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Market News (12/29/2010)

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MADISON, Wis. (12/30/10)
* 2010 was a year of contrasts for real estate, says the National Association of Realtors (NAR). On one hand, consumers took advantage of historic buying opportunities while the number of foreclosures led some to question the value of home ownership. In the first half of the year, the extended $8,000 first-time home buyer tax credit and expanded $6,500 credit for repeat buyers helped encourage sales and stabilize prices, NAR said Monday. Homebuyers also benefitted from historic affordability, with record low mortgage rates and rising household incomes. The NAR Housing Affordability Index indicates that a median-income family with a down payment of 20% has 184.2% of the income required to buy a median-priced home. Although rising foreclosures was a problem, "home ownership didn't create the foreclosure crisis--Wall Street greed and irresponsible lending practices did," said NAR President Ron Phipps, broker-president of Phipps Realty, Warwick, R.I. Owning a home is still one of the best ways to build long-term wealth, he added … * Permits for building houses in California were at 3,175 total housing units in November--up 21% from November 2009 and up 35% from the 2,348 permits in October, according to the Construction Industry Research Board (CIRB). CIRB is forecasting a total of 412,000 units for 2010--the second-lowest total since 1954--but projects an increase to 65,000 units during 2011. November permits for single-family homes declined 18% to 1,318 from 1,822 in November 2009 and 10% from October (American Banker Dec. 28) …

News of the Competition (12/29/2010)

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MADISON, Wis (12/30/10)
* A new service offers consumers who lack a credit history an alternative means of establishing their financial viability with creditors. Maxamum Inc. is a bill reporting service that reports payment activity on recurring bills, such as rent, electric and cable, to MicroBilt Corp.’s alternative credit bureau, PRBC. MicroBilt is the exclusive licensee of the FICO Expansion Score, created by Fair Isaac to assist companies in determining the risk of consumers with little or no credit histories. Monthly fees for Maxamum membership range from $25 to $75. Members earn points for bill payments that can be redeemed for prizes or converted to cash for future payments … * More than 300 banks and savings institutions failed in the past four years, but about a dozen of them had a tangible common equity ratio of more than 8% when they went belly up. The ratio measures a bank's cushion to absorb losses. An analysis by Keefe, Bruyette & Woods Inc. (KBW) noted that 8% isn't much worse than the 9% held by about 50 companies in its regional bank stock index (The Wall Street Journal Dec. 28). That contrasts with 50 failed banks that had negative capital when regulators shut them down, sometimes as long as two years after they issued their first warning about inadequacies, said the analysis. KBW analyst Timur Braziler told the Journal that the differences indicate that regulators and officials can't get to the banks fast enough. As of Sept. 30, he said, 860 institutions are on the Federal Deposit Insurance Corp's "problem list." The FDIC said the agency is not overwhelmed; its division of resolutions and receiverships, which handle the failed banks, has 2,133 employees, up from 219 in 2007. The analysis also noted that state and federal regulations also complicate matters. For example some states can't close a bank unless they can prove the bank used all its capital. In 2010, 157 banks were seized, up from 140 in 2009 …

Market News (12/28/2010)

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MADISON, Wis. (12/29/10)
* Consumer confidence in the U.S. for December dropped unexpectedly to 52.5--lower than the most pessimistic forecasts from economists surveyed by Bloomberg News and lower than the revised 54.3 reading in November, according to The Conference Board (Bloomberg.com Dec. 28). The latest report conflicts with one issued last week from the University of Michigan, which showed sentiment had improved to a six-month high in December. The Conference Board report indicates that the share of Americans saying jobs are hard to find climbed to a 10-month high and that the labor market is "the main concern for consumers," said David Semmens, an economist with New York-based Standard Chartered Bank … * The number of families who lost their homes in 2010 totaled 1.3 million--up from the 1.1 million foreclosures of 2009, according to CoreLogic (Times Herald Dec. 27 and American Banker Dec. 28). That adds up to about 25,000 foreclosures per week this year, compared with about 21,600 per week last year. Residential foreclosures continued their six-month increase and are expected to continue in 2011, despite a decrease in seriously delinquent loans, said CoreLogic. That's because one in five borrowers have loans underwater, where what they owe on the mortgage is more than the value of the house … * Home prices dropped 0.8%--more than expected--in October from October 2009, according to the S&P Case-Shiller home-price indexes (Moody's Economy.com Dec. 28). The decline, the largest year-to-year decline since December 2009, exceeded the 0.2% decrease that economists surveyed had forecast (Bloomberg.com Dec. 28). Prices rose 0.4% in the year ended in September. The month-to-month decline was 1% from September. The number of foreclosures waiting to reach the market indicates home prices will continue to be under pressure in 2011. For the full report, use the link …

News of the Competition (12/28/2010)

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MADISON, Wis. (12/29/10)
* Under orders from the Office of the Comptroller of the Currency (OCC), HSBC has given notice to H&R Block that it is immediately terminating the parties’ long-term contract under which HSBC provided all of H&R Block’s refund anticipation loans (RAL). Though the OCC did not provide an explanation for its directive to HSBC, it has issued previous bulletins communicating concerns with RAL for consumer protection and bank soundness reasons (American Banker Dec. 28). “As a result of the OCC’s decision, millions of taxpayers will be deprived of credit, or they will be forced to use higher-priced alternatives, without the slightest benefit to the solvency of HSBC or the banking system in general,” said Alan Bennett, H&R Block’s president/CEO. “While we are very disappointed by this decision, we have been preparing for the loss of RALs, so we have several other financial products available and under development for this tax season.” … * American International Group (AIG) has entered into $4.3 billion of loan agreements with 36 banks, moving the insurer closer to recapitalization after its government bailout in September 2008. AIG announced today it had agreed to 364-day and three-year credit facilities totaling $3 billion split evenly between the two. AIG also announced that Chartis, its property and casualty unit, has entered into a one-year $1.3 billion letter of credit facility. After being out of the debt market for more than two years, AIG raised $2 billion in bonds earlier this month. It also established a $500 million contingency letter of credit. “This success is another important vote of confidence by the market in AIG,” said CEO Robert Benmosche. “These credit facilities, combined with the debt offering and contingent liquidity facility, demonstrate that AIG has momentum and has made substantial and impressive progress this year.” …

Market News (12/23/2010)

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MADISON, Wis. (12/28/10)
* U.S. consumer confidence rose to a six-month high in December, mirroring an increase in holiday sales and fewer job cuts (Bloomberg.com Dec. 23). The Thomson Reuters/University of Michigan index of consumer sentiment for the month increased to 74.5 from 71.6 in November. “We are going to see slow, but likely steady, improvements in consumer spending,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. “The extensions of unemployment benefits and tax cuts mean that 2011 will be a better year for the U.S consumer.” U.S. consumer spending increased by 0.4% in November after rising 0.7% in October--the largest amount in more than a year, according to a Commerce Department report released Thursday (The Wall Street Journal Dec. 23). Also, orders for U.S. capital equipment bounced back in November from the prior month, indicating a business investment slowdown may be less prominent than some economists had forecast (Bloomberg.com Dec. 23). Orders in November rose 2.6 % after a 3.6% drop in October. In a related matter, the Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 128 for the week ended Dec. 17 from a revised 127.3, previously 127.4, the prior week (Moody’s economy.com Dec. 23) … * Initial U.S. claims for unemployment benefits dropped for the week ended Dec.18, and the number of people receiving unemployment benefits fell to a two-year low, adding to growing indications that the labor market is on the upswing (Bloomberg.com Dec. 23). Claims decreased 3,000--to 420,000 for the week, the Labor Department said Thursday. “The claims numbers are consistent with employment growth starting to pick up,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “[At the same time], it’s going to take a while for the unemployment rate to come down.” Meanwhile, continuing claims for unemployment benefits fell to 4.064 million for the week ended Dec. 11 from 4.167 million the prior week, which lowered the four-week moving average by roughly 38,000 to 4.155 million (Moody’s Economy.com Dec. 23) … * Home builders sold fewer homes than anticipated in November--a sign that the U.S. housing market is struggling amid almost 10% unemployment and a backlog of unsold existing properties (Bloomberg.com Dec. 23). Purchases rose 5.5% to an annualized rate of 290,000 from a 275,000 pace in October, the Commerce Department said Thursday. Economists had projected a 300,000 pace in November, according to a Bloomberg News survey. “Housing is bouncing along the bottom,” said Ward McCarthy, chief financial economist at Jefferies & Co, Inc. in New York. “The worst is over, but the bad news is it’s still going to take years until we get a recovery.” The months of home supply on the market decreased to 8.2 in November from 8.8 in October (Moody’s Economy.com Dec. 23) …

News of the Competition (12/23/2010)

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MADISON, Wis. (12/28/10)
* Rather than test highly dilutive capital markets, U.S. banks that owe repayments to the Troubled Asset Relief Program (TARP) likely will search out buyers to help them cut ties with the Treasury Department (American Banker Dec. 23). With a number of community banks that still owe TARP, many will start to search out buyers in 2011 because federal regulators have restricted their dividend payments until they are able to repurchase their TARP funds, the Banker said. Several banking companies, such as M&T Bank Corp. and Bank of Montreal, recently announced deals to acquire a TARP holder that would--as part of the deal--absorb the Treasury’s investment, the publication said …

Market News (12/22/2010)

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MADISON, Wis. (12/23/10)
* The U.S. economy--gross domestic product (GDP)--in the third quarter expanded at an annualized rate of 2.6%, indicating a boost in economic growth that could extend into next year, as growing consumer and company confidence leads to more spending (Bloomberg.com Dec. 23). Economists’ forecasts ranged from a gain of 2.5% to 3.3%, according to a Bloomberg News survey. The extension of the Bush-era tax cuts, upwardly rising personal incomes and a labor market on the mend may be incentives for people to increase their spending, which constitutes 70% of the largest economy in the world, Bloomberg said. Companies boosted inventories, and they increased more than previously thought (The Wall Street Journal Dec. 22). “[The data set the stage for] a stable pace of economic growth,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, told Bloomberg. “[The lack of] inflation does remain the biggest downside risk to the U.S. economy [and GDP expansion at this rate] is not enough to move unemployment meaningfully,” he added … * Existing-home sales returned to an upward path in November, resuming a growth trend since bottoming in July, according to the National Association of Realtors (NAR). Existing-home sales--which are completed transactions that include single-family homes, townhomes, condominiums and co-ops--rose 5.6% to a seasonally adjusted annual rate of 4.68 million in November from 4.43 million in October. However, sales are 27.9% below the cyclical peak of 6.49 million in November 2009--the initial deadline for the first-time homebuyer tax credit. Lawrence Yun, NAR chief economist, said he is hopeful for 2011. “Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remains historically favorable,” he said. Yun added that home buyers are responding to improved affordability conditions. “The relationship recently between mortgage interest rates, home prices and family income has been the most favorable on record for buying a home since we started measuring in 1970,” he said. “Therefore, the market is recovering and we should trend up to a healthy, sustainable level in 2011.” For the NAR report, use the link. In a related matter, the Federal Housing Finance Agency said its monthly purchase-only house price index increased 0.7% from September to October and is down by 3.4% from October 2009 (Moody’s Economy.com Dec. 22) … * Mortgage loan application volume decreased 18.6% on a seasonally adjusted basis for the week ended Dec. 17 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index fell 20%. The Refinance Index dropped 24.6%. It has declined six consecutive weeks and is at its lowest level since the week ending April 30. The seasonally adjusted Purchase Index fell 2.5%. The unadjusted Purchase Index declined 4.9% and was 8.4% lower than the same week one year ago. “Refinance application volume dropped sharply this week as mortgage rates held near six-month highs,” said Michael Fratantoni, MBA vice president of research and economics. “Purchase applications fell for a second week, with the level of applications little changed over the past month, indicating that home sales are likely to remain relatively weak over the next few months.” For the MBA report, use the link … * The number of U.S. mass layoffs--those involving at least 50 workers from a single establishment--decreased to 1,586 in November from 1,651 in October, according to the Bureau of Labor Statistics (Moody’s Economy.com Dec. 22). The layoffs involved 152,816 workers, compared with 148,059 in October. The overall November numbers identify pockets of increasing layoffs--in seasonal industries such as construction and agriculture, which typically lay off workers as cold weather arrives and harvests are gathered--amid a generally recovering economy, Moody’s said …

News of the Competition (12/22/2010)

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MADISON, Wis. (12/23/10)
* The Federal Deposit Insurance Corp. (FDIC) Tuesday announced three shared-equity deals in which it collectively shed 40% of its stakes in $620 million of failed-bank assets (American Banker Dec. 22). The FDIC owns 60% of each venture and formed a limited liability corporation to hold the failed bank assets in each of the three deals. The other 40% of stakes in each deal went to a winning bidder. Colony Capital, a Los Angeles-based real estate investment firm, in a partnership with the Cogsville Group of New York, purchased equity interests in two of the deals. The winning bidder in the third was Cache Valley Bank, a $276 million asset institution, based in Logan, Utah … * In a government probe concerning tax shelters that prosecutors allege generated billions of dollars in bogus tax losses, Deutsche Bank AG agreed Tuesday to pay $553.6 million and admit to criminal wrongdoing (Dow Jones via American Banker Dec. 22). The German bank will not be prosecuted for its sale between 1996 and 2002 of roughly 15 tax shelters involving more than 2,100 customers, per a nonprosecution agreement with the U.S. Attorney’s office in Manhattan and the Internal Revenue Service (IRS), Dow said. The bank’s $553.6 million payment covers the total fees it collected during the six-year period, taxes and interest owed the IRS during that time that the IRS was unable to collect, and about a $149 million civil penalty …

News of the Competition (12/21/2010)

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MADISON, Wis. (12/22/10)
* Bank of America said it has joined the growing list of financial institutions that will not process transactions for WikiLeaks (Bloomberg Dec. 21). MasterCard, PayPal, and Visa Europe have also stopped handling payments for WikiLeaks, which has angered U.S. authorities by releasing diplomatic cables. WikiLeaks has said it will release documents early next year that will point to unethical practices at a major U.S. bank … * Toronto-Dominion Bank on Tuesday agreed to buy Chrysler Financial for $6.3 billion. The bank purchased a total of $5.9 billion in net assets and $400 million in goodwill from private equity firm Cerberus Capital Management (The New York Times Dec. 21). Toronto-Dominion will acquire Chrysler Financial in Canada, and its U.S.-based subsidiary, TD Bank, will hold the U.S.-based assets. Toronto-Dominion CEO Ed Clark said that the acquisition of Chrysler Financial will allow the bank to leverage its lending expertise and financial strength to expand its presence in the North American market. The sale will help Cerberus gain back some the $7.4 billion that it spent in its 2007 takeover of Chrysler …

Market News (12/21/2010)

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MADISON, Wis. (12/22/10)
* The Federal Reserve’s Open Market Committee this week extended temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank through August 1. The swap arrangements, which began in May, were set to expire in January. The Fed in a release said that the swap facilities aim to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions ... * Sales at U.S.-based chain stores jumped 1.7% during the week ended Dec. 18, according to the International Council of Shopping Centers (ICSC) ( Moody’s Economy.com (Dec. 21) . This weekly increase brought the year-over-year growth for chain stores to 4.2%. The holiday spending survey revealed that 73.9% of consumers surveyed had completed their shopping for the holiday season. However, ICSC noted that economic fundamentals remain weak, with moderate job growth and increasing unemployment continuing to hold back consumer spending ... * The real estate cycle is beginning to once again exert itself in commercial and multifamily property markets , the Mortgage Bankers Association (MBA) revealed in its third quarter Commercial Real Estate/Multifamily Finance Quarterly Data Book. The MBA noted that the economy has shown some growth, which is resulting in marginal declines in vacancy rates and a firming of asking rents. “Property sales and originations volumes picked up, but volumes were not high enough to keep up with the mortgage debt that investors saw paying off and paying down,” the MBA said. However, the still-weak economy has continued to exert pressure on the performance of properties and the mortgages they back, the MBA added ...

News of the Competition (12/20/2010)

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MADISON, Wis. (12/21/10)
* Six banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 157, compared with 140 for all of 2009. The banks include The Bank of Miami, N.A., Coral Gables, Fla., assumed by 1st United Bank, Boca Raton, Fla.; Chestatee State Bank, Dawsonville, Ga., assumed by Bank of the Ozarks, Little Rock, Ark.; Appalachian Community Bank, F.S.B., McCaysville, Ga., assumed by Peoples Bank of East Tennessee, Madisonville, Tenn.; United Americas Bank, N.A., Atlanta, assumed by State Bank and Trust Company, Macon, Ga..; First Southern Bank, Batesville, Ark., assumed by Southern Bank, Poplar Bluff, Mo.; and Community National Bank, Lino Lakes, Minn., assumed by Farmers & Merchants Savings Bank, Manchester, Iowa. The six closed institutions held roughly $1.23 billion in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $268 million ... * New York Attorney General Andrew Cuomo may sue Ernst & Young LLP for fraud for allegedly aiding Lehman Brothers Holdings Inc. to mislead investors, according to a source familiar with the matter (Bloomberg.com Dec. 20). Elected last month to be the next governor of New York, Cuomo may file the lawsuit this week, the source said. The suit would focus on Ernst and Young’s audits of Lehman transactions aimed at toning down its liabilities. A settlement is a possibility, the source said …

Market News (12/20/2010)

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MADISON, Wis. (12/21/10)
* With online sales skyrocketing this holiday season--rising 12% in the first 47 days of the season--online retailers have now decided to protect their margins (The New York Times Dec. 19). They have stopped the usual promotions that were created the past two holiday seasons to drive sales and shed excess inventory. Coupons that give shoppers 40% off all purchases have been replaced by offers to select customers that are specialized--such as a “mystery” discount amount revealed only when a customer is checking out, or free hoop earrings when someone spends $100. “The reason there’s different promotions and not just the straight dollar-off or percent-off promotions all the time is there are different incentives,” said David Lonzcak, chief marketing officer of Drugstore.com “You may just need a sale, you may have a product you’re long on and you need to get rid of it, or you may be looking to acquire customers with a higher basket,” he said in regard to the transaction price. “You have to be thoughtful” … * Because consumers are spending more again, retailers such as Wal-Mart Stores Inc. and Saks Inc. are eschewing the profit-mitigating discounts that were prevalent during the recession (Bloomberg.com Dec. 20). Shoppers are keeping supplies of goods lean, causing shoppers to pay up for popular gifts--such as jackets, sweaters and toys, Bloomberg said. “I’m not seeing many deals,” said Jubie Deane, a 37-year-old mother of one who paid full price for a baby toy from Toys “R” Us Inc. in Manhattan. “I would have expected bigger discounts at this point.” Retailers who avoided panicking and slashing prices likely will see wider profit margins during the year’s busiest shopping period, said Ken Perkins, president of Retail Metrics Inc. … * As 2010 ends, business confidence worldwide is consonant with the global economy expanding at a rate consistent with the bottom end of its potential, according to Moody’s Analytics Survey of Business Confidence (Dec. 20). Recent European debt problems have not had a measureable effect on sentiment--which is encouraging, Moody’s said. In recent weeks, sales and investment have marginally improved, and hiring intentions remain steady. The one area of concern is the weakening in pricing, Moody’s said …

News of the Competition (12/17/2010)

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MADISON, Wis. (12/20/10)
* Bank of Montreal (BMO)--Canada’s fourth biggest bank measured by assets--said it will buy Marshall & Ilsley Corp. (M&I), a Milwaukee-based lender--through a share swap valued at $4.1 billion. BMO’s move to expand its U.S. operations has been long-expected (The Wall Street Journal Dec. 17). BMO announced Friday it is offering 0.1257 of a share for each M&I share. To maintain robust capital levels after the acquisition, BMO intends to issue an additional $800 million in Canadian dollars before the deal is finalized prior to July 31, the Journal said. M&I, the largest Wisconsin bank, has 374 branches in five other states and roughly $52 billion in assets … * Prepaid debit card companies are working hard to introduce products with lower fees to attract the business of unbanked consumers (American Banker Dec. 16). For example, earlier this month, nFinanSe Inc. launched a prepaid card with a $3 activation fee and a $2.95 monthly fee--a fee structure akin to Green Dot Corp.’s Wal-Mart MoneyCard, the Banker said. SmartyPig LLC--an online consumer savings service--also is introducing a low-fee prepaid card with an initial cost of $4.95 and a $1.95 fee for using ATMs that are out-of network, the publication said …

Market News (12/17/2010)

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MADISON, Wis. (12/20/10)
* The index of U.S. leading economic indicators rose in November by the highest amount in eight months, indicating the economic recovery will gain momentum early in 2011 (Bloomberg.com Dec. 17). Private research firm The Conference Board’s measure of leading economic indicators--a gauge of the economic outlook for the next three to six months--increased 1.1%, following a 0.4% October gain. The November index is the most recent evidence of steady, albeit fragile growth after a slow summer (The New York Times Dec. 17). Retail sales especially have been surprisingly robust, elevating hopes for more consumer spending, the Times added. “The U.S. economy is showing some sparks of life in late 2010,” said Ken Goldstein, an economist at The Conference Board. “The indicators point to a mild pickup after a slow winter. Looking further out, possible clouds on the medium-term horizon include weakness in housing and employment.” In a related matter, with the economic recovery on the uptick, the risk of recession is declining, but not negligible (Moody’s Economy.com Dec. 17). The probability of the U.S. being in recession in six months dropped by two percentage points to 28% for November, Moody’s said ... * After the end of this year, U.S. state and local governments no longer will be allowed to sell Build America Bonds (BABs)--federally subsidized debt created as part of the economic stimulus plan to finance infrastructure projects and generate new jobs (The New York Times Dec. 17). As a consequence, tax-free municipal bond prices--especially those with longer maturities--likely will drop, as will capital spending by local government and states, the Times said. President Barack Obama had asked that the BABs be made permanent, but he decided not to include its extension in a tax deal he made with congressional Republicans, the Times said … * Moody’s Investors Service Inc. downgraded Ireland’s credit rating by five levels to Baa1--three levels above non-investment (speculative) grade--from Aa2, and warned that the government’s financial strength could further erode if its economic growth projections were not attained (The Wall Street Journal and Bloomberg.com Dec. 17). Irish lawmakers voted Wednesday to accept a $113 billion aid package from the International Monetary Fund and European governments to help solidify the country’s finances. In the prelude to the bailout, confidence in Irish banks “evaporated,” Moody’s said. “As we head into next year, this crisis looks set to rumble on and on, with concerns growing over euro-area governments’ funding needs next year,” said analysts at Daiwa Capital Markets …

News of the Competition (12/16/2010)

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MADISON, Wis. (12/17/10)
*After being ordered by a bankruptcy court to pay Lehman Brothers Holdings Inc. $590 million, Bank of America Corp. (BofA) appealed the order--saying it will post a $660 million bond and asking the court for a stay on the enforcement of the ruling, according to court documents (The New York Times Dec. 16). A hearing on the matter is slated for Jan. 19. U.S. Bankruptcy Judge James Peck ruled in November that BofA--a lender to Lehman in September 2008--must return $500 million of deposits it seized because the act constituted a violation of bankruptcy law (Bloomberg.com Dec. 16). The judge subsequently added interest to the judgment. BofA filed a notice of appeal Wednesday in U.S. Bankruptcy Court in Manhattan, Bloomberg said … * The Basel Committee on Banking Supervision said the world’s biggest banks could be hundreds of billions of dollars short of the capital reserves they need to comply with new regulations, and as a result, could come under pressure to shed risky assets (The New York Times Dec. 16). The committee also provided a more in-depth description of rules being developed, which led to some critics saying the definition of banks deemed too big to fail appears to be tapering, the Times said. The 94 largest global banks would have been $738 billion short--based on their 2009 financial ledgers--of the risk-free capital they would need to have under new rules endorsed by the Group of 20 nations, the committee said … * The number of U.S. banks and thrifts choosing to defer dividends on preferred stock from the Troubled Asset Relief Program (TARP) increased in November, according to an SNL Financial Report (American Banker Dec. 16). The report indicated that 123 banks and thrifts skipped a Nov. 15 quarterly payment to the Treasury Department--up from 115 in August. Companies that deferred hold roughly $3.3 billion in TARP Funds--which is less than 1.6% of capital invested at the zenith of the program, the Banker said …

Market News (12/16/2010)

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MADISON, Wis. (12/17/10)
* Initial U.S. claims for unemployment benefits unexpectedly dropped last week, indicating the labor market is improving (Bloomberg.com Dec. 16). Claims declined by 3,000 to 420,000--the lowest level in three weeks--the Labor Department said Thursday. Economists had anticipated an increase to 425,000, according to a Bloomberg News survey. “The recent signs have been pretty consistent in that they’ve shown some modest improvement [in the labor market],” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “It still remains a challenge to generate the number of jobs required to lower the unemployment rate.” Meanwhile, continuing claims for unemployment benefits increased 22,000 to 4.135 million for the week ended Dec. 4. There are millions more people on emergency and extended benefits not tallied in that figure (Moody’s Economy.com Dec. 16) … * For the first time in three months, U.S. homebuilders began working on more homes in November, an indication that the industry has had a tough time recovering (Bloomberg.com Dec. 16). Housing starts increased to an annualized rate of 555,000--a 3.9% rise from October’s 534,000 pace, the Commerce Department said Thursday. However, building permits--an indication of future work--dropped, reflecting a decline in applications for multi-family projects. Also, the overall pace of construction still is slow, with all measures down year over year (Moody’s economy.com Dec. 16). “The housing recovery is fragile at this point,” said Michelle Meyer, a senior U.S. economist at Bank of America Merill Lynch Global Research in New York. “Demand remains very weak for new houses. Builders are competing with distressed properties, so construction remains depressed” … * The U.S. current account deficit in the third quarter expanded $4 billion to $127.2 billion, indicating a rise in imports (Bloomberg.com Dec. 16). The gap--the largest in two years--is the broadest gauge of international trade because it comprises income payments and government transfers, the Commerce Department said Thursday. The U.S. is dependent on attracting foreign capital to fund the so-called twin deficits--the consumer-account deficit and the trillion-dollar government budget gap--to prevent interest rates from rising, Bloomberg said. “As the economic environment starts to improve, as the smoke starts to clear, you do expect to see foreign investments start to pick up,” Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, N.C. “It’s a vote of confidence that foreigners are willing to invest here” …

News of the Competition (12/15/2010)

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MADISON, Wis. (12/16/10)
* Large U.S. community banks appear poised to join smaller community banks in the merger and acquisition surge that has been occurring, reported American Banker (Dec. 15). A recently proposed merger in Los Angeles between Center Financial Corp. and Nara Bancorp Inc. would constitute the second traditional deal in 2010 between community banks each with assets above $1 billion. The more-than-80 other mergers announced to date, were mostly among banks with less than $1 billion in assets--particularly on the seller side, according to data from Sandler O’Neill & Partners L.P. Big community banks are more willing to join forces because of enhanced prospects of economies of scale and the potential of earnings growth--with part of the driving force being higher capital and regulatory costs, experts told the Banker … * The U.S. Department of Agriculture (USDA) is supporting legislation that would continue to guarantee farm operating loans (American Banker Dec. 16). Without government support, as many as 4,200 borrowers that have relied on USDA guarantees of their loans for the past 15 years would no longer be eligible for backing. Although the bill stipulating the limit was put into effect in 1992, Congress regularly waived it--most recently in the 2008 farm bill …

Market News (12/15/2010)

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MADISON, Wis. (12/16/10)
* Mortgage loan application volume decreased 2.3% on a seasonally adjusted basis for the week ended Dec. 10 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index fell 2.7%. The Refinance Index dropped 0.7%. This is the fifth consecutive weekly decline for the Refinance Index. The seasonally adjusted Purchase Index went down 5%. The unadjusted Purchase Index decreased 8.6 % and was 16.6% lower than the same week one year ago. “Treasury rates increased last week following news that lower tax rates could be extended for another two years, boosting growth prospects,” said Michael Fratantoni, MBA vice president of research and economics. “With this move, mortgage rates reached their highest level in more than six months. Not surprisingly, with rates up more than half a percentage point over the past month, refinance activity has declined sharply. Home purchase applications dropped this week following three weeks of increases, but remain near levels last seen in early May.” For the MBA report, use the link … * Although U.S. homebuilders' confidence remained unchanged in December, builders are pessimistic about the prospects of the housing market in the near future (The New York Times Dec. 15). The National Association of Homebuilders/Wells Fargo Index of builder confidence stayed at 16--the same as in November. Readings below 50 indicate respondents said conditions were poor. “This confirms the Federal Reserve’s statement [Tuesday] that housing is depressed,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Builders won’t start to build until they see firm signs of demand. Sentiment will probably grind forward.” From a regional perspective, a large gain in the Northeast offset decreases in the other three national regions (Moody’s economy.com Dec. 15) … * The U.S. cost of living increased less than predicted in November, a sign that high prices for commodities such as fuel aren’t affecting other goods and services (Bloomberg.com Dec. 15). Following a 0.2% increase in October, the consumer price index rose 0.1% last month, the Labor Department said Wednesday. Economists had forecast a gain of 0.2%, according to a Bloomberg News survey. The core measure--which excludes volatile food and energy costs--also increased 0.1%, matching forecasts. “Inflation is a non-threat right now; there’s a lot of slack in the economy,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pa. “Inflation will remain very subdued and tepid over the next several months” …

Fed keeps rates bond-buying steady good for CUs

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WASHINGTON (12/15/10)--Federal Reserve policymakers' announcement Tuesday that it will maintain interest rates on targeted funds and keep its existing quantitative easing (QU2) policy of purchasing $600 billion in bonds is good for credit unions' future net interest margins, according to Steve Rick, senior economist with the Credit Union National Association (CUNA). "Tuesday's Federal Open Market Committee (FOMC) statement reiterated its desire to use the Federal Reserve’s balance sheet to keep downward pressure on interest rates to invigorate a moderate recovery," said Rick, after the meeting. The committee's "recently announced QE2 policy, whereby the Fed purchases $600 billion of Treasury securities to drive interest rates lower and drive investors into riskier assets, seems to be working quite well. Maybe too well," he said. "Recent strong economic data and lower risk aversion have encouraged investors to move their funds out of the ultra-safe Treasury securities and into stocks, corporate bonds and commodities. This has pushed the 10-year Treasury to 3.45% today, up one percentage point from the recent low of 2.41% just two months ago. This recent run-up in long-term rates highlights the economic truism that the Fed controls short-term interest rates but not longer-term interest rates," Rick told News Now. "The rise in the 10-year Treasury interest rate over the last couple of months has increased mortgage interest rates. This may have the effect of pushing potential homeowners off the fence and encourage them to pull the trigger and purchase a house before interest rates rise further," he said. "Higher long-term interest rates have also steepened the yield curve, which is good for credit union net interest margins going forward," Rick added. The Fed also reiterated its commitment to keeping the fed funds interest rate in their target range of 0% to 0.25% for an extended period of time. "What is 'an extended period of time'? The fed funds futures market is now pricing in a 25 basis point rate increase by the Federal Reserve at this time next year," Rick said. It also "is pricing in an extension of the Bush tax cuts across the board, a 13-month extension of federal unemployment insurance benefits and other spending increases and tax cuts. "This is basically an $850 billion fiscal stimulus plan, which along with the Fed's expansionary monetary policy should boost 2011 economic growth to around 4%, up from the previous consensus estimate of 2.5%," Rick said, adding, "This should bring down the unemployment rate to 9% by the end of 2011. Still high, but moving in the right direction." The committee's move was no surprise. Its statement noted that the economic recovery is continuing,"though at a rate that has been insufficient to bring down unemployment." It recognized that household spending is increasing moderately but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. "Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak," said the FOMC. "Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward." It also noted that the unemployment rate is elevated, and measures of underlying inflation are somewhat low, "Although the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow," FOMC said. The $600 billion bond purchases will occur by the end of the second quarter of 2011, a pace of about $75 billion per month," said the committee. "FOMC will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability," the statement said. In keeping its interest rate the same, FOMC "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." The committee will continue to monitor the nation's economy and "employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate." Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen. Voting against the policy was Thomas M. Hoenig, who was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy, the committee said in its statement.

News of the Competition (12/14/2010)

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MADISON, Wis. (12/15/10)
* Goldman Sachs Group Inc. wasn’t responsible for bringing down two Bear Stearns & Co. funds in early 2007, Goldman said in documents submitted to the Financial Crisis Inquiry Commission--a federal panel examining the financial crisis (The Wall Street Journal Dec. 14). In the documents, Goldman specified its valuations of mortgage securities underwritten by Bear Stearns--some of which were held in two Bear hedge funds, which invested mainly in subprime mortgage securities and derivatives. The hedge funds were early casualties of the financial crisis and portended the damage done to financial institutions and investors during the subsequent year and a half, the Journal said … * Troubles at Bank of America Corp. (BofA) may turn it into the next Citigroup Inc. as an example of what could go haywire at a large complex bank (American Banker Dec. 14). While most industry observers believe Citi is now on the rebound, many see BofA as still preoccupied with a backward view and dealing with problems engendered by the financial crisis--mainly the foreclosure imbroglio and mortgages, David Havens, a Nomura Securities analyst who keeps tabs on some U.S. financial institutions, told the Banker. The problems and backlash with U.S. mortgages have been particularly damaging for BofA--which has been responsible for one out of three U.S. home loan modifications, the publication said … * Mitchell Glassman, a veteran member of the Federal Deposit Insurance Corp’s (FDIC) bank-seizure arm, retired Dec. 3 as head of the FDIC division of resolutions and receiverships, reported American Banker (Dec. 14). Over the years, Glassman had been involved in nearly 1,000 bank takeovers--more than three times the current tally stemming from the financial crisis, the Banker said. No time frame was as busy as late 2008 to the present in his 10 years as division director. In the first eight years after the new millennium began, 32 financial institutions failed. Since then 314 have toppled, the Banker said …

Market News (12/14/2010)

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MADISON, Wis. (12/15/10)
* U.S. CEOs’ confidence rose in the fourth quarter to the highest level since early 2006, in part because business leaders anticipated increased hiring, investment and sales, according to the Business Roundtable’s economic outlook index, a private survey (Bloomberg.com Dec. 14). The index rose to 101 after falling in the third quarter--for the first time since the beginning of 2009. The third-quarter reading was 86. About 80% of CEOs surveyed expect their sales to rise during the next six months, and roughly six out 10 anticipate they will increase capital spending. Although fewer than half--45%--said they intend to hire more workers, that percentage is up from 31% three months ago (The New York Times Dec. 14). “When demand increases, capital expenditures and employment follow, which is what we expect to see in the next six months,” said Ivan Seidenberg, chairman of the Business Roundtable and CEO of Verizon Communications Inc. In a related matter, U.S. small businesses’ confidence increased in November to the highest level since the recession started three years ago because more companies forecast that the economy and sales will get better, according to a private survey. The National Federation of Independent Business’ optimism index rose to 93.2--the highest level since December 2007--from an October reading of 91.7 (Bloomberg.com Dec. 14) … * For a fifth consecutive month, sales at U.S. retailers increased in November, with the largest gain in department store sales in two years providing the holiday shopping season with a robust beginning (The New York Times Dec. 14). Retail sales went up 0.8%, following a 1.7% rise in October, the Commerce Department said Tuesday. “There’s no question this will be the strongest quarter for consumer spending since before the recession,” said Chris Lowe, chief economist at FTN Financial in New York. “The economy has pretty good momentum going into the new year” (Bloomberg.com Dec. 14). However, Paul Dales, an analyst at Capital Economics, said it is not certain if strong spending will prevail. “Without a meaningful acceleration in real income growth, this tentative consumer revival cannot last,” he said (The Wall Street Journal Dec. 14) … * U.S. business inventories rose for a fifth consecutive month in October--as companies saw their sales increase by the largest amount in seven months (The New York Times Dec. 14). Inventories went up 0.7% in October, following a revised 1.3% rise in September, the Commerce Department said Tuesday. “We have to sees strong sales to support the inventory numbers,” said Robert Dyes, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “It looks like there is upside risk for fourth-quarter [economic growth]” (Bloomberg.com Dec. 14) …

Fed Open Market Committee meets today

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WASHINGTON (12/14/10)--Federal Reserve policymakers will have their last meeting of the year today with no significant action is expected. However, News Now will monitor the Federal Open Market Committee's (FOMC) report to update readers this afternoon. If the FOMC takes any action, it will likely be to alter its $600 billion government bond buying program it announced at its November meeting, but that would surprise the markets, according to analysts (The New York Times Dec. 13). In its November meeting, the FOMC pledged the amount by the end of next June as part of its second round of measures to reduce interest rates and spur the economy in what is known as quantitative easing or QE2. It also kept the same level of targeted fund interest rates in the 0% to 0.25% range. Since that announcement, Treasury yields and mortgage rates have risen sharply, and Fed Chairman Ben Bernanke has had to explain the move to Congress. "There isn't much [the FOMC] can do and not a whole lot they can say to fix this," said Bankrate.com financial analyst Greg McBride (Bankrate.com Dec. 13). However, a Bloomberg report in U.S. News and World Report (Dec. 13) said that the two rounds of QE strategy have had a positive impact on stocks. Most of the 47% stock rally the past two years came on days the Fed pumped money into markets through bond buying, according to Bloomberg's tally. Since the round ($1.7 trillion) began on Dec. 5, 2008, the Standard & Poor's Index climbed a combined 267 points on the 211 days when the Fed added stimulus, compared with 128 points on the 297 days it didn't. The report noted that one of the goals of the Fed's program is to push investors out of their safer asset classes like Treasuries and into riskier sections such as stocks.

News of the Competition (12/13/2010)

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MADISON, Wis. (12/14/10)
* Two banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 151, compared with 140 for all of 2009. The banks include Paramount Bank, Farmington Hills, Mich., assumed by Level One Bank, Farmington Hills, Mich.; and Earthstar Bank, Southampton, Pa., assumed by Polonia Bank, Huntingdon Valley, Pa. The two closed institutions held roughly $365 million in assets as of Sept 30. The FDIC estimated that the failures will cost the Deposit Insurance Fund about $113 million ... * Big regional banking companies in the U.S.--U.S Bancorp, PNC, SunTrust, BB&T Corp., Regions Financial Corp. and Fifth Third Bancorp--said they are preparing for what they expect to be a comfortable transition to the pending Basel III risk weightings (American Banker Dec. 13). At the end of the third quarter, most of those banks are above the new regulatory framework’s Tier I common equity ratio target of 7%, the Banker said. However, issues regarding capital still abound. They include: federal bailout investments that remain outstanding; and asset portfolio reductions that have been key in controlling leverage at some financial institutions, causing concern about profitability, the publication said. Also, it is not certain whether the regional banks’ risk adjustments will stand unaltered, the Banker said ... * By 2014, the number of downloaded applications to smartphones made by Apple Inc., Motorola Inc. and other mobile phone manufacturers will jump 60% per year and create more than $35 billion in sales, according to a report made public Monday by IDC, a research firm in Framingham, Mass. (Bloomberg.com Dec. 13). Users of mobile phones will download 76.9 billion programs for entertainment, games and news by 2014, IDC said …

Market News (12/13/2010)

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MADISON, Wis. (12/14/10)
* For the third consecutive quarter, the number of U.S homeowners who owe more than their houses are worth (being “underwater”) dropped during July to September (The New York Times Dec. 13). Roughly 10.8 million households--or 22.5% of all mortgaged homes, were underwater in the third quarter--down 11 million households or 23% from second quarter, according to CoreLogic, a housing data company. However, the drop was mostly due to more homes going into foreclosure, rather than an increase in home prices, the Times said. “There are two ways to reduce negative equity,” Mark Fleming, CoreLogic chief economist, told Bloomberg.com (Dec. 13). “Price appreciation or disposition, which means people getting taken out of their homes. At the moment, there’s more disposition” … * The amount the federal government is paying to service its record-level deficit is the lowest since 2005--compared with the size of the economy. At the same time, bond yields are increasing at the fastest pace in more than a year (Bloomberg.com Dec. 13). Although interest costs jumped 8% to $414 billion in the fiscal year ended Sept. 30 from $383.4 billion in 2009, they declined to 2.7% of gross domestic product--the lowest in five years--from 3.1%, according to data from the U.S. Treasury Department. “It is an inflection point when the interest costs on the government’s debt start to rise because the amount of debt is so high,” said Phillip Swagel, assistant secretary for economic policy at the Treasury in 2007 and 2008 and now a professor at Georgetown University. “Rates are still reasonably low. But at some point, increasing interest cost is going to be what forces more action on this issue” … * Following a three-year slowdown, credit card offers are swelling because banks are aiming to jump-start a business that provided them large profits before the financial crisis damaged the credit scores of many U.S. citizens (The New York Times Dec. 12). However, lenders now are choosing their prospects more carefully and setting stricter terms to ward off losses--compared to the boom years when banks touted “preapprovals” to nearly everyone, the Times said. This time, riskier borrowers who were bypassed as recently as six months ago are receiving offers. “[Lenders are] tiptoeing their way back into the higher-risk pool of customers,” said John Ulzheimer, president of consumer education at SmartCredit.com …

News of the Competition (12/10/2010)

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MADISON, Wis. (12/13/10)
* Bank of America Corp. (BofA) said it restarted roughly 16,000 foreclosure proceedings nationwide Monday, after it and several U.S banks halted them because of allegations that employees signed hundreds of foreclosure documents per day without adequately reviewing their contents (The Wall Street Journal Dec. 9). BofA instructed its foreclosure attorneys to prepare new affidavits last week in 7,800 cases--out of a total of 102,000 frozen by the bank because of documentation concerns--in which court approval is required to foreclose on a home, the Journal said. In states where court approval is not mandated, attorneys were requested to take the hold off 8,000 out of 30,000 delayed foreclosure sales … * U.S. banks are learning to deal with a plethora of customer deposits, according to data compiled by deposit research firm Market Rates (American Banker Dec. 10). Total deposits rose by $1 trillion in the three years preceding October, the company said. The number of deposits now entering the banking system appears to be unresponsive to interest rates that banks offer--a change because deposits traditionally are considered to be elastic, the Banker said. Customers’ demand for safety is muddying the trend of banks matching their assets with funding. It also brings up concerns about how low non-inflation-adjusted rates can fall, the Banker said. If customers start to look at deposit accounts as a simple insurance product, they might even pay so they can stow their money there, said Dan Geller, executive vice president of Market Rates Insight … * The International Monetary Fund (IMF) Friday postponed its decision on a proposed $30 billion loan package to help struggling Ireland until the country finishes its debate on the rescue package, Williams Murray, IMF spokesman, said Friday (Bloomberg.com Dec. 10). The IMF will not proceed until the Irish parliament’s scheduled vote Wednesday on the matter, Murray added. The European Central Bank has increased its buying of bonds from the continent’s most indebted countries. The European Union agreed to a rescue package for Greece seven months ago …

Market News (12/10/2010)

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MADISON, Wis. (12/13/10)
*The U.S. trade deficit narrowed more than anticipated in October because exports jumped 3.2%--to the highest level in more than two years--while the trade gap with China shrank (The Wall Street Journal Dec. 10). The total U.S. deficit in international trade of goods and services shrank roughly 13% to $38.71 billion from a revised $44.6 billion--originally $44 billion--in September, the Commerce Department said Friday. Economists had predicted a $44 billion October trade gap, according to a Dow Jones Newswire survey. The smaller-than-expected trade deficit could help bolster fourth-quarter estimates of U.S. economic growth, because a smaller deficit portends a bigger portion of U.S. demand is being satisfied by domestic production (The New York Times Dec. 10). “Exports will continue to do well as the generally weaker dollar and strong growth in emerging markets are helping,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Mass. “Things are improving in the economy so we expect to see imports pick up as well. We’ll have export-led growth in the U.S. next year as exports grow faster than imports” (Bloomberg.com Dec. 10) … * U.S. consumer confidence rose higher than expected in December, reaching its top level in six months--reflecting an increase in consumers’ holiday spending, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment (Bloomberg.com Dec. 10). The index increased to 74.2 from 71.6 at the end of November. Economists had anticipated a 72.5 reading in December, according to a Bloomberg News survey. “[Expectations are] a good indication of where the consumer is going to be in the new year,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Two months in a row of increased sentiment is definitely more hopeful.” The December sentiment uptick was led by a bounce-back in consumers’ views of current conditions (Moody’s Economy.com Dec. 10). The expectations component improved to a lesser extent. Inflation expectations inched downward, Moody’s said … * The Economic Cycle Research Institute (ECRI) leading index, which measures economic growth, rose to 126.4 for the week ended Dec. 3--the fifth gain in the past seven weeks. The increase is from a revised 125.3, which originally was 125.4, the prior week (Moody’s Economy.com Dec. 10). The smoothed, annualized rate increased to -1.5% from an unrevised -2.4%. In recent months, the ECRI weekly leading index has ascended, which portends a sustained recovery heading into 2011, ECRI said …

News of the Competition (12/09/2010)

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MADISON, Wis. (12/10/10)
* An array of organizations--including MasterCard Inc., Visa Inc., Amazon .com and PayPal-- perceived to be opponents of WikiLeaks, an anti-secrecy organization, reported technical difficulties with their websites due to apparent “denial of service attacks.” In a denial of service attack, computers flood a server to prevent it from displaying a Web page (The New York Times and The Wall Street Journal Dec. 9). An increasing number of groups and individuals who have had confrontations with WikiLeaks and its jailed founder, Julian Assange, have been victims of online attacks by hackers--apparent retribution on behalf of WikiLeaks, a document leaking website, the Journal said. “I see this as becoming a war, but not your conventional war--this is war of data,” a 22 year-old hacker calling himself “ColdBlood” told the British Broadcasting Corp. Thursday. “We’re trying to keep the Internet open and free for everyone” … * Goldman Sachs Group Inc. Thursday announced it will donate $20 million to provide family assistance and job training to wounded veterans, administered through several nonprofit organizations (The Wall Street Journal Dec. 8). The company’s most recent contribution lifts the amount it has donated to 1,100 organizations to $212 million. Last month, Goldman Sachs funneled $20 million of loans to New Orleans small businesses, with money being seeded to HOPE Enterprise Corp.--a community development financial institution affiliated with Hope FCU, based in Jackson, Miss. (Nola.com Nov. 22) … * Foreign-exchange banks are secretly planning to launch a new banks-only trading system, according to sources familiar with the matter (Dow Jones via American Banker Dec. 9). Nearly all of the 10 largest banks in the industry are believed to be the driving force behind the initiative. However, they cannot publicly discuss the initiative because of non-disclosure agreements, the sources said. The initiative allegedly arises from dissatisfaction among some bankers regarding lcap PLC-owned EBS--banks’ No. 1 currency dealing system. Some banks believe they are at a disadvantage trading on the system because quick-moving hedge funds and other nonbank companies were the first permitted to use the system, going back to 2005, Dow Jones said …

Market News (12/09/2010)

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MADISON, Wis. (12/10/10)
* In a sign the labor market continues to improve, initial U.S. claims for unemployment benefits dropped last week by more than economists forecast (Bloomberg.com Dec. 9). Claims declined 17,000--to 421,000--for the week ended Dec. 4, the Labor Department said Thursday. Economists had predicted claims would decrease to 425,000, according to a Bloomberg News survey. The four-week moving average, which aims to smooth out volatility declined 4,000 from the previous week’s revised average of 431,500 to 427,500--its lowest level since Aug. 2, 2008, and the fifth consecutive week the average has declined (The Wall Street Journal Dec. 9). Meanwhile, continuing claims for unemployment benefits dropped 191,000 to roughly 4.09 million for the week ended Nov. 27, although there are millions more people on emergency and extended benefits that are not tallied in that figure (Moody’s Economy.com Dec. 9). “The labor market is moving in the right direction, slowly but surely,” Ryan Sweet, a senior economist at Moody’s Analytics Inc., told Bloomberg. “Things look a little better than they first appeared, but we’re still not creating enough jobs to lower the unemployment rate” … * Values of U.S. homes could decline by more than $1.7 trillion this year as the number of foreclosures increase and homebuyer tax credits expire, according to Zillow Inc., which provides home price data (Bloomberg.com Dec. 9). “With foreclosures near an all-time high in late 2010 and high rates of negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” said Stan Humphries, Zillow chief economist. “Government incentives can only temporarily hold back the tide.” The 2010 estimated decline in home values, along with the $1.05 trillion decrease in 2009, brings the total loss since the June 2006 home-price zenith to $9 trillion, Zillow said. Also, the percentage of homeowners with so-called negative equity hit 23.2% in the third quarter--a rise from 21.8% at the end of 2009 …

News of the Competition (12/08/2010)

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MADISON, Wis. (12/9/10)
* Bank of America Corp. (BofA) may soon be paying more settlements after agreeing to pay $137 million in restitution for its role in a nationwide bid-rigging conspiracy for municipal investment contracts, according to the head of the Justice Department’s Antitrust Division (Bloomberg.com Dec. 8). “Stay tuned to this channel--I think you will see a lot more activity in the coming weeks and months,” said Christine Varney, the department’s antitrust chief. “We are committed to getting restitution, full restitution to all the municipalities that were victims of this scheme.” BofA has provided the government with documents, e-mails and phone call recordings since 2007, according to court records of civil suits, Bloomberg said ... * The European Central Bank (ECB) is fighting with large financial institutions and hedge funds over the future of bond markets in Europe and the safety of Europe’s common currency--the euro (The New York Times Dec. 7). While the ECB is attempting to bolster the bond markets and safeguard the euro, hedge funds and big banks are betting against those bonds and the ECB, the Times said. As the battle intensifies, many financial traders are preparing for what they think will be an inevitable default by Greece, Ireland and perhaps Portugal, the Times said. European finance ministers Tuesday declined to pledge an increase to the emergency fund that the European Union designed to protect the euro …

Market News (12/08/2010)

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MADISON, Wis. (12/9/10)
* Mortgage loan application volume decreased 0.9% on a seasonally adjusted basis for the week ended Dec. 3 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 22.8% compared with the previous week, which included the Thanksgiving holiday. The Refinance Index decreased 1.4%. This is the fourth weekly decline for the Refinance Index, which reached its lowest level since June. The seasonally adjusted Purchase Index rose 1.8%. This is the third weekly increase for the Purchase Index, which reached its highest level since early May. The unadjusted Purchase Index increased 21.3% and was 12% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index is down 8%. For the MBA report, use the link … * Investors are putting their money into commodities markets at a record level as prices rise and U.S. regulators debate about whether to put limits on the amount any one trader can place in markets for agricultural products, metals and energy (The Wall street Journal Dec. 8). This year, hedge funds, mutual funds and pension funds significantly increased their holdings in commodities such has corn, natural gas, silver and wheat, the Journal said. Investors’ contracts have increased 12% in 2010 through October and are at a level 17% higher than June 2008, according to data supplied by the market regulator--the Commodity Futures Trading Commission … * Revenue for U.S. professional, scientific and technical services rose by 5.8% in the third quarter, according to the Quarterly Services Survey issued by the U.S. Census Bureau (Moody’s Economy.com Dec. 8). Also, administrative and support services revenue rose 7.2% in the quarter. Revenue from selected healthcare services went up 3.3% from one year ago. Information industry revenues continued trending upward, increasing 3.5%--marking four consecutive quarters of growth after the recession …

Consumer credit up 1.75 in October

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WASHINGTON (12/8/10)--Consumer borrowing unexpectedly rose $3.4 billion or an annual rate of 1.75% in October to $3.4 trillion--the largest increase since borrowing rose $5.7 billion in July 2008, said the Federal Reserve's consumer credit report released Tuesday. Total credit at credit unions also went up by $700 million to $225.6 billion. It was the second consecutive month that consumer borrowing increased. In September overall credit rose a revised $1.23 billion, ending 19 months of declining credit. Economists had expected October's credit to stay flat (Associated Press Dec. 7). Revolving credit, which includes credit cards, totaled $801.7 billion in October--down 8.5% or $5.64 billion. Nonrevolving credit, however, increased 6.8% or $9.02 billion to nearly $1.6 trillion. Nonrevolving credit includes student borrowing, car loans and mobile homes. It doesn't include debt secured by home equity lines of credit or mortgages. At credit unions, revolving credit for October stayed at 35.3 billion, the same as September. Nonrevolving credit outstanding at credit unions totaled $190.4 billion, an increase of $800 million. To access the report, use the link.

News of the Competition (12/07/2010)

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MADISON, Wis. (12/8/10)
* Discover Financial Services allegedly tricked consumers into purchasing optional products that would keep them safe from financial hardship and fraud, according to a lawsuit filed Monday by the Minnesota attorney general (The New York Times Dec. 6). “It’s a case of a credit card company playing gotcha, rather than playing fair with consumers,” said Lori Swanson, the Minnesota attorney general, who added her office’s investigation was prompted by consumer complaints in the state. “People think their credit card company is going to prevent fraudulent charges, not make them,” she said. The lawsuit alleges Discover made “aggressive, misleading and deceptive” telemarketing calls to get consumers to sign up for products that include identity theft protection and credit score tracker. Discover officials responded it was not in their interest “to sell a product that doesn’t enhance our relationship with our card members” … * Wells Fargo & Co.--the biggest U.S. home lender--would be open to acquisitions in its wealth-management business and is adding employees in that area, said CEO John Stumpf (Bloomberg.com Dec. 7). He added that the company is “sub-optimized” in wealth management and has a smaller market share than in its overall deposit base. Stumpf’s goal of improving cross-selling, or offering more products to existing clientele, could be helped by increasing the size of Wells Fargo’s brokerage and retirement unit, Bloomberg said … * U.S. Bank and Visa have partnered with DeviceFidelity, FIS and Montiste to introduce a new way for customers to make purchases using their mobile phone (BusinessWire Nov. 16). By waving their phone in front of a Visa payWave contactless payment terminal, customers can pay for purchases. Issued by U.S. Bank, a DeviceFidelity In2Pay microSD is inserted in the customer’s mobile phone or within a specially-designed iPhone case. U.S. Bank is one of the first major U.S. card issuers to pilot this technology, and employees in multiple states will begin testing it this month. Plans are underway to introduce it to select customers next year ...

Market News (12/07/2010)

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MADISON, Wis. (12/8/10)
*For the first time in three months, job openings in the U.S. increased in October--hitting the highest level in two years (Bloomberg.com Dec. 7). Openings rose 351,000 to 3.36 million--the most since August 2008, the Labor Department said Tuesday. The October number of openings is up 12% from September and reverses two months of declines (The New York Times Dec. 7). Since July 2009, a month after the recession ended, the number of available jobs has increased by roughly one million, or 44%--still significantly below the 4.4 million advertised in December 2007, when the recession started, the Times said. “There are opportunities out there,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “It’s clearly not enough.” In a related matter, hiring intentions of U.S. employers is improving, according to Milwaukee-based Manpower Inc., the second-largest provider of temporary workers in the world (Bloomberg.com Dec. 7). Manpower said Tuesday its employment gauge for January through March 2011 increased to 9 after adjustments were made for seasonal variations--the highest level in more than two years. “Companies are feeling the demand, and they’re getting a bit more confident,” said Jeffrey Joerres, Manpower CEO. “On a relative basis, we still have a ways to go, but to have this kind of hiring intention coming into the first quarter is positive” … * U.S. chain store sales declined last week because of a holiday shopping lull following the spree of Black Friday weekend, according to the International Council of Shopping Centers (ICSC) (Moody’s Economy.com Dec. 7). Sales declined 2.1% for the week ended Dec. 4 and year-over–year growth fell 2.6%--the slowest growth in the past five weeks. Shopping has proceeded at a slower pace in recent years although purchases are not as far behind as they were in the past two weeks, the ICSC noted in its holiday spending survey … * In 2011, U.S. manufacturing and service sectors will grow, with manufacturing revenue predicted to rise 5.6%, according to the Institute for Supply Management’s (ISM) semiannual forecast released Tuesday (The New York Times Dec. 7). Nonmanufacturing sector revenue--which consists of primarily service sector businesses--is anticipated to rise 3.4% in 2011, ISM said. Capital investment in the manufacturing sector should vault 14.5% in 2011, while nonmanufacturing sector capital is forecast to increase 3.7% …

News of the Competition (12/06/2010)

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MADISON, Wis. (12/7/10)
* U.S. financial firms are considering whether to move up their bonus payouts to employees to this month instead of next year because of concerns that legislators will permit taxes to rise for the wealthiest citizens, beginning in 2011 (The New York Times Dec. 5). A typical worker who earns a $1 million bonus on Wall Street would pay $40,000 to $50,000 more in taxes--depending on base salary--in 2011 than in 2010 if Congress decides not to extend the Bush-era tax cuts for the highest income levels, the Times said. Goldman Sachs is one of the financial firms debating how to time bonus seasons, according to sources familiar with the discussion, the Times said … * In response to requests from companies to consider restricting class-action lawsuits, the U.S. Supreme Court has agreed to decide whether Wal-Mart Stores Inc. must deal with a gender-bias suit filed on behalf of potentially one million of its workers (Bloomberg.com Dec. 6). The high court said Monday it will review a federal appeals court decision that approved a single lawsuit to consider the claims of women who worked at 4,400 Wal-Mart and Sam’s Club stores since 2001. The suit--which could expose Wal-Mart to billions of dollars in liability--would be the largest U.S. employment class action suit in history, Bloomberg said …

Market News (12/06/2010)

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MADISON, Wis. (12/7/10)
* The U.S. economy is barely growing at a sustainable pace, so to spark growth the Fed may expand bond purchases beyond the $600 billion target it announced in November, Federal Reserve Chairman Ben Bernanke said Sunday on CBS’s “60 Minutes” in an interview (Bloomberg.com Dec. 6). “We’re not very far from the level where the economy is not self-sustaining,” Bernanke said in the interview. “It’s very close to the border. It takes about 2.5% growth just to keep unemployment stable and that’s about what we’re getting.” Bernanke also said the chance of unemployment remaining elevated for a prolonged period was “the primary source of risk that we might have another slowdown in the economy” (The Wall Street Journal Dec. 5). Given how fragile the economy still is, Congress should not slash spending or boost taxes, Bernanke added (The New York Times Dec. 6). It could take another four to five years for unemployment--currently at 9.8%--to drop to a typical 5% or 6%, he added … * Business sentiment worldwide has risen slightly in the past few weeks, according to Moody’s Analytics Survey of Business Confidence (Dec. 6). Businesses responding to the most recent survey indicate that hiring intentions remain solid--a contrast to the weakness made evident in the U.S. employment report in November, Moody’s said. Although equipment investment remains robust, businesses’ largest hurdle is weak pricing--but deflation does not appear to be a threat, Moody’s said. Businesses do not expect to see a substantial pick-up in activity anytime soon since near-term expectations have not improved, Moody’s added …

News of the Competition (12/03/2010)

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MADISON, Wis. (12/6/10)
* Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co. are taking steps--by hiring bankers who deal with millionaire clients--to deal with stricter capital rules that are reducing investment banking returns (Bloomberg.com Dec. 3). Leaders of the Group of 20 nations approved plans last month to more than double capital requirements of banks in response to industry losses of more than $1.3 trillion from 2007 through 2009. The change provides renewed incentive for banks to concentrate on less risky and less capital-intensive units, such as overseeing assets for wealthy client, Cedric Tille, a professor at the graduate institute in Geneva and former economist at the Federal Reserve Bank of New York, told Bloomberg. “It’s a natural reaction for banks to go more toward fee-based advisory activities in response to capital requirements,” said Tille. “If they make a mistake, it’s only the clients who get upset” …

Market News (12/03/2010)

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MADSION, Wis. (12/6/10)
* The U.S. unemployment rate rose to 9.8% in November, and the economy added just 39,000 jobs during the month, the Labor Department said Friday, in an unexpected blow to market expectations and the economic recovery (The New York Times Dec. 3). November’s numbers fell short of the consensus forecast of an unchanged 9.6% unemployment rate and 150,000 jobs added. More than 15 million people who are searching for work, cannot find jobs (The Wall Street Journal Dec. 3). “The labor market is not turning around, and that’s key to the overall recovery,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. “Anyone who feels that the Fed perhaps acted too prematurely [in a new round of monetary stimulus] is definitely going to have to eat their words” (Bloomberg.com Dec. 3) … * In an indication the U.S. economic recovery is widening, U.S. service (nonmanufacturing) industries grew in November at the fastest pace in six months (Bloomberg.com Dec. 3). The Institute for Supply Management’s nonmanufacturing index--which measure roughly 90% of the economy--increased to 55 from 54.3 in October. Readings above 50 indicate growth. “The economy is improving,” said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, N.C. “Its’ a sluggish recovery. The consumer is starting to spend, starting to show renewed confidence in the recovery” … * For the first time in four months, orders placed with U.S. factories for manufactured goods declined in October because of a demand drop-off for durable goods that indicates investment in new equipment may be lagging (Bloomberg.com Dec. 3). Manufactured goods orders dropped 0.9%, the Commerce Department said Friday. Also, orders for durable goods--those meant to last at least three years--were revised even lower to a 3.4% decline (Moody’s Economy.com Dec. 3). Nondurable goods orders increased 1.5%. “I don’t think we’re in for a prolonged downtrend in new orders, but this is a reflection of the weakness we saw in demand over the summer,” said Scott Anderson, a senior economist at Wells Fargo Securities Inc. in Minneapolis. “We had a buildup of inventories over the summer and that’s having a consequence” …

News of the Competition (12/02/2010)

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MADISON, Wis. (12/3/10)
* Virgin Money, a financial services firm owned by British billionaire Sir Richard Branson, has bowed out of the U.S. market three years after entering it, with the purchase of peer-to-peer lending company CircleLending Inc. (American Banker Dec. 2). An imprecise vision and poor timing were the downfalls of the company’s U.S. venture, analysts said. Virgin Money attempted to enter the U.S. market in two areas that experienced substantial setbacks during the credit crisis--wholesale mortgage lending and peer-to-peer lending, the Banker said. “Their timing happened to coincide with a financial collapse that was global and the U.S. is a different kind of market,” Mark Schwanhausser, a senior analyst at Javelin Strategy and Research in Pleasanton, Calif., told the publication …

Market News (12/02/2010)

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MADISON, Wis. (12/3/10)
* U.S. claims for unemployment benefits declined for the month ended Nov. 27, averaging 431,000 a week--the lowest level since August 2008--indicating the job market is on the mend, the Labor Department said Thursday (Bloomberg.com Dec. 2). However, initial claims for unemployment benefits for the week ended Nov. 27 rose 26,000 to 436,000. “Lower lows and higher highs define a downward trend, and that’s what seems finally to be emerging,” said Ian Sheperdson, chief U.S. economist at High Frequency Economics LLC. “If it continues, we should see better payroll numbers over the next few months.” In a related matter, the Monster Employment Index, which monitors help-wanted ads placed online, fell two points between October and November, dropping to a level of 134, according to Monster Worldwide, Inc. (Moody’s Economy.com Dec. 2). Although the Monster index is still 13% above its year-ago level, it has declined on net since June, Moody’s said … * Pending home sales jumped in October, showing a positive uptrend since bottoming in June, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator, rose 10.4% to 89.3 based on contracts signed in October from 80.9 in September. The index remains 20.5% below a surge to a cyclical peak of 112.4 in October 2009, which was the highest level since May 2006 when it hit 112.6. Last October, first-time buyers were motivated to make offers before the initial contract deadline for the tax credit last November. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, said excellent housing affordability conditions are drawing home buyers. “It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011,” he said. “More importantly, a return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low risk borrowers is needed and could quickly help in the housing and economic recovery,” Yun added. For the NAR report, use the link … * Aggressive discounting that began early in November helped U.S. retailers post a robust start to the holiday shopping season (The Wall Street Journal Dec. 2). Sales at stores open at least one year increased 6% in November--the largest increase since 2007 except for a 9.2% gain in March 2010--and significantly besting the 2.6% analysts had expected (The New York Times Dec. 2). “You can’t take what happened in November and say this is what’s going to happen for the season,” Paula Rosenblum, managing partner at Retail Systems Research, a retail advisory firm, told the Journal. “Consumers are experiencing frugality fatigue, so they went out there and shopped for bargains. The real test is whether they will continue to spend,” she added. A Credit Union National Association (CUNA)/Consumer Federation of America (CFA) survey has offered a glimpse of some improvement in holiday retail sales. One in 10 respondents to a CUNA/CFA holiday spending survey said that they would spend more than they spent last year when making their yearly gift selections. That beats 2009 results when only 8% intended to increase their holiday spending (News Now Nov. 23) ...

News of the Competition (12/01/2010)

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MADISON, Wis. (12/2/10)
* Reports from the 12 Federal Reserve Districts indicate that the economy continued to improve, on balance, during the reporting period from early/mid-October to mid-November. Economic activity in the Boston, Cleveland, Atlanta, Dallas, and San Francisco districts increased at a slight to modest pace, while a somewhat stronger pace of economic activity was seen in New York, Richmond, Chicago, Minneapolis and Kansas City. Philadelphia and St. Louis reported business conditions as mixed. Manufacturing activity continued to expand in almost all districts, with relatively strong growth seen in metal fabrication and the automotive industries. Reports also showed steady to increasing activity for professional and nonfinancial services. Two districts noted a decline in demand from government agencies due to budgetary shortfalls. Reports on consumer spending tended to be positive. However, several districts noted that households remain price sensitive and focused on buying necessities. Expectations for the holiday shopping season were generally positive, with several districts expecting higher sales when compared to year-ago levels. Sales of new cars and light trucks were largely higher than in the last report. Tourism improved in all reporting districts. For the Fed Beige Book, use the link … * General Motors Co. (GM) Wednesday said its November sales increased 11.4% to 168,739 vehicles from 151,427 a year earlier. Four GM brands--Buick, Cadillac, Chevrolet and GMC--are on pace to gain market share for the year (The Wall Street Journal Dec. 1). Last month, GM introduced an initial public stock offering that aims to raise roughly $23.1 billion, which would allow the U.S. government to reduce its 61% ownerships stake in the automaker by roughly half, the Journal said …

Market News (12/01/2010)

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MADISON, Wis. (12/2/10)
* Bolstered by increased hiring at small businesses, U.S. private-sector firms boosted payrolls in November more than anticipated, according to data from private company ADP Employer Services (Bloomberg.com Dec. 1). Employment grew by 93,000--the most since November 2007--following a revised gain of 82,000 in October. Economists had anticipated ADP would report a 70,000 job gain in November (I>The Wall Street Journal Dec. 1). “The report says the economy is expanding,” Hugh Johnson, chief investment officer at Hugh Johnson Advisors LLC in Albany, N.Y., told Bloomberg. “You have to really anticipate that it’s going to be small businesses that will be the primary source of hiring.” In a related matter, U.S. businesses grew at a faster pace than anticipated in November, indicating the world’s biggest economy is on the mend heading into the new year (Bloomberg.com Nov. 30). The Institute for Supply Management-Chicago Inc. Tuesday said its business barometer increased to 62.5--the highest level since April--from 60.6 in October. Economists had forecast a drop to 59.9 in November, according to a Bloomberg survey … * Third-quarter U.S. worker productivity bounced back more than previously estimated, indicating companies were concentrating on controlling costs (Bloomberg.com Dec. 1). Nonfarm business productivity--measured as employee output per hour--increased at a 2.3% annual rate, up from the initial reading in November of a 1.9% gain (Moody’s Economy.com Dec. 1). “In the third quarter, companies were still trying to squeeze whatever they could out of their workforce, but it’s pretty evident the current labor levels are about as tight as they come,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, told Bloomberg. “We’re beginning to see better momentum in the economy” … * Mortgage loan application volume decreased 16.5% on a seasonally adjusted basis for the week ended Nov. 26 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). This week’s results include an adjustment to account for the Thanksgiving holiday. On an unadjusted basis, the Index decreased 34.2%. The Refinance Index decreased 21.6%. This is the third weekly decrease for the Refinance Index, which reached its lowest level since June 2010. The seasonally adjusted Purchase Index increased 1.1% and is at its highest level since the beginning of May 2010. The unadjusted Purchase Index decreased 22.9% and was 2.7% higher than the same week one year ago. For The MBA report, use the link …