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News of the Competition (02/26/2010)

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MADISON, Wis. (3/1/10)
* American International Group (AIG) Friday posted an $8.87 billion loss for the fourth quarter as it continues to be beset by divestment charges and investment writedowns--including billions of dollars in bailout loans received from the federal government, analysts said. The quarter’s results were a substantial improvement from a year ago when AIG reported a $62 billion quarterly loss--the biggest in company history, analysts said. AIG reported $6.2 billion in expenses for repaying government loans (The Wall Street Journal and The New York Times Feb. 26) … * Leverage and capital requirements proposed by the Basel Committee on Banking Supervision would require hundreds of billions of dollars in new equity and would further eat into profitability and shareholder returns, according to a report released Thursday by the Boston Consulting Group (BCG). The report predicts a “two-speed” banking system in the future--with major banks in developed countries---particularly in the U.S.--operating at the lower speed. Because of high leverage for U.S. consumers, the demand for credit is limited, said Lars-Uwe Luther, a BCG partner based in Berlin and one of the study’s authors. “There’s a strong correlation between [economic] development and banking revenues,” he added. BCG estimated that overall Tier 1 capital ratios of North American banks would decline to 4.5% from 11.1% and the average for European banks would fall to 4.8% from 9.9% (American Banker Feb. 26) … * Envelope-free ATMs have resulted in deposit increases beyond what was anticipated, according to JPMorgan Chase & Co. executives. With envelope-free ATMs, customers deposit cash and checks directly into an ATM without putting them into an envelope. Chase ATM deposits expanded 75% in the first 12 months, following deployment of each intelligent-deposit ATM, said Brad Nolan, JPMorgan Chase senior vice president of ATM and cash operations. Although he would not divulge transaction numbers, Nolan noted, “We received a significant lift” (PaymentSource via American Banker Feb. 26) …

Market News (02/26/2010)

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MADISON, Wis. (3/1/10)
* A small upward revision was made to the U.S. gross domestic product (GDP) this week. GDP rose at a 5.9% seasonally adjusted rate in the fourth quarter--the fastest rate since the third quarter of 2003, the Commerce Department said Friday. The revision was consonant with expectations, analysts said. An advance release in January had reported a 5.7% GDP increase. The upward adjustment came from revisions to exports, inventories and business investment--which more than offset an upward revision to imports and downward revisions to consumer and state and local spending, analysts said. However, consumers spent less in the fourth quarter than originally thought as real consumer spending increased at a 1.7% annual rate--compared with the previously estimated 2% uptick, analysts said. “There’s still room for inventories to add to growth,” said James O’Sullivan, global chief economist at MF Global Ltd. “Going forward, the question comes back to sustainability, and the key to that is a clear pickup in the labor market, which I think is coming” (Moody’s Economy.com, The Wall Street Journal and Bloomberg.com Feb. 26) … * Existing-home sales declined in January but are above year-ago levels, according to the National Association of Realtors (NAR). Existing-home sales--including single-family, townhomes, condominiums and co-ops--dropped 7.2% to a seasonally adjusted annual rate of 5.05 million units in January from a revised 5.44 million in December, but remain 11.5% above the 4.53 million-unit level in January 2009. Lawrence Yun, NAR chief economist, said there is still some delay between shopping and closing that affected current sales. “Most of the completed deals in January were based on contracts in November and December,” he said. “People who got into the market after the home buyer tax credit was extended in November have only recently started to offer contracts, so it will take a couple months to close those sales. Still, the latest monthly sales decline is not encouraging, and raises concern about the strength of a recovery.” Total housing inventory at the end of January fell 0.5% to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December. Raw unsold inventory is 9.6% below a year ago, and is at the lowest level since March 2006. For the NAR report, use the link … * U.S. consumer sentiment dipped slightly in February, according to the University of Michigan consumer sentiment index. The index dropped to 73.6 from a preliminary 73.7 and January’s 74.4. The index remains on an upward trend despite sliding below the cyclical high reached in January, analysts said. The January decline was caused by the expectations component of the index. Assessments of current conditions increased in the month, while inflation expectations fell, analysts said. Despite moderating job losses, a dip in the overall unemployment level, and recent improvements in the housing sector that continue to push hopes of a sustained confidence increase, overall consumer fundamentals--high unemployment and gas prices, stock market declines and difficulty in obtaining credit--are still quite weak, analysts said (Moody’s Economy.com Feb. 26) …

News of the Competition (02/25/2010)

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MADISON, Wis. (2/26/10)
* Government-sponsored enterprise Freddie Mac released data Wednesday that indicates some lenders are not stepping up to honor repurchase requests for some troubled mortgages “in a timely manner,” reported American Banker (Feb. 25). As of Dec. 31, roughly $4 billion in loan repurchases were unfulfilled by some big-bank customers--a rise of about one-third from a year earlier, Freddie said. Almost 30% of those requests had been outstanding for in more than three months. In efforts to manage a plethora of delinquencies on their books, Freddie and Fannie Mae have increased their repurchase requests during the past 18 months, the publication said … * Prepaid card companies are creeping into banks’ territory by offering the advantages of a bank account without needing an actual account (American Banker Feb. 25). An increasing number of prepaid card companies are introducing features such as savings accounts, online banking and bill pay, and even lines of credit. These features are allowing card accounts to function like basic checking accounts, say some industry observers. Card company executives claim their products make it simpler for the unbanked to eschew banks and may even cause banks to increase their prepaid offerings, the publication said. However, banks will perpetually have a marketing advantage over prepaid card companies--and adding advanced capabilities to prepaid cards could cause some consumers to go to a bank branch where those features--and others--are standard fare, industry experts said … * In 2010, hedge-fund assets could rise 14% because proposed federal regulations are allaying the fears of risk-averse investors, according to Eurekahedge Pte. Assets could climb to $1.68 trillion this year, compared with roughly $1.48 trillion in 2009--the best annual performance by fund managers in six years, said Eurekahedge. “We can expect greater allocations to hedge funds throughout the year,” the company added. “The sharp change in market conditions in the middle of January has resulted in greater risk aversion and as such, investors are seeking greater downturn protection, which hedge funds have traditionally provided in addition to greater returns over the long term,” the company said (Bloomberg.com via American Banker Feb. 25) …

Market News (02/25/2010)

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MADISON, Wis. (2/26/10)
* U.S. house prices dropped slightly in the fourth quarter, according to the Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index (HPI). The HPI was 0.1% lower on a seasonally adjusted basis in the fourth quarter than in the third quarter. The index is derived by using home-sales price information from Fannie Mae- and Freddie Mac-acquired mortgages. Over the course of 2009, seasonally adjusted prices dropped 1.2%, FHFA said. Prices rose in the latest quarter in 27 states and Washington, D.C. Prices increased in the latest four quarters in 19 states. For the FHFA report, use the link … * Initial claims for unemployment benefits unexpectedly climbed 22,000 to 496,000 for the week ended Feb. 20, the Labor Department said Thursday. Economists had anticipated initial claims would decrease by 13,000, according to a Dow Jones Newswires survey. The prior week’s level was upwardly revised to 474,000 from 473,000--bringing claims to their highest level since Nov. 14. Meanwhile, continuing claims rose by 6,000 to more than 4.6 million for the week ended Feb. 13. Claims need to drop to about 400,000 per week to be consistent with a stable market, said Mark Zandi, chief economist with Moody’s Economy.com. And to be consistent with sufficient job growth, claims would have to plunge to around 350,000 per week, Zandi added (The Wall Street Journal and Moody’s Economy.com Feb. 25) … * New orders for U.S manufactured durable goods unexpectedly surged 3% in January--the biggest increase since a 5.8% gain in July. The jump in orders was attributed to an increase in civilian aircraft orders, analysts said. However, orders excluding transportation dropped 0.6%--a weaker showing than economists had anticipated. That drop followed increases of 2% in December and November. Also, demand for autos, machinery and several other products declined last month--a sign that manufacturing still is confronting obstacles that could slow down an economic recovery, analysts said. Economists hope the economy will improve because manufacturers are experiencing increased demand from a recovering domestic economy and bolstered export sales. “There’s no reason to think this is the start of a double-dip--some back and fill is standard operating procedure in recoveries,” said Chris Low, chief economist at FTN Financial. “Rising jobless claims, weaker orders and falling consumer confidence suggest the economy is retrenching in the first half of the first quarter” (The New York Times, Moody’s Economy.com and Bloomberg.com Feb. 25) …

News of the Competition (02/24/2010)

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MADISON, Wis. (2/25/10)
* U.S. banks may grow their short-term lending at interest rates of 120% or higher in attempts to replace more than $15 billion in revenue lost to government regulations that limit overdraft fees banks can charge customers, analysts said. “The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group. Banks, including San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank; U.S. Bancorp, based in Minneapolis; and Cincinnati-based Fifth Third Bancorp already are making such loans, typically from $100 to $500, at annual rates of 120% if the loans are repaid within 30 days. They are dubbed “checking advance products.” This puts them in competition with payday loan stores, which lend at similar terms to customers who usually lack credit cards to tide them over until their paycheck arrives, according to Rowe, whose firm advises banks (Bloomberg News via American Banker Feb. 24) … * Bank of America Corp. (BofA) finished its plan to exit the government’s Troubled Asset Relief Program (TARP) after investors authorized an increase to the company’s outstanding shares, reported American Banker (Feb. 24). BofA, a $2.4 trillion-asset company, conducted a special shareholders meeting Tuesday in which 76% of the attendees voted to increase the issuance of common stock by 13% to 11.2 billion shares. If investors had rejected the proposal, BofA would have issued warrants that would have been converted to 60 million shares of common stock in the future, the publication said. BofA, which repaid its TARP money in December, already had sold $19.29 billion in common equivalent securities under TARP … * Lenders are upset about the Real Estate Settlement Procedures Act (RESPA), which went into effect Jan. 1, because they no longer can require borrowers to show proof of income--such as a tax return or pay stub--before providing the borrower with a good-faith estimate (GFE) of closing costs (American Banker Feb. 24). “If you don't have pre-approval letters, then realtors are going to have to show people houses whether they can afford them or not,” David Dickinson, president of Bankers Compliance Consulting Inc. in Central City, Neb., told the publication. Lenders are not barred from accepting documents, only from requiring them prior to issuing a GFE, said Vicki Bott, the deputy assistant secretary for single family housing at the Department of Housing and Urban Development. RESPA rules on when credit unions must supply the Department of Housing and Urban Development’s (HUD) “Shopping for Your Home Loan: HUD’s Settlement Cost Booklet” have not changed, according to Kathy Thompson, senior vice president for compliance with the Credit Union National Association (News Now Dec. 30). Also under the RESPA amended rules, credit unions do not have to change their compliance procedures for closing home equity lines of credit, Thompson added ... * Following two years of losses, U.S. thrifts reported small profits in 2009 as the industry stabilizes during a gradual economic recovery, analysts said. Last year, savings and loans collectively earned $29 million, following net losses of $15.9 billion in 2008 and $649 million in 2007. Thrifts’ fourth-quarter earnings of $505 million constituted the second consecutive profitable quarter. The number of troubled thrifts--those having low capital reserve levels and other problems--remained the same at 43 for October-through-December 2009, compared with the third quarter. However, that is an increase of 26 from a year earlier, analysts said (The Associated Press via The New York Times Feb. 24) …

Market News (02/24/2010)

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MADISON, Wis. (2/25/10)
* Mortgage loan application volume declined 8.5% on a seasonally adjusted basis for the week ended Feb. 19 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). “As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak,” said Michael Fratantoni, MBA vice president of research and economics. “With home prices continuing to drift amid an abundant inventory of homes on the market, potential homebuyers do not see any urgency to lock in purchases.” The Refinance Index decreased 8.9% from the previous week. The seasonally adjusted Purchase Index dropped 7.3% from one week earlier, putting the index at its lowest level since May 1997. The unadjusted Purchase Index declined 3.6% compared with the previous week and was 13.4% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index is up 1.6%. The four-week moving average is down 2.1% for the seasonally adjusted Purchase Index, while this average is up 3.2% for the Refinance Index. For the MBA report, use the link … * U.S. new-home sales unexpectedly dropped in January, fueling concerns that a rebound in the housing market could be difficult amid high unemployment and large debt burdens--even with the extension of a government tax credit for buyers, analysts said. Purchases declined 11.2%--the third consecutive month of decreases--to a seasonally adjusted annual rate of 309,000, the Commerce Department said Wednesday. That level is the lowest since record-keeping started in 1963. Economists had predicted a 3.8% rise to 355,000, according to a Dow Jones Newswires survey. Foreclosed properties that have forced home prices down at the same time companies are hesitant to create jobs are providing stiff competition for homebuilders, analysts said. “The foreclosure flow is robbing demand from the new-home market and that process seems to be strengthening,” said Julia Coronado, a senior economist at BNP Paribas. “The new-homes market just can’t get off the floor. If new homes suffer, construction suffers and jobs suffer” (The New York Times, The Wall Street Journal and Bloomberg.com Feb. 24) …

News of the Competition (02/23/2010)

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MADISON, Wis. (2/24/10)
* The list of U.S. “problem” lenders jumped to the highest level in 17 years, according to the Federal Deposit Insurance Corp. (FDIC). Also, the FDIC fund that protects customers against bank failures extended its deficit into a second quarter, the agency said. As of Dec. 31, FDIC included 702 banks with $402.8 billion in assets on its confidential list. This constituted a 27% rise from 552 banks with $345.9 billion in assets at the end of the third quarter, FDIC said Tuesday. The deposit insurance fund has a deficit of $20.9 billion, FDIC added. Many of the 8,100 U.S. lenders basically broke even in 2009, and many are in fragile shape--particularly the smallest lenders, FDIC said. Twelve consecutive quarters of rising bad corporate, credit card and mortgage loans contributed to the problem. “Consistent with a recovering economy, we saw signs of improvement in industry performance,” Sheila Bair, FDIC chairman, said. “But we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets” (Bloomberg.com and The New York Times Feb. 23) … * U.S. commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported an aggregate profit of $914 million in the fourth quarter of 2009--a $38.7 billion improvement from the $37.8 billion net loss the industry sustained in the fourth quarter of 2008. However, that still is well below historical norms for quarterly profits, FDIC said. More than half of all institutions--50.3%--reported year-over-year improvements in their quarterly net income. Almost one-third of all institutions--32.7%--reported net losses for the quarter, compared with 34.6% a year earlier. For the full year, banks reported net income totaling $12.5 billion--up from $4.5 billion in 2008. For FDIC Quarterly Banking Profile, use the link … * To cap origination fees on Federal Housing Administration (FHA) loans, the Department of Housing and Urban Development may use the newly implemented good faith estimate (GFE) disclosure, analysts said. All lender origination fees--including yield spread premiums--are captured in “Block 1” of the GFE. “We are actually looking at capping Block 1 fees,” said Vicki Bott, who is in charge of FHA’s single-family program. “[In setting an origination fee limit] we are not going to be extra conservative.” FHA intends to consider loan size so that lenders making $40,000 loans are not penalized, analysts said (National Mortgage News via American Banker Feb. 23) … * The Department of Housing and Urban Development (HUD) will soon issue a final rule that will provide mortgage bankers more time to adjust to forthcoming higher net worth requirements. “[The final rule] will ensure there is a chance to ramp up to the new requirements,” said Vicki Bott, assistant secretary with the Federal Housing Administration (FHA). HUD aims to increase its minimum net worth requirements for FHA lenders to $2.5 million from the current 250,000 (National Mortgage News via American Banker Feb. 23) …

Market News (02/23/2010)

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MADISON, Wis. (2/24/10)
* U.S. consumer confidence dropped more than expected in February to the lowest level since April 2009. The job outlook slipped--a signal that spending may be slow to take root as the economy recovers, analysts said. The Conference Board, a private research group, said its confidence index decreased to 46 in February, from a revised 56.5 in January--originally reported as 55.9. Economists surveyed by Dow Jones Newswires anticipated a February reading of 54.8. The confidence plunge is consistent with past months that experienced bad weather such as blizzards, the board said. “Consumers are having a bumpy start to the year,” said Julia Coronado, a senior U.S. economist at BNP Paribas. “They took another minor hit to their wealth as the stock mark took a breather, and labor market conditions are still difficult” (Bloomberg.com, Moody’s Economy.com and The Wall Street Journal Feb. 23) … * For a seventh consecutive month, home prices in 20 U.S. cities in December climbed, a sign that the housing industry--which was the key cog in the worst recession since the 1930s--is stabilizing, analysts said. The Standard & Poor’s/Case-Shiller home index released Tuesday increased 0.3% from November to December, to a seasonally adjusted level of 145.87. The measure was down 3.1% from December 2008--the smallest decline since May 2007, analysts said. The largest price increases were in Los Angeles and Phoenix. Chicago had the worst result, with a 0.6% decline. Homes are becoming more affordable because of rising incomes, government credits and lower property values, analysts said. However, a sustained housing recovery still must overcome obstacles that include a weak labor market, rising foreclosures and the eventual termination of a Federal Reserve program to keep borrowing costs low, analysts added. “It’s reassuring that we’re seeing stabilization and outright increases in home prices,” said Michael Feroli, an economist at JPMorgan Chase & Co. Home prices are expected to be “flat” in coming months, he added (Bloomberg.com, The New York Times and Moody’s Economy.com Feb. 23) … * U.S. mass layoffs--the number of layoffs involving at least 50 workers from a single business--rose to 1,761 in January from 1,726 in December, according to the Bureau of Labor Statistics. The layoffs involved 182,261 workers, an increase from 153,127 in December. To get to pre-recession levels, the number of workers affected by mass layoffs needs to remain below 150,000 per month, analysts said. The manufacturing sector accounted for 34% of all mass layoffs and 38% of initial claims. Cold weather likely boosted the mass layoffs in January--especially in construction, analysts said (Moody’s Economy.com Feb. 23) …

News of the Competition (02/22/2010)

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MADISON, Wis. (2/23/10)
* Four failed banks were closed Friday by regulators and entered purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC), bringing the 2010 total to 20 failures, following 140 failures last year. Friday’s failed banks include: Marco Community Bank, Marco Island, Fla.--taken over by Mutual of Omaha Bank, Omaha, Neb; La Coste National Bank, La Coste, Texas--taken over by Community National Bank, Hondo, Texas; George Washington Savings Bank, Orland Park, Ill.--taken over by FirstMerit Bank, National Association, Akron Ohio; and La Jolla Bank FSB, La Jolla, Calif.--taken over by OneWest Bank FSB, Pasadena, Calif. The four closed institutions held nearly $4.2 billion in aggregate assets as of Dec. 31. The FDIC estimated that the four banks’ failure will cost the Deposit Insurance Fund about $1.06 billion ... * Beginning yesterday, credit card issuers had to be in compliance with the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act that fundamentally changed some industry practices, reported American Banker (Feb. 22). After complaining about the effects of the new restrictions, credit card executives--in the wake of finishing compliance requirements--now appear pragmatic and even positive about them, the publication said. “The compliance requirements are what they are,” Ric Struthers, president of global card services for Bank of America Corp., told the publication. “We could go back and wish that they were something different … but you move forward, you make changes, you do the best thing you can do for your customers.” However, some consumer advocates, while championing the CARD Act, believe it doesn’t go far enough, the publication said. The CARD Act generally affects card issuers’ billing cycles, certain types of fees, and interest rates on existing balances … * Commercial and industrial loans at U.S. banks declined $1.7 billion to roughly $1.309 trillion for the week ended Feb. 10--the most recent week for which data is available. That follows a $2.9 billion drop during the previous week, the Federal Reserve said Friday. In the most recent data, revolving home equity loans remained roughly the same at $598.1 billion after climbing $200 million the prior week. Jumbo certificates of deposit declined $2.4 billion to roughly $1.86 trillion, after falling $2.2 billion the prior week (Dow Jones Newswires via American Banker Feb. 22) …

Market News (02/22/2010)

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MADISON, Wis. (2/23/10)
* Global business sentiment has rebounded from falling to its nadir about a year ago, according to the Moody’s Economy.com Survey of Business Confidence. The improvement has been about the same worldwide, with South Americans slightly more positive and North Americans less so. Businesses are more optimistic when responding to more general questions about current conditions and the outlook heading into the upcoming summer. Businesses still remain cautious with their mood still consonant with only a tentative worldwide economic recovery, Moody’s said. Financial and business services firms are exhibiting the strongest confidence, while the weakest is manifested among those who work in government and real estate, analysts said. Manufacturing firms are in between (Moody’s Economy.com Feb. 22) … * The Federal Reserve Bank of Chicago’s national activity index climbed slightly to 0.02 in January from an upwardly revised -0.58 (previously -0.61) in December. The index’s three-month moving average rose to -0.16. For the second time in the past three months, the index was slightly positive--which is consistent with an economy recovering from recession, analysts said. The consumption and housing category remains the weakest major component of the index. The index’s four major components are either improving or no longer deteriorating. Layoffs have been scaled back, with industrial production continuing to increase as firms step up production to stem a decrease in inventories, analysts said (Moody’s Economy.com Feb. 22) … * After a tough year in which costly fees and tight terms were the norm--if loans could be procured at all--highly rated companies are finding it easier to obtain short-term financing from banks, analysts said. Bank officials and corporate treasurers say conditions are improving and will continue to do as companies aim to refinance loans made in tougher times, analysts said. However, prices remain elevated and the length of credit is shorter than before the credit crisis, analysts added. Thus far in 2010, investment-grade companies have geared up more than $10 billion of bank credit facilities--more than double the volume at this time in 2009, according to Thompson Reuters LPC. Last year, top-rated companies took out $229 billion worth of bank loans--the lowest amount since 1992, analysts said (Dow Jones Newswires via American Banker Feb. 22) …

News of the Competition (02/19/2010)

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MADISON, Wis. (2/22/10)
* Commercial real estate loans in the U.S. are heading toward a foreclosure crisis, analysts said. “There’s been an enormous bubble in commercial real estate, and it has to come down,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog group created by Congress to keep tabs on the financial bailout. “There will be significant bankruptcies among developers and significant failures among community banks.” Nearly 3,000 community banks--40% of the banking system--have a high level of commercial real estate loans relative to their capital, Warren said. “Every dollar they lose in commercial real estate is a dollar they can’t use for small businesses,” she said. Individual consumers--who saw the value of their homes fall in the residential mortgage crisis--would not sustain that level of loss. However, a large-scale failure would “throw sand into the gears of economic recovery,” Warren added (The Washington Post Feb. 19) … * As part of the financial industry bailout, the Treasury Department took warrants in four major banking companies. On Thursday, the department said it would auction off those warrants, reported American Banker (Feb. 19). Treasury took warrants in more than 280 companies that received financial aid through the Troubled Asset Relief Program (TARP). Holders of the warrants can buy common shares of the company at a fixed price for up to 10 years from the date they are issued. After a bank makes repayments to TARP, it has two weeks to determine if it wants to directly buy back its warrants or allow the Treasury to auction them off ... * Capital One Financial Corp. will reimburse more than 18,000 customers a collective $775,000 because of complaints over unfair credit card closing practices, the Office of the Comptroller of the Currency (OCC) announced Thursday. The practices took place from 2004 through 2006 and involved annual membership fees, OCC said. Capital One charged the fees on accounts with no outstanding balances after consumers requested that the bank close the accounts, OCC explained. Beyond the practices flagged by OCC, Capital One’s reimbursement also will include customers who paid off accounts within 90 days after asking that the accounts be closed, analysts said. “This problem was the result of a systems issue that we fixed in 2006,” Capital One said in a statement. “At the time, we refunded membership fees for many customers who contacted us directly but, in retrospect, we should have done so for an additional 3,400 customers as well. We sincerely regret this error” (Reuters Feb. 18) …

Consumer prices can calm market CUNA tells IReutersI

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MADISON, Wis. (2/22/10)--News in a government report that U.S. consumer prices rose less than anticipated in January could calm the financial markets after an unexpected increase in the Federal Reserve’s discount rate was announced Thursday, a Credit Union National Association (CUNA) economist told Reuters Friday. The Federal Reserve Board Thursday raised the rates it charges banks on emergency loans in an initial step to normalize lending after more than two years of extraordinary steps to bolster the economy (The New York Times Feb. 18). The decision was unanimous. The increase in the discount rate to 0.75% from 0.5% took effect Friday. The government price report also indicated that consumer prices, excluding food and energy, dropped for the first time since 1982, Reuters said. “It came in right around consensus. My take is if it’s true that the Fed spooked the markets yesterday with the increase, this is certainly news that will have a calming effect,” Mike Schenk, CUNA senior economist, told Reuters. To read the article, use the link.

Market News (02/19/2010)

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MADISON, Wis. (2/22/10)
* Even as new mortgage delinquencies were decreasing, a record number of U.S. homeowners were in danger of losing their homes in the fourth quarter, the Mortgage Bankers Association (MBA) said Friday. Loans in foreclosure climbed to 4.58% of all mortgages, and those more than 90 days overdue--when lenders usually begin the process of seizing a property--increased to 5.09%, MBA said Friday. There is a hardcore block of those unemployed for a long time, “and that’s keeping the long-term delinquencies high,” said Jay Brinkmann, MBA chief economist. “New entrants to the ranks of the unemployed have been falling and that’s why we see the early delinquencies dropping” (Bloomberg.com Feb. 19). The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 9.47% of all loans outstanding as of the end of the fourth quarter, down 17 basis points from third quarter, and up 159 basis points from one year ago, according to the MBA National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 50 basis points from 9.94% in third quarter to 10.44% for fourth quarter. The delinquency rate includes loans that are at least one payment past due, but does not include loans in the process of foreclosure. For the MBA report, use the link … * U.S. consumer prices increased less than expected in January, easing inflation concerns as the economy gradually recovers, analysts said. For the fifth consecutive month, the consumer-price index (CPI) increased, rising 0.2% in January--mostly because of higher fuel costs--the Labor Department said Friday. Excluding volatile energy and food costs, the core index unexpectedly decreased 0.1%--the first decline since 1982--reflecting drops in new-car prices, shelter and clothing, analysts said. Wall Street economists anticipated a 0.3% increase in the CPI and 0.1% in the core CPI, according to a survey by Dow Jones Newswires. January’s numbers indicate that businesses were attempting to attract price-sensitive consumers with low prices, economists said. “People are very much price-sensitive--they are still paying down their debts, not taking that vacation, not buying that extra item of apparel,” said Anna Piretti, senior economist for BNP Paribas. “That is going to be the theme for some time. Prospects for employment are not looking very bright” (The New York Times, The Wall Street Journal and Bloomberg.com Feb. 19) … * President Barack Obama was scheduled Friday afternoon in Las Vegas to announce critical funding for the five hardest hit states in the housing market. The housing initiative applies to Arizona, California, Florida, Michigan and Nevada …

Market News (02/18/2010)

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MADISON, Wis. (2/19/10)
* The yield curve--the difference between Treasury two-year notes and 10-year notes--steepened to a record spread this week. Next week, the U.S. will hold $127 billion in note and bond sales, according to the average forecasts of eight of the 18 primary dealers at the Federal Reserve, who are required to bid in Treasury auctions, analysts said. The yield curve touched 2.92 percentage points, besting the record of 2.90 percentage points set on Jan. 11, analysts said. “Given the economic environment, the curve should remain steep,” said Martin Mitchell, head government bond trader at brokerage firm Stifel Nicolaus & Co. “The Fed has locked in the front end with rates lower for longer, and the longer end has felt pressure due to supply pressure, but the steepness is sort of capped by the broader economic climate” (Bloomberg.com Feb. 18). In a related matter, the probability that the U.S will be in recession six months from now rose to 30% in January from 28% the previous month, according to Moody’s Economy.com (Feb. 18). The probability of recession increased because of trouble in the financial and labor markets, analysts said … * Initial claims for unemployment benefits climbed by 31,000 to 473,000 for the week ended Feb. 13, the Labor Department said Thursday. The move was in the opposite direction of what was expected, although it is crucial not to read too much into one week’s data, analysts said. In recent months, the general trend for unemployment has indicated slow improvement in the labor market, they added. Economists expected initial claims to increase by only 5,000, according to a survey by Dow Jones Newswires. Despite data that show the U.S. economy is growing again, the labor markets have not yet shown strong indications of improvement, analysts said. Meanwhile, continuing claims remained unchanged at roughly 4.56 million for the week ended Feb. 6 (Moody’s Economy.com and The Wall Street Journal Feb. 18) … * U.S. producer prices for finished goods rose 1.4% in January--exceeding expectations of a 0.8% uptick--mostly because of an 11.5% increase in gasoline prices, according to the Bureau of Labor Statistics. Excluding volatile food and energy costs, core prices for finished goods climbed 0.3% compared with no change in December. January prices were forecast to rise 0.1%. Although inflation is not an immediate concern, there is a need to remain vigilant about prices, economists concurred. “We’re going to be generally grinding toward higher inflation,” said Conrad F. DeQuadros, an economist for RDQ Economics. “Will it hit problematic levels in 2010? I don’t think so. But it does have the potential for uncomfortably high inflation readings down the road” (The New York Times and Moody’s Economy.com Feb. 18) … * For the 10th consecutive month, the index of U.S. leading economic indicators--a forecast of future economic activity--rose in January, indicating the economy likely will keep growing though the first half of 2010, analysts said. The measure of the outlook for the next three to six months rose 0.3%--less than anticipated--after a revised 1.2% gain in December that was higher than previously estimated, according to the Conference Board, a New York-based, private research firm. The series of advances in the index are the longest since 2004, analysts said. Also, the coincident indicator--a key marker for determining cycle peaks and troughs, increased 0.2% in January. The leading and coincident indicators together provide compelling evidence that the economic recovery that started in August is solidly established and will continue through the first half of the year, analysts said. “You’re getting indications that the recovery is being sustained, and a sustained recovery eventually leads to a labor market recovery,” said Jonathan Bastille, an economist at Credit Suisse. “The more we get news that these indicators are growing and continue to grow, that’s something that’s going to eventually lead to gains in jobs” (Bloomberg.com, The New York Times and Moody’s Economy.com Feb. 18) …

News of the Competition (02/18/2010)

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MADISON, Wis. (2/19/10)
* The Federal Reserve Board Thursday raised the rates it charges banks on emergency loans in its initial step to normalize lending after more than two years of extraordinary steps to bolster the economy (The New York Times Feb. 18). The decision was unanimous. The increase in the discount rate to 0.75% from 0.5% will take effect today. The Fed emphasized that the move does not indicate a broad tightening of credit, analysts said. Rather, the change aims to discourage emergency borrowing by banks and other deposit-taking institutions when other financing is available. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee,” the Fed said in it statement. For the Federal Reserve Press Release, use the link … * Fannie Mae and Freddie Mac--once rivals for mortgage lenders’ business--now are working together to prevent foreclosures and save money for taxpayers, reported American Banker (Feb. 18). This new relationship and mission is a result of being placed under federal conservatorship a year and a half ago. Instead of fighting for loan volume by providing price breaks to the nation’s top lenders, Fannie and Freddie seem to be functioning in tandem, the publication said. “Definitely the competitiveness is out of the relationship,” said Brad Nease, president of Mortgage Capital Management Inc., a San Diego secondary-market consulting firm. “With both of them out of capital and supported by the government, they really have blended into the same entity,” he added …

News of the Competition (02/17/2010)

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MADISON, Wis. (2/18/10)
* The Federal Home Loan Bank of Seattle has filed 11 separate lawsuits against Wall Street banks in attempts to get them to buy back souring mortgage-backed securities, analysts said. The suits filed in December in King County Superior Court in Washington allege the bank was misled by underwriters concerning the quality of $4 billion of securities it bought as investments during the housing boom’s zenith, analysts said. The Seattle bank wants to compel the firms to repurchase the securities, plus interest, analysts added (The Wall Street Journal Feb. 16) … * Small-business loan demand could be on the rise, according to the National Federation of Independent Business’ most recent survey released last week. The percentage of small businesses that told the trade group their recent borrowings needs had not been met rose three percentage points from the previous month to 11% in January, reported American Banker (Feb. 17). The trade group said other signs that loan demand could be growing include: the percentage of respondents who said they plan to reduce inventories in the next three to six months, less the percentage who said they planned to build inventories, improved four points, to minus 4; the net percentage planning capital expenditures also increased two points, to 20 ...

Market News (02/17/2010)

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MADISON, Wis. (2/18/10)
* Signaling that government support is helping to stabilize the real estate market, U.S. housing starts in January climbed more than expected, analysts said. Construction for the month began on a seasonally adjusted 591,000 homes, a 2.8% gain over December starts, the Commerce Department said Wednesday. Starts were predicted to increase to a 580,000 pace, according to the median estimate of a Bloomberg News survey of 77 economists. However, permits and completions fell. Applications for building permits, an indication of future construction, fell less than expected--4.9% to a rate of 621,000--after rising in December to the highest level since October 2008. “Home construction is still struggling at very low levels as the overhang of housing units is still being worked off,” said Steven Wood, an analyst for Insight Economics (Bloomberg.com, Moody’s Economy.com, The Wall Street Journal and The New York Times Feb. 17) … * U.S. industrial production increased more than anticipated in January, signaling that factories are leading the economic recovery, analysts said (Bloomberg.com Feb. 17). Industrial production rose 0.9% following a gain of 0.7% in December, according to the Federal Reserve. Manufacturing production increased 1%, with gains for most of its major components, while the indexes for utilities and mining each climbed 0.7%. At 101.1% of its 2002 average, January’s output was 0.9% above its year-earlier level. The capacity use rate for total industry increased 0.7 of a percentage point to 72.6%, a rate eight percentage points below its average from 1972 to 2009. For the Federal Reserve statistical release, use the link … * Chain store sales in the U.S. fell 1.6% for the week ended Feb. 13, according to the International Council of Shopping Centers (ICSC). The change from a year ago was 0.7%. Sales were hampered by two large snowstorms affecting different parts of the U.S. and significant below-normal temperatures, ICSC said. At this time of year, volatility is normal because sales volumes are low. However, the week’s results are “extreme,” ICSC said. Sales likely will struggle unless there is further improvement in consumer fundamentals--especially jobs. A sales increase is not likely to occur until well into 2010, ICSC said (Moody’s Economy.com Feb. 17) … * Mortgage loan application volume for the week ended Feb. 12 declined 2.1% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index. The index is part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index decreased 0.5% compared with the previous week. The Refinance Index decreased 1.2% from the previous week and the seasonally adjusted Purchase Index decreased 4% from one week earlier. The unadjusted Purchase Index increased 1% from the previous week and was 18.4% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index is up 1.1%. It is down 1.2% for the seasonally adjusted Purchase Index and up 1.8% for the Refinance Index. For the MBA report, use the link …

Market News (02/16/2010)

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MADISON, Wis. (2/17/10)
* Continuing foreclosures will exert downward pressure on U.S. home prices in certain regions of the country during the next several years, according to two new studies. Most efforts to modify home loans with friendlier terms will delay--not prevent--the loss of homes to foreclosure, according to the studies by Standard & Poor’s Financial Services LLC and John Burns Real Estate Consulting Inc. Roughly five million houses and condominiums on which mortgages are delinquent--the majority of the estimated 7.7 million households behind on mortgage payments--will go through foreclosures or related procedures over the next few years, which will put them on the market, the John Burns study estimated. The problem is mostly in Arizona, California, Florida and Nevada, the study said. The S&P study also indicated that the “overhang” of foreclosed homes anticipated to come up for sale will result in lower home prices (The Wall Street Journal Feb. 16) … * International demand in December for long-term U.S. financial assets rose at a slower pace than the previous month, partly because China was selling U.S. government securities, according to a U.S. Treasury Department report. In December, net long-term capital flows to the U.S. slowed to $63.3 billion from $126.4 billion in November due to smaller net purchases of U.S. government securities by both foreign private buyers and official buyers. December still had a high level of net purchases compared with prior months, suggesting that financial markets are stabilizing, analysts said. In a sign that risk-aversion is lessening, private foreign investors purchased fewer U.S. Treasury bonds, compared with the previous month (Moody’s Economy.com and Bloomberg.com Feb. 17) … * Business confidence worldwide is gradually improving, according to Moody’s Economy.com Survey of Business Confidence. The four-week moving average of sentiment climbed to its highest level last week since just before the beginning of the global recession in late 2007. Global sentiment is roughly even, with South Americans growing more upbeat and North Americans a little less so, Moody’s said. Despite the boost in confidence, businesses remain quite cautious. Their mood is consistent with a tentative worldwide economic recovery, analysts said. Businesses are the most positive when responding to more general questions about current conditions and the outlook heading into summer. They remain cautious when responding to specific queries about hiring, inventories, pricing and sales, analysts said (Moody’s Economy.com Feb. 16) …

News of the Competition (02/16/2010)

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MADISON, Wis. (2/17/10)
* Barclays Capital, the investment banking unit of London-based Barclays Plc, allotted more in employee pay and bonuses last year as a percentage of its revenue than Goldman Sachs Group Inc., analysts said. Barclays allocated 38% of it revenue in compensation for employees in its investment bank--down from 44% in 2008. Goldman Sachs paid out 36% of its revenue in employee compensation--the lowest level since the company went public in 1999, the New York-based bank said Jan. 21. Because of public anger about trillions of taxpayer dollars used to bail out lenders during the credit crisis, financial institutions are being pressured by governments to reduce employee compensations, analysts said (Bloomberg.com Feb. 16) … * U.S. executives are raising earnings estimates at the fastest rate in at least eight years, pushing the number of companies boosting forecasts to 10% this quarter, while 4.1% lowered them, analysts said. That gap is the widest on record, according to data compiled by Bespoke Investment Group LLC. Meanwhile, analysts have reduced first-quarter projections by an average 0.2% in the past month, according to data from Bloomberg. “Wall Street analysts are still very gun-shy of predicting real recovery in earnings,” said David Kelly, chief market strategist for JPMorgan Funds. “It tells us the stock market is cheap. The chances of companies beating estimates are extremely high” (Bloomberg.com Feb. 16) …

News of the Competition (02/15/2010)

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MADISON, Wis. (2/16/10)
* Toyota Motor Corp. said Friday it is recalling roughly 8,000 2010 Tacoma pick-up trucks because there is a crack in the front propeller shaft of the four-wheel drive vehicles built between mid-December and February. The crack is imperceptible to the human eye, said Toyota spokesman Brian Lyons. “It is our understanding that not very many of these are in customer hands,” Lyons said. The automaker is asking dealers to inspect Tacomas on their lots. Toyota will send letters to owners by mid-March. Toyota is working--through three separate recalls--to fix problems with 8.5 million vehicles globally, analysts said (The Wall Street Journal Feb. 12) … * Deutsche Bank AG, Germany’s largest bank, has implemented a sliding scale that forces top bankers to defer a larger portion of their bonuses, said sources familiar with the matter. The pay-plan applies to 2009 bonuses of more than $136,000, and bankers will have to defer a minimum of 25% of bonuses above that amount, the sources added. As bonuses cross a series of thresholds, the marginal deferral rate will rise to as much as 90% of the bonuses. “[The plan] is linked to global banking behavior and not wanting to be out of line with everyone else,” said Chris Roebuck, a visiting professor at Cass Business School in London (Bloomberg.com Feb 15) …

Market News (02/15/2010)

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MADISON, Wis. (2/16/09)
* The U.S. manufacturing bounce-back likely accelerated in January because home-building rebounded, economists said in advance of a Federal Reserve report to be released Wednesday. Production likely rose 0.8% last month, according to a survey of 65 economists by Bloomberg News. Builders may have started construction on 580,000 homes--at an annual pace that is up 4.1% from December. “The upswing in manufacturing is gaining traction,” said John Hermann at Hermann Forecasting (USA Today Feb. 15) … * Greece should take more steps to reduce the country’s biggest budget deficit, in light of evidence that indicates the nation may have used swaps to cover up its growing debt, said the European Union’s (EU) top economics official. “We expect that in due course the Greek government will take the necessary additional measures,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels Monday. Greek Finance Minister George Papandreou said his task was like changing “the course of the Titanic.” The Greek deficit is the highest in the EU, registering at 12.7% of gross domestic product last year. The Greek government has pledged to reduce the deficit to the EU-imposed limit of 3% in 2012 (Bloomberg.com Feb. 15) …

News of the Competition (02/12/2010)

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MADISON, Wis. (2/15/10)
* MasterCard Inc. says the growth in debit card use is not replacing credit card use. “There is a myth that debit is displacing credit,” said Chris McWilton, MasterCard president of U.S. markets. “Debit is growing significantly, but not at the expense of credit; it’s at the expense of cash and check.” Fourth-quarter debit volume increased 10.4%, while credit volume receded 7.5%, MasterCard reported last week. Consumers use of debit cards for everyday purchases such as dining out, gas and groceries has climbed 18%, while roughly 11% use credit cards for those same purchases, McWilton said. The credit card portion remains roughly the same, the company said (PaymentsSource via American Banker Feb. 12) … * Citigroup Inc. announced a pilot program Thursday that would allow delinquent borrowers who don’t qualify for or who decline mortgage relief to stay in their homes. Participants in the six-state pilot that began Friday can remain in their homes for up to six months without making payment, before turning over their keys to their landlord if they maintain the property in good condition. Up to 20,000 borrowers in Florida, Illinois, Michigan, New Jersey, Ohio and Texas could be eligible for the program, Citi estimated. The bank’s plan also attempts to address prevalent industry complaints such as borrowers who leave their homes in disarray--sometimes due to vandalism or stripping of saleable raw materials or products--after foreclosure. Such actions can require thousands of dollars in repairs before putting the property back on the market, analysts said (The Washington Post Feb. 11 and American Banker Feb 12) … * Alleging that firms misrepresented to consumers their services as a way to improve credit scores, Illinois Attorney General Lisa Madigan has sued seven debt-settlement firms and six of their executives. Each of the four complaints alleges the defendants practiced deceptive marketing and charged excessive fees--a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The defendants are: Clear Your Debt LLC, Swiftrock Financial Inc. and Orion Processing LLC--based in Austin and Lago Vista, Texas--and their managing members, Derin Scott and Shannon Scott; Endebt Solutions LLC of Long Beach, Calif., which does business as DebtOne Financial; Debt Consultants of America Inc. in Dallas and its owner Robert J. Creel; American Debt Arbitration in Clearwater, Fla., and its President and Director, Glenn P. Stewart; and Nationwide Asset Services Inc. in Phoenix, and its President, William Anderson, and Gary K. Brown, secretary and director at the firm (Collections & Credit Risk via American Banker Feb. 12) …

Market News (02/12/2010)

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MADISON, Wis. (2/15/10)
* U.S. consumers were more pessimistic about the economy in February, according to the University of Michigan consumer sentiment index. The index dropped to 73.7 from 74.4 in January. Although it dipped below January’s cyclical high, the index remains on an upward trend, analysts said. The expectations component of the index is what caused the February decline. Previously, expectations had risen for three consecutive months. Assessments of current conditions rose for the month, while inflation expectations dropped from January. This month’s confidence index is consistent with still-weak consumer fundamentals--especially labor market conditions. However, the fact that confidence is not increasing more strongly is disappointing in the context of the end of the recession, analysts said. Confidence is expected to follow a modest and inconsistent upward trend, they added (Moody’s Economy.com and MarketWatch Feb. 12) … * For the third time in the past four months, U.S. retail sales increased in January, indicating the consumer spending rebound that began in 2009 is continuing into 2010, analysts said. Retail sales rose 0.5%, the Commerce Department said Friday, besting the 0.3% increase forecast by economists surveyed by Dow Jones Newswires. A longer workweek in January and a drop in unemployment indicate the economy is ready to generate more jobs--which will result in income gains that could further lift consumer demand, analysts said. “Consumers showed continued improvement,” said John Herrmann, chief economist at Herrmann Forecasting. “Consumers are still relatively cautious, spending what they’re making and not taking on debt” (Bloomberg.com and The Wall Street Journal Feb. 12) … * For the first time in three months, U.S. inventories unexpectedly dropped in December because companies couldn’t keep up with escalating demand, analysts said. Total business inventories declined 0.2% versus expectations for a 0.2% gain, the Commerce Department said Friday. Economists had forecast that inventories would rise 0.2%. The December decline ended two consecutive monthly gains in business stockpiles--perhaps creating potential for a boost in inventories in early 2010, analysts said. Also, a record drawdown in inventory in 2009 means companies will need to boost orders as sales improve, paving the way for a sustained manufacturing expansion, analysts said. “Domestic firms are still depleting inventory, but this will not last much longer,” said Aaron Smith, a senior economist at Moody’s Economy.com. “By midyear, we expect they will be building up their stocks in line with final sales” (Bloomberg.com and Moody’s Economy.com Feb. 12) …

News of the Competition (02/11/2010)

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MADISON, Wis. (2/12/10)
* The European Parliament Thursday rejected an agreement with the U.S. to share information about bank transfers--a deal that was geared to track suspected terrorists through their finances. A resolution to reject the deal passed on a vote in Strassbourg, France, by 378-196, with 231 abstentions. The vote underscored differences between the U.S. and European Union on how to balance guarantees of personal privacy with concerns over national and international security, analysts said (The New York Times Feb. 12) … * American International Group (AIG) said Wednesday it will begin a “forced ranking” compensation system that numerically grades its employees’ performance. The numerical rankings would then be used to determine the size of employees’ annual bonuses. The new system is designed to blunt criticism that financial firms regularly overpay their employees--even when the companies perform poorly, analysts said. AIG has been a target of criticism for paying out millions of dollars to its employees--including those in units that have devastated the insurer--despite having received more than $180 billion in government bailout money, analysts said. AIG expects the Treasury to look favorably upon the plan, they added (The New York Times Feb. 11) …

Market News (02/11/2010)

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MADISON, Wis. (2/12/10)
* Initial claims for unemployment benefits for the week ended Feb. 6 were fewer than expected, indicating that companies may be halting major staff cuts soon, as the economy recovers, analysts said. Claims dropped by 43,000 to a seasonally adjusted 440,000--the lowest level in five weeks--from 483,000 the previous week, the Labor Department said Thursday. Administrative backlogs in processing that had elevated the number of claims in the past three weeks abated, the department said. Economists had expected a decline of 15,000 claims, according to a Thomson Reuters survey. Meanwhile, continuing claims dropped by 79,000 to roughly 4.54 million for the week ended Jan. 30. Because last quarter experienced the fastest pace of growth in six years, companies will restock inventories to keep pace with increased sales--and that could mean that companies might be ready to add more jobs, analysts said. “Things have not really deteriorated,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. “Unfortunately, it doesn’t show much improvement either” (Bloomberg.com, The New York Times and Moody’s Economy.com Feb. 11) … * Fourth-quarter U.S. existing-home sales saw strong gains, with several more metropolitan areas experiencing price rises from a year earlier, according to the most recent survey by the National Association of Realtors (NAR). Total state existing-home sales, including single-family and condo, jumped 13.9% to a seasonally adjusted annual rate of 6.03 million in the fourth quarter from 5.29 million in the third quarter. The sales are 27.2% above the 4.74 million-unit level in the fourth quarter of 2008. Distressed property accounted for 32% of fourth-quarter transactions, down from 37% a year earlier. Sales increased from the third quarter in 48 states and the District of Columbia; 32 states saw double-digit gains. Year-over-year sales were higher in 49 states and D.C. All but three states had double-digit annual increases. The first-time home buyer tax credit was the dominant factor, said Lawrence Yun, NAR chief economist. “The surge in home sales was driven by buyers responding strongly to the tax credit combined with record low mortgage interest rates,” he said. “With inventory levels trending down over the past 18 months, we expect broadly balanced housing market conditions in much of the country by late spring with more areas showing higher prices.” For the NAR report, use the link … * The unemployment rate in the U.S. reached its zenith in October and will recede through 2011 because the economy will strengthen, according to economists surveyed by Bloomberg News. The U.S. economy--the world’s largest--will grow 3% in 2010 and 2011, according to the median estimate of 62 economists polled this month. The White House said in its annual Economic Report of the President that it expects nonfarm payroll employment to increase by an average of 95,000 jobs a month this year. This suggests the U.S. labor market will continue to improve as the economy comes out of a two-year slump, analysts said. However, the report said unemployment remains an obstacle. “It will take a prolonged and robust GDP [gross domestic product] expansion to eliminate the large jobs deficit that has opened up over the course of the recession,” the report said. “Only when the unemployment rate has returned to normal levels and families are once again secure in their jobs, homes and savings will this terrible recession truly be over” (Bloomberg.com and The Wall Street Journal Feb. 11) … * With investors waiting to see if European leaders can contain Greece’s budget crisis, investment-grade debt sales are lessening and returns on high-yield bonds have gone negative for the year, analysts said. This week, borrowers in Europe and the U.S sold $4.71 billion of high-grade securities--the least amount this year. Also, speculative grade, or junk, bonds in the U.S. have lost 0.09% so far in 2010 after a 1.52% gain in January, according to index data from Bank of America Merrill Lynch. “Sentiment has turned significantly amid concerns about sovereign deficits and problems surrounding Greece and other peripheral euro-zone economies,” Simon Ballard, a senior credit strategist at RBC Capital Markets in London, said Wednesday. “For the moment, we’re unlikely to see much in the way of primary market activity as investor sentiment remains fragile and the broad market feeling is one of nervousness (Bloomberg.com Feb. 11) …

News of the Competition (02/10/2010)

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MADISON, Wis. (2/11/10)
* Standard & Poor’s (S&P) Ratings Services Tuesday downgraded its outlook on Bank of America Corp. (BofA) and Citigroup Inc. to “negative” from “stable,” saying that if the government intervenes again to support the banks, then bondholders could be negatively impacted. The negative outlook portends the possibility of a future downgrade, analysts said. However, S&P affirmed BofA’s and Citi’s investment-grade counterparty credit and debt ratings. S&P credit analysts said the outlook revision for the banks “reflects our increased uncertainty about the U.S. government’s willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders” (The Associated Press Feb. 9) … * Visa Inc. announced Monday it will expand its No Signature Required program for magnetic-stripe transactions of less than $25 to most merchants. The move could be another obstacle to adopting contactless payments in the U.S. because it removes the difference in speed of checkout between contactless payments and magnetic-stripe transactions, said industry observers (American Banker Feb. 10). The no-signature program speeds up checkouts, allowing merchants to accommodate customers faster and also encourages consumers to make more small-ticket purchases with cards, instead of cash, Visa said. The company currently allows 26 merchant categories to offer the no-signature format. However, in July, Visa intends to expand the program substantially to cover roughly 98% of all merchant types (American Banker Feb. 10) … * In recent years, U.S. Bancorp (USB) has become known for arranging deals for large corporate issuers because the financial crisis has removed or disabled several of the regular capital markets businesses, such as high-grade debt underwriting, reported American Banker (Feb. 10). Last year, USB helped sell $1.3 billion of bonds for clients that included AutoZone Inc. and Lincoln National Corp. Although it is not a major player, USB’s corporate bank expansion is a component of a larger strategy to bolster its offense at a company mostly known for it strong defensive posture, analysts said …

Market News (02/10/2010)

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MADISON, Wis. (2/11/10)
* Mortgage loan application volume for the week ended Feb. 5 dropped 1.2% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index. The index is part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 0.6% compared with the previous week. The Refinance Index increased 1.4% from the previous week and the seasonally adjusted Purchase Index decreased 7% from one week earlier. The unadjusted Purchase Index decreased 1.1% compared with the previous week and was 7.5% lower than the same week one year ago. For the MBA report, use the link … * The U.S. trade deficit unexpectedly widened in December largely because of higher oil prices, the Commerce Department said Wednesday. The trade gap widened 10.4% to $40.18 billion from a revised $36.39 billion the month before. Originally, the November trade gap was reported as $36.4 billion. The December gap was larger than the $36.8 billion shortfall expected by analysts. U.S. exports increased 3.3% to $142.7 billion from $138.09 billion the prior month--the biggest increase since March 2007. However, imports rose even more, going up 4.8% to $182.88 billion from November’s $174.48 billion. In the future, more rapid economic growth in emerging countries and a decline in the dollar’s value--which is making American goods more competitive--could prompt more sales abroad that will spark further gains in U.S. manufacturing, analysts said. Also, attempts to rebuild inventories likely will bring in goods from abroad, boosting global trade, they added. “We’re at a stage where you expect both exports and imports to rise,” said Ward McCarthy, chief economist at Jefferies & Co. “The good news is when imports and exports are rising, it is a sign you have economic growth” (Bloomberg.com and The Wall Street Journal Feb. 10) …

News of the Competition (02/09/2010)

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MADISON, Wis. (2/10/09)
* The Federal Reserve conducted an auction Tuesday of $50 billion in 28-day credit through its Term Auction Facility. The results of the auction include: stop-out rate, 0.25%; total propositions submitted, $15.426 billion; total propositions accepted, $15.426 billion; bid/cover ratio, 0.31; and number of bidders, 103. The awarded loans will settle on Thursday and will mature on March 11. Institutions that submitted winning bids will be contacted by their respective Reserve Banks … * U.S. home refinancings will decline 52%, and purchase mortgage volume will fall 5% this year, market research firm iEmergent Inc. said Monday. Total volume this year will be from $1.09 trillion to $1.2 trillion, the Des Moines, Iowa-based firm predicted. More than one in three U.S. households no longer are in the homebuyer pool--which is at a level lower than that of the early 1990s, analysts said. Because consumers are saving more and are worried about their jobs, the current elevated loan volumes are unsustainable, said Dennis Hedlund, iEmergent president. Lenders that relied on refinancings last year will face substantial risks for their business this year and next year, analysts said (National Mortgage News via American Banker Feb. 9) … * In the fourth quarter of 2009, lenders originated $86.1 billion in Federal Housing Administration (FHA)-insured single-family loans--up 21% year over year. The FHA reported that $51.8 billion, or 60%, of endorsements in the quarter involved home purchase loans. The FHA finished the year with a 9.12% default rate, compared with 6.82% at the end of 2008. Foreclosures involving FHA-insured loans increased to 20,650--41% year-over-year in the fourth quarter (National Mortgage News via American Banker Feb. 9) …

Market News (02/09/2010)

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MADISON, Wis. (2/10/10)
* The U.S. labor market did not improve much at the end of 2009, according to the Job Openings and Labor Turnover Survey issued by the Bureau of Labor Statistics. The number of available jobs in December slightly increased to 2.5 million from 2.4 million in November. However, the number of workers hired continued to drop, falling to 4.07 million, from 4.13 million the previous month. Also, 4.24 million workers left their jobs in December, slightly fewer than in November--which is consonant with a weak December payroll report, analysts said. Although job cuts are lessening, businesses are still too unsure about the strength of the economic recovery to increase hiring, analysts added (Moody’s Economy.com) … * Small-business optimism in the U.S. rose to 89.3 in January from 88 in December, reported the National Federation of Independent Business. From December to January, seven of the index’s components showed gains. However, the overall index remains depressed, analysts said. Since last summer, the index has not measurably improved--–which likely indicates increased caution on the part of small companies or else their inability to respond to rising sales because of financing constraints, analysts said. Considering the role small businesses play in the early stages of economic recovery, the lack of improvement in the index indicates a downturn in real gross domestic product growth in the first quarter, analysts said. Also, small businesses face tight credit because the regional banks that are their principal lenders are struggling with commercial real estate loans, they added (Moody’s Economy.com Feb. 9) … * Following the largest increase in more than five years, inventories at U.S. wholesalers unexpectedly dropped in December, which indicates distributors had difficulty keeping up with demand, analysts said. The 0.8% decline in stockpiles followed a revised 1.6% gain in November--the largest since July 2004, the Commerce Department said Tuesday. Economists had forecast inventories would rise 0.5% in December. Also for the month, sales rose 0.8%. In 2009, a record inventory drawdown paved the way for manufacturers to increase production and other companies to boost orders to meet demand, analysts said. Companies’ efforts to keep stockpiles from declining more in the fourth quarter provided the largest spark to economic growth in 20 years and could maintain the economy in coming quarters, analysts said. “Sales growth is strong, and every company is in restocking mode,” said Ken Mayland, president of ClearView Economics LLC. “They need a significant rebuild. It’s going to last the next couple of quarters” (Bloomberg.com Feb. 9) … * The European Union (EU) approved new economic leadership, naming Olli Rehn of Finland as economy commissioner, who will monitor Greece’s deficit; Frenchman Michel Barnier as financial-services chief in charge of bank regulation; and Spaniard Joaquin Almunia as head of competition--the top antitrust job. European Commission President Jose Barroso won approval for a five year-term. The lineup at the commission- -the 27-nation EU’s executive branch, takes office as Europe’s economy tries to rebound from a credit crunch and the worst recession in more than 50 years, analysts said (Bloomberg.com Feb. 9) …

Fewer members consumers used credit in December

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WASHINGTON (2/9/10)--Consumers overall--credit union members included--borrowed less in December, according to Federal Reserve's consumer credit report released Friday. Consumers borrowed nearly $2.5 trillion--an 0.8% or $1.8 billion drop from November, seasonally adjusted, said the Fed. December's total was the 11th consecutive month that consumer credit had declined, as consumers reduced debt to weather the recession (Business Week Feb. 5.) For fourth quarter 2009, consumer credit dropped at an annual rate of 4.75%, while revolving credit decreased 13% and nonrevolving credit was unchanged. U.S. revolving credit totaled $866 trillion, down 11.7% or $8.5 billion, while non-revolving credit totaled nearly $1.6 trillion--an increase of 5.2% or $6.8 billion. The Fed attributed the increase in non-revolving credit to car sales. In December, nearly $30.6 trillion in new-cars were financed, up $92 billion from November. Credit union members borrowed $236.4 billion in December from their credit unions. That is down slightly from $237 billion in November. The Fed's credit union statistics are not seasonally adjusted. Revolving credit at credit unions totaled $35.5 billion in December, an increase over $34.6 billion in November while credit unions accounted for $201 billion in nonrevolving credit in December, compared with $202.3 billion in November.

CUNA People realizing recovery not typical

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MADISON, Wis. (2/9/10)--The loss of 20,000 jobs in January--more than expected-- indicates a slow recovery, and consumers are starting to realize that the economic recovery isn't a typical one, Credit Union National Association senior economist Mike Schenk told Investor's Business Daily's Investor.com Friday. "People are sort of coming to the realization that this won't be a typical recovery," Schenk said. "It's going to be a long, slow slog." The economy grew at a 5.7% annual rate in fourth quarter 2009, the biggest gain in six years, but the bulk of that was because companies are paring their inventories more slowly. Economists expect much slower growth in the next few quarters and sluggish hiring. The average duration of unemployment is 30.2 weeks, compared with December's average of 29.1 weeks. Some hopeful signs: Temporary jobs rose by 52,000, and existing staff worked longer hours. Companies often hire temps and work existing staff at longer hours before they hire permanent staff. "It will be increasingly clear that the jobs market is improving, and we're slowly working our way out of this mess," Schenk said.

News of the Competition (02/08/2010)

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MADISON, Wis. (2/9/10)
* Regulators closed 1st American State Bank of Minnesota in Hancock, Minn., Friday, bringing the total number of bank failures this year to 16 after 140 failed in 2009, according to the Federal Deposit Insurance Corp. (FDIC). The bank’s two branches reopened Monday as branches of Community Development Bank FSB, in Ogema, Minn. At the end of 2009, 1st American State Bank of Minnesota has roughly $18.2 million in total assets and $16.3 million in total deposits. The FDIC has estimated that the cost of the bank failure announced Friday to the Deposit Insurance Fund will be $3.1 million … * CIT Group Inc., a commercial lender that surfaced from bankruptcy in December, named John Thain, the ousted chair of Merrill Lynch & Co., to lead it. The appointment culminates a four-month search to find a replacement for Jeffrey Peek, who stepped down Jan. 15 after leading the firm since 2004. Peter Toobin was named interim CEO when Peek left. The appointment places Thain once again as head of a public company. He was forced out by Kenneth D. Lewis, then CEO of Bank of America Corp.--which bought Merrill Lynch during the 2008 financial crisis. CIT was damaged by Peek’s venture into subprime lending before its bankruptcy, analysts said. The company still operates under constraints levied after a 2008 federal bailout, and is being kept out of the commercial paper market--its usual source of funding, analysts added. “If he can pull this off, he’s going to be king,” said Brian Charles, a debt and equity analyst with R.W. Pressprich & Co (Bloomberg.com Feb. 8) … * The Mortgage Bankers Association (MBA)--saddled with real estate whose market value had dropped well below the amount it owed lenders--had to sell a building at a loss, analysts said. However, the mortgage lenders’ trade group will not provide terms of the deal it cut with creditors to get out of the predicament, they added. CoStar Group Inc., a provider of commercial real estate data, said Friday it had agreed to purchase the MBA’s 10-story Washington, D.C., headquarters building for $41.3 million. The price is significantly below the $79 million that MBA had agreed to pay for the building in 2007 while it still was being constructed--when the property bubble was near its zenith, analysts said. John Courson, MBA CEO, would not say if the trade group would pay off the full loan amount, analysts said. “We’re not going to discuss the financing,” Courson said (The Wall Street Journal Feb. 8) … * Responsibility for the fundamental weakness of the European monetary union--underscored by fears about escalating Greek, Portuguese and Spanish indebtedness--is on the shoulders of Jean-Claude Trichet, president of the European Central Bank, analysts said. Because the European monetary union has no strong political arm to ensure members observe limits set by treaty, the responsibility to resolve the crisis defaults to Trichet, they added. Last week, Trichet told European governments they need to quickly lessen their budget deficits. “When you share a single currency with others, the counterpart is that you have to have a sound fiscal policy,” he said at the bank’s monthly policy meeting (The New York Times Feb. 8) …

Market News (02/08/2010)

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MADISON, Wis. (2/9/10)
* Global business confidence is slowly improving, according to Moody’s Economy.com Survey of Business Confidence. The four-week moving average of sentiment increased for the week ending Feb. 5 to its highest level since just before the start of the worldwide recession in late 2007. Sentiment is roughly even around the globe, with South Americans slightly more positive and North Americans a little less positive, Moody’s said. However, despite an overall uptick in confidence, businesses remain cautious--consonant with only a tentative worldwide economic recovery, analysts said. Businesses are most optimistic when responding to more general questions about current conditions and the outlook heading into this summer. Businesses stay cautious when responding to specific questions about hiring, inventories, pricing and sales, analysts said (Moody’s Economy.com Feb. 8) … * The U.S. dollar is as valuable today as it was 35 years ago, analysts said. The dollar is up about 3% since 1975 when measured against currencies for the Group of 10 nations proportioned by how they trade against each other, according to the Bloomberg Correlation-Weighted Currency Indexes. 1975 was four years after the disintegration of the Bretton Woods agreement--established in 1944 to link currencies to the price of gold. The United Kingdom pound has fallen 34% since then, and the Canadian dollar has dropped 5%. After losing 12% in the first 11 months of 2009, the U.S. dollar gained 6% since November, as recorded by the Bloomberg index. In 2010 and 2011, the U.S. will grow more quickly than the rest of the developed world, said Barclays Capital and Morgan Stanley. “To quote Mark Twain, the reports of the dollar’s demise have been greatly exaggerated,” said Win Thin, a senior currency analyst at Brown Brothers Harriman & Co (Booomberg.com Feb. 8) … * On Monday, the Federal Reserve offered $50 billion in 28-day credit through the Term Auction Facility. Participants have to submit bids by phone to their local Reserve Bank between the opening time and closing time on the bid submission date. Reserve Banks will notify individual institutions in their districts that have submitted winning bids. Summary auction results will be published on the website of the Board of Governors of the Federal Reserve System. For the Federal Reserve press release, use the link …

News of the Competition (02/05/2010)

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MADISON, Wis. (2/8/10)
* Jamie Dimon, CEO of JPMorgan Chase & Co., was awarded a bonus of roughly $17 million in restricted stock and options for 2009 after steering his company to a profit in each quarter during the financial crisis, analysts said. Dimon was paid $1 million in salary and received $8.5 million in restricted stock and 563,562 options, according to a regulatory filing made Friday. Dimon, who didn’t take a cash or stock bonus in 2008, will not take a cash bonus for 2009 either, company spokesman Joseph Evangelisti said Friday. In 2007, Dimon was paid $27.8 million in cash, stock and options, according to JPMorgan’s proxy statement (Bloomberg.com Feb. 5) … * GMAC Inc. CEO Michael A. Carpenter is attempting to reassure investors that GMAC’s mortgage unit--Residential Capital LLC (ResCap)--is no longer hemorrhaging money, reported American Banker (Feb. 5). In the fourth quarter of 2009, ResCap’s net loss ballooned to $4 billion, pushing GMAC into the red. The main reason GMAC had received $3.8 billion from the Treasury Department in December, following roughly $13.5 billion in aid from two previous federal bailouts, was that ResCap had lost $9.2 billion during the previous eight quarters, the publication said. As a result of the bailouts, the government owns a 56% stake in GMAC. Carpenter, who was named CEO in November, said he anticipates GMAC will see steady, gradual progress during the upcoming months and quarters and will “fully resolve the challenges related to ResCap and the legacy mortgages business to minimize the impact on the company” … * In attempts to recoup capital invested in a bank before it failed, Chicago entrepreneur Pethinaidu Veluchamy and other members of his family are suing the Federal Deposit Insurance Corp. (FDIC) over $32.9 million in losses they sustained when Mutual Bank of Harvey (Ill.) was declared insolvent in July. Veluchamy and his family, who owned the bank’s parent company, allege the FDIC denied the bank’s request to redeem subordinated debt the family had bought from the bank to help bolster its capital. The family controls several other businesses besides Mutual Bank. The FDIC began raising concerns about the bank’s capital in June 2008, according to the lawsuit filed in federal court in Chicago Friday. After June 2008, Veluchamy family members purchased more than $3 million of stock in parent First Mutual Bancorp of Illinois Inc. and $17.1 million in subordinated notes. In May 2009, banking regulators took further regulatory action against the bank as more loans soured. In July, the bank asked the FDIC to retire the notes. The family would agree to keep the proceeds at the bank in an interest-free account. However, the FDIC turned down the request, and took control of the bank on July 31. The FDIC then agreed to sell the bank’s deposits to United Central Bank in Texas (Chicagotribune.com Feb. 2) … *An advocacy organization is using 30-second cable spots for an ad in which several large U.S. banks are represented as pigs. Americans United for Change features an ad with a sound track of grunting. A pair of pigs bearing Bank of America Corp. and JPMorgan Chase & Co. logos root around for spilled corn. A pig branded with Citigroup Inc.’s logo has its snout and front feet in a bailout slop bucket. Another pig represents Goldman Sachs & Co., “When big banks went hog wild on Wall Street--they left behind one fine mess on Main Street,” an announcer says. “Tell Congress it's time to step up and pass President Obama's plan to hold the Wall Street banks accountable.” Tom McMahon, the organization’s director, said people already were mad at banks. “Banks seem to be suffering some amnesia about where they were a year ago,” McMahon said. “This is a reminder to folks on the Hill, particularly Republicans, that it's better to address voter outrage now than wait until November to have it addressed for you,” he added (American Banker Feb. 5) …

Market News (02/05/2010)

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MADISON, Wis. (2/8/10)
* The U.S. unemployment rate in January unexpectedly dropped to 9.7%--a five-month low--from an unrevised 10% in December, indicating some labor market improvements are beginning to take hold, analysts said. Economists surveyed by Dow Jones Newswires had predicted the rate would rise to 10.1%. The January rate was the lowest since August. However, employment fell by 20,000 last month because of a drop in construction jobs and a decline in state and local government hiring, the Labor Department said Friday. Factory hours, manufacturing employment and overtime increased during the month, the department added. “The labor market, six months after the economy turned positive, is beginning to find its bottom,” said Neal Soss, chief economist at Credit Suisse in New York. “We’re still teetering on the cusp of job growth” (Bloomberg.com, Reuters and The Wall Street Journal Feb. 5) … * U.S. home mortgage rates increased slightly last week, with the average rate inching back above 5% on 30-year fixed-rate mortgages, according to Freddie Mac’s weekly survey of mortgage loans. “News of a strengthening housing market” helped keep rates “relatively stable,” said Frank Nothaft, Freddie chief economist. Also, pending existing-home sales rebounded 1% in December, recovering from a record drop in November, which was partly caused by the original expiration of the first-time homebuyer tax credit, said the National Association of Realtors. The credit now has been extended. More recently, mortgage applications for home purchases jumped 10% at the end of January, according to the Mortgage Bankers Association, Nothaft added (The Wall Street Journal Feb. 5) …

News of the Competition (02/04/2010)

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MADISON, Wis. (2/5/10)
* Federal and state regulators filed civil fraud charges against Bank of America (BofA) and two of its executives for allegedly lying to investors in 2008 about mounting losses at Merrill Lynch--the distressed investment bank it was acquiring--and bonuses totaling billions of dollars Merrill paid to employees. Regulators also allege that BofA misled federal officials with a bogus claim that it would not purchase Merrill without billions of dollars in additional bailout funds, analysts said. The actions are the result of sustained investigations by the Securities and Exchange Commission (SEC), New York Attorney General Andrew Cuomo and Andrew Barofsky, the Treasury Department’s special inspector general for the financial bailout. BofA has agreed to pay $150 million to settle the SEC charges. The SEC has filed a motion seeking court approval of the settlement with BofA. Meanwhile, Cuomo and Barfosky are filing new, harsher charges, seeking financial penalties and other sanctions against the bank and former top BofA executives--CEO Kenneth Lay and Chief Financial Officer Joseph Price, analysts said (The Washington Post and MarketWatch Feb. 4) … * Visa Inc. profits leapt by more than 30% for the fiscal first quarter, which ended Dec. 31, and use of the company’s credit and debit cards in the U.S. increased (American Banker Feb. 4). In the period, U.S. payment volume on Visa-branded cards increased 7.2% from a year earlier to $438 billion. That marks a gain over the fiscal fourth-quarter, which ended Sept. 30 when U.S. payment volume slipped 1% year-over-year to $417 billion, the publication said. Meanwhile, MasterCard Inc.’s fourth-quarter profit shot up 23%, with the company reporting a higher level of processed transactions and improved spending. The company reported net profit of $294 million, or $2.24 per share--up from $239.4 million, or $1.83 per share, a year earlier (The Wall Street Journal Feb. 4) … * U.S. banks in the fourth quarter of 2009 saw incrementally better prices for troubled loans because of increased demand from home builders, vulture investors and other buyers, reported American Banker (Feb. 4). Two banks that shed assets in the fourth quarter--Regions Financial Corp. and Synovus Financial Corp.--received higher prices, which indicates that lenders would have been better off not unloading their bad mortgages and business loans last summer in fire sales, the publication said. Asset sales could escalate throughout 2010 if prices keep firming up, it added … * Bank of America (BofA) will add up to 2,000 more workers to its global wealth management division in 2010, according to a report in the Financial Times. BofA will boost its ranks by training junior brokers instead of attempting to recruit senior workers from other firms--a move that will contain costs, sources told the Times. The majority of the growth will be in the U.S., with smaller additions in Asia and Europe, the Times added (Reuters Feb. 2) …

Market News (02/04/2010)

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MADISON, Wis. (2/5/10)
* Initial U.S. claims for unemployment benefits unexpectedly rose for the week ended Jan. 30, a sign that companies are not confident the economic recovery will be sustainable, analysts said. Initial claims increased to 480,000--the highest level in seven weeks--from 472,000 the prior week, the Labor Department said Thursday. First-time claims were forecast to decrease to 455,000 from a previously reported 470,000 the prior week, according to a median estimate by economists surveyed by Bloomberg News. Meanwhile, continuing claims for unemployment were essentially unchanged for the week ending Jan. 23, increasing by 2,000 to roughly 4.6 million. “The pace of improvement has slowed significantly in the last two months,” said Anna Piretti, a senior economist at BNP Paribas. “This points to downside risk for consumption and the rest of the economy.” In a related matter, the number of help-wanted ads placed online by U.S. employers saw little change between December and January, with the overall Monster employment index dropping by one point in January to 114. January’s number extends a trend of overall flat job availability that began a year ago, according to Monster Worldwide Inc. (Moody’s Economy.com and Bloomberg.com Feb. 4) … * U.S. worker productivity--or output per hours worked--continued its surge in the fourth quarter because companies got more work from remaining staff to bolster earnings, analysts said. Culminating the biggest one-year gain since 2003, a measure of employee output (nonfarm business productivity) per hour increased at a 6.2% annual rate, the Labor Department said Thursday. Also, labor costs fell at a 4.4% pace and declined 0.9% for all of 2009--the largest drop in seven years, analysts said. The growth in productivity was a result of a large increase in output and a smaller increase in hours worked, analysts said. Last year, efficiency improved because companies slashed workers’ hours, even though sales stabilized--a situation that may be hard to sustain as demand continues to grow, analysts said. Lower expenses--such as less labor costs--also help to keep inflation in check, they added. “It bodes well for reducing labor costs and keeping corporate profits robust,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. “Still, it’s a double-edged sword, showing how weak labor markets are” (Bloomberg.com, The Wall Street Journal and Moody’s Economy.com Feb. 4) … * U.S. factory orders increased faster than expected in December, rising 1% from the previous month, according to the Census Bureau. Durable-goods orders were subject to an unusually big upward revision to a 1% rise from a previously reported 0.3% increase, analysts said. Most of the revision was due to revised data for orders of computers and electronic equipment, analysts said. Inventories dropped 0.1% as the 0.2% decline in durable-goods inventories offset a 0.1% rise in nondurable stockpiles. With business investment spending leading the way, the manufacturing recovery is underway, analysts said. A robust factory-orders report portends good momentum for business investment spending going into the first quarter, they added (Moody’s Economy.com Feb. 4) …

News of the Competition (02/03/2010)

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MADISON, Wis. (2/4/10)
* Bank of America Corp. (BofA), the largest U.S. private lender, will pay bonuses of roughly $4.4 billion to investment-banking employees for last year. The total averages to $400,000 per employee, said a source familiar with the matter. As much as 95% of the bonuses will be paid in stock vesting over a three-year period, the source added. Employees receiving the smallest bonuses will be paid roughly half their compensation in cash later this month, the source said. BofA’s investment banking unit employs 10,000 people--or 4%--of the bank’s 283,000 workers. BofA realized a $6.3 billion profit in 2009, analysts said (Bloomberg.com Feb. 3) … * Imperial Capital Group Inc., Los Angeles, postponed its $113 million initial public offering (IPO), becoming the second U.S. company in 2010 to put an IPO on hold. The investment bank, which specializes in high-yield and distressed debt planning, intended to sell 6.67 million shares at $15 to $17 per share in the IPO that was scheduled for Tuesday. The initial offering would have constituted the first one by an investment bank in two years, analysts said. Two of the first three IPOs in 2010 declined more than the Standard & Poor’s 500 index, they added. Terreno Realty Corp. of San Francisco last week became the first company to put on hold its IPO in 2010 (Bloomberg.com Feb. 3) …

Market News (02/03/2010)

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MADISON, Wis. (2/4/10)
* Mortgage loan application volume for the week ended Jan. 29 rose 21% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, in the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 23.5% from the previous week. “Mortgage application volume rebounded last week, returning the purchase and refinance indexes to levels from mid-December,” said Michael Fratantoni, MBA vice president of research and economics. “Rates continue to hover around 5%, quite low by historical standards, but are well above the record lows seen in 2009, and hence are not generating substantial refi volume. We expect that rates will rise over the next few months as the Federal Reserve winds down its mortgage-backed securities purchase program, and this will likely lead to a decline in refinance volume.” The Refinance Index increased 26.3% from the previous week and the seasonally adjusted Purchase Index increased 10.3% from one week earlier. The unadjusted Purchase Index increased 17.5% compared with the previous week and was 11.2% lower than the same week one year ago. For the MBA report, use the link … * U.S. companies cut an estimated 22,000 jobs in January, according to data released Wednesday by ADP Employer Services. The decline, which was consonant with forecasts, was the smallest in two years and followed a revised 61,000 decrease the prior month. The fourth quarter of 2009 experienced the fastest pace of growth in six years, indicating the economy may be primed to add jobs as companies restock inventories to keep up with rising demand, analysts said. A government report coming out Friday should indicate the U.S. created jobs in January--the second time in the past three months, according to economists surveyed by Bloomberg. “The trends are heading in a positive direction for the labor market,” said Russell Price, a senior economist at Ameriprise Financial Inc. “Businesses are becoming more confident that the economy does have legs” (Bloomberg.com Feb. 3). In a related matter, the number of workers affected by job cut announcements in January rose to its highest level since August, according to the Challenger Report issued by Challenger, Gray and Christmas Inc. In January, 71,482 workers were affected, Challenger said (Moody’s Economy.com Feb. 3) … * In January, for the first time in three months, U.S. service industries grew, signaling that the economic recovery is starting to widen, analysts said. The Institute for Supply Management (ISM) said its service sector index (non-manufacturing businesses) rose to 50.5 last month from a revised 49.8 in December. Economists surveyed by Thomson Reuters had anticipated a reading of 51. A reading above 50 indicates growth. The expansion of U.S. exports and efforts to stabilize inventories fueled a factory rebound six months ago that is gaining strength and spreading to other areas of the economy, analysts said. However, the economic recovery has not yet created the jobs necessary to spark consumer spending back to pre-recession levels, analysts added. “The economy will continue to grind forward at a fairly moderate pace this year,” said Sal Guatieri, a senior economist at BMO Capital Markets Inc. “It’s very weak momentum in the broader economy outside factories” (Bloomberg.com Feb. 3) … * Mortgage compliance costs are rising and profits are declining to the extent that lenders cannot pass the increased costs on to borrowers (American Banker Feb. 3). Because of this situation, lenders are hiring many legal and quality-control specialists to ensure compliance with a plethora of new regulations that recently took effect, the publication said. Costs for lenders are going up as they try to comply with the new Real Estate Settlement Act, the Real Estate Settlement Procedures Act (RESPA) rule, the Secure and Fair Enforcement for Mortgage Licensing Act and a new Truth in Lending Act Regulation, the publication said. For RESPA coverage questions, see CUNA Answers

News of the Competition (02/02/2010)

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MADISON, Wis. (2/3/10)
* Bank of New York Mellon Corp. said Tuesday it finalized a $2.31 billion deal to purchase the back-office operations of PNC Financial Services Group Inc. PNC Global Investment Servicing, which provides back-office processing for financial advisers, fund managers and brokers, was put up for sale months ago, analysts said. The purchase will afford “the potential for significant revenue and expense synergies,” the bank said. The purchase price includes the purchase of $1.57 billion of stock and repayment of PNC’s intercompany debt, analysts said. The bank plans to raise roughly $800 million in equity as part of the transaction (The Wall Street Journal Feb. 2) … * The delinquency rate on commercial and industrial loans to small firms is “moderately higher” than similar loans made to large firms, according to more than half--55.6%--of respondents to a Federal Reserve Board survey released Monday (American Banker Feb. 2). Another 13% of respondents indicated the loans to small firms go into delinquency at a “substantially higher” rate. The survey of 55 U.S. banks was conducted less than a week after President Barack Obama said the banking industry is not making sufficient loans--especially to small businesses, the publication said. Obama said he intends to channel $30 billion from the Troubled Asset Relief Program to community banks to aid them in making small business loans … * Two new key reports indicate that the U.S. economy is strengthening, analysts said. Banks have stopped making it difficult for businesses and consumers to borrow, but they haven’t made it easier either, according to a Federal Reserve survey of more than 50 banks released Monday. None of the banks surveyed said they had tightened business-lending standards for medium or large firms. Two said they have tightened standards for smaller firms. Also on Monday, the Institute for Supply Management (ISM) said an index compiled from its survey of purchasing managers increased to 58.4 in January from 54.9 in December, constituting the sixth consecutive monthly increase. Readings above 50 indicate economic expansion, ISM said (The Wall Street Journal Feb. 2) …

Market News (02/02/2010)

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MADISON, Wis. (2/3/10)
* U.S. chain store sales for the week that ended Sunday went up 0.1%, ending four consecutive large weekly swings and putting the index at a low level, according to the International Council of Shopping Centers (ICSC). Wet weather hurt sales during the week, analysts said. Although movement was slight in the most recent week, year-ago growth fell to 0.4%, matching its lowest level since September, ICSC said. Because sales volumes are low this time of year--January is the slowest sales month in the year for many chain stores--volatility is the norm, ICSC added. Although consumers are more willing to spend now than at this time last year when sales dived, the results are disappointing in the framework of an economy that is no longer in recession, analysts said (Moody’s Economy.com Feb. 2) … * Pending U.S. home sales in December stabilized from a market swing created by consumer response to the first-time homebuyer tax credit, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December, increased 1% to 96.6 from 95.6 in November, and remains 10.9% above December 2008, when it was 87.1. “It’s slow, sustainable growth,” said Daniel Penrod, senior industry analyst for the California Credit Union League. “Most people would prefer a quick rebound but that’s not likely to happen” (ABC News Feb. 2). In November, the monthly index fell by 16.4% from surging activity in previous months. It’s important to recognize how the tax credit is skewing market data, said Lawrence Yun, NAR chief economist. “There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” he said. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels. December activity was the fifth highest monthly tally in two years.” For the NAR report, use the link …

News of the Competition (02/01/2010)

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MADISON, Wis. (2/2/10)
* Regulators shuttered six more failed banks Friday, bringing the year’s total to 15, following 140 failures in 2009, according to the Federal Deposit Insurance Corp. Friday’s failures include: Marshall Bank, National Association, Hallock, Minn., taken over by United Valley Bank, Cavalier, N.D.; Florida Community Bank, Immolakee, Fla., taken over by Premier American Bank, National Association, Miami; First National Bank, Carrolton, Ga., taken over by Community & Southern Bank, Carrollton, Ga.; Community Bank and Trust, Cornelia, Ga., taken over by SCBT, N.A., Orangeburg, S.C.; First Regional Bank, Los Angeles, taken over by First-Citizens Bank & Trust Company, Raleigh, N.C.; and American Marine Bank, Bainbridge Island, Wash., taken over by Columbia State Bank, Tacoma, Wash … * For the second consecutive Friday, the Federal Deposit Insurance Corp. (FDIC) turned to new-bank capital to find refuge for the operations of failed institutions, reported American Banker (Feb. 1). Friday’s six closings of failed banks--with a total of $5.5 billion in assets--cost the FDIC an estimated $1.8 billion, the publication said ... * In the fourth quarter of 2009, several community banks were able to bolster their bottom line with loan sales, according to American Banker (Feb. 1). The opportunity for and willingness of community banks to push nonperforming assets off their books is escalating, said industry analysts and executives. This likely will result in community banks using loan sales throughout 2010, the publication said. An example is the $1.6 billion-asset State Bancorp, which--in the fourth quarter--sold $22 million of legacy nonperforming loans, reducing its nonperforming assets by 80% from the third quarter, the publication added …

Market News (02/01/2010)

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MADISON, Wis. (2/2/10)
* President Barack Obama Monday sent Congress a proposed $3.8 trillion budget for the fiscal year 2011. The plan contains large increases in business and personal taxes, modest spending cuts, and increased funds for education, defense and job initiatives, analysts said. President Obama said his plan would create a decade-long reduction in the deficit from $1.6 trillion this year--a budget shortfall exacerbated by $100 billion worth of additional tax cuts and spending on public works that he wants provided immediately, analysts said. “We simply cannot continue to spend as if deficits don’t have consequence, as if waste doesn’t matter, as if the hard-earned tax money of the American people can be treated like monopoly money,” Obama said at the White House. The president is being pressured to persuade investors and large creditors such as China that he has a solid plan for reigning in the country’s deficit and debt moving forward, analysts said (The New York Times and The Wall Street Journal Feb. 1) … * U.S. consumer spending increased less than anticipated in December, with savings rising to a six-month high--signaling that households are reluctant to spend despite an increase in incomes, analysts said. For the month, spending increased 0.2% after rising by an upwardly revised 0.7% in November, the Commerce Department said Monday. Previously, November consumer spending was previously reported to have risen 0.5%. December’s number constituted the third consecutive monthly gain in spending. Analysts had anticipated consumer spending to rise 0.3% in December, according to a Reuters poll (The New York Times Feb. 1). In a related matter, personal income increased 0.4% in December, following upwardly revised growth of 0.5% in November--the fastest growth since May’s surge, which was fueled by the government stimulus, according to the Bureau of Economic Analysis. Real spending increased 0.1% (Moody’s Economy.com Feb. 1) … * U.S. factory production in January posted its best numbers in more than five years, amid a hiring bounce-back and increasing price pressures, analysts said. The Institute of Supply Management’s (ISM) manufacturing index surpassed expectations for the month, rising to 58.4 from a revised 54.9. Readings over 50 indicate growth. A steep uptick in production led the improvement because manufacturers are pushing hard to keep inventories from dropping below final demand, analysts said. January marked the second consecutive month that the employment index was above the neutral threshold level of 50. The month’s employment increase, which portends gains in manufacturing payrolls, could come soon, analyst said. “This month’s report provides significant assurance that the manufacturing sector is in recovery,” said Norbert Ore, who directs the ISM survey. “Thirteen out of 18 industries reported growth, up from nine industries last month, and this is a good indication that the impact of the recovery is expanding,” he added (The Wall Street Journal and Moody’s Economy.com Feb. 1) … * U.S. construction spending in December was below expectations, dropping 1.2% from revised November numbers and down 9.9% from December 2008, according to the Census Bureau. A significant decrease of 2.8% in private residential construction for the month was the main driver of the overall construction spending decline, analysts said. From November to December, public construction declined 1.2%. The December numbers indicate that prospects are dim for a rebound in homebuilder confidence or a quick recovery for the housing or commercial real estate markets, analysts said (Moody’s Economy.com Feb. 1) …