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News of the Competition (06/30/2008)

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MADISON, Wis. (7/1/08)
* Almost 87% of firms that invested in the collapsed market for auction-rate securities believed that Wall Street banks would provide support during crises, according to a survey by the Association for Financial Professionals. About 70% said dealer support was implied, while 17% said they were “told explicitly that the investment bank would ensure that the auctions would not fail.” Companies seeking to park cash in liquid investments routinely used the $330 billion auction-rate securities market. The market began to collapse in February, as banks withdrew their support, leaving investors holding the illiquid securities. Last week, Massachusetts regulators charged two units of UBS AG with fraud and dishonest conduct for allegedly misleading investors about the securities. The Swiss bank denies the allegations (FT.com June 30) … * Newly delinquent homeowners with private mortgage insurance outnumbered homeowners who caught up on their overdue payments for a 26th consecutive month in May, according to the Mortgage Insurance Companies of America. In its report, the trade association said 67,967 people fell at least 60 days behind on their mortgages, while 40,687 got back on track. Defaults can’t be compared with a year earlier because one lender altered the way it calculates data, said the insurance group. According to RealtyTrac Inc., foreclosures jumped 48% in May, compared with a year earlier (Bloomberg.com June 30) … * Wachovia Corp. announced Monday that it will stop offering a mortgage payment option that lets borrowers pay less each month than the bank charges in interest. Wachovia said it no longer will offer the option for its new mortgage loans. Critics say the practice could lead to negative amortization, in which the borrower owes more on the mortgage than their home is worth (Associated Press via Yahoo! News June 30) … * Tax-preparation firm H&R Block reported a profit for the fourth quarter, buoyed by the sale of its mortgage unit and a record tax season. The firm earned $543.6 million in the quarter ended April--compared with an $85.6 million loss a year earlier. H&R Block sold its Option One Mortgage Corp. subsidiary to billionaire investor Wilbur Ross in April. The company also forecast a full-year profit that was higher than what the market expected. “We are confident that for the three-year horizon through fiscal 2011, we can realize significant gains in earnings per share through unit growth, greater efficiency in our tax and other operations, and capital deployment, rather than relying solely on annual price increases for growth,” said Alan Bennett, interim CEO of the Kansas City-based firm (Associated Press and Reuters via Yahoo! News June 30) … * Some small banks and thrifts are being hit by losses on their investments in the Asset Management Fund (AMF), which is managed by Chicago-based Shay Assets Management. Most impaired investments are related to the AMF Ultra Short Mortgage Fund. Some bonds in that fund have been downgraded by ratings agencies. Fitch Ratings in May downgraded eight of the underlying private-label issues in the fund, to BBB or B. Some bank and thrifts are keeping their shares in the fund, hoping they’ll rebound. Others are exchanging full shares for the underlying securities to cut their losses. Shay has banned redemptions from the fund (American Banker June 30) …

Market News (06/30/2008)

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MADISON, Wis. (7/1/08)
* At least 29 nations have slashed food exports in recent months to assure domestic supplies, making it tough for poor, importing countries to have enough food. “It’s obvious that these export restrictions fuel the fire of price increases,” said World Trade Organization Director General Pascal Lamy. Relief agencies also are having a hard time buying enough food. At the same time, the world has become more dependent on the few nations that still export large amounts of food--including the U.S., Canada, Brazil, and Thailand. World Trade Organization members are expected to take up the issue when they meet in Doha this month (The New York Times June 30) … * The impact of rising food and energy prices on consumer spending, along with high debt levels and banks’ tight lending policies, could prompt a global economic downturn that “could prove to be much greater and longer-lasting than would be required to keep inflation under control,” said the Bank for International Settlements (BIS) on Monday. “Over time, this could potentially even lead to deflation.” The BIS said central banks set interest rates too low earlier this decade, fueling an unsustainable credit boom. “With inflation a clear and present threat, and with real policy rates in most countries very low by historical standards, a global bias towards monetary tightening would seem appropriate,” said the BIS (The Wall Street Journal Online June 30) … * The rising cost of health insurance and energy are the main concerns of small-business owners in the U.S., according to a survey conducted by the National Federation of Independent Business and Wells Fargo. More than 56% of small-business owners say the cost of health insurance is a “critical problem.” Health insurance has been ranked as the biggest problem for the past 20 years. In the latest poll, 42.3% of owners said the cost of fuel also is a “critical” concern--up from 26.1% in the last survey conducted in 2004 (bizjournals.com via msn.com June 30) … * Oil and gasoline prices jumped to new records on Monday (Associated Press via Yahoo! News June 30). Light, sweet crude for August delivery surged $2.13 to $142.34 a barrel on the New York Mercantile Exchange. The national average for gasoline rose to $4.086, also a record high. Oil prices will surge to $170 a barrel this year due to increased demand, political tension, and the weak U.S. dollar, said Chakib Khelil, president of the Organization of Petroleum Exporting Countries (MarketWatch June 30). “The decisions made by the U.S. Federal Reserve and the European Central Bank helped the devaluation of the dollar, which pushed up oil prices,” Khelil told Bloomberg News … * The U.S. economy continues to grow slowly, according to regional reports released Monday. The National Association of Purchasing Management (NAPM)-Chicago survey showed that conditions in that region contracted for a fifth consecutive month in June. The barometer edged up to 49.6, from 49.1 in May but still below the 50 level, indicating contraction. At the same time, the level of prices paid remained high. In another report, the NAPM-New York’s index of business activity declined to 417.5 in June, from 419.8 in May. The prices-paid index rose 9.7 points to 72.3, the highest reading since March 2005 (Reuters via Yahoo! News and Economy.com June 30) … * Global business confidence has rebounded slightly since hitting a record low in late April, according to the latest Moody’s Economy.com Survey of Business Confidence (June 30). The U.S. remains in recession, and the European economy isn’t far behind. Housing is at the center of the economic downturn in the U.S., and hiring intentions are consistent with continued job losses. At the same time, pricing pressures have surged along with rising oil prices …

Market News (06/27/2008)

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MADISON, Wis. (6/30/08)
* The federal government’s tax rebates helped boost consumer income and spending last month, even as wages failed to keep up with inflation (The New York Times June 27). Personal income jumped 1.9% in May, while personal spending rose 0.8%, the largest gain since November, the Commerce Department reported Friday. However, when adjusted for inflation and excluding the tax rebates, after-tax income rose just 0.4% in May. Wages and salaries rose 0.3%, while inflation increased 0.4%, so workers actually earned less. The personal savings rate jumped to 5% in May, but the gain was inflated by rebates (Economy.com June 27). Consumers probably won’t boost their savings more in coming months as they use income to pay for higher food and energy bills … * Consumer confidence hit another 28-year low in June amid soaring prices and rising job losses. The final June reading for the Reuters/University of Michigan Surveys of Consumers was 56.4—down from 59.8 in May and the lowest level since 51.7 in May 1980. The index of consumer expectations dropped to 49.2 in June—from 51.1 in May and also the lowest reading since May 1980. The index of current personal finances dropped to 69—from 80 and the lowest reading on record. The report said consumer spending probably will weaken at least through the beginning of next year. “Moreover, gas prices have risen to an all-time peak, food prices posted the largest increases in decades, home prices have fallen faster than any time since the Great Depression, and there has been widespread distress associated with foreclosures,” said the report. Five-year inflation expectations remained at the peak of 3.4% reached in May, the highest reading in 13 years (Reuters via The New York Times June 27) … * Rising mortgage rates are boosting the cost of purchasing a house even as prices decline, according to a study by Zillow.com. In 41 of the top housing markets, monthly payments on 30-year, fixed-rate mortgages (FRMs) were up 6% to 10% over the past two months. The average monthly payment has increased by $131, or $1,572 a year. Mortgage rates increased since the Federal Reserve began its rate-cutting campaign. The 30-year FRM is now about 6.45%, according to Bankrate.com data, up from 6.3% when the Fed began lowering the target for the fed funds rate nine months ago (Bloomberg.com June 27) … * Credit-card issuers have boosted their loss expectations amid the housing slump, mounting job losses, and rising consumer prices, according to new data from Fitch Ratings. “The deterioration in credit cards is accelerating faster than many had expected,” said Fitch analyst Christopher Wolfe. Fitch predicts an increase in prime chargeoffs to at least 7% by year-end 2008, from 6.4% in May. Consumers are depending more on their credit cards as home-equity has declined and the economy has slowed. According to the Federal Reserve, credit-card debt outstanding totaled $956.9 billion in April, up from $887.6 billion a year earlier (Dow Jones Newswires June 27) … * Banks boosted their borrowing from the Federal Reserve last week, while investment banks scaled back borrowing. Banks averaged $14.7 billion in daily borrowing for the week ending June 25—up from $13.4 billion the previous week. Investment firms averaged $6.1 billion in daily borrowing--down from $8.6 billion. Investment banks were given similar loan privileges as banks in March, after a run on Bear Stearns pushed the investment bank to the verge of bankruptcy and increased concern that other Wall Street firms might be in trouble. The Fed auctioned $15.4 billion in Treasury securities to investment firms Thursday. The auction drew fewer bids than the Fed made available, possibly signaling some easing of credit problems. On Wednesday, Fed policymakers ended their aggressive interest-rate cutting campaign, leaving the target for the fed funds rate unchanged at 2% (Associated Press and Thomson Financial via Yahoo! News June 26) …

News of the Competition (06/27/2008)

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MADISON, Wis. (6/30/08)
* Bear Stearns was “too interconnected to fail,” according to minutes of the Federal Reserve’s emergency meetings in March released on Friday. Fed policymakers “agreed that, given the fragile condition of the financial markets at the time, the prominent position of Bear Stearns in those markets, and the expected contagion that would result from the immediate failure of Bear Stearns, the best alternative” was to support its acquisition by JPMorgan Chase. JPMorgan had requested the central bank’s help in financing certain assets that Bear could not finance in the market. The Fed lent almost $29 billion to finance the acquisition (MarketWatch and The Wall Street Journal Online June 27) … * The Federal Reserve is considering ways to make it easier for private-equity firms and other companies to invest in banks, say people familiar with the situation. Fed officials have met with large buyout firms and bank attorneys to discuss the situation. The proposed changes could make it easier for lenders to line up capital from investors (Dow Jones Newswires June 27) … * First American Corp. was sued last week by shareholders who claim the firm’s eAppraiseIT LLC conspired with Washington Mutual to inflate appraisals. The suit claims WaMu pressured the appraiser to inflate the value of some homes that backed its loans, prompting First American to overstate its profit. Also named in the suit are First American executives Parker S. Kennedy and Fred F. McMahon (/PRNewswire/ and American Banker June 27) … * Merger & acquisition (M&A) bankers are expecting more job cuts as volumes remain weak. Global M&A activity has declined 35% so far this year, to $1.579 trillion, according to Thomson/Reuters data. Citigroup, Goldman Sachs, and other banks already have eliminated M&A jobs, and more layoffs are expected. Private-equity buyout activity plunged 66% to $48 billion in Europe and 86% to $42 billion in the U.S. this year. It’s uncertain when the M&A markets in Europe and the U.S. will rebound (Reuters June 27). * Bank of America of Charlotte, N.C. plans to eliminate 7,500 jobs, or about 2.9% of its combined workforce, after it completes its acquisition of Countrywide Financial this week. Countrywide shareholders approved the transaction last week. Both companies already have cut jobs. Calabasas, Calif.-based Countrywide, which has been hit hard by the housing slump, cut about 11,000 positions last year (The Wall Street Journal Online June 27) … * Zurich-based UBS AG is considering a sale of its Paine Webber wealth-management business in the U.S., sources say. UBS, which has posted more than $37 billion in writedowns from the credit crisis, is being pressured by Swiss regulators and shareholders. One of its former employees also has been accused of helping a U.S. client hide $200 million from the Internal Revenue Service. Senior bankers say a Paine Webber acquisition could be attractive to Bank of America or Morgan Stanley (Reuters via The New York Times June 27) …

Hampel to Bloomberg CUs help consumers in credit crunch

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NEW YORK (6/30/08)--Consumers are tapping credit unions for loan help, Bill Hampel, chief economist at the Credit Union National Association, told Bloomberg TV Friday afternoon. “Credit requirements have tightened,” he said. “People come to credit unions for loans who can’t get loans elsewhere--and these people have good credit.”
CUNA Chief Economist appeared live Friday on Bloomberg Television. (Photo provided by CUNA)
The credit crunch is one reason to expect soft consumer spending this year, Hampel noted. Consumer spending increased by 0.8% in May, but “it’s quite weak when you throw in the rebate checks,” he said. Non-gas spending also is down. Gas accounts for 5% of disposable income, up from 3% last year, he said. The savings rate is at 0%, and the debt ratio is at 125%--“the highest it’s ever been,” he said. If the Fed raises interest rates, “it will tank the economy,” Hampel noted. Because the outlook points to sluggish economic growth over the next year, the central bank will have no choice but not to raise rates. It also wouldn’t be surprising to see the Fed drop rates another 25 basis points, he concluded. The Fed held the target funds rate steady at 2% on its last meeting Wednesday.

News of the Competition (06/26/2008)

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MADISON, Wis. (6/27/08)
* Massachusetts regulators have charged UBS AG’s UBS Securities and UBS Financial Services units with fraud and dishonest conduct in their sales of auction-rate securities. Secretary of the Commonwealth William Galvin claims that company representatives told investors that the securities “were safe, liquid ‘cash alternatives’ when UBS knew they were not.” Galvin also charges that UBS “stepped up its sales campaign to investors even as, and because, large corporate cash managers were shunning auction rate securities and its own inventory was ballooning.” Individuals and firms have purchased the securities from municipalities and charitable groups for decades. While they have long-term maturities, their interest rates were reset in weekly and monthly auctions. However, the market for such securities froze in February, leaving investors with securities they couldn’t sell (The Wall Street Journal Online June 26) … * In another sign of the housing slump, mortgage-delinquency rates doubled at Fannie Mae and Freddie Mac over the past 12 months. In April, 1.22% of the conventional mortgage loans that Fannie guarantees were overdue by three or more months or were in foreclosure. That’s about twice the rate of April 2007. Freddie’s delinquency rate was 0.81%--up from 0.4% a year earlier. Freddie also reported that it boosted its mortgage-related holdings at an annual growth rate of 53.4%, to a record-high $770.4 billion. Fannie increased its holdings at a 15% annual rate, to $736.9 billion. Fannie and Freddie have become the top players in housing finance amid the housing downturn. The two firms purchased 68% of the single-family mortgages originated during the first quarter, according to the Office of Federal Housing Enterprise Oversight (washingtonpost.com June 26) … * Citigroup and Merrill Lynch had their earnings estimates slashed by analysts yesterday amid expectations that their writedowns would increase. Goldman Sachs analyst William Tanona said investors should sell Citigroup’s stock short. He estimated that the company will take $8.9 billion of writedowns for the second quarter, prompting its third consecutive quarterly loss. Tanona said Citigroup also may have to cut its quarterly dividend for a second time this year. Sanford Bernstein analyst Brad Hintz lowered his second-qurater estimate for Merrill to a loss of 93 cents per share, from a profit of 82 cents. He predicted a $3.5 billion writedown for Merrill in the second quarter. “The earnings outlook for the brokers remains bleak,” said Hintz (Bloomberg.com and Reuters via Yahoo! News June 26) ...

Market News (06/26/2008)

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MADISON, Wis. (6/27/08)
* Sales of previously owned homes increased in May as buyers responded to lower home prices and more foreclosed homes were sold, the National Association of Realtors (NAR) reported Thursday. Existing-home sales rose 2% to a seasonally adjusted annual pace of 4.99 million units. The median existing-home price was $208,600--down 6.3% from a year earlier. “Home buyers are starting to get off the fence and into the market, drawn by drops in home prices in many areas and armed with greater access to affordable mortgages,” said NAR President Richard F. Gaylord. NAR also noted that one-third of total sales last month were “short sales” that reflected foreclosures or distressed properties. Existing-home sales were down 15.9% from a year earlier. “The large supply of homes on the market clearly favors buyers, and it should take several months to draw the inventory down,” noted NAR Chief Economist Lawrence Yun. Total housing inventory at the end of May declined 1.4% to 4.49 million homes available for sale--or a 10.8-month supply at the current sales pace (realtor.org and Bloomberg.com June 26) ... * Mortgage rates rose only slightly this week, according to Freddie Mac. The average 30-year, fixed-rate mortgage rose three basis points to 6.45%, while the 15-year FRM edged up two basis points to 6.04%, and the one-year, adjustable-rate mortgage (ARM) increased eight basis points to 5.27%. “ARM rates, which are typically tied to short-term instruments, rose slightly due to market uncertainty over how the Fed might respond,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. Mortgage rates still are lower than a year ago. The 30-year FRM stood at 6.67% at this time last year, while the 15-year FRM was at 6.34%, and the one-year ARM averaged 5.65% (MarketWatch June 26). For CUNA's Daily Financial Rates, use the link … * The economy expanded at an annual rate of 1% during the first quarter, the Commerce Department reported Thursday. That’s up from the 0.9% growth the government estimated last month. The economy expanded at a 0.6% pace during the fourth quarter. The increase in economic growth in the first quarter mostly reflected positive contributions from personal consumption expenditures (PCE) for services, exports of goods and services, and federal government spending. Those positives were partially offset by negative contributions from residential fixed investment and PCE for durable goods. The core PCE price index (excluding food and energy) increased at a 2.3% annual pace in the first quarter, the same as in the fourth quarter. That measure is the Federal Reserve’s preferred inflation gauge … * The job market remained soft last week. First-time claims for unemployment insurance were unchanged at 384,000 during the week ending June 21, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, edged up by 2,250 to 378,250. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 82,000 during the week ended June 14 to 3.14 million--the highest reading since the week of Feb. 7, 2004 (MarketWatch June 26). The high level suggests people are having a tough time finding a new job after they’ve been laid off. In its decision Wednesday to keep the target for the federal funds rate at 2%, the Federal Reserve noted that job markets “have softened further” … * Soaring health-care costs are taking an increasing toll on people with health insurance, according to a report by the Center for Studying Health System Change. One in five people--59 million Americans--said they didn’t obtain or delayed obtaining needed medical care in 2007. That’s up from one in seven--36 million Americans--in 2003. An estimated 6.3% of those with insurance reported not obtaining needed care--up from 3.9%, while 11% said they delayed treatment, up from 7.2%. Wages haven’t kept up with soaring health-care costs. Average hourly earnings rose by 27% between 1999 and 2007, while health-insurance premiums jumped 114%. Workers also are paying higher deductibles and co-payments, even as they struggle with soaring food and energy costs. “This study is yet another wake-up call to policymakers that our health-care system is failing to meet the needs of even insured consumers in America,” said Gail Shearer, director of health policy analysis at the Consumers Union (Dow Jones Newswires June 26) … * On average, a 65-year-old couple needs $85,000 to cover insurance costs for long-term care in retirement, according to a report released Thursday by Fidelity Investments. In March, Fidelity released a study noting that a couple retiring this year would need $225,000 in savings to cover medical-care costs in retirement. The $85,000 needed for long-term care is in addition to that $225,000. Only five million Americans are now covered by long-term care policies, a figure that has remained flat during the past 10 years. Because long-term care is so expensive and so few people have policies to cover that care, family members provide most long-term care. That trend means lost wages and retirement savings for caregivers (Associated Press via The New York Times June 26) …

News of the Competition (06/25/2008)

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MADISON, Wis. (6/26/08)
* American Express announced Wednesday that MasterCard Inc. has agreed to pay it as much as $1.8 billion over a three-year period to settle an antitrust lawsuit that alleges it blocked banks from issuing American Express cards. American Express said the payments by MasterCard will help cushion it against borrower defaults, which are expected to increase. Last year American Express reached a $2.7 billion settlement in a similar suit against Visa Inc. “The antitrust settlement we’ve reached with MasterCard provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle,” said American Express CEO Kenneth Chenault (Associated Press via CNNMoney.com and Bloomberg.com June 25) … * The Illinois attorney general’s office said it plans to file a civil suit against Countrywide Financial Corp. and its CEO, Angelo Mozilo. In a draft of the suit, the state alleges that the firm loosened its underwriting standards, structured loans with “risky features,” and engaged in “marketing and sales techniques” that incentivized employees and brokers to push mortgage loans even if the borrowers didn’t have the ability to repay the loans. “Investor demand and secondary market valuation … became the primary concern when determining what kinds of loans to market and sell and at what price, rather than the consumers’ ability to repay the loans,” the complaint said. Illinois Attorney General Lisa Madigan said she is asking that all Countrywide loans that used “unfair and deceptive” practices be rescinded or modified. A call to Countrywide seeking comment wasn’t returned (Dow Jones Newswires June 25) … * A NovaStar Financial shareholder has filed a lawsuit against several of the firm’s top executives, alleging that the subprime mortgage lender violated basic accounting principles and made the firm’s loan portfolio appear creditworthy when it was not. Iris Iaccarino said the company was “plagued with significant problems” when it didn’t account for loan losses before Feb. 20, 2007--the day the company announced a weak fourth-quarter 2006 performance. The firm’s stock plunged 42% the next day. The suit seeks unspecified damages and names as defendants CEO Lance Anderson, former CEO Scott Hartman, and former company officers Gregory Metz, Gregory Barmore, Art Burtscher, and Edward Mehrer. The company has said it may be forced to file for bankruptcy protection (bizjournals.com via msn.com June 25) … * London-based Barclays said Wednesday that it plans to raise $8.9 billion by selling new shares to Asian and Middle Eastern investors to boost its capital base. Other European banks also have announced rights issuances as they continue to cope with losses from the U.S. subprime crisis. Middle Eastern investors are flush with cash due to soaring energy prices. Barclays plans to sell new shares to Qatar, Singapore’s Temasek Holdings, China Development Bank and the Sumitomo Mitsui Banking Corporation of Japan. Barclays will use half the new funds to boost its capital base and the other half to “take advantage of current market circumstances which have created for Barclays an unusual competitive opportunity,” said CEO John Varley. The bank plans to open new branches in Pakistan and Russia, and expand its wealth-management business in the U.S. and Asia (The New York Times June 25) …

Market News (06/25/2008)

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MADISON, Wis. (6/26/08)
* The housing-market slump will have a huge impact on the wealth and retirement of many baby boomers, according to a report by the Washington-based Center for Economic and Policy Research. The median household headed by people between the ages of 45 and 54 in 2009 will have about 25% less wealth than the median household headed by people that age in 2004, if housing prices remain at their March level. That household’s wealth will fall to $113,268, from $150,113 in 2004. Wealth will decline even more if home prices decline further. The absence of a big home-equity cushion means baby boomers will have less money for emergencies such as medical bills, noted Dean Baker, co-director of the center and co-author of the report. In addition, the chance to access a chunk of home equity by downsizing to a smaller house won’t be there if the homeowner still owes a lot on the current home. Many of these boomers are “going to be facing a mortgage payment well into retirement,” added Baker (MarketWatch June 25) … * New-home sales declined by 2.5% to an annual rate of 512,000 in May, the Commerce Department reported Wednesday. Sales were down 40.3% from the same month last year. The median sale price of new homes sold in May was $231,000--down 6% from April. The estimate of new houses for sale at the end of May was 453,000--representing a 10.9-month supply of homes on the market at the current sales rate. “Keep an eye on that overhang of inventory if you want to know where prices are going,” said Jared Bernstein of the Economic Policy Institute (CNNMoney.com June 25). On Tuesday, two indexes showed home prices continued to decline in April. Home prices in 20 top cities fell a record 15.3% over the past year, according to the Standard & Poor’s/Case-Shiller index. Another index by the Office of Federal Housing Enterprise Oversight said home prices fell 4.6% in April, compared with a year earlier, to December 2005 levels … * Mortgage activity continued to decline last week even as mortgage rates retreated, according to a report by the Mortgage Bankers Association (mbaa.org June 25). The MBA’s Market Composite Index fell 9.3% during the week ending June 20 to 461.3. The Refinance Index tumbled 12.1% to 1212.2, while the Purchase Index dropped 7.4% to 333.4. The average 30-year, fixed-rate mortgage (FRM) declined 18 basis points to 6.39% last week, while the one-year, adjustable-rate mortgage (ARM) dropped 13 basis points to 7.09%. The 30-year FRM is now down 21 basis points from a year earlier, while the one-year ARM is up 158 basis points, noted Moody’s Economy.com (June 25). The Federal Reserve’s rate cuts have had little if any effect on the housing markets, which have yet to hit a bottom … * Orders for big-ticket durable goods (items such as appliances and vehicles that are made to last three years or more) were unchanged at $213.6 billion in May, the Commerce Department reported Wednesday. April’s 0.6% drop was revised down to a bigger 1% decline. “Businesses are scaling back,” said Wachovia economist Tim Quinlan (The Wall Street Journal Online June 25). In another downbeat signal, orders for nondefense capital goods excluding aircraft (a proxy for future business spending) declined by 0.8% in May following a 3.1% gain in April. The durables report signals that the economic slowdown, prompted by the housing recession and weaker consumer spending, has offset the benefit of record exports, noted Bloomberg.com (June 25). The pattern probably continued in June, because reports from the New York and Philadelphia Federal Reserve banks last week showed manufacturing in those regions declined at a faster pace in June … * The U.S. is coping with sluggish economic growth and rising inflation as food and energy prices soar, a combination that makes it tough for the Federal Reserve to chart monetary policy. Global energy use will jump 50% between 2005 and 2030, and oil prices may surge as high as $186 a barrel in 2030, the U.S. Energy Information Administration reported Wednesday (MarketWatch June 25). The agency said energy consumption will continue to increase, despite high prices, as the global economy continues to expand and populations in the world’s developing nations continue to grow. Congress is taking a closer look at the role speculators play in soaring oil prices (The Wall Street Journal Online June 24). Speculative traders now account for about 70% of all trading in West Texas Intermediate crude on the New York Mercantile Exchange--up from just 37% in 2000, according to an investigation by the House Subcommittee on Oversight and Investigations. Critics say this surge in speculation has played a big part in driving up prices …

CUNA economists not as optimistic as Fed on economy

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MADISON, Wis. (6/26/08)--The Federal Open Market Committee (FOMC) Wednesday left its target for the federal funds rate steady at 2%, ending the most aggressive series of rate cuts in two decades and extending the debate about when it would next raise rates (Bloomberg.com June 25). Contrary to statements by the committee that it likely would raise funds rate later this year, economists at the Credit Union National Association (CUNA) believe the rate increases will come much later. The committee had lowered the Federal Funds rate from 5.25% beginning last fall. In its statement Wednesday, the FOMC suggested that inflation has become a greater concern, and that economic growth is less so. If the future course of the economy is as suggested, the committee likely would start increasing the Fed Funds rate later this year. "CUNA's economists aren't quite as optimistic about the economy as the FOMC appears to be" said CUNA's Chief Economist Bill Hampel. "We believe that after a spurt of growth in the third quarter--as consumers spend much of their tax rebates, the economy will slow again in the fourth quarter and into the first half of next year. Given that outlook, we don't believe the Fed will raise rates again until well into next year," Hampel told News Now. "In any event, the yield curve will remain positively sloped for the foreseeable future, meaning that the shorter-term interest rates that drive funds' costs will remain below the longer rates that drive yields on loans and investments. "This will give credit unions some relief from downward pressure on net income. The committee cut the target rate for overnight loans between banks by 2.25 percentage points this year, including two 75-basis point rate reductions," Hampel added. In its statement following Wednesday' meeting, the FOMC said, “Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. “However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters," FOMC added. "The committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.” To see the latest forecast from the CUNA Economists for the economy and credit unions, use the resource link.

Market News (06/24/2008)

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MADISON, Wis. (6/25/08)
* Home-price declines continued in April--erasing at least three years of gains, according to two indexes. Home prices in 20 top U.S. cities fell a record 15.3% over the past year and are now back to where they were in 2004, according to Standard & Poor’s Case-Shiller home price index. Prices in every region surveyed posted year-over-year declines. Another index by the Office of Federal Housing Enterprise Oversight (OFHEO) said home prices fell 4.6% in April, compared with a year earlier. Prices declined to December 2005 levels. (The OFHEO index relies on data collected by Fannie Mae and Freddie Mac, so it excludes loans too big for Fannie and Freddie to guarantee). Home prices probably will post further declines. Harvard University’s annual report on housing, released Monday, said the housing slump still hasn’t run its course. The decline in home prices and the increase in mortgage defaults are the worst on record since the 1960s and 1970s, noted the report. A housing recovery may be a long way out if job losses accelerate in coming months, said Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies (The Wall Street Journal Online June 24) … * Consumer confidence plunged to the lowest level in more than 16 years in June. The Conference Board’s consumer confidence index declined to 50.4--from 58.1 in May and the lowest level since 47.3 in February 1992. The expectations index dropped to 41, from 47.3 in May and an all-time low. The present situation index fell to 64.5 from 74.2. The economy is “stuck in low gear,” said Lynn Franco, director of the Board’s research center, in a statement. “Perhaps the silver lining to this otherwise dismal report is that consumer confidence may be nearing a bottom.” The number of respondents who said jobs are hard to get rose to 30.5% from 28.3%, while those saying jobs are plentiful fell to 14.1% from 16.1%. Buying plans declined in June. Plans to buy homes dropped to the lowest level since October 1982 (CNNMoney.com and Economy.com June 24) … * Federal Reserve policymakers meeting today are expected to keep interest rates steady. The central bank must cope with rising job losses, a weak financial system and inflation risks, said Mark Zandi, chief economist at Moody’s Economy.com. “In effect, they have three problems but only one interest rate. This makes for very tough policy decisions and leaves policymakers vulnerable to increasing criticism no matter what they do,” said Zandi. Earlier this month, Fed Chairman Ben Bernanke said the risk of a “substantial” economic slowdown had eased. Analysts hope the federal government’s stimulus checks will help lift consumer confidence and spending, offering a boost to the economy (USA TODAY June 24) … * The world’s rich are getting richer, according to a report by Merrill Lynch and Capgemini Group. The combined wealth of those with at least $1 million in assets rose 9.4% to $40.7 trillion last year. Their average wealth topped $4 million for the first time. And the number of people with at least $1 million in assets increased by 6% to 10.1 million. This group represents only 0.15% of the world’s population of 6.7 billion people. The U.S., Japan, and Germany remained the top countries for having the highest number of wealthy people. The wealth of the world’s richest people is forecast to hit $59.1 trillion by 2012 (Associated Press via The New York Times June 24) … * States, cities, and towns may have to cut tens of thousands more jobs as they cope with declining revenue from income taxes and property taxes. Already about 45,000 government layoffs have been announced this year, according to the American Federation of State, County and Municipal Employees. An estimated 29 states are facing a combined budget shortfall of at least $48 billion for the fiscal year that begins July 1, according to the Center on Budget and Policy Priorities. States, cities and towns also are coping with soaring expenses due to rising energy prices (CNNMoney.com June 24) … * UAL Corp. announced Monday that it is laying off 950 United Airlines pilots--about 14% of its total pilot workforce---because demand has declined amid soaring fuel costs. “As we reduce the size of our fleet and take actions companywide to enable United to compete in an environment of record fuel prices, we must take the difficult, but necessary step to reduce the number of people we have to run our business; today, we notified out pilots about expected furloughs,” said UAL spokeswoman Megan McCarthy. United said earlier this month that it plans to cut up to 1,600 jobs and remove 100 planes from its fleet (MarketWatch June 24) …

News of the Competition (06/24/2008)

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MADISON, Wis. (6/25/08)
* The world’s largest financial firms may eliminate as many as 175,000 jobs over the next year as revenue slows and writedowns grow, say executive recruiters. Financial firms have announced plans to cut more than 83,000 jobs since last year, according to Bloomberg News statistics. Mortgage defaults have prompted about $400 billion in losses and writedowns. “For financial services this is about as bad as I can remember,” said John Challenger, chief executive of the Challenger, Gray & Christmas outplacement firm. The current round of layoffs may claim 35% to 40% of the industry, said Gary Goldstein, chairman of Whitney Group, a New York-based financial recruitment firm (Bloomberg.com June 24) … * The Federal Trade Commission (FTC) announced Tuesday that it reached a settlement with two payday loan lenders that didn’t list interest rates for advertised loans. A proposed consent agreement would prohibit Minnesota-based We Give Loans Inc. and Arizona-based Aliyah Associates from offering loans without providing information such as the annual percentage rate (APR). According to the FTC, loans advertised by We Give Loans had a 260% APR, while loans advertised by Aliyah came with a 782% APR (Dow Jones Newswires June 24) … * The world’s wealthy continued to pour money into private banks in 2007, according to statistics compiled by Scorpio Partnership. Money managed for the wealthy totaled $17.54 trillion last year--up 11.6% from 2006. “The positive results throw even greater emphasis on the potential of the wealth management sector to provide strong revenue and returns for financial groups seeking to chart a course through the current volatile markets,” said Seb Dovey, managing partner at Scorpio. Zurich-based UBS remained the world’s largest private bank last year, with almost $1.9 trillion in assets (Dow Jones Newswires June 24) … * Seattle-based Washington Mutual (WaMu) may have to set aside as much as $30 billion for credit losses through 2011, according to Lehman Brothers analyst Bruce Harting. The analyst slashed his price target for the thrift’s stock to $10, from $27.25. Risks for WaMu and other mortgage lenders continue to mount as home prices decline at record rates, said Harting. WaMu is the nation’s largest savings and loan (Reuters June 24) … * MoneyAisle.com, the first website where banks competitively bid for customers via live auctions, last week announced that it has gathered more than $1 million in customer deposits during its first week. MoneyAisle.com went live on June 9 with 65 participating banks. That number increased to 72 as of June 17. On the site, sellers actively bid against each other for each buyer in real time. The site is offering certificates of deposit and high-yield savings accounts. It plans to present more offerings as its network expands (BUSINESS WIRE via Yahoo! News June 20) …

Revised book shows how CUs fit into big econ picture

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MADISON, Wis. (6/24/08)--Credit union professionals can better understand the economy and how credit unions fit into the big picture through a recently revised book from the Credit Union National Association (CUNA). The second-edition book, “Economics for Credit Union Professionals,” explains modern economics in layman’s terms with credit union examples. It contains revised figures and tables to reflect current values and new questions in the review section at the end of each chapter. New government regulations for financial institutions were added, and a chapter on current economic problems was updated to account for slower economic growth. The text covers basics of economics, money, U.S. financial institutions and the international monetary system in an easy-to-understand format. For more information, use the link.

CUs diversify investments to counter economys impact

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DALLAS (6/24/08)--Credit unions are diversifying and extending their investment portfolios by taking advantage of competitive yields on securities, according to Southwest Corporate FCU. Finding wise investments for surplus liquidity in today's economy is a challenge, the corporate said (LoneStar Leaguer June 23). Consumers are curbing their discretionary spending, which means fewer loans. "Over the last few months, further declining interest rates and market conditions have expanded the spread on mid-term agency securities," said Zane Wilson, vice president, investment services at Southwest Corporate. "Credit unions have been able to obtain competitive yields on securities and extend their portfolios, as well as diversify," he told the newsletter. Investment officers at the corporate placed more than $350 million in securities for credit unions through April, in addition to strong overnight, certificate and brokered CD volumes, Wilson said. The corporate says it is easy to diversify by using different investment vehicles. Among those offered by the corporate are agencies, mortgage-backed securities, collateralized mortgage obligations, bank CDs, and floating rate certificates. The corporate scours through 14 broker/dealer inventories for appropriate securities that add value and fit its member credit union portfolio strategies. Jeff Martin, senior investment officer at Southwest Corporate, told the newsletter that providing investment consultation and research in the volatile market is an important component to make credit union portfolio decisions easier.

News of the Competition (06/23/2008)

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MADISON, Wis. (6/24/08)
* Citigroup Inc. plans another series of layoffs this week in its investment-banking division that would reduce its staff by 10%, said people familiar with the matter. The nation's largest bank already has cut about half of the 6,000 jobs targeted since March. Mergers and acquisitions bankers will see the most cuts, largely because that division was not trimmed as much as other divisions earlier. The bank saw $15 billion in losses during the past two quarters and anticipates billions more in write-downs for second quarter. The division employs about 65,000 people. Citigroup employs more than 300,000 people around the globe (Bloomberg.com and The Wall Street Journal June 23) … * A lawsuit against JPMorgan Chase & Co. by Florida cardholder Ann Marie Caban alleges that the bank overcharged her this year because of how it calculates her account's daily interest changes during a leap year. The bank divides the annual percentage rate by 365 days--instead of tacking on an extra day to account for the leap year. Caban's suit says she is overcharged four cents a month on a balance of about $600. The suit is seeking class-action status and $100 million in damages for inflated charges for millions of cardholders who carried balances this year and in 2004, the previous leap year (American Banker June 23). The bank says that it complies with Federal Reserve guidelines and applicable law. The Fed's Regulation Z, which implements the Truth-in-Lending Act, notes the annual percentage rate may be determined by a quotient of 365 … * The floods in the Midwest threaten crops and raise some farmers' costs, raising questions about the future of agricultural lending, which is viewed as bankers' safe haven. Ag lending propped up financials for companies such as U.S. Bancorp, BancWest Corp., and Wells Fargo & Co. during the mortgage crisis. Although bankers are mostly optimistic about ag lending and most farmers have crop insurance that would mitigate this year's flood-related losses, some economists warn that escalating prices will bring new problems. This spring, before the floods, corn prices were almost $6 a bushel or 50% more than the price last summer. Now that cornfields are flooded in high corn-producing states, investors are nervous. Higher corn costs would prod gas prices upward because corn is used for ethanol. Forty community bankers in corn-producing and flooded Iowa and Illinois were surveyed last week. Three-fourths said flooding has had a significant negative impact on corn and the farm economy (American Banker June 23) …

Market News (06/23/2008)

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MADISON, Wis. (6/24/08)
* Global business confidence took a step back last week, suggesting that the global economy continues to struggle, with the U.S. remaining in a recession and the European economy just behind. Conditions were better in Asia for the week ended June 20, said Moody's Economy.com Survey of Business Confidence (Economy.com June 23). The four-week moving average was 11.8, compared with 11.6 for the previous week's four-week moving average. The most negative aspect of the survey related to sales strength, the six-month outlook and current conditions. They have been negative since early April. The most upbeat news related to improved responses from real estate firms this spring, said Moody's. Sentiment also improved in the manufacturing, financial services and business services industries from earlier this spring. Intentions to hire and invest in equipment were improved, although they still are consistent with job losses and flat investment in the U.S. Inventory investment no longer is negative. Although firms aren't adding to their inventory, they are not reducing them either, said Moody's … * Production-related indicators helped the Chicago Fed national activity index increase to -0.96 in May from -1.23 in April. The three-month moving average also improved, to -1.08, after hitting multiyear lows in April (Economy.com June 23). For the past six months, the three-month moving average has been below -0.7, indicating an economy already in recession, said the Chicago Fed. Of the seven times the index has dropped to below -0.7 since 1967, six concurred with recession. Production-related indicators dropped 0.19, compared with April's drop of 0.64. Other indicators in the categories of employment; consumption and housing; and sales, orders and inventories did not improve as much. Employment-related indicators fell 0.45, compared to April's drop of 0.25; consumption and housing dropped 0.25, compared with April's -0.28; and sales, orders and inventories was -0.08 … * Saudi Arabia--the world's largest oil producer--told ministers and oil executives at a summit in Jeddah, Saudi Arabia, that it will boost its oil output by 200,000 barrels a day to 15 million barrels a day for the rest of the year, if needed. It currently produces roughly 9.5 million barrels a day in a global market of about 86 million barrels a day (The Wall Street Journal June 23). Some oil experts were skeptical of the country's ability to boost output that much. The country has never produced more than 11 million barrels a day. The announcement was a surprise. Earlier, its oil minister, Ali Naimi said there was no need to go beyond the 12.5 million barrels a day … * Four Western oil firms are in final negotiations for no-bid contracts that will return them to Iraq--36 years after they left as Saddam Hussein nationalized the industry. Re-entry into Iraq is important for Exxon Mobil, Shell, Total, and BP because they are excluded from new ventures in Venezuela, Bolivia, and other countries. The four oil firms were the original partners in the Iraq Petroleum Company. Chevron and several smaller oil companies also are in negotiations in Iraq. The Iraqi Oil Ministry said the oil firms were chosen because they had been advising the ministry for free and because they have the necessary technology. The contracts are a “foothold” in Iraq for oil firms seeking longer-term agreements, said Leila Benali, an expert on Middle East oil at Cambridge Energy Research Associates (The New York Times June 20) … * There were 11.4 million refugees and 26 million people displaced by conflict inside their countries at year-end 2007, according to the United Nations (UN). The UN said that’s the highest number since it began keeping records in 1951. The Iraq war accounted for much of the surge in refugees last year. However, Afghanistan remained the top country of origin, accounting for more than one-fourth of the worldwide refugee population. Syria, Iran, Pakistan, Germany, and Jordan are the top host countries for refugees. The UN cautioned that the total number of refugees may surge in coming years due to new conflicts, poor governance, climate change, and price increases (Bloomberg.com June 20) …

News of the Competition (06/20/2008)

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MADISON, Wis. (6/23/08)
* Average credit-card debt and delinquency declined during the first quarter--for the first time since the beginning of 2007, according to a report released last week by TransUnion.com. Average credit-card debt per borrower fell 1.25% from the previous quarter, to $1,673. However, the first-quarter total was up 5.6% from the same period last year. The ratio of borrowers delinquent (90 days or more overdue) on one or more credit cards was 1.19% in the first quarter--down 12.5% from the previous quarter but up 0.91% from a year earlier. “As a whole, the recent deceleration, however slight, in the mortgage delinquency rate is reflected in the bank card market, as consumers take stock of their overall debt and begin to catch up on their repayment schedule wherever possible,” said Ezra Becker, the principal consultant of the financial services group at TransUnion. He predicts that the delinquency rate will decline slightly in the second quarter, but then begin to inch back up to 1.20% and higher “as increases in gas prices add to the overall financial burden of the consumer.” (/PRNewswire/ June 18) … * Demand for smart cards surged last year, according to the Smart Payment Association (SPA). More than 420 million smart cards were delivered by SPA members in 2007, up 24% from the previous year. The Americas was the biggest growth region--at 45% last year. Both dual interface and pure contactless outperformed the market last year, with 64% growth. “The results of the 2007 global payment card market survey show a clear trend: the move of financial institutions towards innovative and more secure cards,” said SPA President Christoph Siegelin. “The dramatic acceleration of the switch to more secure Dynamic Data Authentication EMV cards and the fast adoption of contactless smart cards for their speed and simplicity in handling low-value payments illustrate this trend.” (centredaily.com via Yahoo! News June 19) … * Shares of bond insurer MBIA Inc. plunged 11% on Friday after Moody’s Investors Service lowered the firm’s rating to A, from Aaa. Moody’s estimates that losses from the firm’s exposure to mortgage-backed securities could hit $5.9 billion. The ratings agency also noted that MBIA is $2.6 billion short of the capital it needs to win back its top rating. The action will affect financial institutions that purchased guarantees from MBIA. They may now have to write down the value of their holdings (MarketWatch June 20) … * Hit by losses from the housing slump, Seattle-based Washington Mutual announced Thursday that it plans to cut 1,200 jobs to lower expenses. The layoffs are in addition to the 3,000 jobs the company said it was eliminating in April. The nation’s largest thrift also has shut down 186 freestanding mortgage-loan centers, cut its dividend, and raised $7 billion in new capital from private-equity firm TPG and other investors (Dow Jones Newswires June 19) …

Market News (06/20/2008)

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MADISON, Wis. (6/23/08)
* All but one state saw higher unemployment in May, the Labor Department reported Friday. Hardest hit was Michigan, which saw its jobless rate jump 1.6 percentage point to 8.5%, as the weak auto and housing sectors took a toll. The unemployment rate in Rhode Island rose by 1.1 percentage point to 7.2%. Louisiana was the only state to post a decline in the unemployment rate, to 4% from 4.1% in April. However, the drop occurred as the labor force fell by 11,300, suggesting fewer people were seeking employment. Nationwide, the unemployment rate surged to 5.5% in May, from 5% in April (Reuters June 20) … * General Motors announced Thursday that about 25% of its hourly workforce in the U.S. will leave the firm by July 1 via buyout and early-retirement offers (Associated Press via The New York Times June 20). The automaker plans to replace some of the employees with new workers at a wage of $14 per hour--about half the wage of current workers. In other news, Ford Motor said Friday that it plans to slash production and delay the introduction of a new version of its F-150 pickup truck due to weak sales of such vehicles (Reuters June 20). “As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industrywide auto sales slowing further, and demand for large trucks and SUVs at one of the lowest levels in decades,” said CEO Alan Mulally … * The officers of the nation’s largest companies expect employment at their firms to decline as rising costs erode earnings in coming months, according to two surveys released last week. CEOs polled by Business Roundtable expect economic growth of just 1.3% in the second quarter. Almost one-third anticipate layoffs at their firms. In another survey of chief financial officers by Duke University, almost half expect higher energy costs to be passed along to their customers. They predict that their product prices will increase by 4.1% during the next year. They also expect employment to weaken despite problems finding and retaining “high-quality employees.” (The Wall Street Journal Online June 20) … * Wall Street investment banks and commercial banks borrowed slightly more from the Federal Reserve’s emergency loan program last week, the central bank reported Thursday. Investment banks averaged $8.6 billion in daily borrowing, compared with $8.4 billion the previous week. Commercial banks averaged $13.4 billion, compared with $13.1 billion. In another effort to ease the credit crunch, the Fed auctioned $36.8 billion in Treasury securities to investment firms last week. The auction attracted bids for less than the $75 billion the Fed made available, suggesting some improvement in credit conditions (Associated Press via CNNMoney.com June 20) … * U.S. regulators are discussing how to let investment banks maintain access to Federal Reserve loans if the Fed ends its emergency lending program in September. The Fed is “studying a range of options” for the Primary Dealer Credit Facility, as investment banks boost their liquidity and capital to “better protect themselves against extreme events,” Fed Vice Chairman Donald Kohn told a Senate subcommittee Thursday. However, Treasury Secretary Henry Paulson said firms should be discouraged from becoming too dependent on Fed loans. It’s “imperative that market participants not have the expectations that lending from the Fed is readily available,” said Paulson in a speech in Washington (Bloomberg.com June 20) …

Market News (06/19/2008)

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MADISON, Wis. (6/20/08)
* The 30-year, fixed-rate mortgage (FRM) jumped to a nine-month high this week, Freddie Mac reported Thursday. The rate surged 10 basis points to 6.42%. The last time the rate was higher was the week ended September 6, when it averaged 6.46%, noted Freddie Mac Spokeswoman Eileen B. Fitzpatrick. Freddie Vice President and Chief Economist Frank Nothaft said rates increased after the government reported that May consumer and producer prices were high, and “traders began to fully price in a Federal Reserve rate hike by the end of September …” The 15-year FRM rose 9 basis points to 6.02% this week. That was the highest level since 6.08% in the week ended October 18. The one-year, adjustable-rate mortgage increased 10 basis points to 5.19% (CNNMoney.com June 19). For CUNA's Daily Financial Rates, use the link. … * The Supreme Court ruled against insurer MetLife Inc. on Thursday, saying insurance firms and employers have a conflict of interest when they both determine claims under benefit plans and pay the benefits. In the majority opinion, Justice Stephen Breyer said a reviewing federal court should consider that conflict when deciding whether a plan administrator abused its discretion in denying benefits. The case began when Sears employee Wanda Glenn was denied benefits by MetLife under a long-term disability plan. An appeals court ruled for Glenn after a federal judge refused to overturn the insurer’s decision. The federal government and AARP supported Glenn. Insurance groups supported MetLife (Reuters via Yahoo! News June 19) … * As measured by jobless claims, the current downturn isn’t as severe for the labor market as during the previous downturn because payrolls were lean to begin with (Moody’s Economy.com June 19). However, hiring probably won’t improve in the short term because firms have many reasons to remain cautious. In the latest Labor Department report, first-time claims for unemployment insurance edged down by 5,000 during the week ending June 14 to 381,000. The four-week moving average, which smoothes out weekly volatility, increased by 3,250 to 375,250. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, declined by 76,000 during the week ended June 7 to 3.06 million … * The Conference Board’s index of leading economic indicators edged up by 0.1% for the second consecutive month in May, suggesting that economic growth is slow but may not stall altogether. “The economy is very weak heading into the summer, with gas and utility bills possibly heading even higher,” said Board Economist Ken Goldstein. “But latest data suggest the economy has not fallen into a contraction and may not undergo one in the second half of the year.” Four of the index’s 10 indicators helped buoy it in May--led by rising stock prices and a widening in the spread between 10-year Treasury yields and the federal funds rate. Weaker consumer confidence, a decline in the real money supply, and falling building permits were the biggest drags (Associated Press via The New York Times and Bloomberg.com June 19) … * The manufacturing sector in the Philadelphia region, a leading barometer for the rest of the nation, remained very weak in June as firms coped with rising prices. The Federal Reserve Bank of Philadelphia’s June Business Outlook Survey fell to minus 17.1, from minus 15.6 in May. “Cost pressures remain widespread, with a much larger share of firms reporting increases for input prices this month,” said the report. In June, 72% of manufacturers reported higher input prices--up from 61% in May. And 65% anticipate further price increases during the next three months (CNNMoney.com June 19) … * Americans finally are starting to react to soaring gasoline prices, according to a report by Cambridge Energy Research Associates. “For the first time since the 1970s and early 1980s, the number of miles driven by Americans has clearly begun trending downward,” said the report. Demand for gasoline fell by 1.3% in the first quarter, compared with a year earlier. The report noted that Americans are now spending more than 4% of their after-tax income on transportation fuels--up from only 1.9% in 1998. It also noted that sales of large vehicles have declined below 50% of overall sales for the first time since 2001, as consumers continue to shift towards more fuel-efficient vehicles. “With climate change concerns now, it’s very likely that fuel efficiency will be at the forefront for the foreseeable future, and it’s unlikely we will go back to not caring about fuel efficiency the way we did the late 1980s,” said report co-author Samantha Gross (The New York Times June 19) …

News of the Competition (06/19/2008)

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MADISON, Wis. (6/20/08)
* Older Americans--55 and older--spend $4.5 billion a year in overdraft fees for services they never requested from their banks, according to a report released Wednesday by the Center for Responsible Lending. Nearly $1 billion of those fees are paid by people who rely heavily on income from Social Security. Overall, Americans paid $17.5 billion in overdraft fees for $15.8 billion in bank advances. Most of the fees are related to debit-card transactions. Banks now let such transactions clear, even if there are insufficient funds, charging holders $1.65 in fees for each dollar advanced. Banks also use methods to maximize overdraft-protection income, by holding deposits longer than they need and by subtracting bigger transactions first. The American Bankers Association responded to the report by noting that a 2007 poll it commissioned found that 91% of people 55 and older paid no overdraft fees during the previous year (Dow Jones Newswires June 19) … * Two former Bear Stearns managers have become the first executives to be charged criminally in the wake of the subprime mortgage meltdown. Ralph Cioffi and Matthew Tannin were arrested and indicted Thursday on securities-fraud charges after a criminal investigation into the failure of two hedge funds they oversaw. The indictment alleges that the fund managers lied about the financial health of the funds despite their concerns about liquidity. It also alleges that one manager shifted a percentage of his own investments from one fund without informing investors. The failure of the two funds helped prompt the credit crisis by making investors concerned about investments tied to subprime mortgages. In a separate action, The Securities and Exchange Commission on Thursday filed a complaint against Tannin and Cioffi, saying they “deceived their own investors, as well as the fund’s institutional counterparts, by fraudulently concealing from them the full extent of the fund’s deepening troubles.” (Reuters and Associated Press via The New York Times June 19) … * Former UBS AG Banker Bradley Birkenfeld pleaded guilty in federal court Thursday to charges that he helped a billionaire real-estate developer hide $200 million in assets from tax authorities. He is charged with conspiring to defraud the government by helping the unidentified developer create phony entities to conceal ownership of his assets. Birkenfeld told the court that as a UBS banker he was “incentivized” by the company to perform the actions. The charge is related to an ongoing investigation of services provided by the bank to U.S. clients from 2000 through last year (Reuters via The New York Times June 19) … * Washington Mutual said Thursday that it plans to discontinue two mortgage products, as it backs off from riskier loans amid the credit crisis. The largest thrift said it will end all negative-amortizing loans and its WaMu Mortgage Plus loan, which combines a first mortgage and a home-equity-line-of-credit into a single loan. The firm also announced that it has added $1 billion to its assistance program for subprime-mortgage borrowers. The program originally was funded with $2 billion. The program has helped more than 7,500 homeowners avoid foreclosure, said CEO Kerry Killinger (Dow Jones Newswires June 19) … * The Office of Thrift Supervision (OTS) has found Imperial Savings and Loan Association of Martinsville, Va., to be “critically undercapitalized” and ordered the firm to sell itself. An OTS prompt corrective order last week gave the thrift until July 25 to sell itself or most of its assets. The thrift, which hasn’t reported a profit since first-quarter 2006, lost $79,000 during the first quarter of this year (American Banker June 19) …

News of the Competition (06/18/2008)

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MADISON, Wis. (6/19/08)
* Global writedowns and losses from the credit crunch may hit $1.3 trillion, said John Paulson, founder of hedge fund Paulson & Co. “We’re only about a third of the way through the writedowns,” Paulson told a hedge fund conference in Monaco on Wednesday. His estimate is higher than the International Monetary Fund’s $945 billion forecast. Since the subprime crisis began last year, banks and securities firms have reported more than $395 billion in losses and writedowns. Paulson also predicted that the U.S. is headed for a recession this year, as declining home prices continue to dampen consumer spending. He said the last half of the year will be even weaker than the first as stresses “accelerate” in the housing sector (Bloomberg.com June 18) … * Former American International Group (A.I.G.) Chief Executive Martin Sullivan, who was replaced by the firm’s board on Sunday, may get as much as $68 million in severance pay and benefits, according to an estimate by corporate-governance firm The Corporate Library. The firm estimates that Sullivan will receive as much as $2.5 million in salary, $26.6 million in bonuses, $14 million from a defined-contribution plan, $21.9 million in stock awards, $3.3 million in pension benefits, and $32,316 in medical- and life-insurance coverage. The estimate is much higher than A.I.G. has disclosed in regulatory filings. The board removed Sullivan amid concern about falling stock prices. He was replaced by board Chairman Robert B. Willumstad (Reuters via The New York Times June 18) … * Jumbo-mortgage lender Thornburg Mortgage said Wednesday that it has received subpoenas from the Securities and Exchange Commission related to a previously-disclosed investigation of the firm’s restatement of 2007 financial results, its accounting for mortgage-backed securities, and other disclosures. The firm, which said its survival remains in doubt, was on the verge of bankruptcy in March before it raised $1.35 billion in new capital from MatlinPatterson Global Advisers. The Santa Fe, New Mexico-based lender reported a $3.31 billion loss for the first quarter, largely reflecting writedowns, losses on mortgage sales, and capital-raising efforts (Reuters via The New York Times June 18) … * Fifth Third Bancorp, Ohio’s second-largest bank, Wednesday announced plans to sell $1 billion in convertible preferred stock, sell noncore operations, and cut its dividend by 66%. Many other regional banks have taken steps to boost their capital and cut dividends, as the credit crisis continues. Cincinnati-based KeyCorp announced last week that it plans to cut its dividend in half and raise at least $1.5 billion in new capital. Moody’s Investors Service on Wednesday said it may lower Fifth Third’s ratings. Fitch Ratings announced a one-notch downgrade, to A+ (The Wall Street Journal Online and Reuters June 18) … * The Office of the Comptroller of the Currency (OCC) has classified Little Rock, Ark.-based Metropolitan National Bank as a “troubled institution.” The OCC said the bank has been operating in an “unsafe and unsound” manner “relating to some aspect of credit risk management, capital adequacy, and concentration risk management.” The regulator ordered the bank to lower its problem assets, boost its capital, and obtain written approval before taking in brokered deposits. In other news, the OCC said Legacy National Bank of Springdale, Ark., is operating under an enforcement agreement, which requires the firm to improve its loan-portfolio management, lower its credit risk, developing a system of identifying problem loans, review its loan-loss allowances, and take steps to ensure adequate liquidity and capital levels (American Banker June 18) …

Market News (06/18/2008)

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MADISON, Wis. (6/19/08)
* Refinancings hit the lowest level of the year last week as interest rates soared, according to a report by the Mortgage Bankers Association (Associated Press via CNNMoney.com June 18). Mortgage application volume dropped 8.7% during the week ending June 13 to 508.4. Refinancings plunged 15%, while purchase applications dropped 4.3%. Refinancings made up just 37.4% of overall volume--the lowest level this year. The average 30-year, fixed-rate mortgage jumped 33 basis points to 6.47% last week, while the one-year, adjustable-rate mortgage surged 35 basis points to 7.22%. The surge in mortgage rates suggests banks are tightening lending because they’re less willing to make loans as home prices continue to decline, said Moody’s Economy.com (June 18). Expectations of tighter monetary policy by the Federal Reserve also may be prompting mortgage lenders to boost rates … * Investment in commercial real estate has declined sharply amid the credit crunch, according to the latest Commercial Real Estate Outlook by the National Association of Realtors (NAR). Investment in commercial real estate during the first four months of this year totaled $48.2 billion--down 69.5% from $157.8 billion in the same period last year. “Slow economic growth is lowering demand for commercial space, mostly in the office and industrial sectors,” said NAR Chief Economist Lawrence Yun. “Despite the slowdown, the commercial real estate market is in much better shape compared to conditions during the 2001 recession,” added Yun. With rising inventories, office vacancy rates are forecast to increase to 13.7% in the fourth quarter, from 12.5% in the fourth quarter of 2007. Vacancy rates in the industrial sector are expected to rise to 9.9% from 9.4%, while vacancy rates in the retail sector are forecast to edge up to 9.3% from 9.2% (realtor.org June 18) … * The economy probably will avert a formal recession, but the outlook through year-end is very “subprime,” according to the UCLA Anderson Forecast report. The economy is expected to expand by just 1% as the housing slump curbs growth. The report noted that the housing downturn has wiped out about $3 trillion in home equity so far. The unemployment rate is expected to rise to 6% by year end, from 5.5% in May. A “witch’s brew of the popping of the housing bubble, a wounded financial system and increasing inflationary pressures coming from rising commodity prices will keep the economy on a subprime growth path for the next several quarters,” said the report. The Federal Reserve is expected to keep interest rates on hold for now, and then begin raising rates in mid-2009 (Reuters via The New York Times June 18) … * Fund managers have become the most pessimistic about stocks in a decade amid concern about possible stagflation--a combination of slow growth and high inflation--according to a June survey by Merrill Lynch. A net 27% of fund managers now underweight stocks--up sharply from 5% a month ago. A net 61% think the global economy will weaken during the next year--up from 39%. At the same time, 33% believe inflation will be higher 12 months from now, up from 25%. And 36% anticipate higher short-term interest rates, as they face the possibility that interest rates may have to increase even as the economy slows. “The market is waking up to the idea that global interest rates are too low, in fact they remain below inflation,” said Karen Olney, chief European equities strategist at Merrill (ml.com and MarketWatch June 18) … * Americans may have to pay even higher prices at the pump because of the Midwestern floods. Ethanol futures jumped 17% over the past week, to $2.89 a gallon, according to Thomson Reuters. Higher ethanol prices could mean higher pump prices because refiners blend ethanol into gasoline. Gasoline prices already have soared 36% over the past year, according to the Energy Information Administration. Shortages of ethanol because of the floods could make gasoline prices 5 to 10 cents higher in some markets, said Stephen Schork, editor of the Schork Report energy newsletter (The Wall Street Journal Online June 18) … * Facing soaring energy prices, many Americans are considering changing their vacation plans and are eating out less, according to a Reuters/ Zogby survey. In addition, about 10% are considering moving closer to work, and about 10% are thinking about finding a job closer to home. “Low energy costs and the availability of autos helped fuel suburbanization,” said pollster John Zogby. “Now people think high energy costs may be permanent … this is now one of those big changes in our lives that requires nothing short of dramatic lifestyle changes.” (Reuters June 18) …

Market News (06/17/2008)

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MADISON, Wis. (6/18/08)
* Wholesale prices soared in May, as food and energy prices continued to climb, the Labor Department reported Tuesday. The Producer Price Index (PPI) jumped 1.4%--following a modest 0.2% gain in April and the largest increase since a 2.6% surge in November. Energy prices jumped 4.9%, also the largest gain since November. Food prices rose 0.8%. Excluding the volatile food and energy categories, the core PPI was up just 0.2% in May and 3% from a year earlier, compared with a 7.2% year-over-year gain in the overall PPI. Soaring food and energy costs along with a weak economy make it tough for the Federal Reserve to chart the path of interest-rate policy. However, many analysts now believe the central bank will begin to raise interest rates by the end of the year … * U.S. food prices are expected to surge even more this year as a result of the Midwestern floods, say analysts. Corn and soybean prices already were soaring before the floods hit the grain fields of Iowa. Rabobank Group food-industry analyst Fiona Boal predicts that food prices will surge 7% to 9% this year. Paul Prentice, president of Farm Sector Economics, expects food prices to jump 7% this year and another 7.4% in 2009. Food prices rose 4% last year after 2.4% annual gains during the two previous years, according to Labor Department statistics (The Wall Street Journal Online June 17) … * Consumers hit by soaring food and energy costs continue to face surging health-care costs as well. Medical costs will jump 9.9% this year and another 9.6% in 2009, according to a study by PriceWaterhouseCoopers (Associated Press via Yahoo! News June 17). A hospital building boom and cost-shifting from the uninsured are driving the increase, said the study. The federal government continues to underfund public-insurance programs, even as the number of people with private insurance continues to decline … * Some U.S. manufacturers are bringing production back to North America from abroad, or at least putting plans to send more work overseas on hold, as shipping costs soar. Transportation costs now equal a 9% tariff on goods coming to U.S. ports--compared with just a 3% equivalent when oil sold at $20 a barrel in 2000, estimates Jeff Rubin, chief economist at Toronto-based CIBC World Markets. Rising wage demands and stricter environmental controls also are beginning to boost the cost of manufacturing in China and other developing nations. However, the U.S. probably will see only limited gains from the trend because the infrastructure needed to support many industries has weakened or disappeared. Soaring energy costs “may slow the outsourcing of goods in the future, rather than causing a massive shift back of those things that have already been outsourced,” said Manufacturers Alliance/MAPI Economist Daniel Meckstroth (The Wall Street Journal Online June 16) … * Industrial production edged down by 0.2% in May following a 0.7% decline in April, according to the Federal Reserve. Manufacturing output was unchanged, while the output of utilities declined 1.8%, and the output of mines edged up 0.1%. Factory output was boosted by a small increase in the production of motor vehicles and parts. However, the output of motor vehicles and parts remained 10% below its February level. The overall capacity utilization rate fell 0.2 percentage point to 79.4% in May--or 1.6 percentage points below its 1972-2007 average … * Housing starts declined by 3.3% in May to an annual pace of 975,000 units, the Commerce Department reported Tuesday. It was the lowest level since March 1991. Permits for future construction fell by 1.3%, suggesting further declines ahead. Homebuilders also remained gloomy in June, according to a report by the National Association of Home Builders on Monday. The NAHB/Wells Fargo housing-market index fell one point to 18--matching the record low set in December. Only one in five builders said they think the housing market is good. Rising foreclosures and large housing inventories will continue to dampen the home construction market for the remainder of the year (The Wall Street Journal Online and Reuters June 17) …

News of the Competition (06/17/2008)

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MADISON, Wis. (6/18/08)
* The performance of auto-loan asset-backed securities continued to be highly pressured by weak economic and consumer fundamentals and soft vehicle prices in May, Fitch Ratings reported Tuesday. Annualized net losses (ANL) for both prime and subprime loans were slightly improved in May, compared with April--dropping to 1.14% and 5.47%, respectively. However, the slight drop mostly reflected seasonal patterns, and loss rates remained much higher than a year earlier. The prime ANL was 78% higher than a year earlier, while the subprime ANL was 40% higher. Fitch said defaults are being driven by the weak job market, rising food and energy costs, and declining home values. In addition, vehicle values--especially for sport utility vehicles--have declined as high gasoline prices softened demand (BUSINESS WIRE and Dow Jones Newswires June 17)… * In an effort to ease the credit crisis, the Federal Reserve auctioned another $75 billion in loans to banks on Monday. It was the central bank’s 14th auction since the program was launched in December. On Monday, commercial banks paid a 2.36% interest rate for the 28-day loans. The Fed received 76 bids for $89.38 billion worth of loans. The auction program was designed to help ease liquidity, as the global credit crunch made banks reluctant to lend to each other, and to consumers and businesses. Many economists expect the Fed to hold rates steady when it meets next week, and then begin raising rates later this year to battle inflationary expectations (Associated Press via CNNMoney.com June 17) … * U.S. banks and auditors involved in the collapse of Italian food company Parmalat in 2003 face new legal action, as more than 4,000 European shareholders of the firm said they plan to pursue a class-action suit in Italy. The shareholders, alleging that the financial firms contributed to Parmalat’s fraud, plan to sue Citibank, Bank of America, Deloitte & Touche, and Grant Thornton. U.S. companies already are facing a suit by former U.S. investors. And in Italy, civil action is being pursued against UBS, Morgan Stanley, Deutsche Bank, and Nextra (FT.com June 17) … * Citigroup has agreed to settle a long federal investigation into its accounting of Argentina bonds during that country’s 2001 debt crisis. Its settlement with the Securities and Exchange Commission (SEC) calls for Citigroup to cease and desist from future securities-law violations, a fairly light sanction. The agency’s agreement could indicate how it will handle fallout from the current credit crisis, say analysts. The SEC claimed Citigroup took the position that the value of some of the Argentina bonds it held weren’t properly reflected in the market price, and therefore chose a different valuation. Citigroup incorporated “several unreasonable assumptions into its analysis of the discount rate and thus overstated the value” of that debt, said the SEC (The Wall Street Journal Online June 17) … * Goldman Sachs, the world’s biggest investment bank, on Tuesday reported a profit of $2.29 billion for the second quarter. Its earnings were down 10% from a year earlier. However, they topped Wall Street expectations amid higher fees from asset management and stock underwriting. “Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter,” said Chairman and Chief Executive Lloyd Blankfein. The results were much stronger than Lehman Brothers, which reported a $2.87 billion loss for the second quarter. Worldwide, banks and brokerages have written down about $300 billion worth of assets this year (Associated Press via Yahoo! News June 17) …

IMarketWatchI interviews U.S. Central league on economy

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NEW YORK (6/18/08)--MarketWatch interviewed U.S. Central FCU and the California and Nevada Credit Union Leagues Tuesday, amid U.S. stock indexes declining, due to a slumping housing market and rising inflationary pressures. The combination of a weak economy and rising inflation likely will cause the Federal Reserve to take action, and raise interest rates in September, said David Dickens, executive vice president of Lenexa, Kan.-based U.S. Central. “As the weeks unfold, and we get another producer price index number next month, our expectation is eventually the higher prices of food and energy have to work their way into the consumer price index numbers, and eventually that will have an impact on the Fed,” Dickens told MarketWatch. Economic data indicate a 1.4% increase in May wholesale prices, but core prices--which exclude food and energy--climbed 0.2%, said MarketWatch. “We’re trained to look at the core,” Terrin Griffiths, economist at the California and Nevada Leagues, told MarketWatch about the market’s willingness to put aside rising wholesale prices. However, economic data show a lack of flexibility to pass on higher costs for businesses outside the food and energy sectors, which is “worrisome for earnings down the line,” Griffiths added.

Hampel warns IWall St. JournalI Spending will slow

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NEW YORK (6/17/08)--Consumer spending and economic growth will slow toward the end of this year and into early next year, Bill Hampel, chief economist at the Credit Union National Association, told The Wall Street Journal Saturday. “The pressures driving consumer spending down have not gone away at all,” Hampel told the newspaper. “It’s going to take awhile for the household sector to get out of this. We’re looking for the economy to limp along [through mid-2009].” While food and energy costs continue their upward spiral, prices of other items are being held back by a sluggish economy, which in turn will keep overall inflationary pressures, down, the article said. The consumer price index rose 0.8% in May and is up 4.2% from a year ago, reflecting rising food, transportation and energy costs, the Labor Department said Friday, according to the article. However, core prices--which exclude food and energy--went up 0.2% in May and 2.3% over the year. The figures indicated that underlying inflation remains constrained, although it is a little higher than the 1.5%- to-2% range preferred by the Federal Reserve, the article added.

Market News (06/16/2008)

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MADISON, Wis. (6/17/08)
* Chief executives saw their compensation soar to new highs last year, even as the economy slowed and stockholders lost money, according to a study by Associated Press (Yahoo! News June 16). The median pay package of CEOs in the Standard & Poor’s 500 index was almost $8.4 million--up about $280,000 from 2006. Yet many of those firms’ profits plunged last year. General Motors Chief Executive Rick Wagoner saw his compensation jump 64% to $15.7 million, even as the company posted a $39 billion loss and its stock price tumbled 19%. KB Home CEO Jeffrey Mezger made $24.4 million, even as the company lost almost $930 million and its stock plunged 60%. “Compensation has become a shell game,” noted Richard Ferlauto, director of pension and benefits policy at the Washington-based American Federation of State, County, and Municipal Employees … * Oil prices soared to a new high of almost $140 a barrel on Monday despite plans by Saudi Arabia, the world’s biggest oil producer, to boost output. Light, sweet crude for July delivery rose to $139.89 a barrel on the New York Mercantile Exchange before retreating slightly. The weak value of the dollar has been blamed for the huge surge in oil prices this year. A disappointing report on the manufacturing sector in the New York region helped weaken the value of the dollar further on Monday (Associated Press via The New York Times June 16) … * Manufacturing activity in the New York region declined for a second consecutive month in June. The New York Federal Reserve’s Empire State Manufacturing Survey dropped five points to a negative 8.7, suggesting a continued slowdown in the sector. In the latest poll, 36% of respondents reported a reduction in overall capital spending this year--up from 26% last year. Pricing pressures eased slightly. The prices paid index fell to 66.3, from a record-high reading of 69 in May (CNNMoney.com June 16) … * U.S. homebuilders remained gloomy about the single-family housing market in June, the National Association of Home Builders (NAHB) reported Monday. The NAHB/Wells Fargo housing-market index dropped one point to 18--matching the record low set in December. Just one in five builders think the housing market is good. “Clearly, conditions in the housing market remain very weak, and our builder members are not seeing any signs of improvement,” said NAHB Chief Economist David Seiders. “Indeed, the continuing erosion of employment and consumer confidence/sentiment, coupled with surging energy costs, falling house prices and rising home mortgage foreclosures, pose considerable downside risks to the economy and our housing forecast.” The trade association has been conducting the survey for 22 years (nahb.org and MarketWatch June 16) … * European inflation jumped to the highest level in 16 years in May, as food and energy costs surged, a trend that global finance ministers say is becoming a “complicated dilemma” for the world’s richest countries. The inflation rate increased to 3.7%--from 3.3% in April and the highest level since June 1992, according to the European Union’s statistics office. Energy prices were up 13.7% from a year earlier in May, while food prices were up 6.4%. High food prices “are here to stay,” as nations use food products to make biofuels and limit exports, noted Nestle Chairman Peter Brabeck-Letmathe. The combination of high inflation and slowing economic growth makes it difficult for central bankers to set monetary policy (Bloomberg.com

News of the Competition (06/16/2008)

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MADISON, Wis. (6/17/08)
* Prosecutors are preparing to file criminal charges against the managers of two Bear Stearns hedge funds that collapsed last year, helping to start the credit crisis. The two funds invested heavily in collateralized debt obligations backed by risky mortgages. Ralph Cioffi and Matthew Tannin could be charged with securities fraud within the next week, said one of the people familiar with the situation. At issue is whether the two managers deliberately misled investors by offering an optimistic assessment of the funds to clients while telling their colleagues they were worried about them. An indictment would be the first against Wall Street executives related to the credit crisis. A spokesman for the U.S. Attorney for New York’s Eastern District declined to comment (The Wall Street Journal Online June 16) … * Standard & Poor’s announced last week that it had found an error in the models it uses to assign top credit ratings to constant proportion debt obligations. The firm corrected the glitch in October, and there was no “erroneous” effect on the ratings, said Vickie Tillman, an executive vice president at S&P. The problem surfaced only three weeks after rival ratings agency Moody’s Investors Service announced that it had misgraded similar debt due to a computer error. Last week the Securities and Exchange Commission proposed a series of stricter regulations for ratings agencies in order to avert another credit crisis. Critics say the agencies gave top ratings to many securities and funds that subsequently collapsed (Bloomberg.com June 13) … * The board of American International Group (AIG) replaced its CEO on Sunday amid concern about declining stock prices and regulatory problems related to the firm’s accounting. The board removed Martin J. Sullivan and replaced him with Board Chairman Robert B. Willumstad. The board also named board member Stephen F. Bollenback as lead director. A.I.G.’s stock price has plunged more than 40% this year. Even after its recent $20 billion capital-raising move, the world’s largest insurer is facing huge losses with its exposure to mortgages and other types of debt. And in February, a former A.I.G. executive was convicted of conspiring to manipulate the firm’s financial statements. The company was launched in Shanghai in 1919 (The New York Times and Associated Press via Yahoo! News June 16) … * Lehman Brothers Holdings, the nation’s fourth-largest investment bank, on Monday reported a $2.87 billion loss for the second quarter--its first quarterly loss since going public in 1994. CEO Richard Fuld shouldered the blame for the huge loss, saying the firm was too slow to react to the credit crisis. “We made active decisions to deploy our capital, some of which in hindsight were poor choices because we really didn’t act quickly enough to the eroding environment,” said Fuld. Lehman slashed its mortgage holdings by 20% in the second quarter to avert further damage from the credit crunch. Last week, the firm ousted Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory in a bid to restore investor confidence. Lehman has lost nearly 60% of its value on the New York Stock Exchange this year. Worldwide, banks and brokerages have written down almost $300 billion worth of assets related to mortgage-backed securities (Bloomberg.com and Associated Press via Yahoo! News June 16) …

Market News (06/13/2008)

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MADISON, Wis. (6/16/08)
* A sharp 0.6% increase in U.S. consumer prices for May was attributed to soaring energy prices and high airline fares and indicates an economy that may be vulnerable to rising inflation and weak economic growth. The consumer price index (CPI) data mean the Federal Reserve Board likely will raise interest rates this summer or fall, said analysts (The Wall Street Journal June 13). Excluding food or energy, the CPI rose 0.2%, said the Labor Department. Economists had forecast a 0.5% increase in the headline and 0.2% increase in the core readings. Year-over-year, consumer prices rose 4.2%, the highest rate since January and slightly above the Fed's comfort zone of 1.5% to 2%. The CPI for personal consumption expenditures is at 2.1% annual growth through April. The core CPI increased 2.3% over a year earlier. For the past three months, core inflation has risen at a 1.8% annual rate … * Consumer confidence fell 3.1 points in June, according to a preliminary University of Michigan Consumer Sentiment Index. The index dropped to its lowest level in more than 28 years, signaling tax rebates had failed to boost confidence. The index was 56.7, down from 59.8 in May. The decline from May was larger in the current conditions component--falling 4.6 points--while dropping 2.1 points in the expectations component. Inflationary expectations remained elevated but leveled off with a slight dip in May. One-year expectations were 5.1% from 5.2%, which had been the highest level since 1982. Five-year expectations remained at 3.4%, the highest level since 1996. The level of confidence suggests not only a recession, but a severe one, said analysts (Economy.com June 13) … * Ireland's voters Friday rejected the Lisbon Treaty, with 53.4% of voters casting a "No" vote. The results are a major setback to the EU in its political aspirations but will have little impact on monetary policy. EU had planned to appoint its first president, create a diplomatic service under a single foreign affairs chief and push for power to legislate in areas such as immigration. The EU bloc consists of 27 countries. (The Wall Street Journal June 13) …

News of the Competition (06/13/2008)

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MADISON, Wis. (6/16/08)
* Standard & Poor’s Ratings Services (S&P) lowered Federal Home Loan Bank of Chicago’s counterparty credit rating Thursday. S&P cut the rating one level to AA/A-1+--which is the third highest investment grade--from AA+/A 1+. The downgrade is due to persistently higher overhead expenses and deteriorating metrics caused by unprofitable hedging for FHLB-Chicago’s purchased mortgage, or Mortgage Participation Finance, portfolio. However, the outlook is stable, S&P said (Reuters June 12) … * Goldman Sachs Group Inc. is leading a group of banks that intends to sell loans used in the leveraged buyout of Endemol NV--Dutch television producer of the show “Big Brother.” People familiar with the deal said the loans will be sold for as little as 72.5 cents on the dollar, according to analysts. The lenders are offering $3.4 billion worth of senior loans that were used to finance the $4 billion acquisition to investors, said the sources. The price is more than 19 cents on the dollar below the average high-yield, high-risk loan and comes during a downturn in ratings for “Big Brother”--a show that films a house isolated from the outside world where strangers live together (Bloomberg.com June 13) … * American Express Co. was the target of lawsuits filed by three large drugstore companies this week. The suits allege agreement provisions with AmEx violate anti-trust laws by preventing the companies from directing customers to competing payment cards. Walgreen Co. of Deerfield, Ill.; CVS Caremark Corp. of Woonsocket, R.I.; and Rite Aid Corp. of Camp Hill, Pa., filed the complaints in the U.S. District Court for the Eastern District of New York. Amex sees no merit in the suits and will “vigorously defend” their position, an Amex spokesperson said (American Banker June 13) …

News of the Competition (06/12/2008)

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MADISON, Wis. (6/13/08)
* Citigroup Inc. is shutting down a hedge fund group, co-founded last year by Citi CEO Vikram Pandit. The fund was sold to the bank in 2007 for $800 million. Under the shutdown plan, Citi will purchase most of Old Lane Partners’ assets. Beginning July 31, clients can withdraw their investments, according to a statement issued Thursday by the New York-based bank. The shutdown is at least the fourth Citigroup hedge-fund management unit failure this year, analysts said. “All investors in the fund--third parties, Old Lane employees, Citi senior management, and Citi proprietary investments--will be treated consistently during the unwinding process,” Ned Kelly, CEO of Citi Alternative Investments, said. Almost all investors will withdraw their money from Old Lane, Citi said last month (Bloomberg.com June 12) ... * Allegations of unfair and deceptive marketing of credit cards by CompuCredit Corp. and two banks have resulted in federal regulators seeking more than $20 million from the three parties. The Federal Deposit Insurance Corp. (FDIC) and Federal Trade Commission (FTC) jointly announced several actions against First Bank & Trust, Brookings, S.D.; First Bank of Delaware, Wilmington, Del., and Atlanta-based CompuCredit. To provide restitution to consumers for fees and other charges related to unfair and deceptive marketing practices, the FDIC will seek more than $200 million from the three entities. In concert with the FDIC’s actions, the FTC said it will file a federal lawsuit against CompuCredit Corp. and one of its subsidiaries--Jefferson Capital Systems LLC--for deceptive marketing practices related to credit card offers (The Wall Street Journal June 10) … * The Federal Housing Finance Board approved changes Wednesday to the capital plan of Federal Home Loan Bank of Dallas. With the amendment in place, the bank can repurchase stock from member institutions that have failed financially and been placed in receivership. Also, in a deal announced this week, members of the Home Loan Bank of Chicago will be allowed to continue selling mortgages to the mortgage partnership finance program (MPF) through Oct. 31. The Chicago Home Loan Bank said earlier this year it would stop making purchases under the MPF program after July 31 in efforts to stabilize its balance sheet (American Banker June 12) …

CUNAs CU trends stats updated in more file formats

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MADISON, Wis. (6/13/08)--The Credit Union National Association’s (CUNA) Department of Economics and Statistics has updated its statistics regarding credit union trends. The files have been updated with 2007 data and historical data tracking back to 1991 and 1992. “To better serve our members, the data is available in Adobe PDF and Microsoft Excel file formats, which will allow for a greater functionality and range of uses in analysis and presentation,” said Mike Schenk, vice president of CUNA’s economics and statistics department. The updated files include:
* Asset--Provide information including number of members, assets, loans and ratios that include loans/shares, net capital, and other categories, separated by asset class; * State--Provides the same info as the asset file, separated by state; * Loans and savings--Provides detailed information regarding loans at credit unions, including mortgage, vehicle and delinquency data.
For more information, use the link.

Market News (06/12/2008)

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MADISON, Wis. (6/13/08)
* U.S. retail sales, boosted by economic stimulus checks, rose double the rate expected during May. A key indicator of consumer spending, retail sales increased by 1%, instead of the 0.5% increase expected, the Commerce Department announced Thursday. The improvement "was clearly driven by the receipt of the first wave of tax rebate payments," said Joshua Shapiro, chief U.S. economist at MFR, a research firm (The New York Times June 12). Sales for the previous two months were upwardly revised. In April, sales rose 0.4%, instead of dropping 0.2% as originally estimated. March sales grew 0.5%, better than the earlier rate of 0.2%. Consumer spending accounts for 70% of gross domestic product (The Wall Street Journal and Economy.com, June 12) … * The number of workers in the U.S. who filed new claims for unemployment benefits spiked by a more than expected 25,000--to 384,000--for the week ended June 7, according to the Labor Department The increase came after the previous week's figures were upwardly revised to 359,000 from 357,000. The four-week moving average for initial jobless claims also rose, to 371,500, from 369,000 the previous week. Continuing jobless claims for the week ending May 31 increased 58,000 to 3.139 million. The previous week's continuing claims totaled 3.081 million, revised from 3.093 million (Economy.com and June 12) … * Consumer spending slowed in late April and May as incomes were hit by rising food and energy prices, according to the Federal Reserve’s latest Beige Book survey of the economy. High energy prices also weakened domestic tourism. Manufacturing activity was soft amid weak demand for housing-related products and soft demand for trucks and SUVs. Some industries, however, were boosted by strong export demand. Most Fed districts reported that wage pressures were moderate or limited, and residential real-estate markets were generally weak across the nation. All districts reporting on credit standards noted further tightening for residential, consumer, and commercial loans. The New York, Philadelphia, and Cleveland Districts reported increases in overall delinquencies, and New York reported a notable increase in late payments for consumer loans … * The average U.S. household is experiencing a recession this year as the weak job market limits wage gains, and food and fuel costs continue to surge, said Moody’s Economy.com chief economist Mark Zandi. “The economy probably contracted during the first half of 2008, but this won’t be known for sure for quite some time,” said Zandi. He predicted that gasoline will cost $4.75 a gallon by July 4 if oil remains around $140 a barrel. Every one-cent increase in the cost of a gallon of gasoline will cost consumers slightly more than $1 billion over the next year, estimated Zandi. He also noted that the Federal Reserve “will sacrifice near-term growth for the sake of stable prices and the economy’s longer-term prospects” as high oil prices preclude further cuts in interest rates. He estimated that the average homeowner has lost more than $30,000 in home equity during the past two years (Dow Jones Newswires June 11) …

News of the Competition (06/11/2008)

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MADISON, Wis. (6/12/08)
* The Securities and Exchange Commission (SEC) voted unanimously Wednesday to propose tighter rules for credit-rating firms. SEC Chairman Christopher Cox said the proposals were needed because of the subprime-mortgage crisis, and because financial institutions had failed to understand the risks posed by mortgage-backed securities. He said rating firms advised issuers on how to structure the securities, which “became a triple-A conflict of interest.” The new SEC rules would prohibit a rating firm from issuing ratings on a security if the company advised the issuer, underwriter, or sponsor on the structuring of the security. Employees who work on ratings also would be prohibited from taking part in fee discussions and accepting more than $25 in gifts from issuers, underwriters, or sponsors. Other rules include requiring credit-rating agencies to make all of their ratings and subsequent rating actions publicly available, and requiring disclosure of the way the agencies depend on the due diligence of others to verify the assets underlying a structured product (Dow Jones Newswires and sec.gov June 11) … * Citigroup, Merrill Lynch, and UBS AG, the banks most exposed to Ambac and MBIA, could face additional writedowns of as much as $10 billion after the bond insurers’ credit ratings were downgraded. Standard & Poor’s cut the ratings of the two bond insurers to double A, from triple A. The banks used the bond insurers to hedge holdings of collateralized debt obligations (CDOs) and other mortgage-backed securities. CDOs in default topped the $200 billion mark this week, according to Total Securitization. The possibility of further downgrades could increase concern about the financial health of U.S. and European banks (FT.com June 11) … * Wells Fargo said its remittance business saw triple-digit growth over the 12 months ended in May, despite a slowdown in overall remittance volume, as business shifted from nonbank providers to banks. “Most major banks either have a program in place, they’re optimizing the program they have, or they’re about to implement one,” said Daniel Ayala, senior vice president for global remittance services at Wells, during a presentation to the Underbanked Financial Services Forum in Miami on Tuesday. He also noted that the share of the remittance market held by banks and credit unions more than tripled from 2004 to 2008--to 26%. Remittance firms’ share fell by 20 percentage points, to 58%, over the period (American Banker June 11) … * Equifax Inc. and Fair Isaac Corp. announced Tuesday that they have entered into a partnership to develop and sell advanced analytics and scoring products for consumers and businesses. The two firms also are working together to launch a new FICO 08 model for Equifax customers. Separately, Fair Isaac agreed to dismiss Equifax as a defendant in its lawsuit against the three credit-reporting firms and VantageScore. “This new agreement further solidifies our working relationship and allows both companies to provide better solutions to their customers,” said Equifax chairman and chief executive Richard F. Smith (/PRNewswire-FirstCall/ June 10) … * Home prices in the U.S. may decline as much as 30% through 2010 and push high-yield bond valuations near levels last seen during the previous recession, said JPMorgan Securities Analyst Peter Acciavatti. “We’re now going through a phase of deleveraging and the pulling out of easy money,” said Acciavatti. He said junk bond spreads could top 800 to 900 basis points above Treasuries, from about 650 basis points now, as the crisis continues (Reuters June 11) …

Market News (06/11/2008)

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MADISON, Wis. (6/12/08)
* Mortgage foreclosures continue to increase, according to a study of the mortgages held or serviced by nine national banks by the Office of the Comptroller of the Currency (OCC). The number of loans in the $3.8 trillion in mortgages studied that are somewhere in the foreclosure process rose “steadily and significantly”--to 1.23% in March, from 0.9% in October, the OCC concluded. The largest increase was in delinquencies of 90 days or more--which rose to more than 226,000 in March, from 188,000 in October. However, the report noted that seriously delinquent subprime loans had fewer foreclosure starts than similarly delinquent prime and Alt-A loans, “perhaps reflecting the national emphasis on developing alternatives and assistance programs for this class of borrowers.” The OCC also reported that most attempts to work with strapped borrowers center on repayment plans, not loan modifications. Just 18.5% of the 166,879 loss-mitigation actions in March involved loan modifications (Dow Jones Newswires June 11) … * Mortgage activity rebounded last week, even as mortgage rates increased, the Mortgage Bankers Association reported Wednesday (mbaa.org June 11). The trade group’s Market Composite Index rose 10.9% during the week ending June 6 to 557.1, as both purchase and refinancing applications posted large gains. The average 30-year, fixed-rate mortgage rose 7 basis points to 6.24%, while the one-year, adjustable-rate mortgage increased 7 basis points to 6.87%. The mortgage market probably hasn’t yet turned a corner, despite the increase in mortgage activity last week, noted Moody’s Economy.com (June 11). Home prices continue to decline and interest rates remain high despite the Federal Reserve’s rate cuts … * Global economic growth will slow to 2.7% this year, from 3.7% in 2007, as food and energy prices surge and the subprime credit crisis continues, according to the World Bank’s Global Development Finance report. The bank in January had forecast global growth of 3.3% for this year. The World Bank expects growth of just 1.1% in the U.S. economy this year--down from its 1.9% previous forecast. The subprime crisis has only had a “modest” effect on developing nations because most of their financial institutions weren’t involved in that type of lending, said Mansoor Dailami, one of the report’s authors (Bloomberg.com June 10) … * Food inflation will be increased by soaring corn prices, according to an Agriculture Department report. The department cut its one-month-old forecast for the nation’s corn harvest by 3.2% on Tuesday, due to rainy conditions in parts of the Midwest. Strong demand for corn to make food, feed, and fuel has drained U.S. stocks. The department predicts that the ethanol industry will consume four billion bushels of the nation’s new corn crop--up 33% from last year’s crop. Corn prices have tripled over the past two years, to record-high levels. “I wouldn’t be surprised in corn heads towards $8 a bushel--not that anybody can afford to pay that,” said Wells Fargo Agricultural Economist Michael Swanson (The Wall Street Journal Online June 11) … * Oil and gasoline prices will remain high through next year, said Guy Caruso, head of the Energy Department’s Energy Information Administration. Crude-oil prices probably will average $126 a barrel next year--$4 higher than in 2008--as supplies and demand remain tight, Caruso told a House hearing on Wednesday. He expects gasoline prices to peak at $4.15 a gallon in August and remain around that level. However, Caruso said oil consumption in the U.S. will decline significantly over the next 20 years, due to the increased use of ethanol and the production of fuel-efficient vehicles (Associated Press via Yahoo! News June 11) … * As costs soar, airlines are doing everything they can to save fuel--including power-washing engines to get rid of grime, carrying less water for faucets and toilets, retiring older planes, and flying at lower cruising speeds. Today 40% of the price of an airline ticket goes to pay for fuel--up from 15% just eight years ago, according to the Air Transport Association. U.S. airlines will pay $61.2 billion for jet fuel this year if prices remain steady--more than five times more than they spent in 2002 (The New York Times June 11) …

Market News (06/10/2008)

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MADISON, Wis. (6/11/08)
* An estimated 25 million people in the U.S. were underinsured last year, meaning they didn’t have enough health-care coverage to avoid financial hardship if they became seriously ill, according to a study by the Commonwealth Fund. People were counted as underinsured if their out-of-pocket expenses represented 10% of their income, or 5% if they were low income and had deductibles that were more than 5% of their income. “We’re moving in a direction where you can be insured all year and still face medical bankruptcy,” said Lead Author Cathy Schoen. The number of underinsured adults has increased 60% since 2003, as medical-care costs rose and more insurance plans required copayments. Schoen noted that the underinsured often act much like those who have no insurance--going without preventive care and not filling needed prescriptions (The New York Times June 10) ... * The job market will weaken further this year, according to the latest Manpower Employment Outlook Survey. Only a net 12% of companies plan to hire during the third quarter--down from 14% in the second quarter and 17% in the first quarter. “Life is tough for many job seekers and many companies,” said Manpower Chairman/CEO Jeff Joerres. “On the other hand, life isn’t as hard if you’re in the right part of the country and in the right sector,” added Joerres. Only 2% of employers in the construction sector plan to hire. And only 7% of finance, insurance, and real-estate companies plan to hire. Hiring plans are much more robust in the transportation and mining sectors. The West is the most difficult region for job seekers. Only 8% of employers in Western states plan to hire during the third quarter (MarketWatch June 10) … * The job market declined in May to the weakest level in three-and-half years, according to the Conference Board’s new Employment Trends Index. The index dropped to 113.7--from 114.3 in April and the lowest level since December 2004. “We forecast further softening in the labor market, a moderate rise in unemployment, and weaker wage growth over the next several quarters,” said Conference Board Senior Economist Gad Levanon. “Employers will find it easier to recruit and hire, and will be looking at slower growth in compensation costs. Workers will find it harder to get a job, a raise or a bonus--all of which will further rein in consumer spending.” The report noted that job losses during the current economic downturn will be smaller than in past downturns because companies have kept their workforces leaner (Reuters June 10) … * The half-percentage point surge in the nation’s unemployment rate last month hasn’t materially affected the outlook for the economy, said Federal Reserve Chairman Ben Bernanke. At the same time, rising oil prices have “added to the upside risks to inflation and inflation expectations,” said Bernanke in a speech during a Federal Reserve Bank of Boston conference on Monday. His remarks suggest the Fed won’t ease monetary policy further this year and could even raise interest rates. The central bank “will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth, as well as for inflation.” (The Wall Street Journal Online June 10) … * The economy probably will avoid a recession this year, said a majority of economists polled by the Blue Chip Economic Indicators. Almost 54% of respondents said they don’t believe the economy is in or will enter a recession this year. That’s up from 40% in a May survey. However, the consensus forecast calls for economic growth of just 1.5% this year and 1.9% in 2009. This slowdown in economic growth is expected to put downward pressure on prices. Respondents expect consumer prices to rise 3.9% this year, but only 2.6% in 2009. They say the Federal Reserve will keep interest rates steady this year, and then begin raising rates in the second quarter of next year (Reuters June 10) … * Soaring oil prices pushed the nation’s trade deficit higher in April. The gap between what the nation imports and what it sells abroad jumped 7.8% to $60.9 billion, the Commerce Department reported Tuesday. That’s the highest level since March 2007. Exports rose 3.3% to $155.5 billion, while imports increased 4.5% to $216.4 billion. The share of the trade deficit due to oil jumped 14%, while the portion due to non-petroleum goods was little changed. Economists expect the trade deficit to shrink this year, as the weak dollar boosts exports and soft domestic demand dampens imports. So far this year, the nation’s trade gap is running at an annual rate of $707.5 billion, compared with a $700.3 billion deficit in 2007 (CNNMoney.com and Associated Press via Yahoo! News June 10) …

News of the Competition (06/10/2008)

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MADISON, Wis. (6/11/08)
* Banks worldwide are facing another pressure on their balance sheets, as corporations draw on loan commitments that were signed before the credit crunch began. Banks have committed to lend $6,000 billion to corporations, according to Citigroup analysts. They say corporations are only now beginning to draw on those loan commitments, at a time that bank balance sheets are weak. “With the sector struggling for funding and with balance sheet shrinkage and capital issuance at the forefront of many banks’ strategies, we see this development as clearly unwelcome,” wrote the analysts (FT.com June 10) … * Default rates on junk-rated debt continued to increase in May, Moody’s Investors Service reported Tuesday. The default rate rose to 2%--from 1.7% in April and 1.5% a year earlier. So far this year, 31 issuers have defaulted, already equaling the total for all of last year. Moody’s predicts that the global junk-rated default rate will jump to 5% by the end of this year and to 6.3% next year (Dow Jones Newswires June 10) … * Cleveland-based National City Corp. said Tuesday that it has entered into agreements with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank of Cleveland related to its asset quality and its ability to manage capital, risk, and liquidity. National City has posted losses for the past three quarters due to its exposure to mortgages and home-equity loans. The bank has big operations in Ohio, Michigan, and Florida--states that have been hit hard by housing downturns. Nine banks entered into similar agreements with the OCC last year (Reuters June 10) … * Shares of Washington Mutual, the nation’s largest savings and loan, tumbled 17% Monday after an analyst projected that its writedowns will jump to $27 billion by 2011. Investors have been hard on WaMu because its assets are still concentrated on home-mortgage loans. UBS Analyst Eric Waserstrom predicts that the firm will report $27 billion in losses from its mortgage business. That’s much higher than WaMu’s loss projections of $12 billion to $19 billion. The savings and loan raised $7 billion in new capital from private-equity firm TPG and other investors in April. Since that capital infusion, WaMu stock has plunged about 47% (The Wall Street Journal Online June 10) … * The Financial Industry Regulatory Authority (FINRA), the securities industry’s self-regulatory body, spent $170,000 during the first quarter lobbying on the rules that govern brokerages and dealers, according to a disclosure report. The group, which includes powerhouses Citigroup, Merrill Lynch, and Morgan Stanley, lobbied Congress, the Securities and Exchange Commission, and the Treasury Department (Associated Press via msn.com June 10) …

News of the Competition (06/09/2008)

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MADISON, Wis. (6/10/08)
* Discover Financial Services--in an antitrust lawsuit accusing Visa Inc. and MasterCard Inc. of limiting competition--is asking for $6 billion in damages in legal filings unsealed Monday in Southern District of New York federal court. The damages may triple, analysts said. San Francisco-based Visa called the amount “dramatically overstated” in a Monday press release. In October 2004, Discover--the fourth largest credit card network--filed suit against Master Card and Visa accusing the two largest card networks of excluding member banks from offering rival cards (Bloomberg.com June 9) … * After announcing a $2.8 billion second-quarter loss, Lehman Brothers Holdings Inc. Monday said it intends to sell $6 billion in stock to bolster its capital base. Lehman has finished its deleveraging program of selling assets and raising equity, and is expanding its business through the use of the new capital, said Erin Callan, the company’s chief financial officer. By offering 143 million shares of common stock priced at $28 apiece--which will grow the bank’s share outstanding by 25%--Lehman hopes to raise $4 billion. Also the company is selling $2 billion worth of preferred shares that will have an 8.75% yield, and can be converted into common stock between $28 and $33 per share. The sales should be completed Thursday, the company said (The Wall Street Journal June 9) … * The Royal Bank of Scotland (RBS) issued $23.5 billion in shares--Europe’s biggest share sale and the first since the credit crunch affected the banking sector, analysts said. RBS needed to raise capital after its reserves were drastically diminished by writedowns and the takeover of ABN AMRO bank in the Netherlands in 2007. Launching the rights issue at 20 pence per share, RBS offered 11 new shares for every 18 existing shares (The New York Times June 10) … * Hundreds of Iowa consumers who thought they were just cashing in a rebate check, not enrolling themselves as members of the Credit Card Protection Agency Inc., which obligated them to credit card payments, can now get immediate refunds, according the Iowa Attorney General. Hundreds of thousands of Iowans received mail labeled REBATE CHECK ENCLOSED, with $3.25 check enclosed. “We are sending a notice today to 490 Iowans that they can get an immediate refund if they wish,” Iowa Attorney General Tom Miller said. Most refunds will range from $89 to $139, he added (consumer affairs.com June 8) … * Fitch Ratings cut the financial strength grades of two of the largest U.S. mortgage insurers--MGIC Investment Corp. and PMI Group Inc.--based on the sale of coverage for risky loans last year, analysts said. 2007 “will likely prove to be one of the worst underwritten years in modern history of the mortgage industry,” Fitch said a statement Thursday, adding that mortgage insurers “aggressively courted new business throughout 2007.” Fitch lowered its rating to A+ from AA on Milwaukee-based MGIC’s mortgage insurance subsidiaries in the U.S. and Australia. Fitch cut it ratings to A+ from AA on Walnut Creek, Calif.-based PMI for its U.S. and European units, while its Australian unit had its financial strength rating downgraded to AA- from AA (Bloomberg.com June 10) … * Private equity fund manager North River Investment Management LLC recently launched its first commercial real estate private equity fund. North River Opportunity Partners LLC has $100 million of committed capital. The company said it will follow investment strategies geared to taking advantage of opportunities created by turmoil in the global credit markets. In its early stages, the fund will purchase discounted pools of commercial mortgage debt and also originate mezzanine and first-mortgage loans on high-quality commercial real estate properties (Mortgage Orb June 9) …

Market News (06/09/2008)

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MADISON, Wis. (6/10/08)
* Sales of pending homes, based on contracts signed in April, increased 6.3% to 88.2 from March's 83, becoming the highest index since October. However, pending sales remain 13.1% lower than in April 2007, when sales were at 101.5, said the National Association of Realtors (NAR) Monday. Pending sales contracts have picked up notably in areas undergoing significant price drops, said NAR chief economist Lawrence Yun. "Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner-occupants," Yun said. "Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts," he added. April's large increase may be due to the increasing number of homes in foreclosure that are placed on the market, said Moody's Economy.com (June 9). The Midwest saw the largest increase--13%--in pending home sales; in the Northeast, pending sales fell 1.9% from March to April. NAR projected existing home sales at 5.40 million this year and at 5.74 million next year. That compares with 5.65 million for 2007 … * The average price of a gallon of gasoline in the U.S. climbed to a record $4 Sunday, according to AAA, the automobile club. The hike came on the heels of Friday's $11 increase in oil prices--to a record $138.54 a barrel. Prices of gas rose 29% the past year overall. The drain on consumers' income is greater than during the worse energy price run-ups of the past. Spending on fuel as a share of wage income has shot above 6%, exceeding the periods of 1974-75 and 1990-91, said The Wall Street Journal (June 9). The pain at the pump is not being felt uniformly, according to The New York Times (June 9). In the South, Southwest and the upper Great Plains, the high gas prices have combined with low incomes and a dependence on pickup trucks and vans to squeeze family budgets. While nationally, Americans are now spending 4% of their take-home pay on gas, in Mississippi, that figure is 13% … * Soaring gasoline and food prices are boosting consumer spending on necessities while lowering spending on both discretionary items and savings, according to Discover Financial Services’ Spending Monitor Index. The index jumped 1.4 points to 86.8 in May. The share of respondents who reported spending more increased six points to 56%. Discover said high gasoline prices were the main factor in spending. Nearly 36% said they now spend $200 or more on gasoline each month. That’s up nearly 13 points from a year earlier. A record 54% said they plan to spend less on discretionary items, and a record 42% said they are putting less money into savings and investments (American Banker June 6) … * Domestic automakers boosted their productivity last year and nearly erased their productivity gap with Asian competitors as they eliminated workers and initiated other cost-cutting measures, according to Oliver Wyman’s The Harbour Report North America 2008, an annual report on productivity in the sector. Toyota and Chrysler led the industry, with each averaging 30.37 hours to assemble a vehicle. That’s a 7.7% improvement for Chrysler from the previous year, but a 1.5% decline for Toyota. Honda, General Motors (GM), Nissan, and Ford had productivity gaps of no more than 3.5 hours--down from as much as eight hours just five years ago. However, the report also found that Detroit’s Big Three automakers are lagging in profits per vehicle due to higher health-care and pension costs and big sales incentives. For example, GM lost $729 per vehicle last year, compared with a $922 profit for Toyota (Associated Press via Yahoo! News June 6) …

News of the Competition (06/06/2008)

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MADISON, Wis. (6/9/08)
* The number of U.S. savings and loans considered “problem thrifts” has jumped 42% since the end of March, said John Reich, director of the Office of Thrift Supervision. The number of troubled thrifts totaled 17 at the beginning of this month--up from 12 at the end of March, Reich told the Senate Banking Committee last week. But he noted that the number is far less than during the savings and loans crisis. There were 200 problem thrifts in 1992. “Although we anticipate the possibility a few smaller institutions may fail in the next several quarters, there is no comparison to the late 1980s and early 1990s, when hundreds of thrift institutions failed and were closed,” said Reich (Dow Jones Newswires June 6) … * Standard & Poor’s on Thursday cut the credit ratings of bond insurers MBIA Inc. and Ambac Financial Group to double-A from triple-A, and warned of further downgrades (The Wall Street Journal Online June 6). The action came only a day after Moody’s Investors Service warned that it probably would lower the ratings of the two firms. In other news, Fitch Ratings on Friday cut the ratings on mortgage insurers MGIC Investment Corp. and PMI Group by two notches to BBB+, and cautioned that the sector would face heavy profit pressure for another two years (Dow Jones Newswires June 6). Fitch noted that problems have spilled over from subprime mortgages to other mortgage products, due to the poor underwriting policies of many lenders and national home-price declines. “Fraud has also played a key role,” said Fitch … * Japanese banks are now facing $8 billion in losses linked to the housing slump in the U.S., the Financial Services Agency said Friday. That’s up 41% from $5.7 billion at the end of December. The agency also noted that banks and other lenders now hold $9.6 billion in subprime-related products--down from $14.3 billion in December. Adding in losses that are indirectly tied to the mortgage crisis, losses increase to as much as $23 billion. In addition, Japan’s economy is expected to suffer from declining exports to the U.S. and Asia, and from soaring energy and raw-material costs. The Organization for Economic Cooperation and Development predicts that economic growth in Japan will moderate to a 1.7% pace this year (Associated Press via The New York Times June 6) … * MasterCard announced last week that the European Commission has denied an extension of a June 21 deadline to decide how to deal with the fees the commission has ordered the firm to eliminate. MasterCard said it will continue to “take steps that we believe will comply with the commission’s order.” The commission ruled that MasterCard effectively was acting as a cartel by setting the fees (Dow Jones Newswires June 6) …

Market News (06/06/2008)

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MADISON, Wis. (6/9/08)
* The nation’s unemployment rate surged last month, and payroll employment declined for a fifth consecutive month, the Labor Department reported Friday. The jobless rate jumped to 5.5%--up sharply from 5% in April and the highest since October 2004. It was the largest increase in the unemployment rate since February 1986 (Bloomberg.com June 6). The gain reflected an expansion of the workforce, led by teenagers. The number of unemployed persons surged by 861,000 to 8.5 million in May. That compares with 6.9 million unemployed people just a year earlier. The economy lost another 49,000 jobs in May. So far this year, payroll employment has fallen by 324,000. The average workweek was unchanged at 33.7 hours in May, while workers’ average hourly wages rose by 0.3% to $17.94. The wage data show that rising food and energy prices aren’t affecting wage dynamics, said Moody’s Economy.com (June 6). The employment data also show that employers are cutting jobs less aggressively than during the last economic slump. That’s because they were more cautious about hiring before the current downturn began … * Job losses continued in construction, manufacturing, retail trade, and temporary-help services during May, according to a Labor Department report. Employment in construction declined by 34,000. The sector has lost 475,000 jobs since peaking in September 2006. The manufacturing sector lost another 26,000 jobs last month. Monthly job losses in that sector have averaged 41,000 so far this year--compared with a 22,000 average last year and a 14,000 average during 2006. Employment in retail trade fell by 27,000 in May and by 184,000 since March 2007. The temporary-help services sector lost 39,000 jobs in May and 124,000 jobs so far this year. Employment in health care and food services continued to increase in May … * The housing downturn has disproportionately hit Hispanic workers, as jobs in construction declined, according to a study by the Pew Hispanic Center. The unemployment rate among Hispanics jumped to 6.5% during the first quarter--from a historic low of 4.9% in fourth-quarter 2006. That’s far higher than the 4.7% unemployment rate for all non-Hispanics in the first quarter. The Labor Department estimates that 26% of the nation’s 7 million construction workers are Hispanic. However, independent researchers say the percentage is much higher because many illegal immigrants are hired off the books. The Pew report estimates that the unemployment rate among foreign-born Hispanics--many of them illegal immigrants--soared to 7.5% in the first quarter, from 5.5% in the first quarter of last year (The Wall Street Journal Online June 5) … * Hispanic workers die at higher rates than other workers--with one in three deaths occurring in the construction sector, according to a study by health researchers in Massachusetts, Michigan, and New Jersey and at the Centers for Disease Control and Prevention. The study counted more than 11,000 work-related deaths among Hispanics from 1992 through 2006. The annual death rate for Hispanic workers in 2006 was 5 per 100,000--compared with 4 for non-Hispanic white workers and 3.7 for black workers. An estimated two of every three Hispanic workers who died on the job from 2003 through 2006 were foreign-born--up from about half in 1992. Language plays a role, noted Rakesh Kochhar, associate director for research at the Pew Hispanic Center. “A language barrier hinders understanding of a job, or the risks associated with it, or safety precautions,” said Kochhar (Associated Press via Yahoo! News June 6) … * The net wealth of U.S. households fell by 2.9%, or $1.7 trillion, during the first quarter--the largest decline since 2002--as home values continued to decline and share holdings plunged, the Federal Reserve reported Thursday. It was the second consecutive drop in household net wealth. That’s the first back-to-back decline since the second and third quarters of 2002. The value of real-estate holdings dropped 1.3% to $22.07 trillion in the first quarter, while the value of stock holdings fell 10.2% to $4.90 trillion. The amount of equity Americans have in their homes dropped to 46.2% in the first quarter--the lowest level on record. Consumers continue to spend more, even as their wealth has declined because energy prices are soaring, noted Michael Englund, senior economist with Action Economics. People “are spending everything in their wallet and borrowing more,” said Englund (Reuters via the New York Times and CNNMoney.com June 5) … * Oil prices have shot up more than $10 to a new record--above $138 a barrel--after a Morgan Stanley analyst predicted prices could hit $150 by the Fourth of July. Traders were also rattled by rising tensions in the Middle East. The meteoric surge builds on a huge jump on Thursday and sets the stage for the biggest two-day gain in the history of the New York Mercantile Exchange. A further weakening of the dollar helped keep prices high. Light, sweet crude for July delivery jumped as high as $138.36 on the Nymex, then eased to $137.81, up $10.02 (Associated Press via Yahoo! News June 6) … * The world needs to invest $45 trillion in energy, or 1.1% of the world’s gross domestic product, during coming decades to reduce its dependence on fossil fuels while maintaining economic growth, according to a report by the International Energy Agency (IEA). The Paris-based agency also recommends constructing about 1,400 new nuclear plants, dramatically expanding wind power, and boosting development of “carbon capture and storage” technology in order to cut greenhouse gas emissions in half by 2050. U.N. scientists have said that goal must be met to avert a jump in temperatures of 3.6 to 4.2 degrees higher than pre-18th century levels--an increase that would prompt widespread famines and droughts. The actions the agency recommends would cut oil demand to 27% of 2005 demand. About $27 trillion of the $45 trillion in investments would be shouldered by developing nations--which will account for two-thirds of greenhouse gas emissions by 2050, said IEA Energy Analyst Dolf Gielen (Associated Press via Yahoo! News June 6) …

Market News (06/05/2008)

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MADISON, Wis. (6/6/08)
* More than one million homes are now in foreclosure nationwide--the highest number since 1979, the Mortgage Bankers Association (MBA) reported Thursday. A record-high 2.5% of all mortgage loans being serviced by the MBA’s members, or 1.1 million homes, were in foreclosure at the end of March. That’s up from 2% of mortgage loans, or about 938,000 homes, that were in foreclosure at the end of December. In addition, 448,000 homes, or about 1% of mortgage loans, entered the foreclosure process in the first quarter--up from 382,000 homes, or .083% of mortgage loans, that started foreclosure in the fourth quarter. “While the foreclosure start rates were up for all types of mortgages, a reflection of the decline in home prices, the magnitude of the national increases is clearly driven by certain loan types and certain states,” said Jay Brinkmann, vice president for research and economics at the trade association. He noted that subprime ARMs made up 39% of the foreclosures began during the first quarter, although they represented just 6% of outstanding loans. California, Arizona, and Nevada combined represented 49% of all subprime ARM foreclosures begun in the first quarter, and 62% of all prime ARM foreclosures started during the period (mbaa.org and CNNMoney.com June 5) … * The number of homeowners behind on their mortgage payments also rose to a record high during the first quarter, according to the Mortgage Bankers Association report. Almost 3 million mortgage loans are now one month or more overdue. And about 737,000 mortgage loans are three months or more past due. The seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.35% of all loans outstanding at the end of March--up 53 basis points from the fourth quarter and 151 basis points from a year earlier. That’s the highest rate since 1979. The surge was driven by increases in the number of loans 60 and 90 days or more overdue, mostly in California and Florida. The delinquency rate increased 148 basis points for subprime loans, to 18.79% at the end of March from 17.31% at the end of December. The rate rose 47 basis points for prime loans, from 3.24% to 3.71% (mbaa.org and Bloomberg.com June 5) … * The supply of homes available for sale in the nation’s top 29 metropolitan areas edged down 0.3% in May, compared with the previous month, according to ZipRealty Inc. Housing inventory was about 0.3% higher than in May last year in the 18 metro areas for which the real-estate firm has comparable statistics. The data suggest that the supply of homes on the market is stabilizing. However, it probably underestimates housing inventory because some foreclosed homes aren’t listed on multiple-listing services, noted housing economist Thomas Lawler. Lenders and mortgage investors owned 660,000 foreclosed homes in April--up from 231,000 in January last year, First American CoreLogic reported earlier this week (The Wall Street Journal Online June 5) … * Long-term mortgage rates steadied this week, while short-term rates declined, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) edged up 1 basis point to 6.09%, while the 15-year FRM slipped 1 basis point to 5.65%. The five-year, adjustable-rate mortgage (ARM) dropped 11 basis points to 5.51%, and the one-year ARM fell 16 basis points to 5.06%. “Interest rates for fixed-rate mortgages were nearly unchanged this week over reports of continued inflation,” said Freddie Mac Vice ‘President and Chief Economist Frank Nothaft. He noted that at an annualized 2.1% rate, the core price deflator remained above the top of the Federal Reserve’s comfort zone (Reuters and MarketWatch June 5). For CUNA's Daily Financial Rates, use the link … * Global food production must increase 50% by 2030 to meet increasing demand, said U.N. secretary-general Ban Ki-moon. Countries should limit export and import restrictions during the current food crisis, Ban said at a three-day summit hosted by the U.N. Food and Agriculture Organization on Wednesday. He said a U.N. task force established to deal with the food crisis is recommending that countries “improve vulnerable people’s access to food and take immediate steps to increase food availability in their communities.” Food prices have surged by 83% during the past three years, according to World Bank estimates. Analysts say prices have increased because of speculation, diversion of food to produce biofuel, and soaring energy costs (The Wall Street Journal Online June 3) … * Regulators of the U.S. commodity markets plan to demand more information about investors, as they investigate whether the investors are evading market limits on speculation and artificially boosting global food prices. The Commodity Futures Trading Commission also plans to meet with bank regulators to assure adequate capital for the agricultural economy. The commodity futures markets play an important role in setting global prices for food and energy products. Investors have flooded into the market in recent years, and critics say the commission isn’t doing enough to monitor the effect these investors have on the markets. The commission also is planning to limit the waiver grants that have exempted some commodity index funds from speculative limits. The commission’s new initiatives come only a week after it announced measures to expand its oversight of energy traders in the futures market. Critics say they have played a role in boosting energy prices (The New York Times June 3) …

News of the Competition (06/05/2008)

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MADISON, Wis. (6/6/08)
* Philadelphia on Wednesday announced a program designed to reduce the number of foreclosures. The program requires any property scheduled for sale by a sheriff’s office to be referred to officials, who will then negotiate with lenders to restructure the loan. Philadelphia officials say the program is the first of its kind to be introduced by a city. An estimated 1,200 foreclosure sales scheduled for April and May have been postponed until July. About 800 of those are owner-occupied homes, said Ian Phillips of Acorn, which helped create the program. Foreclosure filings in Philadelphia jumped 18% to 6,237 last year, from the previous year. City officials expect filings to increase to 8,500 this year (The New York Times June 5) … * Future bank failures tied to the real-estate slump may include “institutions of greater size” than in the recent past, said Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair. A rising number of banks have large exposure to deteriorating conditions in commercial real estate and construction lending, Bair told a Senate Banking Committee yesterday. “Uncertainties in today’s economic environment continue to post significant challenges for the banking industry, households, and bank regulators.” Four small FDIC-insured banks have failed so far this year--up from three in 2007. Bair said the FDIC plans to study banks’ liquidity-risk management procedures and their investments in structured credit products. The agency also plans to issue guidance for banks that depends on third parties such as mortgage brokers and loan originators (Reuters June 5) … * Banks and settlement-and-payment systems need to account better for what would happen if their infrastructure failed within their stress tests, risk controls, funding requirements, and crisis-management plans, said the Bank for International Settlements, a group of 55 central bankers. The risk of failures is rising because institutions are becoming more interconnected. “Systems underpinning global financial markets are becoming more interconnected in increasingly complex ways,” said Timothy Geithner, chairman of the bank’s Committee on Payment and Settlement Systems and president of the Federal Reserve Bank of New York. The committee said risk management may be difficult because the overall system and its potential risks are becoming harder to understand, and because the firms that operate the systems may feel they have less incentive to manage risks (Dow Jones Newswires and The Wall Street Journal Online June 5) … * UBS AG is closing its U.S. municipal-bond underwriting business after the bank failed to agree on a deal to sell the unit, a person familiar with the matter said Thursday (Reuters June 5). The Swiss bank became a top underwriter of public-sector debt after it purchased PaineWebber in 2000. The firm will continue to sell municipal bonds through its wealth-management unit. In other news, the two largest insurers who back municipal bonds, Ambac and MBIA, are at risk for credit-ratings downgrades by Moody’s Investors Service (Associated Press via Yahoo! News June 5). A downgrade could boost borrowing costs for cities and counties that already are struggling with falling tax revenue … * GMAC announced Wednesday that it had completed a $60 billion refinancing deal for its Residential Capital subsidiary, which lost $859 million during the first quarter. ResCap also is selling some of its assets to GMAC, which has a large minority stake, and to Cerberus, its majority stakeholder. GMAC is providing a $3.5 billion credit line to ResCap as well. More than 50 institutions are participating in the plan (Associated Press via The New York Times June 5) …

Retail sales a temporary blip Hampel tells IReutersI

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CHICAGO and WASHINGTON (6/6/08)--Retail sales for May were lifted by discounts and economic stimulus checks but that won't last long, Credit Union National Association (CUNA) chief economist Bill Hampel warned Reuters Thursday. "This is going to be a temporary blip in retail sales and consumer spending," Hampel told the international news service. Once the economic stimulus funds are spent, longer-term issues such as high consumer debt and soaring gasoline and food costs could still hurt retail sales, he cautioned. The statements were made in an article that reported a mixed bag of sales for May for U.S. retailers. Department stores continued their struggle for sales. However, discount stores such as Wal-Mart Stores Inc., the world's largest retailer, posted better than expected sales records. Wal-Mart saw a 3.9% increase in sales for its U.S. stores open at least a year, excluding gasoline sales. That's better than the 1.6% increase forecast by industry analysts. Of retailers surveyed by Thomson Reuters, 58% saw sales exceed analysts' expectations, while one-third of the stores failed to reach their estimates for the month. Consumer spending makes up 70% of the U.S. economy and is monitored closely to gauge how deep the economic downturn is, said Reuters. For the entire article, use the link.

News of the Competition (06/04/2008)

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MADISON, Wis. (6/5/08)
* A lawsuit against subprime lender Option One Mortgage Corp and its parent firm, H&R Block, has been filed by Massachusetts Attorney General Martha Coakley. The suit alleges that Option One discriminated against black and Latino borrowers. It alleges that the firm engaged in “unfair and deceptive lending practices” by selling risky mortgages that inevitably were going to default. It also claims the company targeted blacks and Latinos for subprime loans, and charged them higher points and fees. The suit alleges that Option One even pushed prime borrowers into subprime loans. It noted that under one compensation plan, loan officers were paid only a $375 commission for a prime mortgage, compared with a $750 commission for each subprime loan. The attorney general is seeking a preliminary injunction to restrict the firm’s ability to foreclose on borrowers. Option One was the nation’s seventh-largest subprime lender last year, according to Inside Mortgage Finance (The Wall Street Journal Online June 4) ... * The three top bond-rating firms--Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings--are set to revamp how they collect fees as part of a settlement with New York Attorney General Andrew Cuomo, say people familiar with the matter. At the heart of the settlement is how the ratings firms are paid. Currently, the firms have an incentive to go easy on ratings to win business--a practice that critics have blamed for the ratings agencies’ failure to predict the credit crisis. Under the settlement, the ratings agencies would be paid for a review even if they weren’t hired to rate the deal. Some critics say bond-rating firms should not be paid by bond issuers at all, or that the firms should be allowed to rate any deal they choose, even if the issuer doesn’t cooperate (The Wall Street Journal Online June 4) … * Many banks are boosting fees for overdrafts and ATM usage, as the economy weakens. Bank of America raised its overdraft fee to $24 from $20 for the first day. BofA and Citibank now also charge a $3 fee for non-customers to use ATMs. Robert Hammer, chairman and chief executive of R.K. Hammer Investment Bankers says the trend is good. “In an environment of rising risk, you would expect fees of those risks to rise, too,” said Hammer. “It would be an abdication of responsibility for bank management to not have fees rising as well.” However, Aite Group Senior Analyst Ron Shevlin cautions that customers may avoid purchasing new products from the bank if the higher fees anger them, even if they don’t leave the bank. “These are the kinds of things that over time build up dissatisfaction, but the bank won’t see that in terms of a hit for at least a couple of quarters.” (U.S. Banker June 4) … * Compensation packages for mid- and top-level financial services workers will drop at least 10% in 2008, according to a survey of 20 top Wall Street and City of London recruiting firms by the global business group Smart Cube. About 80% of respondents said the financial slump will have a moderate or severe effect on hiring. And two-thirds said they expect compensation to decline 10% to 20%. Eight out of 10 employers have scaled back the compensation packages they plan to offer. “This is becoming very much an employer’s market,” said Omer Abdullah, managing director for North America at Smart Cube. “We are acting as if we are in a recession and the recruiters are talking as if we are,” he added. (FT.com June 3) …

Market News (06/04/2008)

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MADISON, Wis. (6/5/08)
* Vehicle sales continued to gear down in May as gasoline prices soared. Vehicles sold at an annual rate of 14.27 million units--down from a 14.4 million-unit rate in April and the slowest pace in 10 years. Light-truck sales continued to weaken while auto sales strengthened. Sales of light trucks fell to a 6.3 million-unit pace, from 7 million in April, while autos sold at a 7.9 million-unit pace, up from 7.4 million. The light truck share of sales dropped to 44%--from 49% in April and 51% a year earlier. That trend is expected to accelerate, as consumers cope with high gasoline prices. General Motors announced Tuesday that it is shutting down some factories that manufacture pick-up trucks and SUVs. The housing slump and weak job market will continue to weigh on consumers going forward, prompting many to hold onto their older vehicles or turn to the used-car market (Economy.com June 4) … * Layoff announcements jumped to the highest level in more than two years in May--reflecting the credit crunch and cuts by automakers. Job cuts announced by major U.S. employers totaled 103,522 last month--up sharply from 71,115 in May and the highest level since December 2005, according to the outplacement firm Challenger, Gray & Christmas. Automakers led other sectors in announced layoffs, at 30,011. Financial-services firms were second, with 16,206 layoffs. “There is no end in sight for the crisis in the financial sector,” said John Challenger, chief executive of the Chicago-based firm. “Every time it looks as though banks will turn the corner back toward prosperity, we hear about another major loss, which is often followed by a job-cut announcement,” added Challenger. So far this year, employers have announced 394,193 layoffs--17% more than during the same period last year (Bloomberg.com June 4) … * Growth in the service sector moderated during May, as employers continued to cut payrolls and prices continued to increase. The Institute for Supply Management’s non-manufacturing index, which includes retailers and banks, edged down to 51.7, from 52 in April. The service sector, which was an engine of job growth in recent years, is generating fewer jobs now. The employment index dropped 2.1 points to 48.7 in May. The index has fallen in four of the past five months. Just 18% of service-sector employers said they are adding staff. Firms continue to cope with rising prices. The prices-paid index increased for the 60th consecutive month--to 77 in May, from 72.1 in April. Prices are now at the highest level since September 2005 (CNNMoney.com June 4) … * Productivity improved during the first quarter, as wage pressures moderated. Nonfarm productivity increased at an annual rate of 2.6%, accelerating from a 1.8% gain in the fourth quarter, the Labor Department reported Wednesday. Unit labor costs rose at a 2.2% annual rate--down sharply from a 4.7% jump in the previous period. The sharp slowdown in labor costs should reassure Federal Reserve policymakers, who have become more concerned about inflation in recent months. While rising wages are good for workers, they can ignite inflation if firms boost the cost of products to cover higher labor costs. But the soft job market has made it tough for workers to demand higher wages. Labor costs in the first quarter were up only 0.7% from a year earlier, the weakest gain since 2004 (Associated Press via The New York Times and The Wall Street Journal Online June 4) … * The Organization for Economic Cooperation and Development (OECD) on Wednesday cut its forecast for global economic growth, but cautioned that central banks shouldn’t lower interest rates as inflation accelerates. Economic growth among the OECD’s 30 member nations is forecast to slow to 1.8% this year and 1.7% in 2009. That’s down from the organization’s previous forecast of 2.3% growth this year and 2.4% growth next year. Economic growth in the U.S. is expected to slow to 1.2% this year, down from the OECD’s previous 2% forecast. With soaring food and energy prices, the OECD is predicting that inflation will accelerate worldwide. The group recommends that central banks hold rates steady (Bloomberg.com and Associated Press via CNNMoney.com June 4) … * Mortgage activity declined last week, and mortgage rates were mixed, according to the Mortgage Bankers Association (mbaa.org June 4). The trade group’s Market Composite Index tumbled 15.3% during the week ending May 30 to 502.3. The Refinance Index plunged 25.7% to 1496.1, while the Purchase Index fell 5.4% to 333.6. The refinance share of mortgage activity dropped to 40.6%--from 46.1% the previous week. The average 30-year, fixed-rate mortgage jumped 21 basis points to 6.17%, while the one-year, adjustable-rate mortgage (ARM) fell 12 basis points to 6.8%. The Purchase Index is at its lowest point since 2002, noted Moody’s Economy.com (June 4). There is still no sign that the mortgage market has reached a bottom …

Schenk addresses Wis. foreclosures in IJournal SentinelI

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MILWAUKEE (6/4/08)--Foreclosures went up 45% in Milwaukee County in Wisconsin for the first five months of 2008 compared with the same period last year, and that's bad news, Mike Schenk, vice president of economics and statistics at the Credit Union National Association, told the Milwaukee Journal Sentinel Monday. “There is not good news in those numbers,” Schenk told the newspaper. The rising foreclosure rate is a result of the stalling economy and the subprime mortgage crisis, he added. However, Wisconsin is faring better than many other areas in the U.S. regarding foreclosures, Schenk said, citing research he has done. “Wisconsin generally, while not immune from what is going on, is not really experiencing the brunt of it,” Schenk told the paper.

Market News (06/03/2008)

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MADISON, Wis. (6/4/08)
* Hope Now, an alliance of mortgage lenders, servicers, investors, and community-advocacy groups, announced Friday that it helped 183,000 at-risk borrowers remain in their homes during April. That’s a 7.6% increase from March and the highest monthly total since the program was launched in July 2007. The group also said it has arranged a total of almost 1.6 million loan workouts since the program was started. “These numbers clearly demonstrate that Hope Now is succeeding at helping homeowners avoid foreclosure and stay in their homes,” said Hope Now Executive Director Faith Schwartz. Still, 80,926 families lost their homes to foreclosure in April--up 12% from March. The April total puts the nation on track to see more than one million families lose their homes in 2008 (CNNMoney.com May 30) … * Federal Reserve Chairman Ben Bernanke signaled an end to interest rate cuts yesterday. Soaring oil prices can both dampen economic growth and boost inflation, said Bernanke in a speech via satellite to the International Monetary Conference in Spain. Bernanke also noted that the weak dollar has an “inflationary impact.” He said the government’s stimulus package and the Fed’s rate cuts should bring “somewhat better economic conditions” during the last half of the year. “For now policy seems well positioned to promote moderate growth and price stability over time.” But he noted that economic growth will continue to be threatened until the housing downturn and declining home prices show more definite signs of stabilization. “Households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit, and higher energy prices, and consumer sentiment has declined sharply since the fall.” (Associated Press via The New York Times and CNNMoney.com June 3) … * Factory orders posted a larger-than-expected gain in April. Orders for manufactured goods increased 1.1% to $445.2 billion, the Commerce Department reported Tuesday. The gain followed a 1.5% increase in March. Orders had declined in January and February, as the economic slump dampened manufacturing activity. The weak dollar has helped buoy export demand since then, offsetting weakness in the housing sector. Demand for durable goods--big-ticket items made to last three years or more--declined 0.6% in April. That decline was led by a 24.4% plunge in demand for commercial aircraft and a 4.2% drop in demand for motor vehicles. Factory orders for nondurable goods jumped 2.8%--reflecting a large increase in demand for petroleum because of higher prices. Orders for nondefense capital goods excluding aircraft, a barometer for future capital spending by businesses, rose by 4% in April following a 1% drop in March (Associated Press via The New York Times and The Wall Street Journal Online June 3) … * General Motors on Tuesday announced plans to shut down four truck and SUV factories that employ thousands of workers. Saying high gasoline prices are here to say, the country’s largest automaker also said it plans to manufacture more fuel-efficient vehicles. GM is closing a plant in Moraine, Ohio and one in Janesville, Wis. Each employs about 2,500 workers. The company also is shutting down a factory in Oshawa, Canada, and one in Toluca, Mexico. All the plants will be shut down by 2010, or sooner if sales don’t pick up (CNNMoney.com June 3) … * New interest rates for the third quarter will decline by one percentage point, the Internal Revenue Service announced Tuesday. The new rates starting July 1 are: 5% for overpayments (4% for corporations); 5% for underpayments; 7% for large corporate underpayments; and 2.5% for the part of a corporate overpayment over $10,000. Under the Internal Revenue Code, the overpayment and underpayment rate for taxpayers other than corporations is the federal short-term rate plus 3 percentage points. For corporations, the underpayment rate is the short-term rate plus 3 percentage points, and the overpayment rate is the short-term rate plus 2 percentage points. The rate for big corporate underpayments is the rate plus 5 percentage points. For the portion exceeding $10,000, the rate is the short-term rate plus a half-percentage point …

News of the Competition (06/03/2008)

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MADISON, Wis. (6/4/08)
* The Federal Reserve auctioned off another $75 billion in 28-day loans to banks Monday in an effort to ease the credit crunch. In the latest auction, commercial banks paid an interest rate of 2.26% for the short-term loans, the Fed announced Tuesday. There were 73 bidders for the loans. The central bank received bids for $95.9 billion worth of the loans, well above the $75 billion accepted. It was the Fed’s 13th auction through the new Term Auction Facility program, which it announced last December. It was the third auction in which the Fed offered $75 billion in loans. The Fed held auctions of $50 billion in 28-day loans in March and April. In January and February, the central bank offered $30 billion in loans, and it offered $20 billion in loans in each of its two December auctions. The Fed says it will continue the TAF auctions as long as needed by financial conditions (Associated Press via CNNMoney.com and Thomson Financial June 3) … * Stock markets plunged Monday after three of Wall Street’s largest banks were downgraded. Citing a fragile outlook for the financial markets, Standard & Poor’s lowered its credit ratings for Lehman Brothers, Merrill Lynch, and Morgan Stanley amid expectations that the firms would have to write down the value of their assets again. The ratings agency also imposed negative outlooks on Bank of America and JPMorgan Chase. S&P said banks have not yet sufficiently calculated the risk of some investments and that it expects banking revenues to decline. The Dow Jones Industrial Average dropped 1.1% to close at 12,503.82 (The New York Times June 3) … * Lehman Brothers is considering raising billions of dollars in new capital to help bolster its balance sheets, say people familiar with the situation. Analysts estimate the investment bank will raise $3 billion to $4 billion. They say Lehman’s quarterly loss may top $300 million. Lehman, which already has raised $6 billion in new capital, is now Wall Street’s smallest independent firm after Bear Stearns was sold to JPMorgan Chase. In its decision to lower Lehman’s credit ratings on Monday, Standard & Poor’s said it expects a “relatively meaningful deterioration” in the company’s earnings for the second quarter. Lehman’s losses from both writedowns on assets and ineffective hedges probably will exceed $2 billion, say people familiar with the matter (The Wall Street Journal Online June 3) … * Not many credit-card rewards programs are worth the effort for consumers because they have complicated rules, restrictions, and limits on how much consumers can earn, according to a survey by Consumer Reports. Even the more generous programs have limits on how much consumers can earn. The magazine noted that 85% of U.S. households participate in at least one rewards program. Having the right rewards cards and ignoring the others can save consumers some money on purchases, said Amanda Walker, senior project editor at the magazine. However, she said consumers should pick programs that compliment their spending patterns. She also noted that the savings offered by some cards are offset by high interest rates if consumers carry a balance (/PRNewswire-USNewswire/ June 2) …

Market News (06/02/2008)

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MADISON, Wis. (6/3/08)
* The number of foreclosed homes owned by lenders continues to increase, even as lenders continue to cut prices. Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, according to Santa Ana, Calif.-based First American CoreLogic. That’s up from 493,000 in January 2008 and 231,000 in January 2007. The April total represents about one in seven previously owned homes available for sale. Rising defaults have boosted the inventory of bank-owned homes, also know as “real estate owned” (REO) homes. The inventory of REO homes won’t peak until the end of 2009, predicts Mark Zandi, chief economist at Moody’s Economy.com. The REO inventory overhang is dampening prices in many regions because banks typically lower prices faster than other sellers (The Wall Street Journal Online June 2) … * Home prices declined in 23 metropolitan areas in March, as rising foreclosures prolonged the housing downturn, according to a report by New York-based Radar Logic Inc. Price declines were led by Sacramento, Calif., where prices plunged 31% from a year earlier to $160 a square foot, and San Diego, where prices fell 27% to $251 a square foot. Prices in the New York area declined for the first time since the data firm began reporting the statistics in 2001. The report shows “weakness compared to last year in almost all markets,” said Radar Logic. Just two areas saw prices gains in March. Home prices in Milwaukee rose 2.8%, while prices in Charlotte, N.C. edged up 0.1% (Bloomberg.com June 2) … * Construction spending declined again in April as homebuilding continued its two-year slide. Construction activity fell by 0.4% following a 0.6% drop in March, the Commerce Department reported Monday. Private residential housing construction plunged by 2.3% last month--the 26th consecutive decline. Builders are cutting production as the backlog of unsold homes continues to grow. The homebuilding contraction is being exacerbated by rising foreclosures and tighter credit. On the plus side, private nonresidential construction rose by 1.6% in April amid strong spending on shopping centers, office buildings, and hotels (CNNMoney.com June 2) … * The manufacturing sector improved slightly in May, according to a report by the Institute for Supply Management (ISM). The trade group’s factory index rose to 49.6, from 48.6 in April but still signaling a fourth consecutive month of contraction in the sector. “Manufacturers find themselves caught between rising costs and weakening demand in many industries,” said Norbert J. Ore, chairman of the ISM’s Manufacturing Business Survey Committee. “Exports continue strong due to the weak dollar--without the weak dollar the story would be much more negative in manufacturing, ” added Ore. New export orders rose 2 points to 59.5. The production index increased to 51.2 in May, from 49.1 in April. The prices paid index jumped to 87--from 84.5 and the highest reading since April 2004. The employment index was little changed, at 45.5 compared with 45.4 in April (CNNMoney.com and Economy.com June 2) … * Citing high oil prices, the International Air Transport Association on Monday slashed its forecast for industry earnings this year. The association now expects the industry to post a $2.3 billion loss for 2008, compared with its previous forecast of a $4.5 billion profit. The group now forecasts oil prices at $106.5 a barrel, up sharply from its previous $86 a barrel forecast. “For every dollar that the price of fuel increases, our costs go up by $1.6 billion,” said Director General Giovanni Bisignani. The industry’s fuel bill this year is expected to total $176 billion, up $40 billion from 2006 (MarketWatch June 2) …

News of the Competition (06/02/2008)

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MADISON, Wis. (6/3/08)
* Bank of New York Mellon officials have confirmed that a box of unencrypted data tapes containing personal information on more than 4.5 million individuals was lost by a third-party vendor more than three months ago during transport. The missing tapes contained such data as birth dates and Social Security numbers. The bank has informed the Connecticut State Attorney General’s Office about the lost tape. “The loss of this tape--so far unrecovered and unremedied--is inexplicable and unacceptable,” said Connecticut Attorney General Richard Blumenthal in a statement. “I am especially concerned by the delay in informing customers, possibly heightening the risks of wrongdoing.” An attorney representing 40 people affected by the loss has filed a class-action lawsuit against the bank (Computerworld May 30) … * First Integrity Bank of Staples, Minn., was shut down Friday by the Office of the Comptroller of the Currency (OCC)--the fourth financial institution to fail this year. The OCC said the bank had engaged in “unsafe and unsound practices” that significantly lowered the firm’s assets and earnings. The Federal Deposit Insurance Corp. (FDIC) was named receiver of the bank, which had $54.7 million in assets and $50.3 million in deposits as of March 31. First International Bank and Trust of Watford City, N.D., will assume the bank’s deposits and about $35.8 million of its assets. The FDIC said First Integrity’s closing will cost its deposit insurance fund $2.3 million. FDIC Chairman Sheila Bair said she anticipates more bank failures this year. There were 90 banks on the FDIC’s “problem” list at the end of March--up from 76 at year-end 2007 (Dow Jones Newswires June 2) … * Financial-service firms are sending out fewer direct-mail solicitations as the economy slows, according to a study by Chicago-based Mintel Comperemedia. Unsolicited mailings from banking, credit card, investment, and mortgage-loan firms plunged 12.7% during the first quarter, from a year earlier. “One of the main drivers definitely has to do with the economy,” said Chris Zagorski, a senior analyst at Mintel. Still, the overall number remains high. Financial-service firms sent out 4.2 billion pieces of direct mail in the first quarter. Banks and credit institutions spent $13.4 billion on direct-market advertising in 2007, according to the Direct Marketing Association. That advertising generated $178.8 billion in sales (Associated Press via msn.com June 2) … * Wachovia Corp. Chief Executive Ken Thompson became the latest victim of the credit crunch on Monday, as he stepped down under pressure from the bank’s board (CNNMoney.com June 2). He will be replaced on an interim basis by Wachovia’s current chairman, Lanty Smith. The nation’s fourth largest bank reported a $350 million loss for the first quarter. In other news, Washington Mutual announced Monday that it will strip Chief Executive Kerry Killinger of his title of chairman next month (Reuters via Yahoo! News June 2). The Seattle-based savings and loan said Independent Director Stephen Frank will become chairman on July 1 … * Fitch Ratings yesterday upgraded Bear Stearns’ long-term issuer default rating to AA-, from A-. Fitch also upgraded the firm’s short-term issuer default rating to F1+, from F2. Fitch said it believes the JPMorgan Chase acquisition will offer Bear the same managerial and financial resources available to its other units (MarketWatch June 1) …

Investment manager First-quarter growth good sign

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PLANO, Texas (6/2/08)--A 0.9% growth rate in the first quarter of 2008 is a good sign--especially during a time when the housing market is struggling, and food and energy prices negatively impacted disposable income, said Brian Turner, director of advisory services with Southwest Corporate Investment Services. Businesses also showed some caution, cutting spending on computers and software, Turner noted (LoneStar Leaguer May 30). However, commercial construction was stronger than expected and export growth increased 2.8%. This has led many analysts to predict 0.5% growth in the second quarter, picking up to 2.3% in the third quarter, before leveling off at 2.0% during the fourth quarter, Turner said. The bond market reacted favorably to the forecast Friday, with the benchmark two-year treasury note rising to13 basis points to 2.72% in early trading--126 basis points higher than its March 19 low of 1.46%, Turner added. “As loan and investment spreads hold, this should help to enhance credit union asset yields during a time when net margins are feeling a pinch,” Tuner told the Texas Credit Union League. “It also signals a time when overnight rates will most likely remain rather stagnate for the rest of the year, and term rates will enter a rising trend as we enter 2009.”