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News of the Competition (12/30/2009)

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MADISON, Wis. (12/31/09)
* The Federal Deposit Insurance Corp. (FDIC) collected $23.3 million this month from New York Community Bancorp Inc. during the bank's acquisition of failed Cleveland thrift AmTrust Bank (The Wall Street Journal Dec. 30). The purchase included an unusual financial provision from the bank to give it an edge over rival bidders that enabled FDIC to gain from any rally in the bank's stock price after the purchase was announced. New York Community Bancorp's stock price rallied more than 16% in the two weeks after the deal, paying off for FDIC. Because shares of a number of banks rose after the purchase of a failed institution, FDIC will, beginning next year, asking bidders for some seized banks to offer it a chance to profit if the deal is well-received by the buyer's shareholders. The agency plans to include the provision as one of the financial terms it provides to buyers of failed banks. The FDIC shares in losses associated with the closed institution, which is an incentive to banks to bid on failed banks. The agency, while still working out the details, will include the provision in documents early next year ... * New York commercial finance company CIT Group Inc., which emerged Dec. 10 from bankruptcy, says a central part of its new business plan includes adopting a "bank-centric" funding strategy (American Banker Dec. 30). The $69 billion asset CIT will move some core businesses--namely factoring, vendor financing and small-business lending--into its $9.4 billion asset Utah bank. However, it's not clear how CIT will gather enough deposits to finance that core business. Traditionally most of its funding came through capital markets, which allowed riskier, more profitable loans than banks could. After the crisis cut off its access to markets, CIT ended up in bankruptcy court. Also, there's the baggage of about $2.3 billion invested by the Treasury Department in the company through the Troubled Asset Relief Program that was wiped out when the company went bankrupt. CIT will need regulatory approval for the plan ... * GMAC Financial Services likely will receive another cash infusion from the U.S. government--this time roughly $3.5 billion--to return the company to profitability during first quarter 2010, say people familiar with the situation (The Wall Street Journal (Dec. 30). GMAC already has received $12.5 billion since December 2008. The company is expected to take more steps to absorb losses from its mortgage operations. As part of the government's stress-tests of large banks in May, GMAC was instructed to raise more capital. The tests were to determine whether firms needed more capital to continue lending if the economy soured in 2009 and 2010. GMAC collected part of the capital, but could not attract more from private investors like banks have done. The Treasury indicated earlier this year it would make as much funds available as needed and projected GMAC would need another infusion of up to $5.6 billion. GMAC says its capital needs were less than expected because the bankruptcies of General Motors Corp. and Chrysler Corp. were not as severe as expected. The Treasury said Tuesday it is in discussions with GMAC to ensure capital needs determined by last May's stress tests are met ...

Market News (12/30/2009)

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MADISON, Wis. (12/31/09)
* U.S. companies expanded in December at their fastest pace in nearly four years, according to the Institute for Supply Management (ISM)-Chicago Inc. The growth signals an economic recovery that is gaining speed (Bloomberg.com Dec. 30). The business barometer rose to 60, better than economists' median projections of a drop to 55.1 from 56.1 in November. Forecasts ranged from 52 to 58.5. A reading of 50 or above indicates expansion. The index has increased in six of the past seven months and is at its highest level since January 2006. The employment index rose to 51.2 from 41.9, putting it above 50 for the first time since late 2007 (Moody's Economy.com Dec. 30). Stimulus programs and discounting prompted sales and reduced stockpiles, which means manufacturers will need to further increase production in coming months, said Bloomberg.com. Orders climbed to the highest level in more than two years. The index provides an early look on the overall outlook of U.S. manufacturing, which accounts for roughly 12% of the economy. Exports were up, as were inventories ... * Oil prices fell below $79 a barrel Wednesday, with news that the nation's crude oil supply decreased less than expected. Crude oil inventories dropped 1.5 million barrels for the week ending Dec. 25, instead of the expected 1.85 million-barrel decline. Inventories decreased by 300,000 barrels--instead of the one-million barrel increase expected, said the Energy Information Administration (Moody's Economy.com Dec. 30) . Also contributing to the oil price drop was a stronger dollar. However, the cost of gas is being pulled higher. Since Dec. 21, crude futures increased 10% and retail gasoline costs began to catch up. Pump prices went up 1.5 cents overnight to a new national average of $2.623 per gallon, reported Oil Price Information Service and AAA, the auto club. Demand for gasoline the past four weeks was up 1% over last year, largely due to people stocking up on gas before a major snowstorm earlier this month in the Northeast (The New York Times Dec. 30) ... * Expect merger-and-acquisition (M&A) activity to make a comeback in asset management firms, says Keefe, Bruyette & Woods Inc. (KBW). The firms are poised for growth and thus more attractive for acquisition, the firm said. Factors include the expectation that investor demand for fixed income will stay positive into the new year and an increase of flows into equities. KBW cites recent M&As including Blackrock's acquisition of Barclay's Global Investors and Invesco's agreement with a division of Morgan Stanley. Traditional asset managers' revenues will grow an average of 10.8% next year, while alternative asset managers revenues will increase an average of 22%, said KBW (American Banker Dec. 30) ...

News of the Competition (12/29/2009)

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MADISON, Wis. (12/30/09)
* Banks that extended a lot of commercial real estate loans (CRE) before the recession will start seeing a flood of delinquencies next year. As of Sept. 30, U.S. banks had a historic $1.3 trillion in CRE loans outstanding, and $60.5 billion of them were delinquent, according to Foresight Analytics, an Oakland, Calif., market research firm. The problem will be more pronounced at regional and community banks than at large banks, said Foresight. Roughly $650 billion in CRE loans will mature in the next four years. Of the $150 billion due in 2010, about 43% exceed the properties' current value. The percentage of underwater loans due in 2011 is 60%, and that percentage will continue to rise year after year, said the firm. While some describe the CRE as the next potential major credit crisis, others believe the impact will depend on how well the economy recovers. However, CREs were a key factor at a number of the 140 banks that failed in the latest cycle. On Sept. 30, the CRE delinquency rate was 4.63% --up from 4.1% the previous quarter and 2.1% a year earlier. It could spike up to 5.6% during fourth quarter, Foresight said (American Banker Dec. 29) ... * New York investment bank Morgan Stanley's compensation committee has met several times in recent weeks to discuss pay plans for top executives and is said to be looking to defer more pay and benchmark salaries against rivals, said people familiar with the situation (The Wall Street Journal via The New York Times Dec. 29). Wall Street is trying to minimize criticism of executives' competition while still keeping executive talent, the report said. The bank is considering three possibilities: whether to pay senior executives about one fourth of their 2009 pay in cash with the rest of the pay as deferred stock; whether to require most of the top 30 executives to submit at least 65% of their pay to "clawbacks," where they would return money if case of future losses; and whether to determine if 20% of one's total compensation would come in shares based on the company's share price compared with a rival's share prices ... * Goldman Sachs Group Inc. took the largest share of the $923 million in fees from U.S. initial public offerings (IPOs) this year. The company made $191.6 million helping take 16 companies public, an increase of more than 60% over last year, according to data from Bloomberg. Citigroup Inc.'s share of fees totaled $68.3 million, making it the only underwriter participating in at least $1 billion in sales to suffer a drop in revenue. Its revenue plummeted more than 50%, removing the bank from the top five. According to Bloomberg.com (Dec. 29), banks increased fees for IPOs by 62%--to 5.63%--from the lowest level ever, while the total raised by U.S. companies in IPOs dropped by nearly half--to $16.4 billion during 2009. Nearly 40% of offerings sold by underwriters during the second half of 2009 have resulted in losses for buyers. This year, fees averaged about 5.63% of proceeds, up from the record low of 3.48% during last year's financial crisis.

Market News (12/29/2009)

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MADISON, Wis. (12/30/09)
* Credit card delinquencies were up more than half a percentage point during November, reports Moody’s Investors Service (The Wall Street Journal Dec. 29). The rate of charge-offs was 10.6%, compared with 10% in October. The delinquency rate rose to 6.2%. The latest charge-off statistics broke a two-month decline of drops. The record high was in August. Moody’s said seasonal trends indicate delinquencies will likely keep rising through much of the winter. It expects the charge-off rate to peak at 12%-13% in mid-2010 … * A surge of home buyers hoping to get the government’s tax credit and low interest rates helped prop up October’s home prices, which rose 0.4% from September, seasonally adjusted, according to the Standard & Poor’s/Case-Shiller home price index of markets in 20 cities. October was the fifth consecutive month that prices rose. However, seasonal adjustments can hide weaknesses in cool months, when fewer homes are sold. Unadjusted, the index was flat for October. The index is down 7.3% from October 2008 and is off 29.5% from its highest reading. All 20 metropolitan areas posted declines from a year earlier--the 19th consecutive time. Las Vegas was the worst performer for year-over-year, with a 27% drop in prices. So far, between one-third and half of all sales in any month have been foreclosures or other distressed properties. Low-end homes are decreasing as a percentage of total foreclosures while middle and high-end home foreclosures are increasing. Many observers expect home prices to fall 10% more before the housing market hits bottom (The New York Times and The Wall Street Journal Dec. 30) ... * Americans' confidence in the economy rose in December--for the second month. The Conference Board's confidence index increased to 52.9 from 50.6 in November. The increase is largely in line with the median forecast of economists surveyed separately by Bloomberg News, who forecast 53, and Thomson Reuters, who forecast a 52 reading for December (Bloomberg.com and The New York Times Dec. 29). However the reading is far short of the 90 that would indicate a solid economy. Consumer attitudes about current conditions declined to 18.8--the lowest level since February 1983--from 21.2 the previous month. The uneven recovery of economic conditions, with labor lagging behind other indicators, will keep the present conditions component in check, said Moody's Economy.com (Dec. 29). The expectations component of the index, which gauges expectations for the next six months, improved 5.3 points to 75.6, the highest since the recession began two years ago. In November that gauge was 70.3 ... * Chain store sales rose 0.4% during the week ended Dec. 26, according to the International Council of Shopping Centers (ICSC) sales index. That compares with a 0.6% increase the previous week. The latest reading was the third consecutive week that sales were up. Sales increased 2.3% from the same period a year ago. The increase was attributed to winter storms earlier in the month, which helped sales by pushing more holiday shopping into the latest week. Sales also benefited from additional pre-holiday shopping days for last minute shoppers. ICSC expected sales for fiscal December will increase 2% over a year ago, an improvement from November's sales decline of -0,2%. However, it is down from ICSC's earlier predictions of December growth at 2% to 3%. ICSC's forecast for the November-December holiday sales period is for a 1% increase, compared with a -5.6% drop during that period last year (Moody's Economy.com Dec. 29) ...

News of the Competition (12/28/2009)

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MADISON, Wis. (12/29/09)
* Total deposits in financial institutions grew 7.7% during the year ended June 30, which compares to 4.8% growth for the same period in 2008, said the Federal Deposit Insurance Corp.’s (FDIC) 2009 Summary of Deposits. Mid-sized banks and thrifts had the largest deposit growth, with those between $1 billion and $10 billion in assets increasing deposits by 10.5% and branches by 5.2% (American Banker Dec. 28). The growth was attributed to midsize institutions acquiring smaller ones and to organic growth of smaller institutions into middle-size institutions. Although deposit growth overall increased, branch growth grew just 0.4%, the smallest increase since 1996 and below the previous year’s growth of 2%. FDIC said banks may be consolidating branches to cut expenses during the recession. Large institutions continued to grow their branch networks across more states. Fourteen, instead of 12, now serve at least 15 states. Wells Fargo & Co. operates in 40 states, Bank of America Corp. in 36, and JPMorgan Chase and Co. and U.S. Bancorp each cover 24 states … * The $200 billion credit lines the Treasury Department has made available to Fannie Mae and Freddie Mac since they were seized in September 2008 will be allowed to increase “as necessary” during the next three years to ensure the two government-sponsored enterprises (GSEs) keep a positive net work. The credit lines originally were to expire on Dec. 31. Neither is close to the borrowing limit. Fannie has borrowed $60 billion and Freddie borrowed $51 billion. The Treasury said in a Dec. 24 press release the move is to leave no uncertainty about the Treasury’s commitment to support these firms (American Banker Dec. 28) … * Bank of America Corp.’s lawsuit against Milwaukee, Wis.-based MGIC Investment Corp. reflects heightened disagreement in the industry over mortgage insurers’ denial of claims that lenders submit for defaulted home loans, says American Banker (Dec. 28). BofA’s complaint, filed last week in the Superior Court of California for San Francisco, alleges that MGIC denied millions of dollars in valid claims BofA submitted and adopted unreasonable interpretations of its policy language to deny the claims. MGIC said in a filing with the Securities and Exchange Commission that it would vigorously defend its decision. So far, lenders have avoided going the lawsuit route, instead seeking intervention from state insurance commissioners and negotiating directly with insurers. But a Washington-based law firm that specializes in representing policyholders says inquiries about lenders’ options have increased …

Market News (12/28/2009)

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MADISON, Wis. (12/29/09)
* U.S. retailers chalked up a 3.6% estimated increase in sales this holiday season (November through Dec. 24) over that of 2008--thanks to an extra shopping day because Christmas came on Friday instead of a Thursday like last year. Major retail categories saw modest sales increases, especially in electronics and jewelry, while others such as clothing were flat, according to Spending Pulse, an information service from MasterCard Advisors. The number excludes automotive and gasoline sales. Last year sales for the period declined 2.3%--the worst holiday season in decades--when the country was in “a free-fall mode,” said Michael McNamara, vice president of research and analysis at Spending Pulse. The company does not forecast holiday sales. However, the National Retail Federation has forecast a 1% decline to $437.6 billion, and the International Council of Shopping Centers expects a 2% increase in sales open at least one year. Retailers will report December sales on Jan. 7 (Bloomberg.com and The New York Times Dec. 28) … * Economists are forecasting almost a 3% economic growth for 2010--better than in 2009 and 2008, but not good enough to bring unemployment close to the level it was before the recession (The Wall Street Journal Dec. 28). Although much rides on how much hiring employers do, there are three other variables that could affect how well the economy does next year. They include how well business investment rebounds, whether housing will show more than the expected miniscule gains, and how well the economy can stand on its own after government support fades, said the Journal … * Global business confidence in the week ended Friday has rebounded to its highest level since early July 2008, before the global downturn, according to Moody’s Economy.com Survey of Business Confidence (Dec. 28). However, Christmas may be skewing the results.. The four-week moving average has been stuck about where it was since August, and businesses are remaining cautious, which is consistent with a tentative global economic recovery, said Moody’s analysts. Confidence generally is strongest in Europe. Confidence among South American businesses, which had been strong for several months, is “quickly falling,” while confidence in North America and the Asia-Pacific region is improving but still lagging. The most upbeat sectors are those working in professional services and high tech, followed by financial services. Those with the most pessimistic view work in real estate, while manufacturing and government sectors fall in between …

News of the Competition (12/27/2009)

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MADISON, Wis. (12/28/09)
* Royal Bancshares of Pennsylvania Inc. announced Dec. 21 that it is terminating an agreement related to the sale of its Royal Asian Bank unit. The sale was previously announced to investors in September. The Korean-American investor group--led by Edward Shin, Royal Asian Bank’s president/CEO--was unable to raise enough funds to meet the terms of the agreement and ensure all regulatory approvals needed to finalize the transaction, analysts said. Shin will remain with the bank and continue to manage its daily operations (CNNMoney.com Dec. 21) … * Zions Bancorp said Tuesday its preferred-to-common stock conversion has garnered significant support from institutional investors. While half of preferred shareholders converted, participation by institutional investors was high, Zions said. However, the conversion failed to resolve a standoff between Wall Street’s demand that the banking company raise capital and resistance by Zions’ management to conduct a large, dilutive capital-raising effort such as other banks have done recently, analysts said. The standoff has resulted in Zions’ share price declining 46% this year, compared with a 19% decline in the Nasdaq price index, analysts said (Dow Jones Newswires Dec. 23) …

Market News (12/27/2009)

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MADISON, Wis. (12/28/09)
* U.S. consumer delinquencies on first mortgages, home equity lines of credit and credit cards rose again in November from October, according to Equifax Inc. In November, credit card delinquencies increased to 4.62% from 3.76% a year earlier, but remain below May’s peak of 4.79%, Equifax said. Delinquencies on home equity lines of credit jumped to 3.43% from 3.39% in October and 2.95% from a year earlier. However, Equifax said that consumers have reduced their debt by more than 5% from a year earlier--with first-mortgage debt decreasing 5.4%, credit card debt down 7.3%, and auto loans falling 9.5%. Overall consumer debt is about $11 trillion--which is at the September 2007 level, Equifax said (Dow Jones Newswires via American Banker Dec. 23) … * Sales of new U.S. homes unexpectedly dropped in November to the lowest level since April, the Commerce Department said Wednesday. This means the U.S housing market recovery will be slow and rocky, analysts said. Purchases declined 11% to an annual pace of 355,000--below the lowest estimate of economists surveyed by Bloomberg News. In November, the median sales price dropped 1.9% from November 2008. The report is indicative of a demand slump, following the extension of a deadline for first-time buyers to qualify for a tax credit, analysts said. Originally set to expire Nov. 30, Congress pushed the deadline back to April 30 and also expanded the program to include current homeowners who relocate. “The tax credit put a band-aid over the housing problem, and in October and November we ripped it off [as it was about to expire],” said Mark Vitner, senior economist at Wells Fargo Securities LLC. “Demand for housing is not likely to pick up on a consistent basis until we start to see some improvement in employment” (Bloomberg.com and The New York Times Dec. 23) … * U.S. personal income increased 0.4% in November on the heels of upwardly revised growth of 0.3% the previous two months, according to the Bureau of Economic Analysis. November’s burst constituted the fastest growth since May’s stimulus-inflated surge, analysts said. Wage income increased 0.3%--the fastest growth since April, they added. Also, spending rose 0.5%, while the savings rate held steady at 4.7%. Real spending rose 0.2% (Moody’s Economy.com Dec. 23) … * Consumer sentiment in the U.S. improved in December, although not as much as preliminary data suggested, according to the University of Michigan consumer sentiment index. The index rose to 72.5 from November’s 67.4. The November level was only a point below September’s 73.5--the index’s recent high. Compared with November, the current conditions component of the index posted the biggest increase. Expectations of inflation declined, although not as steeply as in the preliminary report, analysts said (Moody’s Economy.com Dec. 23) … * U.S. retailers could lose as much as $9 billion in holiday retail sales because of banks pulling back on lending to cash-strapped consumers in advance of a new credit card law--the Credit Card Accountability, Responsibility and Disclosure (CARD) Act--going into effect in February, analysts said. November and December sales could drop 1.2% to $436.7 billion from the same period in 2008, said Britt Beemer, chairman of consumer polling for America’s Research Group. Sales would gain roughly 0.8% to reach $445.5 billion if lenders weren’t curtailing consumer spending limits and rejecting more credit card applicants, he added. The CARD act is aggravating the spending slump just when consumers begin to consider more discretionary purchases, said Douglas Scovanner, Target chief financial officer. “It will mute the impact of the rebound that would have otherwise occurred,” he said. “Diminished availability of credit equals diminished spending” (Bloomberg.com Dec. 23) …

Rising home sales hopeful sign Schenk tells IReutersI

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MADISON, Wis. (12/28/09)--Rising home sales are a hopeful sign, but not a clear signal that the U.S. housing market is in full recovery mode, a Credit Union National Association (CUNA) economist told Reuters Wednesday. For the week ending Dec. 18, U.S. mortgage loan application volume declined 10.7% on a seasonally adjusted basis from one week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index decreased 10.9% compared with the previous week. The Refinance Index declined 10.1% from the previous week and the seasonally adjusted Purchase Index dropped 11.6% from one week earlier. The unadjusted Purchase Index decreased 13.4% compared with the previous week and was 32.7% lower than the same week one year ago. “Affordability is high, prices are low and going lower, rates are low, there are incentives in play and that all helps,” said Mike Schenk, CUNA senior economist, told Reuters. The slack labor market, high consumer debt levels and home prices dropping in many areas of the country “convince us that this will be a longer-term recovery than most people might be expecting,” he added. Along with the 10% of the work force that is unemployed, 9.5 million people are underemployed and many others have dropped out of the labor force altogether, Schenk told the news service. Although the sales increase presents hope, "I don't think this is a signal that we have now begun to experience fundamental changes that will cause the housing market to resume its upward trajectory,” Schenk concluded. To read the article, use the MBA report link below.

News of the Competition (12/22/2009)

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MADISON, Wis. (12/23/09)
* City National Corp. in Los Angeles acquired failed Imperial Bank of La Jolla, Calif., last weekend in its largest deal to date. In the process, it expanded its asset size by about 5% to nearly $22 billion in assets, reported American Banker (Dec. 22). City National said Monday it has not yet determined if the deal will slow its plans to repay $400 million it borrowed from the Treasury’s Troubled Asset Relief Program. The deal with the $4 billion-asset Imperial includes a loss-sharing agreement. City National picks up $3.4 billion of assets and $2.2 billion in deposits, and it also will get $96 million in cash from the Federal Deposit Insurance Corp. ... * Two former Bank of America Corp. (BofA) executives are among investors supporting a group attempting to raise as much as $600 million to buy Florida banking assets. Hugh McColl Jr., former CEO, and Marc Oken, former chief financial officer, co-founded Falfurrias Capital Partners, a North Carolina-based investment firm, which has agreed to invest an unspecified amount in North American Financial Holdings, Oken said. The housing market collapse and global recession have caused the banking industry to absorb more than $1.7 trillion in credit losses. As the industry recovers from the losses, buyout firms are jumping into the banking sector, analysts said (Bloomberg News via American Banker Dec. 22) … * To further reduce its factory work force, Ford Motor Company has offered buyout or retirement-incentive packages to all of its 41,000 hourly workers. The packages include cash payments and other incentives such as short-term health insurance coverage and vouchers to buy cars, analysts said. Ford has more workers than it needs to manufacture cars and trucks at current levels, said company spokesman Mark Truby, who declined to say how many workers Ford expected to accept the packages. “We’re just going to try to right-size our manned capacity and align it with demand,” Truby said (The New York Times Dec. 22) …

Market News (12/22/2009)

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MADISON, Wis. (12/23/09)
* U.S. existing home sales increased again in November because first-time homebuyers hurried to close sales before the original Nov. 30 deadline for the recently extended and expanded federal tax credit, according to the National Association of Realtors (NAR). In the month, existing home sales--which include single-family, townhomes, condominiums and co-ops--rose 7.4% to a seasonally adjusted rate of 6.54 million units from 6.09 million in October. Last month’s sales are 44.1% higher than the 4.54 million-unit pace in November 2008. Current sales are at the highest level since February 2007 when they reached 6.55 million, NAR said. Lawrence Yun, NAR chief economist, said the rise was expected. “This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” he said. “We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010. In all, 4.4 million households are expected to claim the tax credit before it expires and balance should be restored to the housing sector with inventories continuing to decline.” For the NAR report, use the link … * Third-quarter growth in the U.S. economy was less than expected because companies curtailed spending and cut inventories at a faster pace, analysts said. However, the moves will set the table for accelerated growth, they added. The 2.2% rise in third-quarter gross domestic product compares with a 2.8% gain previously reported by the Commerce Department. While the economic recovery is underway, it does raise concerns about its vitality and the prospects for a turnaround in the labor market, according to the Bureau of Economic Analysis. More consumer spending and a record drop in stockpiles this year will spark production increases that should keep the U.S. economy--the world’s largest--growing deep into 2010, analysts said. Also, some companies are pointing to business investment gains indicating a growing confidence that the economic expansion will continue, they added. “We are really starting to see the mechanisms for a sustained recovery coming into place,” said Robert Dye, a senior economist at PNC Financial Services. “We are starting to see investment numbers coming back” (Bloomberg.com and Moody’s Economy.com Dec. 22) … * For the week ending Dec. 19, U.S. chain store sales increased a disappointing 0.6%, according to the International Council of Shopping Centers (ICSC). While the advance constituted a second consecutive weekly gain, it was quite small by the standards of the last full shopping week before Christmas, ICSC said. This was two full percentage points below last year’s performance. This year’s sales were hampered by a major snowstorm moving from the Southeast into the Northeast on the Saturday before Christmas, analysts said. Some portion of the lost sales should be recouped this week, they added (Moody’s Economy.com Dec. 22) …

Market News (12/21/2009)

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MADISON, Wis. (12/22/09)
* In November, the probability that the U.S. will be in recession six months from now fell to 29% from 33% the previous month, according to Moody’s Economy.com (Dec. 21). Higher equity prices and an improvement in the labor market are reflected in the improvement, Moody’s said. However, even if decreases in nonfarm payrolls cease in the next few months, policymakers must remain on guard, analysts said. More monetary and fiscal stimulus may be required to support consumer spending, housing and business investment, and also mitigate the chance of a double-dip recession, they added. While the labor market appears to be recovering ahead of schedule and November’s improvement was a good sign, the economy is still a ways from adding the 100,000 jobs or so per month necessary to stabilize the unemployment rate, Moody’s said … * The U.S. housing market in the third quarter continued to falter because even the most credit-worthy borrowers increasingly went delinquent on their mortgage payments, according to a new report from the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The report indicates that current and performing mortgages fell for the sixth consecutive quarter, with foreclosures in process exceeding one million mortgages at the end of September. The report covers about 65% of the U.S. mortgage market--roughly 34 million loans totaling $6 trillion in principal balances. The most ominous finding in the report: even the least risky borrowers, considered “prime,” increasingly cannot make their loan payments, analysts said. About 3.6% of prime mortgages were more than two months behind on payments--more than double the level a year ago, the report indicated (The Wall Street Journal Dec. 21) … * Consistent with a tentative worldwide economic recovery, global business confidence is still mired in a range that has prevailed since mid-August, according to Moody’s Economy.com Survey of Business Confidence (Dec. 21). Extrapolating from weekly volatility in the survey responses, the global economy may be gradually drifting back from recession, analysts said. A marked improvement in sales and equipment investment constitutes the best recent news from the survey, they added. Heading into next spring, businesses remain positive about the economic outlook, the survey indicated. Generally, sentiment is most positive in South America and among professional and business-service firms. The most negative responses are in the areas of hiring and inventories. Also, pricing is soft, the report said … * U.S. online retail sales grew 4% from the beginning of November through Dec. 18 to $24.8 billion, according to Web-tracking company comScore Inc. On Dec. 15, online sales totaled $913 million--setting a one-day record for the industry. Aggressive online promotions conducted by store-based retailers and Web price wars this holiday season have made e-commerce a bigger factor in the U.S. retail industry, analysts said. E-commerce--excluding cars, travel and prescription drugs--constituted 6% of all U.S. retail sales in 2008, and that percentage should rise to 7% this year--10% for just the holiday shopping seasons--said Sucharita Mulpuru, an analyst at Forrester Research. “Price and convenience are probably the biggest factors--you can often save money shopping online,” she said (The Wall Street Journal Dec. 21) …

News of the Competition (12/21/2009)

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MADISON, Wis. (12/22/09)
* On Friday, federal regulators closed seven more U.S. banks, bringing the total of bank failures this year to 140. Banks that were closed include: Rockbridge Commercial Bank, Atlanta; Peoples First Community Bank, Panama City, Fla.; Citizens’ State Bank, New Baltimore, Mich.; New South Federal Savings Bank, Irondale, Ala.; Independent Bankers’ Bank Bridge Bank, Springfield, Ill.; First Federal Bank of California, Santa Monica, Calif.; and Imperial Capital Bank, La Jolla,. Calif. The closures are due to the continuing effects of the credit crisis being felt nationwide, analysts said (MarketWatch Dec. 18) … * Shareholders of Bank of America Corp. (BofA) are scheduled to convene Feb. 23 to approve the issuance of more common stock, resulting from BofA’s exit from the federal government’s Troubled Asset Relief Program. As part of a plan to repay $45 billion in TARP capital, BofA already has sold $19.29 billion in common equivalent securities this month. Subsequently, BofA repaid the government. Shareholders must authorize the bank to increase common stock by 1.3 billion shares to complete the securities offering, reported American Banker (Dec. 21). Otherwise, BofA has to issue warrants for 60 million shares of common stock--which would all but compel investors to back February’s proposal, analysts said … * Citigroup Inc. subsidiary Student Loan Corp.--an originator of student loans--sold $1.4 billion of asset-backed-securities Friday. The move comes on the heels of a $1.5 billion credit-card-backed deal that Citi sold on Thursday, analysts said. While the agreement surprised some market participants, others said the deal was based on reverse inquiry to satisfy the requests of large buyers--similar to Thursday’s arrangement--analysts added (Dow Jones Newswires via American Banker Dec. 21) …

Market News (12/18/2009)

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MADISON, Wis. (12/21/09)
* November unemployment declined in 36 U.S. states, with Connecticut and Kentucky posting the largest decreases from a month earlier, the Labor Department said Friday. Unemployment in Kentucky fell to 10.6% from 11.3% the previous month. Connecticut’s November jobless rate dropped to 8.2% from 8.8% in October. Eight states reported increases in unemployment in November. Nonfarm payroll employment increased in 19 states, with the biggest overall gains in Texas and Ohio--although no gain was statistically significant, analysts said. The U.S. unemployment rate is forecast to be above 10% through June, which would curtail consumer spending as the economy recovers, analysts said. “The broad phenomenon across the U.S. is that the pace of layoffs slowed considerably, but there’s not much new hiring going on,” said Steve Cochran, director of regional economics at Moody’s Economy.com. “We’re seeing revenues continue to come in below expectations in almost every state” (Bloomberg.com and Moody’s Economy.com Dec. 18) … * For the week ending Dec. 11, the Economic Cycle Research Institute (ECRI) Weekly Leading Index rose to 130.7 from a revised 130.2--previously 130.1, said the institute. The smoothed, annualized growth rate increased to 24.7% from a revised 24%--previously 23.8%. With the exception of some recent downturns, the index has been moving up since March--which is consonant with continued recovery through at least much of 2010, the institute said. The labor market’s health is a key metric, and in November an important development occurred with a dip in the national unemployment rate to 10%--which is encouraging, analysts said (Moody’s Economy.com Dec. 18) … * The manager of Pacific Investment Management Co.’s (Pimco) Total Return Fund--the world’s largest bond fund--boosted cash to 7% in November from a negative 7% in October, according to Pimco’s website. Bill Gross, who manages the $199.4 billion fund, reduced government-related securities to 51% from a five-year high of 63% in October. He also boosted cash to the highest level since Lehman Brothers imploded in 2008. There is growing speculation that interest rates will rise, analysts said. Also, traders at the Chicago Board of Trade raised bets on inflation to the most in 16 months, following reports on retail sales and industrial production indicating the economy is picking up, analysts said. “Yields will rise next year,” said Tsutomu Komiya, an investment manager in Tokyo at Daiwa Asset Management Co. “The U.S. economy will recover and there is a possibility of a rate hike” (Bloomberg.com Dec. 18) … * The European Central Bank (ECB) increased its estimate for write-downs by 13% to $789 billion for the period from 2007 through 2010. Euro-region banks may have to write down an additional $268 billion because loans to property companies and eastern European nations threaten the recovery in financial markets, ECB said. In its Financial Stability Review published Friday, ECB said “the surge in government indebtedness” worldwide is a risk to financial stability and that some European banks still are reliant on emergency funding. “An important reason behind the rise is the further deterioration in commercial property-market conditions,” the report said. “This has contributed to an upward revision to the estimate of potential write-downs on banks’ exposures to commercial property mortgages and commercial mortgage-backed securities” (Bloomberg.com Dec. 18) ...

News of the Competition (12/18/2009)

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MADISON, Wis. (12/21/09)
* U.S. federal banking regulators are calling for comments to be sent to the Basel committee about proposed changes to international capital rules. In a separate move, regulators issued guidance to help financial institutions implement new Basel standards for transparency in cross-border funds transfers, reported American Banker (Dec. 18). The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. Since last year, the Basel committee has held discussions on how to improve Basel II capital standards amid the worldwide market turmoil arising from the financial crisis, American Banker said ... * Citing a lack of regulatory approval, savings and loan companies OceanFirst Financial Corp. and Central Jersey Bancorp. said they decided to end their merger agreements. The companies agreed to nix the merger deal without penalty to either party. “The current environment is such that obtaining regulatory approval has taken much longer than we anticipated and has reached a point where we believe that continuing to wait for this approval is not in the best interests of either company,” said the two savings and loans. Under the proposed deal, which was scheduled to close by year-end, OceanFirst would have acquired Central Jersey for $68.4 million in stock (Reuters Dec. 17) … * The Federal Reserve Board announced Thursday that Regions Financial Corp. will be fined $135,000 for allegedly committing violations of the National Flood Insurance Act. The penalty levied against the Birmingham, Ala., company’s bank subsidiary required it to remit the fine into the nation’s flood insurance program, reported American Banker (Dec. 18). Regions accepted the fine without admitting to the allegations, the Fed said. Although the Fed did not specify the bank’s specific alleged infractions, violators usually are cited for providing mortgages to borrowers in flood areas without requiring they obtain flood insurance, the publication said …

News of the Competition (12/17/2009)

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MADISON, Wis. (12/18/09)
* The U.S. Treasury Department aborted its plans to begin selling its 34% stake in Citigroup Inc. because investors demanded a price that would have caused the Treasury to lose money on the sale, analysts said. The reversal occurred two days after the Treasury said it intended to sell as much as $5 billion of stock in Citi. The sale was part of the company’s plan to pay back $20 billion in taxpayer aid it received in 2008 through the Troubled Asset Relief Program (TARP). “Citi’s significant desire to have a plan to exit TARP ended up being somewhat detrimental to its common shareholders,” said Edward Najarian, head of bank research at International Strategy and Investment Group Inc. Treasury’s delay will “likely to keep some pressure on the stock,” he added (The Wall Street Journal Dec. 17) … * After an 11-week search, Bank of America (BofA) has promoted Brian T. Moynihan to president/CEO with a unanimous board vote. Moynihan, 50, runs BofA’s consumer and small business operation, including roughly 6,000 U.S. retail branches. Moynihan is one of the few high-ranking holdovers from the 2004 acquisition of FleetBoston Financial Corp., analysts said, adding that he had been considered a potential CEO for a long time. Moynihan came close to leaving BofA last year after turning down an offer to run its credit card unit in Delaware, they added (The Wall Street Journal Dec. 17) ... * Independent mortgage bankers and subsidiaries earned an average profit of $902 on each loan they originated in the third quarter, according to the Quarterly Mortgage Bankers Performance Report issued by the Mortgage Bankers Association (MBA). During the second quarter, profits averaged $1,358 per loan. The report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds. Production profits were still healthy in third quarter, “although not at the same level that we saw in the second quarter,” said Marina Walsh, MBA’s associate vice president of industry analysis. “For lenders in our study, average production volume dropped 33% … along with a drop in the refinancing share of total originations. The overall decline in production volume, combined with a heavier purchase share, resulted in higher per-loan production expenses, which pulled down production profits,” Walsh said. For the MBA report, use the link …

Market News (12/17/2009)

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MADISON, Wis. (12/18/09)
* For the eighth consecutive month, the index of U.S. leading economic indicators rose--this time a more than expected 0.9% in November, according to the Conference Board, a private research firm. Economists had forecast a 0.7% increase. This signals that economic growth will extend into the first half of 2010, analysts said. The gauge rose 0.3% in October. The coincident indicator--comprising nonfarm payrolls; industrial production; personal income, less transfer payments; and manufacturing and trade sales--rose 0.2% in November, a clear indication that the recession has ended and the recovery is becoming less fragile, the board said. However, the leading indicator suggests that the pace of recovery in coming months will be slow, the board added. “The nascent recovery is ending 2009 on a high note,” said Richard Dekaser, chief economist at Woodley Research Park in Washington. “The consumer is doing all right, housing is clearly in an upswing and business investment is improving” (Moody’s Economy.com and Bloomberg.com Dec. 17) … * For the week ending Dec. 12, initial claims for unemployment benefits increased for the second consecutive week, increasing by 7,000 to 480,000, said the Employment and Training Administration. Continuing claims edged up 5,000 to 5.186 million for the week ending Dec. 5. In general, unemployment insurance claims are consistent with gradual labor market improvement, the agency said (Moody’s economy.com Dec. 17). Since summer, unemployment claims have been on a downward trend--an improvement that is construed as a sign that job cuts are slowing and hiring could improve as soon as early next year, analysts said. Currently, the paramount problem is that companies remain hesitant to increase hiring, which is holding back the recovery, they added (The New York Times Dec. 17) … * Investor optimism in the economy grew in November, and a survey indicates that fund managers expect the good news on investors to continue into 2010 despite investors’ flight from bank stocks, said American Banker (Dec. 17). Investors see 2010 as year for mild inflation, moderate economic growth and good returns on global equities, according to the Bank of America Merrill Lynch Survey of Fund Managers released Wednesday. In November, about 80% of survey respondents said they expect the global economy to grow next year, compared with 69% who had that expectation in October. Also, investor expectations for corporate profits reached their highest level since December 2003 with 48% of respondents saying that companies are under-investing. At the beginning of 2009, most investors said companies were over-investing, said American Banker ... * U.S. personal income growth averaged 0.3% in the third quarter, following a 0.8% income increase for the second quarter, according to the Bureau of Economic Analysis. Even though overall income growth slowed, the composition of income was more encouraging because work earnings constituted most of the increase, as opposed to transfer payments--which made up most of the second-quarter increase, analysts said. Nationally, seven states experienced income declines. By U.S. regions, the fastest income growth was 0.6% in the Mid-Atlantic states, while the slowest growth was 0.1% in the Southeast (Moody’s Economy.com Dec. 17) … * Commercial/multifamily mortgage debt outstanding declined in the third quarter to $3.43 trillion, according to a Mortgage Bankers Association (MBA) analysis of the Federal Reserve Board Flow of Funds data. The $3.43 trillion debt was a decrease of $28 billion--or 0.8%--from the second quarter. Multifamily mortgage debt outstanding fell to $912 billion, a decline of $1 billion or 0.1% from second quarter. “Given its longer-term nature, the amount of commercial and multifamily mortgages outstanding has remained relatively stable through the credit crunch and recession,” said Jamie Woodwell, MBA vice president of commercial real estate research. “[The 0.8% decline for the quarter was] led by a $20 billion drop in the holdings of banks and thrifts.” For the MBA report, use the link …

News of the Competition (12/16/2009)

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MADISON, Wis. (12/17/09)
* The three biggest U.S. banks are getting ready for a comeback in the market for collateralized debt (loan) obligations (CLOs), which pools loans and divides them into securities of varying risk, and which are backed by high-risk, high-yield loans. Two years ago, issuance of CLOs nose-dived when credit markets froze up, analysts said. Now, Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are offering leveraged-loan managers terms for new CLOs following this year’s record rally in debt, said sources familiar with the discussions. The highest-rated segments of CLOs have risen to 89 cents on the dollar from a record low of 69 cents in April, according to data from Morgan Stanley. Losses on subprime mortgages at the end of 2007 caused investors to eschew bundled debt, causing the $440 billion market for CLOs to nearly disappear. New sales of CLOs could help companies finance $1.5 trillion of high-yield loans and bonds maturing by the end of 2014, analysts said (Bloomberg.com Dec. 15) … * In attempts to recruit financial advisers, UBS AG--the biggest Swiss bank--will offer bonuses to veteran financial advisers in the banks’ Americas wealth-management unit, said sources informed about the situation. UBS Wealth Management Americas will offer upper-echelon advisers up to 280% of their annual production to join the firm--if they met specific asset transfer guidelines--the sources said. The deal is an upgrade from UBS’ previous offer of 220%. However, the company had put its recruiting efforts on the shelf in recent months, analysts said (Dow Jones via American Banker Dec. 16 and Bloomberg.com Dec. 10) … * Flagstar Bancorp Inc.--the $14.8 billion asset, Troy, Mich.-based holding company for Flagstar Bank--announced Monday it intends to begin a rights offering for up to 704 million shares of its common stock. Under the offering, each stockholder of record on Dec. 24 will receive, at no charge, about 1.5 non-transferable subscription rights for each share of the company's common stock owned. Each right will entitle the holder to purchase one share of the company's common stock at the subscription price equal to the volume weighted average price of the last 30 trading days of $0.71 per whole share, Flagstar said. Even though the company raised nearly $620 million in capital this year, it will use the new offering to raise another $500 million. The new influx of capital is likely needed to satisfy regulators who limited the company’s ability to grow and imposed other restrictions, said American Banker (Dec. 16) …

Market News (12/16/2009)

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MADISON, Wis. (12/17/09)
* In November, the topline Consumer Price Index for urban consumers rose by a seasonally adjusted 0.4%, with a big increase in energy prices primarily driving overall higher prices, said the Bureau of Labor Statistics. This is the federal government’s most closely watched barometer of inflation, said The New York Times (Dec. 17). For the first time since February, the topline index is now up on a year-ago basis. Also, the core index was unchanged on a seasonally adjusted basis from October to November and has risen 1.7% during the past year. Inflation remains subdued and given the economy’s slack, core inflation will decrease in the near term, analysts said (Moody’s Economy.com Dec. 16) … * Signaling that the home-building recovery could carry into 2010, U.S. housing starts in November climbed 8.9% to an annual rate of 574,000, the Commerce Department said Wednesday. The multifamily component is sparking the gains, but the single-family component rose by a substantial 2.1%, said Moody’s Economy.com (Dec. 16). Building permits, which indicate future construction, rose 6% in November to the highest level in a year. “Builders are getting back on track to building homes again,” said Patrick Newport, U.S. economist for IHS Global Insight. “The inventory number is so low that unless they continue ramping up production, they’re going to lose sales,” he said. In coming months, lower home prices, government tax credits and borrowing costs near record lows could spark home sales, analysts said (Bloomberg.com Dec. 16 and The New York Times (Dec. 17) … * Mortgage loan application volume for the week ending Dec. 11 increased 0.3% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index released Wednesday by the Mortgage Bankers Association (MBA). The index declined 0.3% on an unadjusted basis compared with the previous week. The Refinance Index rose 0.9% from the previous week, and the seasonally adjusted Purchase Index dropped 0.1% from one week earlier. The unadjusted Purchase Index decreased 3.6% compared with the previous week and was 15.4% lower than the same week one year ago. For the MBA report, use the link … * In the third quarter, the U.S. current account deficit widened by 10.2% to $108 billion from a revised second-quarter deficit of $98 billion--previously $98.8 billion, according to the Bureau of Economic Analysis. Moody’s Economy.com had anticipated a similar narrowing to $109 billion. Also, the U.S. trade deficit widened in the third quarter to $97.4 billion from $82.1 billion. The surplus on income widened by $600 million to $34.8 billion. U.S. financial markets, which had been severely hurt in the financial crisis, are recovering more quickly than imports and exports, analysts said (Moody’s Economy.com Dec. 16) …

News of the Competition (12/15/2009)

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MADISON, Wis. (12/16/09)
* Wells Fargo & Co. will use a stock offering to help fund its repayment of the $25 billion it received in Troubled Asset Relief Program (TARP) investment from the U.S. government. The company said Tuesday it had priced a $10.65 billion offering of 426 million common shares at $25 per share and will use the proceeds for the government repayment. Underwriters will have a 30-day option to buy an additional 63.9 million shares of common stock from Wells Fargo to cover overallotments, analysts said. The company was the last of the original group of banking behemoths to agree to pay back TARP money (MarketWatch Dec. 14) … * The federal regulator representing Fannie Mae and Freddie Mac is renegotiating the government-sponsored enterprises’ (GSE) financing rescue plan with the U.S Treasury Department. The two GSEs--which are the largest source of mortgage money in the U.S.--may seek an increase to their $400 billion federal aid package before the end of the year, said sources familiar with the situation. Officials at the Treasury and Federal Housing Finance Agency also are considering whether to lower the cost of the GSEs’ dividend payments of their Treasury borrowings, according to the sources. Fannie and Freddie said their 10% annual dividend payments--which total about $5 billion apiece--cost more than either have earned in most years and contribute to their draws on the Treasury (Bloomberg.com Dec. 15) … * Lower interest rates and less trading led Charles Schwab Corp.--the biggest independent U.S. brokerage by client assets--to forecast less profit in the fourth quarter than originally estimated. Fourth-quarter earnings--excluding some items--will be roughly 13 cents to 15 cents per share, the company said Monday. Analysts had forecast 17 cents per share--the average projections in a Bloomberg survey. Schwab said it intends to waive about $108 million in fees on its money market funds--up from a previous forecast of about $100 million. “Continued declines in the rate environment have led to heightened revenue pressures … and client trading volumes have slowed in recent weeks,” said Joe Martinetto, the company’s chief financial officer ( Bloomberg.com and Reuters Dec. 14) … * Even though Citigroup Inc. has announced a plan to repay $20 billion in Troubled Asset Relief Program funds to U.S. taxpayers and canceled a loss-sharing agreement with the government on more than $300 billion of loans and securities, some in the financial industry have doubts, reported American Banker (Dec. 15). Only “explicit support” for the banks is being transferred to the private sector, and if the government has to intervene again to help Citi, the burden will be placed squarely back on U.S. taxpayers, the publication said …

Market News (12/15/2009)

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MADISON, Wis. (12/16/09)
* U.S. wholesale prices rose more than expected in November because of an uptick in fuel costs and a bounce-back in truck prices, analysts said. The 1.8% November increase in prices paid to factories, farms and other producers was more than twice the size expected and followed a 0.3% rise in October, the Labor Department said Tuesday. Core prices--excluding food and fuel--exceeded the median estimate of a Bloomberg News survey of economists. For the second consecutive month, prices for energy products quickly increased across all levels of processing. Rising prices for gasoline, natural gas and jet fuel caused most of the change, analysts said. Even as the economy recovers, near-record capacity and a jobless rate that is projected to average 10% in 2010 could keep suppliers from passing on a rebound in commodity costs, economists said. Inflation expectations will likely remain “subdued” in coming months, which will allow Federal Reserve policymakers to keep interest rates low, analysts said (Bloomberg.com and Moody’s Economy.com Dec. 15) … * November U.S. industrial production rose the most in three months, signaling that the world’s biggest economy is picking up momentum going into 2010, reported Bloomberg.com (Dec. 15). Output at factories, utilities and mines increased 0.8% after remaining flat in October, the Federal Reserve said Tuesday. The 1.1% November rise in manufacturing output--both for total manufacturing and for manufacturing excluding vehicle production--was encouraging, analysts at Moody’s Economy.com (Dec. 15) said. A positive turn in the inventory cycle is propelling growth in manufacturing, and improved domestic and foreign demand also is playing a positive role, they said. “We’ll continue to see growth in manufacturing output, given strong exports and that consumers are spending,” said Michael Feroli, an economist at JPMorgan Chase & Co. told Bloomberg. “You’re seeing a decent amount of breadth in terms of increases” … * International demand for long-term U.S. financial assets in October dropped to $20.7 billion from $40.7 billion in September. The decline was caused by recovery in key emerging-market countries such as Brazil, China and India; lowered investor risk aversion, which drove up equity markets in the countries; and lowered safe-haven interest in U.S. financial assets, analysts said. Net foreign purchases of U.S. foreign securities fell to $3.4 billion in October from $55.7 billion in September because private foreign investors reduced their net purchases, they added. “Global investors still remain wary of equities, and continue to seek the relative safety of all fixed-income investment products including Treasuries,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York (Moody’s Economy.com and Bloomberg.com Dec. 15) ... * Although Latinos are the fastest-growing segment of the U.S. work force, they are among the least likely to take advantage of employer-sponsored retirement plans, American Banker (Dec. 15) reported. The situation creates some problems for 401(k) plan providers because demographics indicate that the Latino market should engender significant business for plan providers, the article said. However, the Latino population is less inclined than whites or Asians to participate when such plans are offered. Latinos constitute 14% of the U.S. work force and predicted to be one-third of it by 2050, according to “Insecure Retirements: Latino Participation in 401(k) Plans,” a report released last week by the National Council of La Raza--the biggest national Hispanic civil rights and advocacy organization. To obtain higher Latino participation rates, companies need to communicate with employees in their own language, and use one-on-one counseling, industry experts said …

News of the Competition (12/14/2009)

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MADISON, Wis. (12/15/09)
* Citigroup Inc., the biggest U.S. bank bailout recipient, has made a deal with federal regulators to repay $20 billion to taxpayers. Citi will circumvent government-imposed pay restrictions, and raise the funds with a sale of $20.5 billion of equity and debt. Citi also said it intends to substitute “substantial common stock” for cash compensation. Citi is the only major U.S. lender still dependent on what the government dubs “exceptional financial assistance,” analysts said (Bloomberg.com Dec. 14) … * The Obama Administration’s special master for executive pay for has set $500,000 salary limits for companies that accepted “exceptional” U.S. bailout funds. Kenneth Feinberg announced the limits Friday. They will affect American International Group, Citigroup Inc., General Motors Co. and GMAC Inc. The limits govern 2009 compensation for the 26th through 100th highest-paid workers at the companies, analysts said. The limits apply only for the remainder of 2009 and likely will affect annual bonuses, Feinberg said. Roughly 12 of 450 affected workers are exempt from the caps, he added (Bloomberg News via American Banker Dec. 14) … * The Federal Deposit Insurance Corp. (FDIC) seized three more banks Friday, bringing the total for U.S. failed banks in 2009 to 133. The three failures--which occurred in Arizona Florida and Kansas--are expected to cost the FDIC’s deposit insurance fund about $252 million. In Friday’s actions, regulators seized $433 million asset Republic Federal, Miami, and sold it to 1st United Bank, Boca Raton, Fla.; sold $40 million asset Valley Capital Bank, Mesa, Ariz., to Enterprise Bank & Trust, Clayton, Mo.; and shut down $511 million asset Solutions Bank, Overland Park, Kan., and sold it to Arvest Bank, Fayetteville, Ark. (emii.com and The Associated Press Dec. 14) … * James Gorman--Morgan Stanley’s new CEO, who assumes his duties next month--is continuing to revamp management by naming Greg Fleming, a former Merrill & Co. colleague, to head up investment management and research at Morgan Stanley, announced the firm Sunday. Fleming begins his new duties in February as president of Morgan Stanley Investment Management. He will report to Gorman, who begins his duties as CEO Jan. 1. Fleming, who worked at Merrill from 1992 until January when Bank of America took over the company, will become a member of the management and operating committees, Morgan Stanley said (Bloomberg.com Dec. 14) …

Market News (12/14/2009)

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MADISON, Wis. (12/15/09)
* In recent weeks, worldwide economic data have taken on a more optimistic tone, according to Moody’s Economy.com Survey of Business Confidence. However, the global economy remains mired in a tentative global economic recovery, analysts said. All of the survey responses--especially those outside the U.S.--retreated a little last week. Although they have significantly improved since the beginning of the year, hiring intentions turned negative last week--remaining consistent with more job losses, analysts said. Also, sales and inventories remain soft. Businesses remain positive about the economic outlook heading into spring--with sentiment more positive in South America and among professional and business-service firms, said Moody’s Economy.com (Dec. 14) … * Beginning in 2012, new rules will judge colleges on how many borrowers default on federal student loans. Colleges will be assessed on how many of their students default within three years of starting loan repayments--with the new threshold default rate for penalties set at 30% instead of the current 25%, analysts said. At present, colleges with default rates over 25% for three straight years can be disqualified from the federal student loan program. Some experts argue that colleges are manipulating the figures. More than one in five borrowers of federal student loans who attend commercial colleges default within three years of beginning repayment, according to the Department of Education (The New York Times Dec. 14) …

News of the Competition (12/11/2009)

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MADISON, Wis. (12/14/09)
* U.S. taxpayers could receive $1.1 billion to $1.3 billion for Bank of America (BofA) warrants that the Treasury Department demanded in exchange for bailout money, analysts said. Nomura Securities International Inc. provided the estimate. “This sale will be among the biggest,” said Bernard Chriqui, Nomura vice president of equity derivatives. Analysts said the company could adjust the range after results are reported from Thursday’s actions for warrants from JPMorgan Chase & Co.--the second biggest U.S. lender behind BofA. The Treasury is being compelled to obtain higher prices for warrants it holds in bailed out lenders, because Congress said early buybacks shortchanged the U.S. when the Treasury sold warrants at 66% of their fair value, analysts said (Bloomberg.com Dec. 11) … * Questions are being raised about Citigroup’s behind-the-scenes attempts to repay $20 billion in Troubled Asset Relief Program (TARP) funds and the conditions under which it would be permitted to do so, analysts said. Among the questions are: Would Citi’s repayment of TARP money require Citi to raise an equivalent amount of capital from private markets? Would Citi be able to get by with only raising $10 billion or $15 billion? Would investors be willing to invest money in Citi the way they did at Bank of America? Citi declined to comment, analysts said (American Banker Dec. 11) …

Market News (12/11/2009)

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MADISON, Wis. (12/14/09)
* In a sign that consumer spending is picking up momentum heading into 2010, U.S. retail sales rose more than predicted in November, the Commerce Department said Friday. November’s 1.3% rise followed a 1.1% gain in October that was smaller than previously estimated, analysts said. November purchases, excluding autos, increased 1.2%--more than anticipated and the biggest jump since January, analysts added. “Consumers are no longer in hunkering-down mode because they are feeling a little better about the economic situation,” said Michael Moran, chief economist at Daiwa Securities America Inc. “It’s positive for the economy over the next couple of quarters. This is an unwinding of very sharp cuts. We need to see better job growth to get sustained gains” (Bloomberg.com Dec. 11) … * For the first time in three months, U.S. consumer confidence rose in December because the pace of job cuts diminished, easing concerns that spending will be stymied, analysts said. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 73.4--higher than forecast--up from 67.4 in November. Improved sentiment could help boost spending and support the economic recovery going into 2010, analysts said. “Consumers are clearly showing some willingness to spend,” said Avery Shendfeld, chief economist at CIBC World Markets. “[The rise in confidence is] consistent with the modest improvement we’ve seen in the pace of layoffs and the payrolls data.” However uneven retail sales in coming months--until companies begin hiring again--could limit the economy’s ability to grow, analysts said (Bloomberg.com Dec. 11) …

News of the Competition (12/10/2009)

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MADISON, Wis. (12/11/09)
* Bank of America (BofA) said Wednesday it has repaid the $45 billion to the Treasury Department it owed U.S. taxpayers as part of the Troubled Asset Relief Program (TARP). BofA financed the repayment, using cash on hand and proceeds from the sale of $19.3 billion of securities that would convert to common stock, analysts said. The stock increase is subject to shareholder approval. Citigroup Inc. and Well Fargo & Co. are the only large banks remaining in TARP (USA Today and American Banker Dec. 10) ... * Wells Fargo & Co.’s intention to repay $25 billion in government bailout funds it received could be hampered by one of it debts, analysts said. Wells Fargo owes $5 billion to Prudential Financial Inc.--a debt that could deplete the banking company’s cash or dilute current shareholders, analysts said. Wells Fargo must pay Prudential for a 23% stake in Wells' securities brokerage unit. The stake could be purchased by cash or sock around Jan. 1, according to information from Prudential’s third-quarter filing. Wells is likely to use shares, most analysts said. The dilemma is a result of a deal made in 2003 in which Prudential and Wachovia Corp. combined retail brokerages in a joint venture, analysts said. Under conditions of the deal, Prudential could sell its stake in Wachovia--an obligation it transferred to Wells Fargo when it bought Wachovia in 2008, analysts said (Bloomberg News via American Banker Dec. 10) … * With the economy in the process of recovery, some of the large U.S. banks are looking for failed-bank deals to propel them into new markets or to strengthen their positions in areas in which they already have a presence, industry analysts said. Bryan Jordan, CEO of First Horizon National Corp., said because the economy is doing better now, he is more interested in consummating a deal. Ralph W. Babb, CEO of Comerica, said it would consider acquisitions that put it in favorable areas in California and Texas. The regional banking market is splitting between those that have the capital and inclination to make deals and those that don’t, said Frank Barkocy, director of research with Mendon Capital Advisors. There will be substantially more consolidation in the banking industry going forward, he added (American Banker Dec. 10)...

Market News (12/10/2009)

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MADISON, Wis. (12/11/09)
* In a sign that companies are growing more confident as the economy recovers, U.S. claims filed for jobless benefits declined on average during the past four weeks, the Labor Department said Thursday. Last week, the four-week average decreased to a one-year low of 473,750 from 481,500. The more volatile initial jobless claims unexpectedly increased by 17,000 to 474,000 in the week ended Dec. 5. Because of the loss of 7.2 million U.S. jobs since the recession began in December 2007 and more stabilizing demand for goods and services, companies are less likely to make large staff cuts, analysts said. The uptick in the four-week figure portends prospects of job creation that will boost consumer spending and the economic recovery, they added. “This is consistent with only moderate job losses and a very strong signal that firing is tapering of,” said Zach Pandl, an economist at Nomura Securities International Inc. “A gradual improvement in the labor market is going to be positive for consumer spending” (Bloomberg.com Dec. 10) … * Because U.S. exports jumped to their highest level in nearly a year, the trade deficit unexpectedly narrowed in October, analysts said. A weaker U.S. dollar is expected to boost demand for American manufactured goods and provide key strength to the overall economic recovery, analysts added. In October, the trade deficit dropped to $32.9 billion--7.6% below a revised September deficit of $35.7 billion, the Commerce Department said. Economists had anticipated that the deficit would rise to $36.8 billion. The gain reflected a $3.2 billion--or 2.5% jump--in exports, sparked by significant upticks in sales of aircraft, autos, farm products and industrial machinery (The New York Times Dec. 11). “There is a recovery going on in the rest of the world that’s helping boost our exports,” said Jay Bryson, global economist at Wells Fargo Securities LLC. “That gets you off to a pretty good start in terms of growth. Imports are not collapsing anymore, and I think that reflects some bounce in U.S. demand as well” (Bloomberg.com Dec. 10) …

News of the Competition (12/09/2009)

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MADISON, Wis. (12/10/09)
* JPMorgan Chase & Co. plans to hire 1,200 bankers and open roughly 120 branches by the end of 2010 to expand its retail banking operations, Jamie Dimon, JPMorgan chairman/CEO, said Tuesday. The company said it sees "some initial signs of stability in consumer delinquency trends, but we are not certain if this trend will continue." However, that by itself "is good news," Dimon said during a Tuesday presentation in New York. Consumer and credit-card lending businesses have been "doing really poorly," and losses are deeper than expected, even when taking current unemployment rates into consideration, Dimon added (Dow Jones Newswires via American Banker Dec. 9) … * As part of the British government’s efforts to bolster its weak economy, a one-time tax on bank bonuses was announced by Alistair Darling, the chancellor of the Exchequer. British banks will be charged a 50% tax on 2009 bonuses of more than $40,800. The tax will be levied on the pool of bonuses paid by a bank, instead of individual payments, analysts said. Also, the bank--not the recipient of the bonus--will pay the tax, which will take effect immediately and will impact the 2009 profit of banks, analysts said. The tax is the most direct attack on bank bonuses worldwide, and will affect all banks in Britain, they added (The New York Times Dec. 9) …

Market News (12/09/2009)

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MADISON, Wis. (12/10/09)
* For the week ending Dec. 4, U.S. mortgage loan application volume--as measured by the Market Composite Index--increased 8.5% on a seasonally adjusted basis from one week earlier, according to the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 54%, compared with the previous week--which was shortened because of Thanksgiving. The Refinance Index rose 11.1% from the previous week, and the seasonally adjusted Purchase Index increased 4% from one week earlier. The unadjusted Purchase Index jumped 41.7% compared with the previous week and was 18.8% lower than the same week one year ago. The increase in purchase applications reflected a 10% rise in Government Purchase applications and a 0.2% decrease in Conventional Purchase applications--both on a seasonally adjusted basis, MBA said … * Credit card issuers have an untapped opportunity in the form of the 75 million Americans who are retired or nearing retirement age, said Corporate Insight Inc.--a New York-based market research firm. There is a paucity of rewards-based credit cards created for affluent retirement-age consumers, the company said. "Retirees are one of the fastest-growing demographics in America, with tremendous spending power. Yet, there are surprisingly few products designed for this niche," said Doug Miller, Corporate Insight's senior analyst for banking and cards."If you look at the number of people set to retire over the next decade, there seems to be an opportunity for the more ambitious and inventive card issuers to offer rewards programs tailored for this group" (CardLine Via American Banker Dec. 9) … * In the third quarter, U.S. home prices rose 0.9% after an upwardly revised 2% gain in the second quarter, Freddie Mac said Tuesday. Also, two of the seven U.S. regions tracked recorded sequential increases, Freddie added. The gains during those six months reflect higher sales volume--up 15% between the first and third quarters--and erased nearly 40% of the price declines the previous two quarters, said Frank Nothaft, Freddie's chief economist. Freddie's Conventional Mortgage Home Price Index, which excludes all refinancings, was down 3.9% year over year in the third quarter. "The lowest average fixed-rate mortgage rates in a half century, lower house prices, incentives to encourage first-time buyers and loan modification efforts to stem foreclosures have worked together to support sales and reduce the inventory of unsold homes," Nothaft said (Dow Jones Newswires via American Banker Dec. 9) …

News of the Competition (12/08/2009)

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MADISON, Wis. (12/9/09)
* The federal government told Bank of America (BofA) it must decide by June 30 which of its businesses it can shed. According to terms of the deal BofA made last week with the Federal Reserve Board to pay back the $45 billion it received from the Troubled Asset Relief Program, the bank must bolster its common equity by $4 billion through the sale of its assets. Analysts speculate that BofA may sell its stake in money manager Black Rock, in a Brazilian bank and in its U.S. Trust Corp. wealth management unit (Dow Jones Newswires via American Banker Dec. 8) … * The U.S. credit card delinquency rate is forecast to decrease to 1.04% by the end of 2010 from 1.07% at the end of 2009, according to a TransUnion survey released Tuesday. The rate is predicated on the ratio of borrowers who are at least 90 days past due on one or more of their credit cards, analysts said. The predicted decrease is less than in previous years, which indicates that consumers may be doing the best job they can in dealing with their delinquencies in the current economic environment, said Ezra Becker, TransUnion’s financial service group director of consulting and strategy (USA Today Dec. 8) …

Market News (12/08/2009)

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MADISON, Wis. (12/9/09)
* In October, U.S. consumer credit decreased less than forecast, which is an indication that the financial crisis is abating and that consumers are more confident the economic recovery and expansion is in place, analysts said. Credit dropped by $3.51 billion--or at annual rate of 1.7%--to $2.48 trillion, according to a Federal Reserve Report issued Monday. Economists had predicted consumer credit would drop by $9.4 billion in October, according to the median forecast of 34 estimates in a Bloomberg News survey, with projections ranging from decreases of $4 billion to $15 billion. Revolving debt in October, such as a credit cards--dropped by $6.95 billion, according to Federal Reserve statistics. Although government spending helped mitigate the worst recession since the 1930s, consumer spending--which accounts for 70% of the economy, will provide more of a boost to the economic recovery, analysts said (Bloomberg News via American Banker Dec. 8) ... * Because of rising unemployment and landlords laboring to keep tenants, third-quarter delinquencies on commercial mortgage-backed securities (CMBS) rose to record levels, analysts said. CMBS loans at least 30 days past due increased to 4.06% from 1.17% a year earlier, the Mortgage Bankers Association (MBA) said Monday. That’s the highest level since MBA began tracking the data in 1997. Roughly 3.43% of bank-owned loans on apartment buildings, offices, shopping centers and other income-producing properties were at least 90 days past due--up from 1.38% a year earlier, MBA said (Bloomberg News Dec. 8) …

News of the Competition (12/07/2009)

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MADISON, Wis. (12/8/09)
* Four more U.S. banks failed Friday, bringing the total this year to 129, according to press releases from the Federal Deposit Insurance Corp. (FDIC). Closing Friday were: AmTrust Bank, Cleveland, Ohio; Greater Atlantic Bank, Reston, Va.; Benchmark Bank, Aurora, Ill., and The Tattnall Bank, Reidsville, Ga. The Office of Thrift Supervision appointed the Federal Deposit Insurance Corp. as receiver for all four banks. A purchase and assumption agreement was entered into with all four banks as follows: AmTrust with New York Community Bank, Westbury, N.Y.; Greater Atlantic with Sonabank, McLean, Va.; Benchmark with MB Financial Bank, National Association, Chicago; and The Tattnall with Heritage Bank of the South, Albany, Ga. … * U.S. bankruptcy filings rose 19.6% from a year earlier, court records indicate, because the recession and job cuts caused more Americans to seek protection from their creditors, analysts said. Total filings for individuals and companies in the month rose to 115,000, according to data tallied by Automated Access to Court Electronic Records. So far this year, there have been 1.3 million bankruptcies, the company’s figures show. The largest number of bankruptcy filings per capita were in Nevada, followed by Tennessee and Georgia. States with the fastest-rising bankruptcy rates were Nevada, Arizona and California (Delawareonline.com Dec. 5) …

Market News (12/07/2009)

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MADISON, Wis. (12/8/09)
* In a sign that retailers may be expecting a gradual recovery in consumer spending, November hiring by U.S. discount, grocery, restaurant and retail chains rose to the highest level of 2009, according to a monthly survey. In November, 3.87% of job applications resulted in hires, according to seasonally adjusted figures tallied by software maker Kronos Inc. After 10 consecutive months of increases, job applications dropped to 1.27 million last month--the lowest level since March, the company said Monday. Kronos analyzed 68 companies with 27,034 U.S. stores for the survey. “[Retailers] weren’t sure how good or bad this year would be,” said Robert Yerex, Kronos chief economist. “There’s still a little bit of shell shock from 2007 and 2008, when retailers were caught with a lot of people on their staff, a lot of product inventory, but a difficult time selling it” (Bloomberg.com Dec. 7) … * Delinquency rates continued to increase in the third quarter for most commercial/multifamily mortgage investor groups, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. “Commercial and multifamily mortgages continued to feel stress in the face of the weakened economy,” said Jamie Woodwell, MBA vice president of commercial real estate research. “The deterioration in commercial and multifamily loan performance is generally in line with what is being seen in other parts of the economy, with loans backed by commercial properties continuing to perform far better than construction and development loans.” Construction and development loans are not included in the numbers, but are included in many regulatory definitions of “commercial real estate” despite the fact that they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers or other income-producing properties, MBA said. For the MBA report, use the link …

Market News (12/04/2009)

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MADISON, Wis. (12/7/09)
* November U.S. payroll figures were significantly stronger than expected, declining by only 11,000 workers, according to the Bureau of Labor Statistics. Big gains in business services--especially temporary services, which rose 51,000 in November --and smaller declines in other industries drove the surprising results, analysts said (Moody’s Economy.com and The Wall Street Journal Dec. 4). The November job cuts were the fewest since the recession began. This, along with the unemployment rate’s unexpected drop to 10% from 10.2%, signals the economic recovery is pulling the labor market out of the worst downturn since World War II (Bloomberg.com Dec. 4). The November employment report takes some pressure off of President Barack Obama to plan a wide-ranging jobs creation program (The New York Times Dec. 5) … * The U.S. future inflation gauge (FIG) increased to 95.7 in November from 93 in October, marking a slow, steady upward pace for the past eight months, according to the Economic Cycle Research Institute (ECRI). In November, the smooth annualized rate increased to 26.8% from 20.2%. A recent sustained upturn in the FIG suggests deflation is not a near-term concern, ECRI said. In a related matter, the ECRI Weekly Leading Index rose to 129.5 for the week ending Nov. 27, from a revised 128.9--previously 129.8--the prior week. Turning points in the measure are meant to lead changes in the business cycle, ECRI said (Moody’s Economy.com Dec. 4). * U.S. manufacturing orders rose 0.6% in October and shipments increased 0.8%, with both measures exceeding expectations, according to the U.S. Census Bureau. In a sign that the investor cycle is supporting growth substantially, inventories increased 0.4%, analysts said. The report had no noteworthy revisions to core capital goods orders and shipments, which indicates the upturn in capital spending seen in the middle part of 2009 may be slowing (Moody’s Economy.com Dec. 4) …

News of the Competition (12/04/2009)

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MADISON, Wis. (12/7/09)
* In the first Treasury Department auction to reward taxpayers for helping rescue the U.S. financial system, Capital One Financial Corp. warrants sold for $146.5 million. The 12.7 million warrants given to Treasury’s Troubled Asset Relief Program in 2008 sold for $11.75 apiece, the department said Friday. The closing is scheduled for Wednesday, the Treasury said, adding that the auction concluded the department’s remaining investment in Capital One. Treasury demanded warrants from banks that accepted bailout funds as part of the price for helping them during the credit crisis. The warrants allow investors to buy common shares in the credit card lender at $42.13 until Nov. 14, 2018, analysts added (Bloomberg.com Dec. 4) … * Citigroup Inc.’s plans to repay $20 billion of remaining bailout funds are being hindered by the Treasury Department’s refusal to sell its 34% stake in the bank, said sources familiar with the situation. Citigroup executives are frustrated because they can’t sell stock to raise money for repayment until the Treasury indicates how and when it will sell the 7.7 billion shares, the sources said. Because a Treasury sale could force the price down, investors may be hesitant to buy shares, analysts said (Bloomberg.com Dec. 4) ...

Market News (12/03/2009)

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MADISON, Wis. (12/4/09)
* U.S. worker productivity in the third quarter was revised downward to an annual rate of 8.1% from 9.5% growth in a preliminary estimate, the Labor Department said Thursday. The revision was made because workers earned more money and output increased at a slower pace, analysts said. The quarter’s measure of non-farm productivity is still the quickest pace since third quarter 2003, analysts said. A smaller increase in output caused the revision, they added. With the revision, unit-labor costs fell 2.5% in the quarter, compared with a previously reported 5.2% decline. Because the U.S. economy is coming out of recession, productivity growth is strong with no inflationary pressures coming from the labor market, analysts said. Declining labor costs are sparking profits, they added (Moody’s Economy.com Dec. 3 and The New York Times Dec. 4) … * For the week ending Nov. 28, initial claims for unemployment benefits dropped by a surprising 5,000 to 457,000, according to the Employment and Training Administration. An increase in claims had been anticipated because of a large decline the prior week, analysts said. However, the good news should be taken with the caveat that holidays--in this instance Thanksgiving--generally cause claim numbers to be more volatile, analysts said. In the meantime, continuing claims rose 28,000 to 5.465 million for the week ending Nov. 21. In a related matter, the Monster Employment Index--which tracks online help-wanted ads placed by U.S. employers--decreased by one point from October to November, falling to a level of 119, because businesses made few preparations to expand their payrolls in November, analysts said (Moody’s Economy.com Dec. 3) … * U.S. credit card defaults are surging toward record highs reached earlier this year because more consumers fell behind on credit card payments in October when the unemployment rate stretched beyond 10%, Fitch Ratings said Wednesday. In October, loans at least 30 days past due--a measure of future write-offs--increased to 5.83%, compared with 5.62% in September, Fitch said. “Cardholder defaults will retest recent highs as we head into the new year,” said Fitch analyst Michael Dean in a press release. “Consumer credit quality remains under significant strain as a result of the persistent weakness in the labor markets,” he said. U.S. unemployment, which reached a 26-year high of 10.2% in October, will reach it zenith at 10.3% in the second quarter next year and remain above 10% throughout 2010, Fitch said. Credit card defaults, which dropped in October to 10.09%, from 10.75% in the prior month, may do an about-face and rise toward the record 11.52% set in August, Fitch said. Banks typically write off loans after 180 days (Bloomberg News Dec. 3) … * U.S retail store sales in November improved over November 2008 sales, but were well below the highs of two to three years ago, analysts said. The retail industry overall posted a 0.5% increase in comparable sales in November from a year ago, when sales decreased by 7.8%, according to Thomson Reuters. For the month, analysts had anticipated a 2.1% increase. Big sales on Black Friday aided the November results as did comparisons to November 2008--when consumers slashed spending as the financial crisis developed, analysts said (The New York Times Dec. 4). In a related matter, e-commerce sales on Cyber Monday--the Monday after Thanksgiving--rose 5%, compared with sales on that day last year. The day’s sales match the single-day record for online shopping, analysts said (The Wall Street Journal Dec. 3) …

News of the Competition (12/03/2009)

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MADISON, Wis. (12/4/09)
* A strong U.S. government campaign to lessen borrowing costs caused the average interest rate for a 30-year mortgage to fall to a record low of 4.71% this week, analysts said. The rate is the lowest since 1971, when Freddie Mac began recording such data. The Federal Reserve is injecting $1.25 trillion into mortgage-backed securities to lower mortgage rates. However, those funds will be depleted by next spring. The interest rate’s previous record of 4.78% was set during the week of April 30 and also was matched last week (The New York Times Dec. 3) … * Bank of America (BofA) will repay $45 billion in federal bailout funds and avoid paying any restrictions and other curbs imposed by the U.S. government in a deal struck with the Treasury Department. The Wednesday announcement indicates that BofA will be the first of seven companies to return the large “exceptional” taxpayer-funded bailouts, analysts said. The deal was mostly negotiated by Gregory Curl, BofA chief risk officer and a potential candidate to succeed Kenneth Lewis as CEO of the largest U.S. bank by assets, analysts said (The Wall Street Journal Dec. 3) … * The European Central Bank (ECB) will implement measures to gradually tighten easy credit, which kept some banks solvent during the past year. In its Thursday announcement, the ECB--in a unanimous decision by its policymakers--also said it is leaving its key interest rate unchanged for now because of high uncertainty about the recently emerging economic recovery. The current 1% rate, which has been in effect since May, remains “appropriate,” said Jean Claude Trichet, ECB president, signaling there would be no rate increase soon (The New York Times Dec. 4) …

Economy sees modest improvement says Fed Beige Book

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WASHINGTON (12/3/09)--The nation's economy generally "improved modestly" during late October and November, the Federal Reserve said Wednesday in its Beige Book report on the economy. The 12 Federal Reserve Districts reported moderate gains in consumer spending, manufacturing and housing. However, commercial real estate conditions were characterized as "very weak and, in many cases, deterioriating." Eight of the 12 districts reported that the economy has improved since mid-October. The remaining four districts--Philadelphia, Cleveland, Richmond and Atlanta--indicated conditions that were little changed and/or mixed. Consumer spending picked up moderately, for both general merchandise and vehicles, with several districts noting "relatively robust sales" of used cars. Manufacturing conditions were steady to moderately improving across most of the country, with conditions in the nonfinancial services sector strengthened somewhat. Residential real estate conditions were somewhat improved from very low levels, led by the lower end of the market, said the report's summary. Most districts reported pickup in home sales; however, prices were general flat or declining modestly. Residential construction was weak, but some districts saw activity pick up. Financial institutions reported steady to weaker loan demand, continued tight credit standards, and steady or deterioriating loan quality. Labor markets stayed weak, with more layoffs, sluggish hiring, and high levels of unemployment. The report is prepared at the Federal Reserve Bank of New York and is based on information collected by Nov. 20 by the 12 Federal Reserve Districts. To access the full report, use the resource link.

News of the Competition (12/02/2009)

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MADISON, Wis. (12/3/09)
* American International Group (AIG) Tuesday took a step toward mitigating its huge debt by completing a plan to give the Federal Reserve Bank of New York a $25 billion stake in two of its large foreign life-insurance subsidiaries, analysts said. The so-called debt-for equity swap provides AIG some relief because it was at risk of having its credit rating downgraded if the deal had not been finalized, analysts said. Also, the move pares down the New York Fed’s risk of not being repaid for its bailout assistance to AIG in case the company’s trouble continues. The move gives the New York Fed first claim to proceeds from any potential sale of two of AIG’s profitable and mostly independent businesses, analysts said (The New York Times Dec. 2) … * European Union (EU) finance ministers attained a compromise in refashioning Europe’s financial supervision with a new group of regulators, said Christine Lagarde, France’s finance minister. In the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy a year ago, the EU is looking to overhaul its system of financial supervision, analysts said. Lehman’s bankruptcy aggravated a worldwide financial crisis that forced European governments to support banks by spending, lending or guaranteeing more than $5 trillion. A European Commission proposal would create an economic-risk watchdog spearheaded by central bankers and new EU agencies to watch over banks, insurers and investment firms, analysts said. Finance ministers had disagreed over how much authority the new supervisors should have, they added (Bloomberg.com Dec. 2) … * AmTrust Financial Corp., the parent company of AmTrust Bank, Monday filed for Chapter 11 bankruptcy protection, citing the downturn in the U.S. construction and housing markets as a key factor, according to court papers. However, Cleveland-based AmTrust Bank was not part of the court filings and will continue its business operations, analysts said. Holding company AmTrust Financial Corp. listed assets of $11.7 billion and debts of $1.5 billion (Reuters and Dow Jones Newswires via American Banker Dec. 2) … * With vacancies rising and rents declining, commercial mortgage defaults on loans held by U.S. banks more than doubled to 3.4% in the third quarter, said Real Estate Econometrics LLC. Default rates rose from 2.88% in the second quarter and 1.37% from a year earlier, the property research firm said in a Monday report. For the first three quarters of 2009, default rates have been the highest since 1993, the firm said. “Mortgages originated in 2006 and 2007 are experiencing the most significant shortfalls in current cash flow relative to current debt-service obligations,” Sam Chandan, the firm’s chief economist, said in the report (Bloomberg.com Dec. 1) …

Market News (12/02/2009)

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MADISON, Wis. (12/3/09)
* For the fourth consecutive month, the number of U.S. job cuts continued to decline in November, according to a report by Challenger, Gray and Christmas Inc. In November, the number of workers losing their jobs was 50,349--down from 55,679 in October and at the lowest level since December 2007. Job cuts have abated in most sectors--particularly ones that aggressively cut jobs earlier in the year such as automotive, industrial goods and government/nonprofit, analysts said (Moody’s Economy.com Dec. 2). A separate private employment report based on payroll data released Wednesday by ADP Employment Services indicates U.S. companies cut an estimated 169,000 jobs in November. The decline---the smallest since July 2008--compares with a revised 195,000 drop the previous month, ADP said. The report indicates the job market is still eroding and unemployment likely will rise more--even though the economy is coming out of the worst recession since the 1930s, analysts said. “We’re going to see job losses extend well into 2010,” said Ryan Sweet, a senior economist at Moody’s Economy.com. “The labor market is crawling toward stabilization. We need the labor market to improve to generate the wage income necessary to support spending,” Sweet added (Bloomberg.com Dec. 2) … * For the week ending Nov. 27, mortgage loan application volume rose 2.1% on a seasonally adjusted basis from one week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Market Composite Index decreased 29.3% compared with the previous week. The Refinance Index increased 1.7% from the previous week, and the seasonally adjusted Purchase Index rose 4.1% from one week earlier. The results include an adjustment for the Thanksgiving holiday. The unadjusted Purchase Index decreased 30.4% from the previous week and was 34.9% lower than the same week one year ago. For the MBA survey, use the link … * General Motors (GM) Tuesday asked CEO Fritz Henderson to resign immediately. Henderson was replaced by GM chairman Edward E. Whitacre Jr. as interim CEO. The move shocked the auto industry, analysts said. Henderson appeared to be making progress in turning around the struggling auto manufacturer by making wide-ranging cuts to its bureaucracy, implementing aggressive marketing strategies and curbing a sharp decline in sales, analysts said. The GM board decided that Henderson, a 25-year veteran at the automaker, was too connected to the company’s past errors to bring a new approach that would help reverse GM’s decades-long decline, said a source familiar with the matter. “Fritz was just not enough of a change agent,” the source said. “The board wants a world-class CEO and now they have enough breathing room to find one” (The New York Times Dec. 2) …

News of the Competition (12/01/2009)

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MADISON, Wis. (12/2/09)
* American International Group (AIG) has a shortfall of $11.9 billion in its property and casualty business, according to a report distributed to AIG clients Monday by investment research firm Sanford C. Bernstein. The majority of AIG’s shortfall was concentrated in lines of insurance in which claims develop slowly, such as professional liability and worker’s compensation. The findings are in contrast to the prevalent idea that AIG’s financial trouble can be linked to its derivatives portfolio and that its insurance operations are sound, analysts said. Other researchers have voiced uncertainty about AIG’s total worth since it was bailed out last year by the federal government. Even the government has said that AIG could have a hard time repaying all the money it owes taxpayers--currently estimated at $120 billion, analysts said (The New York Times Dec. 1) … * Some financial companies are testing noncard payment services so they can better compete against alternative systems that have taken away some of their interchange revenue, analysts said. For example, in October, Sun Trust Banks Inc. began testing a service from Moneta Corp. that allows users to pay for online purchases through the automated clearing house network. Also, First Data Corp.’s Star personal identification number-debit network became the first to sign up for PayPal Inc.’s debit access service--which allows consumers to fund their PayPal accounts with debit cards (American Banker Dec. 1) … * Before stricter disclosure regulations go into effect next year, Bank of America (BofA) is giving its cardholders more details about interest rates and fees. This week, BofA said it is sending a one-page summary to 40 million customers regarding balance transfers, cash advances and fees on transactions and late payments. A measure already approved by the House of Representatives, may be considered by the Senate, which would move up the start date on a law that limits rate increases on existing credit card balances, analysts said. The vote was in the aftermath of complaints against banks, claiming they were raising finance charges in response to the Credit Card Accountability Responsibility and Disclosure Act, which President Barack Obama signed in May (Bloomberg News via American Banker Dec. 1) … * A former executive of a now-defunct company that bought delinquent credit card debts and tried to collect on them is behind on Oklahoma state taxes. Jay Jones, former executive vice president of Commercial Financial Services Inc., owes the state about $2.6 million, according to the Oklahoma Tax Commission. In November, the agency started posting outstanding tax warrants online. Jones is listed as one of the top 10 delinquent taxpayers in Oklahoma. Commercial Financial failed in 1999, leading to a federal grand jury indictment of Jones and company CEO Bill Bartmann, who both were accused of creating a shell company to inflate the performance of Commercial Financial. Bartmann was acquitted in 2008 and returned to the debt-buying industry. Jones pleaded guilty to a conspiracy charge and was sentenced to five years in prison, analysts said. Prison records indicate he was released in 2007, they added. In 2008, the Tax Commission hired a collection agency to obtain the unpaid taxes from Jones, they said (Collections & Credit Risk via American Banker Dec. 1) …

Market News (12/01/2009)

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MADISON, Wis. (12/2/09)
* October marked the ninth consecutive month that pending home sales have risen--a first for the series of the index since its inception in 2001, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, rose 3.7% to 114.1 from 110.0 in September, and is 31.8% above October 2008, when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006, when it was 115.2. Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year,” he said. “Based on the demographics of our growing population, existing-home sales should be in the range of five-and-a-half million to six million annually, but we were well below the five-million mark before the home buyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.” For the NAR report, use the link ... * For a fourth consecutive month, U.S. manufacturing expanded in November, making factories a main driver of the economic recovery, analysts said. The Institute for Supply Management’s (ISM) manufacturing index dropped lower than forecast--to 53.6 from October’s three-year high of 55.7. Readings above 50 indicate expansion. The decrease is not alarming because the ISM index is still consonant with growth in both industrial productions and real gross domestic product, ISM said. “The dip down is more of a mid-course correction rather than a sign the boom is over,” said Ethan Harris, head of North America economics at Bank of America Merrill Lynch Global Research. “[October was] “a little too strong relative to other information on the economy, which generally looks like a very moderate recovery,” Harris said. Confidence in the economic recovery has been partly predicated on the improving performance of the factory sector--which usually leads the economy out of downturns, analysts said (Bloomberg.com, Moody’s economy.com and The Wall Street Journal Dec. 1) … * Total U.S. construction spending leveled off in October compared with the previous month and is down 14.4% from October 2008, according to the Census Bureau. Meanwhile, private construction spending rose 0.3% from its revised September level, which includes a substantial 4.4% increase for residential construction from its revised September levels. However, nonresidential construction spending dropped 2.5% from September, and public construction spending fell 0.4% from its September level. Although overall construction spending appears to have bottomed out, the continuing decline of private nonresidential construction is a manifestation of a weak economy, analysts said (Moody’s Economy.com Dec. 1) …