Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

Market Archive

Market

News of the Competition (04/30/2009)

 Permanent link
MADISON, Wis. (5/1/09)
* Robert O. Carr, chairman and CEO of Heartland Payment Systems, plans to discuss his firm’s recent data breach next week at the first meeting of the Payments Processing Information Sharing Council, which was launched to help firms share information about fraud and risk mitigation (CardLine via American Banker April 30). “Heartland should be able to share information with others in our industry, so that an international cyberthief can’t use the same malicious software to penetrate another processor,” said a Heartland spokesman. Credit unions were among the financial institutions that replaced cards after they were compromised by the Heartland data breach. … * Visa posted stronger-than-expected earnings for its second quarter as it boosted prices, slashed expenses, and consumers used debit cards more. The card network’s net income jumped 70% from a year earlier to $536 million for the second quarter ended March 31. Adjusted operating expenses dropped 5% to $745 million, as the firm cut employees, advertising and marketing, consulting fees, and administrative costs. Net operating revenue jumped 13% to $1.6 billion. Total processed transactions rose 6% to $9.4 billion. Visa has seen consumers shift from credit cards to debt cards. “The continued strength of debit is attributable in part to that product’s strong correlation with non-discretionary spend categories, which are holding up relatively well in the face of a tough economy,” said Chief Financial Officer Byron Pollitt. “In fact, in the quarter ending December, for the first time in Visa’s history, U.S. debit payment volumes eclipsed that of credit,” added Pollitt (Reuters via The New York Times April 30) … * A Dallas investment firm and one of its executives have been charged in connection with a multimillion-dollar kickback scheme involving the $122 billion New York State Common Retirement Fund. In a complaint filed Thursday, the Securities and Exchange Commission said Aldus Equity paid hundreds of thousands of dollars in “sham fees” to a top aid in New York’s former comptroller’s office in exchange for his help in obtaining a pension fund deal. Aldus Equity co-founder Saul Meyer was arrested in connection with the scheme. Henry Morris, the former state comptroller’s top fundraiser, and David Loglisci, the pension fund’s former top investment officer, are charged with operating the scheme to enrich Morris and other political associates. Hedge-fund manager Barrett Wissman has pleaded guilty to a felony and has agreed to forfeit $12 million and serve as a witness (Associated Press and Reuters via The New York Times April 30) … * Massachusetts Secretary of State William Galvin has launched an investigation into whether State Street Corp. misled pension funds about the risk of certain investments, including mortgage-backed securities and swaps. State Street also is facing several private lawsuits over its “enhanced index” bond funds. A State Street document given to clients described the Government/Corporate Bond Fund as investing in a “broad-based, investment-grade, fixed-income universe.” However, as of March 31, 2007, the fund was almost half weighted in mortgage-backed and other asset-backed securities. In comparison, the fund’s largest weighting as of September 2005 was in U.S. Treasuries. “It’s one thing when we see a pension fund taking unreasonable risks, but it’s worse when you have a pension fund attempting to do the right thing, and doing business with a reputable company--but losing because of misrepresentation,” said Galvin. State Street Spokeswomen Arlene Roberts declined to comment on the matter (The Wall Street Journal Online and Reuters via Yahoo! News April 30) … * Bank of America shareholders have voted to take away Kenneth Lewis’ role as chairman of the bank. Lewis, who faced intense criticism about his role in the acquisition of Merrill Lynch, remains as the firm’s president and chief executive. Walter E. Massey, director and president emeritus at Atlanta’s Morehouse College, is the firm’s new chairman. It was the first time in history that a company in the Standard & Poor’s 500-stock index has seen shareholders strip a chief executive of his chairman role, according to RiskMetrics Group. However, critics note that as a longtime friend of Lewis, Massey probably will side with him on key decisions (The Wall Street Journal Online April 30) … * Zurich-based UBS announced Thursday that it had eliminated 2,000 jobs in the U.S. as part of its round of job layoffs announced in early April. The firm’s investment bank invested heavily in risky U.S. assets, forcing it to make more than $50 billion in writedowns. On April 15, CEO Oswald Gruebel announced that the firm would slash 8,700 jobs as part of its restructuring plan (Reuters via Yahoo! News April 30) …

Market News (04/30/2009)

 Permanent link
MADISON, Wis. (5/1/09)
* Long-term mortgage rates declined for a third consecutive week--matching the record low hit earlier in April, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) edged down 2 basis points to 4.78% this week, equaling the record low hit the week of April 2. That’s the lowest level in records going back to 1970. “The housing market may be edging towards a bottom,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “In aggregate, borrowers who refinanced ruing the first quarter reduced their mortgage payments by about $2.5 billion over the coming year,” added Nothaft. The 15-year FRM was unchanged at 4.48% last week--the lowest level since Freddie began tracking this rate in August 1991. The one-year, adjustable-rate mortgage (ARM) fell 9 basis points to 4.82% this week. Nothaft noted that ARM rates have been higher than FRM rates for the past two weeks. He said that’s the first time this has happened since Freddie started collecting ARM data in January 1984 (Bloomberg.com, The Wall Street Journal Online, and UPI.com April 30) … * Hope Now reported mixed results for March, including a 20% jump in initial foreclosure filings along with a steep decline in bank repossessions. The coalition of mortgage lenders, servicers, investors, and community groups said servicers initiated foreclosure proceedings against 290,000 mortgage borrowers, up almost 20% from February and the biggest monthly total since the group began tracking the data in mid-2007. However, banks repossessed just 53,000 homes in March, down sharply from 87,000 in February. And 134,000 mortgages were rewritten by Hope Now members, almost 20,000 more than the average since September. Another 115,000 at-risk mortgage borrowers were given repayment plans. An estimated 1,447,866 homes have been lost to foreclosure since the housing crisis began in July 2007 (CNNMoney.com April 30) … * Chrysler Corp. plans to file for bankruptcy protection after negotiations with a small group of creditors failed only a day ahead of a government deadline for the firm to submit a restructuring plan (Associated Press via Yahoo! News April 30). Chrysler would continue operating under bankruptcy, and is expected to sign a partnership deal with Fiat as early as Thursday. The United Auto Workers union stands to gain as Chrysler and General Motors restructure their operations (The New York Times April 30). The union would own more than 50% of the stock in Chrysler and about one-third of General Motors stock under their proposed restructuring plans. That would give union members influence in deciding the firms’ future. Still, union members have agreed to cuts in their compensation and benefits. And almost 200,000 members have lost their jobs since 2003 … * Employment costs rose just 0.3% in the first quarter--the smallest increase in records going back to 1982, the Labor Department reported Thursday. The gain followed a 0.6% increase in the fourth quarter. Year-over-year, employment costs were up 2.1% in the first quarter, after a 2.6% gain in the previous quarter. Labor costs are expected to remain tame as employers cut jobs and benefits during the economic slump. “It’s reflective of just how much wages are under pressure in this slackening labor market,” said Credit Suisse Holdings economist Jonathan Basile. Wages and salaries, which make up about 70% of total employment costs, rose just 0.3% in the first quarter, the smallest gain on record. Benefit costs increased 0.5% (Bloomberg.com April 30) … * The number of people continuing to collect unemployment benefits surged to a new high, even as first-time claims for unemployment insurance dipped, according to a Labor Department report. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 133,000 to 6.271 million during the week ending April 18--the highest level in records going back to 1967. It was the 13th consecutive week that continuing claims hit a record high. In addition, there were 2.4 million people receiving jobless benefits (as of April 11) under a separate unemployment benefit program enacted by Congress last year--boosting the total number of long-term unemployed to 8.7 million. In a ray of hope, the government also reported that first-time claims for unemployment insurance declined by 14,000 during the week ended April 25 to 631,000 (Associated Press via Yahoo! News and Moody’s Economy.com April 30) … * Both consumer income and spending declined in March, the Commerce Department reported Thursday. Personal income fell 0.3% following a 0.2% dip in February, while personal spending dropped 0.2% after a 0.4% gain. The income decline was the fifth in the past six months (Bloomberg.com April 30). Inflation cooled during March. The core PCE deflator, a price measure tied to the report, was up 1.8% year-over-year in March--well within the Federal Reserve’s comfort zone for inflation. The personal savings rate rose to 4.2%, from 4% in February, as consumers cut back spending …

Presenter at upcoming economic forum sees better news

 Permanent link
PLANO, Texas (5/1/09)--There is light at the end of the tunnel for the U.S economy, said Gene Stanaland, an economics lecturer who will be one of the presenters at the Economics Forum West, June 9 in Portland. Ore. The event is sponsored by Southwest Corporate FCU, Plano, Texas. “The national psyche is bombarded nightly with news about foreclosures and unemployment,” Stanaland said. “You can’t blame the media. They make their money with bad news, and boy do we have it. But when people hear all that bad news and decide to cut back, they only add to the economic woes.” As a result, Stanaland noted, trillions of consumer dollars are sitting on the sideline. With consumers staying home, and the financial industry dealing with too many troubled assets, the economy has been grinding to a halt. However, “there is light at the end of the tunnel,” Stanaland said. “Consumer confidence is starting to rise. And the promise of the stimulus package is helping to break the gloom, even though most of the stimulus package hasn’t taken hold yet.” Between an emboldened consumerism and macro-scale tinkering by the federal government, Stanaland believes the economy is in position to turn later this year. “The evidence for this is getting stronger every day,” he said. Other forum speakers include:
* Steve Rick, senior economist for the Credit Union National Association, who will cover economic implications from a credit union point of view; * John W. Mitchell, former chief economist of U.S. Bancorp and member of the Western Blue Chip Forecast Panel, who will provide an analysis and forecast of the Northwest region’s economy. * Joe Cortright, an economist with Impresa, a Portland, Ore., consulting firm specializing in economic analyses. Cortright will discuss the emerging “green economy” and how it will affect the Northwest and credit unions.
For more information, use the link.

Hampel to IWash. PostI Not out of the woods yet

 Permanent link
WASHINGTON (5/1/09)--Although Wednesday’s Commerce Department report indicated some hopeful signs in the U.S. economy amid its surprising contraction at the beginning of 2008, Credit Union National Association Chief Economist Bill Hampel warned that challenges still exist. Despite a 6.1% annual pace of decline in first-quarter gross domestic product on the heels of an even steeper fourth quarter 2008 decline, the Commerce Department indicated that household consumption--a barometer of American’s spending--rose, and businesses cut back significantly on their inventories, signaling an eventual increase in production (Washington Post April 30). However, the Federal Open Market Committee and private economists concur that even if consumer spending is sustained, a strong rebound in the immediate future is unlikely because consumers are still dealing with a mound of debt, a declining job market and a troubled banking system, the Post said. “We’re nowhere near being out of the woods yet,” Hampel told the newspaper. “But this is a strong sign that things aren’t going to get dramatically worse.”

Fed policy to remain through mid-late 2010 CUNA tells IForbesI

 Permanent link
MADISON, Wis. (4/30/09)--The Federal Open Market Committee could go as long as mid-to late-2010 before it raises the federal funds target rate again, Mike Schenk, senior economist with the Credit Union National Association (CUNA) told Forbes magazine Tuesday. The article was in anticipation of Wednesday's FOMC meeting, in which the Fed kept rates the same. It said that readers might be surprised how long the Fed might keep funds near zero. (See related story, "Fed action means cost of funds won't go up soon," in News Now's Market section.) Schenk told the publication the Fed will be driven by the consumer, which means it likely will maintain its policy (of keeping rates at current, near-zero levels) until mid- to late-2010. "We've lost over five million jobs since the start of this [recession], and our forecast has us losing more than two million more," he said. "With the labor markets continuing to weaken, we believe the Fed will continue to be very cautious not to further damage consumer confidence and knock any economic recovery off its moorings."

Fed action means cost of funds wont go up soon

 Permanent link
MADISON, Wis. (4/30/09)--Wednesday's action by Federal Reserve policymakers to keep the target federal funds rate unchanged will mean that credit unions won't see a hike in their cost of funds soon, according to Credit Union National Association (CUNA) economist. As anticipated, the Federal Reserve voted unanimously to keep the target for the federal funds rate unchanged at a range of zero to 0.25%. Policymakers also restated their pledge to keep rates at “exceptionally low levels” for an extended period. The discount rate was left unchanged at 0.5%. "Today, the Federal Reserve restated its commitment to holding short-term rates near zero," said Steve Rick, CUNA senior economist yesterday. "This should reassure credit unions that their cost of funds will not be heading up any time soon," he told News Now. Rick noted that during the past year, "credit union money market accounts and share certificates rates have both declined by more than 1.1 percentage points." "We are not expecting the Fed to raise its fed funds interest rate target until sometime in early 2010," he said. "Many credit union leaders are concerned that the recent 'quantitative easing' policies of the Fed may contribute to higher inflation and interest rates down the road. For those credit unions whose liabilities reprice faster than their assets, this could have an adverse impact on their future earnings, similar to what occurred with the savings and loan industry 20 years ago." However, "the Fed's statement addressed this issue by noting that the current level of economic slack (low capacity utilization rates and high unemployment rates) will keep inflation subdued for quite some time," Rick said. Also, the Fed policymakers have "previously discussed how they plan to withdraw the Fed's monetary stimulus from the financial markets before inflation can rear its ugly head. Their exit strategy is relying on interest paid on reserves to prevent this liquidity from flooding into the broader economy through credit extension." Although the Fed kept the rates the same, it noted that the economic outlook has improved slightly during the past six weeks. “Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit,” said the Fed in a statement following the meeting. “Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.” “Nonetheless, the committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.” However, the Fed noted that there remains a risk that inflation could remain lower than “rates that best foster economic growth and price stability in the longer term.”

News of the Competition (04/29/2009)

 Permanent link
MADISON, Wis. (4/30/09)
* Preliminary results of the federal government’s stress tests show that at least six of the nation’s 19 largest banks need additional capital, say people briefed on the matter. Most of the extra capital probably will come from converting preferred shares to common equity. The Federal Reserve is now hearing appeals from Bank of America, Citigroup, and other banks that regulators have determined need more capital. Final results of the stress tests are scheduled to be released next week (Bloomberg.com April 29) … * Citigroup, which soon will be one-third owned by the federal government, is asking permission from the Treasury Department to pay out special bonuses to key employees, say people familiar with the matter. Employees at its Phibro energy-trading unit are reportedly threatening to leave because of pay restrictions tied to the government bailout of the firm. Citigroup, which has received $50 billion in taxpayer money, is discussing other plans as well, including spinning off Phibro or opening it to outside investors. Morgan Stanley, which has received $10 billion in taxpayer money, also is considering a plan to spin off the firm’s proprietary-trading business to shield it from federal compensation restrictions (The Wall Street Journal Online April 29) … * Increased core deposits at many banks during the first quarter didn’t keep margins from contracting, as more loans went bad and loans repriced faster than deposits amid Federal Reserve rate cuts. Net interest margins declined at eight of the top 10 banks during the period. Bankers have booked new loans at higher rates because of increased economic risk, noted Brett Rabatin, an analyst at Sterne, Agee & Leach. However, he said overall loan portfolios have repriced downward due to Fed rate cuts, and loans have repriced faster than deposits at many banks, leading to compressed margins. That trend is expected to change as deposit prices continue to decline and new borrowers obtain loans at higher prices. “The margin actually bottomed in January, and our expectation is that it will further expand the rest of the year, as loan spreads continue to improve, and multibillion dollars worth of CDs will mature and people will reinvest at lower yields,” said Comerica Inc. Chief Financial Officer Beth Acton. Comerica’s margin tumbled 29 basis points to 2.53% in the first quarter (American Banker April 29) … * E*Trade Financial’s loss widened during the first quarter amid rising loan losses, the online brokerage reported Wednesday. The company lost $232.7 million, compared with a loss of $91.2 million a year earlier. Revenue fell 6% to $497.3 million. Delinquent loans totaled $2.24 billion in the first quarter--up 13% from the fourth quarter and 80% from the first quarter of 2008. E*Trade set aside $454 million for loan-loss provisions, compared with $513 million in the fourth quarter. Net chargeoffs were $334 million, up 9%. E*Trade Chairman and CEO Donald Layton said chargeoffs probably will peak during the second quarter. The company is awaiting approval for an $800 million investment from the Troubled Asset Relief Program. The firm announced that the Office of Thrift Supervision advised the firm to raise capital for its banking unit. Layton said the company has sold off noncore assets and canceled some of its outstanding debt by exchanging bonds for equity (The Wall Street Journal Online and The New York Times April 29) … * Michael Strauss, former founder, chairman, and chief executive of American Home Mortgage Investment Corp., has agreed to pay almost $2.5 million to settle federal civil charges of accounting fraud and concealing the firm’s deteriorating finances as the subprime mortgage crisis began in 2007, the Securities and Exchange Commission announced Tuesday. Strauss also will be prohibited from serving as an officer or director of a public company for five years. Charges of accounting fraud and misleading investors are pending against Stephen Hozie, the firm’s former chief financial officer. American Home filed for bankruptcy protection in August 2007 (Associated Press via Yahoo! News April 29) …

Market News (04/29/2009)

 Permanent link
MADISON, Wis. (4/30/09)
* The economy remained very weak in the first quarter and inflation was tame, the Commerce Department reported Wednesday. The nation’s gross domestic product (GDP) declined at an annual rate of 6.1%, according to advance estimates. The drop followed a 6.3% decline in the fourth quarter. The core PCE deflator, the Federal Reserve’s preferred inflation measure, increased 1.5% year-over-year in the first quarter, up from 0.9% in the fourth quarter but well within the Fed’s comfort zone. The first-quarter decline in GDP mainly reflected negative contributions from exports, private inventory investment, equipment and software, nonresidential structures, and residential fixed investment. These were partially offset by a positive contribution from personal consumption expenditures (PCE) … * The slightly smaller decline in GDP in the first quarter than in the fourth reflected a rebound in PCE for durable and nondurable goods and a larger decline in imports, according to the Commerce Department report. These were mostly offset by larger declines in private inventory investment and in nonresidential structures and a downturn in federal government spending. The economic contraction continued in the first quarter even as lower gasoline prices and bigger tax refunds helped end the worst plunge in consumer spending in nearly three decades, saidBloomberg.com (April 29). Smaller business stockpiles could set the stage for a resumption of growth in the second half of the year. Bloomberg also noted that the decline in government spending reflected a cutback in federal defense spending and the largest decline in state and local government outlays since 1981, as tax revenues plunged … * Commercial mortgages at risk of default have quintupled since the beginning of 2008 as the deteriorating economy made it hard for multi-family residential properties and retail shops and businesses to keep up with their payments, according to a report by Fitch Ratings. Special servicers, firms that collect payments from distressed borrowers on behalf of mortgage-bond investors, reported $23.7 billion of mortgages under their management at the end of March--five times higher than the $4.6 billion at year-end 2007. Servicers saw a nearly 50% jump in the volume of distressed commercial mortgages in the first quarter alone. Mortgages for multi-family residential properties made up 31% of the troubled loans, while retail loans represented 28%. “[We have] observed an increase in defaults of retail loans and expect them to eventually surpass multi-family as the highest property type concentration,” said Fitch analyst Stephanie Petosa (FT.com April 29) … * Mortgage activity dropped last week as refinancings plunged, the Mortgage Bankers Association reported Wednesday (mbaa.org April 29). The trade group’s Market Composite Index fell 18.1% during the week ending April 24 to 960.6. The Refinance Index tumbled 21.9% to 5108.2, and the Purchase Index edged down 0.6% to 251.6. The average 30-year, fixed-rate mortgage (FRM) declined 11 basis points to 4.62% last week, while the one-year, adjustable-rate mortgage (ARM) edged up 4 basis points to 6.23%. The last three weeks have started to stem optimism that the March gains in the purchase index were the beginning of a surge in purchase applications, said Moody’s Economy.com (April 29). Despite low mortgage rates and the first-time homebuyer tax credit, people won’t begin purchasing homes in significant numbers until the market sends a clear signal that home prices are reaching a bottom … * Unemployment rates were higher in March than a year earlier in all of the nation’s largest 372 metropolitan areas for a third consecutive month in March, according to a Labor Department report. Eighteen areas recorded unemployment rates of 15% or more. Just 15 registered rates under 5%. The national unemployment rate (not seasonally adjusted) was 9% in March, up from 5.2% a year earlier. Elkhart-Goshen, Ind., saw the largest year-over-year gain in unemployment, as its rate surged to 18.8%, a 13 percentage-point gain. It had the fourth-highest unemployment rate in the nation. That region of Indiana has been hit hard by layoffs in the recreational vehicle industry. El-Centro, Calif. had the nation’s highest unemployment rate, at 25.1%, reflecting rising unemployment among seasonal agriculture workers (bls.gov and Associated Press via The New York Times April 29) … * Americans have become slightly more optimistic about the economy, according to the latest CNN/Opinion Research survey. About 37% of respondents say that current economic conditions are very poor--down from 48% in last month’s poll and 66% in December. And 17% now say that economic conditions are good, up from 11% last month, while 55% say the economy is the most important issue the nation faces, down from 63%. “When the economy is bad, it is the top issue on the public’s mind,” said Keating Holland, polling director at CNN. “So when the number who say the economy is the No. 1 problem facing the country goes down, it may be a leading indicator that things are looking up a bit,” added Holland (CNN April 29) …

News of the Competition (04/28/2009)

 Permanent link
MADISON, Wis. (4/29/09)
* Regulators have informed Bank of America (BofA) and Citigroup that they may need to boost their capital because of preliminary results of the government’s stress tests, say people familiar with the matter. The two banks have received a total of $95 billion in taxpayer money. Objecting to the stress-test results, executives at BofA and Citigroup plan to offer detailed refutations. Analysts say some regional banks with large portfolios of commercial real-estate loans also didn’t perform well on the stress tests. Banks could increase their capital by selling assets, selling more shares to the public, or converting the government’s preferred shares into common stock (The Wall Street Journal Online April 28) … * Delta Air Lines’ Northwest Airlines has filed a lawsuit against U.S. Bancorp over the lender’s plan to transfer the airlines’ frequent-flier Visa card users to a competing credit card. U.S. Bank has issued Visa cards for Northwest’s WorldPerks program since 2001 under a contract scheduled to expire Aug. 22 due to Northwest’s merger with Delta. Northwest claims U.S. Bank will breach the contract if it transfers cardholders to the bank’s new FlexPerks Visa card beginning next month, before the termination date. The FlexPerks cards offer frequent-flier miles on more than 150 airlines. Northwest asked for a court order to prohibit U.S. Bank from transferring WorldPerks cardholders to FlexPerks accounts before Aug. 22. The firm also is seeking a court order to prohibit the bank from using the “confusingly similar” FlexPerks name (Bloomberg.com April 25) … * The impending new regulations in the credit-card industry should give small- and midsize-issuers new opportunities. “Between the repricing and the payment allocation rules, large issuers will be forced to abandon the present model based on direct marketing of low introductory interest rates and balance transfers,” said Tony Hayes, a partner at Oliver Wyman. He says due to the new regulations, “over the next few years an estimated $200 billion in debt will disappear from the credit card industry.” He also predicts that smaller and regional card issuers will benefit as customers are acquired more through branches than through national lenders’ direct mail programs (American Banker April 28) … * Corus Bankshares, a Chicago-based condominium lender, said it no longer is considered “well capitalized” under the guidelines recently established by regulators. In a filing with the Securities and Exchange Commission, the firm also said an outside auditor recently raised “substantial” doubts about Corus’ ability to continue as a going concern because of high levels of sour loans. An estimated $1.01 billion of the bank’s $1.11 billion in commercial real-estate loans in Florida have deteriorated to the degree that the collection of all principal and interest isn’t anticipated. The bank entered into written agreements with the Office of the Comptroller of the Currency and the Federal Reserve Bank of Chicago on Feb. 18, requiring it to create a three-year capital plan. On Friday, Robert Glickman resigned as president/CEO and as a director of the bank. Joseph Glickman, his father, resigned as chairman and director (chicagotribune.com April 28) …

Market News (04/28/2009)

 Permanent link
MADISON, Wis. (4/29/09)
* Home-price declines in the nation’s top 20 cities slowed in February, for the first time since 2007. Still, the decline in the Standard & Poor’s (S&P) Case-Shiller Index was a sharp 18.6% year over year, following a record 19% plunge in January. The January drop was the first time in 16 months that the decline didn’t set a record. Compared with the previous month, home prices were down 2.2% in February following a 2.8% drop in January. All 20 cities posted year-over-year price declines in February--led by a 35% plunge in Phoenix, a 32% drop in Las Vegas, and a 31% tumble in San Francisco. Nine cities--including Dallas, Denver, and Boston--showed improvement in their annual losses compared with the previous month. “While the declines in residential real estate continued into February, we witnessed some deceleration in the rate of decline in some of the markets,” said David Blitzer, chairman of the index committee at S&P. “We will certainly need a few more months of data before we can determine if home prices are finally turning around,” added Blitzer (Bloomberg.com and Associated Press via The New York Times April 28) … * Consumer confidence surged in April amid hopes for an end to the economic slump. The Conference Board’s Consumer Confidence Index jumped more than 12 points to 39.2--the highest reading since 44.7 in November. Still, the index is down sharply from the year-ago reading of 62.8. The April surge was fueled by “a significant improvement in the short-term outlook,” said Lynn Franco, director of the board’s Consumer Research Center. The Expectations Index, which measures confidence about the economy over the next six months, surged to 49.5 in April, from 30.2 in March. The Present Situation index edged up to 23.7 from 21.9. The improvements suggest that consumers think the economy is nearing a bottom, said Franco. However, she noted that the index remains far lower than levels associated with robust economic growth. Consumers’ employment outlook improved in April. The percentage of consumers expecting fewer jobs in the months ahead fell to 33.6% from 41.6%. Buying plans improved slightly. The share of consumers planning to purchase a home rose to 2.5% from 2.4%, while the percentage planning to buy an auto increased to 4.8% from 4%, and the share planning to purchase a major appliance rose to 25.6% from 24.5% (Associated Press via Yahoo! News and Moody’s Economy.com April 28) … * The United Auto Workers would eventually own 55% of the stock in a restructured Chrysler LLC under an agreement reached by the automaker and the union, according to a summary of the deal reviewed by The Wall Street Journal (April 28). Fiat SpA eventually would own 35% of the firm, while the federal government and Chrysler’s secured lenders together would own 10%. Chrysler workers are scheduled to vote on the deal Wednesday. In another part of the deal, Chrysler would issue a $4.59 billion note to the health-care trust fund that the union will manage for retired workers. Chrysler would pay $300 million in cash into the trust fund next year and in 2011, and rising amounts up to $823 million from 2019 to 2023. The trust fund would own a “significant” amount of Chrysler stock and could appoint a representative to the Chrysler board … * Chrysler’s unsecured creditors have reached a preliminary agreement with the Treasury Department that could keep the company from bankruptcy, said two people briefed on the situation. The automaker has about $6.9 billion in unsecured debt owned by banks including Citigroup and JPMorgan Chase and a group of hedge funds. Under the proposed deal, all of the debt would be canceled in exchange for $2 billion in cash (The New York Times April 28) … * Women working in the federal government continue to earn less than male workers, but the gap is declining, according to a draft report by the Government Accountability Office obtained by Associated Press (Yahoo! News April 28). The difference between the average annual salary for women and men in the federal work force fell from 19 cents to 11 cents on the dollar between 1998 and 2007. That’s down from a 28-cents-on-the-dollar gap in 1988. The gap narrowed the more women and men shared such characteristics as the types of jobs held, and levels of experience and education. The report will be discussed at a hearing of the Congress’ Joint Economic Committee this week. “As families continue to struggle during this economic crisis, they should not also be robbed by discrimination against women in the labor market,” said Rep. Carolyn Maloney, a Republican from New York who chairs the Joint Economic Committee …

News of the Competition (04/27/2009)

 Permanent link
MADISON, Wis. (4/28/09)
* Four new bank failures for the week of April 27 brought the total tally of failures in the U.S. to 29 this year--already topping the total of 25 bank failures for all of 2008, which was the largest since 1993. American Southern Bank of Kennesaw, Ga.; Michigan Heritage Bank in Farmington Hills; and First Bank of Beverly Hills in Calabasas, Calif., were closed by state agencies. First Bank of Idaho in Ketchum was shut by the Office of Thrift Supervision. The seizures will cost the Federal Deposit Insurance Corp.’s (FDIC) insurance fund a total $698.4 million. The failure of the California bank accounts for more than half that total. The FDIC couldn’t find a buyer for First Bank of Beverly Hills. Banks in the other three states are being taken over by regional institutions (Bloomberg.com and TheStreet.com April 27) … * Victims of Bernard Madoff’s massive Ponzi scheme have filed a lawsuit against JPMorgan Chase, accusing the firm of aiding his crime by maintaining his checking accounts and trading with his brokerage long after the bank realized that he was running a huge fraud. Madoff is in jail awaiting sentencing after pleading guilty to securities fraud, perjury and money laundering. He admitted in court that he shifted hundreds of millions of dollars through his checking accounts to pretend that he was actively investing clients’ money. In fact, he bought no securities for his clients. “Chase Bank permitted all funds from putative investors to be commingled in a single account and permitted Madoff to withdraw the funds as he saw fit, without limitation,” said the suit. The bank has acknowledged that it withdrew $250 million of its own money from one of Madoff’s biggest feeder funds following a review of the fund by the bank’s due-diligence staff. The bank is denying any wrongdoing (The New York Times April 27) … * Switzerland is asking the U.S. government to drop its legal case involving UBS AG in return for passing a new tax agreement between the two countries, said a Swiss official who declined to be named. UBS recently reached a deal with the U.S in which it agreed to pay $780 million to avoid criminal prosecution for helping wealthy Americans evade taxes. But the U.S. is pursuing information on more than 50,000 U.S. clients through civil channels (The Wall Street Journal Online April 27) … * Bank of America has officially dropped the Countrywide Home Loans brand name as part of the integration of the mortgage lender it acquired in 2008. BofA renamed its mortgage and home-equity lending operations Bank of America Home Loans. Countrywide was the nation’s biggest mortgage lender at the peak of the housing boom. But its heavy involvement in subprime lending prompted rising delinquencies as the boom began to unravel. The new Bank of America Home Loans unit will be based in Countrywide’s hometown of Calabasas, Calif. (Associated Press via The New York Times April 27) … * Bank of America is offering a series of mortgage initiatives designed to fight back against the tarnished reputation of Countrywide Home Loans, which it acquired last year. BofA unveiled a new one-page loan summary dubbed a “clarity commitment,” and launched a “flat-fee” mortgage to replace its “no-fee” mortgage product. Its new “Flat Fee Mortgage Plus” comes with a single closing fee to cover all lender and third-party fees. The fees will range from $1,995 to $2,995, depending on the state. “The promise is to always be a responsible lender and to help create successful homeowners,” said Barbara Desoer, head of home loans and insurance at BofA (The Charlotte Observer April 27) …

Market News (04/27/2009)

 Permanent link
MADISON, Wis. (4/28/09)
* Federal Reserve policymakers begin their two-day meeting on Tuesday. A statement is scheduled for release at 2:15 p.m. Eastern time on Wednesday. News Now will post details of the meeting soon after the release … * A record 19.1 million homes stood vacant during the first quarter--up from 18.6 million a year earlier, the Census Bureau reported Monday. The total includes foreclosures, homes for sales, and vacation properties. The national vacancy rate, the percentage of homes empty and up for sale, declined to 2.7%--from a record-high 2.9% in the fourth quarter. The homeownership rate dropped to 67.3%, from 67.5% in the previous quarter and the third consecutive quarterly decline. Data from the Mortgage Bankers Association show that the percentage of mortgages in foreclosures jumped to a record-high 3.3% in the fourth quarter. Banks held $11.5 billion in foreclosed properties in the fourth quarter--up from $6.5 billion a year earlier (Bloomberg.com April 27) … * General Motors announced Monday that it needs $11.6 billion more in loans from the federal government and that it planned to file for bankruptcy if its debt exchange with bondholders isn’t successful. The company also said it will shut down 13 plants, cut 21,000 hourly jobs, eliminate 42% of its dealers, and phase out its Pontiac brand by 2010. GM said it will give bondholders 225 shares, worth $414 as of April 24, for each $1,000 in debt they hold. The firm said holders of at least 90% of its outstanding debt must agree to the swap by May 27 for it to avoid bankruptcy. In other news, union leaders announced Sunday that they reached an agreement with Chrysler Corp. that meets the federal government’s requirements for the firm to receive more government money. No details of the deal were released. The union will have its 26,000 Chrysler workers vote on the deal by Wednesday (The New York Times April 27) … * Stocks rebounded in late-morning trading Monday as worries about a swine flu epidemic subsided and General Motors released a restructuring plan. The Dow Jones Industrial Average increased 33.05, or 0.4%, to 8,109.34, after declining by more than 1% in earlier trading. General Motors stock jumped 24%. Still, the stocks of many airlines, hotels, and other travel-related firms posted losses. The swine flu has killed more than 100 people in Mexico. The U.S. and Canada also have reported cases, but none have been fatal so far (Associated Press via The New York Times April 27) … * Consumers are still embracing gift cards, but have become more cautious about how much they spend on them, according to a Hartman Group Inc. report. The survey found that 43% of consumers are wary about purchasing retailer-issued, closed-loop gift cards, mostly because of concern that a bankruptcy would prompt the retailer to stop honoring the cards. The report also found that consumers are putting less money on gift cards amid concerns about the ongoing severe recession. Still, 57% of consumers bought at least one gift card during the past year, up from 52% of consumers over the period from September 2007 to August 2008 (CardLine via American Banker April 23) … * The average amount of money consumers plan to spend online during the second quarter increased 8.1% from the first quarter to $267, according to a report by Javelin Strategy and Research and eBillme. “The online channel is not being hit as hard as other retail channels,” said Bruce Cundiff, director of payment research and consulting at Javelin. He noted that consumers probably are more agreeable to paying for shipping than spending their money on gasoline to drive to a retailer. In a hopeful sign for the economy, 39% of respondents said they had more confidence in the economy than in past periods, and 19% said they felt more comfortable spending more on everyday items (CardLine via American Banker April 27) …

News of the Competition (04/24/2009)

 Permanent link
MADISON, Wis. (4/27/09)
* California Attorney General Jerry Brown has filed a lawsuit against three subsidiaries of Wells Fargo, claiming the units lost $1.5 billion for investors in the state who purchased auction-rate securities (ARS). The suit alleges that the units gave “false and deceptive advice” when they marketed the securities to small investors, saying they were as safe and liquid as cash. Investors lost money when the ARS market crashed in February 2008. “What we’re seeing today is another example of these complicated financial transactions, so-called financial products that have been part of this massive financial bubble that’s burst,” said Brown. In an agreement with New York Attorney General Andrew Cuomo last year, Merrill Lynch, Goldman Sachs and Deutsche Bank agreed to buy back $12.5 billion in ARS (The New York Times April 24) … * American Express reported that its net income plunged 56% in the first quarter as customers cut spending and delinquencies surged. The firm posted net income of $437 million during the first three months of the year--down from $991 million a year earlier. American Express wrote off 8.5% of its credit card loans, compared with 6.7% in the fourth quarter and 4.3% in the first quarter of 2008. The company expects losses on card loans to jump by as much as 2 percentage points in the second quarter and another half-percentage point in the third quarter as rising unemployment takes a toll on even its high-end customers. AmEx set aside $1.8 billion to cover credit losses in the latest period--up 49% from $1.21 billon a year earlier. The firm, which already cut 10% of its workforce, plans to eliminate another 7,000 jobs to control expenses (The Wall Street Journal Online April 24) … * Western Union announced last week that its first-quarter profits increased 8% from a year earlier to $223.9 million, as consumers boosted transfers and the firm cut costs by shutting down call centers and lowering commissions. Western Union also is stimulating growth by expanding into Brazil, Panama and some European countries. More than half the firm’s revenue is generated from countries outside the U.S. Western Union is expanding into the banking market as well. On April 20, the company announced that Fidelity National Information Services would offer its 8,500 bank clients in the U.S. the remittance services of Western Union. In addition, U.S. Bancorp is offering Western Union services at all of its branches. Bankers benefit from partnering with an established money-transfer service like Western Union because it saves them the cost of creating a remittance service of their own (Bloomberg News via American Banker April 22) … * The Federal Reserve’s balance sheet expanded further last week despite a steady decline in borrowing by commercial banks and investment banks, the Fed reported Thursday. The balance sheet swelled to $2.20 trillion, from $2.19 trillion a week earlier. Total borrowing from the discount window dropped to $102.99 billion from $111.20 billion. The central bank’s portfolio of Treasury securities rose by $8.87 billion to $534.97 billion. The Fed’s holdings under the Term Asset Backed Securities Loan Facility was unchanged at $6.38 billion in the latest week, while the Fed’s portfolio holdings in its commercial-paper funding facility increased almost $4 billion to $242.43 billion. The Fed’s holdings of mortgage-backed securities increased by $12 billion to $367.59 billion (Dow Jones Newswires April 23) …

Market News (04/24/2009)

 Permanent link
MADISON, Wis. (4/27/09)
* Sales of new single-family homes declined by 0.6% to a seasonally adjusted annual rate of 356,000 in March, the Commerce Department reported Friday. March sales were down 30.6% from a year earlier. However, sales in February were revised upward from a 4.7% increase to an 8.2% gain, suggesting that a bottom to the housing slump may be near. The median sales price of new homes sold in March was $201,400--down 12% from a year earlier and the lowest since December 2003. The seasonally adjusted estimate of new homes for sales at the end of March was 311,000, representing a 10.7-month supply at the current sales pace. Rising foreclosures have lured more buyers into the existing-home market, noted Bloomberg.com (April 24). New-home sales now account for about 7% of the total market--down from 16% at the peak of the housing boom in mid-2005. Other measures show signs of a bottom in the housing market. Mortgage applications to buy homes have rebounded after hitting a nine-year low in February … * The loss of millions of jobs in the U.S. due to the recession means lost tax revenue for the federal government, and billions of dollars in increased Treasury debt to fund the budget deficit. The deficit already has climbed to a record $956.8 billion, just six months into the fiscal year. And the Treasury Department has more than quadrupled its borrowing. The government will need to sell $2.4 trillion in new bills, notes, and bonds in fiscal 2009, according to an estimate by UBS. At the same time, the recession is causing a huge jump in spending. Federal government expenditures have soared 33% in the fiscal year through March amid increased spending on unemployment benefits and other safety-net programs. Expenditures by the Labor Department have more than doubled to $52.7 billion. Spending by the Department of Health and Human Services has soared by $40.6 billion, or 12%. And expenditures by the Agriculture Department, which operates the nation’s food-stamp program, have jumped by 18%, or $9.9 billion (Bloomberg.com April 22) … * States are facing a combined $95 billion budget gap by July, according to a report by the National Conference of State Legislatures. States already are cutting services, boosting fees, and using federal money to help close the gap. “We’re getting to the point where budget cuts are getting so deep that fundamental and priority state services are being affected,” wrote report author Corina Eckl. The report noted that the fiscal situation would be even direr without the $787 billion stimulus packaged enacted by President Barack Obama in February. However, it estimates that federal aid will close only 40% of the states’ combined budget deficits (CNNMoney.com April 23) … * General Motors announced Thursday that it plans to temporality shut down 13 assembly plants in the U.S. and Mexico--resulting in the layoff of 24,000 workers. The shutdowns will vary from as short as three weeks to as long as 11 weeks. There will be thousands more job cuts and temporary closures as the beleaguered automaker eliminates excess inventory. GM North America President Troy Clarke said he can’t remember when the company has had as many layoffs and plant closures. GM is functioning on $13.4 billion in loans from the federal government. It faces a June 1 deadline to outline plans to lower debt, cut labor costs, and take other restructuring measures. The firm’s chief executive has said it will enter Chapter 11 bankruptcy protection if it doesn’t meet the deadline (Associated Press via Yahoo! News April 23) … * Chrysler Corp. could be forced into Chapter 11 bankruptcy protection as soon as this week, even if it closes on a deal with Italy’s Fiat SpA, say people familiar with the situation. The firm would file for bankruptcy protection to eliminate some liabilities if an agreement with Chrysler’s lenders can’t be finalized. Then Fiat could choose which parts of the automaker it wants to purchase. The U.S. government would offer bankruptcy financing during the process. Along with a possible bankruptcy filing by General Motors, a Chrysler bankruptcy would represent a watershed moment for the U.S. auto industry--affecting thousands of jobs and the economies of many states in the Midwest (The Wall Street Journal Online April 23) … * Demand for big-ticket durable goods, designed to last three years or more, fell by $1.3 billion or 0.8% in March to $161.2 billion, the Commerce Department reported Friday. It was the seventh decline in the last eight months. Year-over-year, durable goods orders were down 27.1%. Excluding transportation, new orders fell 0.6% in March. In a hopeful sign, non-defense capital goods orders excluding aircraft, a proxy for future business investment, increased 1.5% last month following a 4.3% gain in February …

News of the Competition (04/23/2009)

 Permanent link
MADISON, Wis. (4/24/09)
* Auto-loan delinquencies declined in March, especially among subprime borrowers, but net losses on prime auto loan asset-backed securities (ABS) jumped in the first quarter despite an 8% increase in the value of used vehicles, Fitch Ratings reported Thursday. The losses are a big contrast to the typical first-quarter results, which have declined 7% on average for the past six years. Fitch said this year’s results reflect the intense pressure on auto ABS from rising job losses and cuts in consumer spending. Used-vehicle values were buoyed by lower supplies from trade-ins and rental vehicles, and from consumers trading down to a used auto instead of purchasing a new one, noted Fitch Managing Director John Bella. Prime auto delinquencies--60 days or more overdue--dropped to 0.69% in March, from 0.87% in February. However, they are 10% higher than year-ago levels. The subprime delinquency rate fell 23% from February to 3.65% in March, but is up 25% from a year earlier (Dow Jones Newswires April 23) … * Hedge funds continue to see redemptions, despite improved performance, as investors remain wary. Investors withdrew $104 billion, or 7.4% of industry assets, during the first quarter--following redemptions of $152 billion in the previous quarter, according to Chicago-based Hedge Fund Research (HFR). At the same time, HFR’s composite index posted a 0.53% gain. “Investor risk aversion remains at elevated historical levels as industry consolidation continued through quarter-end,” said HFR President Kenneth Heinz. “In addition to performance, investors are focused on structure and transparency, and the industry is in the process of evolving to meet these demands,” added Heinz. A study by Bank of New York Mellon and Casey Quirk & Associates found that high-net-worth investors are boosting redemptions, even as institutions including large pension funds remain committed to hedge funds. The study found that institutions accounted for less than 17% of net redemptions last year and in 2009. “High-net-worth investors’ future commitment to hedge funds will depend on capital market conditions and hedge fund returns during the next several years,” the study concluded (Dow Jones Newswires April 21) … * SunTrust Banks Inc. reported its second consecutive quarterly loss on Thursday. The Atlanta-based bank said its net loss applicable to common shareholders was $875.4 million, compared with a $281.6 million profit a year earlier. SunTrust set aside $994.1 million for bad loans--up 78% from a year earlier. Its net chargeoffs more than doubled to $610.1 million. Nonperforming loans jumped by $701 million during the first quarter to $4.64 billion, or 3.75% of all loans. SunTrust said residential mortgages and home equity lines of credit accounted for 54% of nonperforming loans, with much of that weakness concentrated in Florida (Reuters via The New York Times April 23) … * Sallie Mae, the nation’s biggest student lender, reported a narrower loss of $21.1 million for the first quarter. That compares with a $103.9 million loss in the first quarter of 2008. Sallie Mae said the government’s efforts to stabilize the commercial paper market actually harmed its business because those efforts drove rates lower. And most of the firm’s federal student loan portfolio earns interest, based on commercial paper borrowing rates. “Ironically, positive action taken by the federal government to stabilize the commercial paper markets is adversely impacting student loans and student-loan backed securities,” noted Salle Mae Vice Chairman and CEO Albert Lord. “We do not believe this result was intended, and are working with members of Congress to resolve the issue.” (Associated Press via Yahoo! News and washingtonpost.com April 23) … * UBS plans to lay off more than 500 lower-producing financial advisers in its U.S. wealth-management business, said a person familiar with the matter. Some of the jobs were cut earlier this week, while the other job cuts haven’t yet been announced. Overall, UBS plans to cut 2,000 jobs in its U.S. wealth-management business as part of a global plan to reduce its workforce by 8,700 and lower operating costs by 15% (Dow Jones Newswires April 22) …

Market News (04/23/2009)

 Permanent link
MADISON, Wis. (4/24/09)
* Long-term mortgage rates are lower than short-term rates, Freddie Mac reported Thursday. The 30-year, fixed-rate mortgage (FRM) edged down by 2 basis points to 4.80% this week, while the 15-year FRM was unchanged at a record-low 4.48%. The one-year, adjustable-rate mortgage (ARM) dropped 9 basis points to 4.82%, but higher than the 4.80% rate on 30-year FRMs. “Although long-term mortgage rates eased slightly this week, ARM rates remain elevated relative to those fixed-rate mortgages,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “For instance, interest rates for 1-year ARMs exceeded those for 30-year, fixed-rate mortgages over the last two weeks; this is the first time this has happened since Freddie Mac began collecting data for ARMs in January 1984,” added Nothaft. He also noted that the housing market is showing some improvement. “House prices rose for the second consecutive month in February, the first back-to-back increase since April 2007, according to the Federal Housing Finance Agency.” (MarketWatch and Reuters via The New York Times April 23). For CUNA's Daily Financial Rates, use the link … * Sales of previously owned homes eased in March, but first-time homebuyers responded to low mortgage rates and tax credits, the National Association of Realtors (NAR) reported Thursday (realtor.org April 23). Existing-home sales fell 3% to a seasonally adjusted annual rate of 4.57 million units last month. Sales were down 7.1% from a year earlier. First-time buyers are driving the market, said NAR Chief Economist Lawrence Yun. “The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey,” said Yun. The median existing-home price rose 4.2% from February to March--much higher than the typical 1.8% seasonal increase between the two months. However, at $175,200, the median price was down 12.4% from March 2008. Distressed properties accounted for more than half of all sales in March … * Stranded by the nationwide downturn in housing and employment, fewer Americans are moving, according to Census Bureau data released Wednesday. An estimated 35.2 million people changed residences between March 2007 and March 2008--the lowest number since 1962, when the U.S. had 120 million fewer residents. The mobility rate fell to 11.9% last year, from 13.2% in 2007 and the lowest rate in the post-World War II period. The decline in mobility means many people can no longer relocate to new jobs, said Joseph Tracy, research director at the Federal Reserve Bank of New York. “As the labor market started to improve, if mobility stays low, you can worry about the allocation of workers,” added Tracy. Homeowners are finding it tougher to sell their homes amid the housing slump. The decline in mobility also reflects the recent shift towards two-earner families, because finding employment for both people in a new area is difficult. The median age of Americans also has risen, and older people tend to move less often (The New York Times April 23) … * The job market deteriorated further last week, the Labor Department reported Thursday. First-time claims for unemployment benefits jumped by 27,000 to 640,000 during the week ending April 18. People also are having a tough time finding new jobs after they’ve been laid off. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, increased by 93,000 during the week ended April 11 to 6.137 million--setting a record for a 12th consecutive week. The government said an additional 2.3 million people were receiving jobless benefits under an extended unemployment compensation program enacted by Congress last year, as of April 4--bringing the total number of the long-term jobless to more than 8 million (Associated Press via Yahoo! News and Moody’s Economy.com April 23) … * Large-scale layoffs increased again in March, according to a Labor Department report. The number of layoffs involving at least 50 workers from a single firm was 2,933 in March, up from 2,769 in February. The layoffs involved 299,388 workers, compared with 295,477. Manufacturing accounted for 43% of all mass layoffs in March. Mass layoffs also have hit the service sector, especially temporary-help employment. Mass layoffs now total 31,414 since the recession began in December 2007--prompting the loss of more than 3.2 million jobs (Reuters via Yahoo! News and Moody’s Economy.com April 23) …

News of the Competition (04/22/2009)

 Permanent link
MADISON, Wis. (4/23/09)
* Top recipients of federal bailout funds spent more than $10 million on political lobbying during the first quarter--including aggressively trying to block executive-pay limits and stricter financial regulations, according to recently filed disclosure records. The biggest spenders were General Motors, Citigroup, JPMorgan Chase, American Express, Wells Fargo Bank, Goldman Sachs and Morgan Stanley. Top bailout recipients have spent more than $22 million on lobbying during the last six months. Financial firms have successfully lobbied against proposed legislation that would have explicitly prohibited the use of bailout money for lobbying and campaign contributions. “Taxpayers are subsidizing a legislative agenda that is inimical to their interests and offensive to what the whole TARP program is about,” said William Patterson, executive director of CtW Investment Group, which is affiliated with labor unions (washingtonpost.com April 22) … * New York State Comptroller Thomas P. DiNapoli on Wednesday announced a ban on placement agents being involved in the state’s pension fund investments. Two associates of former state comptroller Alan G. Hevesi have been indicted as part of the New York State Attorney General’s investigation of possible kickbacks involving the $122 billion pension fund. “Since I took office, we’ve worked to implement reforms that will help restore integrity and trust in this office,” said DiNapoli. “Banning placement agents and lobbyists from involvement in investments is the next step, and it’s a big step.” Many other states are investigating whether payments influenced the selection of investments in their pension funds (The New York Times April 22) … * The New York-based branch of Doha Bank, Qatar’s third-largest bank by assets, said it now is in “full compliance” with U.S. regulations to prevent money laundering and terrorist financing. Doha Bank agreed to pay $5 million to resolve regulators’ claims that its New York branch failed to adequately monitor “suspicious activities” and conduct “sufficient due diligence on its foreign correspondents” from 2004 to 2007, said the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network in a joint statement issued Tuesday (Bloomberg.com April 22) … * Capital One posted a smaller first-quarter loss, compared with the previous quarter, but the results showed the firm still is experiencing problems at its banking and credit-card operations. The firm posted a net loss of $111.9 million, compared with net income of $548.5 million a year earlier. Nonperforming loans jumped to 1.77% of loans held for investment--up from 1.25% in the fourth quarter and 0.56% a year earlier. Delinquencies in the U.S. card segment increased to 5.08%, from 4.78% in the fourth quarter and 4.04% a year earlier. “While we remain cautious about near-term economic challenges, we are confident that our balance sheet provides the stability to weather the current economic crisis and the flexibility to generate value on the other side,” said Chairman/CEO Richard Fairbank (The Wall Street Journal Online April 22) … * Morgan Stanley on Wednesday reported a larger-than-expected loss of $578 million for the first quarter, partly reflecting deterioration in the commercial real estate market. A year earlier, Morgan Stanley earned $1.3 billion. Wells Fargo on Wednesday reported a record first-quarter profit, in line with its forecast. The firm earned $2.38 billion, compared with a $2 billion gain a year earlier. Wells Fargo originated $101 billion of mortgage loans during the first three months of this year--the highest level since 2003. The bank added 5,000 new employees to its mortgage unit to handle the high volume (Associated Press via Yahoo! News April 22) …

Market News (04/22/2009)

 Permanent link
MADISON, Wis. (4/23/09)
* The global economy has fallen into a severe recession because the financial markets are taking longer than previously expected to stabilize, the International Monetary Fund (IMF) said Wednesday. The IMF now expects the global economy to contract by 1.3% this year, the deepest contraction in the post-World War II period. Only three months ago, the fund projected global growth of 0.5% this year. The global economy is forecast to grow by 1.9% in 2010. The IMF noted that the U.S. is at the center of the global crisis. It predicts that the U.S. economy will contract by 2.8% this year and will see no growth next year as the nation continues to cope with the credit crunch and declining home and stock prices (Reuters via The New York Times April 22) … * Home prices rose 0.7% (seasonally adjusted) from January to February, according to the Federal Housing Finance Agency’s House Price Index. The small gain followed a 1% monthly increase in January. Over the 12 months ending in February, however, home prices fell 6.5%. And the Home Price Index is down 9.5% from its peak in April 2007. The Home Price Index probably underestimates declines in home prices because it relies on data collected by Fannie Mae and Freddie Mac. It therefore excludes non-conforming loans such as those purchased with jumbo mortgages … * One in every 159 households with mortgages received a foreclosure filing in the first quarter, according to a new report by RealtyTrac Inc. Cities in the Sun Belt states of California, Florida, Arizona and Nevada continued to see the highest foreclosure rates during the period. The 26 metropolitan areas with the highest foreclosure rates were in those four states, where home sales and prices surged during the housing-boom years. Las Vegas (1 in every 22 households), Merced, Calif. (1 in every 24), and Cape-Coral-Fort Myers, Fla. (1 in every 26) saw the highest foreclosure rates during the first quarter. However, other housing markets will see foreclosures surge as unemployment rates jump nationwide, noted RealtyTrac chief executive James J. Saccacio (Reuters and Associated Press via Yahoo! News April 22) … * Mortgage activity rebounded last week amid a surge in refinancing activity, the Mortgage Bankers Association reported Wednesday (mbaa.org April 22). The trade group’s Market Composite Index rose 5.3% during the week ending April 17 to 1172.2. The Refinance Index jumped 7.7% to 6540.7, offsetting a 4.2% drop in the Purchase Index to 253. The average 30-year, fixed-rate mortgage (FRM) edged up 3 basis points to 4.73% last week, while the one-year, adjustable-rate mortgage (ARM) slipped 2 basis points to 6.19%. Refinancings made up 79.7% of overall applications in the latest week, up from 77.8% the previous week and just 49.2% a year earlier. Refinancings remain almost 30 percentage points higher than the decade average, noted Moody’s Economy.com (April 22). However, purchase applications remain depressed due to ongoing home-price declines and the deteriorating job market … * Mortgage originations will total $2.4 trillion this year as declining mortgage rates and the government’s Homeowner Affordability and Stability Plan boost volume, according to a new forecast by Keefe, Bruyette & Woods analysts. The total would be 60% higher than in 2008, though “materially lower” than during the 2003 boom, wrote the analysts. They estimate that about 15% of Fannie Mae and Freddie Mac borrowers will “be unable to refinance” as home prices continue to decline and loan-to-value ratios increase above 105%. And many borrowers with Alternative-A loans that were underwritten with little or no documentation will not qualify for refinancings because they would now have to provide full documentation. As a result, refinancing volume is predicted to be about 40% below 2003 volume (American Banker April 22) … * The housing downturn could generate another $260 billion to $375 billion in losses among securities backed by U.S. mortgage loans, according to new research from Standard & Poor’s. An estimated $1.7 trillion in private-label mortgage securities remain outstanding--down from $3.7 trillion issued since 2004. “There are going to be more defaults, but the worst of the big downward lurches are probably over and the systemic threat from the residential mortgage market is diminished,” said Michael Thompson, managing director of S&P’s Market, Credit & Risk Strategies Group. However, financial institutions continue to cope with losses from the deteriorating commercial real estate market and rising corporate defaults (The Wall Street Journal Online April 22) …

News of the Competition (04/21/2009)

 Permanent link
MADISON, Wis. (4/22/09)
* The value of the world’s banking institutions have recovered slightly, according to a Boston Consulting Group report. The global banking industry’s market capitalization dropped 10.5% during the first quarter, slowing from a 30% plunge during the fourth quarter. Global bank valuations rebounded by 15% in March. “From a market valuation [standpoint], banks may have hit bottom,” said John Garabedian, head of the North American financial institutions practice at Boston Consulting. However, he noted that “banks are still in the middle of a crisis” of declining home prices, rising unemployment, and more loan writeoffs to come (American Banker April 21) … * Bank of America has changed its policy on short sales, making it easier for borrowers to sell their homes instead of losing them to foreclosure. BofA and its Countrywide Financial Corp. had required that 10% of a home’s sale price go towards paying off home-equity-lines-of-credit (HELOCs) before a short sale was authorized. BofA changed its policy to accept 5% of the sale price when there is no equity available to holders of first and second liens, said company spokesman Terry Francisco. “We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale,” said Francisco. Analysts say losses on foreclosures can be as much as 30% higher than on short sales. But the largest mortgage-loan lenders and servicers also are the biggest holders of second liens. The four biggest banks own 52% of residential revolving lines of credit, notes Laurie Goodman, senior managing director at Amherst Securities Group (Financial Planning.com April 21) … * Two of the nation’s largest custodial banks, Bank of New York Mellon and Northern Trust Corp., reported weaker-than-expected earnings for the first quarter as declines in client assets dampened fees. Profit attributable to common shareholders plunged 57% at Bank of New York Mellon and 64% at Northern Trust. Another custodial bank, State Street Corp., reported better-than expected results. Its profit attributable to common shareholders fell just 16%. In morning trading, Bank of New York Mellon shares fell 14.7%, while Northern Trust shares were down 11.5%. State Street shares rose slightly. Bank of New York Mellon has received $3 billion of taxpayer money under the Troubled Asset Relief Program, while State Street has received $2 billion, and Northern Trust has obtained $1.5 billion (Reuters via Yahoo! News April 21) … * The end of the ATM deposit envelope is near, says NCR Corp. The largest ATM maker announced April 7 that more than 10,000 of its “no-envelope, intelligent deposit” ATMs are now in deployment. Consumers can deposit cash and checks directly into the SelfServ ATMs. The check image is captured and submitted electronically to an office for processing. A digital image of the check is displayed on the screen and printed on receipts. “The days of licking envelopes at the ATM are soon over,” said Michael O’Laughlin, vice president and general manager of NCR Financial Services Solutions. ATMs accepting envelopes may be all but gone from mainstream banking by 2019, predicts Retail Banking Research Ltd. of London (Dayton Daily News and American Banker April 21) …

Market News (04/21/2009)

 Permanent link
MADISON, Wis. (4/22/09)
* The U.S. economy is poised to see a modest economic recovery this year, said Federal Reserve Vice Chairman Donald Kohn. In delivering the annual Hutchinson lecture at the University of Delaware Monday night, Kohn noted that consumer spending has steadied, and low mortgage rates and high housing affordability have helped the housing sector. In addition, he said business inventories are being worked down, and lower oil prices are boosting household income. “These developments may be an early indication that conditions are falling into place for real [gross domestic product] to decline at a slower rate in the second quarter and to stabilize later this year,” said Kohn. Still, he noted that tight credit and weak exports due to the global economic slowdown could weaken the recovery. “My best guess is that we are in for a relatively gradual recovery,” said Kohn (The Wall Street Journal Online and Associated Press via Yahoo! News April 21) … * The odds that the U.S. will still be in recession six months from now edged down to 45% in March--from 47.5% in February and the lowest since August 2008, according to Moody’s Economy.com probability of recession. The nation’s unemployment rate rose to 8.5% in March, the highest level since the early 1980s. About 25 million workers, 15% of the nation’s workforce, are either unemployed or underemployed. The unemployment rate is expected to peak at about 10% next year. In some hopeful signs, real (inflation-adjusted) spending increased during the first quarter, and home sales apparently are nearing a bottom … * Banks and other financial institutions face aggregate losses of $4.1 trillion in the value of their holdings due to the global economic crisis, the International Monetary Fund (IMF) said Tuesday. The IMF estimates that financial institutions will have to write down $2.7 trillion in loans and securities originating in the U.S. from 2007 to 2010. That’s up from a $2.2 trillion estimate in January. Banks probably will incur about two-thirds of the writedowns, while other institutions such as pension funds and insurance companies will shoulder the rest. The IMF estimates that banks in the U.S. face an additional $550 billion in writedowns this year and in 2010, after reporting $510 billion in writedowns by the end of 2008 (The New York Times April 21) … * The “vast majority” of U.S. banks have more capital than they need, said Treasury Secretary Timothy Geithner. “Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets,” Geithner told the committee overseeing the Troubled Asset Relief Program (TARP) yesterday. He said about $135 billion is still available for bank rescues, including $110 billion remaining under TARP, and an expected $25 billion in TARP repayments this year (Bloomberg.com April 21) … * General Motors could receive another $5 billion in federal loans, and Chrysler could obtain $500 million, according to a quarterly report filed Tuesday by the special inspector general on the auto industry. The exact amount of the loans hasn’t yet been finalized, said a person familiar with the plans. GM already has received $13.4 billion in government loans, and Chrysler has received $4 billion. The Treasury Department has estimated that it will spend as much as $1.25 billion to guarantee the warranties for people purchasing GM and Chrysler vehicles during the automakers’ restructuring period (Associated Press via The New York Times April 21) … * United Airlines announced Tuesday that it lost $382 million during the first quarter as recession-strapped consumers flew less. United cut flying by 11.3% during the first three months of the year. Still, passenger traffic plunged 13.2%. And United saw a 30% plunge in first-class and business-class travel during the period. United plans to cut mainline flying by 9% to 10% overall this year (Associated Press via The New York Times April 21) …

News of the Competition (04/20/2009)

 Permanent link
MADISON, Wis. (4/21/09)
* Lending at the nation’s largest banks has declined sharply despite huge capital infusions, according to a study of Treasury Department data by The Wall Street Journal (April 20). The biggest recipients of taxpayer money made or refinanced 23% less new loans in February. All but three of the 19 largest recipients of Troubled Asset Relief Program (TARP) money with comparable data originated fewer loans in February than when they received federal money. The Treasury has analyzed the data in a way some analysts say understates the lending decline. It calculated the median change in lending at 21 banks, and found that lending dropped just 2.2% in February. The newspaper’s analysis focused on the total amount of new loans made … * Bank of America announced Monday that its acquisition of Merrill Lynch helped its profit more than double during the first quarter, even as it cautioned of deteriorating loan problems. The firm posted profits of $2.81 billion for the first three months of the year, compared with a profit of $1.02 billion a year earlier. However, BofA took a $13.4 billion provision for credit losses during the first quarter. “Credit is bad, and we believe credit is going to get worse before it will eventually stabilize and improve,” said Bank of America CEO Kenneth Lewis. Several shareholder groups are calling for the ouster of Lewis from BofA, which took more than $45 billion in bailout federal money. Other financial institutions reporting stronger-than-expected earnings include Citigroup, Goldman Sachs and JPMorgan Chase (Reuters and Associated Press via The New York Times April 20) … * Two more bank failures on Friday brought the total number of U.S. banks to fail in 2009 to 25. State regulators closed Great Basin Bank of Nevada, Elko, Nev., Friday night. All of the failed bank’s $221 million in deposits will be transferred to Nevada State Bank in Las Vegas. Earlier, the Office of Thrift Supervision shut down American Sterling Bank of Sugar Creek, Mo. Metcalf Bank agreed to assume all of the failed thrift’s $172 million in assets. Total bank failures so far this year have now matched the total for all of 2008 (Dow Jones Newswires and American Banker April 20) … * GMAC is helping to fill a gap left by the departure of two large banks from warehouse lending. The firm is issuing more loans through independent mortgage bankers. Two-thirds of GMAC’s mortgages are being originated by correspondent lenders that are financed by warehouse loans, noted Thomas Marano, CEO of GMAC’s Residential Capital LLC unit. GMAC Bank is originating most home loans, said Marano (Bloomberg News via American Banker April 20) …

Market News (04/20/2009)

 Permanent link
MADISON, Wis. (4/21/09)
* The Conference Board’s index of leading economic indicators, which is designed to predict economic activity over the next three to six months, fell 0.3% in March following a 0.2% dip in February. Negatives for the leading indicators included building permits, stock prices, and vendors’ deliveries to businesses. The interest rate spread, the money supply, and consumer expectations were positives. “The recession may continue through summer, but the intensity will ease,” said Conference Board Economist Ken Goldstein. The index fell 2.5% in the six months through March, almost double the 1.4% decline in the six months through February (Associated Press via Yahoo! News and Moody’s Economy.com April 20) … * The recession is abating, according to the latest National Association of Business Economics’ Industry Survey. There were less-severe declines in industry demand and capital spending during the first quarter. In all, 27% of firms reported rising demand for their products, up from 20% in January. The number reporting increased capital spending rose to 15% from 12%. Overall, 93% of firms said they expect the nation’s gross domestic product to decline this year, up from 78% in January. A full 21% of respondents said they plan to boost capital spending over the next year, compared with 16% in January. Just 14% said they plan to hire workers, while 39% plan to cut jobs (CNNMoney.com and Bloomberg.com April 20) … * General Motors plans to slash about 1,600 salaried jobs in the U.S. this week ahead of a June 1 deadline the company faces to restructure under government supervision. GM also plans to cut 37,000 hourly jobs worldwide by year-end. The job eliminations are necessary to help ensure the firm’s long-term viability, said GM North American President Troy Clarke. The company has been surviving on $13.4 billion of government loans since the beginning of the year (Associated Press and Reuters via The New York Times April 20) … * American International Group, Morgan Stanley, and other companies squandered more than $5 billion on executive pay since 2005, and should recoup the payments or face lawsuits, the Service Employees International Union’s pension fund said Monday. The union sent letters to 29 firms, demanding that directors recover “incentivized executive pay” based on derivatives and other investments whose values were written off. “The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments negatively impacted our pension fund and left our economy in shambles,” said Andy Stern, president of the union. “It’s as if these guys got a windfall payoff for betting the family’s savings on the wrong horse,” added Stern (Bloomberg.com April 20) … * U.S. venture-capital investments plunged 61% to $3 billion during the first quarter, the lowest level in 12 years, according to the National Venture Capital Association. The freeze in initial public offerings kept startups from receiving funding because investors weren’t sure how they would earn returns, said John Taylor, vice president of research at the association (Bloomberg.com April 20) … * The Oracle Corp. has agreed to acquire rival Sun Microsystems. Sun ended its talks with IBM two weeks ago after they couldn’t agree on a price. The deal is valued at about $7.4 billion. It is expected to close this summer, subject to Sun stockholder approval (The New York Times April 20) …

News of the Competition (04/17/2009)

 Permanent link
MADISON, Wis. (4/20/09)
* Citigroup announced a first-quarter net profit Friday--its first in about 18 months--after a year of dramatic losses and three federal bailouts. Citi reported first-quarter net income of $1.6 billion, compared with a loss of $5.11 billion in the period a year earlier. However, due to changes in its stock structure, it announced a loss of 18 cents a share. An accounting adjustment that allowed the New York-based bank to post a one-off gain of $2.5 billion on its derivative positions also buoyed the first-quarter results, analysts said. Overall revenue was up 99% to $24.8 billion, sparked by stronger trading results and improvements in the bank’s write-downs. About $7.2 billion in revenue came from securities and banking. Write-downs from subprime rate exposure totaled $2.3 billion in the quarter--down from $4.6 billion in the previous three months (The New York Times April 18) … * It was a mistake to let Lehman Brothers Holdings Inc. to collapse, said Janet Yellen, president of the Federal Reserve Bank of San Francisco. The company was “too big to fail” and its bankruptcy caused a “quantum” leap in the magnitude of the U.S. financial crisis, Yellen added. At the time of the Fed’s deliberations concerning Lehman, Yellen was in California and “wasn’t involved in anything having to do with it.” Echoing Fed Chairman Ben Bernanke, Yellen called for federal authorities to acquire new capabilities to stave off systemic crises. The effect of Lehman’s failure “was devastating,” Yellin said Thursday, adding that was the moment when the financial crisis ratcheted way up in seriousness (Bloomberg.com April 17) ... * U.S. mortgage rates dropped to near-record lows this week and remained more than a percentage point lower than levels a year ago, Freddie Mac said Thursday. The average 30-year home loan fell 0.05 of a percentage point from the previous week to 4.82% in the week of April 16. One year ago, the long-term fixed-borrowing rate was 5.88%. “Mortgage rates on fixed-rate loans and some [adjustable-rate mortgage] products eased this week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The housing industry is starting to exhibit some positive signs, albeit scarce and too early to tell how permanent” (Reuters and MarketWatchApril 16) …

Market News (04/17/2009)

 Permanent link
MADISON, Wis. (4/20/09)
* U.S. consumer confidence rose in April for the second month in a row. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 61.9--the highest since September--from 57.3 in March. In November, the reading reached a three-decade low of 55.3. Consumers’ expectations for six months from now also improved, amid indications the longest recession in the postwar era may be abating, analysts said. Housing and manufacturing--two of the hardest-hit areas of the economy--may be stabilizing, according to recent reports. The reports bolster Federal Reserve Chairman Ben Bernanke’s position that the country’s “sharp decline” could be easing, analysts said. A boost in confidence could help a recovery in consumer spending--which accounts for 70% of the U.S. economy, they added (Bloomberg.com April 17) … * The Economic Cycle Research Institute (ECRI) Weekly Leading Index decreased to 107.2 for the week ending April 10 from a revised 107.4 (previously 107.9). The smooth annualized growth rate increased to -19.7% from a revised -20.9% (previously -20.6%). The growth rate has leveled off since the beginning of the year, and then started to pick up in the past several weeks, analysts said. However, past substantial declines in the ECRI index over the latter part of 2008 suggest a severe downturn that will last deep into 2009, analysts added (Moody’s Economy.com April 17) … * Nonfarm payroll employment fell broadly in March, with 48 states and the District of Columbia reporting declines in employment during the month, according to the Bureau of Labor Statistics. The only two states to report over-the-month increases in unemployment were Mississippi and North Dakota. Between February and March, 46 states reported unemployment rate increases. Michigan reported the highest unemployment rate in the U.S. at 12.6%. The West census region reported the highest unemployment rate in March at 9.8%, a 0.6-percentage point increase from February. Along with the West, the Midwest (9%) reported a jobless rate higher than the 8.5% national average. The Northeast (7.9%) and South (8.4%) each reported unemployment rates below the national average (Moody’s Economy.com April 17) … * Crude oil futures rose 94 cents Friday morning, nearly reaching $51 a barrel. It’s apropos that crude oil prices have been framed near the midpoint of the range set last week between $48.84 to $52.15, because the outlook is split 50-50 over its near-term direction, analysts said. In one corner, weak oil demand has pushed U.S. crude inventories to their highest levels since September 1990--indicating that inventories will stay high, even if refineries increase operations due to a potential summer increase in demand. In the other corner, forecasters are wishing for signs of demand recovery on a rebounding global economy by the end of 2009, analysts said (The Wall Street Journal April 17) …

News of the Competition (04/16/2009)

 Permanent link
MADISON, Wis. (4/17/09)
* JPMorgan Chase reported stronger-than-expected profit for the first quarter on Thursday, as investment-banking revenue offset higher losses from credit cards and other consumer debt. First-quarter net income totaled $2.14 billion, down from $2.37 billion a year earlier. Revenue at the firm’s investment-banking business more than doubled to a $1.61 billion profit. However, credit-loss provisions nearly doubled to $8.6 billion. And the net charge-off rate jumped to 4.9% from 2.68%. “It is reasonable to expect additional increases to credit reserves if the economic environment worsens,” said JPMorgan Chairman and CEO Jamie Dimon. However, he said the firm is “confident that even a worsening economy wouldn’t compromise its stability.” He also noted that the company has the money to repay the $25 billion in taxpayer money it received from the government in October. Dimon added that the bank is waiting for guidance from the government about when it can pay back the funds (The Wall Street Journal Online and Reuters April 16) … * Plunging profits at the nation’s Federal Home Loan Bank system are prompting funding cutbacks at programs that help low-income residents. Since 1989, the home loan banks have been required to devote some of their profits to programs that help renovate or build housing for low-income people. The banks contributed about $318 million to such programs in 2008. However, the combined net income for the 12 home loan banks dropped 57% last year. That means expected affordable-housing contributions will decline about 40%, to $188 million this year (The Wall Street Journal Online April 15) … * Surging credit-card losses at Capital One Financial Corp. is bad news for other large consumer lenders. Capital One announced Wednesday that its net chargeoff rate for U.S. card holders jumped by 1.27 percentage points to 9.33% in March. That tops the nation’s unemployment rate of 8.5% in March. Bankers at JPMorgan Chase and Bank of America have cautioned recently that credit card loss rates may top the nation’s unemployment rate because the recession is so severe. Capital One said it has continued to shrink its credit card portfolio both in the U.S. and overseas. Net charge-offs for overseas customers increased to 8.67% last month, from 7.2% in February (The Wall Street Journal Online April 15) … * Net global securitization volume tumbled 79% to $441 billion in 2008, the trade group International Financial Services London reported Tuesday. This year “got off to a very slow start, and a revival in the remainder of 2009 is dependent on both a recovery of investor confidence and stabilization of financial markets,” said Duncan McKenzie, director of economics at the trade group. The U.K. group said market participants hope the Federal Reserve’s Term Asset-Backed Securities Loan Facility will help jump-start the securitization market. In contrast, there is no equivalent program to support the European market (Dow Jones Newswires April 14) … * MasterCard is preparing to launch an advertising campaign to increase awareness of prepaid cards. The campaign’s “Everyday Prepaid” slogan should demystify the cards, said Laura Kelly, senor vice president of global prepaid solutions at MasterCard. Analysts say the recession is boosting consumer demand for the cards, which let underbanked and credit-deprived consumers pay with plastic. In a survey of executives from prepaid firms by Aite Group, 65% of respondents said “education, awareness or demand cultivation” are the largest challenges facing the prepaid industry. The benefits of MasterCard’s ad campaign will probably extend even to the firm’s competitors, said Gwenn Bezard, a research director at Aite. He predicts that Visa eventually will introduce prepaid commercials (American Banker April 15) …

Market News (04/16/2009)

 Permanent link
MADISON, Wis. (4/17/09)
* Foreclosures filings jumped during the first quarter and are expected to increase further as lenders restart foreclosures after temporary moratoriums, according to RealtyTrac Inc. Almost 804,000 homes received at least one foreclosure-related notice in the first three months of the year, up from 650,000 a year earlier. In March, more than 340,000 homes received a foreclosure-related notice--up 17% from February and 46% from a year earlier. The March and first quarter filings were the highest monthly and quarterly totals since RealtyTrac began reporting the data in January 2005. Foreclosures “came back with a vengeance” in March and probably will keep rising through the summer, said Rick Sharga, senior vice president for marketing at RealtyTrac. Five states--California, Florida, Arizona, Nevada and Illinois--accounted for almost 60% of total foreclosure activity during the first quarter (Associated Press via Yahoo! News April 16) … * Housing starts tumbled 10.8% to a seasonally adjusted annual rate of 510,000 in March, partially reversing a revised 17.2% surge in February, the Commerce Department reported Thursday (CNNMoney.com April 16). The March level was the second-lowest since the government started keeping records in 1959. Construction of single-family homes held steady at an annual rate of 358,000 in March, while construction of multi-family homes plunged by more than 42% to a 116,000 pace. Applications for building permits fell 9% to a 513,000 pace last month. On a hopeful note, the National Association of Home Builders (NAHB) reported Wednesday that its Housing Market Index rose 5 points to 14 in April, the highest level since October 2008, as builders became more confident in the market for new, single-family homes (nahb.org April 15). “Some of the most favorable buying conditions in a lifetime are now in place, and they are drawing more consumers back to the market,” said NAHB Chairman Joe Robson … * Long-term mortgage rates declined this week amid some positive signs for the housing market, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) fell 5 basis points to 4.82%, while the 15-year FRM dropped 6 basis points to 4.48%. The one-year, adjustable-rate mortgage rose (ARM) 8 basis points to 4.91%. “The housing industry is starting to exhibit some positive signs, albeit scarce and too early to tell how permanent,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. Rates remain much lower than a year ago. At this time last year, the 30-year FRM averaged 5.88%, while the 15-year FRM stood at 5.40%, and the one-year ARM was at 5.10% (MarketWatch April 16). For CUNA's Daily Financial Rates, use the link … * Continuing unemployment claims jumped above 6 million for the first time ever, even as new jobless claims posted a second consecutive decline, the Labor Department reported Thursday. The total number of people remaining on jobless benefit rolls jumped by 172,000 during the week ending April 4 to 6.022 million--the highest total on records going back to 1967. The Labor Department also reported that another 2.1 million people were receiving jobless benefits under an extended compensation plan enacted by Congress last year--bringing the total to more than 8 million and indicating that people are having a tough time finding new jobs after they’ve been laid off. First-time claims for unemployment insurance fell by 53,000 during the week ended April 11 to 610,000 (Associated Press via Yahoo! News April 16) … * In a hopeful sign, the pace of economic decline in some regions of the country slowed through early April, according to the Federal Reserve’s latest Beige Book survey of the economy, released late Wednesday. Five of the Fed’s 12 districts said some sectors are beginning to stabilize. The Cleveland, New York, and Dallas districts said the pace of decline in manufacturing either slowed or stabilized. The Boston, Philadelphia, Atlanta, and Kansas City districts also noted a slight upturn in the outlook for production and sales. However, the Fed report said the nation’s housing markets remained “depressed,” though “there were some signs that conditions may be stabilizing,” as housing tax credits, lower mortgage rates, and lower prices attract buyers. Consumer spending and employment remained weak. “Employment continued to decline across a range of industries, with only scattered reports of hiring,” said the Fed. The Beige Book will be reviewed when Fed policymakers next meet on April 28-29 (The Wall Street Journal Online April 15) … * Revenue collected by the states dropped 4% in the fourth quarter as sales-tax collections posted the largest decline in 50 years, according to a report by the Rockefeller Institute of Government. The report also noted that 41 states are on track for revenue declines of more than three times that rate for the first quarter of this year. Total tax revenue dropped in 35 states during the fourth quarter. “Preliminary data for the January-March quarter suggests that fiscal conditions deteriorated even further, and the second major tax source for states--the income tax--is likely to weaken dramatically in April,” said Donald J. Boyd, senior fellow at the Rockefeller Institute and co-author of the report (Reuters via Yahoo! News April 15) …

IForbesI features CUNA analysis on savings rate

 Permanent link
NEW YORK (4/17/09)--A higher consumer savings rate spread out over several years will be OK for the U.S. economy, Bill Hampel, chief economist for the Credit Union National Association, told Forbes Magazine in an article about changes in human behavior and ways the savings rate will affect economic recovery. As Americans cut their use of credit cards and save more money, some economists say that if savings keep rising it will ruin the economic recovery, the magazine said in an article to appear in the April 27 print edition and currently available on Forbes.com. “If the savings rate goes back to 8% or 10% in two years, we’re cooked, but spread that out over five years and we’re fine,” Hampel told Forbes. He added the supposition that consumers will continue to save at the same rate they have for the past six months is overdone. “Economies don’t explode. They tend to revert to the mean,” he added.

News of the Competition (04/15/2009)

 Permanent link
MADISON, Wis. (4/16/09)
* Hedge fund executive Barrett Wissman has pleaded guilty to securities fraud and is cooperating with New York Attorney General Andrew Cuomo in his investigation of corruption at the state’s pension fund, according to court records unsealed yesterday. Wissman will pay $12 million over several years as part of a settlement under his felony plea, said people with knowledge of the investigation. Wissman received millions of dollars in fees for serving as an intermediary between other investment firms and the state pension fund. He allegedly played a major role in convincing the state pension fund to expand into hedge funds. According to the court filings, Wissman also received $1.5 million in fees for helping Access Capital win more than $500 million in business from the pension fund. He allegedly misrepresented to the European firm how he was obtaining the business (The New York Times April 15) … * Bank of America, which canceled its planned increase in overdraft charges amid heightened scrutiny of banking practices, is boosting the fees on transfers of credit-card balances from competing lenders. The fees will increase to 4% of the sum transferred on June 1, from the current 3% rate. The fee change was necessary because costs are increasing, said BofA spokeswoman Betty Reiss. Consumer defaults typically increase as the unemployment rate increases. Bank of America is the nation’s third-largest credit card issuer, with $182 billion in card loans as of Dec. 31, according to American Express statistics (Bloomberg.com April 15) … * Some of the nation’s largest mortgage companies are boosting foreclosures on delinquent homeowners. Companies, including JPMorgan Chase, Wells Fargo, Fannie Mae and Freddie Mac, all say that have increased foreclosures in recent weeks. They had halted foreclosures before learning details of the administration’s housing-rescue plans, and while implementing their own programs. Now they are moving ineligible borrowers through foreclosure, which could further dampen home prices and pressure bank earnings as loans are written off. Moody’s Economy.comestimates that more than 2.1 million homes will be lost to foreclosure this year, up from 1.7 million in 2008. Many homes will end up in foreclosure because the borrower doesn’t have enough income to make even a reduced mortgage payment (The Wall Street Journal Online April 15) … * UBS AG, Switzerland’s largest bank, said it plans to slash 8,700 jobs worldwide by the end of next year, most of them in the U.S. and Switzerland. UBS said it expects a loss of almost $1.75 billion for the first quarter, mainly due to losses on previously disclosed bad investments, credit-loss expenses, and adjustments in the value of toxic assets. UBS said clients have continued to withdraw funds after the firm decided to work more closely with foreign governments on tax evasion. The company has provided U.S. investigators with information on about 300 wealthy Americans suspected of tax fraud. However, it has refused to identify about 50,000 more U.S. account holders (Associated Press via Yahoo! News April 15) …

Market News (04/15/2009)

 Permanent link
MADISON, Wis. (4/16/09)
* Consumer prices dipped in March as energy prices fell, according to the Labor Department. The Consumer Price Index (CPI) fell 0.1% after rising 0.4% in February. The CPI fell 0.4% over the past year--the first 12-month decline since August 1955. Energy prices fell 3% last month, reversing a 3.3% gain the previous month. Food prices fell 0.1% after a 0.1% drop. Excluding the volatile food and energy categories, the core CPI increased 0.2% for a third consecutive month. The core CPI has increased 1.8% over the past year. The increase in the core CPI mostly reflected an 11% gain in prices for tobacco and smoking products. A 0.6% increase in the new-vehicles index also contributed. The recession will continue to keep a lid on inflation as job losses dampen wage pressure and weak demand keeps businesses from boosting prices … * Industrial production fell 1.5% in March following a 1.5% drop in February, the Federal Reserve reported Wednesday. For the first quarter, industrial output declined at a 20% annual rate, the largest quarterly decline of the current recession. Output in March was almost 13% below its year-earlier level. Manufacturing production fell 1.7% in March, and has posted declines for the past five consecutive quarters. One exception in March was the output of vehicles and parts, which rose slightly. The output of mines fell 3.2% in March and seasonal temperatures pushed up the output of utilities by 1.8%. The capacity utilization rate for total industry dropped by a full percentage point to 69.3% in March--the lowest level since the data series was launched in 1967 … * Mortgage activity retreated last week, even as mortgage rates continued to decline, the Mortgage Bankers Association reported Wednesday (mbaa.org April 15). The trade group’s Market Composite Index fell 11% during the week ending April 10 to 1113.2. The Refinance Index dropped 10.9% to 6071.7, while the Purchase Index fell 11.3% to 264.1. The average 30-year, fixed-rate mortgage (FRM) edged down 3 basis points to 4.70% last week, and the one-year, adjustable-rate mortgage (ARM) slipped 2 basis points to 6.21%. Despite last week’s declines, the refinance and purchase indexes both remain well above 2009 lows, noted Moody’s Economy.com (April 15). Mortgage applications should remain at elevated levels as mortgage rates hover near historic lows … * American Airlines parent firm AMR Corp. announced Wednesday that it lost $375 million during the first quarter as fewer people flew during the recession. The loss was smaller than analysts expected, as the firm benefited from cheaper fuel. Revenue totaled $484 million, down from $5.7 billion a year earlier. Analysts expect other major airlines to report losses for the first quarter as well (AFP via Yahoo! News April 15) … * Global oil demand will plunge by 1.37 million barrels per day (bpd) this year, according to the latest forecast by the Organization of Petroleum Exporting Countries (OPEC). The forecast is up from the oil cartel’s last prediction, which called for demand to fall by 1.01 million bpd. “Unlike last year, non-OPEC oil demand growth has lost 90% of its strength this year,” said the report. Oil prices have declined to about $50 a barrel today, from $150 a barrel last July, as the global economy sank into recession. “In the coming months, the market is expected to remain under pressure from uncertainties in the economic outlook, demand deterioration and the substantial overhang in supply,” said OPEC (Reuters via Yahoo! News April 15) … * Auto retailer CarMax Inc. urged Congress on Wednesday to include used-vehicle buyers in its proposed “cash for clunkers” bill. The legislation is designed to boost sales and put more fuel-efficient vehicles on the road by offering consumers vouchers for trading in their gas guzzlers for fuel-efficient models. “More people will be able to participate in the program, more jobs will be saved, and more fuel-efficient vehicles will end up on the road by including used vehicles,” said CarMax CEO Tom Folliard. Analysts estimate the legislation could increase vehicle sales by 750,000 to 1 million per year (Associated Press via The New York Times April 15) …

News of the Competition (04/14/2009)

 Permanent link
MADISON, Wis. (4/15/09)
* Goldman Sachs has raised $5 billion in a share sale to help repay $10 billion in government bailout money. The bank announced the share sale as it reported better-than-expected profit of $1.81 billion for the first quarter, reflecting a surge in trading revenue that outpaced asset writedowns. Other banks may follow suit if Goldman returns the government bailout money, said Sanford C. Bernstein analyst Brad Hintz. “The right thing for government officials to do will be to delay the [Goldman Sachs] repayment until a significant group of banks are able to repay simultaneously under some organized plan,” added Hintz (Bloomberg.com April 14) … * In a bid to rebuild its capital base, the Federal Home Loan Bank of San Francisco said it won’t pay a dividend for the first quarter. The bank also said it won’t repurchase excess stock held by members on April 30. The bank said the actions reflect concerns that it could face added other-than-temporary impairment (OTTI) charges on its private-label mortgage portfolio. In a letter to members, President/CEO Dean Schultz said more OTTI charges could be coming. “Ongoing stresses in the credit markets, substantial declines in real estate values, and weakness in the U.S. economy are continuing to affect the loan collateral underlying the bank’s nonagency mortgages,” said Shultz. “As a result, it is likely that the bank will incur credit losses on some of these securities at some future time and will record impairment charges” (American Banker April 14) … * New York Attorney General Andrew Cuomo and the Securities and Exchange Commission (SEC) are investigating whether private-equity firms and hedge funds made improper payments to receive investments from the state’s pension fund, said a personal familiar with the probe on Tuesday. David Loglisci, New York’s former deputy comptroller and chief investment officer, and Henry Morris, a top political adviser and chief fundraiser for former New York Comptroller Alan Hevesi, were charged last month in a 123-count criminal indictment. The SEC also has brought a civil case against the two men, alleging that millions of dollars in phony placement fees were paid to Morris from 2003 to 2006. Cuomo has alleged that they sold access to money held by the state pension fund to favored investment firms, in exchange for kickbacks (Dow Jones Newswires April 14) … * A brokerage unit of Fifth Third Bancorp will pay $2 million to settle regulatory charges that it made unsuitable sales and exchanges of variable annuities. The Financial Industry Regulatory Authority (FINRA) said Fifth Third Securities will pay a $1.75 million fine and make $260,000 of restitution available to customers. Fifth Third customers, “including those who were elderly and needed access to their money, were subjected to needless expenses and long surrender periods,” said FINRA enforcement head Susan Merrill (Reuters via msn.com April 14) …

Market News (04/14/2009)

 Permanent link
MADISON, Wis. (4/15/09)
* Wholesale prices plunged in March as energy prices retreated, the Labor Department reported Tuesday. The Producer Price Index (PPI) declined 1.2%, following a 0.1% advance in February and a 0.8% increase in January. The index for energy goods tumbled 5.5% last month following a 1.3% gain in February. Food prices fell by 0.7% after a 1.6% decline. Excluding food and energy, the core PPI was unchanged in March. Weak demand has brought an end to producer price inflation, noted Moody’s Economy.com (April 14). With little prospect for better demand growth, any price pressures remaining in the pipeline won’t pass through into inflation, giving Federal Reserve policymakers plenty of room to continue acting aggressively … * Retail sales tumbled 1.1% in March as consumers continued to tighten their belts, the Commerce Department reported Tuesday. Retail sales were down 9.4% from March 2008. Total sales in the first quarter were down 8.8% from a year earlier. Gasoline station sales plunged 34% from March 2008, and motor vehicle and parts dealers sales were down 23.5%. Sales declines were widespread at other retailers as well (The Wall Street Journal Online April 14). Sales fell 1.8% at clothing stores, 5.9% at electronic stories, 0.2% at general merchandise stores, and 1.4% at eating and drinking places. Sales rose in only two categories: health and personal care stores (up 0.4%); and food and beverage stores (up 0.5%). “Consumer spending matched the economic reality in March,” noted Sung Won Sohn, an economics professor at California State University. “The mounting job losses and the continuing credit crunch played havoc with retail sales,” added Sohn … * Increased economic uncertainty and rising costs have made workers less confident about their retirement, according to a new survey by the Employee Benefit Research Institute. Just 13% of respondents said they were very confident they’ll have enough money to retire comfortably. “Concerns about the poor economy coupled with the losses that have recently been experienced in the stock market have resulted in the lowest percentage (of a confident outlook) since the start of the survey 19 years ago,” noted EBRI Research Director Jack VanDerhei. About half of respondents said their household savings and investments (excluding the value of their home) total less than $25,000. On an optimistic note, 81% of those who said they’ve lost confidence in having enough money to retire said they are spending less (Associated Press via Yahoo! News April 14) … * More chief executives received pay raises than had their pay lowered in 2008, even as millions of dollars in taxpayer money went to aid struggling companies, according to an AFL-CIO survey. Citigroup, which received $45 billion in bailout money last year, paid CEO Vikram Pandit $38 million in compensation. Median CEO salary increased 7% last year. Of 946 companies polled, 480 executives received pay raises, while 463 saw pay cuts. Of chief executives whose compensation rose, the average was $5.4 million. “When it comes to CEO pay, many companies continue to hew to the fiction of pay for performance,” said Daniel Pedrotty, director of the labor group’s Office of Investment (Reuters via The New York Times April 14) … * Small-business confidence remained near a 35-year low in March, according to a survey by the National Federation of Independent Business (NFIB). The trade group’s index of small-business optimism dropped 1.6 points to 81, the second-lowest reading in the 35-year history of the survey. Firms continue to cut employment. About 12% of respondents said they planned to cut jobs over the next three months, up two points from February. “It appears that owners are not through with their labor-based cost cutting,” said NFIB Chief Economist William Dunkelberg. “Cost cutting is likely being overdone. What this portends, however, is a rapid improvement in employment and earning when the economy establishes forward momentum,” said Dunkelberg (Reuters via Yahoo! News April 14) …

News of the Competition (04/13/2009)

 Permanent link
MADISON, Wis. (4/14/09)
* Two banks--one in Colorado and one in North Carolina--closed down last week, pushing the total number of U.S. bank failures this year to 23. New Frontier Bank, Greeley, Colo., with $2 billion in assets and $1.5 billion in deposits, and Cape Fear Bank, Wilmington, N.C., with $492 million in assets and $403 in deposits, were shut down Friday by state regulators. The Federal Deposit Insurance Corp. (FDIC)--which was named receiver--allowed New Frontier depositors 30 days to transfer accounts. FDIC arranged to have Cape Fear’s assets assumed by First Federal Savings and Loan Association, Charleston, S.C. (Bloomberg.com April 10) … * A federal judge in Los Angeles dismissed claims April 6 of insider training against all but one former Countrywide Financial executive. U.S. District Judge Maria Pfaelzer allowed allegations in a shareholders’ lawsuit to remain against Angelo Mozillo--Countrywide’s former chairman and CEO. The suit alleges Mozillo sold $478 million in shares from 2004 to 2008. Pfaelzer commented that some modifications made to Mozillo’s automatic stock sale plan were unusual. However, the suit failed to support allegations that former CEO Stanford Kurland and other executives illegally traded stock, the judge added (The Mercury News April 9) … * With guidance from the Treasury Department, General Motors (GM) is preparing for a “surgical” bankruptcy filing by June 1, in spite of GM’s public position that it could reorganize outside of court, sources familiar with the plans said last weekend. GM--granted $13.4 billion in federal aid--maintains that it needs a fast restructuring so its image and sales are not permanently hurt. Members of President Barack Obama’s automotive task force conducted meetings and conference calls with GM officials and advisors in Detroit and Washington, D.C., last week, with talks expected to continue this week, analysts said. The preparations are to ensure a GM bankruptcy filing is ready if the company is unable to reach agreements with bondholders to exchange about $28 billion in debt into equity in GM and the United Automobile Workers union (The New York Times April 13) … * HSBC Holdings, the largest European bank, confirmed Monday that it was considering the sale of three of its major office buildings, adding that it had received interest from prospective buyers. HSBC said it might sell and lease back offices in London, New York and Paris. The bank is trying to raise $3.98 billion, according to London’s Sunday Telegraph (Reuters April 14) … * Goldman Sachs Group Inc. has raised about $5.5 billion in capital commitments. The funds will be used to purchase private-equity assets on the secondary market from endowment and pensions that have been affected by losses. The GS Vintage Fund V--the company’s fifth dedicated private equity secondary fund--will acquire investments with a value ranging from $1 million to more than $1 billion, Goldman Sachs said in a statement Monday. With financing remaining sparse for leveraged buyouts during the global credit crisis, investors are forming leveraged buyout funds--including pools dedicated to secondary interests, analysts said (Bloomberg.com April 13) … * Bill Gross, manager of Pacific Investment Management Co.’s (PIMCO) $144 billion Total Return Fund, increased his holdings of U.S. government debt to 28% in March--the highest percentage in nearly two years, according to the company’s website--from 15% in February. The world’s largest bond fund’s holdings of mortgage-backed securities dropped to 66% of total assets in March from 86% in February. PIMCO spokesman Mark Porterfield said the firm doesn’t comment on fund holdings (Bloomberg.com April 13) …

Market News (04/13/2009)

 Permanent link
MADISON, Wis. (4/14/09)
* A Discover Financial Services report released last week indicates consumer confidence rose in March. However, those surveyed said they still plan to be conservative in their spending habits. Based on a survey of 15,000 adults, the Discover U.S. Spending Monitor increased 3.6 points to 79.5. The percentage of consumers who said they think the economy is getting better nearly doubled to 15% in March from 8% in February. Survey respondents with a negative outlook fell to 61% in March from 70% in February. March had the lowest percentage of negative outlook since October 2007. However, 28% of consumers surveyed in March said they expected to spend less, while 17% said they anticipated spending more, according to the survey (Investment News April 8) … * With government spending sparking bank profits, the Standard and Poor’s (S&P) 500 Index could rise 17% to 1,000 in the next three months, according to investor Marc Faber. Banks in the S&P 500 are predicted to post an 86% decline in first-quarter earnings, according to analysts’ estimates compiled by Bloomberg. Profits are projected to drop 57% in the second quarter, and 52% in the third quarter, before bouncing back 277% in the year’s last quarter. Banks that announce first-quarter earnings can expect heightened scrutiny from investors and the government, with any downturn threatening the banking sector--which has recently rallied--into another tailspin, analysts said. This situation could not only be dire for the banking industry, but also for the entire country, analysts added (Bloomberg.com and American Banker April 13) … * Global business confidence remains quite weak, according to the Moody’s Economy.com Survey of Business Confidence. Sales, hiring and equipment investment were particularly poor. Businesses are reporting minimal pricing power, the survey indicated. However, the fact that businesses are becoming less negative about the economy’s prospects later this year is encouraging, analysts said. However, the global economy is afflicted with a severe full-blown synchronized recession from which it shows scant indications of recovering any time soon, according to the survey results (Moody’s Economy.com April 13) … * Workers who are 45 years old and older constitute a disproportionate share of the long-term unemployed--those who have been out of work six months or longer, according to the Bureau of Labor Statistics. Laid-off workers in this age group were out of work--on average--22.2 weeks in 2008, compared with 16.2 weeks for younger workers. When workers age 45 and up finally find work, they usually experience a significantly steeper drop in wages than their younger counterparts, the bureau said. Conversely, older workers have some advantages; many avoided layoff in the current recession, and workers 45 and older currently have a lower unemployment rate than younger workers, government statistics indicated. Companies often do not want to lose the older workers’ experience, according to Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Also many of these workers have protections that often come with age and seniority, she added. In March, the unemployment rate for workers age 45 and over was 6.4%--the highest level since at least 1948, when the bureau began tracking unemployment statistics monthly (The New York Times April 13) … * The price of oil dipped below $50 per barrel Monday, as a result of the International Energy Agency (IEA) significantly reducing its forecast for oil demand--which offset the effect of data showing Chinese crude imports rising to their second-highest level ever. Friday, the IEA predicted world oil demand would drop by 2.4 million barrels per day this year, from 2008 demand as the fuel consumption contraction rate hit levels last seen in the early 1980s. Investment money had begun to ease back into commodities, and any sustained recovery on equities could continue to support the oil industry, analysts said. However, the oil industry remained cautious due to high inventories and the effect of the recession on fuel demand, analysts added (The New York Times April 13) …

Market News (04/10/2009)

 Permanent link
MADISON, Wis. (4/13/09)
* Mortgage rates increased last week--ending four consecutive weeks of decline, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) rose nine basis points to 4.87%, while the 15-year FRM edged up two basis points to 4.54%. The one-year, adjustable-rate mortgage (ARM) rose eight basis points to 4.83%. “Mortgage rates rose slightly this week but still remained historically low,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that low rates have boosted both refinancings and home purchases over the last five weeks. “Since the end of February, applications for home purchases were up about 22% and nearly 129% for refinancing," according to the Mortgage Bankers Association. Mortgage rates remain much lower than a year ago. At this time last year, the 30-year FRM was at 5.88%, while the 15-year FRM stood at 5.42%, and the one-year ARM averaged 5.18%. For CUNA's Daily Financial Rates, use the link. … * The recession will end in September, but unemployment won’t begin to recover until the second half of 2010, according to economists surveyed by The Wall Street Journal (April 10). The nation’s gross domestic product is expected to contract by 5% in the first quarter and by 1.8% during the second quarter, before returning to modest 0.4% growth in the third quarter. Economists expect the unemployment rate to hit 9.5% by year end, from the current 8.5% rate. More than seven in 10 respondents said the Treasury’s plan to purchase toxic assets will help the economy. Economists said the credit markets are the biggest risk to their forecasts, followed by the failure of a major financial institution and the continued reluctance of consumers to spend … * Consumer spending will decline again after picking up modestly in the second quarter, according to a survey of economists by Bloomberg News (April 10). An estimated 0.5% gain in the first quarter would halt the longest drop in consumer spending since 1991. Spending is then expected to dip at a 0.5% pace in the second quarter. The nation’s unemployment rate is forecast to rise to 9.5% by year end, from a 25-year high of 8.5% in March. The economy is expected to decline at a 2% pace in the second quarter, before rebounding to a modest 0.4% rate of growth in the third quarter. For the full year, the economy is expected to contract by 2.5%--the weakest showing since 1946 … * The economy will emerge from the recession during the second half of this year as consumer spending and the housing sector recover, according to the latest Blue Chip Economic Indicators newsletter survey of private economists. A full 86% of respondents said the downturn will end during the second half. “Real GDP (gross domestic product) contracted very sharply during the first quarter of this year and will continue to shrink, albeit more slowly in the second quarter before turning very modestly higher in the third and fourth quarters,” said the survey. Still, businesses are expected to continue cutting workers well into 2010. Economists expect the nation’s unemployment rate to peak at 9.8% in the second half of next year (Reuters via Yahoo! News April 10) … * Global oil demand will plunge by 2.4 million barrels per day this year as the prolonged economic slump continues, the International Energy Agency (IEA) announced Friday. “This is a pretty exceptional period of demand collapsing,” said David Fyfe, head of the oil industry and markets division at the Paris-based IEA. In response to softening demand, the Organization of Petroleum Exporting Countries agreed in September to cut production by 4.2 million barrels per day. The IEA estimates that the oil cartel’s compliance rate with the target cuts was about 83% in March, compared with an historical average of about 60%. The IEA continues to caution that the world could see an oil-supply crunch when the economy begins to recover and oil demand rebounds (Reuters via The New York Times April 10) … * Slumping sales caused 271 auto dealers nationwide to go out of business during the first quarter, according to the National Automobile Dealers Association. The dealer group predicts that about 1,200 dealers, mostly sellers of domestic brands, will go under this year, about 20% more than in 2008. At the end of the first quarter, there were 19,738 dealers in the nation, down from 20,009 at year-end 2008. General Motors (GM) accounted for most of the closures during the first quarter. GM said 198 of its dealers went out of business during the period. The struggling automaker, which is phasing out several of its brands, plans to shrink its dealer network to 5,750 by the end of this year, and to 4,100 by 2014 (The Wall Street Journal Online April 10) …

News of the Competition (04/10/2009)

 Permanent link
MADISON, Wis. (4/13/09)
* The U.S. Federal Reserve has ordered banks to stay silent on the outcome of “stress tests” that will measure banks’ ability to survive the recession, according to sources close to the issue (Bloomberg.com April 10). The Fed is concerned that leaks might occur after conference calls to share test results this month, which would interfere with the Fed’s plan for releasing the information later in April and could impact banks’ stock prices. The tests will help regulators assess whether the 19 biggest banks have sufficient capital to cover loan losses over the next two years if the economy contracts, unemployment climbs and housing prices continue to fall. The tests are seen as a key element of Treasury Secretary Timothy Geithner’s plan to restore confidence in the financial system … * Some of the nation’s largest banks are launching the Obama administration’s program to offer mortgage refinancing to homeowners who lack equity in their homes. Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. are among the lenders introducing the program, designed for borrowers who are current on their payments, have loans owned or guaranteed by Fannie Mae or Freddie Mac and owe between 80% and 105% of their home’s current value (The Wall Street Journal April 10). These homeowners lack the equity to qualify for refinancing either due to falling prices or because they financed more than 80% of the home’s value. Roughly five million homeowners could qualify for the program, which could significantly cut monthly payments by reducing homeowners’ interest rate to current market levels. Some lenders are delaying acceptance of applications from borrowers with mortgage insurance until more information is offered on how the program will transfer insurance from the existing mortgage to the refinanced loan. About one-third of eligible borrowers have mortgage insurance … * Some analysts continue to fret that Wells Fargo & Co.’s reserves are too low to absorb rising loan losses, despite first-quarter earnings of 55 cents a share that were 50% above first-quarter 2008 results. Wells Fargo’s first-quarter provision for reserves was $4.6 billion, which was $1.3 billion higher than its quarterly chargeoffs. But a team of analysts from Friedman, Billings, Ramsey & Co. said the first-quarter provision should have been $6.25 billion. They cited credit costs that include option adjustable-rate mortgages and other problem assets acquired when Wells Fargo purchased Wachovia Corp. (American Banker April 10). A Wells Fargo spokesman highlighted the bank’s $23 billion reserve allowance and said Wells already has absorbed most of the losses inherited from Wachovia. Some analysts agreed, saying Wells Fargo is prepared to handle credit costs. The bank is expected to provide details about asset quality when final first-quarter results are posted later this month … * Internet-based financial institutions have almost doubled their penetration since 2007, according to a Synergistics Research Corp. survey. The 2009 survey showed that nearly four in 10 Internet households with checking accounts have a current relationship with an Internet-based financial institution, compared to one in five in a similar 2007 survey. The 2009 national online survey gathered information from 1,000 checking account holders age 18 or older. Genie M. Driskill, chief operating officer at Syngergistics, said Internet-based financial institutions have focused on capturing a portion of consumer deposits that would otherwise be placed in savings, money market accounts or certificates of deposit at traditional branch-based institutions. To continue to expand, Driskill predicts, Internet-based banks will need to add value to product offers. Internet-based financial institutions have a competitive advantage because they do not have to support branch networks or pay transaction costs linked to checking transactions … * Discover Financial Services will trim its work force by roughly 500 employees in May to bring costs in line with current economic conditions. The majority of the cuts will occur at Discover’s headquarters in Riverwoods, Ill. Discover reported a profit of $120 million in the fiscal quarter ending Feb. 28, but those results included a $297 million payment from an antitrust settlement with Visa and MasterCard (CardLine April 10). The company blamed its need to cut costs on rising chargeoffs, lower consumer spending and unstable credit card securitization markets …

News of the Competition (04/09/2009)

 Permanent link
MADISON, Wis. (4/10/09)
* Wells Fargo & Co. sparked a rally in bank shares Thursday after announcing it would earn $3 billion in net income for the first three months of 2009. That's a 50% increase from $2 billion a year earlier. Profit of about 55 cents per share was more than double the average estimated by analysts. Wells Fargo's acquisition of Wachovia Corp, whose adjustable-rate loans were considered the riskiest in the industry, cut Wells Fargo's stock price in half this year. However the acquisition has exceeded expectations. Financial institutions experienced more than $1.29 trillion in losses and writedowns since mid-2007, with more than 100 companies in the mortgage industry collapsing. Wachovia's $101.9 billion in losses and writedowns was the highest for any U.S. lender, said Bloomberg (Bloomberg.com April 9) … * Life insurers are eligible for capital infusions under the federal rescue program, according to the Treasury Department, which said applications are under review (Bloomberg News via American Banker April 9). A number of life insurers met the requirements for the Capital Purchase Program, and hundreds of financial institutions are in the pipelieng that will be reviewed and funded on a rolling basis as appropriate, said Andrew Williams, a spokesman with the Treasury. To be eligible, an insurer must own a federally insured institution. Insurers in North America have reported losses and writedowns totaling more than $190 billion. The American Council of Life Insurers says that U.S. life insurers hold about $1 trillion of corporate debt and need aid to buy more bank bonds and inject liquidity into the credit markets. Twelve life insurers are in line for approval for Troubled Asset Relief Program funds … * Nearly every credit card in the nation has at least one feature that would be found "unfair and deceptive" under Federal Reserve rules finalized last year, says Philadelphia nonprofit Pew Charitable Trusts. In its review of 400 cards offered by a dozen of the nation's biggest card issuers, Pew found widespread examples of practices that could hurt consumers financially. Among the findings: 93% of card agreements permitted the issuer to hike any interest rate at any time, and 87% could impose automatic penalty rate hikes on all card balances, even on accounts that were not 30 days or more past due. The median penalty rate was 27.99% a year. Other findings: 72% of the cards included low promotional rate offers that were revocable after one payment, and 92% included a fee for exceeding the credit limit. During 2007 and 2008, card issuers hiked rates on nearly one-fourth of credit card accounts, which translates into a $10 billion hit on consumers' wallets. The new rules, effective July 1, 2010, include banning rate increases on existing debt except when payments are at least 30 days late, and requiring issuers to apply payments first to the highest interest balances (American Banker April 9) … * The Securities and Exchange Commission (SEC) agreed Wednesday to look for ways to restrict short sales of stock, something bankers have advocated. The commissioners voted unanimously to consider a list of proposals that include the return of an uptick rule, allowing investors to sell a stock short only at a price above the last trade, or establishing a "bid-up" rule, based on the last bid. Commissioner Kathleen Casey and others indicated that the burden of proof would rest with the proponents of the short-selling restrictions. The agency is set to begin a 60-day public comment period on the proposals (American Banker April 9) …

Market News (04/09/2009)

 Permanent link
MADISON, Wis. (4/10/09)
* Continuing unemployment claims surged to another record high as the job market remained weak, the Labor Department reported Thursday. The number of people receiving jobless claims for more than one week jumped by 95,000 during the week ending March 28 to 5.84 million--setting a record high for a 10th consecutive week in records going back to 1967. In a glint of hope, first-time claims for unemployment insurance fell by 20,000 during the week ended April 4 to 654,000. Still, the decline was from a very high level. And analysts expect job losses to continue climbing, with the unemployment rate rising to around 10% by the end of the year, from the current 8.5% rate (Associated Press via Yahoo! News April 9) … * The Federal Reserve lowered its economic forecast for the remainder of 2009 at its policymaking meeting last month, according to minutes of the meeting released Wednesday. The central bank now expects the unemployment rate to increase more steeply into early next year before “flattening out at a high level over the rest of the year.” Officials said the nation’s gross domestic product probably will flatten out during the second half of this year, and then increase very slowly in 2010. Fed officials also noted that the Term Asset-Backed Securities Loan Facility would get off to a slow start. They therefore explored alternative ways to ease the markets. And some were concerned that purchasing Treasury debt would be viewed by investors as supporting rising budget deficits. The Fed kept the key fed funds rate near zero at the meeting and restated that it expected rates to remain “exceptionally low for an extended period.” (CNNMoney.com and The Wall Street Journal Online April 9) … * The nation’s trade deficit plunged to a nine-year low in February as consumer and business demand waned. The trade gap fell to $26 billion, from $36.2 billion in January, the Commerce Department reported Thursday. February’s trade deficit was the lowest since November 1999. U.S. imports dropped 5.1% to $152.7 billion, the lowest level since September 2004. U.S. exports rose 1.6% to $126.8 billion, as sales of pharmaceuticals, vehicles and telecommunications equipment improved. The World Bank predicts that global trade will decline 6.1% this year as the recession continues (Bloomberg.com April 9) … * Major U.S. companies are still spending on innovation during the recession, even as they slash jobs and wages, so they can compete when better economic times return, according to a study by The Wall Street Journal (April 6). Overall research-and-development (R&D) spending by the 28 firms in the study slipped just 0.7% in the fourth quarter, compared with a year earlier, even as their revenue tumbled 7.7%. Many innovations have been spawned in economic downturns and then introduced as the economy recovered, said Barry Jaruzelski, a partner at consultant Booz & Co. He noted that television and mass-produced chocolate-chip cookies were refined during the Great Depression, but didn’t become commercial successes until after World War II. Cumulative spending by businesses, government and universities will increase more than 3% in 2009, predicts the Battelle Memorial Institute, which tracks R&D spending. Many firms that made big R&D reductions during the recessions of the 1980s and 1990s took more than five years to return to previous spending levels, noted Battelle analyst Jules Duga (The Wall Street Journal Online April 6) … * Pulte Homes of Bloomfield Hills, Mich., announced Wednesday that it has agreed to acquire homebuilder Centex Corp. of Dallas, in a $1.3 billion stock deal that would create the biggest U.S. homebuilder by revenue. The two firms hope that a combined company will be better able to weather the worst housing downturn since the 1930s. Centex shares have plunged 70% during the past 12 months. Pulte shares are down 30%. The combined firm would be headquartered in Bloomfield Hills (Bloomberg.com April 8) … * Fitch Inc. may downgrade $18.1 billion of commercial mortgage-backed bonds sold from 2006 to 2008, the ratings agency said Wednesday. Losses on those transactions will average 4.5% to 5%. And deals underwritten in 2007 with high concentrations of pro forma loans could produce loss rates as high as 7.5%. “A sharp decline in economic conditions and the lack of available real estate financing have begun to impact commercial property and CMBS loan performance,” said the ratings agency. On Tuesday, ratings agency Standard & Poor’s said it may lower ratings on as much as $96.6 billion of commercial mortgage-backed securities (Bloomberg.com April 8) …

Market News (04/08/2009)

 Permanent link
Madison, Wis. (4/9/09)
* Mortgage loan applications in the U.S. increased 4.7% on a seasonally adjusted basis to 1250.6 during the week ending April 3, up from 1194.4 the previous week, said the Mortgage Bankers Association (mbaa.org April 8). On an unadjusted basis, the Market Composite Index rose 4.9% from the previous week and was up 67.6% from the same week one year ago. Refinancings were up 3.2%, to 6813.5 from 6600.1, and the Purchase Index rose 11.1%--to 287.7 from 268 the previous week. The four-week moving average, seasonally adjusted, was up 13.3% for the Market Index. For the seasonally adjusted Purchase and Refinance Indexes, the four-week averages increased 4.2% and 16%, respectively. Refinance applications accounted for 77.9% of total applications, a decline from 79.1% the previous week. Average interest rates for mortgages during the week were: 30-year, fixed rate, an increase to 4.73% from 4.61%; 15-year, fixed rate increased to 4.49% from 4.45%; and one-year adjustable-rate mortgages up to 6.23% from 6.20% … * Consumer credit declined at an annual rate of 3.5% during February, to $2.56 trillion from $2.595 trillion in January, said the Federal Reserve Tuesday. Its statistical report, which does not include borrowing secured by real estate, noted that consumer credit rose by $8.14 billion during January, more than previously expected. Revolving credit decreased 9.7% and nonrevolving credit rose 0.2%. Revolving loans held by credit unions dropped in February to $32.2 billion from $33 billion in January, and their nonrevolving loans decreased to $204.6 billion from $205.1 billion. The credit union statistics are not seasonally adjusted … * Wholesale inventories declined by 1.5% during February, double the decline expected by economists and the largest decline since records began in 1992, according to the Commerce Department Wednesday. Sales at U.S. wholesalers rose 0.6%, the first increase in eight months. At the current sales pace, it would take 1.31 months for inventories to be depleted, the lowest number of months since November. In January, the depletion pace was 1.34 months. Economists had forecast wholesale inventories to drop 0.7% after an initially reported 0.9% decrease in January. This means that any stabilization in demand will turn into an increase in orders and production. Wholesalers account for about one-fourth of all business stockpiles. Factory inventories, which make up one-third of total inventories, decreased 1.2% in February. Stockpiles of durable goods (meant to last three or more years) fell 2.4% in February, the largest decline on record. The decline in inventories is a key reason economists projected the economy shrank again last quarter (Bloomberg.com and Moody's Economy.com April 8) … * Crude oil inventories increased by 1.7 million barrels during the week ending April 3, reports the Energy Information Administration. Moody's says the report means oil prices will increase (Economy.com April 8). The report is in line with projections. Gasoline inventories increased by 0.6 million barrels--more than the 1.4 million barrel decline expected. Distillate stockpiles dropped by 3.4 million barrels--better than the 600,000 barrel decline expected. Refinery operating capacity rose to 81.8% from 81.7%. … * Americans are reasonably well-informed about basic facts related to the financial crisis, according to a News IQ survey by Pew Research Center, on its website. Pew said 83% of respondents know that government assistance for financial institutions is aimed at getting them to lend more, not less, money. And 71% correctly identified China as the foreign country with the most U.S. government debt. Also, 58% know that Timothy Geithner is Treasury secretary, and 51% know that of the three major automakers, Ford Co. has not received emergency government loans. Of those surveyed, 53% correctly estimated the unemployment rate at near 8%, and 40% knew the Dow average is about 8,000. Of the 47% of respondents who didn't know the current unemployment rate, more overestimated than underestimated the current rate …

State of the economy from CU perspective

 Permanent link
MADISON, Wis. (4/9/09)--The U.S. economy will remain in the "Great Recession" for the remainder of 2009, but the credit union cooperative model will provide strength in dealing with the credit and housing crisis, says Credit Union National Association senior economist Steve Rick. Rick discussed the U.S. Economic Outlook and its Impact on Credit Unions Wednesday with CUNA staff in Madison, Wis. Credit unions' business model has a number of strengths: They have excess capital with a net worth of 11.4% of assets, strong funding growth at 84% of assets, lots of liquidity, and lots of investments, and are originating loans to hold, not to sell. They're lending while banks are tightening standards. They have limited credit risk exposure, and no short-term stockholder pressure. "Credit unions are running counter to the economic cycle. We are helping the economy," Rick said. However, the big question is how far will home prices fall. Two vicious cycles of the mortgage crisis will continue to loop in a downward spiral. The government is trying to break these cycles by infusing funds into the economy, said Rick. The first loop consists of falling home prices, leading to negative equity where homes are worth less that the mortgages, leading to foreclosures, which lead to an increased supply of homes, which again lowers the price of homes. The other loop begins at foreclosures, which lead to a decline in mortgage payments, which means the value of mortgage-backed securities declines, and banks and credit unions incur losses such as those at U.S. Central and WesCorp, which leads to a decline in bank capital or loanable funds. That, in turn, leads to restrictions on lending, which slows economic activity, which increases unemployment, which leads to more foreclosures. "This is the U.S. economy," Rick said. "Both loops are touching foreclosures and will continue looping around again and again. They won't self-correct, so the federal government has to stop it." He said home prices will continue falling through 2009. Normally consumers save during the good times for a rainy day, such as a recession. But consumers instead increased their debt burden too far and the economy is forcing them to hunker down and reduce the burden to get through the recession. "The good news is that Americans have rediscovered saving," he said. What does this mean for credit unions? Steve predicts credit unions' saving growth will rise to 12% this year, while loan growth will fall to 6%. Credit quality will deteriorate this year, and credit unions' return on assets will increase marginally to 0.40% during the year. Capital-to-assets ratios will decline to 9.9% as capital contributions lose pace against asset growth.

News of the Competition (04/08/2009)

 Permanent link
MADISON, Wis. (4/9/09)
* Bank of America must raise $36.6 billion in equity if it wants to increase its capital ratios to be roughly equivalent with its peers. An analyst with Oppenheimer & Co. said the 25 largest U.S. banks have an average ratio of 6.3% for tangible equity capital as a percentage of risk-weighted assets, while Bank of America’s ratio is about half that level. Investors remain hesitant to fund lenders, so Bank of America is seen as likely to raise capital by converting preferred stock to common stock, or by issuing 5.2 billion shares at $6.24 each through the Capital Assistance Plan offered by the U.S. Treasury. To date, Bank of America has accepted taxpayer assistance worth $163 billion, including preferred stock purchases and asset guarantees (Bloomberg.com April 8). Oppenheimer also dropped its Bank of America quarterly earning estimate from 10 cents a share to two cents due to anticipated losses on credit cards and other loans. Quarterly earnings also were projected to decrease for JPMorgan Chase & Co., from an original estimate of 29 cents down to 16 cents a share, and for Morgan Stanley, expected to move from an estimated profit of 37 cents to a loss of 59 cents … * The U.S. Securities and Exchange Commission (SEC) is pondering a new set of rules aimed at reining in traders who seek to profit from short-selling. Lawmakers and business groups are pressuring the SEC to act because they claim short-sellers who targeted banks helped create the financial crisis. Short-selling traders wager on the likelihood that share prices will fall when they borrow stock and then sell it, with the goal of later replacing the borrowed stock with shares purchased at a lower price so the trader can retain the difference. The SEC is seeking comment for 60 days, with variations of several options currently under consideration (Bloomberg.com April 8). One option would suspend short-selling of stocks when prices decrease at least 10%. Another option would reinstate a version of the “uptick rule” that was in place until 2007 by forbidding short-selling until a trade results in a price of at least one cent higher than the preceding trade. Additional proposals would regulate “naked short-selling,” which occurs when traders use sell orders to profit from price shifts without borrowing and delivering shares … * Lincoln National Corp. is pulling funds from its money-losing Lincoln National Life Insurance Co. to help repay $700 million in maturing debt. The money was shifted using an “ordinary dividend” worth $400 million that was paid from the life insurance unit to the parent firm. An 87% decline in Lincoln’s share price combined with other losses has made it difficult for Lincoln to raise money from stock and bondholders. Like other insurers, Lincoln has suffered from declining asset values and the increased cost of paying the minimum return promised by variable annuity policies. Lincoln lost $145 million in 2008, but an analyst for Standard & Poor’s said the company has adequate capital to satisfy obligations to policyholders (Bloomberg.com April 8) … * European Union regulators have charged Visa Europe Ltd. with anticompetitive behavior. MasterCard Inc. recently settled a similar case by reducing credit card fees to 0.3% per transaction, down from a range of 0.8% to 1.9% in 2007, while debit card fees were cut in half to 0.2%. In March, Visa also cut its card fees, but left its rates at significantly higher levels than those created by the MasterCard settlement (Bloomberg News via American Banker April 8). Visa reduced credit card fees to an average of 0.61% from 0.7%, while debit card costs were reduced by roughly 10 euro cents per transaction to an average of 18 euro cents per transaction. The European Commission claimed that Visa’s fees restrain competition among issuers and boost costs for merchants …

Market News (04/07/2009)

 Permanent link
MADISON, Wis. (4/8/09)
* Chain store sales increased 0.6% in the week ending April 4--the second consecutive gain. However, the year-end decline increased to 0.3% (Economy.com April 4). Chain store same-store sales remain weak, although two consecutive weekly gains moved up the index to its highest level since September. The year-ago decline moved up to 0.3%, and remains one of the top readings since early December. The shift in Easter dates hurt sales comparisons, and weather negatively affected sales at discount stores. Dollar stores reported an improvement. The International Council of Shopping Centers projects sales to be flat to 1% in March, a bit lower than February’s 0.1% decline. A later Easter will drag monthly sales, so underlying demand should match February ... * Because of an increase in projected losses, Standard & Poor’s slashed ratings Monday on $1.35 billion of prime jumbo mortgage-backed securities issued in 2006, and on $11.28 billion of securities transactions backed by alternative-A mortgages issued from 2005 to 2007 (American Banker April 7). S&P also lowered ratings on 385 classes from 13 alt-A transactions and affirmed ratings on another 56 classes. More than 175 ratings had been top triple-A. It also reported that delinquencies of home-related loans jumped in January--with a rate of more than 20% for alt-A loans made in the past few years. S&P will assume a loss of 40% on prime jumbo transactions from 2006 and 2007 because of a weak housing market. It also removed 47 ratings and two classes of mortgage-backed securities from watch for a possible downgrade ... * Americans are more optimistic about the economy since President Barack Obama was inaugurated, according to a New York Times and CBS News poll. About 70% of respondents said they were very or somewhat concerned that a member of their household would lose their job in the next year. Forty percent said they cut spending on luxury items, 10% cut back on necessities and 31% said they cut both (The New York Times April 7). The number of people who said they thought the country was headed in the right directed jumped to 39% from 15% in January before Obama took office. The percentage of people who said the economy was worsening dropped to 34% from 54% just before Obama took office ...

News of the Competition (04/07/2009)

 Permanent link
MADISON, Wis. (4/8/09)
* The Royal Bank of Scotland Group Plc (RBS) announced plans to cut 9,000 jobs worldwide as part of its ongoing attempt to return the bank to shareholder control (Bloomberg.com April 7). The cuts represent about 5% of the global work force for RBS, which is the largest bank currently under the control of the Treasury in the United Kingdom (UK) as a result of a government bailout. Roughly half of the cuts will come from UK employees, with most of the affected positions in the group manufacturing division that handles technology, purchasing and property services. RBS earlier eliminated 2,700 jobs. Additional positions may be eliminated as RBS seeks to cut costs 14% over the next three years. The government increased its ownership stake in RBS to 70% this week after a rights offering failed to attract investors … * Fannie Mae reported a $36 billion increase in refinancing volume in March. Monthly refinancing volume was $77 billion, the highest level recorded since 2003. The February total was $41 billion (American Banker April 7). Refinancing volume is expected to continue to increase due to low interest rates and the Home Affordable Refinance Initiative, which enables Fannie Mae and Freddie Mac to use flexible underwriting to refinance mortgages they already guarantee or own. The program offers current market rates to borrowers who have loan-to-value ratios that fall within 80% to 105% …

News of the Competition (04/06/2009)

 Permanent link
MADISON, Wis. (4/7/09)
* Sallie Mae announced Monday that it plans to move its overseas operations back to the U.S. within the next 18 months, creating 2,000 new domestic jobs. “The current economic environment has caused our communities to struggle with job losses,” said CEO Albert Lord. “They need jobs, and we will put 2,000 of them into U.S. facilities as soon as we possibly can,” added Lord. Analysts said the move was an effort to build political support in Washington as the administration plans major changes in the student loan market. Sallie Mae, which employs more than 8,000 employees in the U.S., is the nation’s largest private student lender (Associated Press and Reuters via The New York Times April 6) … * Wells Fargo told its employees last week that it is considering eliminating foreign employees, according to an internal e-mail obtained by MarketWatch (April 3). The firm cited political pressure from the government bailout. Wells has received $25 billion from the Troubled Asset Relief Program (TARP). “Due to the fact that we have and will be displacing numerous U.S. citizens in your same positions Well Fargo has decided to enforce a policy that prohibits lines of businesses to file visa sponsorships for foreign nationals that would hold positions that could otherwise be held by qualified U.S. citizens,” said the memo. The 12 largest banks that received TARP funds have requested visas for more than 21,800 foreign workers during the last six years, according to Associated Press data. Goldman Sachs, another TARP recipient, continues to offer jobs to foreign workers who need new temporary visas … * New York Attorney General Andrew Cuomo has filed a lawsuit against New York financier J. Ezra Merkin, alleging that he improperly collected more than $470 million in fees from his clients by “falsely claiming he actively managed their funds,” when instead he handed their money over to Bernard Madoff, who has pleaded guilty to operating a massive $65 billion Ponzi scheme. “Merkin’s deceit, recklessness, and breaches of fiduciary duty have resulted in the loss of approximately $2.4 billion,” said the complaint filed by Cuomo’s office. A number of private lawsuits by nonprofit organizations also have been filed against Merkin (The New York Times April 6) … * The California Association of Realtors (CAR) has launched a program to pay first-time homebuyers’ mortgages for up to six months if they lose their jobs. The program applies to buyers who purchase a property in California between April 2 and December 31. They must use a California realtor in the purchase, not be self-employed, and be younger than 70. Qualifying people can receive up to $1,500 a month for as much as six months to help them meet their mortgage payments (San Francisco Chronicle April 3) … * Mortgage insurer Triad Guaranty Inc. is notifying its lender customers that, under an order issued by Illinois’ top insurance regulator, they will receive only partial payments of their claims starting as soon as June 1. The firm will begin paying just 60% of mortgage insurance claims in cash on June 1, or at a later date to be determined by the regulator. The remaining 40% of the claims will go to a deferred-payment obligation. Bank of America and Wells Fargo are Triad’s biggest private-lender customers. Fannie Mae and Freddie Mac make up more than half of Triad’s $17 billion of risk in force (Dow Jones Newswires via American Banker April 6) …

Market News (04/06/2009)

 Permanent link
MADISON, Wis. (4/7/09)
* Huge investment losses in public pension funds are pressuring lawmakers to spend taxpayer money to make up for shortfalls. Public pensions have lost at least $1 trillion over the past year as the stock markets plunged. Pensions need $270 billion in added contributions during the next four years, according to the Center for Retirement Research at Boston College. States are seeking higher taxes to fund the pension shortfalls. Some states also are making moves to change pension rules, including boosting the retirement age of new government workers, and taking more money from employees’ paychecks. Several states, including Illinois, Oklahoma and Florida are considering shifting their public employees to defined contribution plans such as 401(k)s. Private pensions also have taken a hit from the stock markets’ plunge. There was a $400 billion funding deficit for pensions at 1,500 companies at year-end 2008, according to consulting firm Mercer (The New York Times April 6) … * The high cost of long-term health care will dampen the quality of life for almost two-thirds of today’s retirees, according to a study by the Center for Retirement Research at Boston College. It can cost $77,000 a year for a nursing home room, and $20,000 a year for in-home nursing care. Wealthier people can opt to purchase long-term care insurance. The cost is steep--about $3,500 a year if acquired at age 65. And 20% of applicants are denied coverage due to poor health. Experts estimate that about one-third of people aged 65 today will need to go into a nursing home for at least three months (BusinessWeek Online April 3) … * A record 32.2 million Americans--one in every 10--received food stamps in January, the Agriculture Department reported last week. Enrollment in the food stamp program rose to record highs in three of the last five months. Enrollment increased in 46 of the 50 states during January. Vermont, Alaska, and South Dakota saw increases of more than 5%. At 2.984 million, Texas had the biggest enrollment, followed by California (2.545 million) and New York (2.211 million). The average benefit nationwide was $112.82 per person in January (Reuters via Yahoo!News April 3) … * The job market continued to weaken in March, for a 14th consecutive month, the Conference Board reported Monday. The Board’s Employment Trends Index (ETI) dropped to 90.1, from 92.2 in February and the lowest level since February 1994. The index was down 22% from a year earlier. “The most intense stage of job losses may be behind us,” said Conference Board Senior Economist Gad Levanon. “However, the drops in each of the eight components of the ETI in March signal that many more jobs will disappear over the next several months.” Last week the Labor Department reported that another 663,000 jobs were eliminated in March, as the unemployment rate jumped to a 26-year high of 8.5% (Bloomberg.com and Reuters via Yahoo! News April 6) ... * Layoffs in the high-tech sector surged to a 7-year high during the first quarter, according to a report by the outplacement firm Challenger, Gray & Christmas. Announced job cuts by high-tech firms rose to 84,217--up 27% from the fourth quarter and the largest number of layoffs since 133,711 in the fourth quarter of 2002. Layoffs in the sector are expected to continue to increase, especially if more firms are sold. “In most of these mergers, the first step taken to offset the cost of the merger is to eliminate redundant positions,” noted John Challenger, chief executive of the Chicago-based firm (MarketWatch April 6) … * Business pessimism remains steep and widespread across all regions and industries, according to the latest Moody’s Economy.com Survey of Business Confidence. Views towards hiring and business investment remain at record lows. Although sentiment remains consistent with a deep global recession, businesses have become less negative about the outlook for the economy later this year. The biggest concern is that both sales and pricing power have collapsed. Almost one-third of respondents say they are lowering prices …

News of the Competition (04/03/2009)

 Permanent link
MADISON, Wis. (4/6/09)
* Fannie Mae and Freddie Mac plan to pay about $210 million in retention bonuses to 7,600 employees over the next 18 months, according to a letter from James Lockhart, director of the Federal Housing Finance Agency, to Sen. Charles Grassley (R.-Iowa) that was made available to The Wall Street Journal (April 3). The maximum bonuses for an individual executive will total $1.5 million. About $51 million in bonuses were paid out late last year. The remainder will be made this year and in early 2010. Lockhart said the bonuses are needed to retain top talent at Fannie and Freddie, which reported combined losses of $108 billion for last year. Rep. Barney Frank (D.-Mass.) has asked Lockhart to cancel the bonuses. “In this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave,” said Frank … * New Jersey will receive $3.7 million from Countrywide Financial Corp. as part of a national settlement to resolve subprime mortgage complaints, the state announced Thursday. New Jersey alleged that the firm gave borrowers risky and unaffordable mortgages. The money will go into a fund to help eligible homeowners and state programs addressing foreclosure relief. An estimated 8,200 state residents will benefit from the fund. Countrywide also agreed to offer loan modifications and to not start foreclosure proceedings until it determines if a borrower’s loan can be modified. Thirty states have signed agreements with Bank of America, which acquired Countrywide last year (Associated Press via The New York Times April 3) … * More than $1.7 billion of mortgage-backed securities seized from Thornburg Mortgage were put up for auction Thursday by Credit Suisse Group. The securities were released after Thornburg announced that it would file for bankruptcy protection. Thornburg specialized in jumbo mortgage loans and invested in mortgage-backed securities. In August 2007, Thornburg’s lenders began issuing margin calls to cover the declining value of the assets. JPMorgan Chase and Royal Bank of Scotland are among the Thornburg lenders that also plan to take back collateral. BNP Paribas credit strategist Mehernosh Engineer said the auction could harm the federal government’s plan to support purchases of toxic debt. “If the Treasury goes ahead and holds its own auction, and prices are very different, you have to question why there is such a big price differential,” said Engineer (Bloomberg.com April 2) … * Gary Stern, president and chief executive of the Federal Reserve Bank of Minneapolis, announced Thursday that he plans to retire this summer. He has headed the Minneapolis Fed since 1985. Five years ago, Stern cautioned about the dangers of excessive risk-taking and bank bailouts in his book, “Too Big To Fail, The Hazards of Bank Bailouts.” He said regulators should make reforms to reduce banker expectations of being bailed out. His views have received more attention today as banks lean on the government for billions of dollars in bailout money (Associated Press via The New York Times April 3) …

Market News (04/03/2009)

 Permanent link
MADISON, Wis. (4/6/09)
* Job losses continued to mount last month and the unemployment rate soared, the Labor Department reported Friday. Employers eliminated another 663,000 jobs in March. The jobless rate jumped to 8.5%, from 8.1% in February and was the highest level since December 1983. Factoring in part-time and discouraged workers, the unemployment rate would have been 15.6% in March, the highest level in government records going back to 1994 (Associated Press via Yahoo! News April 3). The average workweek fell by 0.1 hour to 33.2 hours in March, the lowest level on records going back to 1964. Since the recession began in December 2007, the economy has lost 5.1 million jobs. Almost two-thirds of that decline (3.3 million) has occurred during the past five months. There were 13.2 million unemployed people in March. In addition, there were nine million people who were forced to work part time for “economic reasons.” Such people would like to work full time, but their hours were cut or they were unable to find full-time jobs. The number of long-term unemployed (those who remained jobless for 27 weeks or more) rose to 3.2 million in March … * Job losses were large and widespread across all major industry sectors in March, according to the Labor Department report. Manufacturing employment plunged by 161,000 last month. Factory employment has tumbled by one million over the last six months. The construction industry lost 126,000 jobs last month. Construction employment has plunged by 1.3 million since peaking in January 2007. Retail trade employment dropped by 48,000 last month. Employment in that industry had fallen by an average 44,000 per month since peaking in November 2007. Employment in professional and business services declined by 133,000 in March, with more than half of that loss occurring in temporary-help services. Financial-sector employment fell by another 43,000 in March and has plunged by 495,000 since peaking in December 2006. Health care was one of the few sectors to see job gains--14,000 in March. However, monthly job growth in health care averaged only 17,000 during the first quarter, compared with 30,000 per month last year … * A record number of consumers fell behind on their consumer loan payments in the fourth quarter as millions more people lost their jobs, the American Bankers Association (ABA) reported last week. The percentage of consumer loans 30 days or more overdue increased to a seasonally adjusted 3.22%--from 2.9% in the third quarter and the highest since the trade association began tracking the data in 1974. “Job losses have really hurt the economy and will continue to inflict pain for several months,” said ABA Chief Economist James Chessen. Delinquencies rose in almost every loan category in the fourth quarter. The delinquency rate on auto loans made through dealers jumped to a record-high 3.53%, from 3.25% in the third quarter. The delinquency rate on home equity lines of credit surged to a record 1.46% from 1.15%. The percentage of direct auto loans that were overdue rose to 2.03% from 1.71%, while the delinquency rate on personal loans increased to 2.88% from 2.69%. The delinquency rate on credit cards increased to 4.52% from 4.20%, but remained only slightly higher than the 4.47% average of the past four years. “Underwriting standards on credit cards have been very consistent over time and didn’t follow the more exotic trends we saw in mortgages,” noted Chessen (Reuters via Yahoo! News April 2) … * Less than half of all loan modifications made at the end of last year lowered borrowers’ payments by more than 10%, according to a report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Almost 25% of loan modifications made during the fourth quarter actually resulted in higher monthly mortgage payments, as lenders added fees or overdue interest to loans. The report explains why many loans are becoming delinquent again after they’re modified. It concluded that only 26% of loans in which payments had been cut by 10% or more had fallen back into default nine months after modification. In comparison, about 50% of loans in which the payment was unchanged or increased fell back into default. The report found that lenders may be coming around to the idea that more aggressive loan modifications are necessary to keep borrowers from re-defaulting. In the fourth quarter, about 37% of loan modifications resulted in a decline in monthly payments of more than 10%. That’s up from about 25% during the first nine months of the year (Associated Press via The New York Times April 3) … * Mortgage rates declined again last week to another record low, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) fell seven basis points to 4.78%, while the 15-year FRM declined six basis points to 4.52%, and the one-year, adjustable-rate mortgage (ARM) dropped 10 basis points to 4.75%. “Mortgage rates followed other interest rates lower this week amid reports of slower economic growth,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The final estimate of economic growth in the fourth quarter was revised lower and personal incomes fell 0.2% in February, below the market consensus,” added Nothaft. However, he noted that there were some positive reports last week. The National Association of Realtors said pending home sales rose 2.1% in February, while housing affordability increased to a record high. For CUNA's Daily Financial Rates, use the link … * The service sector contracted for a sixth consecutive month in March. The Institute for Supply Management’s (ISM) non-factory index (which includes retailers and banks) dropped to 40.8, from 41.6 in February. A reading under 50 indicates contraction in the sector, which makes up almost 90% of the economy. The new-orders index dropped to 38.8 from 40.7, and the employment index fell to 32.3 from 37.3. Inflationary pressures continued to abate, with the prices-paid index plunging to 39.1 from 48.1. “These are tell-tale signs that we’re not there yet” in terms of an end to the economic downturn, said Anthony Nieves, chairman of the trade group’s non-manufacturing survey (Bloomberg.com and Associated Press via Yahoo! News April 3) …

News of the Competition (04/02/2009)

 Permanent link
MADISON, Wis. (4/3/09)
* An investor group is seeking to force out an American International Group (AIG) director who leads a committee it says authorized bonuses to executives that brought the firm close to bankruptcy. Officials representing big union and public pension funds sent a letter to the government-appointed AIG trustees, urging them to block the re-election of James Orr, chair of AIG’s compensation and management resources committee. The investor group said he was on the committee when it approved bonus and retention awards for executives in AIG’s Financial Products unit, which was mostly responsible for the firm’s losses. AIG, which has received $180 billion in government bailout money, posted a $99.29 billion loss for 2008. It also paid out $165 million in bonuses to employees in its Financial Products unit. “Mr. Orr acted contrary to the interests of shareholders by authorizing the payment of bonuses to the AIG Financial Products executives who were culpable for massive losses,” said the letter. AIG couldn’t be immediately reached for comment (Reuters via Yahoo! News April 1) … * The Federal Home Loan Bank of Boston cautioned in a securities filing that it may need to take steeper writedowns on mortgage-backed securities than earlier estimated, which would increase its loss for 2008. The bank also said it was unable to meet a March 31 deadline for filing its 10-K annual form with the Securities and Exchange Commission because it hasn’t completed its assessment for writedowns on the securities. The bank previously announced a $73.2 million loss for 2008, with $339.1 million in writedowns on mortgage-backed securities. The combined net income for the 12 home-loan banks plunged 56% last year to $1.25 billion, according to a preliminary estimate. The 12 home-loan banks owned $76.2 billion of private-label mortgage securities as of Sept. 30, according to Moody’s Investors Service (The Wall Street Journal Online April 1) … * MasterCard Inc. has agreed to lower its cross-border interchange fees to settle an antitrust case by the European Union. The settlement will let the firm avoid a daily fine of as much as 3.5% of sales, said the European Commission. “These undertakings will not only improve the efficiency and transparency of the MasterCard payment card scheme but also provide a fair share of the benefits to consumers and retailers,” said Neelie Kroes, competition commissioner for the European Union. The commission estimates that the lower fees will save consumers $265 million annually. MasterCard cut the fee to 0.3% per transaction for credit cards and 0.2% a transaction for debit cards. The credit card fee ranged from 0.8% to 1.9% in 2007. The fee for debit cards ranged from 0.4% to 0.75%. MasterCard said it will continue to challenge the commission’s findings in court (Bloomberg.com April 1) … * Managers of collateralized debt obligations (CDOs) are struggling to operate the funds as the cost of trading the underlying contracts has surged, according to a Fitch Ratings report. Fitch said some CDOs that package credit-default swaps are “virtually unmanageable” because of soaring prices. Last year, banks began closing or scaling back units that purchased and sold CDOs, which resulted in an increase in the spread between bid and offer prices for credit-default swaps. The lack of market liquidity has become “a major hindrance” for CEO managers, said Fitch (Bloomberg.com April 1) …

Market News (04/02/2009)

 Permanent link
MADISON, Wis. (4/3/09)
* Vehicle sales rebounded modestly in March as generous incentives enticed buyers. Vehicles sold at a 9.8 million annual pace. That’s up from a 9.1 million pace in February, which was the lowest level in more than 27 years. March sales were down 37% from the same month last year. With gasoline prices stable at about $2 a gallon, consumers became less enthusiastic about fuel-efficient cars. The light-truck share of sales was about 50% in March, compared with the low of 45% hit last spring. The market share of domestic automakers is down across the board compared with a year ago. General Motors sales are off 45%, while Chrysler saw its market share sink 39%. Ford sales were down 41%. Although March sales remained quite weak, the small rebound could mean sales have bottomed. Sales are expected to edge up during the remainder of this year, to an annual rate of just 11.5 million units by year end (Moody’s Economy.com April 2) … * In an effort to boost sales for General Motors, GMAC Financial Services announced Wednesday that it is resuming making subprime auto loans and will lower inventory financing costs for auto dealers. GMAC said it will make at least $5 billion of credit available to customers over the next 60 days. GM has seen its sales plunge this year. The automaker also announced this week a program that will cover payments for customers who lose their jobs after purchasing a GM vehicle. GM has received $13.4 billion in government bailout money since the beginning of this year. Fritz Henderson, the firm’s new CEO, said GM could go bankrupt by June 1 if it can’t win concessions from creditors, as the government requires (Reuters via Yahoo! News April 1) … * The government may seek to ease General Motors into a “controlled” bankruptcy by persuading some creditors to agree to a plan that would cut the firm into two parts, said people briefed on the situation. Under a plan being created by the administration, GM would file for a prearranged bankruptcy, then use a sale authorized under Section 363 of the bankruptcy code to sell off desirable assets to a new firm financed by the government. Assets that are less desirable, such as the Hummer brand and underperforming plants, could remain in the old company, which would receive proceeds from the sales to settle claims. “This would rank as one of the most, if not the most complex bankruptcy in history,” said Stephen Cooper, founder of the turnaround firm Zolfo Cooper. There will be pressure to maintain employment by keeping plants open “because typically GM or Ford or Chrysler are very substantial contributors to the local tax receipt flow,” added Cooper (The New York Times April 1) … * G-20 leaders on Thursday pledged another $1 trillion to help boost credit, economic growth, and employment worldwide. Leaders of the nations also vowed to crack down on tax havens, enact regulation of hedge funds, and create a new supervisory agency to monitor emerging problems in the global financial system. And they agreed to new rules on linking executive compensation to performance. “Today the largest countries of the world have agreed on a global plan for economic recovery and reform,” said British Prime Minister Gordon Brown, host of the G-20 summit in London. “For the first time, we have a common approach to cleaning up banks around the world to restructuring of the world financial system. We have maintained our commitment to help the world’s poorest,” said Brown (Associated Press via Yahoo! News April 2) … * Global stock markets surged yesterday as investors were cheered by the G-20 global summit, an interest-rate cut in Europe, and changes to accounting rules in the U.S. In New York, financial firms jumped 5% after the Financial Accounting Standards Board voted to let firms price assets according to what they would sell for in an “orderly” sale, instead of valuations in a forced sale. The change could make some banks appear more profitable on paper. The Dow Jones Industrial Average jumped 234 points in late morning trading. Cheering investors overseas, the European Central Bank lowered its benchmark overnight lending rate by 25 basis points to 1.25% Thursday. Stocks in London gained 3.4% (The New York Times April 2) … * The number of people filing first-time claims for unemployment insurance surged last week, and continuing claims rose to a record high for a 10th consecutive week, the Labor Department reported Thursday. Initial jobless claims increased by 12,000 during the week ending March 28 to 669,000. The total was higher than analysts’ expectations and the highest level in more than 26 years, although the workforce has expanded by about half since then. Continuing claims, the number of people collecting jobless benefits for more than one week, jumped by 161,000 during the week ended March 21 to 5.73 million, the 10th consecutive week that continuing claims have hit a record high. The high level indicates people are having a tough time finding new jobs after they’ve been laid off, as employers continue to eliminate jobs and cut costs amid weak consumer and business demand (Associated Press via The New York Times April 2) … * The manufacturing sector offered a glimmer of hope in February. Orders for factory goods jumped 1.8%, rebounding from a 3.5% plunge in January and the first gain since July, the Commerce Department said Thursday. Demand for durable goods, which are made to last three years or more, jumped by 3.5%, while orders for non-durable goods rose 0.3%. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, surged 7.1% following a 12.3% plunge in January …

News of the Competition (04/01/2009)

 Permanent link
MADISON, Wis. (4/2/09)
* A Connecticut investment firm has been charged with fraudulently misrepresenting to Massachusetts investors its lack of knowledge about Bernard Madoff’s business operations. Secretary of State William Galvin filed an administrative complaint Wednesday seeking restitution for investors for losses from Fairfield Greenwich Group. Galvin alleges that the fund invested more than 95% of its Sentry Funds’ $7.2 billion in assets in Bernard L. Madoff Investment Securities. Madoff is in jail awaiting sentencing after pleading guilty last month to defrauding investors of as much as $65 billion, in the largest Ponzi scheme in history. Galvin alleges that Madoff taught Fairfield executives how to respond to questions from the Securities and Exchange Commission (SEC), which was investigating fraud concerns brought up by Harry Markopolos, who has told Congress that he tried to tell the SEC for nine years that Madoff was a fraud. Fairfield executives “were blinded by the fees they were earning, did not engage in meaningful due diligence and turned a blind eye to any fact that would have burst their lucrative bubble,” said Galvin in the complaint. Fairfield is still examining the complaint and has no immediate comment, said Fairfield spokesman Thomas Mulligan (Associated Press via Yahoo! News and Bloomberg.com April 1) … * Thornburg Mortgage plans to file for bankruptcy protection and liquidate its remaining assets to pay bondholders and creditors, the firm announced Wednesday. Thornburg, which specialized in jumbo mortgages, began running out of cash in August 2007 as foreclosures started to surge and investors retreated from mortgage-backed securities. The company received a capital infusion from MatlinPatterson Global Advisers. However, MatlinPatterson returned its shareholder stake earlier this year and cautioned last month that a Thornburg bankruptcy is probable. Eight investment firms have agreed to postpone their payments from Thornburg through April 30. In exchange, Thornburg will allow further sales of loans held by counterparties and will transfer its mortgage-servicing rights to the investment firms (Bloomberg.com April 1) … * Four small banks have become the first to return millions of dollars in Troubled Asset Relief Program (TARP) money to the Treasury Department. Signature Bank of New York said it has repaid $120 million. Old National Bancorp of Indiana paid back $100 million. Iberiabank of Louisiana returned $90 million. And Bank of Marin Bancorp of Novato, Calif. paid back $28 million. “We don’t want to be touched by the stigma attached to firms that had taken money,” said Signature Bank Chairman Scott Shay. He said he also was concerned that conditions on the aid could affect the way bankers and sales representatives at his firm are paid. More banks are expected to follow suit as executives worry about restrictions placed on them by the government. About 500 small banks have received a total of $73.7 billion in TARP funds (The New York Times April 1) … * Fidelity National Information Services of Jacksonville, Fla., announced Wednesday that it has agreed to acquire Milwaukee-based Metavante Technologies. Metavante, which provides banking and payment services to about 8,000 financial institutions, was a unit of Marshall & IIsley Corp. until 2007, when it was spun off as a separate company. The combined firm’s board will consist of six Fidelity National directors and three Metavante directors. The $2.94 billion all-stock deal is expected to close during the third quarter (Associated Press via Yahoo! News April 1) …

Market News (04/01/2009)

 Permanent link
MADISON, Wis. (4/2/09)
* Pending home sales rebounded last month and housing affordability rose to a record high as mortgage rates and home prices continued to decline, the National Association of Realtors (NAR) reported Wednesday (realtor.org April 1). The trade group’s Pending Home Sales Index, which tracks signed contracts to buy previously owned homes, rose 2.1% to 82.1 in February. The index was 1.4% below the year-earlier level. Also in February, NAR’s Housing Affordability Index edged up 0.9 percentage points to 173.5, the highest level since the index was launched in 1970. The index, which is 36.3 percentage points higher than a year ago, means that a family earning the median income of $59,700 could afford a home costing $285,600 in February with a 20% downpayment, assuming 25% of gross income goes to mortgage principal and interest. Home sales should pick up during the last half of the year as first-time buyers absorb much of the excess inventory, said NAR Chief Economist Lawrence Yun. “Under these conditions, we should see price stabilization in most markets by the end of the year,” added Yun … * Refinancings continued to increase last week, according to the Mortgage Bankers Association (MBA) (mbaa.org April 1). The trade group’s Market Composite Index rose 3% during the week ending March 27 to 1194.4. The Refinance Index gained 3.7% to 6600.1, while the Purchase Index edged up 0.1% to 268. Mortgage rates steadied last week. The average 30-year, fixed-rate mortgage (FRM) slipped 2 basis points to 4.61%, while the one-year, adjustable-rate mortgage (ARM) edged down 2 basis points to 6.20%. Following weeks of double percentage-point increases, gains in the MBA composite index subsided--probably because mortgage rates steadied, noted Moody’s Economy.com (April 1). The research firm says home sales and prices won’t begin to recover until the second half of the year … * Construction spending declined at a slower-than-expected pace in February, suggesting that deterioration in the market is beginning to moderate. Spending on construction projects edged down 0.9% to a seasonally adjusted annual rate of $967.5 billion, following a revised 3.5% drop in January, the Commerce Department reported Wednesday. The February level was the lowest since March 2004. Construction spending was down 10% from a year earlier. Private residential construction spending dropped 4.3% last month to $275.1 billion, the lowest level since December 1997. Spending on public construction increased 0.8% to $301.7 billion. That was the largest gain since October (Reuters via Yahoo! News and commerce.gov April 1) … * The manufacturing sector contracted at a slower-than-expected pace in March. The Institute for Supply Management announced Wednesday that its factory index edged up to 36.3, from 35.8 in February but still well below the 50 level that signals expansion. The index fell to a 28-year low of 32.9 in December. “The rapid decline in manufacturing appears to have moderated somewhat,” said Norbert Ore, chairman of the trade group’s manufacturing survey committee. The new-orders index rose to 41.2, from 33.1 in February, while order backlogs increased to 35.5 from 31. However, rising demand didn’t translate into more factory jobs. The employment index edged up 2 points to 28.1, near its historic low and consistent with large job losses in manufacturing. None of the 18 industry sectors in the survey reported that their workforces expanded (Associated Press via Yahoo! News and Moody’s Economy.com April 1) … * The number of job cuts announced by major corporations declined in March for a second consecutive month. Job-layoff announcements totaled 150,411, down 19.3% from 186,350 cuts in February and the lowest level since October, according to the outplacement firm Challenger, Gray & Christmas. However, announced layoffs were up 181% from March 2008. At 25,324, the government/non-profit sector saw the largest number of announced job cuts. The financial sector saw just 8,651 layoffs, down 36% from February. “The good news is that job cuts appear to be stabilizing in the financial sectors,” noted John Challenger, chief executive of the Chicago-based firm. “Unfortunately, other sectors are seeing an increase in cuts as the recession works its way through the economy,” added Challenger. Year-to-date, the automotive sector has seen the largest number of job cuts (78,864); followed by retail (76,548); industrial goods (60,332); pharmaceuticals (48,665); and aerospace/defense (34,082). The main reason cited by companies for layoffs include tough economic conditions, cost cutting, mergers and acquisitions, and a decline in demand (CNNMoney.com and Moody’s Economy.com April 1) …