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News of the Competition (04/29/2011)

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MADISON, Wis. (5/2/11)
* Delinquency rates on U.S. construction loans seem to have inched up in the first quarter, after declining for four consecutive quarters, according to Trepp LLC’s preliminary estimates (American Banker April 29). Final numbers will be reported in late May. Based on its examination of bank earnings and call reports, 18.3% of construction loans were delinquent as of March 31--a rise from 18% three months earlier. A still-high volume of foreclosures and weak price trends continue to afflict the market, Trepp said in a news release. Recovery for construction loan delinquency rates could take a long time, going far beyond this year, Trepp added ... * The European Union (EU) announced two broad investigations Friday looking into whether 16 investment banks, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Deutsche Bank AG, colluded and violated antitrust laws by providing information to Markit Group Ltd., a data provider that is majority-owned by Wall Street’s biggest banks (The New York Times DealBook and Bloomberg.com April 29). The EU also will examine if nine of the banks shut out their rivals by entering into unfair deals with Intercontinental Exchange Inc.’s European derivatives clearinghouse, Bloomberg said …

Market News (04/29/2011)

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MADISON, Wis. (5/2/11)
*Although U.S. incomes grew in March, the rate of consumer spending slowed because escalating energy and food prices took a bigger bite out of Americans’ purchasing power, indicating further income gains are necessary to boost consumer spending--the largest part of the U.S. economy (The Wall Street Journal and Bloomberg.com April 29). Incomes increased 0.5%, following an upwardly revised 0.4% gain in February, according to Commerce Department figures released Friday. Consumer spending rose 0.6% after a gain that was upwardly revised to 0.9% in February. In the short term, higher food and energy prices act like a tax, impacting discretionary spending the most, Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, told Bloomberg. Anything--such as higher wages or more jobs--that increases consumer income will lead to more consumer spending. The healing of the labor market is anticipated to continue, he added … * With an improving job market mitigating rising fuel costs, U.S. consumer confidence rose in April from the lowest level in more than a year, according to the Thomson/Reuters/University of Michigan index of consumer sentiment (Bloomberg.com April 29). The index increased to 69.8, following a 67.5 reading in March that was the lowest since November 2009. Six consecutive months of payroll growth and a falling unemployment rate are providing households the means to sustain their spending--which constitutes 70% of the U.S. economy, Bloomberg said. However, high and rising gasoline prices remain a big drag on consumer sentiment (Moody’s Economy.com April 29). The April gain was buoyed by the expectations component of the index, which increased 3.7 points after declining 13.7 points in March, Moody’s said ...

News of the Competition (04/28/2011)

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MADISON, Wis. (4/29/11)
* A top official at the Iowa attorney general’s office accused Bank of America (BofA) of subverting support for a settlement of a nationwide probe into foreclosure practices, said a source familiar with the matter (Bloomberg.com April 28). BofA attempted to get several state attorneys general to split from those supporting the proposed agreement, said Iowa Assistant Attorney General Patrick Madigan. BofA aimed to create dissent among the states--eight of which publicly criticized the terms of the proposal, said a second source familiar with the settlement talks. BofA--the biggest U.S. lender by assets--was attempting a “divide and conquer” approach to disrupt negotiations, a source said … * Chrysler Group LLC stands ready nearly two years after the automakers were forced into bankruptcy to repay all of the $7.5 billion in loans it received from the U.S. and Canadian governments, (The Wall Street Journal April 28). Chrysler also is poised to strengthen its alliance with Fiat SpA. New term loans will be extended to Chrysler by a group of banks--as well as a private debt offering and infusion of cash from Fiat--in exchange for an additional 16% ownership stake in Chrysler (making the Italian automaker’s holding 46%), the Journal reported …

Market News (04/28/2011)

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MADISON, Wis. (4/29/11)
* The U.S. economy grew at a slower-than-anticipated pace in the first quarter because government spending fell by the most since 1983, and higher prices for food and gasoline pinched Americans’ budgets (Bloomberg.com and The Wall Street Journal April 28). Gross domestic product--the value of all goods and services produced--increased at a 1.8% annual rate, following a 3.1 % pace in fourth quarter 2010, the Commerce Department said Thursday. Economists had forecast a 2% first-quarter growth rate, according to a Bloomberg News survey. Although consumers are spending more, higher gas and food prices are absorbing the outlays, leaving less money for discretionary spending, John Ryding, chief economist at RDQ Economics, told The New York Times (April 28) ... * Initial claims for U.S. unemployment benefits last week unexpectedly increased to the highest level in three months, an indication that momentum in the labor market recovery may be stagnating (Bloomberg.com April 28). Claims rose 25,000--to 429,000--for the week ended April 23, the most since the end of January, according to Labor Department figures released Thursday. However in a sign that the unemployment rate may decline in coming months, the number of people on unemployment benefit rolls and those receiving extended payments fell, Bloomberg said. Meanwhile, continuing claims for unemployment benefits dropped 68,000 to roughly 3.64 million for the week ended April 16 (Moody’s Economy.com April 28) ... * The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 5.1% to 94.1 in March from a downwardly revised 89.5 in February, the National Association of Realtors (NAR) said Thursday. The index is 11.4% below the 106.2 mark in March; however, activity was at elevated levels in March and April to meet the contract deadline for the home buyer tax credit. The data reflect contracts but not closings, which normally occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, said home sales activity has shown an uneven but notable improvement. “Since reaching a cyclical bottom last June, pending home sales have posted an overall gain of 24% and demonstrate the market is recovering on its own,” he said. “The index means modest near-term gains in existing-home sales are likely, which would be even stronger if tight mortgage lending criteria returned to normal, safe standards.” For the NAR report, use the link …

Fed rates steady CUs to see bottom line boost in 2012

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WASHINGTON (4/28/11)--The Federal Reserve's policymakers Wednesday kept the fed funds target steady and planned to end its $600 billion bond-buying boost for the economy on schedule on June 30. Credit unions with excess liquidity will lag behind an increase in short-term market rates, but when interest rates rise in 2012, they'll see a boost to their bottom lines, said a Credit Union National Association economist. "The Federal Reserve maintained its fed funds rate target range of 0% -0.25% today due to concerns of a weak residential sector, high unemployment and low underlying inflation," said Steve Rick, CUNA senior economist, after the Federal Open Market Committee (FOMC) issued its statement at the conclusion of its two-day meeting. "The Fed believes the recent run up in commodity prices is transitory but will pay close attention to the evolution of inflation expectations," Rick told News Now. "The Fed policymakers "reiterated their position that economic conditions warrant 'exceptionally low levels for the federal funds rate for an extended period,'" Rick continued. "What is an extended period? The federal funds futures market is currently pricing in a 25 basis point increase in quarter one, 2012, with the federal funds rate to be around 1.25% by year-end 2012," he said. "With credit unions sitting on a pile of excess liquidity, credit union deposit interest rates will lag the increase in short-term market interest rates. Therefore, when interest rates do rise in 2012, most credit unions will see their asset yields rise faster than funding costs, boosting credit union bottom lines," Rick concluded. FOMC said the committee will continue monitoring the economic outlook and financial developments "and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate." Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. To view the full committee statement, use the link.

News of the Competition (04/27/2011)

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MADISON, Wis. (4/28/11)
* Spending on international travel has regained some of the momentum that dissipated during the recession, new data released by Visa Inc. indicates (American Banker April 27). Travelers going to and from the U.S. significantly increased their spending in 2010, with spending by international Visa cardholders traveling to the U.S. rising by 17.2% from the prior year to $34 billion, according to the VisaVue Travel Data report issued Monday. Visa cardholders who traveled abroad from the U.S. also increased their 2010 spending abroad--by a smaller amount--6.9% to $31 billion--from a year earlier … * The Securities and Exchange Commission (SEC) recommended no enforcement action as it ended its investigation of Pacific Alternative Asset Management Co. (Paamco), a hedge funds manager, according to letters by both SEC and Paamco (The Wall Street Journal April 27). In late October, the SEC initiated the investigation after Manhattan District Court Judge Richard Sullivan issued an August ruling raising questions about whether Paamco’s ownership structure “may have been designed to mislead” citizens into believing that the company was majority-owned by women, the Journal said. Those funds that are majority-owned by women could have an advantage in obtaining capital from some institutional clients, the Journal said …

Market News (04/27/2011)

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MADISON, Wis. (4/28/11)
* U.S. mortgage applications decreased 5.6% for the week ended April 22 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 5.6%. The Refinance Index dropped 0.6%. The seasonally adjusted Purchase Index fell 13.6% to its lowest level since Feb. 25, driven by a 26.6% decrease in government purchase applications. The unadjusted Purchase Index went down 12.8% and was 28.8% lower than the same week one year ago. “Purchase applications fell last week, driven primarily by a sharp decrease in government purchase applications as new, higher [Federal Housing Administration] premiums went into effect,” said Michael Fratantoni, MBA vice president of research and economics. “This decrease reverses a 20% increase in government purchase applications over a four-week period, which was likely driven by borrowers attempting to beat this deadline.” For the MBA report, use the link … * Orders for U.S. long-lasting (durable) goods surged in March, indicating businesses plan to continue spending to keep equipment updated, and that the economy is picking up steam despite rising oil prices (The Wall Street Journal and Bloomberg.com April 27). Manufacturers’ orders for equipment built to last at least three years rose 2.5%--after a 0.7% gain the prior month--to a seasonally adjusted $208.4 billion--the Commerce Department said Wednesday. March’s gain was the third consecutive monthly rise and reflects growing demand for automobiles, computers and machinery. The month’s increase in orders was a good way to finish the first quarter and was a decent gain, consistent with a growing manufacturing sector, Jim O’Sullivan, global chief economist at MF Global Inc. in New York, told Bloomberg … * Standard & Poor’s downgraded its outlook on Japan’s economy to negative, reasoning that the costs of rebuilding areas devastated by a massive earthquake and tsunami--estimated to be as high as $609 billion--could result in a lower credit rating unless the Japanese government accelerated efforts to keep already-high government debt from further increasing (The New York Times April 26). The ratings agency maintained its long-term rating for Japan’s economy--which it had downgraded in January--unchanged at AA-minus …

NEW Fed to end 600B bond buying June 30 holds rates steady

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WASHINGTON (4/27/11--FILED at 1:01 p.m. ET)--Citing that the economic recovery is moving along "at a moderate pace," the Federal Reserve's policymaking group--the Federal Open Market Committee (FOMC)--today announced it would hold its key interest rate at the 0% to 0.25% range and keep its $600 billion bond-buying program on schedule. The bond buying program, part of the Fed's "quantitative easing 2" or QE2 to stimulate the economy, is scheduled to end June 30. The FOMC, in its statement at the conclusion of its two-day meeting, also said that "overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed." It noted that "commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices" since its last meeting in March. "Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued." Seeking to foster maximum employment and price stability, the committee said "the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate." It noted that energy and commodity prices "have pushed up inflation in recent months," but said it expected "these effects to be transitory." However it will "pay close attention to the evolution of inflation and inflation expectation" and "continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability." The committee also said it would "continue expanding its holdings of securities as announced in November and maintain its existing policy of reinvesting principal payments from its securities holdings. It will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability." In maintaining the target range for the federal funds rate at 0% to 0.25%, the committee said it "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." FOMC said the committee will continue monitoring the economic outlook and financial developments "and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate." Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana

News of the Competition (04/26/2011)

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MADISON, Wis. (4/27/11)
* The Federal Reserve yesterday began a two-day Federal Open Market Committee meeting that is anticipated to culminate with an indication that the Fed has no sense of urgency in paring down its huge support for the economic recovery (The New York Times April 26). The Fed is expected to issue a post-meeting statement, saying it will complete its $600 billion bond-buying program by the end of June and continue its commitment to keep borrowing costs at the lowest level possible for “an extended period,” according to the Times. This afternoon, News Now will report the committee’s statement in a live update … * Even though five banks beat analysts’ estimates, net revenue at six of the biggest U.S. banks dropped 13.3% in the first quarter from a year earlier--the largest percentage drop in quarterly revenue in three years, according to data compiled by Bloomberg.com (April 25). The drop--caused by depressed lending and reduced fees--is curbing investor desire for shares of the six banks, Bloomberg said. The banks are: Bank of America, JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley …

Market News (04/26/2011)

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MADISON, Wis. (4/27/11)
* U.S. consumer confidence rose more than expected in April--a sign that a healing labor market is offsetting rising fuel costs for citizens (Bloomberg.com April 26). New York-based private research group The Conference Board’s confidence index climbed to 65.4 from a revised 63.8 in March. Economists’ median forecast for April was 64.5, according to a Bloomberg News survey. Prior to March, the gauge has risen for five consecutive months and reached a three-year high in February (The New York Times April 26). The uncertainty expressed in March is dissipating as consumers’ short-term outlook marginally improved in April, Lynn Franco, Conference Board director, told the Times. Also, inflation expectations, which had previously surged, declined a little in April, she added ... * For the seventh consecutive month, U.S. home prices dipped in February--putting them on the precipice of a new low for a continuing real estate downward spiral (The New York Times April 26). The Standard & Poor’s Case-Shiller Home Price Index for 20 large U.S. cities fell 1.1% from January, and was down 3.3% during the prior 12 months. The index is currently at 139.27--basically the same as the 139.26 low it hit in April 2009. Foreclosure increases are adding to an expanding inventory of unsold homes, which could exert further downward pressure on home prices and keep potential homebuyers on the fence as they anticipate even lower prices (Bloomberg.com April 26). Falling property values also restrain construction and lower consumer spending because homeowners are left with less equity to borrow against, Bloomberg said …

News of the Competition (04/25/2011)

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MADISON, Wis. (4/26/11)
* Ford Motor Co.’s profit last quarter could be its largest first-quarter profit since 1998 because fuel-efficient new models helped sales rise, even though gasoline prices were spiking (Bloomberg.com April 25). The second-largest U.S. automaker, which is slated to release it first-quarter report today, may show its profit--excluding some items--rose 50 cents per share, from 46 cents a year earlier, according to the median estimate of 14 analysts, Bloomberg said. Net income may have risen to $2.1 billion--the most since a $17.6 billion profit in the first quarter 1998, according to three analysts’ estimates, Bloomberg said … * Japanese automakers Honda Motor Co., Nissan Motor Co. and Toyota Motor Corp. saw their outlook cut by Standard & Poors (S&P) as a result of domestic production nose-diving by more than half in March after supply chain disruptions caused by Japan’s recent earthquake and tsunami (The Wall Street Journal April 25). S&P’s Rating Services’ move portends the increased probability of a downgrade for the automakers and three suppliers that S&P included in its assessment, the Journal said …

Market News (04/25/2011)

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MADISON, Wis. (4/26/11)
* U.S. new-home sales in March climbed from a record low the prior month as the economy’s weakest sector continued its struggle to recover (Bloomberg.com April 25). New sales, counted when contracts are signed, rose 11.1% to a 300,000 annualized pace, according to Commerce Department figures released Monday. Months of home supply also improved--dropping to 7.3 from 8.2 (Moody’s Economy.com April 25). The median price of a new home fell 5% from one year ago. The new-home market is confronting competition from a surfeit of foreclosed properties that could keep prices depressed in 2011, depressing new construction, Bloomberg said … * Buoyed by productivity gains and an economic upturn, first-quarter earnings for companies worldwide have beaten forecasts to date (Bloomberg.com April 24). About 71% of MCSI World Index members reporting since April 11 indicate results have exceeded analysts’ estimates for earnings per share, according to data Bloomberg compiled. The 188 companies’ profits have exceeded forecasts by 8.8%. Firms are surpassing estimates by using productivity measures to wring more out of workers and factories, Bloomberg said ...

Market News (04/22/2011)

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MADISON, Wis. (4/25/11)
* The U.S leading indicators index for the economy rose for the ninth month during March, announced the New York-based Conference Board Friday. The outlook for the next three to six months rose 0.4% after February's revised-upward gain of 1%. Meanwhile, Americans' confidence also rose--for a fourth week. Six of the leading indicators contributed to the gain, led by a 0.34 point boost from the spread between the overnight funds rate and the yield on the 10-year Treasury note, as well as building permits and supplier delivery gauges. The gains indicate the expansion may withstand a hike in fuel costs (Bloomberg.com April 21). During the period ended April 17, the Bloomberg Consumer Comfort Index also climbed to minus 42.6--its best reading since the end of February. Fifty-four economists surveyed by Bloomberg had forecast a 0.3% increase in the leading index for March, ranging from a decline of 0.1% to an increase of 0.5%. The economy needs more improvement in the labor market to help boost consumer spending, which makes up about 70% of the economy, and to sustain recent production gains, said Bloomberg. According to Jim O'Sullivan, chief economist at New York-based MF Global Inc., the plusses continue to outweigh the minuses, but the hit from rising energy prices isn't huge--yet. This could change if oil prices continue increasing, he said … * Mass layoff events--which involve at least 50 workers from a single establishment--eased somewhat during March, with lower readings in both the total number of layoff events and the number of employees affected, according to Bureau of Labor Statistics (Moody's Economy.com April 22). That is more evidence that the labor market is gaining momentum, said Moody's. The number of mass-layoff events for March totaled 1,286, or 135 less than in February. The layoffs involved 118,523 workers, compared with 130,828 workers laid off in February. Industries with the most layoffs, not seasonally adjusted, were food services, temporary-help services, and school and employee bus transportation. Manufacturing accounted for 21% of mass layoff events and 25% of claims. The number of initial claims dropped by 12,295 in March from February, said Moody's …

News of the Competition (04/22/2011)

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MADISON, Wis. (4/25/11)
* JP Morgan Chase & Co. will return $800 million in cash and securities to settle a claim brought against it by Lehman Brothers Holdings Inc.’s now-defunct brokerage, according to a filing yesterday in U.S. Bankruptcy Court of Manhattan (Bloomberg News April 22). Lehman Brothers will distribute the funds to customers, according to the filing. JP Morgan served as Lehman Brothers’ clearing bank, processing transactions and lending billions of dollars to Lehman. While some of the credit was secured by securities in Lehman’s accounts, JP Morgan did not hold a lien on other customer property. Most of the assets were awaiting resolution of claims by the trustee liquidating Lehman’s brokerage … * American International Group is trying to sell investors and credit-ratings firms on the sale of securities backed by insurance policies on the lives of the elderly (The Wall Street Journal April 22). Life settlements, also known as “death bonds,” “blood pools,” or “collateralized death obligations” pay off when the insured dies. Investors buy the policies, betting the future death benefit will exceed what they pay both to buy the policies and for premiums while waiting for the beneficiary to die. So far AIG’s efforts to push these controversial investments have not paid off, said the Journal. Standard & Poor’s recently declined to provide a rating for it …

Market News (04/21/2011)

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MADISON, Wis. (4/22/11)
* Home prices in the U.S.--undermined by foreclosures and distressed properties that sell at a discount--declined 5.7% during February from a year earlier, said the Federal Housing Finance Agency (FHFA). Nationally, prices dropped 1.6% from January, which was more than the 0.3% decline forecast by economists in a Bloomberg survey (Bloomberg.com April 21). Homes sold that were in foreclosure or short sales increased 40% in March from 39% in February. In March, 2.2 million homes were in foreclosure, up 1.4% from February, according to Lender Processing Services Inc., Jacksonville, Fla. … * Demand for collection services has picked up as the average credit card chargeoff rate has decreased in the past six months. Business is improving as issuers relax their risk-management standards, according to Tim Smith, a senior vice president with Firstsource Solutions Ltd, a Mumbai firm that provides outsourced collection and customer service for several large U.S. credit card issuers (American Banker April 22). One company, whom Smith would not name, told Firstsource that its focus is on originating new card accounts rather than on risk management. The issuer’s collections business is moving at a brisk pace, but part of the funds it collects will be dedicated to online and call center marketing to recruit new customers for the first time in three years. The average U.S. credit card chargeoff rate in March was about 7.5%, down from a record high of 11.5% last year, according to Moody’s Investors Services …

News of the Competition (04/21/2011)

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MADISON, Wis. (4/22/11)
* Bank of America--the largest bank in the U.S.--was edged out by British Petroleum (BP) for the “top spot” in Consumerist.com’s Worst Company in America Tournament. BP beat out past champion B of A in a head-to-head vote by consumers to capture the Consumerist.com “Golden Poo Award.” With less than 51% of the vote, BP’s margin of victory over the bank was the slimmest of any Worst Company championship final match in the tournament’s six-year history. Bank of America was honored with the first-ever Silver Poo Award. For six weeks, the bracket-style, single-elimination tournament matched 32 nominees head-to-head, paring them down by Consumerist.com visitors’ votes. Among the 32 nominees were JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., American Express Co. and Capital One Financial Corp. Consumerists.com is owned by Consumers Union, which also publishes Consumer Reports … * Hudson City lowered its dividend to eight cents a share from 15 cents, a 47% reduction. In March, the company announced restructuring of its balance sheet as outlined in a memorandum of understanding it had entered into with the Office of Thrift Supervision, which required the overhaul to lower the company's interest-rate risk (Dow Jones April 21). The company reported a first-quarter net loss of $555.7 million, or $1.13 a share. The first-quarter provision for loan losses was $40 million, declining from $45 million the previous quarter and $50 million a year earlier. Observers said the company continues to struggle with nonperforming loans and low interest rates … * American Express Co. earned first quarter net income of $1.2 billion, an increase of 35.6% from $885 million during the same period last year (American Banker April 21). Total revenues net of interest expense rose 6.1%, to $7 billion from $6.6 billion, the company said. Higher cardholder spending and increases in travel commissions and fees accounted for the rise in revenue, which was offset by less interest income created by lower loan yields …

Market News (04/20/2011)

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MADISON, Wis. (4/21/11)
* Mortgage applications rose 5.3%, seasonally adjusted, for the week ending April 15 from the previous week, according to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey's Market Composite Index, which measures the volume of mortgage loan applications. On an unadjusted basis, the index grew 5.9%. The Refinance Index, which rose 2.7% from a week earlier, accounted for 58.5% of total applications--a decrease from 60.3 during the previous week. The seasonally adjusted Purchase Index increased 10% to its highest level since Dec. 3, 2010, and was driven largely by a 17.6% increase in government purchase applications. The unadjusted Purchase Index rose 10.9% and was 11.4% lower than the same week a year ago. "Borrowers likely were motivated to apply for loans before the scheduled increase in Federal Housing Administration insurance premiums," said Michael Fratantoni, MBA vice president of research and economics. He attributed the increase in refinances to rates that "dropped to their lowest level in a month" … * The housing market is taking its time recovering from the recession, judging from the sales of U.S. existing homes in March. Sales of previously owned homes rose 3.7% to a 5.1 million annual rate, reported the National Association of Realtors (NAR) Wednesday. March's increase exceeded the five million median forecast by economists surveyed by Bloomberg News, but failed to make up for the ground lost in February, which had an upwardly revised 4.92 million sales (Bloomberg.com April 20). On the whole, housing demand is weak, according to Moody's Economy.com (April 20). Existing home sales are 6.3% lower than the 5.44 million sales pace from a year ago, with the months of inventory at 8.4 months--lower than the cyclical peak but still high historically. NAR said sales were at elevated levels from March through June 2010 in response to the home buyer tax credit. "With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain," said Lawrence Yun, chief economist at NAR. He added that was "primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments are a percentage of income have been at record lows." …

News of the Competition (04/20/2011)

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MADISON, Wis. (4/21/11)
* Bank stocks are lagging the Standard & Poor’s 500 Index, despite Federal Reserve stress tests that indicate some financial institutions have recovered enough to increase dividends and repurchase shares. The Financial Select Sector SPDR Fund (XLF), an exchange-traded fund that tracks the largest financial companies, has underperformed the S&P 500 since April 14, 2010. It trailed the index by 15.7% as of Wednesday morning, a new low on a relative basis. Slow loan growth and increased costs from new regulations are among the reasons for bank underperformance, according to Paul Miller, a former examiner for the Fed Bank of Philadelphia and a bank analyst at FBR Capital markets in Arlington, Va. Miller does not believe there will be enough economic growth to spur strong loan demand. He said investors are worried about a sluggish economy for the next three or four years … * Kmart is now offering Western Union’s enhanced payments service. With Western Union payments service, consumers can pay bills at 1,200 Kmart locations nationwide. Western Union payments service no longer requires forms after the first transaction and has been reformatted to help consumers find billers faster, said Kmart’s parent compay, Sears Holding Co. Also, the expanded network provides allows consumers to make walk-in bill payments to most billers nationwide, including mortgage, auto loan, credit card, utility, insurance, telecommunications bills and more …

Market News (04/19/2011)

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MADISON, Wis. (4/20/11)
* March home construction rose 7.2% to 549,000 units, up from February, seasonally adjusted, according to Commerce Department figures released Tuesday. Building permits, the key indicator of how well future construction will perform, rose even more--11.2%--but that doesn't overcome how low permits were in February, which registered a five-decade low. The home-construction pace is well under the 1.2 million units per year that indicate a healthy economy (The New York Times April 19). Home prices were low, reflecting an increase in foreclosed properties. In some areas home prices are half of what they were before the recession, the Times said. The number of completed homes ready to sell also dropped in March to 509,000 units, the lowest level since 1968. Single family homes, which account for about 80% of home construction, rose 7.7% in March, while building on apartments and condominiums rose 14.7%. Building permits for these rose 28% to the highest level since December. The National Association of Home Builders' housing market index dropped one point--to 16--in April from March. NAHB said current sales and anticipated six-month sales components dropped as well. However, the index tracking prospective buyers rose one point to 13 (Moody's Economy.com April 19) … * March payrolls went up in 38 states and the jobless rate fell in 34 states, said the Labor Department Tuesday (Bloomberg.com April 19). The report is consistent with earlier government reports released April 1 that showed 216,000 workers had been added and unemployment declined to 8.8%, a two-year low. Texas and Missouri gained the most in employment over February figures, followed by Florida, North Carolina and Oklahoma. The jobless rate declined the most in New Mexico, California, Connecticut, Louisiana and Maryland were among the states with the largest payroll decreases, Bloomberg said …

News of the Competition (04/19/2011)

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MADISON, Wis. (4/20/11)
* The U.S. Treasury could sell a big share of its remaining stake in General Motors Co. (GM) in the next several months, meaning U.S. taxpayers will almost certainly take a loss on their $50 billion rescue of the Detroit automaker (The Wall Street Journal April 19). GM closed at $29.59 on Tuesday, down 38 cents a share. To break even, the U.S. would need to sell its remaining stake of about 500 million shares at $53 a share. At Tuesday’s price, taxpayers would lose more than $11 billion on the government’s 2009 rescue of the automaker, said the Journal. The government is willing to take a loss on its investment in GM because the Obama administration wants to end its involvement with the automaker ahead of the 2012 U.S. elections, the newspaper said. The Treasury, which owned 61% of GM after its bailout of the automaker, reduced its holding to 26.5% an initial public offering in November … * A $1.64 billion preferred dividend lowered the first-quarter 2011 earnings of Goldman Sachs Group Inc., contributing to a 21% drop in profits to $2.74 billion from $3.46 billion for first quarter in 2010. The dividend was part of Goldman's repayment of Berkshire Hathaway investment totaling $5 billion. Revenues' 7% drop from first quarter last year to $11.9 billion was attributed to weaker results in fixed income and to equity trading and advisory, said The Wall Street Journal (April 19). However, per-share earnings of $1.56 was higher than the 82 cents per share expected. Without the preferred dividend, the earnings per share for first quarter would have been $4.38 …

News of the Competition (04/18/2011)

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MADISON, Wis. (4/19/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Friday the closing of another six banks, bringing the total bank failures so far this year to 34, compared with 157 for the entire year in 2010. Estimated losses at the six banks total $520 million, bringing the total assets involved in failures to $14 billion for the year. Two of the six are in the top five for the year in terms of asset size. The banks are: Rosemount (Minn.) National Bank, $37.6 million in assets, assumed by Central Bank, Stillwater, Minn.; Superior Bank, Birmingham Ala., $3 billion in assets, assumed by Superior Bank, N.A., Birmingham; Nexity Bank, Birmingham, $793.7 million, assumed by Alostar Bank of Commerce, Birmingham; Bartow County Bank, Cartersville, Ga., $330.2 million assets, assumed by Hamilton State Bank, Hoschton, Ga.; New Horizons Bank, East Ellijay, Ga., $110.7 million, assumed by Citizens South Bank, Gastonia, N.C.; and Heritage Banking Group, Carthage, Miss., $224 million assets, assumed by Trustmark National Bank, Jackson, Miss. … * Bank of America (BofA)--the nation's largest home mortgage servicer--funded 33% less in home mortgages during first quarter than it did in fourth quarter 2010, according to American Banker (April 18). The drop indicates the weak home-buying market is affecting the bank. It financed $58.4 billion in homes, in first quarter. Overall, it reported a profit of $2 billion, but said its consumer real estate services division has a $2.4 billion loss. First-lien originations totaled $56.7 billion in first quarter, while second-lien originations added up to $1.7 billion. Income from mortgage banking totaled $694 million, and it reported $2.1 billion in revenue from its consumer real estate division. BofA also noted $4.9 billion in non-interest expenses on its legacy servicing assets related to Countrywide Financial Corp. The bank also set aside $1.1 billion for loan buybacks from government-sponsored enterprises and insurance cancellations from mortgage insurers …

Market News (04/18/2011)

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MADISON, Wis. (4/19/11)
* Standard & Poor's (S&P) cut the long-term AAA credit rating of the U.S. to negative on Monday, sparking a tumble in the stock market indexes. In its report, S&P cited a "material risk" that U.S. policy makers might fail to reach an agreement on how to address the nation's medium- and long-term budget challenges by 2013. If that happened, "this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns," said the New York-based firm (Bloomberg.com April 18). S&P assigned a one-in-three chance it would lower the U.S. rating in the next two years, saying the credit crisis and recession worsened a deterioration in public finances. The Treasury said the firm's report underestimates U.S. leadership. Republicans said the outlook change stems from the current battle over when and how to raise the debt ceiling. S&P forecasts that the national debt will rise to 84% of gross domestic product by 2013 … * The odds that the U.S. would slide back into a recession in six months rose to 22% for March, a modest increase from 19% in February, according to Moody's Economy.com (April 18). March's increase ends a streak of six consecutive monthly declines. Moody's attributed the outlook to a decline in consumer confidence and an increase in equity prices. The oil price increases and uncertainty related to situations in the Middle East and Japan dampened growth late last quarter, and new data have been below expectations. The pace of the first-quarter gross domestic product (GDP) is near 2.5% annualized, a deceleration from fourth-quarter's 3.1% and below the potential of the economy. Moody's noted that the tightening of the financial market also nudged the recession probability higher, but an improving labor market is helping move the economy forward ...

News of the Competition (04/15/2011)

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MADISON, Wis. (4/18/11)
* With first-quarter revenue steeply down across the spectrum of its businesses, Bank of America Corp. (BofA) saw it profits nosedive 36% (The Wall Street Journal April 15). Its profits totaled $2.05 billion in first quarter--down from $3.18 billion a year earlier. BofA--the biggest U.S. bank by assets--is taking steps to remedy its financial woes. On Friday, BofA said it was replacing its chief financial officer, Chuck Noski--after less than a year in that position--with Chief Risk Officer Bruce Thompson. BofA also will name a new legal chief. The personnel changes, along with a continued paucity of revenue production, indicate CEO Brian Moynihan, just more than a year in charge, still confronts many challenges in realizing his promise to return the company to its prior position of strength, the Journal said ...

Market News (04/15/2011)

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MADISON, Wis. (4/18/11)
* Stoked by higher prices for food and energy, the U.S. consumer price index (CPI) increased in March--marking the ninth consecutive month of increases--while inflation continued to move back into the country’s economic scenario (The New York Times and Bloomberg.com April 15). The CPI rose 0.5% for the month--matching a 0.5% rise in February, according to a Labor Department report issued Friday. Food and gasoline prices constituted nearly 75% of the increase, the report said. However, beyond those two areas, prices were restrained in March. The core index--excluding food and energy--rose 0.1%, compared with a 0.2% rise in February. Year-ago core inflation is at 1.2%--remaining well within the Federal Reserve’s target--bolstering the rationale behind continuing loose monetary policy, even though inflation expectations are beginning to solidify (Moody’s Economy.com April 15) … * U.S. consumer confidence rebounded in April from a 16-month low--a sign that job gains are mitigating the negative effects of rising fuel costs for Americans (Bloomberg.com April 15). The Thomson Reuters/University of Michigan consumer sentiment index increased to 69.6---more than expected--from a 67.5 reading in March--the lowest since November 2009. The measure was forecast to increase to 68.8 in March, according to a Bloomberg News survey of 66 economists. Consumer sentiment inching up is an encouraging sign, Ryan Sweet, a senior economist at Moody’s Analytics Inc., told Bloomberg, adding that consumers have weathered the gasoline price hike fairly well. Consumers will continue spending as long as the labor market continues healing, he said … * Industrial production in the U.S. rose more than expected in March, spearheaded by a bounce-back in consumer goods manufacturing--an indication that factories will continue to propel the U.S. economy (Bloomberg.com April 15). Industrial output increased 0.8 %--the fifth consecutive monthly gain--following a revised 0.1% increase in February, the Federal Reserve said Friday. Economists had forecast a 0.6% March gain, said Bloomberg News. Manufacturing, which constitutes three-fourths of total industrial output, rose 0.7% following a 0.6% increase. Gains in business investment, current inventory building and expanding economies overseas are benefitting U.S. factories, Bloomberg said …

Fed optimistic small-biz owners will see more credit

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WASHINGTON (4/15/11)--The financial conditions that would be necessary for small businesses to start up and thrive would include positive conditions for personal wealth building and a full range of consumer and business credit availability," said Federal Reserve Governor Elizabeth Duke Thursday. Several studies of sources for financing for new and existing small businesses point to optimism that credit restrictions will loosen, she said, speaking at the 2011 International Factoring Association Conference in Washington, D.C. Duke said studies indicate that "in the wake of the financial crisis, small business owners and potential small business owners likely experienced a substantial reduction in the personal resources necessary to start or sustain a business. At the same time, small business loans became harder to get, and when they were available, both price and nonprice credit terms were likely quite restrictive. Many small business owners were so convinced that their requests would be denied that they did not even apply for credit." Duke acknowledged that small businesses "are central to creating jobs and to restoring our economic prosperity," and noted more than one-half of Americans are employed by firms with fewer than 500 employees. Start-ups are a critical component that contributes to restructuring and growth in the U.S. on an ongoing basis, she added. In discussing how start-ups are typically funded, Duke pointed to the Federal Reserve's 2010 Survey of Consumer Finances. Of small businesses with fewer than 500 employees during the study, 70% were initiated using personal savings or assets, about 6% came from a personal loan from a bank or savings institution, about 3% were initiated using a personal or business credit card, and 3% were initiated through business loans from a bank or savings institution. "Even smaller percentages of start-up small businesses appear to have received funding from credit unions, other institutions or investors. In short, our survey data suggest that the personal resources of entrepreneurs are the most important funding source for small business formation," Duke said. Many small business owners do not tap the credit markets but use their own wherewithal to start and fund their businesses, Duke said. However, of those small-business owners who applied for loans, the turndown rate was "fairly modest--about 12%." Of those who received credit, more than 90% said they received the actual amount they requested. At community banks, small-business loans constituted 23% of total business loans outstanding at commercial banks at the end of 2010. Community banks with less than $1 billion in assets had a higher share--about 66%--while banks with more than $10 billion in assets had a lower share--16%--of small business loans. "Despite this restricted credit availability, small business owners, by a large margin, still considered their most significant problem to be weak sales. Although no definitive data source exists, the combination of a variety of recent survey results paints a picture of increasing optimism about future sales and business conditions and a corresponding easing of credit availability for small businesses," she concluded. The Credit Union National Association (CUNA) and credit unions are strongly supporting bills in Congress that would lift the cap on credit unions' member business lending (MBL) to 27.5% of assets from 12.25% so they can lend to more small businesses. CUNA has estimated that lifting the MBL cap could provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs, at no cost to taxpayers.

News of the Competition (04/14/2011)

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MADISON, Wis. (4/15/11)
* U.S. foreclosure filings dropped in the first quarter to the lowest level in three years because mortgage lenders tried to reduce their amount of flawed paperwork related to home seizures, according to RealtyTrac Inc., a Irvine, Calif.-based data seller (Bloomberg.com April 14). A total of 681,153 properties received default, auction or repossession notices in first quarter--down 15% from the fourth quarter 2010 and 27% from a year earlier, RealtyTrac said. The low tally--the smallest since first quarter 2008--was caused by delays arising from the documentation scandal, the company said. It may take another quarter for the documentations imbroglio to work itself out, Rick Sharga, RealtyTrac senior vice president, told Bloomberg … * Goldman Sachs Group Inc. duped clients and Congress about the company’s bets connected to the housing market, said U.S. Sen. Carl Levin (D-Mich.), chairman of the U.S. Senate panel that investigated the causes of the financial crisis causes (Bloomberg.com April 14). Releasing the findings Wednesday that culminated a two-year study, Levin said he wants the Securities and Exchange Commission and the Justice Department to determine whether Goldman Sachs violated the law by misleading clients who purchased collateralized debt obligations--which are complex financial instruments. Levin also said federal prosecutors should decide whether to bring perjury charges against Lloyd Blankenfein, Goldman Sachs CEO, and other current and former employees who testified before Congress last year …

Market News (04/14/2011)

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MADISON, Wis. (4/15/11)
* Initial U.S. claims for unemployment benefits last week reached their highest level in two months because the economy is struggling to recover and reflecting greater-than-normal volatility at the end of first quarter (The Wall Street Journal and Bloomberg.com April 14). Claims increased 27,000--to 412,000--for the week ended April 9, the Labor Department said Thursday. With payrolls increasing, the labor market is showing signs of getting stronger--which could help maintain consumer spending gains, Bloomberg said. Also, unemployment declining for four consecutive months is bolstering federal policy-makers’ opinion that the job market is recovering. Last week’s dip was a temporary setback, and hiring will pick up during the next few months, Ryan Sweet, a senior economist at Moody’s Analytics, told Bloomberg. In a related matter, the Job Openings and Labor Turnover (JOLTS) Survey, which encompasses February and March employment releases, indicated a slowly healing labor market (Moody’s Economy.com April 13). The number of job openings in February increased to roughly 3.1 million from 2.74 million in January, JOLTS said … * U.S. wholesale (producer) prices increased 0.7% in March, the Labor Department said Thursday, because prices rose for gasoline, cars and light trucks, and furniture (The New York Times and Bloomberg.com April 14). The March rise is down from a 1.6% gain in February. During the past year, the index increased 5.8%, the Times said. The core index--which excludes food and energy--rose 0.3% in March--the second-highest gain in the past year. Although there is growing evidence that manufacturers are gaining pricing power, moderate demand should prevent the trend for now from becoming too strong (Moody’s Economy.com April 14) … * For a third consecutive week, U.S. consumer confidence increased--a sign the strengthening job market is bolstering citizens’ views of their personal finances and the economy (Bloomberg.com April 14). The Bloomberg Consumer Comfort Index rose to -43 in the week ended April 10--the highest level since the end of February--from a -44.5 reading the prior week. Although employment has seen gains during the past two months, inflation has diminished buying power--one reason economists project that first-quarter purchases increased at about half the pace as in fourth quarter 2010, Bloomberg said …

Fed Beige Book Japan catastrophe hit U.S. economy

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WASHINGTON (4/14/11)--Economic activity in the U.S. generally improved across all 12 Federal Reserve Home Loan Bank districts. However, the consequences of Japan's earthquake and nuclear crisis, and the unrest in North Africa and the Middle East, are causing high uncertainty in parts of the country, according to the Federal Reserve's Beige Book, an survey of the Fed's 12 districts. "Reports focusing on the near-term outlook were most often upbeat," said the Fed's report. "Some districts, however, also noted uncertainties remained high. Boston, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis and Dallas all noted actual or expected disruptions to sales and production as a result of the tragedy in Japan." Manufacturing led in the gains, and comments on manufacturing's outlook were generally positive. Boston noted that manufacturers "generally remained cautiously optimistic but voiced greater uncertainty about the outlook for the rest of the year, based on the disruption at Japanese facilities, the geopolitical climate worldwide, and ambiguity about U.S. government spending plans," said the Beige Book. Chicago cited contacts' optimism was tempered by "elevated uncertainties surrounding recent global events." Wage pressures were described as weak or subdued by most Districts. However, "higher commodity costs were widely reported to be putting increasing pressures on prices. Energy prices were cited most often, but raw materials in general were an increasing concern of business. The ability to pass through cost increases varied across districts, with manufacturers generally finding less resistance to price increases than either retail or construction (where weak demand was a limited factor)," the Fed said. Other highlights:
* Consumer spending picked up modestly, with auto sales increasing in most districts. Tourism gained strength in six districts, although Japanese tourism in Hawaii dropped. * Non-financial service firms reported expansion, with Minneapolis and Atlanta receiving mixed reports from businesses there. Transportation service firms' reports were mostly positive. * Real estate sales for single family homes were largely unchanged from low levels or continued to weaken, and commercial real estate activity remained weak through all districts. * Most districts said loan demand was unchanged or slightly improved since the last report. However, many reporting improvements also said demand was weak in some market segments. Credit standards were unchanged or slightly tighter, and competition for quality loans was intense, reported several districts. * Labor market conditions were generally stronger than in the previous report for most districts. Some noted increased hiring while others reported difficulty in recruiting highly specialized workers. St. Louis and Minneapolis districts reported layoffs in the manufacturing sector. * Assessments of agricultural activity were mixed, with some areas experiencing droughts and others reporting wet weather and spring flooding. Activity in the energy industry generally strengthened since the last report.
The summary was prepared by the Federal Reserve Bank of Richmond and based on information collected before April 4. It summarized comments received from businesses and other contacts outside the Federal Reserve. The book is not a commentary on the view of Fed officials. For more detail from each district, use the link.

News of the Competition (04/13/2011)

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MADISON, Wis. (4/14/11)
* Despite mounting problems in its mortgage-lending business, JPMorgan Chase & Co.--the second-largest U.S. bank by assets--said its first-quarter profit jumped 67% to a second consecutive quarterly record (The New York Times Deal Book and Bloomberg.com April 13). Robust returns from JPMorgan’s investment banking and trading businesses offset losses for its retail bank--which is continuing to be beset with bad loans--and set aside an additional $650 million to cover possible legal claims, the Times said. JPMorgan’s first-quarter net income rose to $5.56 billion, or $1.28 per share, from $3.33 billion, or 74 cents, in the same period a year earlier. Income was $4.83 billion, or $1.12 per share, in the fourth quarter 2010, the company said Wednesday in a statement … * Discover Financial Services said Money Messenger--its person-to-person payment service--went live Monday and is available to its cardholders (American Banker April 13). To develop the service, Discover worked with PayPal Inc., the payments unit of eBay Inc., which allows Discover Cardholders to send money to other customers and noncustomers, the Banker said. Recipients must have a PayPal account to access the transaction funds, which appear as a purchase on Discover cardholders’ accounts and allow customers to earn cash-back rewards, the Banker said ...

Market News (04/13/2011)

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MADISON, Wis. (4/14/11)
* Mortgage loan applications decreased 6.7% on a seasonally adjusted basis for the week ended April 8 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 6.3%. The Refinance Index dropped 7.7% to its lowest level since Feb. 11. The seasonally adjusted Purchase Index fell 4.7%. The unadjusted Purchase Index went down 4.1% and was 11.4% lower than the same week a year ago. The four-week moving average for the seasonally adjusted Market Index is down 3.3%. The four-week moving average is up 0.7% for the seasonally adjusted Purchase Index, while this average is down 5.3% for the Refinance Index. For the MBA report, use the link … * U.S. retail sales increased in March--for a ninth consecutive month--indicating a growing job market is mitigating the effects of higher food and gasoline prices and unemployment (Bloomberg.com and The Wall Street Journal April 13). Retail purchases increased 0.4%, following a 1.1% rise in February that was bigger than previously estimated, the Commerce Department said Wednesday. A cut in payroll taxes for 2011 and decreasing unemployment are helping sales at some large department stores such as Saks and Macys, Bloomberg said. However, escalating gasoline prices and grocery bills are hurting consumer confidence and draining wallets, which makes it likely that consumer spending--the biggest component of the U.S. economy--slipped in the first quarter from fourth quarter 2010, Bloomberg said …

News of the Competition (04/12/2011)

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MADISON, Wis. (4/13/11)
* Internal auditors are conducting a review to ascertain why Bank of America Corp.’s (BofA) top two accounting and finance executives weren’t consulted prior to BofA’s disclosure to investors that regulators had rejected a dividend increase, according to sources familiar with the matter (The Wall Street Journal April 12). A March 23 filing made by BofA with the Securities and Exchange Commission (SEC) indicated the Federal Reserve had objected to the proposed dividend increase after completing a stress test of all major U.S. financial institutions, the Journal said. In the three days after the filing, BofA--the only bank to disclose the Fed’s objection--saw its shares decline nearly 4%, the Journal said. However, Chief Financial Officer Chuck Noski and Chief Accounting Officer Neil Cotty didn’t view the filing before it went to the SEC, the sources said … * Two co-founders of Marvell Technology Group Inc. have sued Goldman Sachs Group Inc., alleging the investment bank tricked them into selling Marvell company shares by saying the sale was necessary to cover a margin loan (Bloomberg.com April 12). The two were duped in 2008 into selling shares that are now worth $141.5 million, said Sehat Sutardja, CEO, and Weilie Dai, Marvell’s former chief operating officer, according to a complaint filed Monday in state court in San Francisco. Goldman pressured the two by telling them a regulatory rule--which didn’t exist--mandated them to sell their stock, the complaint said …

Market News (04/12/2011)

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MADISON, Wis. (4/13/11)
* The U.S. trade deficit narrowed in February because imports declined more than exports, and high prices cut steeply into demand for oil and imports from China (The New York Times and The Wall Street Journal April 12). The U.S. trade deficit in international trade of goods and services dropped 2.6% to roughly $45.8 billion from an upwardly revised estimate of $47 billion--previously $46.3 billion--in January, the Commerce Department said Tuesday. U.S. exports fell 1.4% to $165.1 billion, following five consecutive months of increases. Imports also declined, falling 1.7% to $210.9 billion. The U.S. cut back on its energy imports because oil prices jumped above $110 per barrel for the first time in two-and-a-half years, the Journal said. Amid renewed demands for Congress to retaliate against China’s current trade policy--which is viewed as giving China an unfair advantage in exports, the U.S., saw a shrinking of its trade deficit with its second-largest trading partner, the Journal said … * Led by the biggest surge in food costs since 1994 and an upswing in crude oil prices, U.S. import prices in March went up at the fastest pace since June 2009 (Bloomberg.com April 12). The 2.7% rise in the import-price index, follows a 1.4% increase in February, the Labor Department said Tuesday. A downturn in the value of the dollar and growth in the world’s emerging economies are causing commodity prices to rise--a move federal policymakers see as “transitory,” Bloomberg said. Import prices increased only 0.3%, excluding petroleum. Natural gas prices--after recording three consecutive monthly double-digit gains--fell steeply, decreasing 14% in March (Moody’s Economy.com April 12). Non-fuel imports rose 0.6% …

News of the Competition (04/11/2011)

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MADISON, Wis. (4/12/11)
* Two banks were taken over Friday by regulators and entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the total bank failures for 2011 to 28. That compares with 157 for all of 2010. The banks are: Western Springs National Bank and Trust, Western Springs, Ill., assumed by Heartland Bank and Trust Co., Bloomington, Ill.; and Nevada Commerce Bank, Las Vegas, assumed by City National Bank, Los Angeles. The closed institutions held roughly $332 million in assets as of Dec. 31. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $63 million. Bank failures so far this year have cost the fund about $1.21 billion ... * Mortgage industry experts are wondering if an absence of regulatory fines for mortgage servicing lapses is a signal to servicers to accelerate their processing of foreclosures as long as the paperwork is in decent order (American Banker April 11). Regulators have not punished servicers for non-compliance with the Home Affordable Modification Program because regulators say they lack the authority to assess penalties, the American Alliance of Home Modification Professionals, a firm that helps servicers with the government’s loan modification program, told the Banker

Market News (04/11/2011)

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MADISON, Wis. (4/12/11)
* Despite a steep first-quarter pullback in growth, the U.S. economic recovery is anticipated to accelerate during the rest of 2011, according to a survey of economists by The Wall Street Journal (April 11). The 56 economists surveyed lowered their estimate--on average--of first-quarter growth in gross domestic product to a seasonally adjusted annual rate of 2.7%. That percentage is down from an average first-quarter forecast two months ago of 3.6%. In the fourth quarter 2010, the economy grew at a 3.1% rate. The pullback was attributed to declining consumer confidence, a still-weak housing market, severe weather and the Japan earthquake and tsunami. The largest single factor cited by 35 of the economists was the increasing price of oil triggered by political unrest in the Middle East, the Journal said ... * In attempts to improve security outside of traditional branch banking, U.S. banks are focusing on customers rather than criminals (American Banker April 11). Making customers the first line of defense is logical and technologically viable, security experts told the Banker. Customers can be continuously brought into the loop and made aware of fraud much earlier by arming them with tools such as alerts--which they can establish for things such as transaction amounts and balance thresholds, Madhavi Mantha, head of banking research at Novarica, a division of the banking consultancy Novantas LLC in New York, told the publication ... * A forthcoming report of first-quarter earnings for the two largest U.S. banks by assets--Bank of America Corp. and JPMorgan Chase & Co. is expected to indicate a mixed showing in home lending and securities trading (American Banker April 11). That mixed performance the two banks are expected to report in those two areas indicates how the banks--just like their customers and the economy--are mired in a holding pattern until home prices stabilize and companies begin hiring in earnest, experts say, according to the Banker … * A Federal Reserve Bank of Boston study released Thursday found consumers increased their use of cash to make payments in 2009 (American Banker April 11). Although debit cards still were the most commonly used payment method, the use of cash increased. The study indicated consumers made 19 debit card payments per month on average, compared with 18.4 cash payments per month. Consumers reported making 21.2 debit card payments and 14.5 cash transactions per month in 2008. The shift to cash was attributed to card regulation and the economic downturn, according to the Boston Fed …

Credit increased in Feb. but members borrowed less

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WASHINGTON (4/11/11)--Although total U.S. consumer credit increased 3.8% to $2.419 trillion in February from January, credit union members borrowed less in the month, according to the most recent Federal Reserve Statistical Release on consumer credit, issued Thursday. While total revolving credit in February declined slightly to $794 billion from $796.7 billion the prior month, total nonrevolving credit rose to roughly $1.625 trillion from $1.615 trillion. For credit unions, revolving credit--which is largely credit-card borrowing--fell in February to $35.3 billion from $35.9 billion in January. Credit union nonrevolving credit--regular loans for cars, boats, education--dropped to $186.5 billion from $188.2 billion the prior month. These results aren’t at all surprising, noted Mike Schenk, vice president of research and statistics for the Credit Union National Association. “Revolving balances generally are associated with high-cost credit and consumers still have high debt burdens and are paying down loans--especially high-cost loans,” he told News Now. “This behavior will likely continue for some time into the future. Of course credit card defaults remain high by historical standards and that also is contributing to the weak results. “The growth in nonrevolving credit, reflects labor market improvements, stock market gains and marginally higher levels of confidence among consumers,” Schenk added. “Our outlook calls for additional, but modest, consumer loan growth in 2011 as labor market improvements--and confidence gains--become more obvious, and as the initial shock presented by recent exogenous risks, such as Japan, Eurodebt and Mideast oil, is better understood and interpreted more rationally,” he concluded. To read the Fed release, use the link.

News of the Competition (04/08/2011)

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MADISON, Wis. (4/11/11)
* The Federal Reserve’s policy of purchasing Treasury debt to propel economic growth came under fire from a key Fed official in a speech Friday before a conference of the Society of American Business Editors and Writers (The Wall Street Journal April 8). Richard Fisher, president of the Federal Reserve Bank of Dallas, continued his rebuke of the Treasury’s $600 billion Quantitative Easing 2 program that is slated to expire in June, saying it may be a good idea to consider ending what remains of the program. He also beseeched U.S. political leaders to bring the nation’s budget under control ... * Following criticism that last year’s stress tests weren’t tough enough, European financial industry regulators will use a more stringent measure of capital to apply to 90 lenders in the European Union in this year’s stress tests (Bloomberg.com April 8). Under the new test scenarios, banks will be expected to maintain a Core Tier 1 capital ratio of at least 5%, the European Banking Authority (EBA) said. Also, lenders will not be permitted use some type of non-voting capital--called silent participations--allowed by German bank supervisors, the EBA said ...

Market News (04/08/2011)

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MADISON, Wis. (4/11/11)
* If a partial U.S. government shutdown were to occur it would compel the Commerce and Labor Departments to delay releasing economic statistics, which are key economic indicators and relied on by economists making forecasts, said The Wall Street Journal (April 8). As of press time Friday, the government was still debating the shutdown, which would be the first federal government shutdown since 1995. It would impact economic data published by workers at the Bureau of Economic Analysis, Census, and Economic Statistics Administration, an administration official told the Journal. A partial government closure also would affect the Labor Department, which is scheduled to publish a key March inflation report Friday … * The Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 131.2 for the week ended April 1 from an unrevised 130 the prior week (Moody’s Economy.com April 8). The smoothed, annualized rate increased to 6.7% from an unrevised 6.5%. Although this is the second consecutive gain for the ECRI weekly leading index, economic performance has been mixed--although trending upward--during the past two months. There are no indications yet that the economic recovery is in any peril, ECRI said …

News of the Competition (04/07/2011)

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MADISON, Wis. (4/8/11)
* Freddie Mac is warning its seller-servicers to cease making side deals with mortgage insurers so that Freddie can maintain a key inducement for mortgage putbacks (American Banker April 7). Concerning these settlement agreements at issue, mortgage insurers have been agreeing not to rescind letters to seller-servicers for Freddie Mac-owned mortgages. Freddie is concerned about the settlement agreements because it had been counting on insurers to help find mortgages that did not meet the government-sponsored enterprise’s underwriting guidelines when the mortgages were underwritten. When a mortgage insurer rescinded coverage, it provided Freddie a red flag for a putback to the servicer or the originator of the loan, the Banker said ...

Market News (04/07/2011)

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MADISON, Wis. (4/8/11)
* Initial U.S. claims for unemployment benefits declined more than expected last week, indicating the labor market recovery is gaining strength (Bloomberg.com and The Wall Street Journal April 7). Claims decreased 10,000 for the week ended April 1 to a seasonally adjusted rate of 382,000, the Labor Department said Thursday. Economists had forecast claims would be 385,000, according to a Bloomberg News survey. Strong private-sector hiring in March and fewer job cuts pushed the unemployment rate to its lowest level in two years, the Journal said. Meanwhile, continuing claims fell to roughly 3.72 million from about 3.73 million for the week ended March 26. That figure does not take into account millions more on extended and emergency benefits (Moody’s Economy.com April 7) ... * For a second consecutive week, U.S. consumer confidence increased in part because an improving job market helped lessen the impact of higher fuel costs (Bloomberg.com April 7). The Bloomberg Consumer Comfort Index rose to -44.5 in the week ended April 3 from -46.9 the previous week. A component gauge of U.S. citizens’ views of their own finances rose to the highest level since January 2010, and a measure of perceptions of the economy climbed from a two-year low. The lowest unemployment rate since 2009 and improving stock values are mitigating the negative effect of gasoline prices, which have risen to the highest level in more than two years, Bloomberg said ... * Some consumers saw their credit scores decline after a glitch at Experian PLC led to erroneous reports that they had exceeded their credit limits, msnbc.com reported Wednesday (American Banker April 7). The error affected consumers with HSBC Holdings PLC credit cards because the glitch--arising from “an isolated administrative error in coding … data”--cut short the credit limits of some consumers, Experian said. The error resulted in Experian’s system ignoring the final two digits of a card’s limit so that a card with a $5,000 limit would appear to have a $50 limit …

News of the Competition (04/06/2011)

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MADISON, Wis. (4/7/11)
* Top U.S. mortgage servicers have agreed to revamped mortgage foreclosure procedures and are expected to sign legal agreements by the end of the week, federal regulatory officials said Tuesday (The New York Times April 5). The servicers have agreed to improve their procedures in several ways, after violating state and local laws and regulations governing foreclosures. Servicers will be mandated to have sufficient training of their foreclosure staff and to provide more levels of oversight, the Times said. Every homeowner who defaults on a mortgage will have a single point of contact with the servicer under the new rules. Servicers will no longer be able to foreclose while borrowers are trying to obtain loan modifications that might allow them to remain in their homes. A salient feature in the consent agreement will require servicers to hire an independent consultant to review foreclosures initiated during the past two years, the Times said. A task force (of 50 state attorneys general) was internally arguing over proposed sanctions when the Federal Reserve, the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision began cutting deals, said sources familiar with the talks (Bloomberg.com April 6) ... * Wells Fargo Securities has agreed to pay $11 million to settle accusations arising from Security and Exchange Commission (SEC) findings that it misrepresented and overcharged for two complex debt products tethered to housing industry performance (American Banker April 6). By agreeing to the settlement, Wells Fargo neither admitted to nor denied SEC findings. The penalties were connected to “misconduct in the sale” of two collateralized debt obligations, when the housing market was starting to falter in late 2006 and 2007, the Banker said …

Market News (04/06/2011)

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MADISON, Wis. (4/7/11)
* Mortgage loan applications decreased 2% for the week ended April 1 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index fell 1.5%. The seasonally adjusted Refinance Index declined 6.2% to its lowest level since Feb. 25, while the seasonally adjusted Purchase Index increased 6.7% to its highest level of the year. The Government Purchase Index rose 10.3% to its highest level since May 7, 2010, on a seasonally adjusted basis. The unadjusted Purchase Index increased 7% and was 16.8% lower than the same week a year ago. “Purchase application volume increased last week, reaching the highest level of the year, but remains relatively low by historical standards, at levels last seen in 1997,” said Michael Fratantoni, MBA vice president of research and economics. “The increase last week was due to a sharp increase in applications for government loans. Borrowers were likely motivated to apply before a scheduled increase in Federal Housing Administration insurance premiums that became effective last Friday. Rates were flat last week, but refinance activity fell, as the pool of borrowers who have both the incentive and the ability to qualify for a refinance continues to shrink.” For the MBA report, use the link … * A weak home-buying market helped boost demand for U.S. apartments in the first quarter--causing the apartment vacancy rate to fall to the lowest level in nearly three years, during what is usually a slow period for rentals, according to Reis Inc., a New York-based research firm (Bloomberg.com April 6). The vacancy rate dropped to 6.2% from 8% a year earlier and from 6.6% in fourth quarter 2010, Reis said. Last quarter’s rate was the lowest since it hit 6.1% in second quarter 2008. A surge in home foreclosures and an unemployment rate hovering around 9% have driven many people to rent, which is pushing a rebound in multi-family properties during the past year, Bloomberg said. Based on expectations that more people will want to lease and that rents will rise, construction of apartments has increased from a 50-year low …

Fed debated policy after 2011 QE2 says FOMC minutes

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WASHINGTON (4/6/11)--At their March 15 meeting, Federal Reserve policy makers debated whether their monetary policy should remove the government's economic stimulus--called quantitative easing 2 or QE2--after the completion of the Fed's $600 billion bond-buying program in June, reported the Federal Open Market Committee (FOMC) minutes for the meeting. The meeting's minutes, which the Fed released Tuesday afternoon, indicated that FOMC members believed that "the economic recovery was on a firmer footing and that overall conditions in the labor market were gradually improving" but remained elevated. Members were monitoring rising energy and commodity prices, although they indicated the increase could be temporary. However, the FOMC members also discussed at length the prospects of inflation in the wake of rising oil and food prices. The minutes noted that "a significant increase in longer-term inflation expectations could contribute to excessive wage and price inflation, which would be costly to eradicate." The Fed's meeting occurred just days after the March 11 earthquake and tsunami hit Japan and unrest spread in the Middle East. Several officials indicated their inflation forecasts had "shifted somewhat to the upside." Some members noted that if the Fed's balance sheet caused people to doubt the FOMC's ability to "withdraw monetary accommodation when appropriate, the result could be an upward pressure on inflation expectations and so on actual inflation." To mitigate such risks, participants "agreed the committee would continue its planning for the eventual exit from the current, exceptionally accommodative stance of monetary policy," said the minutes. "In light of uncertainty about the economic outlook, it was seen as prudent to consider possible exit strategies for a range of potential economic outcomes. A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011," the minutes said. The minutes indicate no major change in current policy, including the second round of QE2. They also gave no indication when the Fed would start raising the short-term federal funds rate, which has remained at the bottom-level 0% to 0.25% since December 2008. Use the link to access the minutes for the meeting.

News of the Competition (04/05/2011)

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MADISON, Wis. (4/6/11)
* This summer’s upcoming merger of the federal Office of Thrift Supervision into the Office of the Comptroller of the Currency has caused some thrifts to consider the benefits of converting their charters to commercial banks (American Banker April 5). Similar to when banks took advantage of market disruption in the aftermath of major bank mergers, state banking commissioners appear to view this as an opportunity to gain some banks. They are trumpeting the advantages of being under the auspices of local regulators--such as community banks being the sole focus of state regulators, the Banker said. Mark Kaufman, Maryland’s commissioner of financial regulation, told the publication that his organization solely regulates community banks and doesn’t attempt to be “all things to all people.” He added that it isn’t desirable to be someone’s smallest client, which is what a community bank could be for a federal regulator … * The Securities and Exchange Commission (SEC) has pushed Bank of America Corp (BofA) during the past year for information and expanded disclosure about BofA’s reserves to pay for the cost of repurchasing faulty home loans (Bloomberg.com April 5). In an exchange of letters between the SEC and BofA, the SEC sought to discern the level and type of repurchase requests BofA received, its success rate in avoiding claims settlements, and how it established repurchase reserves …

Market News (04/05/2011)

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MADISON, Wis. (4/6/11)
* U.S. service industries grew less than expected in March, an indication that the largest component of the economy is not keeping pace with the gains in the manufacturing sector (Bloomberg.com April 5). The Institute for Supply Management’s (ISM) index of nonmanufacturing businesses fell to 57.3 from 59.7 in February. Readings above 50 signal growth. A Dow Jones Newswires survey of forecasters showed they anticipated the March index to hold at 59.7 (The Wall Street Journal April 5). Although the ISM measure of business activity distinctly retreated, new orders were minimally changed at an elevated level--consonant with the prognosis that growth will bounce back in the second quarter (Moody’s Economy.com April 5) … * For the first time in more than three years, U.S. office vacancies declined in the first quarter and rents increased--indicating the market is starting to recover as the economy grows (Bloomberg.com April 5). The U.S. vacancy rate dropped to 17.5% in the quarter from 17.6% in the fourth quarter 2010, Reis Inc., a New York-based property-research firm, said in a report issued Tuesday. The economy has attained an ‘inflection point” in which good developments are beginning to overcome the bad, he added. Gross domestic product has been positive for the past six quarters, and employers have increased hiring for six consecutive months, Bloomberg said. The change is robust enough to warrant it being called the first quarter of a recovery, Ryan Severino, a Reis economist, told Bloomberg

Market News (04/04/2011)

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MADISON, Wis. (4/5/11)
* The market volatility in the wake of Japan's disasters and a climb in oil prices have prompted market analysts to reduce their estimates of first quarter earnings at five of the nation's largest banks. The lower estimates indicate a prolonged decline in investment-banking and trading revenue, after 2009 set records in those areas, said Bloomberg.com (April 4). They said this type of banking is unlikely to rebound as much as expected from their weak fourth quarter. Analysts estimated that first-quarter earnings may drop 23% from a year ago for Goldman Sachs Group Inc., JPMorgan Chase & Oc., Bank of America Corp., Citigroup Inc., and Morgan Stanley. Only JPMorgan is expected to post a higher profit, said analysts surveyed by Bloomberg. Others estimated that total investment banking and trading revenue at the five banks could plunge 25% from first quarter of 2010 … * Uncertainty surrounding the disaster in Japan as well as Middle East nations' unrest have prompted a slight retreat in an otherwise upbeat global business confidence reading, according to Moody's Economy.com (April 4). Although still strong, sentiment has leveled off, said Moody's and is "modestly lower" than a month ago. A key factor is the decrease in businesses' assessment of overall current conditions, especially in Japan and Asia. However, although sales are weaker the past few weeks, responses to questions regarding sales and investment intentions are still as upbeat as any time in the survey's history, said Moody's. Confidence was weakest in Japan and sentiment was strongest in South America. Credit is more available, although not near its availability before the financial crisis. Businesses and financial service companies were the most optimistic. The power of pricing is slightly improved but it is not signaling inflation acceleration …

News of the Competition (04/04/2011)

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MADISON, Wis. (4/5/11)
* First Financial Holding Co., a Taiwanese company with a Los Angeles branch, has agreed to provide the Federal Reserve with a written plan to improve oversight of risk management and anti-money-laundering (AML) compliance, according to an accord reached last week (American Banker April 4). Under the written agreement between the Fed and First Financial, the company has 90 days to provide the regulator with the plan on behalf of its Los Angeles branch, the $451.4 million-asset First Commercial Bank. The branch must come up with an acceptable written customer due-diligence program that is able to provide timely, accurate and complete reporting of “all known or suspected” violation of AML laws … * In what some analysts are calling a potential major disruption to the existing payments systems, Facebook Inc. and Google Inc. are reportedly on the brink of establishing alternative payment networks. Although Google declined to discuss its specific plans, an article in the April 5 issue of American Banker noted that through Google Checkout, and Google’s purchase of Jambool Inc.-- which includes Social Gold, which can be used by application developers to make payments within apps--Google has put together the necessary pieces to form a payments network. And Facebook is challenging the existing networks, a.k.a Visa and MasterCard, with its Facebook Credits and a new subsidiary called Facebook Payments Inc. Like Google, Facebook is being quiet about its plans for the subsidiary but did say it would be used to process Facebook online currency called Credit. Analysts were willing to posit, however, that Facebook Payments might be part of a plan to disintermediate the banks, which handle an estimated hundreds of millions of dollars worth of payments from Facebook advertisers …

News of the Competition (04/01/2011)

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MADISON, Wis. (4/4/11)
* The Federal Reserve Bank of New York rejected bailed-out insurer American International Group (AIG) Inc.’s bid to repurchase a $15.7 billion portfolio of mortgage-backed securities (MBS) (Bloomberg News via American Banker April 1). Instead, the New York Fed said Wednesday it will sell AIG’s former MBS individually and in blocks. The New York Fed’s investment manager, Blackrock, will issue the first bid this week, the bank said in a press release. AIG gave the MBS--known as Maiden Lane II--to the central bank in 2008 in exchange for a cash infusion that helped keep AIG solvent, Bloomberg said … * A report published Thursday by the Inspector General of the Federal Housing Finance Agency indicates regulators approved high executive compensation at government-supported mortgage-finance behemoths Fannie Mae and Freddie Mac--with minimal analysis or review (The New York Times March 31). The two government-sponsored enterprises--whose futures will be determined by Congress this year--paid a combined $17 million to their CEOs in 2009 and 2010--the two full years when Fannie and Freddie were supported by the government, the report found. Charles E. Haldeman Jr., CEO of Freddie, made $7.8 million for 2009 and 2010. Fannie Mae CEO Michael J. Williams received $9.3 million for the two years, the Times said …

Market News (04/01/2011)

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MADISON, Wis. (4/4/11)
* The U.S. economy added 216,000 jobs in March--pushing the unemployment rate to a two-year low of 8.8%--the Labor Department reported Friday, an indication the labor market is starting to hit its stride (The Wall Street Journal and The New York Times April 1). Although there has been turmoil throughout the global economy, and oil prices have been escalating, economists were poised to see if the troubles would impact hiring. So far, it appears they haven’t, as job gains have slightly surpassed economists’ expectations, the Times said. However, despite the good news in the labor market, the Federal Reserve anticipates that unemployment will remain high throughout 2011, because the economy will struggle to regain jobs lost in the recession of 2008 and 2009, the Journal said … * In a sign manufacturing will spearhead growth in the world’s biggest economy, U.S. manufacturing grew in March at almost the fastest pace in nearly seven years (Bloomberg.com April 1). The Institute for Supply Management’s (ISM) manufacturing index barely changed to 61.2, following February’s 61.4 reading, which was the highest since May 2004, ISM said. Figures greater than 50 indicate expansion. Companies are benefiting from inventory rebuilding at the start of the economic recovery and also are being helped by rising demand in the U.S. and abroad, Bloomberg said. In a related matter, U.S. factory orders for manufactured goods declined 0.1% in February--the first decrease in four months, indicating weaker demand for capital goods and military aircraft, Bloomberg said ... * U.S. construction spending in February dropped more than expected, a sign the economic recovery has not yet taken root in the building industry (Bloomberg.com April 1). The month’s 1.4% decrease was the third consecutive monthly decline, taking the value of all domestic projects down to a $760.6 billion annual rate--the lowest since October 1999--according to Commerce Department figures released Friday. Economists had predicted a 0.2% decline, according to a Bloomberg survey. With new home prices and sales continuing their slide, outlays for home building fell in February. Also, state and local governments saddled with deficits are restricting public works funding, Bloomberg said …