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News of the Competition (05/31/2010)

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MADISON, Wis. (6/1/10)
* The Mortgage Bankers Association (MBA) is pursuing financial relief for its members from government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac because the GSEs are forcing lenders to buy back more debt, said MBA President John Courson (Bloomberg News via American Banker May 28). Because they have been bolstered by unlimited taxpayer capital, Fannie and Freddie should acknowledge that lenders are unfairly absorbing too many losses, Courson said. Also, a 27-year high in unemployment is among the causes of mortgage defaults unrelated to loan quality Bloomberg said. “We’re trying to see if we can reach some type of a system that says there is a bright line out there, if this loan has been making payments and defaulted for a reason that is neither fraud nor related to the underwriting of the loan, it shouldn’t be subject to a repurchase,” Courson said … * BankUnited Financial Corp. creditors are gearing up to sue the bank holding company’s former executives regarding the failure of its Florida thrift, Bank United FSB (Dow Jones via American Banker May 28). The creditors are trying to persuade a bankruptcy court to take their side in a dispute with federal banking regulators over who is entitled to any proceeds from the lawsuit. A committee representing BankUnited’s unsecured creditors said a court order permitting it to proceed with claims on the company’s behalf covers the lawsuit it intends to file. The suit would allege that two former company executives breached their fiduciary duties and contributed to the implosion of BankUnited FSB, Dow Jones said. The Federal Deposit Insurance Corp. is contesting the committee’s right to file the proposed lawsuit and says that because it is the failed bank’s receiver, the committee is the true owner of those claims, Dow Jones said …

Market News (05/31/2010)

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MADISON, Wis. (6/1/10)
* The University of Michigan consumer sentiment index increased slightly in May to 73.6 from 72.2 in April. Consumers, despite gearing up their spending at a healthy pace, say they still are depressed, the report said. The May gain was derived from the expectations component of the index--which increased 1.8 points. Consumers remain worried about lost wealth, the job market, small raises and policy changes (Moody’s Economy.com May 28). Also, inflation expectations rose steeply. The one-year inflation expectations increased to 3.2% in May from 2.9% in April, and the five- to 10-year inflation gauge rose to 2.9% from 2.7%. “The data represent troublesome increases in inflation expectations, especially given the recent declines in gas prices,” Richard Curtin, director of surveys, said (The New York Times May 28) … * With Americans using increased wages to restore their savings, consumer spending in the U.S. unexpectedly stalled in April (Bloomberg May 28). Consumer spending--a key growth component for the economy--was unchanged last month after increasing 0.6% in March, the Commerce Department said Friday (The Wall Street Journal May 28). For the second consecutive month, personal income rose by 0.4%. Wage income went up by 0.4%, following a 0.3% March gain (Moody’s Economy.com May 28). Rising wages could help lessen the damage from financial turmoil caused by the European debt crisis and help sustain the U.S. economic recovery, Bloomberg said. “The consumer is going along for the ride but isn’t really leading the recovery,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending” …

News of the Competition (05/27/2010)

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MADISON, Wis. (5/28/10)
* Because investors are placing their income into the safety of U.S. government securities, mortgage rates have dropped to the lowest level of the year (The New York Times May 27). The average U.S. rate for a 30-year fixed-rate mortgage slid to 4.78% this week from 4.84% a week earlier, Freddie Mac said Thursday. This week’s rate was the lowest since early December--when rates hit a record low of 4.71%. Concerns about rising debt levels and government deficits in Europe have devalued the euro and sent equity markets plunging worldwide (Bloomberg.com May 27). The crisis is causing investors to seek refuge in U.S. bonds--including mortgage-backed securities--resulting in lower mortgage rates for U.S. consumers, said David Benson, chief economist for PMI Group Inc. “The more concern there is about Europe, the lower interest rates will go,” Benson added … * In the first half of May, an estimated 425 collection agencies and creditors were named in 495 consumer statute lawsuits filed throughout the nation, according to district court docket data (American Banker May 27). The 15-day total is the least for a two-week period since the first part of February when consumers filed suit against 293 creditors and agencies. Grand Rapids, Mich.-based WebRecon LLC tabulates the monthly data …

Market News (05/27/2010)

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MADISON, Wis. (5/28/10)
* Initial U.S. claims for unemployment insurance declined by 14,000 to 460,000 for the week ended May 22, the Labor Department said Thursday. However, economists surveyed by Bloomberg News had predicted claims would decline to 455,000. This is a sign that layoffs are continuing, even though the economy is rebounding and employment is gaining (Bloomberg.com May 27). First-quarter economic expansion was slower than initially forecast, the Commerce Department said Thursday. “Claims remain the conundrum in the employment picture,” said Russell Price, senior economist at Ameriprise Financial Inc. “They remain elevated, while the vast majority of data point to an improving labor market. Not all industries or sectors are seeing the full benefit of the recovery yet.” Meanwhile, continuing claims dropped by 49,000 to roughly 4.6 million for the week ending May 15 (Moody’s Economy.com May 27) … * First-quarter economic growth was slower than originally thought--and may become a factor in unemployment remaining elevated this year (The New York Times May 27). The economy grew at a 3% annualized rate, with businesses and consumers spending less than the initial reading of 3.2% by the Commerce Department. The economy grew at a 5.6% rate in fourth quarter 2009. Manufacturing is being bolstered by growing business investment and exports, and households are gaining confidence as employment improves (Bloomberg.com May 27). However, stock declines and a rebounding dollar triggered by European financial troubles could dampen spending in the U.S. and abroad--likely keeping interest rates low, Bloomberg said. “We are at a fairly fragile turning point,” said Julia Coronado, a senior U.S. economist at BNP Paribas, noting that the economy is struggling with “a lot of headwinds.” Although the economy remains on track, it will require much more robust growth to make a significant improvement in the labor market (Moody’s Economy.com May 27) …

News of the Competition (05/26/2010)

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MADISON, Wis. (5/27/10)
* The Small Business Administration’s (SBA) two successful lending initiatives--which cut fees for borrowers and lenders, and raised loan guarantees--will hit a hurdle this week because they’ll run out of funds, reported American Banker (May 26). The programs were put in place last year as a component of the $700 billion federal stimulus package and have already been extended four times by Congress. The programs likely will receive additional funding within the next few weeks but community bankers are frustrated by on-again, off-again nature of the programs caused by funding issues, the publication said. The stimulus law provided $375 billion for the SBA to cut or eliminate fees for borrowers on 7(a) loans--which provide financing for general business purposes and are delivered by commercial lenders--and for borrowers and lenders with 504 loans--which are for fixed assets and delivered by nonprofit economic development groups, the publication said … * Federal Reserve Chairman Ben Bernanke argued Wednesday that central banks independent from politics are better at managing the economy (The Wall Street Journal May 26). Bernanke made his remarks before an international audience in a speech at Bank of Japan. “In exchange for this independence, central banks must meet their responsibilities for transparency and accountability,” Bernanke said, adding that the Fed is “committed to exploring new ways” to increase transparency (Bloomberg.com May 26). For Bernanke’s speech, use the link …

Market News (05/26/2010)

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MADISON, Wis. (5/27/10)
* U.S. sales of new homes in April leapt to the highest level in two years, because homebuyers hurried to qualify for a government tax credit before it expired at the end of the month (Bloomberg.com May 26). Sales rose 15% to an annualized pace of 504,000--the most since May 2008, the Commerce Department said Wednesday. The median sales price of a home declined 9.5% from the same month last year--indicating rising demand from first-time homebuyers looking to capitalize on the government incentive--worth as much as $8,000, Bloomberg said. Declining stock prices driven by concern over the European debt crisis, mounting foreclosures and unemployment could dampen any recovery in sales and construction heading into the second half of 2010, Bloomberg added. “We’re likely to see sales slide quite a bit [in coming months],” said Mark Vitner, a senior economist at Wells Fargo Securities LLC. “What we really need to see is a recovery in jobs.” Because of strong demand, inventories of new homes have dropped to five months, the lowest level since the peak of the housing market in 2005 (Moody’s Economy.com May 26). However, to make the sales, builders are discounting home prices, Moody’s added … * Mortgage loan application volume for the week ended May 21 rose 11.3% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 10.3%, compared with the previous week. The Refinance Index rose 17%. This third consecutive increase marks the highest Refinance Index recorded in the survey since October 2009. The seasonally adjusted Purchase Index decreased 3.3% and is the lowest Purchase Index observed in the survey since April 1997. The unadjusted Purchase Index dropped 4% from the previous week, was down 27.1% over the past four weeks, and was 27.5% lower than the same week one year ago. “Refinance application volume jumped last week as continuing financial market turmoil related to the budget crises in Europe extended the opportunity for homeowners to lock in at historically low mortgage rates,” said Michael Fratantoni, MBA vice president of research and economics. “In contrast, purchase applications fell further this week, following last week’s sharp decline, keeping the purchase index at 13-year lows.” For the MBA report, use the link …

News of the Competition (05/25/2010)

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MADISON, Wis. (5/26/10)
* U.S. community banks are experiencing significant difficulties in exiting the year-and-a-half-old Troubled Asset Relief Program (TARP), reported American Banker (May 25). It is anticipated that community banks will hold the overwhelming majority of unpaid TARP funds on their balance sheets when the program hits its two-year anniversary, the publication said. The smaller the bank, the more likely it will remain in TARP. About 81% of banks that received $50 million to $1 billion in TARP money remain in the program, according to the Treasury Department. For banking companies that received $10 million or less, that number soars to 97%. Questions are growing about whether infusing capital into smaller banks was a good practice since it hasn’t done much to spark lending and could cost the smaller institutions in the long run, the publication said … * In attempts to mitigate the costs of failures, the Federal Deposit Insurance Corp. (FDIC) Monday announced a $233 million bond sale (American Banker May 25). In January, the notes were originally issued to the FDIC by a limited liability company created jointly by the FDIC and private investors--to assist the company in acquiring commercial real estate loans from 22 receiverships. The agency’s resale of the bonds brought slightly more than $200 million for FDIC. It constituted the fourth recent sale of structured sale notes in an ongoing effort by FDIC to recoup money for the Deposit Insurance Fund, the publication said …

Market News (05/25/2010)

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MADISON, Wis. (5/26/10)
* In a sign the housing recovery is slowing, home prices in 20 U.S. cities in March increased less than forecast from a year earlier, according to the Standard & Poor’s/Case Shiller home-price index of property values (Bloomberg.com May 25). The index increased 2.3% from March 2009, less than the 2.5% forecast by economists surveyed by Bloomberg News. The housing market is “fragile,” said Karl Case, co-founder of the index. “There’s a lot of inventory out there. It takes guts to buy a house and it particularly takes guts to buy a house in a rough economic environment. [However] prices are holding.” In a related matter, the monthly Federal Housing Finance Agency (FHFA) said its purchase-only house price index rose 0.3% from February to March, although the index still is down 2.2% from March 2009 (Moody’s Economy.com May 25). The quarterly purchase-only index for the U.S. dropped 1.9% in the first quarter of 2010, compared with the fourth quarter of 2009 and is down by 3.1% compared with the first quarter of 2009. Although the March numbers are encouraging, the FHFA quarterly numbers still indicate a falling-house-price trend during the past six months, Moody’s said … * For the third consecutive month, consumer confidence increased in May, rising to the highest level in more than two years because worries about the labor market continue to abate, according to the Conference Board, a private research firm (The New York Times May 25). The board’s index of consumer attitudes increased to 63.3 in May--the highest level since March 2008--from a downwardly revised 57.7 in April. Analysts surveyed by Reuters had predicted a reading of 59 for May. “The underlying economy is improving, job opportunities are growing, and that’s going to continue,” said Robert Stein, a senior economist at First Trust Portfolios LP. “On the other hand, we have uncertainty in the financial markets and Europe” (Bloomberg.com May 25). Although there wasn’t much improvement in the share of consumers finding jobs readily available, more are expecting gains in their incomes, the board said (Moody’s Economy.com May 25) …

News of the Competition (05/24/2010)

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MADISON, Wis. (5/25/10)
* A failed bank closed Friday by regulators has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total for banks to 73, compared with 140 bank failures for all of 2009. Friday’s failed bank was Pinehurst Bank, St. Paul, Minn., which was assumed by Coulee Bank, La Crosse, Wis. The closed institution held roughly $61.2 million in assets as of March 31. The FDIC estimated that the latest failure will cost the Deposit Insurance Fund about $6 million ... * The board of directors of the Federal Deposit Insurance Corp. (FDIC) Friday approved a global settlement of a bankruptcy case involving Washington Mutual Inc. (WMI), the holding company of Washington Mutual Bank, an institution for which FDIC was appointed receiver on Sept. 25, 2008. The FDIC said in a press release that it is a participant in the global settlement because of claims and counterclaims involving the company resulting from FDIC’s role as receiver. The agreement also settles claims between WMI and JPMorgan Chase, the acquirer of the failed Washington Mutual Bank. “This agreement will result in substantial recoveries to the receiver and resolve potential claims that could have taken years and millions of dollars to litigate,” said FDIC General Counsel Michael Bradfield. The global settlement is subject to the approval of the U.S. Bankruptcy Court for the District of Delaware, where relevant documents were filed Friday, FDIC said … * The federal financial overhaul bill passed last week could push large U.S. banks to the brink of potential major credit-ratings downgrades, which would saddle them with billions of dollars in additional financing costs (The Wall Street Journal May 24). “Too big to fail” banks such as Bank of America Corp. and Citigroup Inc. have garnered implicit government support, which means those banks get better marks from ratings companies than they would if the possibility of failure wasn’t ruled out, the Journal said. The idea is that an implied government financial backup plan makes owning the banks’ bonds less of a risk. If that safety net disappears, ratings companies warned that they will downgrade bank ratings--possibly drastically, the Journal said … * A Justice Department decision last week accentuates the difficulty prosecutors confront if they want to hold individuals criminally accountable for the financial crisis, said The Wall Street Journal (May 24). The department decided to abandon its investigation of current and former employees at insurer American International Group Inc. The end of the two-year criminal investigation is a setback for prosecutors because they have faced intense political and public pressure to unearth evidence of criminal misconduct in the aftermath of the worst recession since the 1930s, the Journal said. What is problematic for the Justice Department is the high level of evidence needed to successfully prosecute criminal charges in the courts, the Journal said. Prosecutors must prove beyond a reasonable doubt that executives’ decisions involved criminal intent, and that executives deliberately misled investors …

Market News (05/24/2010)

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MADISON, Wis. (5/25/10)
* Existing-home sales rose in April because homebuyers were motivated by the tax credit, an improvement in consumer confidence and favorable affordability conditions, according to the National Association of Realtors (NAR). Existing-home sales--which are completed transactions that include single-family, townhomes, condominiums and co-ops--increased 7.6% to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March. April’s sale are 22.8% higher than the 4.7 million-unit pace in April 2009. Monthly sales rose 7% in March. Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.” For the NAR report, use the link … * This year and next year, the U.S. economy should grow at a stable rate because consumers have increased their spending and feel confident the recession is over, a group of economists said in a survey released Monday (The Wall Street Journal May 23). The National Association of Business Economics (NABE) report, conducted April 27 through May 7, surveyed 46 economists who predicted U.S. gross domestic product would grow by 3.2% in 2010 and 2011. That growth is slightly higher than the 3.1% growth predicted for the two years in the last survey, released Feb. 10, the Journal said. “Although risks involving Europe have recently escalated, the outlook in this country has improved in most respects,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University. “Growth prospects are stronger, unemployment and inflation are lower, and worries relating to consumer retrenchment and domestic financial headwinds have diminished,” she added ...

News of the Competition (05/21/2010)

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MADISON, Wis. (5/24/10)
* Goldman Sachs Group may pay $1 billion or more to settle a Securities and Exchange Commission (SEC) fraud lawsuit, analysts predicted (Bloomberg.com May 21). The suit sparked a 26% drop in the firm’s stock price. Obtaining such a record-setting penalty may be difficult for the SEC, Bloomberg said. The SEC will have to “have a good explanation and justifications for the number,” when presenting the settlement for court approval, said Donald Langevoort, a former SEC attorney who teaches securities law at Georgetown University. Based on allegations in the Goldman Sachs complaint, a sanction in the $1 billion range would be difficult to justify, said James Coffman, a retired SEC enforcement official. That amount would be more than double what any Wall Street firm has agreed to pay in a civil settlement with authorities, Bloomberg said … * The Treasury Department said it anticipates U.S. government financial bailouts will cost taxpayers billions less than its prior estimate (The New York Times May 21). The Treasury forecasts taxpayers will lose $105.4 billion on the bailouts--which is down $11.4 billion from the Obama administration’s February projection. However, that revised cost calculation could be questionable because it assumes Treasury’s shares of bailed-out companies are gaining value, despite last week’s nosedive in stock prices, the Times said … * Troubled debt restructurings are increasing, and they’re creating regulatory problems for bankers concerned about how to properly designate and disclose the modified loans, reported American Banker (May 21). The issue has gained increasing importance for bankers, examiners and investors because financial institutions have increased their troubled debt restructurings, the publication said. Although regulators are encouraging banks to work with borrowers, bankers are reticent because of what they see as the not fully contemplated consequences. Specifically, they want assurances that examiners will not come back and demand the restructured loans be classified. Even defining what constitutes a restructuring is proving problematic, the publication said. Questions abound about which kinds of loans should be restructured, how much a bank must reserve for them, how long the loans should be reported and whether they are considered nonperforming assets, the publication said ...

Market News (05/21/2010)

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MADISON, Wis. (5/24/10)
* The number of mass layoffs in the U.S. inched up in April--in step with the trends in initial claims for unemployment insurance, according to the Bureau of Labor Statistics. The number of layoffs involving a minimum of 50 workers from a single establishment rose to 1,856 in April from 1,628 in March. The layoffs involved 200,870 workers, compared with 150,864 in March (Moody’s Economy.com May 21). In a related matter, April payrolls rose in 38 states, led by Ohio, Pennsylvania and New York, the Labor Department said Friday (Bloomberg.com May 21). Employers added 37,200 workers in Ohio; 34,000 in Pennsylvania and 32,700 in New York. For five of the past six months, the U.S. has added jobs on a national basis. In April, payrolls increased by the most in four years, the department said. “The labor market is starting to show more sustained gains in jobs,” Jonathan Basile, an economist at Credit Suisse in New York. “The bottom in the jobs picture has been reached” … * Europe’s debt problems could provide a “significant external shock” to the U.S. economy, hurting U.S. banks and exporters, and causing the worldwide economic recovery to falter, Daniel K. Tarullo, a top Federal Reserve official, warned Thursday (The New York Times May 20). A Fed decision last week to reinstate dollar liquidity swap lines with the European Central Bank and four other central banks was a key step to mitigate the risk of more financial trouble arising from the Greek fiscal crisis, Tarullo said in testimony at a House Financial Services Committee hearing. “In the worst case, such turmoil could lead to a replay of the freezing up of financial markets that we witnessed in 2008,” Tarullo told the committee. In a related matter, England posted its largest April budget deficit since the inception of monthly records in 1993 (Bloomberg.com May 21). The $14.4 billion shortfall compares with $12.6 billion a year earlier, the Office of National Statistics said Friday in London. As a result, England’s Chancellor of the Exchequer George Osborne is preparing to deliver an emergency budget, Bloomberg said …

News of the Competition (05/20/2010)

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MADISON, Wis. (5/21/10)
* Commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported an aggregate profit of $18 billion in the first quarter of 2010, a $12.5 billion improvement from the $5.6 billion the industry earned in the first quarter of 2009. But that’s still well below historical norms for quarterly profits, FDIC said in a press release. More than half of all institutions--52.2%--reported year-over-year improvements in their quarterly net income. Fewer than one in five institutions--18.7%--reported net losses for the quarter, compared with 22.3% a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.54%, from 0.16% a year ago. This is the highest quarterly ROA for the industry since the first quarter of 2008. The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. “There are encouraging signs in the first-quarter numbers,” said FDIC Chairman Sheila C. Bair. “Industry earnings are up. More banks reported higher earnings, and fewer lost money.” She added that the $18 billion in net income during the quarter “is more than three times as much as banks earned a year ago, and it is the best quarterly earnings for the industry in two years” … * Credit card companies still can thrive in the face of new, more stringent regulations and a struggling economy, said Peter Vaughn, senior vice president, for global brand management at American Express Co. (AmEx) (American Banker May 20). Discovering new ways to engage customers is the key, Vaughn said Tuesday at a Card Forum and Expo in Orlando, Fla. Creating strategies around “growth, customer loyalty and innovations--with innovation being the most important [element]” is the key at Am Ex, he said. Credit card companies should concentrate “on exactly what consumers need, emphasizing brand values, creating positive conversations and driving real-time adaptation,” he added …

Market News (05/20/2010)

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MADISON, Wis. (5/21/10)
* The Conference Board’s index of U.S. leading economic indicators unexpectedly fell in April--an indication that economic growth may slow down in the second half of this year (Bloomberg.com May 20). The 0.1% decline in the private research firm’s gauge of the outlook for the next three to six months followed a revised 1.3% (previously 1.4%) uptick in March. “The pace of recovery is starting to wane,” said Tim Quinlan, an economist at Wells Fargo Securities LLC. “I don’t see help coming from housing and I don’t see help coming from employment.” Major drags in April were a smaller money supply, fewer building permits and shorter manufacturing delivery times (Moody’s Economy.com May 20). The coincident index increased 0.3%--the most since November. Taken together, these indices are a sign that the economic expansion may be tenuous, Moody’s said … * Initial U.S. claims for unemployment insurance unexpectedly increased by 25,000 to 471,000 for the week ended May 15, according to the Employment and Training Administration. Although the rise in claims is cause for concern, economic signs indicate a modestly improving labor market, said Moody’s Economy.com (May 20). Meanwhile, continuing claims declined by 40,000 to roughly 4.62 million for the week ended May 8. It is not unusual for claims to unexpectedly rise--especially when the labor market remains fragile, Moody’s said. Although the labor market has shown significant improvement from a year ago, it will take several more years before returning to prerecession conditions, Moody’s said …

Fed releases FOMCs April meeting minutes

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WASHINGTON (5/20/10)--The Federal Open Market Committee (FOMC) made modest upward revisions to its projections for growth in the nation's real gross domestic product (GDP) for 2010; however, projections for economic activity and inflation were little changed from January, according to the FOMC minutes for its April 27-28 meeting. The Federal Reserve policymakers now expect real GDP growth of 3.2% to 3.7%, up from the 2.8%-3.5% range projected in January. The minutes, released by the Fed Wednesday afternoon, indicated that members of the committee expect the economic recovery to continue at a slow pace . Expansion would likely be "restrained by firms' caution in hiring and spending in light of the considerable uncertainty regarding the economic outlook." The FOMC anticipated the labor market would improve slowly the next several years with the average unemployment rate during fourth quarter 2010 projected at 9.1%-9.5% and decreasing to about 6.6% to 7.5% by the end of 2012. Longer-term unemployment projections were at 5% to 5.3%, essentially the same as in January. Most committee members revised downward their near-term projections for inflation, which they believed would remain subdued over the next several years, said the minutes. As in January, the central tendency of projections of the longer-run inflation rate was 1.l7% to 2%. Most of the committee anticipated that inflation in 2012 would still be below the assessments of the mandate-consistent inflation rate. The members noted that their projections are subject to "greater-than-average uncertainty," with risks to their projections as" roughly balanced," although a few indicated they now viewed the risks to economic growth as "tilted to the upside." They pointed to stronger incoming data suggesting the economic recovery was more firmly established, but emphasized that "predicting macroeconomic outcomes in the wake of a financial crisis and a severe recession was particularly difficult." To view the April 27-28 minutes in full, use the link.

News of the Competition (05/19/2010)

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MADISON, Wis. (5/20/10)
* Goldman Sachs’ bets against Washington Mutual (WaMu)--wagers that were placed even as Goldman helped WaMu fuel a housing frenzy that Goldman abandoned--are examples of Goldman’s conflicting roles that bother critics and some former clients, said The New York Times (May 18). Despite a substantial number of satisfied customers, Goldman at times seems to operate against clients’ best interests when opportunities arise in which Goldman can turn a profit from clients’ financial troubles, the Times said. Also, Goldman’s access to client information can provide its traders an upper hand that many of the company’s competitors don’t have, the Times added ... * John Paulson, a hedge fund manager who made a fortune betting against U.S. mortgage markets, was in one of more than 50 investment groups during the first quarter that added a minimum of five million shares in Bank of America Corp. (BofA) (Bloomberg News via American Banker May 19). New York-based Paulson & Co. bought 16.8 million BofA shares and held 167.8 million in shares on March 31, according to a Monday filing with the Securities and Exchange Commission. In April, BofA reported its first profit in the past three quarters, stemming from sales and revenue that reached a record $7 billion, Bloomberg said …

Market News (05/19/2010)

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MADISON, Wis. (5/20/10)
* The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 10.06% of all loans outstanding at the end of the first quarter of 2010, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. That is an increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from one year ago. The non-seasonally adjusted delinquency rate decreased 106 basis points from 10.44% in the fourth quarter of 2009 to 9.38% this quarter. The percentage of loans on which foreclosure actions were started during the first quarter was 1.23%, up three basis points from last quarter but down 14 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 4.63%--an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record high. For the MBA report, use the link … * For the first time in more than a year, the cost of living unexpectedly dropped in April--a sign the U.S. economy is recovering without causing prices to soar (Bloomberg.com May 19). The consumer price index fell 0.1%--the first decrease since March 2009, the Commerce Department said Wednesday. The core rate--excluding food and fuel--was unchanged, concluding the smallest 12-month gain in four decades. “There simply isn’t any kind of price pressure of any consequence in the economy,” said David Resler, chief economist at Nomura Securities International Inc. “This puts the Fed firmly in place for the foreseeable future.” Wide slack exists in important parts of the economy, and keeps inflation in check (Moody’s Economy.com May 19) … * Mortgage loan application volume for the week ended May 14 decreased 1.5% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Associations (MBA). The Refinance Index increased 14.5%, and the seasonally adjusted Purchase Index decreased 27.1%. This is the lowest Purchase Index observed in the survey since May 1997. The unadjusted Purchase Index decreased 27% and was 24.1% lower than the same week one year ago. “Purchase applications plummeted 27% last week and have declined almost 20% over the past month, despite relatively low interest rates,” said Michael Fratantoni, MBA vice president of research and economics. “The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall and at 4.83%, are at their lowest level since November. However, refinance borrowers did react to these lower rates, with refi applications up almost 15%, hitting their highest level in nine weeks.” For the MBA report, use the link … * Core inflation during the past year rose at the slowest rate in 44 years, the Labor Department said Wednesday. Core inflation--which excludes food and energy--was flat in April. During the past year, core inflation went up only 0.9%--the smallest increase since 1966. The recession in 2007 and 2008 subdued inflation for the present, providing the Federal Reserve latitude to maintain interest rates at historic lows to help spark economic growth (The New York Times May 19). In a related matter, the probability that the U.S. will be in recession six months from now decreased to 23% in April--the lowest level since the second half of 2007--from 26% in March (Moody’s Economy.com May 19). There are increasingly visible signs the economic recovery is transitioning to a self-sustaining expansion, Moody’s said …

News of the Competition (05/18/2010)

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MADISON, Wis. (5/19/10)
* The Federal Deposit Insurance Corp. (FDIC) owns more than 250 collateralized debt obligations (CDOs) purchased by small financial institutions that subsequently failed. The FDIC now is taking an unusual move to counter the situation (The Wall Street Journal May 18). The bonds--even though they have a book value of more than $400 million--are a problem for the agency because it has to deal with toxic assets flowing from many banks nationwide, the Journal said. With the failure of Riverside National Bank of Florida, the FDIC’s stable of bad securities has increased in recent weeks. Riverside filled its investment portfolio with 27 CDOs known as trust-preferred securities, the Journal said. The FDIC now may be getting ready to fight back directly, the paper said. The agency has asked a New York court for permission to replace the bank as plaintiff in a six-month-old lawsuit, in which the bank accused more than a dozen financial firms of misrepresenting the value of the CDOs … * Many nonbank mortgage lenders recently learned they will have to file call reports like the ones banks and thrifts (and credit unions) file quarterly, because of a little-known provision of the 2008 Safe and Fair Enforcement for Mortgage Licensing Act (American Banker May 18). Also, under a multistate exam that 30 states initiated this year, a lender must upload the file to an automated system for every single mortgage it originated during the exam period. The software then reviews the loans for potential violations of state and federal laws, and creates a report in a matter of minutes, the publication said. The Safe Act is designed to prevent fraud and misleading sales tactics by originators, through the establishment of minimum nationwide state-licensing requirements for mortgage lenders, the publication said …. * Washington Mutual Inc. (WaMu) revised its Chapter 11 bankruptcy distribution scheme regarding the regulatory seizure of Washington Mutual Bank--a thrift for which it was the parent company (Dow Jones Newswires via American Banker May 18). Per the revision, WaMu is offering bondholders $150 million to drop claims they contend are worth billions of dollars. WaMu’s Chapter 11 proposal is slated for preliminary court review Wednesday …

Market News (05/18/2010)

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MADISON, Wis. (5/19/10)
* U.S. housing starts in April increased to the highest level in a year-and-a-half because home buyers were taking advantage of a federal tax credit before it expired at the end of the month, said Bloomberg.com (May 18). Starts increased to a 672,000 annual rate--up 5.8% from March and the highest level since October 2008, the Commerce Department said Tuesday. However, building permits--which indicate future construction--fell to the lowest level in six months. The permit drop-off means that sustained gains in the weakest part of the economy will require job creation and fewer foreclosures--which have forced prices down, Bloomberg said. The government tax credit--as much as $8,000--helped boost demand for homes, reduced the number of unsold new houses to the lowest level since 1971, and encouraged builders to get involved with more projects, Bloomberg said. “We think the pace of the housing recovery will be modest at best,” said Jonathan Basile, an economist at Credit Suisse. “It’s encouraging to see starts gain some traction, but the decline in permits takes some of the luster off.” In April, single family starts rose by a robust 10%, and completions jumped 19% (Moody’s Economy.com May 18). However, permits fell 11.5% to annual rate of 606,000--the lowest level since October 2009 (The New York Times May 18) … * U.S. wholesale (producer) prices dropped in April for the second time in three months, suggesting inflation is not a concern for Federal Reserve officials (The New York Times May 18). Producer prices for finished goods declined 0.1%, reversing to some extent the 0.7% March advance that was attributed to an unusual food-price increase (Moody’s Economy.com May 18). Core prices for finished goods--taking out food and energy--were up slightly by 0.2%. “[The] core Producer Price Index remains very subdued,” said Ian Sheperdson, chief U.S. economist at High Frequency Economics. “There is no inflation threat here” (Bloomberg.com May 18) … * U.S. chain store sales decreased 2.5% for the week ended Friday, according to the International Council of Shopping Centers (ICSC) sales index. The year-ago change also fell--to 2.9%, the weakest growth in 11 weeks, ICSC said. Adverse weather caused most of the decline, ICSC said, noting its survey showed continuing strong customer traffic. Although consumer fundamentals are improving, they remain weak, ICSC said. The most prominent and important drag is high unemployment, which will engender only modest wage-income growth and dampen confidence, ICSC added (Moody's Economy.com May 18) …

Market News (05/17/2010)

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MADISON, Wis. (5/18/10)
* Worldwide demand for long-term U.S. financial assets rose in March to a record level because investors ranging from China to the United Kingdom bought the most Treasuries since November, according to a Treasury Department report. Net buying of bonds, equities and notes totaled $140.5 billion in March--more than double the projections of economists--after net buying of $47.1 billion in February. “Foreign institutions and individuals are still turning to the U.S. as a safe haven,” said Paul Christopher, senior international investment strategist at Wells Fargo Advisers LLC. “There was some concern foreigners were abandoning the U.S. currency. That fear was misplaced.” Private foreign investors increased their purchases of U.S. Treasury bonds and notes, government agency bonds and private corporate bonds, because they were motivated by safe-haven concerns and troubled about the Greek debt crisis (Moody’s Economy.com May 17) … * Consonant with a worldwide economy that is growing at a rate that is near its potential, global business sentiment remained steady last week, according to Moody’s Economy.com Survey of Business Confidence. The business confidence percentage was at 26.1% for the week ended May 14, compared with 26.7% for the week ended May 7. South American businesses still are the most positive, while there is no significant difference in sentiment anywhere else worldwide, Moody’s said. So far, the European debt crisis hasn’t had any measurable effect on confidence. Businesses are especially positive about current market conditions and the outlook through the end of 2010. Although sentiment regarding hiring has improved significantly in recent weeks, businesses still are cautious about their inventories and demand for office space, Moody’s said (Moody’s Economy.com May 17) …

News of the Competition (05/17/2010)

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MADISON, Wis. (5/18/10)
* Four failed banks closed Friday by regulators have entered into purchase-and- assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 72, compared with 140 failures for all of 2009. Friday’s failed banks include Satilla Community Bank, Saint Marys, Ga., assumed by Ameris Bank, Moultrie, Ga.; New Liberty Bank, Plymouth, Mich., assumed by Bank of Ann Arbor, Mich.; Southwest Community Bank, Springfield, Mo., assumed by Simmons First National Bank, Pine Bluff, Ark.; and Midwest Bank and Trust Co., Elmwood Park, Ill., assumed by Firstmerit Bank, National Association, Akron, Ohio. The four closed institutions held roughly $3.36 billion assets as of March 31. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $301.7 million … * How a bank behaves regarding ethics and transparency in its business dealings is the most important factor in a bank’s reputation, according to a survey measuring the reputations of 30 big U.S. banks, compiled for American Banker by Reputation Institute (American Banker May 17). That measure accounts for 15.9% of a bank’s overall score, compared with products and services (15.7%). In the more general corporate America, a company’s products and services are the larger component of its reputation, accounting for more than 18% of its score, according to the Reputation Institute’s broader survey of 150 large companies across several industries, the publication said. The implication is that banks connect in different ways with customers than other companies do--and most banks are having a hard time making the connection at all, American Banker said … * Washington Mutual Inc. (WaMu) reached an agreement with the Federal Deposit Insurance Corp. (FDIC) on an amended plan for reorganization--which will allow WaMu to distribute $7 billion to creditors. The agreement moves WaMu nearer to exiting bankruptcy, per court documents filed Monday (The New York Times May 17). After regulators seized its lending operations--which were then sold by the FDIC to JPMorgan Chase & Co. for $1.9 billion--the bank filed for bankruptcy in 2008. Subsequently, WaMu, the FDIC and JPMorgan have been in dispute about deposits that WaMu had in operations sold to JPMorgan. The disputes involve billions of dollars in tax refunds, the Times said … * Reporting its first quarterly profit in three years, General Motors Co. (GM) was lifted by stronger worldwide sales and savings garnered through last year’s government-funded bankruptcy (The Wall Street Journal May 17). For the quarter, GM reported net income of $865 million and an operating profit of $1.2 billion. Global revenue expanded 40% from a year ago to $31.5 billion. The automaker said the next few quarters may not be as robust because of European economic troubles and an economic slowdown in the huge Chinese market …

News of the Competition (05/14/2010)

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MADISON, Wis. (5/17/10)
* The U.S. Senate approved a provision by a 64-35 margin Thursday to give the Securities and Exchange Commission power to establish and oversee a credit-rating board that would act as an intermediary between insurers seeking ratings and the rating agencies (The Wall Street Journal May 12). The board would determine which agency provided the “initial rating” for certain securities known as structured bonds. The provision is geared to resolving a tough problem in financial markets, which is the fact that raters’ incomes depend on the firms whose bonds they are asked to judge, the Journal said ... * Wall Street banks may seek a global settlement in response to an announcement Thursday that New York state prosecutors were probing into whether eight banks fooled credit ratings agencies, say some legal experts (The New York Times May 13). The settlement would be similar to a 2002 agreement related to stock research in which 10 banks paid $1.4 billion collectively and promised to change the way their analysts interacted with their investment bankers to prevent conflicts of interest. However, in this instance, the settlement price would likely be higher and also include a series of structural reforms, the Times said. The investigation targets: Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch (now owned by Bank of America), Morgan Stanley and UBS. Fitch Ratings, Moody's Investors Service and Standard & Poor's were the agencies that rated the mortgage deals. Investors used the agencies’ ratings to determine whether to buy mortgage securities (The New York Times May 12) … * Many of the eight banks and three credit-rating agencies that New York Attorney General Andrew Cuomo subpoenaed Thursday to ascertain if they provided misleading information to rating agencies said they would cooperate with his investigation (Dow Jones Newswires via American Banker May 14). The investigation targets: Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch (now owned by Bank of America), Morgan Stanley and UBS. Fitch Ratings, Moody's Investors Service and Standard & Poor’s were the agencies that rated the mortgage deals ...

Market News (05/14/2010)

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MADISON, Wis. (5/17/10)
* With U.S. consumers remaining worried, the University of Michigan Consumer Sentiment Index inched up to 73.3 in May, compared with 72.2 in April. Despite increasing spending at a healthy pace, consumers still say they are not confident, according to the Michigan report. Nearly all the gain in May came from the expectations component of the index, which rose 1.8 points. Inflation expectations also increased. Weak consumer confidence continues to prevail in the midst of strong consumer spending growth, the report said. Consumers remain concerned about a wide range of issues, including the job market, small pay raises, loss of wealth and government policy changes. However, consumer spending indicates that they know the worst is behind them economically and they want to undo some of the extreme cutbacks they made during the recession, the report said (Moody’s Economy.com May 14) … * U.S. industrial production increased 0.8% in April after rising 0.2% in March, according to a Federal Reserve report on Industrial Production and Capacity Utilization. The April gain is the most in three months--a sign that factories are driving an economic recovery that is becoming broad-based (Bloomberg.com May 14). The rates of change for both January and March were revised up, but the rate of change for February was revised down. Nevertheless, the cumulative change over those months was only slightly lower than previously reported. Manufacturing output climbed 1% in April for a second consecutive month and was 6% above its year-ago level. The increases in manufacturing continued to be broadly based across industries. At 102.3% of its 2002 average, total industrial output in April was 5.2% above its year-ago level. The capacity use rate for total industry advanced 0.6 of a percentage point to 73.7%, a rate 6.9 percentage points below its average from 1972 to 2009, but 4.5 percentage points above the rate from a year earlier. For the Fed report, use the link … * Total business inventories in the U.S. increased in March because companies ratcheted up their orders to keep pace with demand (Bloomberg.com May 14). The 0.4% gain was in line with expectations of economists surveyed by Bloomberg News. The March uptick followed a 0.5% increase the previous month, the Commerce Department said Friday. In a related mater, sales rose 2.3%--the most since November, the department said. Because the recession caused a record drawdown in stockpiles last year, companies now are bolstering investment and production. Manufacturing--accounting for roughly 12% of the U.S. economy--helped spark a recovery that has engendered job gains and consumer spending increases, Bloomberg said. “The period of massive inventory liquidations has given way to a period of moderate inventory accumulation,” said Steven Wood, president of Insight Economics LLC. The aggregate inventory-to-sales ratios dropped to 1.24--down from 1.46 a year ago (Moody’s Economy.com May 14) …

News of the Competition (05/13/2010)

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MADISON, Wis. (5/14/10)
* New York Attorney General Andrew Cuomo has initiated an investigation of eight banks to ascertain if they provided misleading information to rating agencies, according to sources familiar with the matter (The New York Times May 12). The information allegedly was designed to inflate the grades of specific mortgage securities, the sources said. The investigation targets: Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch (now owned by Bank of America), Morgan Stanley and UBS. Fitch Ratings, Moody’s Investors Service and Standard & Poor’s were the agencies that rated the mortgage deals. Investors used the agencies’ ratings to determine whether to buy mortgage securities, the Times said … * Women CEOs’ compensation at the largest U.S. companies is breaking the glass ceiling (Bloomberg.com May 13). Led by a $47.2 million package for Carol Bartz of Yahoo! Inc. and a $26.3 million deal for Kraft Food Inc.’s Irene Rosenfeld, women’s pay is burgeoning, Bloomberg said. In their most recent fiscal years, 16 women running companies in the Standard & Poor’s 500 Index averaged earnings of $14.2 million--43% more than the average for men--according to data compiled by Bloomberg News. Women who also were CEOs in 2008 received a 19% average raise in 2009, compared with a 5% average cut for men. “When you see numbers like this, one can truly say that the glass ceiling in corporate America has been shattered,” said Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC. “I don’t remember seeing women ever getting paid more than men”… * There is “no substance” to allegations that Morgan Stanley misled investigators concerning mortgage derivatives it sold to them, said CEO James Gorman (Bloomberg News via American Banker May 13). “We have no reason to believe there is any substance behind any supposed investigations that appeared in [The Wall Street Journal report],” Gorman said. Citing traders, the report said that Morgan Stanley arranged and sold collateralized debt obligations, or CDOs, backed by home loans, even though the company’s trading desk bet their value would decline … * U.S. homeowners who refinanced during the first quarter “overwhelmingly” selected fixed-rate loans, regardless of whether their original loan had an adjusted or fixed rate, Freddie Mac said Wednesday. Also, shorter-term mortgages gained popularity, Freddie said. More than 95% of refinanced first-quarter loans were fixed rate because those mortgage interest rates remained historically low (Dow Jones Newswires via American Banker May 13) …

Market News (05/13/2010)

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MADISON, Wis. (5/14/10)
* For a fourth consecutive week, initial U.S. claims for unemployment benefits declined--a sign that employers are keeping more workers because the economy is expanding (Bloomberg.com May 13). Initial claims dropped 4,000 to 444,000 in the week ended May 8, the Labor Department said Thursday. In each of the past four months, employers have added workers to payrolls--indicating increased confidence in the economic recovery. However, unemployment may take time to recede because the number of job seekers entering the work force exceeds available jobs, Bloomberg said. “Businesses seem to be proceeding with caution,” said Ryan Sweet, a senior economist at Moody’s Economy.com. “The labor market is moving in the right direction. Claims haven’t fallen as quickly as would be suggested by the nonfarm payrolls.” Meanwhile, continuing unemployment claims increased by 12,000 to nearly 4.63 million for the week ended May 1 (Moody’s Economy.com May 20) … * Last week’s stock-market nosedive, which erased $1 trillion from U.S. equity markets, likely had a structural impetus, and focusing on specific trades probably won’t produce an explanation, said Nassim Nicholas Taleb, author and adviser to a Santa Monica, Calif.- based hedge fund (Bloomberg.com May 13). Taleb’s firm--Universa Instruments LP--may have helped trigger the decline with an options trade, according to The Wall Street Journal. “When a bridge collapses, you don’t look at the last truck that was on it, you look at the engineer,” Taleb said. “You’re looking for the straw that broke the camel’s back. Let’s not worry about the straw, focus on the back” … * Europe’s economic turmoil is expected to delay the timing of the Federal Reserve’s next interest rate hike, even though the U.S. economy is picking up speed and creating more jobs, according to investors and analysts (The Wall Street Journal May 13). About 42% of economists expect the Fed to postpone tightening credit until 2011 or beyond, according to a new Journal survey. A month earlier, only 28% said the Fed would wait that long. “The crisis in Europe, risks of contagion and the deflationary pressures associated with those problems will keep the Fed on the sidelines even longer than we initially thought,” said Diane Swonk, an economist with Chicago-based Mesirow Financial …

News of the Competition (05/12/2010)

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MADISON, Wis. (5/13/10)
* Federal regulators are scrutinizing the heavy selling that took place in the market for stock-index futures by a single trader on May 6. They are investigating the causes of the brief stock market free fall that day (The New York Times May 11). The trader’s selling began 10 minutes before stock prices started to nosedive, the Times said. The unidentified futures trader accounted for roughly 9% of trading volume in the most actively traded stock index derivative contract, said Gary Gensler, chairman of the Commodity Futures Trading Commission. “There is no question that [the trader] is a bona fide hedger,” and not someone trying to disrupt the markets, said Terrence A. Duffy, executive chairman of CME Group ... * U.S. prosecutors are probing Morgan Stanley to determine whether the company misled investors about mortgage-derivatives deals it helped design and occasionally bet against, said sources familiar with matter (The Wall Street Journal May 11). Morgan Stanley arranged pools of bond-related investments called collateralized debt obligations, or CDOs, and marketed them to investors. Furthermore, the company’s trading desk at times placed bets that their value would fall, traders said. Investigators are checking to see whether Morgan Stanley properly represented its roles in the deals, the Journal said … * Four large U.S. banks made money from trading each day during the first three months of the year--a noteworthy 61-day streak, said The New York Times (May 11). Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase & Co. each finished the first quarter without losing money for even one day. That performance highlights the king-size and controversial role that trading has taken at major financial institutions, the Times said. However, it also emphasizes the growing advantage that a few large banks have over smaller rivals in the post-bailout era on Wall Street, the paper added …

Market News (05/12/2010)

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MADISON, Wis. (5/13/10)
* With imports rising faster than exports, the U.S. trade deficit in March widened to the highest mark in more than a year, adding to growing evidence that a worldwide recovery from the worst recession since World War II is underway (Bloomberg.com May 12). The gap widened 2.5% to $40.4 billion from a revised $39.4 billion in February, the Commerce Department said Wednesday. U.S. business spending on equipment and inventories, combined with a rebound in U.S. consumer spending, means imports may keep increasing, Bloomberg said. Exports also are likely to improve as growing economies in Latin America and Asia provide some U.S. companies with a boost. “Imports will continue to outpace exports as the U.S. recovery broadens,” said Harm Bandholz, chief U.S. economist at UniCredit Research. “The global recovery bodes well for U.S. exports [and] the direct impact of the woes in Europe should be limited.” Surging oil prices boosted the cost of oil imports to a 17-month high (The Wall Street Journal May 12). A rise in oil imports caused the wider overall trade deficit in March. When the oil component is taken out, the overall trade deficit actually declined (The New York Times May 12) … * For the second consecutive month, more U.S. workers quit their jobs in March than were laid off--a sign of increasing confidence among employees that more positions are opening up in a gradually recovering job market (The Wall Street Journal May 12). Nearly 1.9 million employees quit their jobs during the month, compared with more than 1.8 million who were discharged or laid off, the Labor Department said. “The most positive thing, certainly, is hiring activity finally started to pick up,” said Harm Bandholz, an economist with UniCredit Research … * U.S. mortgage loan application volume for the week ended May 7 increased 3.9% seasonally adjusted, from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Application Survey, released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Index rose 3.4%. The Refinance Index increased 14.8%, and the seasonally adjusted Purchase Index decreased 9.5%. The unadjusted Purchase Index decreased 8.9% from the previous week and was 0.6% lower than the same week one year ago. “The recent plunge in rates on U.S. Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefited U.S. mortgage borrowers last week,” said Michael Fratantoni, MBA vice president of research and economics. “Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks. In contrast, purchase applications fell almost 10% in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later.” For the MBA report, use the link …

News of the Competition (05/11/2010)

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MADISON, Wis. (5/12/10)
* In response to violating the Bank Secrecy Act, the former ABN Amro Bank agreed to pay a $500 million penalty, and is accepting responsibility for its conduct, the Justice Department said in a news release (The New York Times May 10). The bank altered payment documents from 1995 through December 2005 so they would not include references to countries under sanction by the U.S. government, the department said. Now a part of Royal Bank of Scotland (RBS), ABN Amro said in April 2007 that it had earmarked $500 million for an eventual settlement in the matter, said Michael Geller, RBS spokesman ... * Toyota Motor Corp. said it expects a healthy net profit this fiscal year, contributing to a strong outlook despite the negative impact of its huge global recall of defective autos (The Wall Street Journal May 11). The largest automaker worldwide, Toyota said it anticipates 48% growth in net profit this fiscal year. It posted a net profit of $1.2 billion in fourth quarter 2010. In a related matter, U.S. regulators Monday began a new investigation of Toyota, concentrating on whether the automaker failed to report steering defects in specific models. Toyota already paid a $16.4 million civil fine to settle charges that the company knowingly hid defects tied to a recall earlier this year regarding sudden acceleration of it vehicles ...

Market News (05/11/2010)

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MADISON, Wis. (5/12/10)
* With sales expectations on the rise, U.S. small-business owners have become more positive in April, according to the Small Business Optimism Index in a report released Tuesday by the National Federation of Independent Business (NFIB). The index went up 3.8 points to 90.6 last month, NFIB said. Despite the gain, the index’s low level indicates “pessimism persists,” NFIB added. Three consecutive quarters of low interest rates, low inflation, a rising stock market and economic growth “have obviously not been sufficient to trigger a spike in optimism,” the report said … * An increasing number of metropolitan areas are experiencing price gains in home sales from a year ago, while most states have seen robust gains in home sales from the first quarter 2009, according to the most recent survey by the National Association of Realtors (NAR). In the first quarter, 91 out of 152 metropolitan statistical areas showed higher median existing single-family home prices, compared with the first quarter of 2009. That included 29 areas with double-digit increases; three that were unchanged and 58 metros seeing price declines. In the fourth quarter, 67 areas reported gains and 123 were down, while only 30 metropolitan statistical areas in the third quarter of 2009 showed annual price increases. Lawrence Yun, NAR chief economist, said stabilizing home prices are encouraging. “This flattening in home prices is something we’ve been seeing in all of the home price measures lately, and quite clearly in this metro area price report,” he said. “The tax credit has been very effective in drawing down excess inventory, with about one million additional sales resulting directly from the stimulus.” For the NAR report, use the link … * In a sign that companies will need to ratchet up orders to meet demand, inventories in March at U.S. wholesalers climbed for a third consecutive month, and sales rose even more (Bloomberg.com May 11). The 0.4% increase in the value of stockpiles to a seasonally adjusted $394.79 billion followed a 0.6% gain the prior month. Sales increased 2.4% to a seasonally adjusted $358.02 billion--the most since November--the Commerce Department said Tuesday (The Wall Street Journal May 11). The amount of goods available compared to sales fell to the lowest level on record--a signal that factories need to continue stepping up production, Bloomberg said. “Inventories across the board have been lean for some time,” said Joseph Brusuelas, president of Brusuelas Analytics. “Firms are cautiously moving forward as consumers increase outlays” …

News of the Competition (05/10/2010)

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MADISON, Wis. (5/11/10)
* Four failed banks closed Friday by regulators have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 68, compared with 140 failures last year. Friday’s failed banks include: The Bank of Bonifay, Bonifay, Fla., assumed by First Federal Bank of Florida, Lake City, Fla.; Access Bank, Champlin, Minn., assumed by PrinsBank, Prinsburg, Minn.; Towne Bank of Arizona, Mesa, Ariz., assumed by Commerce Bank of Arizona, Tucson, Ariz.; and 1st Pacific Bank of California, San Diego, Calif., assumed by City National Bank, Los Angeles. The four closed institutions held roughly $730.9 million assets as of March 31. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $213.2 million … * Goldman Sachs Group Inc. Monday warned that litigation costs in the future could reduce its profits (The Wall Street Journal May 10). The company is facing security fraud charges brought against it by the federal government. Settlement of the Security and Exchange Commission’s current complaint could range between $1 billion and $5 billion, according to analysts’ estimates. In a separate matter, Goldman Sachs traders made money each day of the first-quarter--a feat it accomplished for the first time ever (Bloomberg.com May 10) … * Fannie Mae said it needs another $8.4 billion in government aid after reporting a first-quarter net loss of $11.5 billion. Fannie’s request is a sign that the bailout of the government-sponsored enterprise and its main rival, Freddie Mac, could end up being the costliest legacy of the U.S. housing market implosion (The Wall Street Journal May 10). Fannie’s loss is due in part to accounting changes but also because of continuing weakness in the housing market, the Journal said …

Market News (05/10/2010)

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MADISON, Wis. (5/11/10)
* In attempts to ward off a debt crisis that threatens to undermine confidence in the Euro, European policymakers introduced a loan package of nearly $1 trillion (Bloomberg.com May 10). As a result, the euro strengthened, stocks rose worldwide and commodities rallied. European Union (EU) finance leaders met in a 14-hour overnight session in Belgium to discuss last week’s currency decline and soaring bond yields in Portugal and Spain, Bloomberg said. The 16 euro nations concurred in a statement to offer as much as $962 billion--including International Fund backing to countries experiencing instability. Also, the European Central Bank said it will purchase government and private debt. However, the package does nothing to lessen overall debt, and the market could lose confidence again unless European nations take aggressive measures to reduce their borrowing, analysts said (The New York Times May 10). “If the will for fiscal discipline in the EU is plainly evident, long-term confidence in the euro will be restored,” said Michael Heise, chief economist of German insurer Allianz … * Global business sentiment continues to improve, despite the escalating fallout from the Greek debt crisis, according to Moody’s Economy.com Survey of Business Confidence. Last week, assessments of present economic conditions reached a record high. Pricing and sales also are strengthening. Recently, manufacturers have become more positive, and the trouble in worldwide financial markets has not yet brought down confidence among financial services firms, Moody’s said. Confidence is strongest in South America and weakest in Asia. Although hiring intentions are showing improvement, they remain soft and portend weak job growth, Moody’s said. Businesses remain cautious about their inventories and office space demand (Moody’s Economy.com May 10) … * The interest rates banks say they pay for three-month loans--the London interbank offered rate, or Libor--remained near its highest level in roughly nine months because of worries that a nearly $1 trillion loan plan may not be sufficient to return confidence in markets (Bloomberg.com May 10). The Libor dropped to 0.421% Monday, from 0.428% on May 7, the highest level since Aug. 17, said the British Bankers’ Association …

News of the Competition (05/07/2010)

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MADISON, Wis. (5/10/10)
* American International Group Inc. (AIG) has replaced Goldman Sachs as its main corporate adviser, according to sources familiar with the matter (The New York Times May 6). Insurer AIG, which had intended to retain Goldman to help reorganize its businesses, instead has turned to Bank of America and CitiGroup, the sources said. The move is the first in what could be a series of Goldman client defections after accusations that Goldman defrauded customers in a complex mortgage investment, the Times said. Goldman denies the charges. In a related matter, AIG realized a $1.45 billion first-quarter profit because the bailed-out company posted fewer investment write-downs and it experienced improved results at its insurance businesses (The Wall Street Journal May 7) … * California Treasurer Bill Lockyer is continuing to question large investment banks about their role in credit default swaps (CDS) connected to state bonds (American Banker May 7). The banks are Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley--who have received a combined $215 million in underwriting fees and commissions from California since 2007, the treasurer’s office said. The new round of questions sent Wednesday follows questions Lockyer sent the banks in March, and the answers were posted in April, the publication said. The new questions are about the extent to which the banks themselves use CDS to bet against California’s credit. The extent to which they helped their clients use CDS to bet against the state’s credit, and the extent to which they enabled speculative trading of California CDS--defined as trading by parties who have no actual exposure to the state’s bonds, the office said … * U.S. regulators didn’t have enough power to contain risk before the financial crisis, Treasury Secretary Timothy Geithner and his predecessor Henry Paulson told a federal panel of regulators last week (American Banker May 7). However, Geithner and Paulson indicated they did not support making commercial banks spin off their riskier units. In a separate matter, Federal Reserve Chairman Ben Bernanke said the Fed isn’t waiting for lawmakers to enact reform by forcing them to increase oversight of financial institutions by making certain they strengthen their capital levels and risk management, the publication said … * Goldman Sachs Group Inc. will create a new panel to examine its business practices, said Lloyd Blankfein, chairman/CEO. “I recognize this is an important moment in the life of this institution,” Blankfein said at the company’s annual shareholder meeting, adding he has “no current plans” to step down from his post. Goldman is the subject of a fraud lawsuit by the U.S. Securities and Exchange Commission. The company’s executives were interrogated last month at a Senate subcommittee hearing (Bloomberg.com May 7) …

Market News (05/07/2010)

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MADISON, Wis. (5/10/10)
* U.S. payrolls increased in April by the most in four years, spearheaded by gains in private employment--a sign that the economy is becoming less dependent on government support (Bloomberg.com May 7). The 290,000 increase in nonfarm employment exceeded expectations and followed a 230,000 March gain. The April unemployment rate rose to 9.9% from 9.7% the prior month because thousands of job-seekers entered the work force, according to a Labor Department report issued Friday. “Job growth like this is going to sustain the recovery going forward and certainly helps sustain the U.S. consumer,” said John Silvia, economist at Wells Fargo Securities LLC. “Businesses are coming to the conclusion that there is sustained economic recovery.” The April labor market--with nearly every major industry adding to payrolls--sends an encouraging message that businesses are confident enough to start adding permanent workers (Moody’s Economy.com May 7) … * The U.S. future inflation gauge (FIG) declined in April to 100.8 from 101 the prior month, according to the Economic Cycle Research Institute (ECRI). The smoothed, annualized rate dropped to 21.2% from 26.5%. The gauge was on a distinct upward trend for much of 2009 and has leveled off during the past several months, ECRI said. Near-term inflation pressure should not be significant, ECRI added. Because the U.S. economy is in the nascent stages of recovery, it is difficult for price pressures to build up, ECRI said (Moody’s Economy.com May 7) ... * Most of the largest U.S. banking companies saw their net interest margins expand in the first quarter, compared with the prior quarter--portending that banks have discovered another way to counter continued credit losses, reported American Banker (May 7). However, expectations are falling that large banks can continue to capitalize on their balance-sheet spreads because those more robust spreads will be harder to keep amid weak loan demand and potentially higher interest rates, the publication said. “The best they can do over the rest of this year is maintain” margins, William Fitzpatrick, an analyst at Optique Capital Management in Racine, Wis., told the publication. Most of first-quarter expansion likely stemmed from aggressive balance-sheet management in recent periods, he added …

News of the Competition (05/06/2010)

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MADISON, Wis. (5/7/10)
* Freddie Mac--the second-biggest provider of U.S. residential mortgage loans--Wednesday asked the government for an additional $10.6 billion in federal aid. The request comes after the government-sponsored enterprise lost $8 billion in the first quarter. Because of an unsteady housing market, the company warned that it will continue to need billions more in government funds (Reuters May 5). Freddie has been fighting to mitigate its losses inflicted from its high exposure to the U.S. housing market, Reuters said … * Bank of America Corp. (BofA) Wednesday said it loaned $19.4 billion during the first quarter to small- and medium-sized businesses--an increase of nearly $3 billion, compared with the same period last year. BofA made a commitment to loan $86.4 billion to small- and medium-sized businesses in 2010, which is $5 billion more than in 2009. BofA--like many other national banks--became less inclined to lend after millions of consumer and home loans went into default during the recession (Associated Press May 5). Consequently, many small businesses and consumers were no longer willing to take on more debt--a trend that reduced loan demand, AP said …

Market News (05/06/2010)

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MADISON, Wis. (5/7/10)
* U.S. nonfarm business labor productivity expanded an annualized 3.6 % in the first quarter, with unit labor costs declining 1.6%, the Labor Department said Thursday (Moody’s Economy.com May 6). A big increase in worker output along with a smaller increase in hours worked led to the productivity growth. Also, there was a small gain in hourly wages, with a minimal increase after accounting for inflation, Moody’s said. Falling unit labor costs are sparking profitability. However, strong productivity growth coming out of the recession will limit near-term hiring, Moody’s added. First-quarter productivity rose faster than expected. Economists had anticipated a 2.6% productivity rise, according to a Dow Jones Newswires survey (The Wall Street Journal May 6). A lack of wage pressure suggests the Federal Reserve should not be quick to raise interest rates from unprecedented near-zero lows, the Journal said … * Initial claims for unemployment benefits last week fell to the lowest level in a month, decreasing by 7,000 to 444,000, the Labor Department said Thursday. The decrease is in line with expectations because initial claims have moved slowly downward--consonant with small improvements in the labor market Moody’s (Economy.com May 6). Meanwhile, continuing claims declined by 59,000 to roughly 4.6 million for the week ended April 24. Companies are beginning to add workers to meet increasing demand--which could lead to a rise in incomes and consumer spending (Bloomberg.com May 6). “Claims are edging lower but are still at very high levels,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. “There is a whole host of evidence that the private sector is treading water. Companies will have to hire, but it’s going to be slow.” In a related matter, online job recruitment surged in April, with the Monster employment index increasing 11 points to 133--the largest monthly gain on record, bringing the index to its highest level since November 2008 with broad-based improvement, Moody’s said ... * U.S. consumers cut back on their shopping and spending in April from an elevated spending level in March. However, the spring selling season still will be solid, which is an encouraging sign for the economy, analysts said (The New York Times May 6). “Consumers took a breather in April,” said Ken Perkins, president of research firm RetailMetrics. “But over all, retailers have to be pleased with the spring selling season.” Several retailers reported April sales declined at stores open for more than a year--a gauge known as same-store sales (The Wall Street Journal May 6). But even with slow sales in April, many companies are optimistic about their earnings because March showed continued momentum, the Journal said. “For year-over-year comps, it’s essential to average the results of these two months to get a smoother representation of how the Easter months fared,” said Jharonne Martis, an analyst for Thomson Reuters … * The European Central Bank (ECB) made an expected move Thursday and kept its benchmark interest rate unchanged at a historic low (The New York Times May 6). The move comes amid an economic crisis in Greece and apprehension regarding other highly indebted euro zone countries--which greatly outweighed any concerns about inflation, the Times said. The ECB--which establishes monetary policy for the euro zone’s 16 countries--said the benchmark rate would remain at 1%--where it has been for a year. Most ECB observers do not expect the rates to be raised until next year, the Times said …

News of the Competition (05/05/2010)

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MADISON, Wis. (5/6/10)
* Prudential PLC, a United Kingdom (U.K.) insurer, has delayed the beginning of a $20 billion rights issue because of unresolved issues with the U.K.’s regulator, Financial Services Authority (The Wall Street Journal May 5). The issues involve Prudential’s capital position--which cast more doubt on the company’s planned $35.5 billion acquisition of American International Group Inc.’s (AIG) Asian insurance assets. A disruption or delay of the takeover could create a major roadblock for AIG’s efforts to raise money to pay back debts to the U.S. government, the Journal said … * Yields on mortgage securities issued by Fannie Mae and Freddie Mac--which are a guide for U.S. home loan rates--rose to their highest levels in more than five months relative to Treasuries because Europe’s eroding finances caused investors to avoid all but the safest assets (Bloomberg.com May 5). On Wednesday, Fannie Mae’s current-coupon, 30-year fixed-rate mortgage bonds widened roughly 0.4 of a percentage point to 0.8 of a percentage point--more than 10-year Treasuries. That is the biggest gap since Nov. 19, Bloomberg said. Despite U.S. promises to infuse unlimited capital into the two government-sponsored enterprises through 2012 to make certain they can cover $4.6 trillion of guarantees on housing assets, there is cause for concern, Bloomberg said. There is speculation that Greece’s debt crisis will spread to other European countries and force investors to the safety of Treasuries--which would make interest rates more volatile, hurting their mortgage bonds, Bloomberg added … * Although U.S. community banks are seeing some stabilization in nonperforming assets--making analysts and bankers more positive, the recovery is not yet uniform, reported American Banker (May 5). Several banks still are confronting large obstacles, such as depressed loan demand and stressed commercial real estate portfolios, the publication said. Also, some U.S. regions are recovering more quickly than others. “There are definitely signs that, six months from now, we could be talking about a real recovery,” Brett Rabatin, an analyst with Sterne Agee & Leach Inc., who follows Northwest banks, told the publication …

Market News (05/05/2010)

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MADISON, Wis. (5/6/10)
* The U.S. labor market is on the upswing, according to the most recent Challenger Report. In April, the number of announced job cuts dropped to their lowest level since July 2006, said the report, issued by Challenger, Gray and Christmas Inc. Cuts affected 38,326 workers--about one-half the March total and 71% below the year-ago level. Although hiring remains weak, labor market indicators suggest small, net private-job gains in April, the report said. Despite the cuts, job gains are still small. Private sector hiring is anticipated to remain meager (Moody’s Economy.com May 5). However, job growth will steadily increase through the end of the year as the economic recovery picks up steam, Moody’s added … * Mortgage loan application volume increased 4% for the week ended April 30 on a seasonally adjusted basis from one week earlier, according to the Market Composite Index. The index is part of the Weekly Mortgage Applications Survey, released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 5.1% from the previous week. The Refinance Index decreased 2.1% from the previous week, and the seasonally adjusted Purchase Index went up 13%. This is the third consecutive weekly increase in purchase applications and the highest Purchase Index recorded in the survey since Oct. 2, 2009. The Conventional Purchase Index increased 9.4% from the previous week while the Government Purchase Index jumped 16.7%. The unadjusted Purchase Index rose 14.1%, compared with the previous week and was 10.3% higher than the same period one year ago. “Purchase application activity continued to increase in the last week of the homebuyer tax credit program,” said Michael Fratantoni, MBA vice president of research and economics. “Purchase applications were up 13% over the previous week and almost 24% over the last month, driven by significant increases in both conventional and government purchase applications. We also saw the government share of applications for purchasing a home increase to over 50% of all purchase applications last week, which is the highest in two decades.” For The MBA report, use the link … * In a sign the economic recovery is stabilizing, U.S. service industries expanded in April at the same pace as the prior month (Bloomberg.com May 5). For a second consecutive month, the Institute for Supply Management’s index of non-manufacturing businesses--which constitutes nearly 90% of the economy--remained at an almost four-year high of 55.4. Readings above 50 indicate expansion. Service-industry growth is lagging behind manufacturing--which is spearheading the economic recovery that started in the middle of 2009, Bloomberg said. “The expansion still is broadening but it’s less dramatic,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC. “The services side of the economy is typically slower to respond to an uptick in demand.” In a related matter, U.S. private sector jobs grew by 32,000 in April, according to a national employment report published Wednesday by Automatic Data Processing Inc. and consultancy Macroeoconomic Advisors (The Wall Street Journal May 5) …

Schenk to IReutersI Markets will care for themselves

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MADISON, Wis. (5/6/10)--Demand for U.S. home loans reached a seven-month high last week as homebuyers rushed for tax credits that ended April 30, but the need for another housing stimulus is “not so obvious any more,” according to a Credit Union National Association (CUNA) economist. “We don’t think [additional housing stimulus] is needed because we’ve gotten through the thick of it [the recession] and we’re at the point where the markets will take care of themselves,” Mike Schenk, CUNA vice president of research and statistics, told Reuters Wednesday. The Federal Reserve also purchased more than $1.4 trillion mortgage-related securities aiming to keep mortgage rates down to revive the housing market. That program ended March 31, the news service added. “All the data we’ve seen recently point to the fact that consumers are in a better place today than they were six months ago, and because of that they will likely be more active in the housing market,” Schenk said. The difficult labor market, however, will slow the housing recovery, he added. To read the article, use the link.

News of the Competition (05/04/2010)

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MADISON, Wis. (5/5/10)
* U.S. banks are upping their purchases of government securities to bolster their profits because business lending is near its lowest level since credit markets froze about three years ago (Bloomberg News via American Banker May 4). Banks are capitalizing on the record gap between their borrowing costs and yields on U.S. debt--instead of lending, according to Bloomberg data. In each of the past five weeks, holdings of Treasuries and agency debt rose for a total increase of $63.2 billion, to $1.5 trillion, according to Federal Reserve data. “The risk of owning Treasuries is lower than creating loans,” Anthony Crescenzi, a market strategist and money manager at Pacific Investment Management Co., told Bloomberg. “There is no clarity on what the capital climates will be domestically or on a global scale, with regulation coming down the pipes, which means banks will be banking their money in safer assets” ... * As Lehman Brother Holdings lurched toward implosion in 2008, it caused panic among other investment banks (The Wall Street Journal May 4). Today, the bank is fighting in bankruptcy court to contest well-known Wall Street banks on their loss claims. Last week, Lehman began introducing evidence in court that Barclays PLC garnered an $11 million windfall in a deal for Lehman’s assets after it filed for bankruptcy, the Journal said. The proceeding is just one of many battles Lehman’s bankruptcy administrators are anticipating against other banks this year, the paper added … * Goldman Sachs Group Inc. said in a filing that its handling of collateralized debt obligations has led to allegations of wrongdoing by shareholders who have brought several lawsuits against the securities firm. The suits were filed April 22 in state and federal courts in New York (The Wall Street Journal May 3). The company, along with its board and “certain officers and employees,” are accused in the suits of “breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment,” Goldman said. The company has made no comment on the lawsuits, but denies any wrongdoing, the Journal said …

Market News (05/04/2010)

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MADISON, Wis. (5/5/10)
* Pending home sales increased again in March, confirming that a surge of home sales is unfolding for the spring home-buying season, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, rose 5.3% to 102.9 from 97.7 in February, and is 21.1% above March 2009 when it was 85.0, which followed an 8.3% increase the previous month. The data reflect contracts and not closings, which usually occur with a lag time of one or two months, NAR said. Lawrence Yun, NAR chief economist, said favorable affordability conditions are working with the tax credit. “Clearly the home-buyer tax credit has helped stabilize the market,” he said. “In the months immediately following the expiration of the tax credit, we expect measurably lower sales. Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing.” March home sales reached a five-month high (The New York Times May 4). For the NAR report, use the link … * New orders for U.S. manufactured goods increased 1.3% in March, exceeding expectations of a slight decline, the Commerce Department said Tuesday. The gain resulted because businesses bolstered inventories--indicating continued strength in manufacturing (The New York Times May 4). The March gain followed an upwardly revised 1.3% increase in February. New orders have risen in 11 of the past 12 months (Moody’s Economy.com May 4). Shipments increased 1.4%, and non-durable goods orders rose 2.9%. Inventories went up for the third consecutive month. March’s factory orders report was more robust than anticipated and confirms that the manufacturing recovery is on solid footing and will continue to support the broader economy, Moody’s said … * U.S. auto sales leapt 20% in April, with several automakers posting substantial gains (The Wall Street Journal May 4). U.S. automakers collectively sold 982,131 vehicles in April, according to Autodata Corp. That total is up from 819,540 in April 2009--when the country was heading more deeply into recession, and Chrysler and General Motors Co. (GM) were headed toward bankruptcy filings. In April, Chrysler, Ford Motor Co. and Toyota Motor Corp. reported sales gains of roughly 25% each. GM posted just 7.2% growth because it is phasing out four brands, the Journal said. However, among the four brands it is retaining--Buick, Cadillac, Chevrolet and GMC--sales rose 20% … * MasterCard Inc. Tuesday said its first-quarter profit surged 24% because consumers were more at ease with their jobs and the economy, prompting them to use their cards more (The New York Times May 4). The company said it earned $455 million, or $3.46 per share, compared with $367 million, or $2.81 per share, in the year-ago period. Also, revenue rose 13% to $1.31 billion, from $1.16 billion a year ago. MasterCard said it raised the prices it charges merchants for purchase processing during the first quarter by roughly 5% …

News of the Competition (05/03/2010)

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MADISON, Wis. (5/4/10)
* Seven failed banks closed Friday by regulators have entered into purchase-and assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 64, compared with 140 failures last year. Friday’s failed banks include: CF Bancorp, Port Huron, Mich., assumed by First Michigan Bank, Troy, Mich.; Champion Bank, Creve Coeur, Mo., assumed by BankLiberty, Liberty, Mo.; BC National Banks, Butler, Mo., assumed by Community First Bank, Butler; Frontier Bank, Everett, Wash., assumed by Union Bank, National Association, San Francisco; R-G Premier Bank of Puerto Rico, Hato Rey, P.R., assumed by Scotiabank de Puerto Rico, San Juan, P.R.; Westernbank Puerto Rico, Mayaguez, P.R., assumed by Banco Popular de Puerto Rico, San Juan; and Eurobank, San Juan, assumed by Oriental Bank and Trust, San Juan. The seven closed institutions held roughly $25.8 billion in aggregate assets as of Dec. 31. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $7.33 billion … * American International Group Inc. ratcheted up its Federal Reserve borrowing to the highest level in five months--taking roughly $2.2 billion from a credit line to repay maturing commercial paper (Bloomberg News via American Banker May 3). Late last week, AIG owed $27 billion on the line, compared with $24.8 billion a week earlier, according to the Fed. AIG previously was rescued by the U.S. government. “AIG has repaid in full all outstanding commercial paper [under the Fed program], Mark Herr, a spokesman for AIG, told Bloomberg. “We continue to make progress in repaying America’s taxpayers” …

Market News (05/03/2010)

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MADISON, Wis. (5/4/10)
* U.S. manufacturing grew in April at the fastest pace since 2004, sparking a U.S. economic recovery that’s getting a larger boost from consumer spending (Bloomberg.com May 3). The Instititute for Supply Management’s factory index increased to 60.4--the highest level since June 2004--and exceeding the median forecast of economists surveyed by Bloomberg News. Readings above 50 indicate expansion. The Monday report signaled the ninth consecutive month of consumer spending growth. “Manufacturing is benefiting from recovery in global trade with stronger performances abroad and the inventory cycle,” said Julia Coronado, a senior economist at BNP Paribas. “With demand recovery, there is a backlog of activity that is coming forward and that will take another quarter or two before it normalizes” … * U.S. construction spending in March increased for the first time in five months, although all the gain came in government activity--through state and local government projects (Bloomberg.com May 3). However, private sector building dropped to its lowest level in more than a decade, as weakness in the construction sector still remains a significant drag on the economic recovery (Associated Press May 3). The 0.2% spending increase to $847.3 billion followed a revised 2.1% decrease in February that was bigger than previously estimated, the Commerce Department said Monday. Stimulus funds from the federal government may be seeping down to the state and local level, sparking construction of hospitals, power plants and transportation systems Bloomberg said. However, because of high rates of building vacancies and low plant use, spending on commercial projects still will be down in the coming months, resulting in other areas of the economy remaining depressed, Bloomberg added. “It’s going to take a while to soak up the excess supply that’s in the market,” said Russell Prices, a senior economist at Ameriprise Financial Inc … * Consumer spending in the U.S. continued its ascent in March, rising twice as fast as consumer income, while consumer savings dropped to its lowest level in a year-and-a-half. Inflation remained stable (The Wall Street Journal May 3). Consumer spending--which accounts for 70% of the U.S. economy--rose 0.6% from the prior month--likely boosted by government efforts to stoke the economy, the Journal said. Personal income rose 0.3% in March, following upwardly revised growth of 0.1% in February (Moody’s economy.com May 3). Consumer savings--impacted by sluggish income growth--fell to 2.7% in March from 3% the prior month--the lowest level since September 2008, the Journal said …