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News of the Competition (05/29/2009)

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MADISON, Wis. (6/1/09)
* Online account-opening applications are a low-cost way to boost deposit growth, say community bankers. Many banks are outsourcing online account-openings on a pay-per-account basis to Andera Inc., Metavante Technologies, Goldleaf, and other firms. The applications act like “almost a stand-alone branch without overhead,” noted Stratton Huggins, a vice president of marketing at Tupelo, Miss.-based Renasant Bank, which opened accounts with $1 million of funds during a five-month period last year. Open architecture makes the software affordable for small banks, and helps them compete. And it’s cost effective. “A paper-based account opening costs about $65 per account, whereas doing it electronically costs about 15 cents per account,” said Andera CEO Charlie Kroll. Consumers are open to online account openings. According to Javelin Strategy and Research, 45% of all consumers have tried to open a checking account online during the past year (American Banker May 29) … * Countrywide Financial Corp. lost its move to dismiss most of a proposed group lawsuit alleging that the firm fraudulently steered borrowers into risky subprime mortgages. In a May 18 ruling, Judge Dana Sabraw of the U.S. District Court for the Southern District of California in San Diego wrote that borrowers can pursue claims of racketeering and unfair competition against Countrywide, which was acquired by Bank of America. “We are pleased that we are helping the ultimate victims of the mortgage scheme that has nearly destroyed our economy,” said plaintiff attorney Joe Whatley. Countrywide “maintains that the lawsuit is without merit and intends to vigorously defend the case,” said Bank of America spokeswoman Shirley Norton (Bloomberg.com May 28) … * The Federal Reserve’s balance sheet shrunk again last week even as the Fed boosted purchases of Treasury securities. The Fed’s asset holdings fell to $2.08 trillion as of May 27, from $2.18 trillion the previous week. Total discount window borrowing dropped to $123.57 billion from $126.35 billion. Borrowing by commercial banks edged up to $38.05 billion from $37.88 billion. Borrowing by primary dealers via the credit facility created following the collapse of Bear Stearns remained at zero. The changes indicate the Fed is shifting from lending to offering credit through its various facilities. The Fed’s portfolio of Treasury securities rose by $16.87 billion to $600.14 billion last week (Dow Jones Newswires May 28) … * Bank of America has offered to exchange certain preferred stock into as much as 200 million common shares as part of its effort to raise $33.9 billion in capital, as ordered by regulators following the government’s stress tests (Dow Jones Newswires May 29). The company said it has raised $26 billion as of May 27. In other news, PNC Financial Services Group said it has raised more than $600 million called for by the government’s stress tests through its sale of 15 million shares into the market (The Wall Street Journal Online May 29). PNC sold the shares at market values since announcing its plan two weeks ago …

Market News (05/29/2009)

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MADISON, Wis. (6/1/09)
* The nation’s economic contraction during the first quarter was slightly milder than previously estimated, the Commerce Department reported Friday. Real gross domestic product (GDP) decreased at an annual rate of 5.7%, smaller than the 6.1% drop first estimated last month. Real GDP fell at a 6.3% pace in the fourth quarter. The small upward revision in first-quarter GDP reflected less inventory liquidation and a smaller decline in exports. The first-quarter contraction mostly reflected negative contributions from exports, equipment and software, private inventory investment, nonresidential structures and residential fixed investment. These were partly offset by a positive contribution from real personal-consumption expenditures (PCE). Real PCE rose 1.5% in the first quarter, following a 4.3% drop in the previous quarter. Most economists expect economic growth to resume in the third quarter. However, continued job losses should dampen consumer spending and the strength of the recovery. Inflation remained tame in the first quarter, according to the government report. The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose at an unrevised 1.5% pace in the first quarter following a 0.9% gain in the fourth quarter. Corporate profits increased by 12.9% following a 28.4% plunge … * Long-term mortgages followed bond yields higher last week, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) increased 9 basis points to 4.91%, while the 15-year FRM rose 3 basis points to 4.53%. The one-year, adjustable-rate mortgage (ARM) dropped 13 basis points to 4.69%. “Fixed-rate mortgage rates followed long-term bond yields higher this week as financial markets try to discern the state of the economy,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that the Conference Board’s Consumer Confidence Index surged in May, and the National Association for Business Economics predicted that the recession will end during the second half of this year. However, he also noted that the housing market remains “a drag on the economy.” Mortgage rates are down sharply from a year ago. At this time last year, the 30-year FRM averaged 6.08%, while the 15-year FRM stood at 5.66%, and the one-year ARM was at 5.22%. For CUNA's Daily Financial Rates, use the link. … * Consumer confidence jumped to an eight-month high in May amid optimism about an economic recovery. The Reuters/ University of Michigan Surveys of Consumers’ final consumer sentiment index rose to 68.7, from 65.1 in April and the highest level since September. “Compared with the state of the economy six months ago, consumers have indeed regained a good measure of confidence,” said survey director Richard Curtin. The index of consumer expectations for six months from now jumped to 69.4 from 63.1. However, consumers remained gloomy about the current state of the economy and the job market. The index of current conditions fell to 67.7 from 68.3. Continued anxiety could curb consumer spending during the second half of the year--limiting the economic recovery, noted Curtin (Reuters via Yahoo! News and Bloomberg.com May 29) … * General Motors announced Friday that it plans to reopen a U.S. plant to build compact autos. The firm didn’t say which factory would be selected to build the estimated 160,000 small cars per year. However, GM also is expected to announce that it will shut down another 14 factories. United Auto Workers President Ron Gettelfinger said the company had planned to import compact cars from China, but the firm agreed as part of a concession to build them in the U.S. GM is expected to file for bankruptcy protection on Monday (Associated Press via The New York Times May 29) … * Some small signs are offering hope for a global economic recovery. The U.S. economy contracted by 5.7% in the first quarter, less than the previous estimate of a 6.1% contraction. Japanese factory production increased 5.2% in April, the largest gain in more than 50 years. In Germany, retail sales rose 0.5% in April, and private consumption increased a similar amount, despite a 3.8% contraction in the overall economy. The Indian economy expanded by 5.8% year-over-year in the first quarter. And in the United Kingdom, home prices rose in May, for the second time in three months. Global stocks traded around 2009 highs on Friday amid hope that a worldwide recovery is near (Reuters via The New York Times May 29) …

Higher interest rates slow recovery Hampel tells A.P.

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WASHINGTON (6/1/09)--Higher interest rates could act as a drag on the U.S. economic recovery, Bill Hampel, chief economist at the Credit Union National Association, told the Associated Press Thursday. If interest rates continue to increase, that would “slow the recovery,’ Hampel told the news service. “But I just don't think that's likely.” Even though the economy is showing signs that the recession is starting to abate--such as the number of people seeking first-time jobless assistance is declining, and new home sales--while flat--suggest a housing comeback could be near--some problems loom, economists told AP. Layoffs are slowing, but unemployment is expected to keep rising because companies remain reluctant to hire, economists said. Also, the number of people continuing to receive unemployment benefits rose to 6.78 million last week--the biggest total on record since 1967, and a record-high for the 17th straight week.

News of the Competition (05/28/2009)

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MADISON, Wis. (5/29/09)
* The credit card chargeoff rate rose to a record 9.97% in April, the fifth consecutive month that the rate has increased to a record high, Moody’s Investors Service reported Wednesday. The ratings agency noted that it’s the first time in the 20-year history of the index that the default rate has neared double digits. Moody’s predicts the rate will peak at 12% in the second quarter of next year, assuming the nation’s unemployment rate peaks at about 10%. The delinquency rate declined to 6.34% in April, from 6.4% in March, probably due to tax refunds. However, Moody’s predicts the rate will resume rising as unemployment increases (Dow Jones Newswires May 27) … * Earnings at U.S. farm banks plunged 10.3% to $3 billion last year as the global recession hit the rural economy, according to an American Bankers Association report. However, farm-town lenders remained a strong part of the banking sector despite lower farm earnings. The return on average assets (ROA) was 0.85% for farm banks last year, compared with 0.14% for non-farm banks. Farm values haven’t been hit as hard as values in urban markets. However, farm bankers could see problems multiply this year. Cropland prices in the Midwest started declining this winter. And the Agriculture Department predicts that farm income will plunge 20% this year. The ABA survey also found that non-performing assets at farm banks rose 58.6% to $2.4 billion in 2008 (The Wall Street Journal Online May 28) … * A committee of bondholders has agreed to a sweetened offer by General Motors to erase the firm’s unsecured debt in exchange for company stock. Still, GM probably will file for bankruptcy protection, said a person familiar with the situation. In a statement, GM said it offered bondholders 10% of the stock in a new company, with warrants to purchase as much as 15%. The Treasury Department would receive 72.5% of the new firm’s shares, while the United Auto Workers’ retiree health-care trust fund would get 17.5%. The bondholders’ stake would be additional shares that would dilute the first batch the new firm issues (Associated Press via Yahoo! News May 28) … * Large Canadian banks with strong balance sheets are looking to acquire their weaker U.S. competitors. “There is a lack of U.S. domestic buyers right now,” noted William Hickey, a principal and co-head of investment banking at Sandler O’Neill & Partners. “That gives them a lot of opportunities.” Analysts say the most likely Canadian acquirers are Royal Bank of Canada, Toronto-Dominion, and Bank of Montreal, because they already have a big presence in the U.S. and therefore have the necessary infrastructure to acquire a struggling or failed bank. They also are knowledgeable about the regulatory structure in this country. So far, Canadian banks haven’t begun actively acquiring, probably because they’re waiting for the U.S. economy to bottom (American Banker May 28) … * A former Morgan Stanley trader has been banned from the securities industry by the U.K.’s financial regulator for front-running, or using nonpublic information to trade ahead of customers. Nilesh Shroff also was fined $223,000. He is the third former trader at Morgan Stanley to be banned by the U.K.’s Financial Services Authority. “We took immediate action to address his misconduct, ultimately dismissing Mr. Shroff,” said a Morgan Stanley spokesman (The Wall Street Journal Online May 28) …

Market News (05/28/2009)

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MADISON, Wis. (5/29/09)
* Mortgage delinquencies and foreclosures increased to record highs during the first quarter, the Mortgage Bankers Association (MBA) reported Thursday. The delinquency rate rose to a seasonally adjusted 9.12%--up 124 basis points from the fourth quarter and the highest rate on records dating back to 1972. The percentage of loans entering the foreclosure process increased to 1.37%, from 1.08% and also a record high. A record 12% of homeowners with a mortgage were either behind on their payments or in foreclosure amid rising job losses. “If people don’t have a paycheck they can’t support a mortgage,” said MBA Chief Economist Jay Brinkmann. At 29%, prime, fixed-rate mortgages accounted for the largest share of new foreclosures. Prime, adjustable-rate mortgage accounted for 24% of new foreclosures. Brinkman said those statistics show that the mortgage problem has shifted from a subprime problem to a job-loss issue. The MBA doesn’t expect foreclosures to peak until year-end 2010. The worst problems continue to be concentrated in California, Nevada, Arizona and Florida--which accounted for 46% of new foreclosures in the first quarter (Bloomberg.com and Associated Press via Yahoo! News May 28) … * A Commerce Department report offered a glimmer of hope for the housing market. Sales of new, single-family homes edged up 0.3% to a seasonally adjusted annual rate of 352,000 units in April as home prices rose. The median sales price of new homes was up 3.7% from March, to $209,700. However, the price was down 14.9% from a year earlier, while sales were 34% lower. The oversupply of new homes on the market continues to decline as builders cut production. There was a 10.1-month supply of homes on the market at the current sales pace. That’s down from 10.6 months in March and the peak oversupply of 12.4 months in January. Low mortgage rates and tax credits have helped stabilize the housing market. However, recent increases in mortgage rates could derail that trend … * Treasury yields and mortgage rates jumped Wednesday to the highest levels since November, as investors fretted about inflation. The yield curve--the gap between two-year Treasury notes and 10-year notes--widened to a record 2.75 percentage points. The average 30-year, fixed-rate mortgage jumped to 5.29% Wednesday, from 5.03% the previous day, according to HSH Associates. “The perception prior to this month was that the Fed controlled the mortgage rates,” noted Stuart Spodek, co-head of U.S. fixed-income research at BlackRock Inc. However, the market has lost that perception in recent weeks. “The market is looking to see what the Fed does in response.” (The Wall Street Journal Online May 28) … * Moody’s Investors Service said Wednesday that the U.S. government’s Aaa rating is stable, despite the nation’s soaring debt. “The global role of the U.S. currency … contributes to the ability of the economy and government finances to rebound,” said Moody’s Vice President Steven Hess. However, he said a reassessment of the economy and government debt could place “negative pressure on the rating in the future.” Last week Standard & Poor’s raised concern that the government could lose its highest debt rating after it cautioned Britain that its rating was at risk for a downgrade (The New York Times and The Wall Street Journal Online May 28) … * The number of long-term jobless Americans rose to another record high, even as first-time claims unexpectedly declined. Continuing claims--the number of people still on the benefit rolls after an initial week of aid--jumped by 110,000 during the week ending May 16 to 6.788 million--the largest on record going back to 1967 and the 17th consecutive week that continuing claims hit a record high. Initial claims for unemployment insurance declined by 13,000 during the week ended May 23 to 623,000, the Labor Department also reported. The data show the pace of layoffs is slowing, though firms remain reluctant to hire. Problems in the auto sector are expected to keep the pace of layoffs high in coming months. Many analysts expect the nation’s unemployment rate to approach 10% by the end of this year, compared with an 8.9% rate in April (Associated Press via Yahoo! News and Moody’s Economy.com May 28) … * Orders for big-ticket durable goods unexpectedly surged in April, in part reflecting a rebound in demand for autos. However, the outlook for the manufacturing sector remains bleak. Orders rose by 1.9% to a seasonally adjusted $161.45 billion, the Commerce Department reported Thursday. But orders in March were revised down to a 2.1% decline from a 0.8% dip, and orders in April were 27.3% lower than a year ago. Motor vehicles and parts rose 2.7% in April, rebounding from a 0.5% decline in March. Orders for nondefense capital goods excluding aircraft, a proxy for future business spending, declined by 2.1% in April following a 1.7% drop in March. Global economic weakness has undermined demand for U.S. goods. Manufacturing output will plunge 12% this year, according to a forecast by the Manufacturers Alliance/MAPI. The forecast is gloomier than the 8% drop the group predicted only three months ago. “Everything has gone to rock-bottom levels that I thought [were] unattainable,” said Daniel Meckstroth, chief economist at the Arlington, Va.-based group. He expects any economic recovery to be slow. “The whole deleveraging of this economy will depress the growth rate out of this recession,” said Meckstroth (The Wall Street Journal Online May 28) …

Market News (05/27/2009)

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MADISON, Wis. (5/28/09)
* Sales of previously owned homes rebounded in April with strong activity occurring in lower price ranges, the National Association of Realtors (NAR) reported Wednesday. Existing-home sales rose 2.9% to a seasonally adjusted annual rate of 4.68 million units. Still, sales were down 3.5% from a year earlier. “Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish,” noted NAR Chief Economist Lawrence Yun. The trade association predicts that home sales later this year will be 10% to 20% higher than in the second half of 2008. Home prices continued to decline in April. The national median existing-home price was $170,200, down 15.4% from a year earlier. Distressed properties, which made up 45% of all sales last month, continue to dampen the median price because they sell at a discount, noted NAR (realtor.org May 27) … * Refinancings tumbled last week while purchase applications steadied, according to the Mortgage Bankers Association (mbaa.org May 27). The trade group’s Market Composite Index fell 14.2% during the week ending May 22 to 786. The Refinance Index plunged 18.9% to 3890.4, offsetting a small 1% gain in the Purchase Index to 256.6. Refinancings made up 69.3% of overall applications last week--down from 73.6% the previous week, but up from just 46.1% a year ago. The purchase index remains at a very low level, indicating that improving consumer confidence hasn’t yet spread to the mortgage markets, noted Moody’s Economy.com (May 27). The research firm said home sales probably will remain depressed until home prices begin to steady, excess inventories are cleared off, and mortgage-relief programs begin taking full effect … * The HomeSaver Advance loss-mitigation program that Fannie Mae launched in February 2008 had an extremely high default rate. In a report to Congress last week, the Federal Housing Finance Agency said 70% of homeowners redefaulted on their mortgages in the first 3,300 transactions completed early last year. The program let delinquent borrowers who found a job or resolved other problems have a $15,000 unsecured personal loan to cover any arrearage in their mortgage loans. Homeowners wouldn’t have to make any payments on the loan for six months. Fannie is now scaling back that program and concentrating more on its Making Home Affordable loan-modification program. Still, Fannie’s HomeSaver Advance program “continues to be a viable foreclosure prevention solution for borrowers facing a temporary hardship,” said company spokeswoman Amy Bonitatibus (American Banker May 27) … * A bankruptcy by General Motors seems inevitable after bondholders rejected an offer to trade their debt for equity in the company. The offer expired last might after it failed to win approval from 90% of bondholders. “It’s no surprise at all that a deal that was as unattractive as this one would be soundly rejected,” said Pete Hastings, an analyst at Memphis-based Morgan Keegan & Co. GM has until Monday to complete a government-imposed restructuring that includes debt reduction, labor cuts, and plant shutdowns. GM spokesman Tom Wilkinson said the board will meet later this week to discuss the firm’s next move. He would not say if GM would soon file for bankruptcy (Bloomberg.com and Associated Press via Yahoo! News May 27) … * The recession is near an end, but job losses and home-price declines will continue because the recovery will be more moderate than those seen after past downturns, according to a survey of forecasters by the National Association of Business Economists (NABE). Almost three-fourths of respondents expect the recession to end by the third quarter. More than two-thirds of forecasters predict that home sales will bottom by mid year. The consensus calls for the economy to contract by 1.8% in the second quarter and then expand by a modest 1.2% during the second half of the year. The unemployment rate is forecast to peak at 9.8% at year-end 2009. “The key downside risks remain continued large job losses, no improvement in credit conditions, and further sharp declines in home values,” said NABE President Chris Varvares. “These same forces are causing consumers to remain cautious, a feature that NABE panelists think is here to stay.” (Reuters via Yahoo! News May 27) … * Regional Federal Reserve directors were concerned about continued job-market weakness, and said more Fed stimulus was needed even with the downturn slowing, according to minutes of the discount-rate meeting released Wednesday. Directors of all 12 regional banks voted to leave the discount rate on direct loans to commercial banks unchanged at 0.5%. The rate has remained at that level since December. “The directors generally agreed on the need for continued monetary stimulus in order to promote a return of economic activity to its potential over a reasonable time horizon,” said the minutes of the meeting (Bloomberg.com May 27) …

News of the Competition (05/27/2009)

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MADISON, Wis. (5/28/09)
* Federal Home Loan Bank (FHLB) of Boston’s board of directors Tuesday announced the appointment of Edward A. Hjerpe III as president/CEO of the bank. Hjerpe, 50, who currently serves as interim president/CEO of Strata Bank and Service Bancorp Inc., will be paid a base salary of $550,000, the bank said in a Tuesday filing with the Securities and Exchange Commission. Prior to joining Strata Bank, Hjerpe served as senior vice president of Webster Financial Corp. and as president/CEO of the Massachusetts and Rhode Island division of Webster Bank N.A. From 1997 to 2004, Hjerpe was executive vice president, chief operating officer and chief financial officer of Firstfed America Bancorp when it was acquired by Webster Financial Corp. Hjerpe worked at the FHLB of Boston from 1988 to 1997 first as senior vice president and director of financial analysis and economic research, and then as executive vice president and chief financial officer (PRNewswire May 26 and boston.com May 27) … * Bank of America Corp. (BofA) and Citigroup likely will soon raise base salaries for investment bankers to make up for limits on their annual bonuses, The Wall Street Journal reported. “Pressures in the investment-banking and capital-markets businesses continue to be intense,” Jessica Oppenheim, BofA spokeswoman, told the newspaper. “[BofA will] take the steps necessary to retain key employees.” Goldman Sachs Group and JPMorgan Chase & Co. are not considering similar increases in base pay, the paper added, citing anonymous sources. Goldman Sachs and JP Morgan declined to comment, the paper added (Reuters May 27) … * Dominick Devito, the leader of a fraudulent real estate investment scheme in which multimillion-dollar residential properties were purchased in several communities in Westchester County, N.Y., was sentenced May 20 to 51 months in prison. U.S. District Judge Barbara S. Jones handed down the sentence in a Manhattan federal court for mortgage fraud, insurance fraud and obstruction of justice. Using loans obtained by submitting false and misleading information to bank and other lenders, Devito identified properties for sale, coordinated the purchase of the properties and conducted construction work at the properties, according to court documents (newyork.realestaterama.com May 20) … * Madrid-based Banco Santander SA’s Swiss hedge fund unit--Optimal Investment Services fund--agreed to a $235 million settlement with trustee Irving Picard, who is liquidating Bernard Madoff’s defunct money-management firm. Banco Santander was one of the biggest conduits of investor money to Madoff, analysts said. The payment will expand the amount of money available to Madoff’s victims to more than $1.2 billion, analysts said. “This settlement is the result of extensive factual research, diligent legal scholarship and practical craftsmenship by the trustee and his attorneys,” said Stephen Harbeck, president of Securities Investor Protection Corp., in a statement. “It is a roadmap for similar recoveries that will benefit the victims of Bernard Madoff’s crimes.” Madoff pleaded guilty to conducting a Ponzi scheme and is in jail awaiting sentencing (The Economic Times May 27, Associated Press May 26 and American Banker May 27) … * Bank of America Corp. (BofA) has raised nearly $26 billion for its capital plan in response to U.S. stress tests by federal regulators. The amount is about 76% of BofA’s goal, including a $5.9 billion agreement to convert privately held preferred shares into common stock. The stock swaps would add 436 million common shares, BofA said. The Charlotte, N.C.-based bank--the largest in the U.S.--said it might issue 564 million more common shares through swaps--which could raise another $6.19 billion, based on current stock prices. Regulators have mandated that BofA raise $33.9 billion--the largest capital gap among the 19 lenders required to undergo stress tests (Bloomberg.com May 27) …

CUs available for HELOCs Schenk tells IDow JonesI

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NEW YORK (5/27/09)--Homeowners considering tapping their home equity for cash in a tightened credit market should do so prudently, Mike Schenk, senior economist with the Credit Union National Association (CUNA), warns Dow Jones. "You're not going to get access to equity if you don't have any," said Schenk (Dow Jones May 26). The key issue for borrowers--besides whether they can repay a home equity line of credit (HELOC)--is how much equity they have in their homes at a time when home values are falling. To secure a loan with the most favorable terms, a borrower shouldn't exceed 80% of the home's value with a primary mortgage and HELOC, said the article. Financial advisors are mixed on the merits of using HELOCs, which differ from home equity loans, to pay for college or home improvements but say it depends on a borrower's specific situation. A Federal Reserve Board survey in April indicated about half of loan officers surveyed tightened lending standards for revolving home equity lines of credit over the previous three months, down from 60% in January's survey. The article also points out that interest rates on HELOCs offered by credit unions compare favorably with banks' interest rates. Credit unions averaged 4.4%, compared with banks' 4.9%, as of Friday, said Datatrac, a market research firm. "Credit unions also increased the amount of money they made through home equity lines in the 12 months ending March 2009," Schenk said.

News of the Competition (05/26/2009)

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MADISON, Wis. (5/27/09)
* Two more banks were seized by regulators late Friday. The Strategic Capital Bank and Citizens National Bank, both of Illinois, became the 35th and 36th insured financial institutions to fail in 2009. That’s already higher than the 25 banks that failed in 2008. Dozens more banks are expected to fail this year. The Federal Deposit Insurance Corp. estimates that the two latest failures will cost the deposit-insurance fund $279 million. Five banks in Illinois have failed so far this year (The Wall Street Journal Online May 26) … * Five Federal Home Loan banks reported that they lost a combined $146 million in the first quarter, despite a change in accounting rules for other-than-temporary impairment (OTTI) charges. New guidance from the Financial Accounting Standards Board let the Home Loan banks charge only $480 million of the $4.9 billion in OTTI charges against their income. The Home Loan banks recorded just $2 billion in OTTI charges for all of last year. Results of the Atlanta, Boston, Chicago and Seattle banks in the first quarter were dampened by mortgage holdings. The Des Moines bank said its loss reflected early payment of $231.8 million in par value bonds (American Banker May 26) … * Bank of America has modified more than 50,000 mortgages as part of its settlement of predatory-lending allegations brought by state attorneys general against Countrywide Financial Corp., which the firm acquired last year. The modifications could save homeowners as much as $823 million, according to a report given to state officials this week. Bank of America said 93% of the mortgage modifications have involved subprime loans. Homeowners with option ARMs have seen the biggest savings. BofA said savings for such borrowers average $311 per month (The Wall Street Journal Online May 26) … * Electronic Mortgages are poised for much bigger growth. The introduction of Version 3 of the Mismo standard from the Mortgage Industry Standards Maintenance Organization will help spur growth in electronic mortgages. Version 3 was designed to boost transparency and data security. In addition, data in Version 3 can be shared between originators, servicers and investors. In another positive sign for growth, the Federal Housing Administration will begin accepting electronic mortgages later this year. That means Fannie Mae and Freddie Mac also will be accepting electronic mortgages. The e-mortgage share of total originations could increase to 5% to 10% of the market over the next five to 10 years, predicts Kim Weaver, vice president of product management for Fiserv’s electronic lending platform. They make up just 1% of the market today (American Banker May 26) … * At the request of regulators, E*Trade Financial Corp. is becoming a subsidiary of its bank unit. The Office of Thrift Supervision (OTS) requested the change so that earnings from the brokerage unit could support the bank unit. The agency has told the bank it needs to boost capital. The OTS would have a more direct role in any sale of the brokerage if the bank isn’t able to raise enough capital (The Wall Street Journal Online May 26) …

Market News (05/26/2009)

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MADISON, Wis. (5/27/09)
* Consumer confidence soared in May as people became more optimistic about the economy and the job market. The Conference Board’s Consumer Confidence Index jumped to 54.9, from 40.8 in April and the highest reading since September. The Present Situation Index rose to 28.9 from 25.5, while the Expectations Index--which measures’ consumers’ outlook for the next six months--surged to 72.3 from 51. “Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months,” said Lynn Franco, director of the Board’s Consumer Research Center. “While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us,” added Franco. Consumers became less gloomy about the job market in May. The share of respondents saying jobs are “hard to get” fell to 44.7%, from 46.6% in April. The percentage saying jobs are “plentiful” edged up to 5.7% from 4.9%. The stock markets rebounded following the report (The New York Times May 26). The Dow Jones Industrial Average was up 170 points in late morning trading Tuesday, as the report outweighed other data showing that home prices continue to plunge … * Home prices plunged by a record 19.1% in the first quarter, compared with a year earlier, according to the Standard & Poor’s/Case-Shiller National Home Price Index. It was the largest decline in the 21-year history of the index. Home prices have tumbled 32.2% since peaking in the second quarter of 2006. The 20-city index dropped by 18.7%, while the 10-city index fell 18.6%. “We see no evidence that a recovery in home prices has begun,” said David Blitzer, chairman of the index committee at S&P. Home prices are close to levels last seen in the fourth quarter of 2002. For the 12th consecutive month, every region saw a year-over-year decline. Phoenix and Las Vegas were the weakest, with declines of 36% and 31%, respectively, in home prices. Phoenix is down 53% from its peak in June 2006. Dallas has performed the best, down only 11% from its peak in June 2007 (Associated Press via Yahoo! News and The Wall Street Journal Online May 26) … * More small businesses are dropping their employee health-care coverage as the recession continues and health-care premiums continue to rise. Health-care premiums for single employees at small firms surged 74% from 2001 to 2008, according to the Kaiser Family Foundation. Only 38% of small businesses offered health insurance last year--down sharply from 41% in 2007 and 61% in 1993, according to the National Small Business Association. And in a recent poll by the association, 10% of small firms said they are considering eliminating health care coverage over the next year, up from just 3% in a 2005 survey. Many employees that lose their employer-based coverage can’t afford private plans (The Wall Street Journal Online May 26) … * The economies of the developed world saw their weakest quarter in almost fifty years, according to preliminary data from the Organization for Economic Cooperation and Development (OECD). The combined gross domestic product (GDP) in the 30 OECD nations declined 2.1% in the first quarter--the biggest decline since the OECD began collecting the statistics in 1960. The decline followed a 2% drop in the fourth quarter. Only France saw its rate of contraction ease during the first quarter. GDP in the OECD region tumbled by 4.2% in the first quarter, compared with the same period in 2008, largely reflecting a 9.1% plunge in Japan and a 6.9% drop in Germany (The New York Times and AFP via Yahoo! News May 26) … * Volatile oil prices could derail the fragile global economic recovery, said Group of Eight energy ministers following a meeting in Rome over the weekend. “If oil prices do spike up considerably, that would be a factor in delaying economic recovery,” said U.S. Energy Secretary Steven Chu. Oil prices have almost doubled from a low hit in December. Speculation and a weak dollar, not fundamentals, are driving oil price gains, said Algerian Energy Minister Chakib Khelil. Energy leaders noted that the global financial crisis has dampened investment in oil production for the long term. The International Energy Agency predicts that investment in oil and gas production will plunge 21% this year (Reuters via CNNMoney.com May 26) … * The Federal Reserve will keep interest rates near zero for some time to come as the economy only gradually recovers, said Fed Vice Chairman Donald Kohn. “The economy is only now beginning to show signs that it might be stabilizing, and the upturn, when it begins, is likely to be gradual amid the balance sheet repair of financial intermediaries and households,” said Kohn at a conference at Princeton University on Saturday. He said government spending will have a bigger effect on the economy now than it would if the central bank could lower interest rates further. “In this situation, fiscal stimulus could lead to a considerably smaller increase in long-term interest rates and the foreign exchange value of the dollar, and to smaller decreases in asset prices, than under more normal circumstances.” (Reuters via CNNMoney.com May 26) …

News of the Competition (05/25/2009)

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MADISON, Wis. (5/26/09)
* In the largest bank failure this year, Florida thrift BankUnited FSB was seized by regulators and sold to a consortium of private-equity firms on Thursday. The failure is expected to cost the Federal Deposit Insurance Corp. (FDIC) $4.9 billion--the second-largest hit to the FDIC’s insurance fund since the financial crisis starting prompting bank failures in 2008. The most expensive failure was that of California lender IndyMac Bank, which cost the FDIC’s insurance fund an estimated $10.7 billion. The Office of Thrift Supervision said BankUnited had $2.2 billion in losses last year as loan defaults soared. It was the 34th federally insured institution to be shut down this year, compared with 25 in 2008 and only three in 2007. The FDIC predicts that bank failures will cost the insurance fund about $65 billion through 2013 (The New York Times and Associated Press via Yahoo! News May 22) … * GMAC LLC received $7.5 billion from the Treasury Department on Thursday to help the firm boost its capital and make loans to buyers of General Motors and Chrysler Corp. vehicles. The government also pumped $5 billion into GMAC in December. The firm is giving the government a 35.4% equity stake. The government also won the right to appoint two directors to the company’s board. The two Treasury Department nominees to join GMAC’s board are Robert Blakely, a former chief financial officer at Fannie Mae, and Kim Fennebresque, a former Cowen Group chief executive (MarketWatch and Reuters via The New York Times May 22) … * Most banks will repay government bailout funds by the fourth quarter of this year, said Morgan Stanley analysts. They noted that most large banks will repay money from the Trouble Asset Relief Program during the third quarter. However, Bank of America and Citigroup are expected to make another round of repayments during the fourth quarter. The analysts boosted their price targets for bank stocks by an average 33%. They predicted that nonperforming loans will peak during the fourth quarter, then decline in the first half of 2010 (Reuters via Yahoo! News May 22) … * American International Group head Edward Liddy announced Thursday that he is steeping down after eight months at the company. Last September, then-Treasury Secretary Henry Paulson asked Liddy to take the reins of the firm, which was near collapse. Liddy, a retired Allstate chief executive, agreed to a salary of $1 a year. But he faced intense criticism from Congress for paying retention bonuses to employees in its financial products unit, which was at the center of AIG’s near collapse. He said the bonuses were granted before he came to AIG. Liddy is recommending that the roles of chairman and CEO be split into separate positions. Liddy said he would remain with the firm until a successor was found (USA TODAY and The New York Times May 22) … * MasterCard Inc. will lose more than half of its $59 billion portfolio of U.S. debit card users following JPMorgan Chase’s decision to shift more business to Visa Inc., say people familiar with the situation. Visa already controls about two-thirds of the U.S. debit market, according to the Nilson Report newsletter. Consumers are using debit cards for more purchases amid the economic downturn. JPMorgan’s decision won’t have a material effect on MasterCard’s revenue, said company spokeswoman Joanne Trout. She noted that JPMorgan will retain some debit business with MasterCard, including its co-branded cards with Continental Airlines and the Chicago Bears football team (Bloomberg.com May 22) … * The administration of President Barack Obama will release a plan in June designed to help realign compensation with performance at financial institutions, said Treasury Secretary Timothy Geithner. He said Wall Street’s pay practices helped cause the financial crisis by encouraging excessive risk taking. “We’re going to need to see very, very substantial change,” said Geithner (Bloomberg.com May 22) …

Market News (05/25/2009)

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MADISON, Wis. (5/26/09)
* Homeowners refinancing their mortgages overwhelmingly chose fixed-rate mortgages (FRMs) during the first quarter, according to Freddie Mac. In the first three months of the year, more than 99% of prime borrowers who originally had a conforming adjustable-rate mortgage (ARM) chose a new conforming FRM when they refinanced. And nearly 100% of borrowers who had a FRM chose another FRM when they refinanced. “The lowest fixed-mortgage rates in 50 years are attractive by themselves, and when we look at average ARM interest rates that are nearly the same as the fixed rates being offered, it is easy to see why borrowers are making the choice for fixed-rate mortgages,” said Freddie Mac Vice President and Chief Economist Frank Nothaft … * Mortgage rates steadied last week due to actions by the Treasury Department and the Federal Reserve, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) edged down 4 basis points to 4.82%, while the 15-year FRM slipped 2 basis points to 4.50%. The one-year, adjustable-rate mortgage (ARM) rose 11 basis points to 4.82%--matching the 30-year FRM. “Long-term, fixed-rate mortgage rates have remained below 5% for the past 10 weeks as the U.S. Treasury and Federal Reserve act to keep interest rates low through security purchases,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He also noted that homebuilders have become more confident as single-family home construction has stabilized. Mortgage rates remain much lower than a year ago. At this time last year, the 30-year FRM averaged 5.98%, while the 15-year FRM stood at 5.55%, and the one-year ARM was at 5.24%. For CUNA's Daily Financial Rates, use the link. … * The credit rating of the Untied States remains AAA and stable, said Moody’s Investors Service spokesman John Cline on Friday. Investors had been concerned that the U.S. could lose its top rating after Standard & Poor’s cut its outlook for Britain to negative from stable on Thursday. Cline said his ratings agency issued a credit opinion on May 6, saying the U.S. rating remained AAA and stable. The firm noted that many factors support a stable rating. However, it also noted that interventions to buoy the financial system and economy had weakened the government’s financial strength (Reuters via Yahoo! News May 22) … * A global economic recovery could begin at year-end 2009, said Organization for Economic Development and Cooperation (OECD) head Angel Gurria during a speech to an economic forum in Madrid last week. However, he said the banking industry still hasn’t returned to full health. “Banks are still not lending normally.” He said the U.S. economy will recover before European economies stabilize because the U.S. has enacted larger stimulus packages, and because the U.S. financial crisis is at a more advanced point. He noted that U.S. home sales already are beginning to recover (Reuters and AFP via Yahoo! News May 22) … * Forty-four states lost jobs during April--led by the loss of 63,700 jobs in California, the Labor Department reported Friday. Other states posting big job loses included Texas (39,500); Michigan (38,400); and Ohio (25,200). Nationwide, the unemployment rate rose to a 25-year high of 8.9% in April, from 8.5% in March and just 5% a year earlier. Michigan again led the nation, with an unemployment rate of 12.9%. Oregon, South Carolina, Rhode Island, California, North Carolina, Nevada and Ohio all had jobless rates of more than 10% in April. The economy has lost a net total 5.7 million jobs since the recession began in December 2007 (bls.gov and Associated Press via The New York Times May 22) … * The new credit card legislation will subtract $10 billion in revenue from the credit card industry’s overall interest income, said industry consultant Robert Hammer. Credit card firms are expected to levy $20.5 billion of penalty fees in 2008, up from $19.1 billion last year. The new law will restrict some fees, limit certain interest-rate hikes, and require more consumer disclosure. Firms that specialize in subprime customers and those specializing in retail cards will be hit hardest by the new law, analysts said. Consumers also may find it more difficult to obtain credit, and they may find credit more costly as issuers reintroduce annual fees, analysts added (The Wall Street Journal Online May 22) …

News of the Competition (05/21/2009)

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MADISON, Wis. (5/22/09)
* The Justice Department is questioning some former Lehman Brothers executives as part of its criminal investigation into whether they marketed and sold auction-rate securities (ARS) as safe, liquid investments even though they knew the market for them was collapsing. Investigators also want to know if the executives sold their own holdings of ARS because they knew the market was in trouble. That would constitute insider trading. The investigation involves 10 former executives and brokers, said a person familiar with the situation. The market for ARS collapsed in 2007. However, investors have claimed they only found out there was a problem with the market in early 2008 (The Wall Street Journal Online May 21) … * Two pension funds that are pursuing a class-action lawsuit against Freddie Mac have filed an amended complaint that depends partly on interviews with unnamed former Freddie executives to claim that the firm defrauded shareholders by misrepresenting its exposure to risky mortgage loans. In the complaint, an unnamed executive said Freddie manipulated the home-price assumptions that it used to set loan-loss reserves. Unnamed former employees also said the firm was aware that its systems couldn’t accurately account for the credit risk of some risky mortgages (Dow Jones Newswires May 20) … * Regions Financial of Birmingham, Alabama and Cincinnati-based Fifth Third Bancorp have announced stock offerings, making them the eighth and ninth of the 10 large banks ordered by regulators to boost their capital. The ten firms were told to raise a total $74.6 billion in new capital. Only GMAC has not announced a capital-raising plan. Fifth Third said it may use some of its proceeds from the stock offering to begin repaying the $3.4 billion it took from the Troubled Asset Relief Program (Reuters via Yahoo! News May 21) … * The banking industry will consolidate as the economy stabilizes, said Bank of America CEO Kenneth Lewis. However, he said he doesn’t expect his firm to participate in the merger pickup. “At Bank of America, we’ve got enough on our hands right now,” said Lewis. BofA acquired Countrywide Financial in July and Merrill Lynch in January. Regulators have told BofA to raise $33.9 billion, the largest amount among the 19 banks in the government’s “stress tests.” Lewis predicts a “slow but sustainable economic recovery,” during the second half of this year (Bloomberg.com May 20) … * The Bank of New York Mellon and First Midwest Bank announced the successful launch of Cash Worldwide on Tuesday, the new First Midwest product offering that will let customers remit funds directly to people in other countries using the Bank of New York Mellon’s Remit Worldwide service. The service lets banks participate in a market that mostly is dominated by nonbank money-transfer services, said Wendy Miller, director of remittance services at Bank of New York Mellon’s treasury services group. She noted that banks handle just 15% of international remittance volume in the U.S. She said a remittance service generates revenue, brings unbanked and underbanked customers into the banking system, and offers an opportunity for banks to cross-sell products and services (/PRNewswire/ and American Banker May 21) …

Market News (05/21/2009)

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MADISON, Wis. (5/22/09)
* The economy will begin growing again during the second half of this year, the Congressional Budget Office (CBO) said Thursday. However, the CBO predicts that the nation’s unemployment rate will peak at more than 10% in the second half of 2010. That’s up from a 9.5% forecast made in March. “Even if the economy returns to positive growth this year, the loss in output, income, and employment during the recession and the next few years will be huge,” CBO Director Doug Elmendorf told the House Budget Committee yesterday. He said the CBO believes the recession will end in the second half of this year, but that the recovery will be more gradual than at the end of past downturns. That’s because a huge inventory of unsold homes, estimated at 2.5 million to 3 million units, will impede any recovery in the housing sector (CNNMoney.com and Dow Jones Newswires May 21) … * The Federal Reserve foresees “significant downside risks” to the economic outlook, with the global financial system remaining “vulnerable to further shocks,” according to minutes of the central bank’s April 28-29 meeting released Wednesday. Fed policymakers downgraded the outlook for all of this year, predicting that the economy will contract 1.3% to 2%, compared with the previous forecast of a 0.5% to 1.3% contraction. The unemployment rate is expected to increase to as high as 9.6%, up from the previous 8.8% forecast. The jobless rate could remain as high as 8.5% in late 2011. The economy may only grow 2% to 3% next year, less than the Fed forecast in January. The Fed said it also is open to increasing the amount of Treasury and mortgage-related securities its is purchasing beyond the $1.75 trillion already committed. The central bank did note some optimistic signs, saying economic data since March offer “some tentative evidence that the pace of contraction in real economic activity was starting to diminish,” and that the housing sector “might finally be approaching a trough.” (Associated Press, Bloomberg.com and The Wall Street Journal Online May 21) … * Plunges in the economies of three of the nation’s largest trading partners-- Mexico, Japan and Germany-- show the severity of the global recession and the need to restart global trade negotiations. Mexico’s gross domestic product tumbled at an annual 21.5% rate during the first quarter, the weakest performance since the peso crisis in 1995. Japan’s economy contracted at a 15.2% pace, the largest drop since 1955, while Germany’s economy contracted at a 14.4% pace, the weakest since 1970. These economies have suffered as U.S. consumers cut back purchases of foreign-made goods. In turn, the economic declines of U.S. trading partners erodes the market for U.S. exports (The Wall Street Journal Online May 21) … * An economic forecasting gauge rebounded in April, suggesting stronger economic growth over the next six to nine months. The Conference Board’s index of leading economic indicators jumped 1%, following a 0.2% dip in March. It was the first gain in seven months and the largest since November 2005. The April increase reverses nearly two-thirds of the drop in the index since October. Seven of the index’s 10 components contributed to the increase--led by stock prices, consumer expectations, the yield curve and unemployment claims. The money supply, building permits, and manufacturers’ new orders for nondefense capital goods were negatives. “The leading indicators suggest that while the recession will continue in the near term, the declines will be less intense,” said Conference Board Economist Ken Goldstein. “The question is how long before declines in activity give way to small increases. If the indicators continue on the current track, that point might be reached in the second half of the year.” (conference-board.org, Bloomberg.com, and Moody’s Economy.com May 21) … * The number of long-term jobless rose to another record high, even as first-time claims for unemployment insurance declined slightly last week. Continuing claims, the number of people continuing to collect jobless benefits after an initial week of aid, surged by 75,000 during the week ending May 9 to 6.662 million. That’s the highest total on records going back to 1967 and the 16th consecutive week that continuing claims hit a record high. In a hopeful sign, initial unemployment claims declined by 12,000 during the week ended May 16 to 631,000. But analysts say plant shutdowns by Chrysler and General Motors will boost unemployment claims in the weeks ahead. In a bearish forecast, Deutsche Bank Economist Joseph Lavorgna predicts that auto shutdowns will temporarily increase jobless claims to as high as 700,000 (Associated Press via The New York Times May 21) … * The United Auto Workers said Thursday that it has reached a tentative agreement with General Motors Corp. and the government to lower labor costs and fund a union-run trust that will manage retiree health-care costs next year. The move is important to GM’s efforts to restructure and avoid bankruptcy. Union members must vote on the agreement. In other news, the government is close to providing auto lender GMAC with billions of dollars in new aid, say people familiar with the situation. The government gave the company $5 billion in bailout money in December, receiving 5 million shares of GMAC in return. The government also told GMAC to begin extending financing services to Chrysler, which has filed for bankruptcy protection (Associated Press via Yahoo! News May 21) …

News of the Competition (05/20/2009)

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MADISON, Wis. (5/21/09)
* Banks are taking out life insurance policies on their employees to help pay for executive bonuses (The Wall Street Journal Online May 20). Banks had a total $122.3 billion of life insurance on their employees at year-end 2008, according to the newspaper’s analysis of bank filings. The filings show that executive compensation accounts for most of the benefits. Banks took out hundreds of thousands of policies on their workers during the mortgage boom when executives’ pay soared. Banking regulators also affirmed that the banks could use life insurance to finance executive pay and benefits. Employers receive tax-free death benefits when employees, former employees, and retirees die. Some families have complained that firms shouldn’t benefit from the deaths of their family members. A rule enacted by Congress in 2007 limited life-insurance purchases to only the top one-third of earners, who must consent. But the rules weren’t applied to policies purchased before August 2006. At $17.3 billion at the end of the first quarter, Bank of America has the most life insurance on its employees … * New York Attorney General Andrew M. Cuomo has filed lawsuits against two debt-settlement companies. The suits claim Nationwide Asset Services and Credit Solutions of America engaged in fraudulent and deceptive business practices, and false advertising. Cuomo claims Credit Solutions earned $17 million in fees from enrolling 18,000 customers in New York, but settled the debts of less than 2,000 of them. He said Nationwide settled only 64 of 1,981 cases. The suit claims 27 of Nationwide’s customers ended up paying more than they originally owed due to the firm’s fees. Both companies deny any wrongdoing (The New York Times May 20) … * A group of private-equity funds, including Blackstone Group and Carlyle Group, has submitted a bid to acquire BankUnited Financial, a troubled Florida lender, a person familiar with the situation said Wednesday (MarketWatch May 20). The Federal Deposit Insurance Corp. probably will place the bank into receivership as part of the sale process. The Wall Street Journal reported Tuesday that TD Bank and Goldman Sachs also will team up to bid on BankUnited, the largest Florida-based lender. The company was hit hard by the housing slump after it waded into option adjustable-rate mortgages during the boom … * Financial institutions have been buying up failing banks in California over the past year, changing the financial landscape. Bank of America, Wells Fargo, and U.S. Bancorp have grown significantly via acquisitions in the state. JPMorgan Chase had no branches in California before it purchased Washington Mutual’s banking operations. The entry of JPMorgan “adds a true competitor to the market here,” said Fred Cannon, chief equity strategist at Keefe, Bruyette & Woods. “Over time, California will have three and maybe four big players in commercial banking, so definitely the competition will heat up.” (American Banker May 20) …

Market News (05/20/2009)

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MADISON, Wis. (5/21/09)
* Mortgage demand rebounded last week as refinancings increased, the Mortgage Bankers Association reported Wednesday (mbaa.org May 20). The trade group’s Market Composite Index rose 2.3% during the week ending May 15 to 915.9. The modest gain followed an 8.6% decline the previous week. The Refinance Index rose 4.5% to 4794.4, offsetting a 4.4% drop in the Purchase Index. Mortgage rates declined last week. The average 30-year, fixed-rate mortgage (FRM) fell 7 basis points to 4.69%, and the one-year, adjustable-rate mortgage (ARM) edged down 3 basis points to 6.38%. Purchase applications have made no real gains since November, noted Moody’s Economy.com (May 20). However, improved housing affordability and slowing job losses should help home sales pick up during the second quarter … * The Pension Benefit Guaranty Corp. (PBGC), which guarantees private pensions for 44 million people in the U.S., said its deficit tripled over the past six months to a record-high $33.5 billion for the first half of fiscal-year 2009, as companies canceled retirement plans. That’s the largest deficit since the agency was created in 1974. In a further threat to the agency’s financial security, the pension plans paid into by the auto industry are underfunded by $77 billion. Former PBGC Director Charles E.F. Millard is being investigated by Congress over his ties with Wall Street. A draft report by the PBGC inspector general alleges that Millard had inappropriate communications with eight of the 16 Wall Street firms that bid last year to manage $2.5 billion of the agency’s $48 billion investment portfolio. In February 2008, the PBGC board approved a new investment strategy to shift money from Treasury securities into stocks, real estate and private equity. Millard pushed the change (CNNMoney.com and Bloomberg.com May 20) … * President Barack Obama told his board of outside economic advisers yesterday that the nation will face high unemployment for some time. “We’re pleased that we’ve seen some progress, that there is some return to normalcy in certain aspects of the financial markets,” Obama said at the meeting. “The concern that we have is that even in a stabilized situation there is the prospect of higher unemployment for some time to come,” added Obama. He said he wants to promote “green jobs” to stimulate economic and job growth over the long term. Former Federal Reserve Chairman Paul Volcker heads the 16-member board, which also includes General Electric Chairman and CEO Jeffrey Immelt, former Securities and Exchange Commission Chairman William Donaldson, former Fed Vice Chairman Roger Ferguson, UBS Americas Chairman and CEO Robert Wolf, and Service Employees International Union Secretary-Treasurer Anna Burger (Bloomberg.com and Reuters via Yahoo! News May 20) … * Bank of America’s successful effort to raise billions of dollars in fresh capital reassured the markets in early trading Wednesday. BofA announced that it raised $13.5 billion through the sale of 1.25 billion shares. However, early gains were reversed as investor optimism about the sustainability of bank stocks waned. In early afternoon trading, the Dow Jones Industrial Average was little changed. The S&P 500-stock index was up 0.2%, buoyed by gains in energy. Light, sweet crude rose $1.26 to $61.36 per barrel on the New York Mercantile Exchange (Associated Press via Yahoo! News and The Wall Street Journal Online May 20) … * A plunge in energy investment due to the recession will prompt an oil-price surge within three years, according to an International Energy Agency report reviewed by The Wall Street Journal (May 20). Oil firms and investors have postponed or canceled an estimated $170 billion of investment. “What we’re saying is that come around 2012 the impact of this big recession on oil investment and capacity, if current trends continue, could be severe with much higher oil prices,” said Fatih Birol, chief economist at the Paris-based group. However, the report also noted that energy-efficiency measures enacted by some countries could keep oil demand from rising as much when economies recover, thus tempering any increase in oil prices …

News of the Competition (05/19/2009)

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MADISON, Wis. (5/20/09)
* The Financial Accounting Standards Board has approved new rules requiring banks to report the loans contained in “qualifying special purpose entities” on their balance sheets and to increase their reserves proportionately as a cushion against potential losses. Previously, the banks could park hundreds of billions of dollars in loans off their balance sheets. The move “addresses the critical need for continued improvement to the accounting for arrangements that were at the epicenter of the financial crisis,” said James Kroeker, acting chief accountant at the Securities and Exchange Commission. The Federal Reserve estimates that the change will result in $900 billion in assets being shifted onto the balance sheets of the nation’s 19 largest banks (Associated Press via Yahoo! News May 19) … * Money manager BlackRock Inc., which manages $1.3 trillion in assets for private clients, has emerged as the big contractor and adviser for the federal government. And some lawmakers and watchdog groups are asking if the firm’s roles as government adviser, federal contractor, and private money manager represent a conflict of interest. BlackRock won contracts to help the government manage the rescues of Bear Stearns and American International Group. And the firm is expected to win a bid to price and sell troubled assets for the government, at the same time the company is purchasing those same types of assets for private clients. The company says it has firewalls in place to avoid such conflicts of interest. Others are skeptical. “How can one company have so much control over the process?” said Scott Amey, general counsel at the Washington-based Project on Government Oversight. “Isn’t there somebody else they can turn to?” (The New York Times May 19) … * Facing rising defaults and delinquencies on credit cards, American Express said it plans to slash 4,000 jobs, or 6% of its workforce, to save $800 million this year. The layoffs are on top of the 7,000 cuts the firm announced in late October. AmEx also plans to realize $500 million in savings from cutbacks in marketing and business development. The company’s U.S. card business wrote off 8.5% of its loans during the first quarter, up from 6.7% in the previous quarter and 4.3% a year earlier. AmEx also plans to repay $3.4 billion in funds it received from the Troubled Asset Relief Program (The Wall Street Journal Online May 19) … * Capital One Financial reported a net chargeoff rate of 8.56% on U.S. credit cards in April, down from 9.33% in March. However, much of the decline reflected a change in the way the firm processes bankrupt accounts. “While our internal guidelines require bankrupt accounts to be charged off within 30 days, our practice had been to charge off customer accounts within two to three days of receiving notification of bankruptcy,” said the company in its Securities and Exchange Commission filing. “Due in part to an increase in the volume of bankruptcies, we have extended our processing window to improve the efficiency and accuracy of bankruptcy-related chargeoff recognition,” said Capital One (CardLine via American Banker May 19) … * Goldman Sachs, JPMorgan Chase and Morgan Stanley have applied to repay a combined $45 billion they received from the Troubled Asset Relief Program (TARP), say people familiar with the situation. The three firms need Federal Reserve approval to return the funds. The repayments would be the largest so far in the $700-billion TARP. Financial firms are scrambling to repay the money to avoid restrictions on compensation and hiring (Bloomberg.com May 19) …

Market News (05/19/2009)

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MADISON, Wis. (5/20/09)
* Housing starts plunged again in April, but the drop was concentrated in multi-family building. Construction of new homes and apartments tumbled 12.8% to an annual rate of 458,000 units last month following a revised 8.5% decline in March, the Commerce Department reported Tuesday. April starts were down 54.2% from a year earlier. However, the drop reflected a 46.1% plunge in multifamily construction, while building of single-family homes rose 2.8%. In another bright spot, building permits for single-family homes rose 3.6%, compared with a 19.9% drop in permits for multifamily construction. Analysts say apartment construction is being weakened by the glut of condominiums on the market and by tighter credit conditions for commercial real estate (Associated Press via The New York Times May 19). Still, a significant rebound in single-family construction will be delayed as job cuts and record foreclosures continue … * Builder confidence in the market for new, single-family homes improved for a second consecutive month in May, according to the National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (mbaa.org May 18). The index rose 2 points to 16. “Builders are responding to what they perceive to be some of the best home-buying conditions of a lifetime,” noted NAHB Chairman Joe Robson. The trade association also reported that housing affordability surged to an 18-year high during the first quarter. The NAHB’s Housing Opportunity Index showed that 72.5% of all new and existing homes sold during the first three months of the year were affordable to families earning the national median income of $64,000, up from 62.4% in the fourth quarter and 53.8% a year earlier. “Underlying the increase in affordability are lower home prices and record-low interest rates,” said Robson. “Combined with the $8,000 federal tax credit for first-time home buyers, consumers are beginning to return to the marketplace,” Robson added … * Commercial real estate loans could prompt losses of $100 billion to $200 billion by year-end 2010 at more than 900 small and midsized banks if the economic slump deepens, according to an analysis by The Wall Street Journal (May 19). The study used the worst-case scenario in the federal government’s stress tests. The losses would easily top the expected $49 billion loss on home mortgage loans at the banks. Losses on commercial real estate could cause about one-third of the banks to see their capital decline to risky levels. Many of the nation’s smaller banks are trying to boost their capital by selling assets and making fewer loans, a trend that could in turn deepen the recession … * Lending at the nation’s 21 largest banks increased in March, according to a survey of recipients of funds from the Troubled Asset Relief Program by the Treasury Department. Originations of mortgages, home equity lines, and other consumer loans rose 27% from February. However, the department said the increase reflected more business days in March and a typical increase in loan volume at the end of a quarter. First-mortgage originations increased 6% in March, while home equity lines of credit rose 17%, and credit card loans declined 2%. Commercial and industrial balances fell 2% (American Banker May 18) … * Financial institutions may seek to make more money on their best credit card customers as Congress limits the penalties on riskier borrowers, say bank officials and trade groups. Banks may start reviving annual fees, cutting rewards programs, and charging interest immediately on a purchase instead of allowing a grace period to make up for lost income from riskier customers. “Those that manage their credit well will in some degree subsidize those that have credit problems,” said American Bankers Association CEO Edward Yingling. Some analysts say the legislation, which will limit fees and impose new restrictions, also will prompt banks to issue fewer cards at more cost to current customers. However, consumer advocates say card issuers have made billions of dollars in past years with unfair and often deceptive practices, and the reforms are a long time coming (The New York Times May 19) … * Ford Motor said Monday that its dealer cuts won’t be as large as those announced by Chrysler and General Motors. The company has steadily consolidated its dealerships, instead of ending contracts or letting them expire, said James Farley, Ford’s director of North American sales. Its dealer network has declined by 700 since 2005, to 3,700 nationwide. In comparison, Chrysler plans to terminate almost 800 dealers by next month, and General Motors plans to cut 1,100 dealers next year. Farley predicts that some Chrysler customers, especially in rural areas, will migrate to Ford dealerships (The New York Times May 19) …

News of the Competition (05/18/2009)

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MADISON, Wis. (5/19/09)
* Banks’ push to raise capital will change the way some banks are run, as institutional investors get a larger chunk of common stock. Analysts say banks will face more accountability and oversight with institutional investors. “Institutional investors are much more inclined to be in touch with management and seeking information,” noted University of Kentucky Finance Professor Donald Mullineaux. “There is evidence that higher institutional ownership leads to higher corporate governance over the long haul.” Analysts also say bank stocks will become more volatile as banks gain more institutional investors. “The stock can whipsaw if someone big really wants to get out,” said FIG Partners analyst Christopher Marinac (American Banker May 15) … * Federal officials pressured Bank of America to reconfigure its board by obtaining directors with more banking experience. Government officials also said independent directors should lead the work of restructuring the board. The government has provided $45 billion to BofA, taking preferred shares in return. In a similar instance, Citigroup named four financial experts to its board as part of a government-directed revamp. The changes followed an agreement that the government would boost its stake in Citigroup to as much as 36%. At BofA, CEO Kenneth Lewis has testified to New York’s attorney general than he was “forced” by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to complete its acquisition of Merrill Lynch, in exchange for more government money. Next month, Lewis and federal officials are scheduled to testify at a House panel about the level of government pressure at the completion of the Merrill acquisition (The Wall Street Journal Online May 15) … * American International Group plans to spin off its Asian life-insurance unit in an initial public offering to help it repay billions of dollars in federal government loans. Shares of AIA Group, which has more than 20 million customers and $60 billion in assets, will be traded on an Asian exchange. AIG has received almost $180 billion in government loans, with the government taking an 80% stake in the company. AIG already has sold its 21st Century Insurance unit. The company also plans to sell its Japanese headquarters to Nippon Life Insurance Co. (Associated Press via Yahoo! News May 18) … * The Federal Home Loan Banks avoided taking large hits to their earnings for the first quarter because of a change in accounting policies. New guidance from the Financial Accounting Standards Board let firms make a distinction between the percentage of any decline in the value of a security they attribute to deteriorated credit quality, and the portion attributed to other factors such as distressed market conditions. Only the portion blamed on credit quality must be reflected on income statements. The remainder can be placed on an “other comprehensive income” account, which doesn’t affect earnings or capital calculations (The Wall Street Journal Online May 18) … * Fannie Mae and Freddie Mac cut their charitable giving by more than 40% from 2006 to 2008, leaving some local nonprofits without their main source of funding. The two firms have been big donors to Washington-area charities for many years. Charitable giving by Fannie and Freddie is expected to decline again this year. Fannie is committed to continuing support of local charities, said company spokesman Brian Faith, However, he said that mission has been aligned with its corporate mission to focus mainly on foreclosure prevention. Nonprofits are reaching out to other corporate and individual donors as the mortgage giants’ donations have declined (washingtonpost.com May 18) …

Market News (05/18/2009)

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MADISON, Wis. (5/19/09)
* Stocks bounced Monday after a stronger-than-expected report from home-improvement retailer Lowe’s Cos. The firm said its earnings fell 22% in the first quarter, topping Wall Street forecasts. Lowe’s also boosted its full-year profit forecast. The Dow Jones Industrial Average jumped 150 points in late-morning trading, eliminating half the losses suffered last week. Investor optimism also was buoyed by a report that State Street Corp. plans to raise about $1.45 billion in capital through a stock offering to help repay a $2 billion government loan (Associated Press via Yahoo! News May 18) … * Economists predict an end to the recession by autumn but don’t expect the economy to fully recover for several more years, according to a survey by The Wall Street Journal Online (May 15). Respondents predict the economy will contract at a modest 1.4% pace during the current quarter, following a 6.1% drop during the first quarter. However, the economy is expected to expand by around 2% during the first half of next year. Economists say economic growth will be contained by a consumer retrenchment, as the job market remains weak. On average, respondents expect the unemployment rate to jump to 9.7% by the end of this year, from the current 8.9% rate, with another two million more jobs lost over the next 12 months … * Global business confidence remains consistent with an ongoing recession, but optimism for the next six months has improved, according to the latest Moody’s Economy.com Survey of Business Confidence. Still, firms continue to slash jobs and inventories as they remain concerned about weak sales and soft pricing. About one-third of firms say they still are cutting prices. Survey responses are consistent with job losses of more than 500,000 per month in the U.S., and even more in Europe. But expectations for the economy six months from now are as strong as they were just before the financial crisis began in the summer of 2007 … * The global economy will begin expanding in 2010, predicts John Lipsky, first deputy managing director of the International Monetary Fund (Bloomberg.com May 18). “However, the recovery is likely to be more gradual than in past recessions,” said Lipsky. “It is clear that the current crisis--that is coming to be known as the Great Recession--is far from over.” A Bloomberg poll conducted last week saw confidence in the global economy jump to a 19-month high, as central bankers suggested signs of recovery and the government’s stress tests on U.S. banks reassured investors. “The world economy is past its worst and that exuberance is spilling into stock markets,” said Alvin Liew, a survey participant and economist at Standard Chartered Plc … * General Motors and the United Auto Workers (UAW) union started battling last week about the firm’s plan to import vehicles from other countries while it shuts down 16 factories in the U.S. The union e-mailed members Sunday night, asking them to contact President Barack Obama to protest the plant shutdowns and imports. “The UAW strongly objects to GM’s plan to close 16 manufacturing facilities in the U.S., while at the same time dramatically increasing the number of vehicles it will be importing from Mexico, Korea, Japan and China for sale in this country,” said the e-mail. The union said the automaker wants to almost double the number of imports, resulting in the loss of 21,000 union jobs in the U. S. The dispute comes less than two weeks ahead of a June 1 deadline for the firm to submit a restructuring plan to the government to avoid bankruptcy (Associated Press via Yahoo! News May 18) … * The decisions by General Motors and Chrysler last week to slash their number of dealers will offer an opportunity for consumer bargains on vehicles. Chrysler dealers have only a few weeks to sell vehicles or risk losing thousands of dollars on them. “You’ve got some very good negotiating power,” noted Dave Champion, director of automobile testing at Consumer Reports magazine. “[Dealers are] really looking to shift this inventory. It’s just stacking up all around them.” General Motors dealers have more time because their franchise agreements won’t end until October 2010 (Associated Press via Yahoo! News May 18) …

News of the Competition (05/15/2009)

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MADISON, Wis. (5/18/09)
* The Treasury Department has agreed to make as much as $22 billion in federal bailout funds to U.S. life insurers under the Troubled Asset Relief Program (TARP). Treasury Spokesman Andrew Williams confirmed that the government has agreed to provide funds to Hartford Financial Services Group, Prudential Financial, Principal Financial Group, Lincoln National Corp. and Allstate Corp. The government also will provide funds to Ameriprise Financial, a wealth-management firm that sells life insurance and annuities. The life insurers receiving aid are eligible because they already were bank holding companies or they have moved to secure that designation. However, Prudential Financial isn’t expected to take funds from the government under TARP, said a person familiar with the situation. Some firms have raised private money since they applied for TARP money. Prudential’s stock has increased significantly this year, so it could choose another route (The Wall Street Journal Online May 15) … * Distrust is pushing more retail customers away from banks, according to an Interbrand Corp. survey. One-third of respondents said they had less confidence in their banks and wanted to switch to another financial institution. “Trust and confidence” rose to the No. 2 reason for choosing a primary bank, up from No. 4 in a 2007 poll. “People are now basing their decisions more on emotions about who they can trust, and the role of the brand has jumped in importance,” said Andy Bateman, CEO of Interbrand New York. He noted that banks with the most negative news are the most vulnerable (American Banker May 14) … * In a bid to stimulate retail deposit growth, GMAC has changed the name of its GMAC Bank to Ally Bank. GMAC converted to a bank holding company in December to be eligible for federal money. The name change is a move away from the GMAC brand, which emphasized the lender’s association with General Motors. GMAC, which originally was an acronym for General Motors Acceptance Corp., was established in 1919 to offer financing to GM buyers. As a condition of the lender becoming a bank holding company, GM and co-owner Cerberus Capital Management LP will significantly scale back their ownership in GMAC by the end of May. The firm also has become the lender for Chrysler vehicles (The Wall Street Journal Online May 15) … * The banking crisis has “merely entered a new phase” and may continue into 2013, said a Standard & Poor’s analyst last week. “There’s nothing to say that this banking crisis can’t go on for another three to four years,” said S&P Managing Director Tanya Azarchs. The ratings agency said Tuesday that top banks need to raise about $18 billion in new capital, less than the $74.6 billion the government told the nation’s top 10 banks to raise. S&P noted earlier this month that it may lower its ratings on 23 banks and thrifts this year (Reuters via The New York Times May 14) … * MasterCard announced last week that its Mobile MasterCard MoneySend person-to-person mobile payment platform is set to go live later this month. Participating bank customers will be able to offer the service to their customers. Initially, consumers will be able to use the service with a MasterCard prepaid card issued by The Bancorp Bank and then link it to their mobile phone to send or receive funds. Senders initiate transfers to mobile phones, mobile Web browsers, or downloadable applications. Eventually, consumers will be able to use MoneySend with their everyday accounts (/PRNewswire-FirstCall/ via Yahoo! News May 13) ...

Market News (05/15/2009)

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MADISON, Wis. (5/18/09)
* Inflation remained tame in April as declines in food and energy prices offset increases in tobacco, medical care, and autos, the Labor Department reported Friday. The Consumer Price Index (CPI) was unchanged following a 0.1% decline in March. Year-over-year, the CPI was down 0.7% in April after a 0.4% year-over-year drop in March. The April decline was the largest since 1955 (Bloomberg.com May 15). Energy costs dropped 2.4% in April, while food prices edged down 0.2%. Excluding the volatile food and energy categories, the core CPI rose 0.3% in April and was up 1.9% over the past year. More than 40% of the monthly gain was due to a 9.3% jump in the tobacco index, as an increase in the federal excise tax on cigarettes went into effect. New-vehicle prices and medical-care costs each rose 0.4%. After being adjusted for inflation, real weekly earnings were up 0.1% in April and 2.6% over the past 12 months, according to a separate Labor Department report … * Fixed-mortgage rates edged up last week, but remained below 5%, according to Freddie Mac. The average 30-year, fixed-rate mortgage (FRM) rose 2 basis points to 4.86%. The 30-year FRM has remained below 5% for the past 9 consecutive weeks. It hit a record-low 4.78% during the week of April 2 and the week of April 30. Freddie also reported that the 15-year FRM inched up 1 basis point to 4.52% last week, while the one-year, adjustable-rate mortgage (ARM) declined 7 basis points to 4.71%. “Interest rates for fixed-rate mortgages were little changed this week following the release of April’s employment figures,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The economy lost 539,000 jobs, less than the monthly job loss of the past five months, and the unemployment rate rose to 8.9%. ARM rates, however, fell slightly over the period,” added Nothaft. Rates remain much lower than a year ago. At this time last year, the 30-year FRM averaged 6.01%, while the 15-year FRM stood at 5.60%, and the one-year ARM was at 5.18% (freddiemac.com and Associated Press via Yahoo! News May 14). For CUNA's Daily Financial Rates, use the link. … * General Motors on Friday informed about 1,100 dealers in the U.S. that their franchises will be terminated late in 2010. The cuts are part of the automaker’s plan to eliminate 2,600 of its 6,200 dealerships as it restructures. On Thursday, Chrysler LLC announced plans to cut almost 800 dealerships. Both moves will result in the loss of thousands of jobs and tax revenue in affected cities. Fewer dealerships also could mean higher prices for buyers of GM and Chrysler vehicles as competition is thinned. “No longer will people be able to shop between three or four dealers within 15 minutes of each other for the best cutthroat price,” noted Aaron Bragman, an automotive analyst with IHS Global Insight. He predicts that GM will file for bankruptcy protection on June 1 (Associated Press via Yahoo! News May 15) … * Consumers became more upbeat in May amid signs of a bottom to the economic downturn. The Reuters/ University of Michigan preliminary index of consumer sentiment rose to 67.9 in May, from 65.1 in April and the highest level since September 2008 before the credit crisis pushed the economy deeper into recession. Confidence had fallen to a 30-year low of 55.3 in November. Consumers became more upbeat about the future of the economy, but less upbeat about current conditions. The expectations measure rose to 69, from 63.1 and the highest level since October 2007. The measure of current conditions fell to 66.2 from 68.3 (Bloomberg.com and Reuters via Yahoo! News May 15) … * Industrial production fell 0.5% in April, slowing from a 1.7% drop in March, the Federal Reserve reported Friday. The slowdown suggests the recession may be hitting bottom. Production in manufacturing fell 0.3% in April and was down 16% from its recent peak in December 2007. The output of mines declined 3.2% in April, as oil and gas field drilling and support activities continued to decline. The output of utilities rose 0.4%. At 97.1% of its 2002 average, industrial production in April was down 12.5% from a year earlier. The capacity utilization rate for total industry dropped to 69.1 in April, from 69.4 in March and the lowest since the series began in 1967 … * Foreign demand for long-term U.S. financial assets increased in March as China and Japan snapped up more Treasury securities, according to a Treasury Department report. Net purchases of stocks, notes, and bonds by foreigners jumped to $55.8 billion, from $22 billion in February. China remained the largest holder of U.S. Treasury debt. Its holdings of Treasury securities jumped 3.7% to $767.9 billion. Japan, the second-largest holder, saw its holdings of Treasuries rise 3.2% to $686.7 billion. “As the economy gradually exhibits signs of improvement, foreign appetite for U.S.-denominated securities improves,” noted Richard Yamarone, director of economic research at New York-based Argus Research Corp. “Even in this difficult environment, the U.S. remains the safe haven,” added Yamarone (Associated Press via Yahoo! News and Bloomberg.com May 15) …

CUNA league economists brief IReutersI on consumers

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NEW YORK (5/18/09)--An economist from the Credit Union National Association (CUNA) and one from a state league briefed Reuters Friday about a survey that indicated U.S. consumer confidence rose early this month while expectations grew that the economy may be in the late stages of a recession. The Reuters/University of Michigan Surveys of Consumers preliminary index of confidence for May increased to 67.9 from 65.1 in April. This surpassed economists’ expectations of a median reading of 67.0, according to a Reuters poll. “This is another inching-along sign that things are getting better,” Bill Hampel, CUNA chief economist told Reuters. “This consumer sentiment number had been in a range for the last year and now it looks like it's breaking above that range. The Reuters/University of Michigan index is less affected by the labor market than the Conference Board consumer confidence index. “It is more affected by financial markets so this reading reflects consumers’ reaction to the improving stock market,” he continued. “What it means is that consumer spending will not be dragging the economy deeper into recession. It's one more nice piece of evidence that the worst is behind us.” Terrin Griffiths, economist with the California Credit Union League, concurred with Hampel. “It looks like people are starting to feel better about what they expect going forward,” Griffiths told Reuters. “They remain pessimistic about the present due to job losses and they won’t feel better about the present until those job loss numbers improve substantially. But the perception has become more positive about what we have in the future. People are feeling that this is a temporary situation and that there are things to be optimistic about ahead.” Hampel also was quoted in MarketWatch Friday in an article dealing with inflation. “Inflation is behaving very nicely,” Hampel said. “[The report is] further evidence that deflation is not going to happen.”

News of the Competition (05/14/2009)

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MADISON, Wis. (5/15/09)
* A group of 18 financial institutions has filed a lawsuit against MBIA Inc., alleging that the bond insurer’s decision to split its businesses earlier this year was fraudulent and left one of the units essentially “insolvent.” The suit claims the split was “an unlawful attempt to escape” its contractual obligations to cover losses from bad mortgage securities. The financial institutions include JPMorgan Chase, Bank of America, Morgan Stanley, Canadian Imperial Bank of Commerce, Barclays PLC, and UBS AG. A spokesman for MBIA had no comment on the matter (The Wall Street Journal Online May 14) … * Morgan Stanley has been fined $2.1 million by the Financial Services Authority (FSA), the UK’s financial regulator, after it found that weak control of the firm’s credit-derivatives desk let a rogue trader significantly overprice his position for six months. The trader, Matthew Piper, was fired in September after an internal investigation. The FSA also fined Piper and banned him from the industry. “Firms must take care to allocate sufficient resources to supervise adequately those activities that they choose to undertake,” said Margaret Cole, director of enforcement at the FSA. “Where a firm fails to act accordingly the FSA will take action,” added Cole (FT.com May 14) … * The CEOs of the nation’s 9 largest banks had no choice but to accept capital infusions from the Treasury Department in October, according to government documents released Wednesday and obtained by Judicial Watch, a nonpartisan education foundation. During an October 13 meeting, former Treasury Secretary Henry Paulson told the chief executives that the investments would be required “in any circumstance,” whether the firms wanted them or not. He wanted healthy banks to participate in the program so that no stigma would be attached to bailout money. The government has since invested a total of $199.1 billion in more than 550 banks. Almost $1.2 billion of that amount has been returned by 12 institutions (Associated Press via Yahoo! News May 14) … * Two recipients of government funds, American Express and JPMorgan Chase, were expected to sell at least $500 million each of corporate bonds not guaranteed by the Federal Deposit Insurance Corp. (FDIC) this week in a bid to be allowed to pay back government money. The government has said it will let banks repay government money if they can raise funds without FDIC guarantees and meet stress-test capital requirements. Other banks wanting to repay government money include BB&T Corp., Goldman Sachs and Bank of New York Mellon Corp. (Dow Jones Newswires May 13) … * Bank of America has sold part of its stake in China Construction Bank to Asian investors for $7.3 billion, as it continues to raise funds to meet the government’s capital requirements. Charlotte, N.C.-based BofA retains an 11% stake in the Chinese bank. According to the U.S. government’s stress tests, BofA needs to raise about $34 billion to ensure it’s strong enough to weather the worst economic scenario. Nine other banks also were found to need more capital. Officials at BofA have said they are considering sales of the bank’s Columbia asset-management unit and several other businesses (Associated Press via The New York Times May 14) …

Market News (05/14/2009)

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MADISON, Wis. (5/15/09)
* Layoffs in the auto industry prompted a surge in first-time claims for unemployment benefits last week, while continuing claims jumped to a record high for a 15th consecutive week. Initial jobless claims surged by 32,000 during the week ending May 9 to 637,000, the Labor Department reported Thursday. Most of the increase was due to layoffs and furloughs in the auto industry, said a Labor Department analyst. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, increased by 202,000 during the week ended May 2 to 6.56 million, the highest number since the government began tracking the data in 1967. The data suggest that people are having a tough time finding new jobs after they’ve been laid off. The economy has lost 5 million jobs since the recession started in December 2007. The unemployment rate rose to a 25-year high of 8.9% in April (CNNMoney.com and Moody’s Economy.com May 14) … * In a move that could prompt the loss of thousands of jobs, Chrysler LLC said in a bankruptcy filing Thursday that it wants to eliminate about one-fourth, or 789, of its 3,200 dealerships in the U.S. by early June. The automaker claims many dealers compete with each other and their sales are too low. Chrysler also said that only about 50% of dealers account for 90% of its U.S. sales. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York to rule on Chrysler’s motion. An approval would result in the loss of tax revenue and jobs in many towns across the nation. General Motors has notified 1,100 of its dealers that it won’t renew their franchises when they expire at the end of September 2010 (Associated Press via Yahoo! News May 14) … * Wholesale prices rebounded last month as food prices surged. The Producer Price Index (PPI) rose 0.3% in April, following a 1.2% drop in March and a 0.1% gain in February, the Labor Department reported Thursday. Prices for consumer foods jumped 1.5% in April following a 0.7% drop the previous month. Energy prices edged down 0.1% following a 5.5% plunge. Excluding the volatile food and energy categories, the core PPI rose 0.1% following no change the previous month. The core PPI was up 3.4% over the 12 months ended in April. That compares with a 3.7% decline in the overall PPI, the largest drop since 1950 … * The weak economy has prompted more consumers to shift their spending to debit cards, according to a Mintel Comperemedia survey. In the poll, 83% of respondents said the recession has made them change their spending habits. And 43% said they are using debit cards more often than credit cards. “Debit has been overtaking credit for a number of years now, and there was some conjecture that it would level off,” said Susan Menke, a financial services analyst at Mintel. “Because of the recession, it’s become a whole new ballgame,” added Menke (CardLine via American Banker May 14) … * Most homeowners believe the housing market has hit bottom, according to a survey by Zillow.com. In the Q1 Homeowner Confidence Survey, 74% of respondents said they believe their home won’t decline in value over the next six months. And about two-third said they think home values in their local markets will increase or remain the same. About 60% said their own home lost value during the last 12 months. In reality, 80% of homes have lost value, noted Dr. Stan Humphries, vice president of data and analytics at the firm. “While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forwards, with three out of four homeowners believing that their own homes’ prices will increase or be flat over the next six months,” said Humphries. “Unfortunately, there are few markets we expect to perform this well, he added (Reuters via Yahoo! News May 14) … * Minorities now make up 34% of the nation’s total population, the Census Bureau reported Thursday. That’s up from 31% in the 2000 Census. Minorities totaled 104.6 million as of July 1, 2008. Almost one in six residents, or 46.9 million people, are Hispanic. And 44% of children under age 18 are from minority families. The African-American population rose 1.3% year-over-year to 41.1 million, while the Asian population increased 2.7% to 15.5 million. The nation also is growing grayer. The number of people aged 65 and older rose to almost 39 million, or 12.8% of the nation’s population, from 12.4% in 2000 (CNNMoney.com May 14) …

Schenk to ICNNMoneyI Credit markets returning to normalcy

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NEW YORK (5/14/09)--Retail sales' unexpected decline in April caused Treasury prices to rise Wednesday, and that may mean the credit market is returning to normalcy, said Mike Schenk, Credit Union National Association senior economist, in an interview with CNNMoney.com Wednesday. The three-month Libor rate fell Tuesday to 0.88% from 0.91%. Last week, the three-month rate dropped below 1% for the first time since 1986, the year it began keeping records, said CNNMoney.com. The decline in the three-month rate is "an indication that frozen credit markets are returning to normalcy," said Schenk. "Bankers are more willing to lend, not only to each other, but to consumers as well," he told the publication. "The question is, are potential borrowers willing to borrow?" Consumer confidence remains at historically low levels and unemployment has reached a 25-year high, suggesting that borrowing in the "real economy" is likely to remain depressed, said the article. Still, lower bank lending rates are encouraging because, said Schenk, "the markets will probably recognize before consumers that things are getting better."

News of the Competition (05/13/2009)

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MADISON, Wis. (5/14/09)
* Federal and state regulators failed to take the necessary measures to prevent a Florida bank from failing in October, according to a report from the Office of Inspector General for the Federal Deposit Insurance Corp. (FDIC). The report said Bradenton, Fla-based Freedom Bank’s failure mostly occurred because of an aggressive growth strategy that depended on risky commercial real estate loans and poor underwriting. However, mistakes by the FDIC and state regulators made the bank’s problems worse. The report said regulators’ exams in 2005 and 2006 found many of the problems that prompted the bank’s failure. However, “supervisory action was not taken commensurate with the risks these weaknesses posed,” said the report (Dow Jones Newswires May 13) … * The par value of U.S. corporate bonds affected by downgrades jumped to a record $522.4 billion in the first quarter, representing a downgrade rate of 14.5%, according to a Fitch Ratings report. The gaming, lodging and restaurant, insurance and banking, and finance sectors led downgrades during the first quarter. The 12-month trailing default rate jumped to 13.3% in the first quarter, from 8.5% in the fourth quarter and only 1% a year earlier. Fitch predicts that the rate will set a new record this year as the financial and economic crisis continues (Dow Jones Newswires May 13) … * Cleveland-based KeyCorp, the second-largest bank in Ohio, is liquidating an investment fund and returning client assets amid losses tied to Bernard Madoff’s massive $65 billion Ponzi scheme. KeyCorp. decided to “curtail” operations at its Austin Capital Management unit after investors saw as much as $186 million in losses. Austin is liquidating its Safe Harbor Fund and returning clients’ money, said KeyCorp. spokeswoman Laura Mimura. Madoff has pleaded guilty to 11 felony counts and is in prison awaiting sentencing (Bloomberg.com May 13) … * American International Group (AIG) plans to repay the government in three to five years, CEO Edward Liddy told a Congressional panel on Wednesday. That scenario is based on a forecast that the financial markets will remain stable or that they’ll improve, said Liddy. “If the marketplace holds the way it is right now, we think that the American taxpayer will be fully repaid,” said Liddy. The firm has received $180 billion in taxpayer funds (Bloomberg.com and Reuters via Yahoo! News May 13) … * Vasco Data Security International announced Tuesday that MoadBus will incorporate its Digipass technology to provide authentication and digital signature capabilities in MoadBus’ MBanking and Mobile-Cash applications. The firms say joint banking customers will have a security solution to protect them from password theft, unauthorized account access, and Man-in-the-Middle attacks, in which an unauthorized snooper picks up an online customer’s password information (BankTech and American Banker May 13) …

Market News (05/13/2009)

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MADISON, Wis. (5/14/09)
* Foreclosure filings jumped to a record high for a second consecutive month in April, according to a report by RealtyTrac Inc. A total 342,038 properties received a default or auction notice or were seized by banks last month. One in 374 households received some type of foreclosure filing, the highest rate since the firm began tracking the data in 2005. Foreclosure filings were up 32% from a year earlier. An estimated 63,900 homes were repossessed in April, down 11% from March. But the mortgage industry has resumed cracking down on delinquent borrowers. “All of these loans are now being processed pretty rapidly by the servers,” said Rick Sharga, senior vice president for marketing at RealtyTrac. By state, Nevada saw one in every 68 households receive a foreclosure filing in April, down 18% from March but still the highest rate in the nation. One in every 135 households received a foreclosure filing in Florida. In California, the rate was one in every 138 households (Bloomberg.com and Associated Press via Yahoo! News May 13) … * Minorities in the nation boosted their homeownership levels at a faster pace than whites during the housing boom, but took a bigger hit during the subsequent downturn, according to a study by the Pew Hispanic Center. As of 2008, 48.9% of Hispanic heads of households owned a home--up from 41.9% in 1995. Black homeownership rose to 47.5% from 42.1% over the period, while the rate among Asians jumped to 59.1% from 49.1%. The homeownership rate among whites rose to 74.9% from 70.5%. However, between 2005 and 2008, the homeownership rate fell 2.6 percentage points for native-born Hispanics and 1.8 percentage points for native-born blacks, compared with a 1 percentage-point decline for whites. Hispanics and blacks were much more likely than whites to take out subprime mortgage loans during the period (The New York Times May 13) … * Mortgage activity retreated last week as refinancings fell and purchase applications steadied, the Mortgage Bankers Association reported Wednesday (mbaa.org May 13). The trade group’s Market Composite Index declined 8.6% to 895.6. The Refinance Index plunged 11.2% to 4588.6, while the Purchase Index edged up 0.5% to 265.7. The average 30-year, fixed-rate mortgage (FRM) slipped 3 basis points to 4.76% last week, and the one-year, adjustable-rate mortgage (ARM) rose 5 basis points to 6.41%. The 30-year FRM is down 106 basis points from a year ago, while the one-year ARM is down 19 basis points, noted Moody’s Economy.com (May 13). However, a bottoming of home prices is needed to encourage homebuying, and home prices aren’t expected to bottom until early next year … * Retail sales dropped 0.4% in April following a 1.3% decline in March, the Commerce Department reported Wednesday. April sales were down 10.1% from a year earlier. Retail sales had risen in January and February following six consecutive declines, boosting hope that the consumer sector may be stabilizing. However, the unemployment rate has continued to increase as job losses mount. Auto sales edged up 0.2% in April following a 2% drop in March. Excluding autos, retail sales fell 0.5% last month amid weakness at department and general merchandise stores, furniture stores, and electronic and appliance stores (commerce.gov and Associated Press via Yahoo! News May 13) … * State tax collections continued to decline in the first quarter amid weak consumption, declining incomes, and soft profits, according to a report by the Nelson A. Rockefeller Institute of Government at the State University of New York. Total tax collections declined 12.6%, or $20 billion, compared with a year earlier, in the 47 states that have reported first-quarter revenue. Corporate income taxes tumbled 16.2% in the first quarter, while personal income taxes dropped 15.8%, and sales taxes fell 7.6%. State tax collections will decline further in the second quarter as consumer spending remains weak amid rising unemployment, said Robert Ward, deputy director of the institute (The Wall Street Journal Online May 13) … * Businesses cut down their inventories in March, but sales declined even faster, the Commerce Department reported Wednesday. Inventories fell 1% in March, the seventh consecutive decline. Inventories were down 4.8% from a year earlier. Sales declined 1.6% in March and were down 15.6% from a year ago. The inventory-to-sales ratio remained at a high 1.44 in March, up from 1.28% a year earlier. Inventory reduction was the major reason the economy contracted at a 6.1% annual pace in the first quarter. Inventory rebuilding may stimulate growth later this year as demand picks up (commerce.gov and MarketWatch May 13) … * Citing a weak economy and customers’ growing preference for Web-based reservations, Continental Airlines announced Wednesday that it is shutting down a call center in Tampa, Fla., and eliminating 500 reservation agents. The Houston-based firm said it will offer voluntary programs to employees, including “early out” severance. Employees also will have the option of transferring to reservation centers in Houston and Salt Lake City (Associated Press via Yahoo! News May 13) …

News of the Competition (05/12/2009)

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MADISON, Wis. (5/13/09)
* Bank of America (BofA) agreed Tuesday to sell about $7 billion worth of shares it holds in China Construction Bank to a group of investors so it can raise capital to satisfy regulators, people familiar with the deal said. The sale is expected to bolster BofA’s balance sheet in the aftermath of federal regulators saying a few days ago that the company needs to find an additional $34.9 billion in capital. BofA agreed to sell about one third of its 16% stake in China Construction Bank to a group of investors, including Hopu Investments of China and Singapore’s Temasek Holdings, the sources said. In January, BofA raised $2.3 billion from a sale of more than 5.62 billion shares of the Chinese bank (The New York Times May 13) … * Citigroup Inc. said Tuesday it intends to lend as much a $5 billion for projects that will create jobs and spark economic growth. The loans will go to state and local governments, municipal agencies, universities and nonprofit hospitals for projects. The U.S. Treasury Department’s Troubled Asset Relief Program is providing funding for the plan; Citi received $45 billion through the capital infusion. The municipal lending program will help finance construction of airports, hospitals, schools and other infrastructure products, Citi said. Municipal clients with an AA rating will be provided access to tax-exempt funding for capital investment projects or to refinance variable-rate debt for up to three years (The Wall Street Journal May 12) … * Bank of New York Mellon Corp. raised $1.2 billion Monday night, pricing 42 million shares at $28.75 in a follow-on offering of its common shares. Goldman Sachs Group Inc. and Morgan Stanley managed the offering. The bank was one of the banks that passed stress tests administered by federal regulators last week and wasn’t required to raise capital to add to its balance sheet. Rather, the company intends to use the proceeds to pay off the preferred stock and warrants sold to the U.S. Treasury Department as part of the Federal Troubled Asset Relief Program (The Wall Street Journal May 12) … * In efforts to settle an investigation into its subprime mortgages, Goldman Sachs Group Inc. will announce an agreement Monday to pay $60 million to the Massachusetts Attorney General, said a person familiar with the matter. This marks the first settlement with a major U.S. investment bank related to its involvement with subprime securities, analysts said. The settlement comes on the heels of a probe into how major Wall Street firms were involved in writing loans to borrowers with poor credit, and then underwriting securities that made up those loans. Goldman Sachs and other banks were accused of supporting the underwriting of risky loans (Dow Jones Newswires May 12) …

Market News (05/12/2009)

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MADISON, Wis. (5/13/09)
* With the global economic slump causing exports to fall to the lowest level in more than two years, the U.S. trade deficit widened in March for the first time in eight months. The trade gap grew 5.5 % to $27.6 billion from a nine-year low of $26.2 billion in February--which was smaller than predicted--according to Commerce Department figures released Tuesday. U.S. imports also declined, with less demand for industrial supplies such as steel and natural gas offsetting rising demand for oil. Most of the improvement in the U.S. trade deficit could already be over as fuel costs rise and stimulus programs jump-start U.S. consumer demand, the report indicated. Rising imports and a larger trade gap would limit economic growth--which would mitigate a portion of the benefits from a rebound in exports that companies such as Caterpillar Inc. are beginning to experience, analysts said. Falling exports in China and the Philippines, and lethargic industrial output in India, accentuate the fact that the world’s intertwined economies remain in the midst of a broad slump, analysts added (The New York Times and Bloomberg.com May 12) … * Despite recent worldwide economic gains, everyone should have a more cautious outlook on growth, said Paul Krugman, Nobel Prize-winning economist at Princeton University. Global economic prospects don’t mesh with the two-month rally that has returned $8.9 trillion to stock markets worldwide, he said. Speculation that interest-rate cuts and government-spending packages worldwide will replenish the global economy has boosted the MSCI World Index rally 37% since it fell to its lowest point since 1995 on March 9, analysts said. Krugman joins Nouriel Roubini, of New York University, who said last week that U.S. analysts’ expectations of a rebound in the U.S. economy in the third and fourth quarters were “too optimistic.” (Bloomberg.com May 12) ... * U.S. metropolitan area median home prices in the first quarter were down 13.8% from the first quarter of 2008 when conditions were closer to normal, according to the latest survey from the National Association of Realtors (NAR). First-time home buyers responded to improved affordability conditions, and lower prices of foreclosure and short sales, the association said. The national median existing single-family home price was $169,000. The median is where half sold for more and half sold for less. Distressed homes typically are selling for 20% less than traditional homes and are downwardly affecting median prices, the association added. There are two levels of pricing in the current market, said NAR President Charles McMillan. “Traditional homes in good condition have held their value much better, so owners shouldn’t be overly concerned about median prices,” he said. “Most sellers can expect a good return if they’ve been in their home for a normal period of homeownership and haven’t excessively tapped their equity.” (www.realtors.org May 12) … * The March Job Openings and Labor Turnover Survey (JOLTS) is consistent with monthly payroll data--hiring is weak, while separations are stabilizing. In March, 4.2 million workers were hired, while 4.7 million workers were separated from their jobs. While the hire total and rate (3.1%) dropped in March, the separations rate (3.6%) was mostly unchanged. The job openings rate fell to 2% with 2.7 million openings nationwide--an indication of weak hiring prospects, analysts said (Moody’s Economy.com May 12) … * Chain store sales increased 0.3% in the week ending May 9, marking the second consecutive gain, according to the International Council of Shopping Centers (ICSC). Sales were 0.5% above the year-ago level--the first year-over-year gain since early December. Unseasonably warm weather reportedly sparked Mother’s Day sales, with customer traffic especially strong at department stores. A jump in gasoline prices during the week was an important negative for the outlook, the ICSC noted. The ICSC is forecasting a sales decline in May of up to 1% (Moody’s economy.com May 12) … * In the first quarter, delinquencies on commercial real estate jumped, with credit contractions and rising vacancies making loan refinancing difficult, according to a Standard & Poor’s (S&P) report Monday. The percentage of commercial loans that were paid off at maturity in the first quarter dropped to 55%, from 83% in the fourth quarter. Also, the loss rate for delinquent loans liquidated in the fourth quarter doubled to 48%. “Until liquidity returns to the commercial real estate sector, we expect above-average loss severities to continue,” Larry Kay, an S&P credit analyst, wrote in a report. In the first quarter, 326 downgrades were issued to commercial mortgages bundled and sold as bonds, S&P said. Also in March, retail property-backed delinquencies hit 1.89%--the highest ever (Bloomberg.com May 12 and The New York Observer May 11) …

News of the Competition (05/11/2009)

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MADISON, Wis. (5/12/09)
* Federal regulators seized Westsound Bank of Bremerton, Wash., Friday--the 33rd failure of a federally insured bank in 2009--eight more than the 25 that collapsed in all of 2008. Dozens more banks are expected to fail through 2010, analysts said. The bank had total assets of $334.6 million and total deposits of $304.5 million as of March 31. The Federal Deposit Insurance Corp. (FDIC) estimated Westsound’s failure would cost its deposit-insurance fund $108 million. Kitsap Bank, based in Port Orchard, Wash., reached an agreement with the FDIC to assume all of the failed bank’s assets, with the exception of roughly $9.4 million in brokered deposits. All nine Westbound offices will reopen Monday under their new owner--Kitsap (The Wall Street Journal May 9) … * A group of Chrysler creditors who opposed the carmaker’s financial reorganization will disband as a result of two more investment firms withdrawing from the group. The development removes a vocal segment of opposition to the sale of some of Chrysler’s assets to Italian automaker Fiat, analysts said. The decision to dissolve the group was made in the wake of the withdrawal of Oppenheimer Funds and Stairway Capital Management, a lawyer for the group said. The departure of the two firms resulted in the Committee of Chrysler Non-TARP Lenders holding less than 5% of Chrysler’s $5.9 billion in secured debt, according to a person familiar with the matter. Holding such a low percentage of the company’s assets would make it difficult to effectively proceed with the group’s case in bankruptcy court, analysts said (The New York Times May 8) … * A multimillion dollar settlement with investment bank Goldman Sachs Group Inc. has been reached by Massachusetts Attorney General Martha Coakley, she announced in a statement Monday. The settlement pertains to the state’s investigation relating to the origination and securitization of subprime mortgage loans, Coakley said in a statement (Bloomberg.com May 11 ) ... * Because recent stress tests indicated the companies can endure a worsening recession without additional government aid, BB&T Corp., Capital One Financial Corp. and U.S. Bancorp will sell shares to repay government bailout funds. Capital One, a McLean, Va.- based credit card lender, said it will sell 56 million shares of common stock to raise roughly $1.5 billion. U.S. Bancorp said its sale would raise about $2.5 billion. BB&T Corp., based in Winston-Salem, N.C., reduced its dividend and commenced a public offering of $1.5 billion of common stock (Bloomberg.com May 11) … * The Office of Thrift Supervision (OTS) ordered Dwelling House Savings and Loan Association--a $14 million asset mutual thrift based in Pittsburgh--to raise capital, citing large losses resulting from improper automated clearing house transactions. Dwelling House absorbed a $2.6 million loss last year, after realizing a $27,000 profit in 2007. OTS issued a prompt corrective action directive May 5 in which it gave Dwelling House two days to submit a plan demonstrating it can achieve an adequately capitalized status by June 30. The thrift must consider all options for building up capital--including a rare supervisory conversion that would enable a sale, OTS told Dwelling House (American Banker May 11) … * Target Corp. is being pressured to sell its $8.77 billion portfolio of co-branded and private-label cards and exit the credit card business. William Ackman, an activist shareholder campaigning to get himself and four others elected to the Target board at the May 28 annual meeting, has been pressuring the company to sell the portfolio for a long time, analysts said. The retailer compromised about a year ago, selling a minority stake in the portfolio to JPMorgan Chase & Co. Target now says it is interested in selling the rest of the portfolio once market conditions improve (American Banker May 11) …

Market News (05/11/2009)

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MADISON, Wis. (5/12/09)
* Global business sentiment has significantly improved since mid-March, according to Moody’s Economy.com Survey of Business Confidence. The global confidence index remains consistent with an ongoing recession, but the intensity of the downturn is lessening. A big gain in expectations regarding the outlook six months down the road is expected. Expectations turned positive last week for the first time since the summer of 2007--just before the start of the current financial crisis. However, despite improvements in confidence readings, businesses remain concerned about current sales and pricing. Businesses also continue to reduce payrolls and inventories (Moody’s Economy.com May 11) … * The Conference Board’s Employment Trends Index--a measure of U.S. job prospects--decreased 0.7% to 89.5--the smallest decline in nearly a year, which indicates firings may be lessening. The index was down 2 % from a year earlier. However, even though the rate of job cuts is decelerating, companies including Dupont Co. and Microsoft Corp. are continuing their warnings of potential staff reductions. Last week, the U.S. Labor Department said payrolls in April shrank by the least amount since October. “The outlook for employment is much less negative than in prior months, but still it is not likely that employment growth will resume before the final quarter of the year,” Gad Levanon, a senior economist at the Conference Board, said in a statement (Bloomberg.com May 11) ... * With a deadline looming just two weeks away, the option of Chapter 11 bankruptcy protection is becoming more likely for the largest U.S. automaker, General Motors Corp. (GM), said CEO Fritz Henderson Monday. Henderson said he still hopes GM can restructure without court protection, although he admitted the tasks GM must finish before a June 1 government-imposed deadline are substantial. GM has received $15.4 billion in federal loans, but must attain concessionary agreements with unions, cut thousands of dealers, close plants, lay off more salaried workers, and persuade thousands of bondholders to exchange $27 billion in debt for 10% of GM’s stock (The New York Times May 11) … * Millions of Americans will not be able to pay off their debts, leaving a large fiscal hole at ailing banks and financial institutions trying to recover from the housing bust, experts predict. Bank stress tests released Thursday indicate the 19 largest U.S. banks could experience nearly $82.4 billion in credit card losses by year-end 2010, under what federal regulators call a “worst case” economic scenario. However, the rate of uncollectible balances at some banks could far surpass that level if unemployment reaches 10 % as many economists predict, analysts said. Stress-test results indicate about 20% of credit card balances are expected to go bad this year and next year at American Express and Capital One Financial. About 23 % of card loans are expected to be written off at Bank of America, Citigroup and JPMorgan Chase, analysts added ( May 11) … * The White House Monday increased its forecast for the U.S. budget deficit for 2009 by $89 billion. The increase reflects an ongoing recession, and numerous new unemployment claims and bailouts. The most current estimates put the deficit at $1.84 trillion--representing 12.9% of gross domestic product (GDP)--in the fiscal year that ends Sept. 30. A previous White House forecast issued in February projected a $1.75 trillion deficit--or 12.3% of GDP. The more dire financial scenario reflected weaker tax receipts since the economy contracted and higher costs for social safety net programs such as unemployment insurance. Contributing factors to the higher deficit included spending on government rescues for the automobile and financial services industries, the White House added (Reuters May 11) ... * Fannie Mae cut back its unsecured advances to delinquent homeowners and significantly created more loan modifications in the first quarter. However, the government-sponsored enterprise also heavily provisioned for credit losses. Fannie said the number of HomeSaver Advances it provided during the quarter decreased about 20% from the fourth quarter to roughly 20,000--the first time such advances dropped since Fannie started the program last year (American Banker May 11) …

News of the Competition (05/08/2009)

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MADISON, Wis. (5/11/09)
* The Federal Reserve said Thursday that the value of mortgage securities and loans acquired in last year’s rescues of Bear Stearns and American International Group (AIG) plunged by $10 billion, or 14%, increasing potential taxpayer losses. Net holdings of the Maiden Lane unit formed to hold Bear Stearns portfolio assets fell $830 million to $25.7 billion. Holdings of the two firms formed in the AIG bailout tumbled $9.4 billion, or 21%, to $36.4 billion. Separately, the Fed said the size of its balance sheet increased by $13.1 billion, or 0.6%, to $2.08 trillion last week. The central bank’s loans to a program providing liquidity to the asset-backed commercial paper market and money-market funds jumped to $19 billion, from $3.7 billion the previous week. In another program where the Fed purchases other types of commercial paper, assets held by the central bank declined to $166 billion from $179.4 billion. Discount-window lending to commercial banks dropped to $39.6 billion from $45.3 billion. Bond dealer borrowings fell to $600 million from $700 million. Commercial banks’ borrowing via the Fed’s U.S. Term Auction Facility was unchanged at $403.6 billion (Bloomberg.com May 7) … * Fannie Mae said Friday that it needs $19 billion in additional government aid as job losses increase and risky loans made during the housing boom go bad. Fannie posted a loss of $23.2 billion for the first quarter. The firm received $15 billion in government bailout money in March. The government already has spent $60 billion to buoy Fannie Mae and Freddie Mac. The administration predicts the taxpayer bill for the two firms, which were seized by the government in September, will reach $147 billion by September 2010. Fannie and Freddie together own or guarantee nearly 31 million home-mortgage loans, or about half of all home mortgages in the nation (Associated Press via The New York Times May 8) … * The Federal Housing Administration (FHA) plans to ask Congress for almost $800 million in taxpayer money to support its reverse-mortgage program for seniors, as home values continue to decline. The money would cover anticipated losses on reverse mortgages. “Imagine a situation where a senior took out a loan for $200,000, but they die 10 years later and the house is only worth $150,000,” noted Inside Mortgage Finance publisher Guy Cecala. Housing and Urban Development Secretary Shaun Donovan said the FHA is asking for a subsidy in lieu of charging seniors more for the loans as losses mount (washingtonpost.com May 8) … * New York Attorney General Andrew Cuomo on Friday announced an investigation of the debt-settlement industry. “These companies prey on people who are doing the right thing by seeking to manage their debt and get control of their finances,” said Cuomo. He sent subpoenas to 14 settlement firms and one law firm, seeking information on their fee structures, number of clients, and whether they are actually providing the debtor relief they advertise. Personal finance experts say the settlement companies, loosely regulated firms that are thriving in the recession, often tack on fees that put consumers even more deeply in debt (The New York Times May 8) … * American Express has asked permission to repay the $3.4 billion in Troubled Asset Relief Program money it received after the government’s stress tests indicated that the firm is adequately capitalized. The credit-card firm noted that in order to repay the funds it must demonstrate that it can issue long-term debt in the public markets that isn’t backed by government guarantees. The government’s stress test showed that American Express could remain profitable even in a worst-case scenario in which it saw credit card losses of 20% this year and in 2010 (Reuters via Yahoo! News May 8) …

Market News (05/08/2009)

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MADISON, Wis. (5/11/09)
* Nonfarm payroll employment continued to decline in April, though by a smaller amount, while the unemployment rate jumped to 8.9%, from 8.5% in March and the highest level since September 1983, the Labor Department reported Friday. Employers cut 539,000 jobs last month, the smallest monthly total since October. Still, 5.7 million jobs have been lost since the recession began in December 2007. Over the past 12 months, the number of unemployed people has increased by 6 million to 13.7 million. The number of long-term unemployed--those jobless for 27 or more weeks--rose by 498,000 to 3.7 million in April and has increased by 2.4 million since the recession began. In April, the number of people working part time for economic reasons--involuntary part-time workers--was essentially unchanged at 8.9 million. However, the number of such workers has jumped by 3.7 million over the past 12 months. Another 2.1 million people were marginally attached to the workforce in April. These people were available for work and had sought employment sometime in the previous 12 months, but weren’t counted among the unemployed because they hadn’t searched for work during the four weeks prior to the survey … * Job losses in April were large and widespread across almost all major private-sector industries, according to the Labor Department report. Employment rose by 66,000 in the federal government, mainly reflecting the hiring of temporary workers for Census 2010. Health care employment grew by 17,000 in April, and has averaged 17,000 per month so far this year, down from an average 30,000 per month in 2008. Employment in manufacturing plunged by 149,000 in April. The sector has lost 1.2 million jobs since September 2008. Construction employment tumbled by 110,000 in April. Job losses in construction have averaged 120,000 per month over the past six months. Employment in financial services declined by 40,000 last month, while employment in retail trade fell by 47,000. The average work week in April remained at 33.2 hours, matching the record low set in March. Average hourly earnings edged up 0.1% to $18.51. In Congressional testimony last week, Federal Reserve Chairman Ben Bernanke predicted “further sizable job losses” in coming months … * Consumer demand for credit declined again in March as consumers remained cautious and lending standards remained tight. Consumer credit declined at an annual rate of 5.2%, or a record $11.1 billion, in March, the Federal Reserve reported Thursday. It was the fifth decline in the past six months, and the largest percentage decline since December 1990. Both revolving and non-revolving credit dropped in March. Revolving credit, which includes credit cards, fell by $5.4 billion, at a 6.8% rate. Non-revolving credit, which includes loans for autos, boats, and college education, dropped by $5.7 billion, at a 4.2% pace. During the first quarter, overall consumer credit fell at an annual rate of 1.9%. Revolving credit plunged at a 6.5% pace, while non-revolving credit declined at a 0.9% pace (federalreserve.gov and Moody’s Economy.com May 8) … * At least two-thirds of the $410 billion of U.S. commercial mortgage-backed securities (CMBS) loans maturing from 2009 through 2018 probably won’t qualify for refinancing, according to a Deutsche Bank report. And 80% of the loans made at the peak of the commercial real estate bubble in 2007 probably won’t qualify. The report said other sources of financing for the market, including banks and insurers, probably will experience similar or even steeper defaults. Maturity default-related losses are estimated at around 4.6% of the CMBS loans securitized in 2005; 5.8% for those securitized in 2006, and 12.5% for those securitized in 2007 (Reuters via Yahoo! News May 8) … * Two of Chrysler’s dissident bondholders announced Friday that they have dropped their opposition to the firm’s proposed restructuring plan. The departures of OppenheimerFunds Inc. and Stairway Capital Management weaken the effectiveness of the group’s legal challenge to the plan. The dissident group has said the restructuring plan put the needs of other groups, such as the United Auto Workers Union, ahead of their own needs. In other industry news, Toyota Corp. reported a $7.7 billion loss for the first quarter, boosting its fiscal-year loss to $4.4 billion--the worst annual loss since the company was founded in 1937. The world’s largest automaker predicts that its loss for the fiscal year through March 2010 will increase to $5.55 billion as sales in the U.S. and Europe continue to slump (Associated Press via Yahoo! News May 8) … * Wholesalers are drawing down inventories amid weak demand. Wholesale inventories fell a record 1.6% in March to $411.7 billion--the seventh consecutive decline, the Commerce Department reported Friday. It was the largest decline since the government began keeping comparable data in 1992, and the lowest level since November 2007. Inventories were down 3.5% from a year earlier. Sales at the wholesale level plunged by 2.4% in March to $310.9 billion, the lowest since November 2005. Sales were down 18.1% from a year earlier. The inventory-to-sales ratio rose to 1.32 months, from 1.31 months in February and just 1.12 months a year earlier (census.gov and Reuters via Yahoo! News May 8) …

News of the Competition (05/07/2009)

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MADISON, Wis. (5/8/09)
* The Federal Reserve has told at least seven of the nation’s top financial institutions to boost their capital levels by $65 billion while effectively reaffirming the stability of six other banks, according to people familiar with the matter. JPMorgan Chase, Goldman Sachs, MetLife Inc., American Express, Bank of New York Mellon Corp., and Capital One Financial won’t be told to raise more capital. However, Bank of America will need to address a $34 billion capital shortfall. Wells Fargo needs to find an additional $13 billion to $15 billion. Other banks needing more capital include GMAC LLC, Citigroup, Morgan Stanley, Regions Financial and State Street Corp. Results for the remaining six banks weren’t revealed. Final results of the government’s stress tests are scheduled to be released after the close of trading on Thursday (The Wall Street Journal Online May 7) … * More large banks may have to suspend their dividends to raise capital amid mounting losses. Most already have lowered their dividend to 10 cents a share or less. Only two of the 50 largest banks that pay dividends to common shareholders have eliminated them, according to statistics from Bloomberg News and SNL Financial. Citigroup suspended its dividend in February. Colonial BancGroup eliminated its dividend in October. Bank of America, State Street Corp., Regions Financial, Fifth Third Bancorp, KeyCorp, Marshall & IIsley Corp., Huntington Bancshares, Synovus Financial and CapitalSource Inc. have lowered their dividends to 1 cent per share. Still, eliminating dividends actually could keep a bank from raising capital. That’s because many mutual funds can’t invest in stocks that don’t pay dividends. And suspending the dividend could make it harder for a bank to attract investors for preferred shares (American Banker May 7) … * BlackRock Inc., Franklin Resources, and Federated Investors Inc. have made preliminary offers to acquire Bank of America’s mutual-fund unit, say people familiar with the matter. Additional firms may participate in the bidding. BofA’s Columbia Management unit could fetch more than $2 billion, according to Sandler O’Neill & Partners analyst Michael Kim. The fund oversees $341 billion. The bank put Columbia up for sale following loan losses and writedowns that prompted a $45 billion taxpayer bailout. Other banks are being forced to sell units after posting losses and writedowns of more than $1.3 trillion. Sales of money-management units with $552 billion in assets were announced worldwide during the first quarter, according to Jefferies Group. That’s up from $362 billion a year earlier (Bloomberg.com May 6) … * Huntington Bank and the state of Ohio have announced a three-year, $1 billion public-private lending partnership to attract, retain and grow businesses and jobs within the state. Under the Ohio and Huntington Job Growth Partnership, the bank will commit to fund $1 billion in new loans to Ohio businesses over the next three years. “This partnership between Huntington Bank and the state of Ohio demonstrates our mutual commitment to economic growth and job creation,” said Ohio Treasurer Kevin Boyce. “Over the last few months, we have partnered with banks across Ohio to create and retain nearly 7,000 jobs.” (/PRNewswire-FirstCall/ May 6) …

Market News (05/07/2009)

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MADISON, Wis. (5/8/09)
* Mortgage rates rose slightly this week, from record-lows the previous week, as economic news turned more positive, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) increased 6 basis points to 4.84%, while the 15-year FRM rose 3 basis points to 4.51%, and the one-year, adjustable-rate mortgage (ARM) edged up 1 basis point to 4.78%. “Mortgage rates rose slightly this week amid positive economic news that the economy may be approaching the bottom of the recession,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “In terms of the household sector, the final April estimate of consumer sentiment, as measured by the University of Michigan, was revised above the market consensus. On the business side, the ISM Manufacturing Index for April also exceeded market expectations,” said Nothaft. Rates remain much lower than a year ago. The 30-year FRM averaged 6.05% at this time last year, while the 15-year FRM stood at 5.60%, and the one-year ARM was at 5.29% (MarketWatch May 7). For CUNA's Daily Financial Rates, use the link. … * Housing affordability still is an important concern nationwide despite an increase in affordability for homeownership, according to a study by the Center for Housing Policy. That’s because apartment-rental rates are increasing in many areas nationwide as rising foreclosures push homeowners into the rental market. “Contrary to popular belief, the recent decline in home prices has not resolved the nation’s housing affordability problems,” said Jeffrey Lubell, executive director of the Center. “Working families--including most of the workers who will be hired as a result of federal spending in the stimulus package--still cannot afford to buy a home in most markets, and many also struggle to afford their rents.” Falling mortgage rates and prices have made homeownership more affordable for many Americans, according to the study. Nationwide, it takes about $60,000 a year to afford the median-priced home. However, markets vary widely. In only takes an annual income of about $24,000 to afford the median home in Youngstown, Ohio. In San Francisco, it takes $187,000. However, many of the more affordable areas are plagued by rising job losses (MarketWatch and dallasnews.com May 7) … * The number of people continuing to collect jobless benefits rose to a new record, even as new applications tumbled to a 14-week low, the Labor Department reported Thursday. Continuing claims, the number of people still collecting jobless benefits after an initial week of aid, jumped by 56,000 during the week ending April 25 to 6.351 million, the highest total on records dating back to 1967. Continuing claims have hit new records for each of the past 14 consecutive weeks, indicating that people are having a tough time finding new jobs after they’ve been laid off. In a hopeful sign for the job market, first-time claims for unemployment insurance declined by 34,000 during the week ended May 2 to 601,000, the lowest level in 14 weeks, suggesting that layoffs are moderating. However, in Congressional testimony this week, Federal Reserve Chairman Ben Bernanke predicted “further sizable job losses” in coming months (Associated Press via Yahoo! News and Moody’s Economy.com May 7) … * Productivity rose during the first quarter as the recession prompted firms to lower expenses by cutting jobs and squeezing more work from remaining employees. Nonfarm productivity, a measure of employee output per hour, increased at a 0.8% annual rate--following a 0.6% decline in the fourth quarter, according to the Labor Department. Labor costs rose 3.3%, slowing from a 5.7% jump. Labor costs were up only 2.4% from a year earlier. Companies cut work hours at a 9% pace, the largest decline since 1975. Business output fell at an 8.2% pace. Productivity in the manufacturing sector fell 3.4%, the fourth consecutive decline. Manufacturing output tumbled 22.4%, and hours worked plunged 19.7%--both records (bls.gov, Bloomberg.com, and The Wall Street Journal Online May 7) … * General Motors posted a $6 billion loss for the first quarter as its revenue was cut almost in half by plunging sales. Talk about a possible GM bankruptcy scared buyers away, said GM Chief Financial Officer Ray Young. He said buyers should be reassured by the federal government’s pledge to guarantee GM and Chrysler warranties. But Young said the company also will face a tough second quarter as the firm shuts down many factories to further cut inventories. GM’s cash loss was offset by $9.4 billion in government loans the firm received in the first quarter. It faces a June 1 government deadline to offer a final restructuring plan or file for bankruptcy protection (Associated Press via Yahoo! News May 7) … * In some hopeful news for the economy, some retailers reported that consumers started to spend again in April. Retail sales rose 1.2% from a year earlier, according to Thomson Reuters. However, the shift of Easter into April, warm weather, and discount retailer Wal-Mart Stores accounted for much of the gain. Wal-Mart reported a 5% jump in same-store sales for the month. Higher-end stores suffered. Saks reported a 32% plunge in sales, while Abercrombie & Fitch reported a 22% drop. Still, analysts see a glimmer of hope. “People are feeling a little bit more confident and optimistic,” noted Linda Tsai, a specialty retail analyst with MKM Partners (The New York Times May 7) …

News of the Competition (05/06/2009)

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MADISON, Wis. (5/7/09)
* More than 20 of the nation’s biggest subprime mortgage lenders depended on financing from U.S. banks that now are relying on billions of dollars in government bailout money, according to a study by the Center for Public Integrity. “The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” said Bill Buzenberg, executive director of the investigative journalism group. “These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system,” added Buzenberg. For example, Goldman Sachs, Morgan Stanley, and Bank of America all backed New Century Financial Corp., which originated more than $75 billion of subprime loans from 2005 through 2007. Goldman and Morgan Stanley have each received $10 billion in taxpayer bailout money, while Bank of America got $25 billion. “We are pumping cash into companies that contributed to their own demise,” said lead author John Dunbar. “The banks made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market,” he said (Reuters and AFP via Yahoo! News May 6) … * The top 25 U.S. originators of subprime mortgages spent nearly $370 million in Washington over the past 10 years on lobbying and campaign donations as they tried to stave off tighter regulation of their industry, according to the study by the Center for Public Integrity. The 25 firms together originated $1,000 billion in subprime mortgages from 2005 through 2007, nearly three-fourths of the total originated. “Their unbridled political contributions and massive lobbying created the lack of regulation and oversight that led to this crisis,” said Bill Buzenberg, executive director of the Center. Nine of the top 10 subprime lenders were in California, one of the states hit hardest by the housing meltdown (FT.com May 6) ... * Wells Fargo, the nation’s fourth largest bank, will require $15 billion in new capital as a result of regulators’ stress tests, according to a person familiar with the matter. That compares with a $34 billion capital gap at Bank of America. Citigroup may need as much as $10 billion, while JPMorgan Chase, American Express, and Bank of New York Mellon Corp. reportedly don’t need to raise more capital. About 10 of the 19 biggest banks tested may need more capital, according to people familiar with the matter (Bloomberg.com, Reuters, and Associated Press via Yahoo! News May 6) … * Mortgage insurer Radian Group reported a larger-than-expected loss of $217.5 million for the first quarter as more homeowners fell behind on their mortgage payments. The loss compared with $195.6 million in net income a year earlier. The loss mainly reflected a continued increase in defaults and paper losses on derivatives, said CEO S.A. Ibrahim. “Our mortgage insurance franchise remains strong, with sufficient capital to continue writing” insurance policies all year, Ibrahim added. Radian anticipates an increase in claims paid for first liens throughout the year as new and existing defaults move to claim and some foreclosure moratoriums expire (Bloomberg.com and BizJournals.com via Yahoo! News May 5) … * Appraisal-management companies are facing tougher regulations, even as mortgage lenders need their services more than ever. Fannie Mae and Freddie Mac have adopted valuation standards that prohibit commissioned loan officers or mortgage brokers from ordering appraisals, a move that is expected to boost business at management firms. From 60% to 70% of appraisals now will be ordered via management firms, about the share that mortgage brokers once ordered, according to the Appraisal Institute. However, appraisers say the management firms typically want a faster turnaround at lower costs, perhaps at the expense of quality, and so lawmakers are moving to regulate the firms (American Banker May 6) …

Market News (05/06/2009)

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MADISON, Wis. (5/7/09)
* More than 20% of U.S. homeowners are “underwater” on their mortgages--meaning they owe more on their debt than they can sell their homes for, according to a report by Zillow.com. An estimated 21.8% of all homes, representing more than 20 million residences, were underwater after home prices plunged 14% nationwide over the year ending March 31. That’s up from 17.6% at the end of December. “A combination of falling prices and low down payments has left many borrowers underwater,” said Stan Humphries, vice president in charge of data and analytics at the Seattle-based real estate data firm. “In some markets, more than half of all homes are in negative equity,” added Humphries. Those markets include Las Vegas, where 67.2% of homeowners are underwater, and Stockton, Calif., where 51.5% of homes are underwater. The data is important because underwater borrowers are much more likely to lose their homes to foreclosure (CNNMoney.com and Bloomberg.com May 6) … * Mortgage activity rebounded last week, the Mortgage Bankers Association reported Wednesday (mbaa.org May 6). The trade group’s Market Composite Index increased 2% during the week ending May 1 to 979.7. The Refinance Index rose 1.2% to 5169.3, while the Purchase Index increased 5% to 264.3. The average 30-year, fixed-rate mortgage (FRM) jumped 17 basis points to 4.79% last week, and the one-year, adjustable-rate mortgage (ARM) surged 13 basis points to 6.36%. The Purchase Index is still almost 15% down from its 2009 high, noted Moody’s Economy.com (May 6). The research firm predicts that home sales will begin increasing during the latter half of this year--buoyed by improved affordability, government stimulus programs, and a strengthening economy … * Layoffs announced by major U.S. companies declined to a six-month low in April, but remained high at 47% above year-ago levels, according to the outplacement firm Challenger, Gray & Christmas. Firms announced 132,509 job cuts in April, down from 150,411 in March and the lowest level since October. But the number is up 47% from 90,015 layoffs announced in April 2008. The government and nonprofit sectors announced the largest number of layoffs in April, at 27,624. “State and local governments, as well as school districts, are really feeling the impact of this downturn,” said John Challenger, chief executive of the Chicago-based firm. “Job cuts are still at recession levels, but the fact that they are falling is certainly promising and may suggest that employers are starting to feel a little more confident about future business conditions,” added Challenger. The auto industry announced 24,172 layoffs in April, boosting the total number for the year to 101,036. So far this year, planned jobs cuts total 711,100--up 145% from the same period in 2008 (MarketWatch and Bloomberg.com May 6) … * Chrysler LLC announced Wednesday that it is offering as much as $6,000 worth of incentives on its 2009 vehicles as it tries to counter a U.S. sales downturn and emerge from bankruptcy (Associated Press via Yahoo! News May 6). The incentives include $1,000 in cash, $1,000 for current Chrysler vehicle owners, and as much as $1,000 in financing through a participating credit union. The incentives, which come off negotiated prices with dealers, replace employee pricing, rebates, and zero percent financing. In other news, Ford Motor on Wednesday announced a $550 million investment to convert an SUV plant near Detroit to build a new generation of Focus small autos next year, and a battery-electric Focus in 2011 (Reuters May 6). The announcement comes as rivals Chrysler and General Motors are shutting down plants. Ford said the investment in the plant would generate more than $160 million in state, county, and local tax credits and grants in Michigan and would create 3,200 jobs … * The recession will continue for the remainder of 2009, say purchasing managers and chief executives surveyed by the Institute for Supply Management (ISM). Expectations for the rest of this year have weakened in both the manufacturing and non-manufacturing sectors, compared with an ISM survey conducted in December. “The December outlook may have been too optimistic because respondents had not fully gotten their arms around the problems in the economy,” said Norbert Ore, director of the ISM factory poll. Purchasing managers in manufacturing now forecast a revenue decline of 14.7% for 2009, compared with the 1.1% decline predicted in December. Revenue is expected to decline 5.1% this year in the non-manufacturing sector, compared with an expected 0.7% gain in December. “Labor is a big variable cost for non-manufacturers, and companies are reducing payrolls to correlate better with their reduced business activity level,” said Anthony Nieves, director of the non-manufacturing survey (Dow Jones Newswires May 5) … * Chief executives have become increasingly confident that the recession will ease, according to a Business Council survey conducted with the Conference Board. The Business Council’s confidence index jumped to 50 in April, from 25.9 in January and the highest level since early 2006. CEOs predict the economy will continue to contract this year before recovering in 2010. And one-fourth predict that global business conditions will improve over the next six months, up from 9.4% in January. About 40% of respondents predict that the U.S. unemployment rate will hit 9.6% to 10% by year-end 2009. Another 18% expect a jobless rate of 10.1% or higher (Bloomberg.com May 5) …

News of the Competition (05/05/2009)

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MADISON, Wis. (5/6/09)
* Standard & Poor’s Corp. has put its ratings on 22 national and regional banks and one thrift, along with their units, on watch for downgrades within 90 days. S&P said it is reviewing capital levels and anticipated losses over the next two years to decide whether the firms need more capital to maintain their current ratings. The ratings agency said its review so far shows capital needs could prompt single or multiple downgrades for the financial institutions, including Citigroup and Bank of America. Other firms put on watch for possible downgrades include BB&T, Capital One, Comerica, KeyCorp and PNC Financial Services (Dow Jones Newswires May 4) … * Banks are getting stricter on lines of credit for companies. Many lenders are lowering the length of commitments to less than a year and are charging higher fees. Banks also are charging more if the cost of insuring a firm’s debt against default is higher. But even the strongest firms are paying more for revolving credit lines. About 72% of revolving credit facilities obtained by investment-grade firms in the first quarter had 364-day maturities, and no firms received five-year lines, according to Loan Pricing Corp. (LPC). A year ago, 30% of facilities were for 364 days, and 41% had five-year maturities. LPC noted that $600 billion worth of revolvers are scheduled to mature by year-end 2010, meaning that dozens of firms will face much tougher loan terms (The Wall Street Journal Online May 5) … * GMAC Financial Services, the financial arm of General Motors, announced Tuesday that it lost $675 million in the first quarter, compared with a $589 million loss a year earlier, as its income from automotive finance, mortgage operations and insurance declined. “The effects of a soft economy and weaker credit performance on legacy assets continued to put pressure on GMAC’s financial performance in the quarter,” said CEO Alvaro de Molina. However, the firm is poised to benefit from additional business as it becomes the preferred lender for Chrysler customers later this month (Associated Press via Yahoo! News and MarketWatch May 5) … * ATM manufacturer Diebold Inc. reported an 88% drop in net income for the first quarter, to $1.6 billion. That compared with net income of $13.8 million a year earlier. The latest results included a $25 million charge for an agreement Diebold reached with the Securities and Exchange Commission (SEC) to settle civil charges related to a pending enforcement inquiry. The firm said it had been informed that federal prosecutors in Cleveland won’t bring criminal charges against the company over transactions and accounting issues covered in the SEC investigation. Diebold plans to eliminate about 300 jobs, or 1.7% of its workforce. The company has more than 17,000 employees and operates in more than 90 countries (Associated Press via The New York Times May 5) … * Large banks will continue to consolidate to gain market share, said JPMorgan Chase CEO James Dimon. In a conference call Monday, Dimon said mergers and acquisitions could pick up after the 19 largest financial institutions receive results of their “stress tests.” He said the nation’s largest banks will be active purchasers of other financial institutions, despite popular concerns about banks becoming too large. Dimon also decried the popular conception that banks aren’t lending. “If you look at bank lending the last couple of quarters, it is up. They are lending,” said Dimon (The Wall Street Journal Online May 5) …

Market News (05/05/2009)

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MADISON, Wis. (5/6/09)
* Fewer banks tightened lending standards for consumer and business loans compared with several months ago, according to a Federal Reserve survey of lending officers conducted between March 31 and April 14. More banks, however, tightened standards on residential mortgage loans and credit cards. About 50% of banks tightened their lending standards on prime mortgages, up from 45% in an early February poll. And 65% said they tightened standards on nontraditional mortgages, up from 50%. Banks said demand for all types of consumer and business loans continued to weaken, except demand for prime residential mortgage loans. Demand for prime mortgages registered its first increase since the Fed began to track the loans separately in April 2007. Almost 60% of banks said they tightened standards on credit card loans, the same as in the previous survey. However, 40% said they tightened standards on commercial and industrial loans, down from 65%. More than 70% of respondents said delinquencies and loan loses will increase this year (The Wall Street Journal Online and Associated Press via Yahoo! News May 5) … * The economy should emerge from recession later this year as consumer spending firms, the housing market hits bottom, and inventory liquidation ends, said Federal Reserve Chairman Ben Bernanke. However, the recovery will be slow, and companies will remain cautious about hiring, prompting “further sizable job losses,” said Bernanke in testimony to Congress’ Joint Economic Committee yesterday. He predicted that the unemployment rate will peak at around 10% early next year before slowly receding. The rate was 8.5% in March. He also noted that business investment remains “extremely weak,” and conditions in the commercial real estate market are “poor.” And he cautioned that markets and institutions remain fragile. “A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” said Bernanke (The Wall Street Journal Online and Associated Press via Yahoo! News May 5) … * Credit card chargeoffs could approach 10% at this time in 2010, said Fitch Inc. The ratings agency said many large issuers indicated “significant worsening” in second-quarter metrics as they released their results for the first quarter. The prime chargeoff rate has steadily increased since reaching a low of 3.1% in March 2006. It currently stands at 8.41%. However, Fitch said downgrades in credit card asset-backed securities will be limited by issuers’ efforts to contain deterioration and preserve their ratings (Dow Jones Newswires May 4) … * The service sector contracted at a slower pace in April. The Institute for Supply Management’s service index rose to 43.7, from 40.8 in March but still below the 50 level that indicates contraction. It was the seventh consecutive contraction in the index. New orders jumped to 47, from 38.8 and the highest level since September. The employment index rose to 37 from 32.3. The service sector, which includes banks, airlines, hotels, and restaurants, represents about 80% of economic activity in the U.S. (Bloomberg.com and Associated Press via Yahoo! News May 5) … * The three-month London Interbank Offered Rate (Libor) fell to a record-low 0.99% on Tuesday, the first time the key lending rate has dipped below 1% since 1986, when the British Bankers Association began tracking the data. The three-month Libor had surged to 4.8% in October after the collapse of Lehman Brothers. More than $350 million in assets are tied to the Libor, which is used to calculate adjustable-rate mortgages. “This is good news,” noted Gus Faucher, director of macroeconomics at Moody’s Economy.com. “It means that banks are trusting one another again and that we’re getting to the bottom of the problems in the financial system,” said Faucher (CNNMoney.com May 5) … * Chrysler LLC expects to lose $4.7 billion this year, according to a filing by Robert Manzo, a financial adviser hired by the firm to help with its bankruptcy. The filing also noted that Chrysler lost $16.8 billion last year. And it is expected to lose about $900 million in 2010 and $300 million in 2011. Analysts polled by Thomson Reuters predict that other domestic automakers also will post losses this year. General Motors is forecast to lose $18.4 billion, and Ford is expected to lose $6.2 billion (CNNMoney.com May 5) …

News of the Competition (05/04/2009)

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MADISON, Wis. (5/5/09)
* Mortgage activity will surge this year following a weak 2008 as low mortgage rates attract buyers, predicts National Mortgage News, an affiliate of U.S. Banker (May 1). The dollar volume of mortgage-loan originations plunged almost 36% to $1.75 trillion in 2008. Volume among the nation’s top 25 mortgage lenders--which control 77% of the market--declined 36% to $1.35 trillion. At a 13.41% market share, Wells Fargo was the largest mortgage originator last year. Bank of America, which purchased Countrywide Financial Corp. in July, became the largest servicer, with a 21% market share, up from just 5.6% in 2007. Only six of the top 25 mortgage lenders saw actual increases in originations last year. However, National Mortgage News forecasts that the top five lenders will originate more than $2.9 trillion of home mortgage loans in 2009 … * Results of the federal government’s stress tests for the nation’s 19 largest banking institutions will be released Thursday. Bank of America and Citigroup Inc. will receive a good deal of attention, analysts said. The two banks likely will be asked to increase their existing capital by raising additional funds or converting existing securities into common stock, according to previous reports by The Wall Street Journal. Goldman Sachs and JPMorgan Chase & Co. are two banks that likely will have results that will please federal regulators, analysts said, since both banks recently have reported robust earnings (Stock Traders Daily May 4) … * Federal banking regulators Friday seized Silverton Bank of Atlanta--a bank that provided services to other banks--in the biggest bank failure so far in 2009, analysts said. The Federal Deposit Insurance Corp. (FDIC) said it has created a bridge bank to take over Silverton. This will allow client banks to maintain their previous relationship with minimal disruption, the FDIC said. Silverton had roughly $4.1 billion in assets and $3.3 billion in deposits. It becomes the largest bank failure since Downey Savings and Loans--with about $12.8 billion in assets--was taken over in November (Reuters May 1) … * By cutting back on their advertising and marketing budgets--which were roughly $1 billion each last year--MasterCard and Visa are attempting to weather a global transaction volume slowdown, analysts said. MasterCard’s profits dropped 18% during the first quarter due to sluggish consumer spending, a weakened global economy and a strengthening U.S. dollar, analysts added. Visa reported a profit gain of nearly 71% for the quarter that ended March 31. Both companies’ results beat analysts’ expectations (American Banker (May 4) and LoHud.com (May 2) …

Market News (05/04/2009)

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MADISON, Wis. (5/5/09)
* Big companies became more generous with their perks to top executives last year despite a growing public backlash against such benefits, according to an analysis of regulatory filings from 309 firms in the Standard & Poor’s 500 by Associated Press (The New York Times May 1). The median value of perks such as chauffeured cars, club memberships and free use of company jets increased almost 7% to $170,501 last year, even as overall compensation dropped 7% to $7.6 million. And the value of perks compared with total compensation rose to 2.25%, from 1.95%. The perks also include such benefits as covering the cost of life insurance, charitable donations and financial planning. The biggest perk recipient last year was Johnson & Johnson CEO William Weldon, whose perks were valued at $3.9 million, or about 16% of his overall compensation. Ordinary Americans have become more critical of lavish benefits as the value of their retirement plans plunge amid falling stock prices for the same companies doling out generous extras to their executives … * Pending home sales in March went up as many first-time buyers capitalized on historically good housing affordability, according to the National Association of Realtors (NAR). The Pending Home Sales Index--a forward-looking indicator based on contracts signed in March--rose 3.2% to 84.6 from 82.0 in February. March’s level is 1.1% higher than March 2008, when it was 83.7. In a few months, the housing market should gain momentum, said Lawrence Yun, NAR chief economist. “This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment,” Yun said. “We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around” (Realtor.org May 4) … * For the first time in six months, U.S. construction spending increased in March as public sector outlays rose--beating analyst expectations. U.S. construction spending went up 0.3% to a seasonally adjusted annual rate of $969.7 billion during March, the Commerce Department said Monday. Analysts had predicted a 1.3% decline in construction spending for the month. Since September, U.S. construction spending has been falling--resulting in the elimination of thousands of construction jobs. Spending declined more than 11% on a year-over-year basis. In it revision of February construction spending estimates, the Commerce Department said that spending dropped 1%--slightly more than its original estimate of a 0.9% decline (The Wall Street Journal May 4) … * Arguing that the U.S government is violating federal law to preserve Chrysler, a group of the automaker’s secured lenders is attempting to stop the bankrupt company’s plan to sell its business at an auction later this month. The group calls itself “Chrysler’s non-TARP lenders”--a reference to the Troubled Asset Relief Program. The group is attempting to block the proposed sale of Chrysler’s business to an alliance headed by Fiat SpA--as well as Chrysler’s request to approve a $4.5 billion Treasury loan to refinance the reorganization. Secured lenders who agreed to the Fiat deal--such as Citigroup Inc., Goldman Sachs Inc. and JPMorgan Chase & Co.--are conflicted because they also had accepted TARP funds, the group said. In papers filed in U.S. Bankruptcy Court Monday in Manhattan, the group said the process is “tainted” because it was dominated by the government (Bloomberg.com May 5) … * The European Commission--the executive arm of the European Union (EU)--made a downward revision Monday of its forecast for growth in the EU in 2009. The revision was made in response to a weakening labor market amid a drop in world trade and ongoing housing market correction, analysts said. In its spring quarterly economic forecasts, the commission said that gross domestic product in the European Union and Euro area would shrink by 4% in 2009 and 0.1% in 2010. In its previous report, the commission forecast an EU contraction of 1.8% in 2009 and 0.5% in 2010 (The New York Times May 5) …

News of the Competition (05/01/2009)

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MADISON, Wis. (5/4/09)
* GMAC LLC, which will provide new financing for Chrysler dealers and consumers, announced Thursday that it won’t inherit Chrysler Financial’s existing portfolio of auto loans and leases. The deal means GMAC won’t be burdened with problems that could surface in Chrysler Financial’s portfolio resulting from the automaker’s bankruptcy. At the same time, becoming the new lender for Chrysler dealers and consumers will help satisfy its requirement as a bank holding company to diversity the firm’s business away from General Motors. GMAC converted into a bank in December in an effort to acquire government funds. The government could provide additional funding to help support GMAC’s new financing to Chrysler dealers and consumers (Dow Jones Newswires April 30) … * Bond insurer MBIA Inc. has filed a lawsuit against Merrill Lynch, seeking damages for losses the firm said it incurred from complex debt securities it insured for the bank. The suit seeks to void certain credit default swaps (CDS). MBIA wrote $5.7 billion in guarantees on these securities, which were packages of mortgages called collateralized debt obligations (CDOs). The suit claims Merrill misrepresented the credit quality of the CDOs. “MBIA believes that Merrill Lynch’s effort to market the CDS contracts to MBIA was part of a deliberate strategy to offload billions of dollars in deteriorating U.S. subprime residential mortgages,” said the firm. A Merrill spokesman declined to comment. Bank of America acquired Merrill Lynch in January (Reuters via Yahoo! News May 1) … * Federal prosecutors have charged former Citigroup banker Maher Kara with securities fraud for allegedly informing his brother about pending mergers, in an insider-trading plot that generated more than $6 million in profits. Regulators also filed civil charges against the brothers and six other relatives and friends for their alleged participation in the scheme, which lasted for more than three years. Citigroup “cooperated fully with the authorities during this investigation,” said a company spokeswoman. Two people who benefited from the brothers’ tips, Nasser Mardini and Joseph Azar, agreed to settle charges without admitting or denying them. Mardini has agreed to pay back illegal profits. Azar has agreed to repay illegal profits and to pay a penalty (Reuters via The New York Times May 1) … * Citigroup’s Japanese brokerage business is being acquired by Sumitomo Mitsui, in Japan’s first acquisition of a top brokerage by a bank. Sumitomo will buy Nikko Cordial Securities, Japan’s third-largest brokerage, for about $5.6 billion. Sumitomo President Teisuke Kitayama said the deal is a good one because of the large amount of individual savings in Japan. Citigroup Vice Chairman Stephen Volk said the transaction is an important part of Citigroup’s strategy. “In executing our new strategy, we remain committed to our businesses in Japan, where we have over a century of experience.” (Associated Press via Yahoo! News May 1) … * Philadelphia-based Sovereign Bank plans to cut 950 jobs, or nearly 9% of its workforce, to lower expenses in the economic slump. The bank, which posted losses of $2.3 billion last year and $1.3 billion in 2007, already laid off 1,000 employees in December. Spain’s Banco Santander completed its purchase of Sovereign Bancorp, parent of Sovereign Bank, in January (Associated Press via The New York Times May 1) …

Market News (05/01/2009)

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MADISON, Wis. (5/4/09)
* Chrysler headed to bankruptcy court Friday to seek permission to continue paying its workers and meeting customer and dealer obligations. At the same time, a group of 20 lenders plans to object to the firm’s reorganization plan, which would place its core assets into a new company owned by employees, Italian automaker Fiat, and the U.S. and Canadian governments. In court documents, Chrysler said the proposed restructuring is the only way it can avoid liquidation. The 83-year-old firm has 38,500 hourly and salaried employees in the U.S. It has 23 factories and 15 parts depots (Reuters via The New York Times May 1) … * Defaults and delinquencies on property loans sold as commercial mortgage-backed securities (CMBS) tripled to 1.8% of outstanding balances during the first quarter--from 1.14% in the fourth quarter and 0.53% a year earlier and the highest level in almost 20 years, according to a report by Reis Inc. Nearly $10.7 billion of $610 billion of CMBS loans outstanding were 30 days or more overdue, noted Reis analysts Christopher Stanley and Kyle McLaughlin in the report. “We expect default rates to worsen considerably over the next two years,” wrote the analysts. Reis said 17.3% of loans are on its “watchlist,” up from 15.2% in the fourth quarter and 12.5% a year earlier. The last time delinquency rates topped 6% was in 1991, after the savings and loan crisis. However, there were $3.1 billion in CMBS in 1991--less than 1% of today’s volume, according to Bloomberg statistics. CMBS sales jumped 38% from 2005 to 2007, as buyers flocked to low-interest-rate debt to buy property at rising prices. Nearly 98% of the loans made in 2006 and 2007 were interest-only or partial interest-only, according to Reis (Bloomberg.com May 1) … * Consumer sentiment jumped to a seven-month high in April. The Reuters/ University of Michigan Surveys of Consumers said its final index of confidence rose to 65.1--from 57.3 in March and the highest level since September 2008 when the Lehman Brothers collapse pushed the global banking system to near-collapse. The April gain was the largest since October 2006. The index hit a 30-year low of 55.3 in November. The index of current conditions increased to 68.3 from 63.3, while the index of consumer expectations about the economy six months from now rose to 63.1--from 53.5 and the highest since September 2008. “The improvement was concentrated in expectations for the future, especially the longer-term outlook for the economy,” said Survey Director Richard Curtin. Still, consumers remained worried about jobs, with 53% of respondents saying they expect the unemployment rate to increase, down modestly from 61% in March (Reuters via Yahoo! News and Bloomberg.com May 1) … * The nation’s unemployment rate will peak at slightly above 9% before declining, said St. Louis Federal Reserve President James Bullard. “I’m hopeful that we will stay under the peak hit in 1982, 10.8%,” Bullard told reporters following a speech to the Arkansas Bankers Association. In his speech, Bullard said the central bank must continue to regulate the largest banks in order to monitor developments in the financial system. “The Fed’s lender of last resort and monetary policy functions mean that it will have to remain closely involved in the regulatory structure,” said Bullard (Reuters via Yahoo! News May 1) … * The manufacturing sector contracted at a slower-than-expected pace in April as new orders and production increased. The Institute for Supply Management’s factory index rose to 40.1, from 36.3 in March but still below the 50 level that indicates contraction in the sector. It was the 15th consecutive month of contraction. The new-orders index contracted for a 17th consecutive month, but rose 6 points to 47.2. The production index increased to 40.4 from 36.4. Employment remained weak, with that index rising to 34.4 from 28.1. “The decline in the manufacturing sector continues to moderate,” said Norbert J. Ore, chairman of the group’s manufacturing business survey committee. “While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again,” added Ore (Associated Press via Yahoo! News and The Wall Street Journal Online May 1) … * A Commerce Department report also showed continued weakness in the manufacturing sector. Factory orders fell 0.9% in March following a 0.7% gain in February. It was the seventh decline in the last eight months. Demand for long-lasting durable goods fell 0.8% in March, while demand for non-durable goods dropped 1%. Shipments of manufactured products fell 1.2%, the eighth consecutive decline and the longest on records going back to 1992. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 1.7% in March, following a 0.2% dip in February and a 9.4% plunge in January (commerce.gov and Moody’s Economy.com May 1) …