortgage costs, but the Fed’s promise to expand its massive mortgage-debt purchase program should soon push rates down. The 30-year, fixed-rate mortgage was 5.30% last Tuesday after the central bank cut short-term rates to almost zero, according to HSH Associates. The rate was 5.28% the day before. On Tuesday, Fed policymakers reiterated their commitment to purchasing asset-backed securities. “As previously announced, over the next few quarters, the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant,” said the Fed in a statement following the meeting. “The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve also will implement the Term Asset-backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.” Mortgage rates will fall as the Fed purchases mortgage-backed debt,” predicts Greg McBride, senior financial analyst at Bankrate Monitor. He predicts that rates will remain below 6% throughout 2009 (Reuters via The New York Times Dec. 17) … * Mortgage activity rebounded last week as refinancing surged, the Mortgage Bankers Association reported Wednesday (mbaa.org Dec. 17). The trade group’s Mortgage Composite Index rose 2.9% during the week ending Dec. 12 to 841.1. The Refinance Index jumped 6.5% to 4156, offsetting a 4.5% drop in the Purchase Index. The refinance share of mortgage applications rose to 76.9%--up from 74.3% the previous week and just 53% a year earlier. The Federal Reserve’s initiative to purchase mortgage-backed securities should help push down mortgage rates and stimulate the housing market, said Moody’s Economy.com (Dec. 17). In addition, consumer confidence is slowly improving … * Investors have edged back from the “brink of despair,” according to Merrill Lynch’s Survey of Fund Managers for December. The net number of investors who predict that the global economy will worsen in the coming year fell to 36% this month--from 60% in October. More than one in four respondents say the economy will strengthen next year. Most investors believe stocks are cheap in both absolute terms and relative to bonds. “Market sentiment, high cash levels and the prospect of U.S. fiscal stimulus in January point to a possible New Year rally in equities,” said Gary Baker, Merrill’s head of EMEA equity strategy. “It suggests that going into 2009 with textbook defensive positions in a small number of sectors could be dangerous. Problems could be in store for those who stay heavily invested in fixed income.” (ml.com and MarketWatch Dec. 17) … * Losses and writedowns from the credit crisis topped $1 trillion Wednesday as Morgan Stanley wrote down the value of mortgages and leveraged loans. Losses by financial firms in the U.S. total $679 billion so far this year. European financial firms have written down $300 billion. Companies have raised about $928 billion to build capital, and slashed about 239,000 jobs. Morgan Stanley reported mortgage-related losses of $1.2 billion for the fourth quarter. Goldman on Tuesday reported $1.3 billion of writedowns on leveraged loans. Charles R. Morris, a former banker and author of “The Trillion Dollar Meltdown,” said banks must return to the basics. “Banking should be dull, banking should be about credit and it should not be about financial engineers. Only do loans you can get repaid for,” said Morris (Bloomberg.com Dec. 17) … * The nation’s current account deficit--a broad measure that includes goods and services, transfer payments, and investment income--narrowed to $174.1 billion during the third quarter from $180.9 billion in the second quarter, the Commerce Department reported Wednesday. The decline reflected gains on exports and decreases in foreign earnings on U.S. assets. The deficit made up 4.8% of the nation’s gross domestic product (GDP) in the third quarter, compared with 5.1% in the previous quarter. The gap had been as high as 6.6% of GDP as recently as the fourth quarter of 2005. The deficit should continue to decline in coming months as weaker domestic spending dampens imports. In addition, U.S. assets will become relatively more attractive as the economic downturn continues to spread worldwide. Lower oil prices also will contribute to a lower trade deficit. Oil futures declined to a low of $40.81 a barrel this month--compared with a peak of $147 a barrel in July (Bloomberg.com and The Wall Street Journal Online Dec. 17) … * The Organization of Petroleum Exporting Countries on Wednesday agreed to slash oil output by 2.2 million barrels a day--its largest single cut on record. Countries outside the oil cartel, including Russia and Azerbaijan, announced their own production cuts. Still, crude oil dropped to $40.21 following the announcement, suggesting that investors are convinced that energy use will continue to decline as the economic slump deepens. In only the past five months, crude oil has relinquished all the prices increases made during the last four years (Associated Press via Yahoo! News Dec. 17) …

News of the Competition (12/16/2008)

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MADISON, Wis. (12/17/08)
* New York Gov. David A. Paterson is set is announce the creation of a low-cost student loan program to help 45,000 students in the state obtain financing to cope with soaring tuition costs. The program will provide $350 million in loans each year. The state is recruiting banks to underwrite the loans, which the state will then purchase using revenue from tax-exempt bonds. “In a time of rising borrowing costs and tightening lending by private banks, this new lower-interest student loan program I have proposed will help ensure New Yorkers have access to the funds they need to finance their college educations,” said Paterson in a statement. State officials said students would be able to receive lower interest rates under the program than they could obtain from private lenders (The New York Times Dec. 16) … * Debt-collector NCO Group has agreed to pay the state of Texas fines of $250,000 for alleged violations to the Texas Debt Collection Act. The Texas Attorney General’s office said the firm’s debt-buying unit, NCO Portfolio Management, didn’t verify the validity of debts when consumers challenged them. The office said the company also made “harassing and sometimes profanity-laden telephone calls.” NCO plans to spend another $300,000 on compliance for its programs over the next three years (CardLine via American Banker Dec. 16) … * Goldman Sachs posted its first quarterly loss as a publicly-traded company (CNNMoney.com Dec. 16). The firm said it lost $2.1 billion during the fourth quarter, compared with a profit of $3.2 billion a year earlier. “Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class,” said Goldman Chairman and CEO Lloyd Blankfein. Goldman cut 2,500 jobs in the first quarter and slashed average pay per worker 45% to $363,654 (Bloomberg.com Dec. 16). Blankfein and six deputies also agreed to give up their year-end bonuses after the firm received $10 billion from the government. “We think the industry is in the process of repricing its labor pool,” said Merrill Lynch analyst Guy Moszkowski. “We think it’s reasonable to expect this given the very weak earnings and outlook for next year and the fact that the labor environment is inhospitable” … * Capital One announced Monday that its auto-loan delinquencies jumped 34 basis points to 9.48% in November. The firm charged off 5.6% of its $22 billion in auto loans during the month--up 10 basis points from October. “Used car values are collapsing,” said Scott Valentin, an analyst at Freidman, Billings, Ramsey & Co. “It’s just showing the evaporation of demand by consumers.” Capital One has scaled back its auto lending this year. The firm also announced that its overdue credit card payments increased 22 basis points to 4.7% in November (Bloomberg.com Dec. 15) …

Market News (12/16/2008)

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MADISON, Wis. (12/17/08)
* The cost of living posted a record decline in November as energy prices tumbled. The Consumer Price Index (CPI) fell 1.7%, the Labor Department reported Tuesday. That’s the largest monthly decline since the government began keeping records in 1947. The CPI rose 1.1% over the 12 months ending in November, slowing from a 3.7% year-over-year gain in October. Energy prices plunged 17% in November--the biggest decline since 1957. Food prices rose 0.2% last month. Excluding the volatile food and energy categories, the core CPI was unchanged in November and was up a modest 2% year-over-year. Falling energy prices helped tame inflation last month. Going forward, weak consumer demand will prompt businesses to discount goods as the economic slump continues (Bloomberg.com and Economy.com Dec. 16) … * Housing starts and permits for future construction fell to record lows in November, the Commerce Department reported Tuesday. Starts on new construction plunged 18.9% to an annual rate of 625,000--the largest decline since 1981 and the lowest level since the department began tracking the data in 1959. Starts were down almost 50% from a 2005 peak. Building permits, a measure of future construction activity, fell by 16% to 616,000, also the lowest level on record. Homebuilders are finding it hard to find financing. And demand for new homes continues to fall as a mounting number of discounted homes come on the market due to foreclosure (CNNMoney.com Dec. 16) … * Fewer consumers would consider purchasing a foreclosed home now than six months ago as worries about risks have increased, according to a survey by RealtyTrac and Trulia.com. Only 47% of respondents said they would consider purchasing a foreclosed home--down from 54% six months ago. In the latest poll, 80% said they were worried about the risks of buying a foreclosure, such as hidden costs. That’s up from 60% in the previous survey. Banks will foreclose on 2.25 million homes in the U.S. this year--more than twice the 1 million annual rate before the housing meltdown began, according to estimates by the Federal Deposit Insurance Corp. and the Federal Reserve (Associated Press via The New York Times Dec. 16) … * Millions of workers will see only paltry pay raises next year as the financial crisis hits companies’ bottom lines, according to a report by Hewitt Associates. Employers say they don’t expect workers to complain about the small raises because they “are too worried and the job market is not good.” The average salary increase for employees of all types will fall below 3% for the first time since Hewitt began tracking the data in 1976. At firms who said they are making changes in their salary packages, gains will average 2.2% for executives, 2.5% for salaried exempt workers, 2.6% for salaried nonexempt employees, and 2.5% for nonunion hourly workers. At firms not making changes, raises will average 3.8% for executives, 3.7% for salaried exempt and nonexempt workers, and 3.6% for nonunion hourly workers (MarketWatch Dec. 16) … * Foreign demand for U.S. long-term financial assets slowed significantly in October as investors sold U.S. stocks, corporate bonds, and agency debt. Total net purchases of long-term stocks, notes, and bonds totaled just $1.5 billion, down from $65.4 billion in September, according to the Treasury Department. Including short-term securities, net buying totaled $286.3 billion, up from $142.6 billion. “The radical swing between the long-term and short-term data reflects investors scared of being long anything and getting into cash,” noted Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. China remained the largest foreign holder of U.S. Treasuries in October. Its holding increased by $65.9 billion to $652.9 billion (Bloomberg.com Dec. 16) …

Fed action will ease CUs bottom-line pressures says CUNA

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WASHINGTON (12/17/08)--Tuesday’s Federal Reserve action will result in marginally wider spreads--the difference between asset yields and funding costs will become wider--easing bottom line pressure for credit unions, according to a Credit Union National Association (CUNA) economist. “Also, it may help slow the deterioration in asset quality because members with debt linked to the funds rate will find payments easier to make,” Mike Schenk, CUNA senior economist, told News Now. The Federal Open Market Committee (FOMC) decided Tuesday to establish a target range for the federal funds rate of 0 to 0.25%. It was the FOMC’s 10th rate cut of 2008--and the lowest target rate on record. Since the committee's last meeting, the FOMC said the outlook for economic activity has weakened further. Labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," said the FOMC. "Financial markets remain quite strained and credit conditions tight." Meanwhile, inflationary pressures have diminished appreciably, said the FOMC in a statement. “In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the committee expects inflation to moderate further in coming quarters,” it said. CUNA's Schenk said the action is just a recognition of marketplace realities. "While the fed funds target has been 1% since the end of October, the effective funds rate averaged 0.38% in November, 0.23% in the first half of December and has been well below 0.25% for the past week,” he said. “We're beyond the point that a 75-basis-point cut will translate into a big surge in consumer demand,” he added. “Consumers are facing too many headwinds--rapidly deteriorating labor markets, wealth declines, high debt, and little in the way of rainy day funds--to begin to increase borrowing and spending substantially in response to today's action." On the other hand, many consumers carry variable-rate debt and the cut should help to reduce the debt service burden for those borrowers, Schenk said. “While the Fed cited a decreased risk of inflation in its announcement, today's Consumer Price Index numbers make it clear that deflation is a growing risk,” he added. “The rate cut, combined with the statement of intention to keep rates low into the future, suggest the Fed is poised to do whatever it can to prevent the economy from drifting into a deflationary spiral.” Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 0.5%.

News of the Competition (12/15/2008)

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MADISON, Wis. (12/16/08)
* Fannie Mae announced Sunday that it will sign new leases with renters living in foreclosed properties owned by the firm. It is the first national effort to offer widespread relief to renters caught up in the foreclosure crisis. The initiative also could pressure private lenders to create similar programs and lawmakers to pass renter-relief programs. “It’s really good news that Fannie Mae is doing this,” said John Taylor, president of the National Community Reinvestment Coalition. “There are renters all around the country who have been holding up their end of the bargain and paying their rent faithfully, but the landlord got into trouble, and so the renter is now unfairly facing eviction,” added Taylor. Analysts say about 70,000 renters have been exposed to eviction by foreclosures in recent months (The New York Times Dec. 15) … * State regulators shut down two local banks in Georgia and Texas on Friday--bringing the total number of bank failures this year to 25. The Federal Deposit Insurance Corp (FDIC) said Sanderson, Texas-based Sanderson State Bank will reopen Monday as a branch of the Pecos County State Bank. The agency estimates the cost to the Deposit Insurance Fund at $12.5 million. Haven Trust Bank of Georgia will reopen as Branch Banking & Trust on Monday. Haven was the fifth bank in Georgia to fail this year. The FDIC estimates that failure will cost the Deposit Insurance Fund $200 million. The 25 bank failures this year compares with just 3 bank failures last year. It’s the highest number since 1993, when 42 banks failed (CNNMoney.com Dec. 15) … * Banks and investment funds worldwide on Monday admitted investing billions of dollars in the companies of Bernard Madoff, who is accused of masterminding a massive $50 billion pyramid-scheme fraud. Britain’s HSBC Holdings Plc said it had about $1 billion in exposure to the fraud. Royal Bank of Scotland, Man Group, Japan’s Nomura, and France’s Natixis also admitted to exposure in the fraud. Madoff, a former chairman of the Nasdaq Stock Market, is accused of operating the massive fraud through his investment-advisory business. He allegedly operated a Ponzi scheme in which existing investors were paid out with money from new clients instead of from actual investment returns. Altogether, financial institutions so far have disclosed more than $10 billion in direct and indirect exposure to the alleged fraud (Reuters via The New York Times Dec. 15) … * Northern Trust Corp. of Chicago plans to cut costs by eliminating 450 jobs after the first of the year. The bank said the job cuts will save $50 million to $60 million a year. “These efforts will not impact client service and, in combination, are designed to streamline operations, leverage more efficient operating centers and strategically reposition low-growth activities,” said Northern Trust. In October, Northern Trust became the 14th bank to receive a direct investment from the government’s Troubled Asset Relief Program. It accepted a $1.5 billion capital infusion (MarketWatch and FT.com Dec. 15) …

Market News (12/15/2008)

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MADISON, Wis. (12/16/08)
* U.S. homeowners will have collectively lost more than $2 trillion in home value by the end of this year, according to a report by Zillow.com. Almost 11.7 million homeowners now owe more on their mortgages than their homes are worth. One in seven homeowners--14.3%--were “underwater” on their mortgages by the end of the third quarter, a number that will grow further during the final quarter of the year. All but 30 of the 163 markets tracked by the report posted price declines over the nine months ending on Sept. 30, compared with the same period in 2007. “Homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values,” said Stan Humphries, vice president of data and analytics at Zillow. He said the economic downturn and mounting job losses will cause even more foreclosed properties to hit the market, further depressing home values (Reuters via The New York Times and CNNMoney.com Dec. 15) … * Credit-card delinquencies will increase in coming months as more consumers fall behind on their payments amid the weak economy. According to the latest Fitch Retail Credit Card Index, 60-plus day delinquencies have increased almost 24% since August--to 4.8%. Fitch expects chargeoffs to top 12% in the first half of 2009, from the current 9.1% level. “Rising delinquencies will pressure card issuers and their retail partners during the coming year, as Fitch expects a scenario akin to nearly one in eight cardholders defaulting on their store cards,” said Fitch Managing Director Mike Dean. “Despite the worsening credit quality, negative retail card ABS rating actions are not expected near-term, given the current robust levels of excess spread available to cushion Fitch’s rising chargeoff expectations,” added Dean (BUSINESS WIRE and Associated Press via CNNMoney.com Dec. 15) … * The cost of three-month dollar loans between banks declined further Monday before an expected interest-rate cut by the Federal Reserve on Tuesday. The London Interbank Offered Rate (Libor) dropped 0.5 percentage points to 1.87%, according to the British Bankers Association. Most analysts expect the Fed to lower the target for the fed funds rate by another 50 basis points to a record-low 0.50% at the end of its two-day meeting on Tuesday. Interbank rates have remained high in recent months, despite central banks’ rate cuts, as banks hoarded cash and the credit crisis deepened (Associated Press via The New York Times Dec. 15) … * Many Hispanic immigrants are withdrawing from the U.S. job market as the weak economy boosts competition for blue-collar jobs. During the third quarter, 71.3% of Hispanic immigrants were either employed or actively seeking employment--down from 72.4% in the same period last year, according to the Pew Hispanic Center. The 1.1% decline “marks a substantial decrease in the labor market participation of Latino immigrants,” said Pew Economist Rakesh Kochhar. The labor-force participation rate of Hispanics had consistently increased until the third quarter. Mexican-born immigrants, who make up two-thirds of Latin American immigrants in the U.S., saw an even bigger decline--to 70.7% in the third quarter from 72.7% in the same period last year (The Wall Street Journal Online Dec. 15) … * Global business confidence fell to another record low last week, according to the latest Moody’s Economy.com Survey of Business Confidence. Hiring plans tumbled last week, consistent with jobs losses of about 500,000 per month in the U.S. The entire global economy is now in a synchronized recession, and pricing pressures have collapsed. The net percentage of respondents who say they are lowering prices has surged to a near-record 25%. Businesses also say they are slashing investment in inventories, equipment and software, and office space … * Industrial production fell 0.6% in November, with declines widespread across industries, the Federal Reserve reported Monday. Manufacturing output fell 1.4% despite a resumption of activity in the commercial aircraft industry following the resolution of a strike. Motor vehicle and parts production plunged 2.8% in November after a 3.6% drop the previous month--reflecting the ongoing slump in auto sales. The production of mines jumped 2.5% last month--reflecting further post-hurricane recovery in oil and natural gas operations in the Gulf of Mexico. The output of utilities increased 1.6%. Total industrial production in November was down 5.5% from a year earlier. Capacity utilization, the percentage of plants in use, fell to 75.4%--from 76% in October and 5.6 percentage points below its average level from 1972 to 2007 …

News of the Competition (12/12/2008)

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MADISON, Wis. (12/15/08)
* Investors continued to yank money from stock- and bond-based mutual funds over the week ending Dec.10, according to a report by TrimTabs Investment Research. About $2.8 billion was withdrawn from stock-based mutual funds, following a $12.1 billion outflow the previous week. “The report shows how much risk aversion there is,” said TrimTabs analyst Vincent Deluard. Bond bonds posted even larger declines--with investors pulling $10.6 billion after a $6.8 billion outflow. “The bond outflow is truly specific to this crisis. Even in the last recession, when we saw outflows of equities, there were inflows into bonds,” said Deluard (CNNMoney.com Dec. 12) … * Steven Gordon, a former partner at Bayview Financial LP, has been charged with one count of wire fraud for a scheme in which prosecutors say he made more than $2.8 million in added commissions by altering the value of 2,800 loans from 2001 to 2006. They say Gordon used “little more than a pen” to change credit scores in some cases and reclassify mobile homes as single-family homes in other cases--thus boosting the value of thousands of mortgages that were bundled into securities and sold to investors. In a securities filing, Bayview said the data only affected 2% of loans, and there were no investor losses (The Wall Street Journal Online Dec. 12) … * Bank of America said Thursday that it plans to slash up to 35,000 jobs over the next three years as it absorbs the pending acquisition of Merrill Lynch. The cuts represent about 10% to 11% of the combined firms’ workforce. “The reductions are designed to eliminate redundancies created as a result of the merger with Merrill Lynch and to reflect the current recesssionary environment,” said the bank. The financial sector has slashed more than 220,000 jobs this year, according to the outplacement firm Challenger, Gray & Christmas. Bank of America will become the nation’s largest bank by assets after its acquisition of Merrill Lynch closes (MarketWatch and The Wall Street Journal Online Dec. 12) … * Citigroup and UBS AG have completed a Securities and Exchange Commission (SEC) settlement related to allegations that the banks misled investors about the safety of auction-rate securities, even as the market for the securities froze up earlier this year. Under the settlement, Citigroup has agreed to repurchase about $7 billion of the securities from retail investors, charitable organizations and small businesses. UBS has agreed to repurchase $22.7 billion. The SEC alleges that the two banks and other financial firms falsely marketed the securities as highly liquid, although the market for the securities was being propped by the financial institutions’ own bids. The market for such securities froze up in February after the financial firms stopped supporting the market (Dow Jones Newswires and MarketWatch Dec. 12) … * Wachovia Corp. has begun reimbursing the victims of a telemarketing fraud as part of its April settlement with banking regulators. The bank has mailed about 750,000 checks totaling more than $150 million to victims. The Office of the Comptroller of the Currency (OCC) said the bank had relationships with several telemarketers and payment processors under which bank-account data was obtained from thousands of elderly and poor consumers over the phone by offering to sell them identity-theft certificates, travel vouchers, and other dubious products and services. The OCC alleges that Wachovia know about the deceptive telemarketing (Dow Jones Newswires Dec. 12) …

Market News (12/12/2008)

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MADISON, Wis. (12/15/08)
* The Treasury Department said Friday that it is willing to provide financing to domestic automakers after the Senate failed to approve a rescue for the struggling firms. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” said Treasury spokeswoman Brookly McLaughlin. Treasury Secretary Henry Paulson previously had opposed recommendations to use bailout money to help the auto manufacturers. Treasury has allocated all but $15 billion of the first half of the bailout money (Bloomberg.com Dec. 12) … * Retail sales declined for a fifth consecutive month in November as auto sales slumped and gasoline sales fell due to price declines. Retail sales dropped 1.8% to $355.7 billion, the Commerce Department reported Friday. Sales were down 7.4% from November 2007. Auto sales tumbled 2.8% in November following declines of 5.5% in October and 5.8% in September. Sales at gasoline stations plunged 14.7% last month following a 12.9% drop in October, reflecting declining prices and weaker demand. Excluding autos and gasoline, core retail sales rose 0.3% in November, breaking a string of three consecutive declines. The only segments of retail sales to post large year-over-year growth were those that sell food and drugs--boosted by higher prices. Consumers probably will remain reluctant to spend as the economy continues to deteriorate and job losses mount (Moody’s Economy.com Dec. 12) … * Wholesale prices plunged again last month as gasoline prices tumbled and consumer demand weakened, the Labor Department reported Friday. The Producer Price Index (PPI) fell 2.2% following declines of 2.8% in October and 0.4% in September. Energy prices tumbled 11.2%, as gasoline expenses plunged a record 25.7%. Food prices were unchanged during the month. Excluding the volatile food and energy categories, the core PPI was up 0.1% in November and 4.2% over the past year--compared with a 0.2% year-over-year gain in the overall PPI. A collapse in demand has prompted a quick end to wholesale inflation. However, it will take several more weeks of price declines to reverse the inflation seen earlier this year (Moody’s Economy.com Dec. 12) … * Consumers became more upbeat in December amid declining gasoline prices, retailers’ discounts, and falling inflation expectations. The Reuters/ University of Michigan Surveys of Consumers said its index of confidence increased to 59.1 in December, from 55.3 in November. Still, consumer sentiment remains low historically--with the December reading not far above the record-low 51.7 reached in May 1980. “Consumer confidence edged slightly higher in early December due to the collapse of gasoline prices, deep discounts by retailers and tumbling inflation expectations,” said the report. “Nonetheless, consumers have become even more pessimistic about prospects for the overall economy, especially the outlook for employment.” Consumer expectations for the future course of the economy declined for a third consecutive month in December, even as assessments of current conditions improved (Reuters via The New York Times Dec. 12) … * Global oil demand will decline this year--for the fist time in 25 years--as wealthy countries fall into recession and growth in developing nations slows, the Paris-based International Energy Agency said last week. Global oil demand is expected to drop by 350,000 barrels a day to 85.8 million--the first decline since 1983. The agency expects oil demand to pick up by a modest 0.5% in 2009, assuming an economic recovery during the last half of the year (Associated Press via Yahoo! News Dec. 11) … * Commercial banks and investment firms borrowed slightly less from the Federal Reserve last week. Commercial banks averaged $90.2 billion in daily borrowing--down from $90.3 billon the previous week. Investment firms borrowed an average $52.8 billion, down from $57.2 billion. However, the Fed said its net holdings of commercial paper averaged $308.5 billion last week--up $10.9 billion from the prior week. And loans from the Fed to insurer American International Group averaged $56.7 billion, up by $770 million (Associated Press via CNNMoney.com Dec. 18) …

News of the Competition (12/11/2008)

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MADISON, Wis. (12/12/08)
* U.S. bank Citigroup will cut about 1,000 jobs at its Japan retail brokerage unit, company officials said. The affected workers at Nikko Cordial Securities Inc.--which employs roughly 7,000 people--accepted Citigroup’s offer to take early retirement by Dec. 8. Nikko Cordial offered employees over the age of 40 early retirement--including about two years of pay--according to a Nov. 21 memo from Nikko President Eiji Watanabe. Vikram Pandit, Citigroup CEO, plans to shed about one-seventh of the bank’s global work force of 352,000 through job cuts and asset sales. Amid the global credit crisis, Citigroup has sustained more than $67 billion in losses. In Japan, the company is eliminating jobs in consumer finance and investment banking, and is selling its local trust banking unit (Bloomberg.com Dec. 10) … * Due to declining transactions in home equity lending, Chase Bank, part of JPMorgan Chase & Co., said it will eliminate roughly 370 positions by early February. The cuts will occur at its offices in Milwaukee, Phoenix and Columbus, Ohio--the three operating centers for the bank’s home-equity loans. In the past year, the bank has experienced a 77% decrease in home-equity loan volume and is trying to match the decrease in volume with staff reductions, according to Chase spokeswoman Christine Holevas. Fewer homeowners have been able or willing to access the equity in their homes for loans because home values have fallen during the past two years, Holevas said (The Business Journal Serving Greater Milwaukee Dec. 10) … * The Financial Services Authority (FSA), Britain’s financial regulator, has fined online bank Egg Banking--part of U.S. Bank Citigroup Inc.--$1.07 million. The fine is for “serious failings” relating to the sale of payment protection insurance, FSA said. FSA also ordered Egg to offer customers refunds with interest, after finding fault with 40% of the company’s telephone sales of credit card payment-protection insurance. Even when customers stated they did not want the coverage, Egg used “inappropriate sales techniques” to attempt to convince customers to purchase payment protection insurance on their credit cards, said Margaret Cole, FSA director of enforcement (Reuters Dec. 10) … * Bank of America (BofA) has agreed to loan $1.35 million to Republic Windows & Doors, a Chicago manufacturer, to pay company workers who took over the empty Chicago factory to protest its closing. The loan is only for workers seeking wages they claim they are owed, BofA said Wednesday. Separately, U.S. Rep. Luis Gutierrez (D-Ill.) said JPMorgan Chase & Co. will give $400,000 to workers. Chase owns 40% of Republic through its Chase Capital Partners investment business. Workers blame BofA for the factory’s Dec. 5 closure after the bank canceled a line of credit to Republic, whose sales were severely impacted by the housing slump, analysts said (Bloomberg.com Dec. 11) …

Market News (12/10/2008)

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MADISON, Wis. (12/11/08)
* The Mortgage Bankers Association (MBA) Mortgage Applications Survey composite index fell 7.1% to close at 796.8 for the week ending Dec. 5. The refinance index slightly fell to 3,763.3--down 0.9% for the week. The purchase index decreased 17.4% to 298.1. The market index is slightly below year-ago levels, and the refinance index remains above year-ago levels. All three indices remain well above their levels from two weeks ago, which suggests that people still are trying to lock in lower interest rates, analysts said. The largest gains are in refinance applications--not purchase applications. This does not mean a rebound in sales is forthcoming, analysts added (Moody’s Economy.com Dec. 10) … * U.S. wholesale inventories dropped 1.1% during October, compared with the prior month--well below expectations, as demand collapsed in the midst of a slumping economy, analysts said. Inventories for the month dropped to a seasonally adjusted $438.18 billion, after falling a revised 0.4% in September--from an original 0.1% estimate--the Commerce Department said Wednesday. The October 1.1% decrease in inventories of wholesalers--the biggest drop since 1.1% in November 2001--exceeded Wall Street analysts’ expectation for a 0.2% decline. Because consumers are not spending as aggressively as they have in the past, companies are keeping a leaner supply of goods, analysts said (The Wall Street Journal Dec. 10) … * The U.S. is experiencing the biggest slump in consumer spending since 1942. The downturn will extend the recession and move the jobless rate to the highest level in 25 years, according to economists surveyed by Bloomberg News. In 2009, household spending will drop 1%--the largest decline since the attack on Pearl Harbor--according to the median estimate of 51 economists surveyed Dec. 4 through Dec. 9. The survey indicates that by the middle of 2009, the economy will have contracted for a record four consecutive quarters. The U.S. economic contraction began in December 2007, the National Bureau of Economic Research announced last week (Bloomberg.com Dec. 10) … * The world economy is on the edge of a rare global recession, according to a forecast released Tuesday by the World Bank. The forecast indicates that world trade will drop in 2009 for the first time since 1982. Also, capital flows to developing countries are predicted to nosedive 50%. The downturn could place many developing countries in a state of crisis and keep tens of millions of people in poverty, the World Bank warned. An even more foreboding factor is that there is no obvious mechanism to spark a recovery, several economists said. U.S. consumers are unlikely to return to previous spending levels, even after the current financial crisis abates, analysts said. Also, as growth in China declines, consumers there will not be able to make up for the drop in U.S. consumer demand, and the drop in oil prices driven by the financial crisis has dampened consumer demand in oil-exporting countries, analysts said (The New York Times Dec. 10) … * Money-market mutual funds that are focused on U.S. Treasuries may lose money for the first time if the Federal Reserve cuts interest rates next week, resulting in yields becoming too small to cover expenses, analysts said. Money-market funds already waive fees to keep returns positive due to record-low yields on government debt. If, as anticipated, the Federal Open Markets Committee cuts its target rate, some Treasury funds may allow return to turn negative, said Peter Crane, president of Crane Data LLC--a money research firm (Bloomberg.com Dec. 10) … * Inventories of crude oil rose by 400,000 barrels in the week ending Dec. 5, according to the Energy Information Administration. This falls short of expectations of a 1.3 million- barrel buildup, analysts said. Gasoline inventories went up 3.8 million barrels, contrasting with expectations of a 400,000-barrel decline. Distillate supplies surpassed expectations, going up 5.6 million barrels. Refinery operating capacity jumped to 87.4% from 84.3%. For the first time in three weeks, total domestic petroleum demand fell. The report is pointing to lower oil prices, analysts said (Moody’s Economy.com Dec. 10) … * As a result of ridding itself of money-losing mortgage operations to concentrate on its tax business, H&R Block Inc. posted a smaller second-quarter loss. For the fiscal second quarter ended Oct. 31, the biggest U.S. tax preparer’s losses shrunk to $135.9 million, or 41 cents per share, from a loss of $502.3 million, or $1.55 per share, a year ago. The company reported a loss of $133.2 million, or 40 cents per share from continuing operations, compared with a loss of $134.9 million, or 42 cents per share in the year-ago period. The company’s revenue dropped 1% to $351.5 million--less than the average $386 million forecast. The Kansas City, Mo.-based company frequently loses money in the fiscal first and second quarters--which are outside of the main U.S. tax filing season, analysts said (Reuters Dec. 8) … * Fannie Mae announced Wednesday it sold $2 billion in bills at markedly lower interest rates, compared with sale of the same maturities and size one week ago. The government sponsored enterprise said it sold $1 billion worth of three-month benchmark bills due March 11 at a stop-out rate, or lowest acceptance rate, of 0.07%. It also sold $1 billion worth of six-month bills due June 10, at a 0.30% stop-out rate (Reuters Dec. 10) … * The Government National Mortgage Association (Ginnie Mae) said issuance for its mortgage-backed securities (MBS) program reached $27.1 billion in November--the second consecutive month in which Ginnie Mae MBS surpassed government-sponsored enterprises Fannie Mae and Freddie Mac. Ginnie Mae MBS issuances are at $246 billion for the first 11 months of 2008, compared with $81.6 billion for the same period in 2007 (MortgageOrb Dec. 10) …

Public radio features Hampel addressing rescue plan

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MADISON, Wis. (12/11/08)--Bill Hampel, chief economist for the Credit Union National Association, provided analysis Tuesday on the American Public Media radio network about the National Credit Union Administration’s program to assist corporate credit unions with liquidity issues, stemming from the economy. Hampel made his comments on the show “Marketplace” on the network, which noted that the amount needed--$41 billion--is “chump change,” compared with banks’ rescue plans. Corporate credit unions’ books are unbalanced because the credit unions invested in securities that have nosedived in value, Hampel told “Marketplace.” “There are some asset-backed securities, as in credit card loans and auto loans, student loans and those sorts of things,’ he said. “And some of them also are mortgage-backed securities.” The securities that corporate credit unions hold are “higher up the food chain” and started out with excellent credit ratings, Hampel added, noting that the corporates were more cautious than Citibank or Lehman Brothers. “[Corporates are] still paying on schedule and they’re behaving just fine,” he said. “Except if the corporate credit unions had to sell [the securities] today, they’d have to sell them for a lot less than they paid for them.” Retail credit unions still are extremely sound, Hampel added.

News of the Competition (12/09/2008)

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MADISON, Wis. (12/10/08)
* Responding to public anger, Merrill Lynch and Morgan Stanley say they won’t pay bonuses to top executives this year. Merrill Chairman and CEO John Thain had suggested to the board that he receive a 2008 bonus of as much as $10 million. Morgan Stanley plans to cut compensation for its top 35 executives by about 65%, and CEO John Mack will receive no bonus this year. New York Attorney General Andrew Cuomo announced Monday that he plans to review the compensation packages awarded to top executives at Merrill Lynch. “Wall Street has to understand there is a new reality and this is a different day and the rules of the game have changed,” said Cuomo. He noted that Merrill has lost more than $11 billion over the past year and “the performance of Merrill’s top executives throughout Merrill’s abysmal year in no way justifies significant bonuses for its top executives, including the CEO.” (The Wall Street Journal Online Dec. 9) … * The state of Illinois is suspending its business with Bank of America, the lender of Republic Windows and Doors. The plant shut down its doors last week after giving workers only three days notice of the closing. The company told workers that Bank of America had shut down its line of credit and refused to allow further expenditures. Workers demanding severance pay have camped out at the factory since the shutdown. Workers blame Bank of America for keeping the owners of the factory from paying them already-earned vacation time and severance. Workers also are angered that Bank of America has received $15 million in federal bailout money, and is expected to receive another $10 billion. In a statement, Bank of America said the company, not the bank, chose not to honor its payments to workers. “When a company faces such a dire situation, its lender is not empowered to direct the company’s management how to manage its affairs and what obligations should be paid,” said Bank of America (The New York Times and Reuters via Yahoo! News Dec. 9) … * The College Board, the national association that writes and administers the SAT test, has settled a two-state investigation into the deceptive marketing of student loans. New York and Connecticut officials said the College Board gave inappropriate discounts to colleges that promoted its services. The practice effectively steered students to loans that weren’t their least-expensive options. In the settlement, the College Board agreed to invest $675,000 to develop tools that will help students identify their lowest-cost options. “Our investigation of the student lending industry revealed arrangements--concealed from students and families--between the College Board and financial-aid offices at several schools,” said Connecticut Attorney General Richard Blumenthal. New York Attorney General Andrew Cuomo joined in the settlement with the non-profit organization (The New York Times and Bloomberg.com Dec. 9) … * Funding ratios at the typical U.S. corporate pension plan tumbled 13.4 percentage points in November--the biggest monthly decline since the 1987 stock-market crash, according to a report by BNY Mellon Asset Management. Asset returns in a moderate risk portfolio (60% stocks, 40% bonds) lost 3.2 percentage points in November and almost 20 percentage points so far this year. “Pension plans have seen their equity investments fall by more than 40% over the course of the year,” said Peter Austin, executive director at BNY Mellon Pension Services (/PRNewswire-FirstCall/ Dec. 9) … * Banks and brokerages are changing their credit-card programs to help customers lower their debt and save more for retirement. Wells Fargo has introduced cash-back cards that automatically apply rebates to pay down loan balances. Fidelity Investments has launched a Retirement Rewards card that applies a 2% rebate to a Fidelity Individual Retirement Account. “It’s a way to spend smart,” said Carolyn Clancy, executive vice president at Fidelity Investments. “People are going to be spending anyway for various items, so this is a really good way to save for what should still be a priority from an investment and savings perspective,” added Clancy (The Wall Street Journal Online Dec. 9) …

Market News (12/09/2008)

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MADISON, Wis. (12/10/08)
* Mortgage-loan delinquency rates jumped 54% in the third quarter, from a year earlier, as the economy and job markets deteriorated. The percentage of mortgage borrowers who were 60 days or more overdue on their payments rose to 3.96%, according to a report by TransUnion LLC. It was the seventh consecutive quarterly increase in delinquency rates. The third-quarter delinquency rate was highest in Florida (7.82%) and Nevada (7.71%), and lowest in North Dakota (1.35%). Nationwide, the average mortgage debt per borrower was $192,287--down 3.45% from a year earlier. TransUnion predicts that the 60-day delinquency rate will hit 4.66% by the end of this year and 7% in 2009. “These numbers, which are more pessimistic than anticipated one quarter ago, are due to the significant weaknesses recently highlighted in the financial markets as the U.S. economy moves deeper into a recession,” said Keith Carson, a senior consultant in TransUnion’s financial-services group (Associated Press via Yahoo! News and National Mortgage News (Dec. 9) … * Pending home resales eased again during October but remained in a stable range, according to a report by the National Association of Realtors (NAR). The trade group’s Pending Home Sales Index edged down 0.7% to 88.9. “Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” noted NAR Chief Economist Lawrence Yun. Housing demand remained uneven nationwide. Pending resales jumped 7.8% in the South and rose 0.6% in the Northeast. However, they tumbled 8.7% in the West and 4.3% in the Midwest. NAR predicts that sales of previously-owned homes will total 4.96 million this year and 5.19 million in 2009. New-home sales are expected to total 486,000 this year, decline to 393,000 next year, and then rebound to 446,000 in 2010 (realtor.org Dec. 9) … * U.S. employers’ hiring plans are holding steady as firms remain cautious about the economy. In a survey by Manpower Inc., 67% of employers said they plan to hold staff levels steady for the first quarter of 2009--up from 59% last quarter and 60% in the first quarter of 2008. Just 16% plan to hire more employees, while 13% expect to cut positions. “Unless there are some signals that the economy is turning around, employers are staying on the sidelines in terms of hiring,” said Jonas Prising, president of Manpower North America. U.S. companies continued to announce layoffs on Tuesday. Sony Corp., Danaher Crop., Wyndham Worldwide, and Novellus Systems announced job cuts totaling more than 14,000. In the Manpower survey, hiring plans worldwide turned decidedly pessimistic for the first quarter. Employers in 21 countries reported the weakest hiring plans since Manpower started tracking the data. The outlook for hiring in the United Kingdom dropped to a 15-year low, and hiring plans in France turned negative for the first time in 20 years. “It’s a global marketplace and when there’s a downturn everybody is going to get it,” said Manpower CEO Jeffrey Joerres (CNNMoney.com and The Wall Street Journal Online Dec. 9) … * As job losses continue to mount, five states are close to running out of the funds they use to pay unemployment benefits. Michigan, Indiana, Ohio, New York and South Carolina all have reserves of less than three months to cover jobless benefits. Nineteen states are at risk of running out of funds in less than a year, according to the National Conference of State Legislatures. Since states are prohibited from eliminating jobless benefits, the cash-strapped states must boost taxes, lower benefits, or borrow funds when they run out of cash. First the first time in 25 years, Indiana plans to borrow $330 million from the federal government so it can cover jobless benefits. Last week the Labor Department reported that continuing claims--the number of people still on the benefit rolls after an initial week of aid--jumped by 89,000 during the week ending Nov. 22 to 4.087 million--the highest level in 26 years (Associated Press via Yahoo! News Dec. 9) … * An increasing number of the unemployed and uninsured are turning to emergency rooms for care--placing a huge burden on already-stressed hospitals. While there is no current data on the increase, a report by the American College of Emergency Physicians said the nation’s system of emergency rooms is in “serious condition” And a government report two years ago found that the annual volume of visits to emergency rooms hit 120 million--up one-third from a decade earlier. Now the recession will send even more people to emergency rooms as people lose their health insurance. In turn, hospitals are absorbing increasing sums of unpaid medical bills, a cost passed on to the insured. The overcrowding at emergency rooms also makes for long waits and a declining level of care (The New York Times Dec. 9) … * Oil prices will decline again next year as the global recession deepens and demand weakens, according to the Energy Department’s Energy Information Administration. U.S. retail gasoline prices are expected to average $2.03 a gallon in 2009. That compares with an average of $2.37 a gallon in November. Crude-oil prices are expected to average $51 a barrel--down from $63.50 a month ago. Heating-oil prices for the current season are projected to average $2.53 a gallon, down 24% from a year ago. However, households using natural gas to heat their homes are expected to pay about the same as last year (MarketWatch and Associated Press via Yahoo! News Dec. 9) …

News of the Competition (12/08/2008)

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MADISON, Wis. (12/9/08)
* First Georgia Community Bank of Jackson, Ga. was shut down by federal and state regulators on Friday--the 23rd bank to fail this year. The failure was the fourth in two weeks nationwide, and the fourth in Georgia this year. United Bank of Zebulon, Ga., agreed to purchase all of the bank’s deposits. The Federal Deposit Insurance Corp. said the failure will cost the Deposit Insurance Fund an estimated $72 million (The Wall Street Journal and American Banker Dec. 8) … * Media conglomerate Tribune Co., owner of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs, and other properties, filed for bankruptcy protection on Monday. Tribune has $13 billion in debt and $7.6 billion in assets. Tribune’s largest unsecured creditors are its lenders, led by JPMorgan Chase Bank, Merrill Lynch Capital Corp., Deutsche Bank, Highland Capital Management, Goldman Sachs, and Barclays Capital. Most of the debt stems from a transaction in which the firm was taken private last year by real-estate tycoon Sam Zell. The bankruptcy filing could give the company time to raise cash by selling assets in the tight credit market. It also could push the firm’s lenders to ease terms (Associated Press via Yahoo! News Dec. 8) … * Banks are continuing to tighten credit and curb lending as the economy weakens even though banks need to provide more credit to ease the financial crisis, said Federal Reserve Vice Chairman Donald Kohn. In a speech to a housing forum organized by the Office of Thrift Supervision on Monday, Kohn said banks are worried about managing losses and meeting funding needs. “The challenge for regulators and other authorities is to create an environment that supports greater bank intermediation, which should help to restore the health of the financial system and the economy,” said Kohn. However, he noted that while banks need to extend credit more, “they must do so in a responsible way that avoids past mistakes and does not create new ones” (Reuters via Yahoo! News Dec. 8) … * Shareholders of Bank of America and Merrill Lynch have approved the historic takeover of the nation’s largest brokerage firm. However, at Friday’s meeting, many Merrill shareholders and employees expressed anger about the quick downfall of the firm, which reported record profit of $4.3 billion for the first half of 2007. “Shame on members of the board for never asking any of us who loved this firm” why they were leaving, said Winthrop Smith Jr., son of one of the founding partners of Merrill Lynch, Pierce, Fenner & Smith. He left Merrill in 2001 after working there for 28 years when it became clear that Stanley O’Neal would become head of the company. Merrill’s demise reflects “unprincipled leadership and the failure of a board of directors to understand what was happening to this great company and its failure to take action soon enough,” said Smith. Merrill’s board ousted O’Neal, under whom the firm made ruinous bets on subprime mortgages, late last year. He was replaced by John Thain (The Wall Street Journal Online Dec. 8) … * Merrill Lynch CEO John Thain is asking the firm’s board of directors to approve a 2008 bonus of as much as $10 million (The Wall Street Journal Online Dec. 8). However, the compensation committee is resisting his request, say people familiar with the matter. Thain is arguing that he helped the company avoid a much larger crisis. Committee members say it would be foolish to ignore public sentiment against huge compensation packages. They also note that other Wall Street firms that were more profitable than Merrill this year aren’t giving bonuses to top executives. New York Attorney General Andrew Cuomo told Merrill’s board of directors on Monday that a reported bonus of $10 million for CEO Thain “appears unjustified” (MarketWatch Dec. 8). In a letter to the board, Cuomo noted that Merrill has lost more than $11 billion over the past year and “the performance of Merrill’s top executives throughout Merrill’s abysmal year in no way justifies significant bonuses for its top executives, including the CEO” …

Market News (12/08/2008)

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MADISON, Wis. (12/9/08)
* Many homeowners are quickly falling behind on their mortgage payments after their loans are modified, according to third-quarter statistics from the Office of the Comptroller of the Currency. Almost six in 10 borrowers who received loan modifications were more than 30 days overdue on their new mortgage loans within eight months. “The results, I confess, were somewhat surprising, and not in a good way,” said Comptroller of the Currency John Dugan. At a housing conference in Washington on Monday, Dugan questioned if lenders’ modifications are really creating more affordable loans and whether other types of debt such as credit card are keeping consumers from being able to meet their new mortgage payments. Dugan also noted that delinquency rates on all types of mortgages rose during the third quarter, a sign that the housing crisis isn’t anywhere near an end (The Wall Street Journal Online Dec. 8) … * Job losses could top 3 million by the middle of 2009, according to a forecast by the Conference Board. The Board’s Employment Trends Index (ETI) dropped to 102.9 in November--down 1.6% from October and 13% from a year earlier. “Thus far the U.S. economy has lost 1.9 million jobs and the declines in the ETI suggest job losses could very well surpass 3 million by mid 2009,” said Conference Board Senior Economist Gad Levanon. He also noted that workers will see “significant downward pressure on wages” as the job market continues to deteriorate. The Labor Department reported Friday that the economy lost 533,000 jobs in November--the biggest monthly decline in 34 years. The economy has lost 1.9 million jobs so far during the current recession, compared with a job loss of 1.6 million during the 2001 recession (CNNMoney.com Dec. 8) … * Companies continue to announce layoffs as the economic downturn worsens. On Monday, Dow Chemical said it plans to slash about 5,000 jobs, or 11% of its global workforce. The company plans to shut down 20 facilities and scale down its headquarters. Also on Monday, 3M Company said it plans to slash 1,800 jobs, about 2.3% of its global workforce, and Anheuser-Busch InBev said it plans to cut 1,400 U.S. jobs, another 6% of its U.S. workforce. Last week AT&T said it would slash 12,000 jobs, while DuPont said it would cut 2,500 jobs, and Viacom said it would eliminate 850 jobs. Analysts expect job losses to continue rising at least through the middle of next year (CNNMoney.com and Reuters via Yahoo! News Dec. 8) … * Wall Street rallied for a second consecutive session on Monday as investors became optimistic that President-elect Barack Obama’s infrastructure-spending plan would boost job growth. The Dow Jones Industrial Average jumped more than 250 points in late morning trading. In an interview on Sunday, Obama said he would facilitate the creation of the biggest public-works plan since the interstate highway system was built 50 years ago. That would help create jobs and profits for manufacturers of machinery, aluminum, and other goods. Investors also were cheered by the prospects that a plan to help the nation’s automakers would soon be passed by Congress (Associated Press via Yahoo! News Dec. 8) … * The global economy is in the middle of a severe, synchronized recession, according to the latest Moody’s Economy.com Survey of Business Confidence. U.S., European and South American business confidence has “collapsed” and Asian confidence has sharply declined. Companies’ hiring plans have plunged worldwide, and businesses are sharply cutting their investment in equipment, software, inventories and office space. Pricing power also is quickly declining as demand fades and commodity prices plunge. Only 15% of respondents said they are raising prices--down from a high of almost 50% this summer when oil prices peaked … * High gasoline prices prompted more Americans to take public transportation in the third quarter, the American Public Transportation Association reported Monday. More than 2.8 billion trips were taken on public transportation from July to September--up 6.5% from the third quarter of 2007. Gasoline prices jumped to a record-high $4.114 a gallon on July 17, according to AAA. However, prices have plunged since then, a factor that could stem the shift towards public transportation. The average price fell to $1.716 a gallon on Monday (CNNMoney.com Dec. 8) …

Hampel to IWSJI Card limits may hurt spending

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NEW YORK (12/9/08)--Reduced spending limits on credit cards could hurt consumer spending, a Credit Union National Association (CUNA) economist told The Wall Street Journal and Dow Jones Newswires Monday. Bill Hampel, CUNA chief economist, made his comments in light of predictions by Meredith Whitney, analyst and managing director at Oppenheimer &Co, that the financial services industry problems will result in credit card issuers cutting $2 trillion in available credit during the next 18 months. While such a cut would still leave enough available credit for consumers nationwide, credit cuts could still affect consumer behavior, Hampel told the news service. For consumers who are carrying balances on their cards, a decrease in credit limits that puts them closer to their limits could cause them to stop spending with those cards, Hampel said. Also there would be a psychological effect on consumers, Hampel told the news service. “If households thought they had less of a liquidity back-up available on their credit cards than they did before, that would reduce spending,” he said. For those who see their credit card limits reduced, one option is to seek credit from credit unions, because for consumers with good credit, credit unions “still have room on their balance sheets to take on additional loans,” Hampel said.

News of the Competition (12/05/2008)

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MADISON, Wis. (12/8/08)
* The stock intended to earn taxpayers a profit as part of the massive government bailout program has lost one-third of its value--about $9.3 billion--in just one month, according to an analysis by Associated Press (Dec. 5). Shares in almost every bank that was given bailout money have remained lower than the prices the government negotiated. While the stock options are “immediately exercisable,” the government can use its options to buy common stock at any time over the next 10 years. “We’re not exercising the warrants today,” said Brookly McLaughlin, a spokeswoman for the Treasury department. She said the government is looking at “10-year prospects” for the banks. Still, the Associated Press analysis found that just two of the 53 banks receiving bailout money would be considered a good investment today: HP Financial of Sioux Falls, S.C., and First Niagara Financial Group of Lockport, N.Y., both small regionals. “It’s a complete mistake to think this is a good investment for us,” said Paola Sapienza, a finance professor at Northwestern University. “It’s a gamble. It’s like going to Las Vegas” … * Banks have issued $37 billion of bonds backed by the Federal Deposit Insurance Corp. (FDIC) under its Temporary Liquidity Guarantee Program, FDIC Chairman Sheila Bair said Thursday. “The premiums we’re charging for the debt guarantee program are significantly higher than those charged for deposit insurance,” said Bair. “We expect to make a profit on this program, and we’ll put the proceeds into the deposit insurance fund,” added Bair. The program is one of many the government has enacted during the credit crisis to help stabilize the financial system (Dow Jones Newswires Dec. 5) … * JPMorgan Chase is boosting its loans to cash-hungry U.S. municipalities in an effort to win more business from weaker competitors in the credit crisis. The bank is adding another $5 billion to the $60 billion it already has in loans to municipalities this year. Municipalities have struggled for loans after the market for auction-rate securities collapsed in February. Lending to hospitals and schools gives JPMorgan a chance to cross-sell other banking products to local authorities, said Todd Maclin, chief executive of JPMorgan’s commercial bank (FT.com Dec. 5) … * Liechtenstein, a major offshore tax haven for the wealthy, has agreed to turn over to U.S. investigators some bank records of U.S. clients suspected of evading taxes. However, the agreement covers only clients who already are being investigated or prosecuted for tax evasion in the U.S. The agreement begins in 2010 and lasts two years. “They’re offering to give up what we already know,” said Jack A. Blum, an expert on offshore tax fraud (The New York Times Dec. 5) … * A U.S. jury has ruled against Bank of America in a lawsuit. A jury in U.S. District Court in Manhattan decided that a unit of the bank defrauded several investors, including insurer American International Group, by selling then low-value asset-backed securities. The plaintiffs were awarded a total of $141 million. Among the other plaintiffs were Societe Generale SA, Travelers Cos., and Allstate Corp. (Reuters via Yahoo! News Dec. 5) …

Market News (12/05/2008)

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MADISON, Wis. (12/8/08)
* A record number of homes were in foreclosure during the third quarter, and mounting job losses are expected to push that number even higher. An estimated 1.35 million homes were in foreclosure in the third quarter, up 76% from a year earlier, the Mortgage Bankers Association (MBA) reported Friday. The foreclosure rate was 2.97%--up 22 basis points from the second quarter and 128 basis points from a year earlier. The delinquency rate, including loans past due by one payment or more but not those in some process of foreclosure, increased to 6.99%--up 58 basis points from the second quarter and 140 basis points from a year earlier. “We have not gone into past recessions with the housing market as weak as it is now so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past,” said MBA Chief Economist Jay Brinkmann (mbaa.org and CNNMoney.com Dec. 5) … * Product and location drove the increase in foreclosures and delinquencies during the third quarter, according to the Mortgage Bankers Association (MBA) report. “Prime and subprime ARMs continue to have the highest share of foreclosures, and California and Florida have about 54% and 42% of the prime and subprime ARM foreclosure starts respectively,” said MBA Chief Economist Jay Brinkmann. “Until those markets turn around, they will continue to drive the national numbers,” added Brinkmann. The trade association predicts that the year will end with 2.2 million foreclosure actions started (mbaa.org Dec. 5) … * Long-term mortgage rates plunged last week after the Federal Reserve took actions to boost mortgage-market liquidity, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) tumbled 44 basis points to 5.53%, while the 15-year FRM dropped 41 basis points to 5.33%. The one-year, adjustable-rate mortgage (ARM) declined 16 basis points to 5.02%. “This week’s decline was the largest since the week of Nov. 27, 1981, and 30-year FRM rates are now almost a full percentage point lower since the last week of October,” noted Freddie Mac Vice President and Chief Economist Frank Nothaft. For CUNA's Daily Financial Rates, use the link. … * The recession and auto-sales slump prompted another 2,000 workers to lose their jobs Friday. General Motors announced layoffs at three more auto plants. So far this year, GM has announced 11,000 layoffs of factory workers in the U.S. Last week, the automaker reported a 41% plunge in sales for November, compared with a year earlier. Sales were down 22% for the first 11 months of the year. Analysts say tight credit and mounting job losses will continue to erode sales through 2009 (Associated Press via Yahoo! News Dec. 5) … * Commercial banks borrowed slightly less from the Federal Reserve’s emergency lending program last week, while investment firms boosted borrowing. Commercial banks averaged $90.3 billion in daily borrowing--down from $93.6 billion the previous week. Investment firms averaged $57.2 billion, up from $52.4 billion. The Fed also reported that net holdings of commercial paper averaged $297.6, up $15.4 billion from the previous week (Associated Press via CNNMoney.com Dec. 5) …

Employment fell off a cliff says CUNA economist

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MADISON, Wis. (12/8/08)--The payroll numbers “fell off a cliff in November,” as job losses are rising at an increasing rate, according to a credit union industry economist.
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Firms are cost cutting in the face of falling revenues, while others are being proactive with job cuts before revenues fall, said Steve Rick, Credit Union National Association (CUNA) senior economist. Employers slashed 533,000 jobs in November, the Labor Department reported Friday (see chart). The drop was the largest since December 1974. The economy has lost 1.91 million jobs so far this year. The unemployment rate rose to 6.7% in November--from 6.5% the previous month and the highest level since October 1993. The data indicate a prolonged recession. At 12 months, the downturn already is the longest since the 16-month recession in 1981-82. Since the beginning of the recession in December 2007, as announced by the National Bureau of Economic Research, the number of unemployed people has increased by 2.7 million. The unemployment rate has risen by 1.7 percentage points. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 2.2 million in November, but up by 822,000 over the past year. Job losses in November were large and widespread across industries. Employment in manufacturing plunged by 85,000 and has fallen by 604,000 since December. Employment in construction dropped by 82,000 last month and is down 780,000 since peaking in September 2006. Employment in retail trade fell by 91,000 during November. In one bright spot, health-care employment rose by 34,000 last month, and it has increased by 369,000 over the past 12 months. “The economy is going through a self-reinforcing downward spiral the likes of which we haven't seen since 1982,” Rick said. “This will require massive federal stimulus to reduce the depth, duration and dispersion of the recession. CUNA economists predict unemployment will rise to 9% by this time next year, up from 6.7% today. “The rise in unemployment will worsen credit conditions for the next two years,” he added. “Credit union loan charge-offs as a percentage of total loans could rise to over 1% in 2009, up from the recent five-year average of 0.52%.”

News of the Competition (12/04/2008)

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MADISON, Wis. (12/5/08)
* The Securities and Exchange Commission (SEC) has adopted new rules designed to avert conflicts of interest and increase the accountability of credit-rating agencies, whose overly upbeat views of subprime mortgages helped prompt the current financial crisis. The rules prohibit the agencies from rating securities they helped structure, forbid employees from accepting more than $25 worth of gifts from securities-issuing firms, and require the agencies to offer detailed data on how they determine ratings and how those ratings endure. Some critics said the SEC didn’t go far enough because it didn’t vote on a rule that would have eliminated regulations mandating reliance on ratings. “The commissioners missed an opportunity to really reform how the rating systems work,” said New York University Economics Professor Lawrence J. White (washingtonpost.com Dec. 4) … * Wells Fargo misrepresented to its customers the risks of purchasing $3.9 billion of auction-rate securities, according to an administrative complaint by the Washington State Department of Financial Institutions. Wells “misrepresented and failed to disclose material information to [its] customers, and made unsuitable recommendations” to purchase the securities, said the regulator. It said fines will be imposed on Wells if the firm fails to comply with state securities laws. The $330 billion auction-rate market collapsed in February. Wells denies the allegations. “We did not actively market or promote auction-rate securities, and we did not provide special incentives for brokers to sell them,” said Wells Fargo Investments CEO Charles W. Daggs (Bloomberg.com Dec. 4) … * Investors have amended a year-old lawsuit against Citigroup that accuses the firm of repackaging unmarketable collateralized debt obligations (CDOs) and reselling them to itself to disguise its exposure to the securities. In court documents, the investors allege that Citigroup started using the “CDO-related quasi-Ponzi scheme” in 2006 to appear that it had a strong capital base. The original suit was filed in November 2007. The amended suit is seeking unspecified damages, based on Citigroup’s loss of more than $100 billion in market capitalization. The bank’s shares have plunged more than 76% this year. The suit is “without merit,” and the firm will defend itself “vigorously,” said Citigroup spokeswoman Danielle Romero-Apsilos (Bloomberg.com Dec. 4) … * McLean, Va.-based Capital One Financial Corp. announced Thursday that it plans to acquire Chevy Chase Bank of Bethesda, Md., for $520 million in cash and stock. Capital One has acquired several regional banks in recent years as it seeks to become a full-service bank after operating mostly as a credit card lender. Capital One has received about $3.56 billion from the government’s bailout program in exchange for preferred stock and warrants to purchase common stock. The firm is expecting more loan losses as the economic downturn deepens. The company boosted its allowance for loan losses by $208.6 million to $3.5 billion in the third quarter (Associated Press via The New York Times Dec. 4) … * Credit Suisse Group announced Thursday that it plans to cut 5,300 jobs, about 11% of its global workforce, to reduce costs. The layoffs are in addition to the 1,800 jobs already lost this year. The bank also announced it plans to lower its exposure to risky investments by 12% in the fourth quarter. “These actions will better position us to weather the continuing challenging market conditions, capture opportunities that arise amid the continuing disruption, and prosper when markets improve,” said CEO Brady Dougan. Dougan and other senior executives won’t receive any bonuses this year because of the firm’s poor performance, Credit Suisse said (Associated Press via The New York Times Dec. 4) …

Market News (12/04/2008)

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MADISON, Wis. (12/5/08)
* The Treasury Department is considering a plan to boost the housing market by lowering mortgage rates for new mortgages, say people familiar with the situation. The plan would temporarily use the power of Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%--a full percentage point lower than the current average for 30-year, fixed-rate loans. The plan would have the Treasury purchase securities underlying loans guaranteed by Freddie, Fannie, and the Federal Housing Administration at a price equivalent to a 4.5% rate. The lower rate would only be available to people who are purchasing a home, not to those refinancing a mortgage. The guarantee also would apply only to loans in which borrowers can document their income and afford their monthly payments (The Wall Street Journal Online Dec. 4) … * United Kingdom Prime Minister Gordon Brown announced a plan Thursday to help troubled homeowners deter some mortgage payments for as long as two years. In a speech to Parliament, Brown said the government has reached an agreement with the nation’s eight largest mortgage lenders in which homeowners who have lost their jobs or face another big loss in income would be able to defer some of their mortgage payments. The government would guarantee repayment, and deferred sums would be added to the homeowner’s mortgage-loan principal. “No hard-working family that demonstrates to their bank a willingness to pay … can or should face the fear of repossession of their family home,” Brown said (The Wall Street Journal Online Dec. 4) … * The job market continues to deteriorate as the economic downturn deepens. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 89,000 during the week ending Nov. 22 to 4.087 million, the Labor Department reported Thursday. That’s the highest level in 26 years. First-time claims for unemployment insurance fell by 21,000 during the week ending Nov. 29 to 509,000. However, volatility due to the Thanksgiving holiday could explain that drop, and the high level indicates a very weak job market. Companies continue to announce layoffs. AT&T said yesterday that it plans to cut 12,000 jobs. Viacom said it will cut 850 jobs, and DuPont plans to slash 2,500 jobs. The current recession, which began in December 2007, already is longer than the 10-month average of recessions since World War II. The longest recessions since the war were 16 months, which were reached in 1973-75 and 1981-82 (Associated Press via The New York Times and Economy.com Dec. 4) … * College may soon become unaffordable for most Americans, according to a report by the National Center for Public Policy and Higher Education. Adjusted for inflation, published college tuition and fees soared 439% from 1982 to 2007--compared with a 147% gain in median family income. Student borrowing has more than doubled over the past decade as costs have soared. “If we go on this way for another 25 years, we won’t have an affordable system of higher education,” said Patrick M. Callan, president of the center. He noted that middle-class families have been financing their children’s education by piling up debt. He also expressed concern that the economic downturn is straining state budgets and making it more likely that state colleges and universities will push through large tuition increases. “When the economy is bad, we raise tuition and sock it to families, when people can least afford it,” said Callan. “That’s exactly the opposite of what we need” (The New York Times Dec. 3) … * The economy weakened or contracted throughout most of the Federal Reserve’s 12 districts through November, according to the Fed’s latest Beige Book survey of the economy. Almost all districts reported tighter lending, declining retail sales, slumping home sales, a weakening in the manufacturing sector due to declining exports, and a softer job market. “Wage pressures are largely subdued,” said the report. Sectors such as agriculture and energy, which were bright spots in the economy until recently, began to weaken as commodity prices plunged. Most districts continued to see the credit quality of borrowers deteriorate. In an upbeat sign, some districts said actions by the Fed and the Federal Deposit Insurance Corp. to boost liquidity in the banking system has curbed the outflow of deposits and improved liquidity (The Wall Street Journal Online and Economy.com Dec. 4) … * More than four in 10 Americans say the economy is in a serious recession. In a CNN/Opinion Research Corp. survey conducted this week, 42% of respondents said the economy is in a serious recession--up from 32% in a mid-October poll. Overall, 89% of respondents said the economy is in some type of recession, up from 76%. On the bright side, fewer people say a 1930s-era depression is imminent: Just 38% now believe a depression is possible, down from 41% (CNNMoney.com Dec. 4) …

Paris picks up CUNAs mortgage analysis

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PARIS, France (12/5/08)--A Paris publication picked up comments made by a Credit Union National Association (CUNA) economist, regarding mortgages in light of the Federal Reserve’s announcement last week that it would purchase billions in mortgage-related debt. News of the Fed’s action caused interest rates to drop, Mike Schenk, CUNA senior economist told Dow Jones Newswires. The Paris-based easyBourse picked up the item Wednesday. The 30-year fixed-rate mortgage is 5.09%, compared with 5.82% last week, and 5.93% a year ago Schenk said. The rates were about 6% between October 2005 and December 2007, reaching their peak at 6.65% in June of 2006. At 5.09%, a consumer could save roughly $100 per month per $100,000 borrowed, compared with the June 2006 rate of 6.65%, Schenk added.

News of the Competition (12/03/2008)

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MADISON, Wis. (12/4/08)
* Global financial institutions plan to overhaul standards for mortgage securities so that investors, servicers and ratings agencies can have greater clarity about credit quality and how mortgage loans can be altered when borrowers become delinquent. Industry groups in the U.S., Europe and Australia planned to announce the recommendations Wednesday as part of a wider initiative to revive the securitization markets. “The vast majority of securities permit and indeed require loss mitigation, but the easy modification decisions have largely been made and the remainder are a gray area,” said George Miller, executive director of the American Securitization Forum. “As a result, servicers are potentially exposed if they over-modify or under-modify,” said Miller. U.S. financial institutions securitized about 46% of the credit they originated from 2005 to 2007. Banks may fail to meet about $2,000 billion of demand for credit origination worldwide over the next three years if securitization markets fail to function, according to industry estimates (FT.com Dec. 3) … * The Federal Housing Administration (FHA)’s fund to cover loses on the mortgages it insures has declined by 39% over the past year--to $12.9 billion as of Sept. 30, according to an audit by Integrated Financial Engineering. That value represents 3% of all mortgages insured by FHA--higher than the 2% mandated by law, but much lower than the 6.4% ratio a year earlier. The ratio is projected to average 2.8% to 2.9% through 2015. However, if the economic downturn worsens, the ratio could slip to less than 2%, and Congress may consider using taxpayer funds to make up the shortfall (washingtonpost.com Dec. 3) … * Merrill Lynch plans to cut year-end bonuses in half, say two people familiar with the situation. Some traders and investment bankers will see even bigger cuts in their bonuses. Merrill has posted more than $20 billion in losses, forcing the firm to sell itself to Bank of America. Shareholders of both firms are scheduled to vote on the transaction this week. Even if the company sets aside nothing for compensation during the fourth quarter, Merrill’s 60,900 employees would enjoy an average $184,000 in compensation and benefits for the full year (Bloomberg.com Dec. 3) … * Nine large retailers, including Amazon.com and Home Depot, have become the founding members of the Retail Gift Card Association. The trade group will craft a set of best practices for merchants that sell closed-loop gift cards, said Carman Wenkoff, co-president of the association and president of ValuePay Services LLC. The group also will lobby Congress and collect and disseminate data on trends in the gift-card industry. It will start accepting memberships in January (CardLine via American Banker Dec. 3) …

Market News (12/03/2008)

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MADISON, Wis. (12/4/08)
* Vehicle sales plunged to an annual rate of 10.1 million units in November--from a 15.8 million pace a year earlier and the lowest since the early 1980s. All the major auto manufacturers reported declines of more than 30% in sales, compared with a year earlier, as the credit crunch and rising job losses deterred buyers. From the late 1970s to early 1980, vehicle sales plunged from a brief peak of 16 million units to a brief low of 9 million units. Ford and General Motors immediately announced cutbacks in production after the sales statistics were released Tuesday. They are seeking billions of dollars in government assistance to avoid bankruptcy (Moody’s Economy.com Dec. 3) … * Mortgage activity soared last week as mortgage rates tumbled, the Mortgage Bankers Association (MBA) reported Wednesday (mbaa.org Dec. 3). The trade group’s Market Composite Index surged 112.1% to 857.7. The average 30-year, fixed-rate mortgage (FRM) tumbled 52 basis points to 5.47%, while the one-year, adjustable-rate mortgage (ARM) fell 26 basis points to 6.61%. “Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the government sponsored enterprises (GSE) were placed under conservatorship,” noted Orawin Velz, associate vice president of economic forecasting at the MBA. “When rates plummeted following the Fed’s announcement that it would buy GSE debt and mortgage-backed securities, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound,” added Velz. The Refinance Index surged 203.3% to 3802.8 last week, while the Purchase Index rose 38% to 361.1. Mortgage applicants were ready to seize the opportunity when mortgage rates posted the largest weekly drop this decade, noted Moody’s Economy.com (Dec. 3). However, the market and refinance indexes probably won’t remain high because consumer confidence is declining and unemployment is rising … * Planned job cuts jumped to a seven-year high in November, according to a report by the outplacement firm Challenger, Gray & Christmas. Layoff announcements by employers totaled 181,671 last month--up 61% from October and 148% from November 2007. November layoffs were the second-highest on record. The financial sector announced 91,356 layoffs last month. The industry has announced 220,506 job cuts so far this year, accounting for 21% of all layoffs. Retailers announced 11,000 job cuts, just ahead of the holiday season. “The spirit of the holidays will not preclude further job-cutting if economic conditions continue to deteriorate,” said John Challenger, chief executive of the Chicago-based firm. So far this year, employers have announced 1,057,645 layoffs--topping 1 million for the first time since 2005 (CNNMoney.com Dec. 3) … * The service sector contracted at the fastest pace on record during November. The Institute for Supply Management’s non-manufacturing index dropped to 37.3%--from 44.4% in October and the lowest level since the survey was launched in 1997. Earlier this week, the group reported that its manufacturing index fell to 36.2% in November, the lowest level since May 1982. All the top sub-indexes of the service-sector index fell to record lows in November. The business activity index tumbled 11.2 percentage points to 33%, while the new orders index dropped 8.6 points to 35.4%, and the employment index fell 10.2 points to 31.3%. All were the lowest levels since they were first reported in 1997. The prices index dropped 16.8 percentage points to 36.6%--the biggest monthly decline and the lowest level since 1997. Survey respondents expressed concern about how long it will take the economy to stabilize and the impact the downturn is having on discretionary spending and employment (ism.ws and MarketWatch Dec. 3) … * Worker productivity increased at a 1.3% annual pace in the third quarter, faster than the 1.1% gain the Labor Department estimated last month. Productivity, defined as output per unit of labor, was up 2.1% year over year. Unit labor costs, a key measure of inflationary pressures, rose at a 2.8% annual pace--less than the 3.6% initial estimate. Labor costs were up only 1.4% from a year earlier, suggesting that the weak economy and job market are making it tough for workers to seek higher wages. The small increase in labor costs also gives the Federal Reserve room to keep interest rates low. At its last meeting in October, the Fed cut its target for the federal funds rate by 50 basis points to 1%. Fed Chairman Ben Bernanke on Monday suggested the central bank may lower the rate even further (Bloomberg.com and The Wall Street Journal Online Dec. 3) … * The Treasury Department should develop internal controls more quickly and hire more professionals to ensure that its $700 billion bailout package operates ethically and efficiently, Government Accountability Office (GAO) auditors said Tuesday. The auditors’ report also said Treasury officials should communicate their shifts in strategy more effectively to the public and Congress “to avoid information gaps and surprises.” The auditors noted that the department lacks the tools necessary to monitor whether the banks receiving bailout money are keeping their side of the bargain by using funds to expand credit and avert mortgage foreclosures (The New York Times Dec. 3) …

News of the Competition (12/02/2008)

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MADISON, Wis. (12/3/08)
* The Justice Department has expanded its criminal investigation of banks selling offshore private banking services to include Zurich-based Credit Suisse and London-based HSBC, say people briefed on the situation. They say the investigation is focusing on whether the two firms helped wealthy Americans hide as much as $30 billion in offshore accounts that were undeclared to the Internal Revenue Service. Federal investigators previously alleged that Zurich-based UBS illegally helped U.S. clients hide up to $20 billion in secret offshore accounts, helping them evade $300 million annually in taxes from 2000 to 2007. The investigations also are focusing on whether Switzerland is effectively an offshore tax haven for the wealthy (The New York Times Dec. 2) … * Hedge-fund Greenwich Financial Services has filed a lawsuit against Countrywide Financial Services, demanding that the firm compensate holders of mortgage-backed securities when the lender modifies mortgage loans. “Their intention is to modify [the mortgages], and they don’t have the right to do that,” said Greenwich Financial President William Frey. Under the terms of an agreement with 11 state attorneys general in October, Countrywide, which now is part of Bank of America, agreed to modify up to 400,000 mortgage loans and to give $8.4 billion in relief to borrowers (The New York Times Dec. 2) … * The decision by former investment banks Goldman Sachs and Morgan Stanley to switch to a bank holding company model will be costly for them, according to Bernstein Research analyst Brad Hintz. “The Federal Reserve is a more intrusive regulator than the Securities and Exchange Commission and establishing the commercial bank infrastructure to report to the Federal Reserve, the Office of the Comptroller of the Currency and the New York State Bank authorities will be costly,” said Hintz. He said the regulators will make the companies employ less leverage, maintain more liquidity, and control counterparty risk (Reuters via Yahoo! News Dec. 2) … * Bank of America, Citigroup, and Wells Fargo plan to sell notes backed by the Federal Deposit Insurance Corp. (FDIC) as they take advantage of a government plan to lower borrowing costs. The Temporary Liquidity Guarantee Program “is providing funding for a lot of institutions, some of which people were worried about going under,” said Gregory Habeeb, a money manager at Calvert Asset Management Co. Standard & Poor’s rates the FDIC-guaranteed notes as AAA. Moody’s rates them Aaa. Banks may raise $400 billion to $600 billion under the FDIC program within six months, according to estimates by Barclays Capital analysts (Bloomberg.com Dec. 1) …

Market News (12/02/2008)

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MADISON, Wis. (12/3/08)
* The number of consumers with delinquent mortgages (60 or more days overdue) will nearly double by the end of 2009 to 7.17%--the highest level in at least 16 years, according to a report by TransUnion LLC. The level is the highest since the credit bureau began tracking the data in 1992. TransUnion expects a delinquency rate of 4.67% at year-end 2008. “There are a lot more loans that will be resetting throughout 2009 through 2011,” noted Ezra Becker, principal consultant in the credit bureau’s financial services group. He said falling home values and rising unemployment also will contribute to increased mortgage delinquencies. Becker expects delinquencies to peak in the first quarter of 2010. TransUnion also expects credit card delinquencies to increase, but more modestly than mortgage delinquencies. Credit card delinquencies (90 days or more overdue) are expected to hit 1.09% by year-end 2008 and 1.37% by year-end 2009 (The Wall Street Journal Online Dec. 2) … * The recession began in December 2007 when employment reached a peak, the business cycle dating committee of the National Bureau of Economic Research (NBER) said Monday. The NBER said the loss of 1.2 million jobs so far this year was the largest factor in determining the starting point of the latest recession. With that measure, the recession deepened in November. The last time the U.S. was in recession was from March through November 2001. President George W. Bush has presided over two recessions, making him the first U.S. president since Richard Nixon to preside over two downturns. Economists expect the current recession to be a deep one. “It is clearly not going to end in a few months,” said Jeffrey Frankel, a member of the NBER committee and a professor at Harvard University. “We would be lucky to get done with it in the middle of next year,” added Frankel (Bloomberg.com Dec. 2) … * Forty-one states face budget deficits this year or next, said President-elect Barack Obama on Tuesday. In remarks to a meeting of the National Governors’ Association (NGA) in Philadelphia, Obama said he hopes governors will work with him to “help design” an economic recovery package that he plans to enact soon after he takes office. The states are seeking aid for expanded infrastructure projects and safety-net programs. The NGA estimates that states will face a total shortfall of between $140 billion and $180 billion over the next two fiscal years. Obama said he would like the governors to help design a stimulus plan. “Because if we’re listening to our governors, we’ll not only be doing what’s right for our states, we’ll be doing what’s right for our country. That’s how we’ll grow our economy--from the bottom-up. And that’s how we’ll put America on the path to long-term prosperity” (CNNMoney.com and The Wall Street Journal Online Dec. 2) … * President George W. Bush issued an executive order Monday that denies collective bargaining rights to about 8,600 federal employees working in law enforcement and other positions responsible for national security. Among those workers affected by the decision are 5,000 employees of the Bureau of Alcohol, Tobacco, Firearms and Explosives. Workers at the agency have “had their collective bargaining rights stripped away for no justifiable reason,” said Colleen M. Kelley, president of the National Treasury Employees Union. “We will work with the new administration to overturn this move by President Bush to deny these employees basic workplace rights in the 11th hour of his administration,” added Kelley (The New York Times Dec. 2) … * The holiday shopping season got off to a weak start, according to a report by the International Council of Shopping Centers. Chain-store sales rose just 0.1% over the week ending Nov. 29--bringing year-over-year growth to 1.3%, the trade group reported Tuesday. Shoppers are benefiting from lower gasoline prices. However, consumers face numerous other constraints on spending--including mounting job losses, rising food prices, falling home and stock prices, stricter credit standards, and the lack of a savings cushion (Moody’s Economy.com Dec. 2) … * Delta Air Lines plans to cut its capacity by 6% to 8% next year as the slumping economy dampens travel demand. The company already has cut 2,000 jobs this year. “The revenue environment is as cloudy as it’s ever been,” said Delta President Edward Bastian at the Credit Suisse Group Global Airline Conference in Chicago. He declined to forecast when airline demand would stabilize (Reuters via Yahoo! News Dec. 2) …

Market News (12/01/2008)

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MADISON, Wis. (12/2/08)
* Big discounts enticed shoppers, resulting in a strong kickoff to the holiday shopping season. Promotions such as “buy one, get one free” resulted in Thanksgiving weekend sales that exceeded retailers expectations, analysts said. The National Retail Federation conducted a survey of 3,370 shoppers that estimated shoppers spent an average of $372.57 over the weekend, up 7.2% compared with last year’s $347.55. However, sales momentum noticeably slowed on Saturday and into Sunday, indicating that many consumers had purchased only deeply discounted merchandise Friday, according to a poll of 700 shoppers by Charleston, S.C.-based America Research Group. Also, the bargains that got shoppers to part with their money were so drastic that retailers--already experiencing double-digit declines the past two months--may see their profits fall even more, analysts said. Retailers consider Thanksgiving a barometer of overall holiday sales, which account for 25% to 40% of annual sales, analysts said (The Wall Street Journal and The New York Times Dec. 1) … * The Institute for Supply Management’s (ISM) manufacturing index fell a larger than anticipated 2.7 points to 36.2 for November--its lowest level since the early 1980s and well below its third-quarter average of 47.8. The ISM index is consistent with an economy in a severe recession and indicates the need for additional monetary and fiscal stimulus measures, analysts said. Manufacturing has contracted for four consecutive months, and weakness is broad-based, they add (Moody’s Economy.com Dec. 1) ... * U.S. construction spending in October tallied $1.073 billion--a 1.2% decline from the revised September total of $1.086 billion, and down by 4.6% compared with a year ago, according to the Bureau of Census. The decline was in private residential and nonresidential construction spending--which was not completely offset by a moderate increase in public construction spending. The decline in overall construction spending matches expectations and highlights the continuing tight credit and the decline in developer confidence as the U.S. recession unfolds, analysts said. The construction industry will be facing significant challenges until an economic recovery is firmly in place--likely not until the second half of 2009, economists said (Moody’s Economy.com and The New York Times Dec. 1) … * Global business confidence fell to a record low last week, according to the Moody’s Economy.com Survey of Business Confidence. Responses to questions concerning equipment investment, hiring, inventory, sales strength and expectations regarding the outlook during the next six months are the weakest they’ve been. The survey indicates pessimism is prevalent worldwide, with the only caveat being that Asian businesses are somewhat less downbeat than elsewhere. The global economy is experiencing a severe recession, according to the business confidence survey results, analysts said (Moody’s Economy.com Dec. 1) … * The Organization of Petroleum Exporting Countries (OPEC) did not reach any agreement to reduce production and push prices higher at a weekend meeting in Cairo. OPEC accounts for 40% of the world’s oil exports. The meeting did not do much to indicate in which direction oil markets will move, analysts said. After reaching in excess of $145 a barrel in July, oil pries have dropped more than $90 a barrel because of diminished global growth, analysts said. Next year, prices may continue to fall, analysts said, with some predicting new lows in the neighborhood of $30 per barrel (The New York Times Dec. 1) … * The rural economy is faltering and there is little confidence that conditions will improve in the next six months, according to the Rural Mainstreet index, compiled from a survey of bank chief executives in 11 states. The index hit its fourth record low in a row, according to a report issued Friday. November’s figure was 22.1, following record lows of 34.4 in October, 38.5 in September, and 38.9 in August. The index was at 54.1 a year ago--above the growth-neutral figure of 50. The rural economy has been negatively impacted by the national recession and the global economic slowdown, said Ernie Goss, Creighton University economics professor and overseer of the survey (Forbes.com and Montana’s News Station.com Nov. 21) … * The 30-year fixed-rate mortgage fell below 6% on average last week--a seven-week low, according to a weekly survey released Nov. 26 by Freddie Mac. For the week ending Nov. 26, the mortgage averaged 5.97%--down from the previous week’s 6.04% average and the lowest since Oct. 9 when it averaged 5.94%. A year ago, the 30-year fixed-rate mortgage averaged 6.10%. The 15-year fixed rate mortgage averaged 5.74%--up from the previous week’s 5.73% average. A year ago, the mortgage also averaged 5.73% (MarketWatch Nov. 26) …

News of the Competition (12/01/2008)

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MADISON, Wis. (12/2/08)
* American International Group Inc. (AIG) will sell its private-banking business to Aabar Investments PJSC, an Abu Dhabi oil-and-gas firm. AIG is divesting assets as a condition of its $150 billion federal government bailout. The deal--terms of which are undisclosed--will create a new name for AIG Private Bank Ltd., based in Switzerland, with branches in Dubai, Hong Kong, Shanghai and Singapore. The new entity will continue to provide wealth-management services to well-to-do clients in Asia, Europe and the Middle East. Investors from the Middle East have been trying to leverage their petro-dollars, but recent investments in the U.S. financial sector haven’t paid off, analysts said (The Wall Street Journal Dec. 1) ... * Ford Motor Co. is contemplating the sale of its Volvo unit as it considers its options amid the financial problems afflicting Detroit auto makers. Ford’s financial turnaround strategy is based on cutting its size to focus its resources on the Ford brand, analysts said. The automaker already has sold its Land Rover and Jaguar lines. Ford is reportedly already shopping around Volvo, which it purchased in 1999 from AB Volvo--a Swedish truck maker. Although Volvo has been posting losses and losing market share, and despite Ford’s moves to rapidly unload its other European luxury brands, Ford CEO Alan Mulally decided in 2007 to keep the company and attempt to restore its image (The Wall Street Journal Dec. 1) … * Bank analyst Meredith Whitney made two predictions this week about financial firms and banks. Large financial firms will have to reduce the amount of credit they make available to consumers, Whitney said, adding that the contraction will likely be $2 trillion or roughly 45% of the borrowing pool that is currently available to credit card customers. She also predicts that U.S. banks will post another $44 billion in the fourth quarter in write-downs and credit-loss provisions. This will cause banks to use capital injections from the federal government to bolster their balance sheets instead of lending money to consumers, Whitney added (24/7 Wall St. and American Banker Dec. 1) … * Moody’s Investors Service has downgraded Discover Financial Services’ ratings outlook to negative from stable, although it affirmed the company’s ratings. The ratings affirmation is indicative of the company’s strong market position in the U.S. general purpose credit card market, including the strong Discover cash-back rewards program, analysts said. The downgrade in the company’s ratings outlook is a result of its exposure to troubled U.S. economic conditions, given Discover’s heavy reliance on its core U.S. card franchise, analysts added (Schaeffers research.com Nov. 25) ...