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News of the Competition (06/30/2009)

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MADISON, Wis. (7/1/09)
* Credit card issuers are raising rates and fees on certain borrowers--actions that industry officials say are a “natural result” of restrictions put in place by the credit card reform act recently signed by President Barack Obama. For example, Bank of America (BofA) and Chase have increased or are increasing their maximum balance transfer fees. BofA is increasing its fee to 4% from 3%, and Chase to 5% from 3%. InfiBank is setting a higher minimum annual percentage rates on many cards--the greater of 15.99% or 11.99% plus the prime rate. The industry also is preparing for new restrictions that will take effect in February in which there will be limits imposed on when issuers can raise interest rates on existing debt and charge late fees and over-limit fees, analysts said. Delinquencies and a high level of chargeoffs are creating pressures that are causing issuers to reprice accounts ahead of the rules being implemented, said Sanjay Sakhrani, an analyst with Keefe, Bruyette &Woods (USA Today June 30) … * Bank of America Corp. (BofA)--the biggest U.S. bank--has partnered with First Data Corp. to create a joint venture offering electronic payment services to merchants, the companies announced Monday. The partnership will combine BofA’s brand name and its 240,000 merchant relationships with the payment service technology of First Data, according to Thomas Bell, CEO of the new company. Atlanta-based First Data was drawn to the venture by BofA’s strong brand, its distribution network and its client relationships, Bell added. First Data brings roughly 140,000 merchant relationships to the new company, Bank of America Merchant Services, analysts said. First Data will own 48.5% of the new company, while BofA will own a 46.5% share (Reuters India June 30) … * People who use computer software to track their finances online cut their spending by 17.4% in the first quarter this year, according to Mint Software Inc. The company said last week that its users spent an average of $11,810 in the first quarter, compared with $14,290 in the same period a year earlier. Expenditures dropped about 4% each quarter during the past year, Mint said. The steepest drop-off came in the general shopping categories--which declined 43% to an average of $1,580 during the first quarter. Mint tracked the spending habits of about one million people who use its software to manage checking and savings accounts and credit cards (CardLine June 30) … * As part of its goal to downsize its operations while under bankruptcy protection, General Motors (GM) said Monday it is terminating its joint venture with Toyota at a California manufacturing plant. GM said it could not reach agreement with Toyota regarding a new product plan at the facility. GM’s announcement signals the end of a 25-year partnership between the largest U.S. automaker and its biggest rival. GM said it had sought the partnership so it could learn about Toyota’s more efficient production methods (USA Today June 30) …

Market News (06/30/2009)

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MADISON, Wis. (7/1/09)
* Home-price declines are moderating, a sign the housing market may have hit bottom. The 20-city S&P/Case-Shiller Home Price index saw a decline of 0.6% from March to April, following a steep 2.2% decline the previous month. “The pace of decline in residential real estate slowed in April,” noted David Blitzer, chairman of S&P’s Index Committee. Every city except Charlotte, N.C., reported improvement in their monthly indexes compared with March. “Thirteen of the 20 metro areas also saw improvement in their annual return compared to that of March,” added Blitzer. Still, nationwide, home prices were down 18.1% year over year. The outlook for housing remains gloomy, said IHS Global Insight real-estate analyst Pat Newport. “Foreclosures are still driving markets, and the rate of foreclosure is still going up,” noted Newport (CNNMoney.com and Associated Press via Yahoo! News June 30) … * Consumer confidence retreated in June amid growing concern about the job market. The Conference Board’s consumer confidence index fell to 49.3, from 54.8 in May. The index had posted a large gain in May. Consumers became gloomier about both current and future economic conditions last month. The Present Situation Index fell to 24.8 from 29.7, while the Expectations Index dropped to 65.5 from 71.5. “After back-to-back months of strong gains, Consumer Confidence retreated in June,” said Lynn Franco, director of the Board’s Consumer Research Center. “The decline in the Present Situation Index, caused by a less favorable assessment of business conditions and employment, continues to imply that economic conditions, while not as weak as earlier this year, are nonetheless weak. Looking ahead, expectations continue to suggest less negative conditions in the months ahead, as opposed to strong growth.” Consumers’ job outlook became more pessimistic in June. The percentage of respondents expecting more jobs in the months ahead fell to 17.4% from 19.3%, while those anticipating fewer jobs rose to 27.3% from 25.6%. The share expecting an increase in their income fell to just 9.8%, from 10.8% … * Unemployment rates increased in all of the nation’s 372 metropolitan areas in May, compared with a year earlier, the Labor Department reported Tuesday. Fifteen areas reported unemployment rates of 15% or more. Among those, seven were located in California, while three were in Michigan, and two were in Indiana. At a whopping 27.8%, El Centro, Calif., reported the highest unemployment rate in the nation. The largest year-over-year jumps in unemployment were in Kokomo, Indiana (up 11.7 percentage points) and Elkhart-Goshen, Indiana (up 11.4 points). Both areas in Indiana have been hit by layoffs in transportation-equipment manufacturing. The lowest jobless rate in the nation was Bismarck, N.D., which reported an unemployment rate of only 3.5% … * Business activity in the Chicago area declined at a smaller-than-expected pace in June. The Institute for Supply Management Chicago’s business index rose to 39.9, from 34.9 in May, but still below the 50 level that indicates expansion. New orders rose to 41.6 from 37.3, while production increased to 39.3 from 38.1. However, the employment index rose to 28.9, from a seven-year low of 25, but still quite weak. “The manufacturing sector collapse is diminishing,” but “the numbers we’re seeing are still weak,” noted Action Economic Chief Economist Michael Englund. “We’ll have an anemic rebound” (Bloomberg.com June 30) … * Citing weaker credit quality and rating cuts on subprime residential mortgage-backed securities, Standard & Poor’s reported Monday that it has downgraded $21.18 billion of collateralized debt obligations (CDOs). S&P downgraded 105 tranches from 29 cash-flow and hybrid CDOs. Ratings on hundreds of billions of dollars of alternative-A and subprime residential mortgage-backed deals have been lowered as home prices continue declining and delinquencies keep rising (Dow Jones Newswires June 29) … * The British economy contracted at the steepest pace in more than 50 years during the first quarter, the Office for National Statistics reported Tuesday. The nation’s gross domestic product declined by 2.4%--the biggest contraction since 1958. Over the past year, the economy contracted at a 4.9% pace--the largest decline on records dating back to 1948. Industrial output tumbled 5.1% in the first quarter, compared with the previous quarter, the largest drop since the first quarter of 1974. Construction output plunged 6.9%. However, home prices rose 0.9% from May to June, the third gain in the past four months, according to the Nationwide Building Society, suggesting a bottom to the housing market may have been reached (The New York Times June 30) …

Market News (06/29/2009)

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MADISON, Wis. (6/30/09)
* Bernard Madoff was sentenced Monday to 150 years in jail for heading up the largest Ponzi scheme in history. The sentence is six times longer than penalties levied against chief executives of Enron Corp. and WorldCom Inc. U.S. District Judge Denny Chin sentenced Madoff, who appeared in court for the first time since March, when he entered a guilty plea for a scam that may have reached $65 billion, analysts said. The 71-year-old Madoff pleaded guilty to investment-adviser fraud, mail fraud, securities fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the Securities and Exchange Commission, and theft from an employee benefits plan. Madoff told the court he was not asking for forgiveness and that he deceived his wife, two sons and his brothers--none of whom were present in the courtroom. After Chin levied the sentence, the courtroom erupted in applause (Bloomberg.com June 29) … * The Federal Reserve Bank of Chicago’s national activity index dropped to -2.3 in May from a downwardly revised -2.27 (previously -2.06) in April, according to the Chicago Federal Reserve. The three-month average rose to -2.67 from April’s downwardly revised -2.73. The index is indicative of a deep recession, analysts said. Despite the index’s slight downturn in May, analysts said they predict it will improve in the next few months as the rate of job losses decreases, housing starts begin to go up, and declines in industrial production moderate. The worst of the recession is over, analysts said. However, risks on the downside remain as consumer spending is still down and the labor market remains fractured, they added (Moody’s Economy.com June 29) … * Moody’s Economy.com global business confidence survey results at the end of June were at the highest level since October. Expectations for the outlook toward the end of 2009 rose last week to their highest level since the summer of 2006. Also, there was meaningful improvement in hiring intentions, even though they remain quite weak. Businesses continue to scale back inventories, and demand for office space remains low. Sentiment is still consistent with a continuing global recession, but the downturn is rapidly moderating (Moody’s Economy.com June 29) ... * The rate of decline in Texas factory activity lessened in June, according to the Texas business executives who responded to a survey conducted by the Federal Reserve Bank of Dallas. Many components of the overall survey index for current conditions improved, compared with May, although the gains were slight, analysts said. The overall index continued modest improvement that began in May for the first time in 18 months regarding expectations for future activity six months from now. Texas manufacturing is heavily concentrated in electronics, petrochemicals and non-auto transportation equipment such as military aircraft. That means Texas has been less affected than most manufacturing states by the auto industry downturn, analysts said. Therefore, Texas manufacturing should be expected to lead an industry turnaround in general, analysts added (Moody’s Economy.com June 29) … * Some strategists believe the U.S. dollar’s value against the euro could rise as much as 17% in the second half of 2009, because the U.S. will recover from the recession quicker than Europe. The dollar will rise more than 4% by Dec. 31, according to predictions by CIBC World Markets Plc, Deutsche Bank AG, Bank of America Corp. and Wells Fargo & Co. These were the strategists who came closest to predicting the dollar’s value against the Euro so far in 2009, analysts said. May ended with the sharpest three-month decline in the dollar’s value since 2002 (Bloomberg.com June 29) ... * VisaNet--a Brazilian credit card services provider in which Visa has a 10% minority stake--expects to raise $4.3 billion in the world’s largest initial public offering in more than a year and Brazil’s largest ever. Shares were priced at $7.69--the high end of the anticipated range last week. Trading began Monday morning with VisaNet rising as much as 14 % in early trading before giving up some of the gains later, analysts said. Shareholders are selling 559.8 million voting shares--including a possible supplemental offering, said the website of Brazil’s securities regulator (Reuters and Bloomberg News June 29) …

News of the Competition (06/29/2009)

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MADISON, Wis. (6/30/09)
* In attempts to revive a market that deflated during a three-year uptick in homeowner defaults, JPMorgan Chase & Co. and Citigroup Inc. are expanding jumbo mortgages used to buy the most expensive homes. After it stopped purchases in March, JPMorgan this month resumed buying new jumbo loans made by other lenders, according to company spokesman Tom Kelly. To be eligible, borrowers must have checking accounts with the bank, he said. Also, Citigroup is again offering jumbo loans through independent mortgage brokers, company spokesman Mark Rodgers said. The market has been depressed since 2007 when record home loan defaults resulted in investors dumping securities backed by mortgages, analysts said. Jumbo loans exceed limits set for government-controlled mortgage companies Fannie Mae and Freddie Mac for loans they buy or guarantee. In the most expensive areas, those limits range from $417,000 to $729,750 (Bloomberg.com June 26) … * After months of decline, mortgage and home equity direct mail marketing is stabilizing, according to a Mintel Comperemedia study. The company, which provides direct marketing competitive intelligence, reported that the number of home loan offers sent to Americans has been flat for the past six months, following more than two years of declines. Lenders sent an average of 38 million direct mailings per month--about 31 million for mortgages and seven million for home equity products--from December 2008 through May 2009. This contrasts with the trends of the previous three years in which falling home values and the credit crunch froze up the housing market, causing lenders to reduce direct mail marketing, analysts said. The total number of mortgage and home equity direct mailings tracked by Mintel Comperemedia was 84% lower in the first quarter of 2009, compared with the first quarter of 2007 (National Mortgage Professional June 25) … * Veritec Inc., a security technology provider, based in Golden Valley, Minn., has developed a solution that enables cardholders to combat unpermitted and fraudulent use of their debit cards by turning their cards “on” and “off” with their mobile phones. The company announced the release last week of its MTC Mobile Toggle Card Program on its mobile banking software platform. The feature was created to allow users to quickly shut off cards that have been lost or stolen by entering a code into their phones. Users also can reactivate their cards using their phones. Veritec said Security First Bank, Fresno, Calif., would be the first institution to use the software--which is part of the company’s mobile banking system (BusinessWire June 22 and Cardline June 29) … * Aided by the sale of shares in financial firms--including their own--JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley are increasing their dominance in underwriting equity offerings, analysts said. Collectively, the three New York-based banks control 42% of the world market so far this year--up from 30.7% in the first six months of 2008 and the highest concentration for any first half of a year in at least a decade----according to research conducted by Bloomberg. U.S. sales include $6.92 billion raised by Morgan Stanley, making up 27% of its total; $5.76 billion brought in by JPMorgan, which equals 19% of the company’s 2009 equity sales; and $5.75 billion raised by Goldman Sachs, or 22% of it total (Bloomberg.com June 29) …

News of the Competition (06/26/2009)

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MADISON, Wis. (6/29/09)
* Commercial banks reported record trading revenue in the first quarter, buoyed by strong demand and seasonal patterns, according to the Office of the Comptroller of the Currency. Banks reported trading revenues of $9.8 billion, compared with a $9.2 billion loss in the fourth quarter. The national amount of derivates held by banks rose by $2 trillion to $202 trillion. “Banks continued to benefit from solid client demand and wide intermediation spending in the first quarter, and from lower-write-downs on legacy assets,” noted Kathryn Dick, deputy comptroller for credit and market risk. However, she predicted that results for the second quarter won’t be as good because banks face “strong headwinds” (Dow Jones Newswires June 26) … * American Express has launched a service designed for cardholders that want to give credit cards to their children. It will let customers set limits and track spending. Cardholders can give extra cards to children aged 15 and older. Those 18 and over can build their own credit histories with the cards. Amex’s new service is a good first step, but it could go further by allowing cardholders to limit spending on the cards by merchant category, not just amount, said James Van Dyke, president of Javelin Strategy and Research. That would limit spending to bookstores and supermarkets, for example, while excluding liquor stores. Issuers also could limit cash advances. “The first issuer that does that and does it with a major marketing launch will find that consumers turn off other cards and go to the card with more control,” said Van Dyke (CardLine via American Banker June 23) … * Visa Inc., the world’s biggest retail electronic payments network, has teamed up with NeuStar, a top interconnection service provider, to boost the adoption of mobile financial services. The firms said the alliance will combine the scale, security’ and reliability of Visa’s global payment network with NeuStar’s infrastructure, which offers interconnection services to global network operators and their partners. “This initiative has the potential to accelerate delivery of mobile financial services in both emerging and developed countries,” said Elizabeth Buse, head of product at Visa. “Those services include mobile payments, wireless top-up of prepaid accounts, money transfer, value-added services such as alerts and offers, and mobile acceptance of electronic payments” (BUSINESS WIRE via Yahoo! News June 23) … * Person-to-person (P-to-P) payments are finally beginning to take off for banks following years of setbacks mostly due to technology and risk management. P-to-P transfers will help banks lure new customers and keep old customers, noted Marc DeCastro, a research manager at IDC Financial Insights. However, DeCastro said he’s not sure if the service will generate any revenue for banks. He predicts that P-to-P will become a must-have service, just as bill payment has become. Some P-to-P services failed in the past because they were “single-bank focused,” noted Bruce Cundiff, a director of payments research and consulting for Javelin Strategy and Research. CashEdge launched a P-to-P service this week. “CashEdge has a lot of large-bank clients and may be able to be the connection--the network creator,” said Cundiff (American Banker June 24) …

Market News (06/26/2009)

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MADISON, Wis. (6/29/09)
* In a hopeful sign for the housing market, JPMorgan Chase and Citigroup are expanding in “jumbo” mortgages, a move that should help revive demand for pricier homes. JPMorgan this month resumed purchasing new jumbo loans made by other lenders, confirmed spokesman Tom Kelly. Citigroup is now offering jumbo loans though independent mortgage brokers again, said company spokesman Mark Rodgers. New jumbo-mortgage lending tumbled to $98 billion in 2008, from $348 billion in 2007, as firms tightened lending standards, according to newsletter Inside Mortgage Finance. Jumbo lending slowed to just $11 billion in the fourth quarter, or 4% of the mortgage market--the lowest since the newsletter began tracking the data in 1990. Those numbers are expected to improve as more lenders re-enter the market (Bloomberg.com June 26) … * Mortgage rates were little changed last week amid mixed economic reports, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) edged up 4 basis points to 5.42%, while the 15-year FRM slipped 2 basis points to 4.87%, and the one-year, adjustable-rate mortgage (ARM) inched down 2 basis points to 4.93%. “Mixed economic reports on the state of the housing market helped hold mortgage rates fairly flat this week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “Existing home sales rose for the second consecutive month in May by 2.4%, slightly less than the market consensus forecast; however the median sales price was 16.8% below that of the same time last year, according to the National Association of Realtors. In contrast, new home sales fell 0.6% and the median sales price was only 3.4% lower than May 2008.” Nothaft also noted that unsold inventory was down from a year ago, which could help “cushion” more home-price declines. Mortgage rates remain much lower than a year ago. At this time last year, the 30-year FRM stood at 6.45%, while the 15-year FRM averaged 6.04%, and the one-year ARM was at 5.27%. For CUNA's Daily Financial Rates, use the link … * Freddie Mac’s mortgage-investment portfolio declined at an annual 9.9% pace in May, and delinquencies rose. The firm’s portfolio fell to $823.4 billion. Delinquencies increased to 2.6%, from 2.44% in April and just 0.86% in May 2008. Freddie’s refinance-loan purchase volume fell to $40.3 billion, from $43.3 billion in April. The government is depending on Freddie and Fannie Mae to stimulate the housing market by purchasing more mortgage loans and helping homeowners avoid foreclosure (Reuters via Yahoo! News June 26) … * The personal savings rate jumped to a 15-year high in May, according to a Commerce Department report. The savings rate rose to 6.9%, from 5.6% in April and the highest level since December 1993. Personal income jumped 1.4%, reflecting stimulus payments to Social Security recipients and lower taxes. Wage income declined again as the job market continued to weaken. The recession has made consumers focus on savings rather than spending. Spending rose just 0.3% in May. Saving money can be good for households and the economy over the long-term, but it can harm economic growth in the short term. Inflation remained tame in May. The core PCE price index, an inflation measure closely tracked by Federal Reserve policymakers, rose just 1.8% year-over-year in May, within the Fed’s comfort zone (The Wall Street Journal Online and Moody’s Economy.com June 26) … * Consumer confidence continued to improve in June. The Reuters/University of Michigan consumer sentiment index rose to 70.8, from 68.7 in May and the highest level since September (Dow Jones Newswires June 26). The increase reflected improved views of current economic conditions. The current conditions index jumped to 73.2, from 67.7, while the expectations index slipped to 69.2 from 69.4. Although confidence has rebounded from recent lows, it remains quite weak and consistent with a steep recession (Moody’s Economy.com June 26). Rising gasoline prices, recent stock-market declines, higher interest rates, and the end of stimulus checks will weigh on consumers going forward … * Higher gasoline prices, rising unemployment, and declining incomes will prompt a decline in holiday traveling this year, according to AAA. U.S. travel over the July 4th holiday weekend will fall 1.9%, compared with 2008, the travel and auto group projects. The Independence Day holiday weekend is usually the busiest for auto travel in the U.S. An estimated 37.1 million Americans will travel 50 miles or more from home during the holiday weekend, down from 37.8 million in 2008 (Associated Press and Reuters via The New York Times June 24) …

News of the Competition (06/25/2009)

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MADISON, Wis. (6/26/09)
* Bank credit-card chargeoffs topped 10% in May, for the first time in the more than 20 years that Moody’s Investors Service has tracked the data. The chargeoff rate jumped to 10.62%, from 9.97% in April and the sixth consecutive month that chargeoffs hit record highs. The chargeoff rate was just 6.41% a year earlier. The rate will peak at about 12% in the second quarter of 2010 as unemployment continues to rise, said William Black, senior vice president at the firm. The delinquency rate--30 days or more overdue--fell to 5.97%, from 6.34% in April. The dip was due to tax refunds, and Moody’s expects the rate to resume a steady increase in the months ahead (Dow Jones Newswires June 24) … * Advanta Corp. is facing a lawsuit by angry cardholders related to how the issuer handled some accounts before it shut down lending last month. The suit, which is seeking class-action status, claims Advanta “unilaterally, unfairly and illegally” changed the terms of credit card agreements, thus “increasing their effective interest rates … in an attempt to unfairly accelerate repayment of outstanding balances and to increase immediate revenues.” The firm stopped lending to its nearly 1 million cardholders on May 30. Cardholders complained that the firm responded to soaring chargeoffs by repricing accounts for some cardholders by as much as 30 percentage points. Advanta doesn’t discuss pending litigation, said a company spokeswoman (American Banker June 25) … * Florida millionaire Steven Rubinstein has pleaded guilty to filing a false tax return by failing to disclose a secret account he held at Zurich-based UBS AG. He is the first U.S. taxpayer to be criminally charged after UBS provided more than 250 of its customers’ names to the Internal Revenue Service as part of an agreement to avoid prosecution. In the agreement, UBS admitted to helping wealthy Americans evade taxes by setting up sham offshore companies in tax havens. Prosecutors say UBS knew that Rubinstein owned his accounts under the name of Hybridge International, a corporation in the British Virgin Islands (Bloomberg.com June 25) … * GMAC LLC is suspending wholesale financing for some Chrysler Group dealers that it deems too risky to provide loans, the two companies confirmed Wednesday. Previously, GMAC had provided interim financing to all Chrysler dealers who applied for loans. The decision could lead to more Chrysler dealers going out of business. It also could hamper the automaker’s ability to sell vehicles. Chrysler already has shed 789 dealers. GMAC received billions of dollars in government aid to provide the loans to Chrysler dealers. Chrysler Financial was forced to wind down its lending because of a lack of capital, making Chrysler Corp. the only major domestic automaker without its own finance arm (The Wall Street Journal Online June 25) … * American International Group (AIG), the insurer that has received $180 billion in taxpayer bailout money, announced Thursday that it will give the government stakes in two large life-insurance units it plans to spin off. The Federal Reserve Bank of New York will receive “preferred stakes” of $16 billion in American International Assurance Co. and $9 billion in American Life Insurance Co. The deals will lower AIG’s debt to the Federal Reserve to $15 billion from $40 billion. In a statement, the New York Fed said the transactions will help AIG repay taxpayers. The company nearly failed last year amid soaring losses on credit-default swaps (Reuters via Yahoo! News June 25) …

Market News (06/25/2009)

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MADISON, Wis. (6/26/09)
* The Federal Reserve on Thursday announced a number of extensions and modifications to its liquidity programs. “Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time,” said the Fed. “As a consequence, to promote financial stability and support the flow of credit to households and businesses, the Federal Reserve is extending a number of facilities through early 2010. At the same time, in light of the improvement in financial conditions and reduced usage of some facilities, the Federal Reserve is trimming the size and changing the terms of some facilities.” Specifically, the Board approved extensions through Feb.1 of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. In addition, the temporary reciprocal currency arrangements (swap lines) between the Fed and other central banks were extended to Feb. 1 … * The economic contraction in the first quarter wasn’t quite as steep as first estimated, the Commerce Department reported Thursday. Real gross domestic product (GDP) declined at an annual rate of 5.5%, according to the department’s final estimate, compared with the 5.7% drop reported last month. The contraction in the first quarter mostly reflected negative contributions from exports, equipment and software, private inventory investment, nonresidential structures and residential fixed investment. These negatives were partly offset by a positive contribution from personal consumption expenditures. Imports declined more than previously estimated. Analysts expect a smaller economic contraction in the second quarter, and perhaps a return to positive growth as soon as the third quarter … * Americans continue to struggle with mounting job losses during the economic downturn. First-time claims for unemployment insurance rose by 15,000 during the week ending June 20 to a seasonally adjusted 627,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, edged up by 500 to 617,250. Unemployed people continue to have a tough time finding new jobs after they’ve been laid off. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, increased by 29,000 during the week ended June 13 to 6.74 million. Analysts expect the nation’s unemployment rate--which hit a 26-year high of 9.4% in May--to increase to 10% by year end and as high as 11% by the summer of 2010 before it begins to recede (Associated Press via The New York Times June 25). The highest rate since World War II was 10.8% at year-end 1982 … * Americans are struggling to pay for health care during the ongoing recession, according to a survey by the Center for Healthcare Improvement, a unit of Thomson Reuters. One-fourth of respondents said they have had problems paying for health care, and 17.4% said they postponed health care over the past 12 months. In addition, 40% said they plan to postpone care in the next three months, with about 15% planning to delay routine doctor visits. Age is an important factor. People born before 1946 were the least likely to postpone health care, probably because most are eligible for Medicare. Baby boomers, those born between 1946 and 1964, were the most likely to put off health care. Income is another important factor. People making less than $50,000 a year were three times more likely to say they had problems paying for medicals bills than those with annual incomes of $100,000 or more (Reuters via Yahoo! News June 22) … * The Organization for Economic Cooperation and Development (OECD) boosted its forecast for economic growth among its 30 member nations for the first time in two years amid signs of stronger growth in the U.S. The Paris-based group now expects the combined economy of the 30 industrialized counties to contract 4.1% this year, better than its March forecast of a 4.3% contraction. The economy is projected to expand 0.7% in 2010, better than the 0.1% previously forecast. The OECD forecasts that the U.S. economy will contract 2.8% this year, much more optimistic than its previous forecast for a 4% contraction. The U.S. economy is expected to grow 0.9% next year, compared with zero growth in its previous forecast. “Signs have multiplied that U.S. activity should bottom out in the course of the second half of this year,” said OECD Chief Economist Jorgen Elmeskov (Bloomberg.com June 24) … * Chief executives became slightly less pessimistic about the U.S. economy during the second quarter. The Business Roundtable’s economic outlook index rose to 18.5, from a minus 5 in the first quarter, but still far below the 50 level that signals optimism. The March reading was the lowest since the survey was launched in 2002. About half the chief executives polled say they still expect declines in their companies’ sales, employment, and capital investment over the next six months. “We don’t see continued free fall,” said Business Roundtable Chairman Ivan Seidenberg, chief executive of Verizon Communications. “But nobody’s ready to suggest they’re going to begin hiring,” added Seidenberg. In the latest poll, 49% said they expect continued job losses, down from 71% in the first-quarter poll. Respondents forecast that the economy will contract by 2.1% this year, compared with the 1.9% contraction forecast in the previous survey (Bloomberg.com and Associated Press via The New York Times June 23) ...

Fed keeps rates the same cites subdued inflation

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MADISON, Wis. (6/25/09)--The Federal Open Market Committee on Wednesday voted unanimously to keep the target for the federal funds rate at a record-low range of zero to 0.25%. In a statement following the meeting, the Fed said “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period of time.” The discount rate was also left unchanged, at 0.5%. The Fed noted that prices of energy and other commodities have increased recently. “However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.” Recent data suggest the economic contraction is beginning to ease, said Fed policymakers. “Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit,” they said. “Wednesday's FOMC statement provided little clarity to what has become the big question facing the financial markets: What is the Federal Reserve’s exit strategy regarding their near zero interest rate policy, their new unconventional lending facilities, along with their recent efforts to monetize the recession,” Steve Rick, senior economist for the Credit Union National Association, told News Now. “The fed funds future market is currently pricing in a 25 basis point increase in the fed funds interest rate by January 2010,” he added. “The futures market is also pricing in a fed funds interest rate of 2% by January 2011. Consensus economic forecasts have the economy expanding slowly by the fourth quarter of 2009. This should allow the Fed to reverse monetary policy and begin withdrawing the massive amounts of liquidity injected recently into the credit markets. This should allay the growing fears of possible future high rates of inflation.” The Fed also reiterated that it plans to purchase as much as $1.25 trillion of agency mortgage-backed securities and as much as $200 billion of agency debt by year end, as well as up to $300 billion of Treasury securities by autumn. “The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.”

News of the Competition (06/24/2009)

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MADISON, Wis. (6/25/09)
* Citing new credit card legislation and increased costs, JPMorgan Chase is boosting some balance-transfer fees on credit cards to 5%--the highest among U.S. banks. The fee tops the 4% fee that Bank of America implemented on June 1. A notice sent to customers by JPMorgan said the rate increase also affects cash advances, and fixed rates will become variable. The new fees will begin in August, just as the new credit card law begins to take effect. “What Chase is doing is strengthening the argument for the new entity [the Consumer Financial Protection Agency],” said House Financial Services Committee Chairman Barney Frank. “Banks should be able to impose fees to cover their costs, not to create a “new profit center,” added Frank (Bloomberg.com June 24) … * JPMorgan Chase tops the list of the world’s strongest banks, according to rankings released Wednesday by The Banker magazine. The rankings are based on capital strength. Global bank profits tumbled 84% to $115 billion last year, while return on equity plunged to 2.69% from 20%. Royal Bank of Scotland reported the biggest loss last year, at $59.3 billion. China’s ICBC was the most profitable bank last year, with earnings of $21.3 billion. The five most profitable banks were all headquartered in China or Spain (Reuters via Yahoo! News June 24) … * Despite mounting losses and two big taxpayer bailouts, Citigroup plans to boost employees’ base salaries by as much as 50% this year to offset smaller annual bonuses, say people with direct knowledge of the matter. Citigroup also plans to grants millions of new stock options. Other banks are boosting base pay as well, despite public criticism of lavish packages. Total compensation in the industry is expected to jump 20% to 30% this year, to the levels of 2005 before the financial crisis began, according to consulting firm Johnson Associates. Bankers say compensation increases are needed to retain key personnel (The New York Times June 24) … * One of the nation’s top unions is asking Morgan Stanley to reverse recent salary raises given to senior executives, according to a letter provided to The Wall Street Journal (June 24). The salary increases “weakened the link between top executive pay and performance,” wrote Gerald McEntee, international president of the American Federation of State, County and Municipal Employees (AFSCME). “We urge you to return base salaries to their previous levels and … reward executives for long-term value creation, not just showing up for work,” added McEntee. The raises were given top executives this year amid government efforts to limit compensation at firms that have received government bailout money. Morgan Stanley repaid $10 billion in bailout money last week. The AFSCME’s pension funds hold about 3% of Morgan Stanley’s outstanding shares …

Market News (06/24/2009)

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MADISON, Wis. (6/25/09)
* Rising unemployment, high consumer debt levels, and tighter credit standards are putting home ownership out of the reach of more Americans even as home prices decline to 2003 levels, according to a report by the Joint Center for Housing Studies at Harvard University. “Although there are some signs of improvement or at least steadiness in new construction and sales, housing starts stand near 60-year lows and any life in home sales in coming from distressed foreclosure sales, temporary first-time buyer tax credits, and low-interest rates that moved higher in recent weeks,” said Nicolas Retsinas, director of the center. The study noted that the share of households spending more than half their income on housing was at high levels even before the economy started to tank. The number of households with such steep cost burdens rose to 18 million in 2007, from 14 million in 2001. On a hopeful note, the study said immigrants and echo boomers (the children of baby boomers) will boost future demand for housing (jchs.harvard.edu and Bloomberg.com June 23) … * New-home sales dipped by 0.6% to a seasonally adjusted annual rate of 342,000 in May, the Commerce Department reported Wednesday. Sales were down almost 33% from a year earlier. At $221,600, the median sales price was up 4.2% from the previous month, but down 3.4% from a year earlier. The supply of new homes on the market improved slightly last month. There was a 10.2-montly supply in May, down from 10.4 the previous month and 10.7 a year earlier. However, existing-home sales, spurred by foreclosures, will continue to dampen new-home sales in the months ahead. The National Association of Realtors reported Tuesday that sales of previously owned homes rose 2.4% to an annual rate of 4.77 million units in May, as foreclosures dampened prices and lured buyers. The median existing-home price was $173,000 in May--down almost 17% from a year earlier … * Mortgage activity rebounded last week following four weeks of decline, the Mortgage Bankers Association (MBA) reported Wednesday (mbaa.org June 24). The trade group’s Market Composite Index rose 6.6% during the week ending June 19 to 548.2. The Refinance Index increased 5.9% to 2116.3, while the Purchase Index rose 7.3% to 280.3. Mortgage rates were mixed last week. The 30-year, fixed-rate mortgage (FRM) dipped 6 basis points to 5.44%, while the one-year, adjustable-rate mortgage (ARM) was unchanged at 6.54%. Although still 60 basis points higher than the historic lows seen only a month ago, the recent decline in the 30-year FRM has sparked interest in refinancing, noted Moody’s Economy.com (June 24). Rising foreclosures have boosted home sales, but those foreclosures will in turn continue to dampen prices … * A stronger-than-expected report on durable-goods orders helped buoy stocks early Wednesday. New orders for long-lasting durable goods increased by $2.8 billion, or 1.8%, to $163.9 billion in May, according to the Commerce Department. It was the third gain in the last four moths and followed a 1.8% increase in April. Excluding transportation, new orders rose 1.1% last month. Non-defense capital goods orders excluding aircraft, a proxy for future business spending, surged by 4.8% in May. That was the largest gain since an 8.2% advance in September 2004 (Reuters via Yahoo! News June 24). The auto sector remained weak. Orders for motor vehicles and parts plunged 8.1% in May, the biggest decline since August … * Moody’s Investors Service has reaffirmed the nation’s triple-A credit rating, but cautioned that it could come under closer scrutiny if the dollar is threatened or federal spending isn’t curbed. “Although the U.S. is losing altitude in the triple-A range, it is starting from a very strong base,” said Pierre Cailleteau, team managing director at Moody’s Sovereign Risk Group. The ratings agency has a stable outlook for the nation’s rating, which means a change isn’t expected over the next 18 months. Cailleteau noted that the U.S. economy has contracted less than others such as France and Germany, although the U.S. was at the center of the global financial crisis (Bloomberg.com and Reuters via Yahoo! News June 23) … * Ford Motor will receive almost $5.9 billion in government loans to boost development of more fuel-efficient vehicles, the Obama administration announced Tuesday (Reuters via The New York Times June 23). Japan’s Nissan Motor will receive $1.6 billion, and start-up Tesla Motors will receive $465 million. Ford will use the funds to retool factories in Michigan, Ohio, Illinois, Kentucky and Missouri through 2011, said Energy Secretary Steven Chu at Ford’s headquarters. In other news, General Motors announced that another 4,000 salaried workers will lose their jobs by year-end as the automaker continues to downsize (Associated Press via The New York Times June 24). GM, which is in bankruptcy protection and has received $20 billion in government loans, already has cut its salaried workforce by more than 2,000 so far this year … * Domestic automakers have boosted the quality of their new vehicles over the past year, but still lag their foreign rivals, according to a study by J.D. Power and Associates. The initial quality of the Big Three automakers--General Motors, Ford Motor, and Chrysler--improved by an average 10% from last year, compared with an industrywide average of 8%. “The Detroit automakers are keeping their focus on designing and building high-quality vehicles, which is a precondition for long-term success,” noted David Sargent, vice president of automotive research at J.D. Power. Toyota’s Lexus vehicle was rated the top brand. Porsche ranked No. 2, followed by GM’s Cadillac, Hyundai and Honda (Associated Press via Yahoo! News June 22) …

News of the Competition (06/23/2009)

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MADISON, Wis. (6/24/09)
* Three small banks have stopping paying the federal government dividends that they owe because they received $314.4 million in capital infusions in the Troubled Asset Relief Program (TARP). Pacific Capital Bancorp of Santa Barbara, Calif., has posted net losses of $49.7 million since it received $180.6 million in TARP money in November. Seacoast Banking Corp. of Florida and Midwest Banc Holdings of Melrose Park, Ill., also have suspended their TARP-related dividends. Treasury Spokeswoman Meg Reilly acknowledged Monday that “a number of banks” that received money under TARP are no longer paying dividends to the government. The department has collected about $4.5 billion in dividends from TARP recipients so far (The Wall Street Journal Online June 23) … * Mortgage borrowers who sought advice from foreclosure-prevention specialists paid an average $2,900 for “poor advice” that “bordered on theft,” according to mystery shoppers hired by the National Community Reinvestment Coalition (NCRC). Some firms told borrowers not to pay their mortgages and not to speak to their lenders, said NCRC Executive Vice President David Berenbaum. He said the firms provide “horrible” advice. “For every legitimate one, the next three border on theft,” he added. The NCRC plans to announce complete findings of the study later this month (National Mortgage News via American Banker June 23) … * Rosario Divins, a San Antonio woman who advertised herself as a foreclosure specialist and promised to help struggling homeowners obtain new loans, was convicted last week on seven counts each of criminal contempt and mail fraud. Federal prosecutors said she took more than $100,000 from desperate homeowners and kept the money for herself. They say she continued to run the fraud, even after she was sanctioned by U.S. Bankruptcy Court. Divins faces up to 140 years in prison when she is sentenced in September (Associated Press via Yahoo! News June 19) … * Bernard Madoff’s attorney told a judge that 12 years in prison would be enough punishment for his 71-year old client. Madoff, who admitted to operating a huge Ponzi scheme for decades, faces up to 150 years in prison after pleading guilty to 11 felony counts. In a letter to U.S. District Judge Denny Chin, Attorney Ira Sorkin said a 12-year sentence would acknowledge Madoff’s voluntary surrender, his cooperation efforts, his acceptance of responsibility, and the nonviolent nature of his crime. Sorkin also noted that Madoff’s age gives him an average life expectancy of 12.6 years (Associated Press via The New York Times June 23) … * Most credit card statements sent to consumers worldwide obscure the real amount of debt by masking important details, according to a study by the nonprofit Communication Research Institute of Melbourne, Australia. The study concluded that most statements fail to include credit-limit and repayment information, and how interest rates are applied. “People should be able to find at least 90% of what they are looking for on a credit card statement and then use appropriately 90% of what they find,” said research director David Sless. “The only information that can be found reliably on the statements we tested is the name of the organization sending it, and the person it is addressed to,” added Sless (Cardline Global via American Banker June 22) …

Market News (06/23/2009)

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MADISON, Wis. (6/24/09)
* The Mortgage Bankers Association (MBA) has lowered its forecast for mortgage originations this year to $2.03 trillion--$700 billion less than its March forecast (mbaa.org June 23). The trade group said $84 billion of the decline was due to lower purchase originations, while the remainder was due to lower refinancings and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program. “While generally accepted estimates were that around 1.5 to 2 million borrowers might avail themselves of this program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports,” said MBA Chief Economist Jay Brinkmann. “While the number of loans completed under this program is likely to increase, it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher rate environment,” added Brinkmann. MBA’s latest forecast calls for $737 billion in purchase originations and $1,297 billion in refinancing originations in 2009. Median home prices for new and existing homes is expected to continue declining this year, by about 10% from 2008 levels, then level off next year as the economy strengthens … * Home prices declined 0.1% in April, slowing from a 1.4% drop in March, the Federal Housing Finance Agency (FHFA) reported Tuesday. Over the 12 months ending in April, prices were down 6.8%. And prices are down 11.2% from the peak hit in April 2007. “Although monthly data are volatile, we may be starting to see signs of stabilization in prices for houses funded by conventional conforming loans, as the Home Price Index is only down 0.3% for the first four months of the year,” noted FHFA Director James Lockhart. The FHFA’s price index probably underestimates the decline in home prices because it relies on data collected by Fannie Mae and Freddie Mac, so it excludes non-conforming loans such as those purchased with jumbo loans. Another measure of home prices by the National Association of Realtors showed a 16.8% year-over-year drop in the median existing-home price for May … * Sales of previously owned homes rose 2.4% to a seasonally adjusted annual rate of 4.77 million units in May, according to the National Association of Realtors (NAR) (realtor.org June 23). Sales have increased in three of the past four months, but were down 3.6% over the year ending in May. Lower prices and the first-time buyer home credit helped boost sales in May. The median existing-home price was $173,000 in May, down 16.8% from a year earlier. “Historically low-mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” noted NAR Chief Economist Lawrence Yun. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory,” added Yun. Total housing inventory at the end of May was at a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April. A separate NAR survey last month found that first-time buyers accounted for 29% of transactions, and the number of buyers looking at homes was almost 10 percentage points higher than a year earlier … * The job market weakened further in May. The number of mass layoff actions--job cuts involving 50 or more workers from a single firm--rose to 2,933 in May, from 2,712 in April, and resulting in the loss of 312,880 jobs, the Labor Department reported Tuesday. Over the year, the number of mass layoff events increased by 1,232, and matched the peak hit in March this year, which was a record on data going back to 1995. The nation’s unemployment rate rose to a 26-year high of 9.4% in May, from 8.9% in April and just 5.5% a year earlier … * Many employers are cutting back on 401(k) retirement plans to cope with the economic downturn, according to a study conducted for Charles Schwab Corp. by CFO Research Services. In the survey, 23% of employers said they have eliminated matching contributions for 401(k) retirement plans since September, or are planning to do so in the near future. And one-fourth said they have initiated limited enrollment or plan to initiate limited enrollment rather than open the plans to all employees. However, most employers view such steps as temporary, noted Steve Anderson, head of retirement plan services at Charles Schwab. Still, the moves have hit employee morale hard: 63% of employers said employee concerns about personal finances have created a more difficult work environment (Reuters via The New York Times June 22) … * Many employers that have cut jobs, compensation, and benefits during the recession may not restore them. In a survey conducted by Watson Wyatt Worldwide, 52% of companies said they expect to employ fewer workers over the next three to five years than they did before the recession began. And among firms that have cut compensation, only 55% said they expect to restore the cuts over the next year, while 20% said they expect the cuts to be permanent. Of companies that have boosted employee contributions to health-care premiums, 46% said they don’t plan to reverse the increases. A total 73% of employers said they expect employees to pay more for the cost of health care than they did before the recession began. Less than half of employers who have cut their retirement-plan contributions plan to restore them. In a glimmer of hope, about one-third of employers said they still are planning job cuts, down from 46% in an April poll (The Wall Street Journal Online June 22) …

News of the Competition (06/22/2009)

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MADISON, Wis. (6/23/09)
* Another three banks were shut down Friday by state and federal regulators--bringing the total number of bank failures this year to 40. The Federal Deposit Insurance Corp. estimates that the failures of Southern Community Bank of Fayetteville, Ga., Cooperative Bank of Wilmington, N.C., and First National Bank of Anthony in Anthony, Kan., will cost the deposit insurance fund $363 million. The agency sold all the deposits of the Kansas and Georgia banks and the non-brokered deposits of the North Carolina bank to separate local institutions. Southern Community Bank was the 12th bank to fail in Georgia since August. Two banks in North Carolina have failed this year. Only six of the 65 banks that have failed since Jan. 1, 2008, were chartered before 1900 (The Wall Street Journal Online June 22) … * The Securities and Exchange Commission (SEC) has filed civil fraud charges against brokerage Cohmad Securities Corp., co-founder Maurice Cohn, and three others in connection with the Bernard Madoff investment fraud. Cohmad is a joint firm owned 20% by Madoff and 80% by Cohn. The SEC charged Cohmad executives Marcia Cohn and Robert Jaffe with fraud. The Securities Investors Protection Corp. also filed a lawsuit against the firm and the executives. The SEC claims the firm filed false regulatory reports designed to conceal its relationship with Madoff. The agency also filed civil fraud charges against Los Angeles investment adviser Stanley Chais, alleging that he lied to many clients by failing to disclose that Madoff was investing their money, not him (The Wall Street Journal Online June 22) … * Russian-American investor Len Blavatnik is planning to file a lawsuit against JPMorgan Chase, accusing the bank of mismanaging a $1 billion investment account owned by his holding company, Access Industries. The suit claims that Ted Ufferfilge, the banker advising Access, lost $98 million of the firm’s money by betting on risky subprime mortgage securities, even as JPMorgan itself was “unwinding its positions in similar investments.” The suit alleges that Ufferfilge told Access the funds were invested in conservative instruments. Access paid more than $1 million in fees to JPMorgan for actively managing the account. “We believe this lawsuit is meritless and a transparent attempt to recover losses resulting from the unprecedented market downturn,” said a JPMorgan spokeswoman (The New York Times June 22) … * The House Oversight and Government Reform Committee has issued a second subpoena to the Federal Reserve, demanding more documents detailing the Fed’s role in Bank of America’s acquisition of Merrill Lynch. The panel is investigating why the federal government needed to provide $20 billion to complete the acquisition. BofA CEO Ken Lewis has told the New York attorney general that Fed Chairman Ben Bernanke threatened to fire him and his board if he didn’t complete the transaction. He appeared before the panel earlier this month. Bernanke has said he didn’t push the merger on Lewis. The Fed chairman is scheduled to testify before the committee on Thursday (American Banker June 22) … * The Obama administration’s proposed regulatory revamp could force painful changes on General Electric’s GE Capital lending unit (The Wall Street Journal Online June 22). If the proposals become law, GE Capital probably would be classified as systemically important because of its size, and therefore would face stricter regulation of it and its parent company. GE might even have to split off its GE Capital unit so that it doesn’t face restrictions on “nonfinancial activity,” noted the newspaper. GE CEO Jeff Immelt opposes any regulation that would force it to split off GE Capital, according to a staff memo (Reuters via Yahoo! News June 22). “One proposal in particular, pertaining to the separation of banking and commerce, has led to some media speculation that, if enacted, could require the separation of GE and GE Capital,” said Immelt in the memo. “We are certainly opposed to it, since this issue had nothing to do with the financial crisis. GE is and will remain committed to GE Capital, and we like our strategy” …

Market News (06/22/2009)

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MADISON, Wis. (6/23/09)
* Stocks slumped Monday after the World Bank slashed its 2009 global economic growth forecast. The world economy is expected to shrink 2.9% this year, while global trade is forecast to plunge 9.7%. The economies of high-income countries including the U.S., the euro zone, and Japan are expected to contract by 4.2%. Specifically, the U.S. economy is forecast to shrink 3%, the euro zone is expected to contract 4.5%, and Japan’s economy may contract as much as 6.8%. “While the global economy is projected to begin expanding once again in the second half of 2009, the recovery is expected to be much more subdued than might normally be the case,” said the bank. “Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world’s poor” (The New York Times and Associated Press via Yahoo! News June 22) … * A record-high 1.02 billion people, one-sixth of the world’s population, are now hungry due to the global economic crisis and high food prices, according to the United Nation’s Food and Agriculture Organization. There are 100 million more people hungry this year than in 2008. “The silent hunger crisis, affecting one-sixth of all humanity, poses a serious risk for world peace and security,” said Jacques Diouf, director-general of the agency. Average food prices were 24% higher at year-end 2008 than in 2006. At 642 million, Asia and the Pacific have the largest number of hungry people. At 32% of the region’s population, or 265 million people, sub-Saharan Africa has the highest hunger rate. Hunger is a growing problem, even in the developed world, where 15 million people are now hungry. Diouf noted that hunger had been rising even before the financial crisis began (Associated Press via Yahoo! News June 19) … * Welfare rolls are rising in the U.S., for the first time in more than 10 years, as more people run out of unemployment compensation, according to a survey conducted by the National Conference of State Legislatures and The Wall Street Journal (June 22). In the study, 23 of the nation’s 30 biggest states--accounting for more than 88% of the U.S. population, have seen higher welfare caseloads compared with a year ago. The largest increases are in states with the highest unemployment rates. In Oregon, caseloads have jumped 27% over the past year, while South Carolina has seen a 23% jump. However, welfare rolls in a few states with high unemployment have seen welfare rolls decline. Critics say front-end requirements that force welfare recipients to seek work before they even meet with a caseworker keep many from seeking help … * Charitable giving by Americans declined 2% last year--only the second annual decline in more than 50 years, according to a study by the Giving USA Foundation. The last annual decline was in 1987, the year of the Black Monday stock-market crash. Adjusted for inflation, charitable giving fell 5.7% last year, the largest decline in the survey’s history. Social-services charities were the hardest hit last year, seeing a 12.7% plunge in donations even as demand for services surged. The foundation predicts further difficulties for social-services charities throughout this year. In the survey, 60% of social-service groups said they are cutting programs and staff due to lower donations. Nonprofits including the Salvation Army, Catholic Charities, and the American Red Cross have cut workers (Associated Press via Yahoo! News June 18) … * Home prices probably won’t return to their previous peak for another 10 years, according to a study by the Federal Housing Finance Agency (FHFA). The study used the agency’s price indexes to examine local and regional housing busts during the past 30 years, and found that it can take more than 10 years for prices to return to previous peaks after they begin to decline. The decline typically is much faster than the recovery. The median duration in busts between 1975 and the present was 10.75 years. However, the agency’s Jesse Weiher warns that “the applicability of historical trends to the current U.S. house-price downturn may be limited,” because the previous boom boosted prices much more than is typical. And the current crisis was initiated by the financial crisis, not an employment decline. In addition, prices increased much faster than income during the last housing boom, pricing many people out of the housing market (The Wall Street Journal Online June 19) … * Credit card issuers’ crackdown on credit limits is squeezing the nation’s 27 million small businesses, even as they are coping with the economic downturn and tighter conditions on other types of credit. According to the National Small Business Association, 59% of small businesses depended on credit cards to help finance daily operations in April, up from 44% at year-end 2008 and only 16% in 1993. The lowering of credit limits by credit card issuers also has eroded small business credit scores, noted Todd McCracken, president of the association. Small businesses now account for 11% of the revenue for Visa and MasterCard, up from just 3% in 1998, according to David Robertson of The Nilson Report. Robertson noted that delinquency rates among small-business owners is more than 12% now, about two percentage points higher than the rate for consumers (The New York Times June 19) …

News of the Competition (06/19/2009)

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MADISON, Wis. (6/22/09)
* Some chief executives at banks that received federal bailout money have used company jets for their personal use, according to flight records obtained by The Wall Street Journal Online (June 19). They show numerous occasions in which the bank executives flew the planes to places near resorts or executives’ vacation homes in Europe, Mexico, the Caribbean, south Florida, and Aspen, Colo. The banks include Birmingham, Ala.-based Regions Financial Corp., Bank of America, and Morgan Stanley. In some instances, the flight records clearly show the executives were traveling for personal use. In other cases, reasons for the flights couldn’t be established … * Texas billionaire Robert Allen Stanford has been indicted for criminal conspiracy to commit mail, wire and securities fraud for what prosecutors allege is a $7 billion Ponzi scheme. Also indicted in the fraud were three executives of Stanford Financial Group and a former bank regulator of Antigua. According to the indictment, the company gave money to some investors “to perpetuate the false appearance that (Stanford’s business) was financially sound.” His sprawling banking empire collapsed this year. “Stanford and his co-defendants engaged in a scheme to defraud investors who purchased approximately $7 billion in certificates of deposit administered by Stanford International Bank,” said Lanny Breuer, assistant attorney general for the Department of Justice’s Criminal Division. Stanford maintains his innocence (Associated Press and CNNMoney.com June 19) … * Switzerland has launched a criminal investigation into allegations that Banco Santander’s hedge-fund unit misled investors when it channeled funds into Bernard Madoff’s massive Ponzi scheme. The investigation will look into whether Optimal Investment Services’ former chief executive, Manual Echeverria, did the fact-finding claimed in the company’s documents, said Geneva public prosecutor Dario Zanni. “We are not sure he was doing his job compliant with his duties,” he added. Zanni also said he will investigate whether Optimal or its chief executive were aware that Madoff’s funds were fraudulent when they sold them. Madoff pleaded guilty to 11 criminal counts related to his Ponzi scheme, and is in jail awaiting sentencing (The Wall Street Journal Online June 19) … * A $3 billion offering of five-year reference notes by Freddie Mac could indicate a return to the pre-crisis way of conducting business at the firm. Freddie said the bond issue is the first since the financial crisis began that it didn’t offer inducements to make the securities more attractive. “There wasn’t as much of a need to offer (a concession), and we got the three billion,” said Devajyoti Ghose, vice president of debt portfolio management at Freddie. However, Ghose noted that Freddie reserves the right to offer concessions in the future as market volatility continues (Dow Jones Newswires via American Banker June 19) … * The Federal Reserve’s balance sheet expanded slightly last week, as a dip in discount-window borrowing was offset by increased holdings of Treasury and mortgage-backed securities. The central bank’s asset holdings rose to $2.07 trillion in the week ending June 17, from $2.05 trillion the previous week. Discount-window borrowing declined to $122.97 billion from $123.99 billion. Borrowing by commercial banks through the discount window edged up to $36.6 billion form $35.41 billion, while borrowing by primary dealers remained at zero for a sixth consecutive week. The Fed’s portfolio of Treasury securities rose nearly $10 billion to $638.67 billion. Holdings of mortgage-backed securities increased $28 billion to $455.96 billion. The Fed’s net portfolio holdings in connection with its commercial-paper lending facility declined by more than $6 billion to $132.08 billion (The Wall Street Journal Online June 19) …

Market News (06/19/2009)

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MADISON, Wis. (6/22/09)
* A “distressingly” slow housing recovery, with inflation-adjusted home values expected to drop over the next five years, makes it unlikely that housing wealth will boost consumer spending over the next 10 years, according to a Reuters/University of Michigan survey. Consumers probably will continue working down their debt loads and building up savings, noted survey director Richard Curtin. In the second-quarter poll, 60% of homeowners reported home-price declines, ranging from 77% of homeowners in the West, to 51% of homeowners in the South. However, only 22% of respondents overall said they expect price declines in the year ahead, the lowest since 2007. “To be sure, refinancing has reduced the burden of mortgage payments, giving consumers more discretionary income, but the refinancing impact on spending will fade as mortgage rates increase,” noted Curtin (Reuters via The New York Times June 19) … * Mortgage rates eased last week following a three-week run up that pushed rates to the highest levels this year, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) dropped 21 basis points to 5.38% last week, eliminating most of the surge from a week earlier. The 15-year FRM fell 17 basis points to 4.89%, while the one-year, adjustable-rate mortgage (ARM) dropped 9 basis points to 4.95%. “Reports of benign inflation figures reversed the upward trend of mortgage rates this week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. But he noted that the housing market hasn’t yet hit bottom, and higher mortgage rates have slowed mortgage demand, at least temporarily. Mortgage rates are lower than they were a year ago. At this time last year, the 30-year FRM stood at 6.42%, while the 15-year FRM averaged 6.02%, and the one-year ARM was at 5.19%. For CUNA's Daily Financial Rates, use the link. … * Unemployment rates rose in almost all states and regions during May, the Labor Department reported Friday. Forty-eight states and the District of Columbia saw monthly jobless-rate increases, while one state recorded a rate decline, and one state saw no change. Over the past year, however, unemployment rates were higher in all 50 states and the District of Columbia. Nationwide, the unemployment rate was 9.4% in May, up from 8.9% in April and 3.9-percentage points higher than a year earlier … * Michigan again reported the highest unemployment rate in the nation in May--at 14.1%, according to the Labor Department report. Other states with the highest rates were Oregon (12.4%); Rhode Island (12.1%); South Carolina (12.1%; California (11.5%); Nevada (11.3%); and North Carolina (11.1%). Altogether, 13 states and the District of Columbia reported unemployment rates of 10% or higher. The West reported the highest regional unemployment rate, at 10.1%, followed by the Midwest, at 10.1%. The Northeast saw the lowest rate, at 8.3%. “It’s tough everywhere,” noted Mark Vitner, senior economist at Charlotte, N.C.-based Wachovia Corp. (Bloomberg.com June 19). He predicts that the largest increases in unemployment ahead will be in states that are most dependent on manufacturing, construction, and financial services … * In a spot of good news for the job market, General Motors announced Friday that it will recall 900 workers at a factory near Lansing, Michigan because of increased demand for its Buick Enclave, Saturn Outlook and GMC Acadia crossover vehicles (Associated Press via Yahoo! News June 19). GM also announced that it has canceled plans to close its Spring Hill, Tenn., plant for an additional week in August due to higher demand for the Chevrolet Traverse crossover vehicle … * California’s credit rating, already the lowest in the nation, may be lowered further by Moody’s Investors Service as the state faces a $24 billion budget deficit. The ratings agency said the downgrade would affect $72 billion of the state’s debt. Standard & Poor’s put California on watch for a possible downgrade earlier last week, and Fitch Ratings made the same announcement on May 29. Currently, California’s full faith and credit pledge is rated A2 by Moody’s, five steps lower than the top investment grade (Bloomberg.com June 19) … * Former HealthSouth Corp. chief executive Richard Scrushy was ordered to pay $2.9 billion last week after a judge found him liable for an accounting fraud that almost collapsed the hospital chain. Scrushy, who was found not guilty of criminal charges in the fraud, is serving a seven-year prison sentence for bribery. He and former Alabama Governor Don Siegelman were convicted of bribery in connection with a scheme to obtain a seat on a hospital regulatory board (Reuters via The New York Times June 19) …

News of the Competition (06/18/2009)

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MADISON, Wis. (6/19/09)
* Standard & Poor’s announced Wednesday that it lowered its credit ratings and outlooks for 22 banks, most of them regionals, and downgraded five of them to junk status. Many regional banks stocked up on corporate loans, mortgages, and commercial real-estate loans when the economy and housing market were booming. “Operating conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles, and tighter regulatory supervision,” said S&P. Seven of the downgraded banks were among the 19 that underwent the government’s stress tests. They are BB&T Corp., Capital One Financial, Fifth Third Bancorp, KeyCorp, Regions Financial, U.S. Bancorp, and Wells Fargo. Banks downgraded to junk status were Carolina First Bank, Citizens Republic Bancorp, Huntington Bancshares, Synovus Financial and Whitney Holding Corp (Dow Jones Newswires and The New York Times June 18) … * Ten large financial institutions announced Wednesday that they have bought back the preferred stock they issued to the Treasury Department under the Troubled Asset Relief Program (TARP). The firms are JPMorgan Chase, Goldman Sachs, Morgan Stanley, U.S. Bancorp, American Express, Bank of New York Mellon, BB&T Corp., Northern Trust, Capital One and State Street. Absent from that list were Citigroup, Bank of America and Wells Fargo, which haven’t obtained permission to pay back their bailout money. Bankers have been eager to pay back money to the government because of restrictions on compensation and other matters. Banks giving back TARP money still can turn to the government in other ways, including issuing debt guaranteed by the Federal Deposit Insurance Corp. (Dow Jones Newswires and The Wall Street Journal Online June 18) … * A federal appeals court has ruled that three former Merrill Lynch bankers may be retried on charges they helped Enron Corp. defraud shareholders in a sham transaction involving Nigerian power barges. A jury in 2004 convicted Daniel Bayly, James Brown and Robert Furst of conspiracy and fraud. An appeals court overturned the decision in 2006. But a panel this week ruled that prosecutors may retry the case. The government claims Enron transferred the barges to Merrill in order to meet a profit target. Prosecutors allege the transfer was a sham because it really was a lease, not a sale, as Enron agreed to take back the barges in six months, and because Merrill had a guaranteed return (Reuters via Yahoo! News June 18) … * Sallie Mae’s stock surged in premarket activity Thursday after the Department of Education announced selection of the student lender to service federal student loans. The contracts will help offset revenue losses from the Obama administration’s plan for the government to originate student loans directly. Sallie Mae earnings also will depend on private student loans not guaranteed against default by the government. Three other firms were awarded federal loan-servicing contracts, including Nelnet Inc. (Associated Press via The New York Times and Dow Jones Newswires June 18) … * Discover Financial Services, the nation’s fourth-largest credit-card network, reported a smaller-than-expected loss for the fiscal second quarter as its bad loans increased by a less-than-expected amount. The firm reported an operating loss of $69 million, compared with a profit of $202 million a year earlier. Discover’s chargeoff rate rose to 7.79%, from 6.48% in the first quarter, but still much lower than rates at larger competitors. The firm’s expenses tumbled 10% in the latest period as it slashed 500 jobs and cut marketing expenditures (Reuters via Yahoo! News June 18) …

Market News (06/18/2009)

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MADISON, Wis. (6/19/09)
* A slow economic recovery should begin by year end, according to the Conference Board. The Board’s index of leading economic indicators, designed to forecast economic activity over the next three to six months, increased 1.2% in May following a 1.1% gain in April. It was the largest increase since March 2004 and the biggest back-to-back gain since November-December 2001. Seven of the 10 components of the index were positives in May--led by the money supply, building permits, consumer expectations and stock prices. Unemployment claims, weekly manufacturing hours, and vendors’ supply deliveries weighed down the index. “The recession is losing steam,” said board economist Ken Goldstein. “If these trends continue, expect a slow recovery beginning before the end of the year. However, employment will take longer to turn around,” added Goldstein (Bloomberg.com, Associated Press via Yahoo! News and MarketWatch June 18) … * The number of long-term unemployed fell for the first time since early January, while new claims for jobless benefits edged up, the Labor Department reported Thursday. Continuing claims--the number of people still on the benefit rolls after an initial week of aid--declined by 148,000 during the week ending June 6 to 6.687 million. The decline--the largest in more than seven years--breaks a string of 21 consecutive increases in continuing claims. However, another 2.4 million people are receiving benefits under a separate unemployment program. First-time claims for unemployment insurance edged up by 3,000 during the week ended June 13 to 608,000. Initial claims were only at 390,000 a year ago. Economists expect the unemployment rate to continue rising even after the economic recovery begins. Continued layoffs in the troubled auto industry will deepen those job losses (Associated Press via The New York Times and Moody’s Economy.com June 18) … * Health care costs at employers who offer coverage could jump 9% next year, with employees facing an even larger increase, according to a report by PricewaterhouseCoopers (PWC) released to Associated Press (The New York Times June 18). Employees will face double-digit increases in their health care costs at a time they also are seeing employers freeze or cut their pay, noted PWC principal Michael Thompson. In the survey, 42% of employers said they would boost employees’ share of health care costs. The study also found that fear of unemployment is causing increased use of health care, as employees worried about losing their jobs seek medical care they otherwise would have postponed … * State revenues are plunging even as demand for social services is rising in the economic downturn. State income tax revenue tumbled 26% in the first four months of 2009, compared with the same period last year, according to a survey by the Nelson A. Rockefeller Institute of Government. Declining tax revenue will lead to service cuts because states are required by law to balance their budgets. “Many people had a very bad start of the year” with lower salaries and wages, noted Don Boyd, senior fellow at the Rockefeller Institute. The largest declines in income tax revenue were in Arizona, South Carolina, Michigan, California and Vermont. Utah, Alabama, and North Dakota were the only states to post gains (The Wall Street Journal Online June 18) … * The nation’s AAA long-term credit rating probably won’t change in the near term, Standard & Poor’s said Thursday. “Despite significant weakening in the near-term economic outlook, projected fiscal deficits, and the high fiscal costs of government support of the U.S. financial sector, we still believe that the U.S. government’s credit strengths continue to outweigh its weaknesses,” said S&P credit analyst Nikola Swann. She said the U.S. has several important strengths--including a diversified economy and flexible workforce, the dollar’s role in global markets, and a stable political system (MarketWatch and Associated Press via Yahoo! News June 18) … * Retail gasoline prices rose for a 51st consecutive day on Thursday amid signs of an economic recovery. Pump prices rose 0.6 cents to a national average of $2.685 a gallon, according to AAA, Wright Express, and Oil Price Information Service. A gallon of gas in now 37.1 cents higher than last month, but still $1.39 cheaper than it was a year ago. Increased demand has helped boost prices over the past month. “Even with millions not going to work, Americans are using more gas again,” noted Cameron Hanover analysts in a report (Associated Press via Yahoo! News June 18) …

Market News (06/17/2009)

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MADISON, Wis. (6/18/09)
* Inflation remained tame in May amid weak economic growth. The Consumer Price Index (CPI) rose just 0.1% last month and has fallen 1.3% over the last 12 months--the biggest year-over-year decline since April 1950, the Labor Department reported Wednesday. The decline mainly reflects a 27.3% plunge in energy prices over the year. Food prices fell 0.2% in May, the fourth consecutive decline. Still, food prices were up 2.7% over the past 12 months. Excluding the volatile food and energy categories, the core CPI was up only 0.1% in May and 1.8% over the past year. Gasoline prices have increased in recent weeks, hitting a nearly eight-month high of $2.68 on Tuesday, according to AAA (Bloomberg.com June 17). If gasoline prices peak at $2.75 a gallon, the increase since the beginning of this year will take $50 billion at an annual rate from household cash flows, noted Richard Berner, co-head of global economics at New York-based Morgan Stanley. That loss would offset nearly all the benefits from the administration’s tax cuts … * Mortgage activity retreated last week following several weeks of rate increases. The Mortgage Bankers Association’s Market Composite Index tumbled 15.8% during the week ending June 12 to 514.4 (mbaa.org June 17). The Refinance Index plunged 23.3% to 1998, and the Purchase Index dropped 3.5% to 261.2. Mortgage rates fell in the latest week. The average 30-year, fixed-rate mortgage (FRM) edged down 7 basis points to 5.5%, while the 15-year FRM dropped 11 basis points to 4.99%, and the one-year, adjustable-rate mortgage (ARM) declined 21 basis points to 6.54%. The Refinance Index has fallen 58.3% over the last four weeks, noted Moody’s Economy.com (June 17). Following three weeks of double-digit basis point gains in the 30-year FRM, a seven-point decline wasn’t enough to boost interest in mortgages … * Yields on Fannie Mae mortgage securities dropped for a fifth consecutive day, suggesting further declines in mortgage rates ahead. Yields on Fannie’s current-coupon, 30-year, fixed-rate mortgage bonds declined 0.06 percentage point to 4.52% yesterday--the lowest since May 29. Yields have declined from 5.07% on June 10. Yields on agency mortgage bonds have guided mortgage rates since the collapse of the non-agency market in 2007. The 30-year, fixed-rate mortgage rose to 5.59% in the week ending June 11, up from 4.82% for the week of May 21 and a record-low 4.78% on April 30, according to Freddie Mac (Bloomberg.com June 17) … * Bankers say the economic downturn will end during the third quarter even as unemployment continues to rise. The jobless rate will peak at 10% and remain high through next year, according to the American Bankers Association’s economic advisory committee. Market conditions have shown great improvement since the committee’s last meeting in January, noted committee chairman Bruce Kasman. “Funding markets have stopped seizing up,” added Kasman. The committee predicts a weak recovery as the government copes with a huge budget deficit. And the Federal Reserve will face a “very important challenge” in unwinding its lending programs (American Banker June 17) … * Workers continue to see weak earnings as the economic slump erodes their bargaining power. Real (inflation-adjusted) weekly earnings declined by 0.3% in May, the Labor Department reported Wednesday. A 0.3% drop in weekly hours and a 0.1% gain in the Consumer Price Index for Urban Wage Earners and Clerical Workers were partly offset by a 0.1% gain in hourly earnings. Over the past year, real weekly earnings were up a modest 2.8% … * The nation’s trade deficit shrank during the first quarter as the recession eroded demand. The current account deficit--a broad measure that covers trade in goods and services, transfer payments, and investment income--declined to $101.5 billion, from $154.9 billion in the fourth quarter and the lowest since the fourth quarter of 2001, the Commerce Department reported. The latest deficit equaled 2.9% of the nation’s gross domestic product (GDP), down from 4.4% of GDP in the fourth quarter and the smallest percentage since 2.8% in the first quarter of 1999. The deficit peaked at 6.6% of GDP at year-end 2005 (The Wall Street Journal Online and Bloomberg.com June 17) …

News of the Competition (06/17/2009)

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MADISON, Wis. (6/18/09)
* Buoyed by the sale of consumer debts written off in prior months, American Express Co.--the nation’s biggest credit card company by purchases--said its uncollectible loans declined in May. The company wrote off 10% of managed card loans, compared with 10.1% in April, American Express said Monday in a federal filing. The decrease is due to proceeds from selling bad loans that already were charged off, according to the filing. With the U.S. jobless rate rising to 9.4% in May--the highest level since 1983--credit card profits have been under pressure this year, analysts said. Because consumers are more likely to default when they lose their jobs, defaults historically rise and fall with U.S. unemployment, analysts added. Chargeoffs at American Express will reach 12.6% in 2010, predicted an analyst at KBW Inc. Credit quality likely will deteriorate given the state of the economy and rising unemployment, said KBW’s Sanjay Sakhrani in a June 12 report (Bloomberg.com June 15) …. * Although delinquency rates are finally lessening, bankruptcies filings are offsetting them and resulting in chargeoff rates that will remain elevated for the remainder of the year, according to Fitch Ratings. Bank of America (BofA), Citi and JPMorgan Chase & Co. all reported elevated chargeoff rates for May, compared with April, according to the companies’ monthly performance reports for securitized card receivables. At BofA, the chargeoff rate jumped to 12.5% from 10.5%. Chargeoffs increased to 10.5% from 10.2% at Citi, and to 8.36% from less than 8.1% at JPMorgan Chase. The difference in chargeoff levels is representative of the credit quality of the different pools, said Cynthia Ullrich, a senior director in the asset-backed securities group at Fitch Ratings (American Banker June 17) … * By hiring Trepp LLC--a data provider to help monitor bonds and give advice--the Federal Reserve Bank of New York moved Tuesday toward initiating a program to generate credit for the troubled U.S. commercial real estate sector. Trepp, which aggregates information about commercial bonds and real estate, will design models to guide which commercial asset-backed securities will be allowed as collateral for Fed funding under its Term Asset-Backed Securities Loan Facility (TALF), said the New York Fed. Through creating greater demand for commercial bonds, TALF could lower borrowing costs to levels that make it attractive to originate new loans, analysts said. The TALF program has lowered the cost of some consumer debt such as auto loans and credit cards, they added (Reuters June 16) ... * Morgan Stanley will stop selling new debt that carries a guarantee from the Federal Deposit Insurance Corp. The company is giving up this government subsidy--loans as part of the Troubled Asset Relief Program--after it won clearance last week to repay $10 billion to the U.S. Treasury. In a statement, the company said: “Morgan Stanley and its employees appreciate the support of the U.S. government, Congress and the administration during this challenging period. We also welcome and support the regulatory reforms proposed by the Obama Administration as we continue to work with the administration and Congress to ensure safety and soundness in the banking system and the strength and stability of our overall financial system” (Bloomberg.com, SmartTrend and BusinessWeek June 17) … * The U.S. House of Representatives Tuesday passed a watered-down “cash for clunkers” bill that will allow people to obtain vouchers--worth up to $4,500--when they trade in older, lower-mileage vehicles for newer better-mileage, fuel-efficient ones. Vouchers are based on the mileage of the new vehicle compared with the old one. The bill provides up to $1 billion through Sept. 30 for incentives for consumers to trade in their old vehicles. An earlier House bill that created a year-long program was not taken up by the U.S. Senate. U.S. automakers have been pushing for legislation this year to reinvigorate sales--which are at the lowest level since the 1980s, analysts said. Similar programs--conducted in countries such as Germany--sparked sales by as much as 40%, said Kerry Christopher, spokesman for General Motors (Freep.com and USA Today June 17) …

CUNA-IBusinessWeekI Housing market bottoming out

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MADISON, Wis. (6/18/09)--The U.S. housing market may be “bottoming out, which is crucial for the rest of the economy,” Bill Hampel, chief economist for the Credit Union National Association, told BusinessWeek Tuesday. Data issued June 15 indicated housing starts rose 17.2% from April to May to an annual pace of 532,000, BusinessWeek said. Construction was being started at a pace above 2.2 million units per year in early 2006. In previous housing recessions, housing starts bottomed at 800,000, but the current housing market is “bottoming out at an incredibly low level” of below 500,000, Hampel told the publication. A rise in household formation rates--young people moving out on their own, for example--could occur in the next couple of years, he added. “It’s a fairly bullish picture for first-time home buyers,” Hampel said. However, because home prices are still declining, many Americans--including even those who are not moving soon--don’t feel as good about their wealth because the level of their home equity is still shrinking, BusinessWeek said. “The household sector is still heavily burdened by the debt it took on in the last 10 years,” Hampel told the publication.

News of the Competition (06/16/2009)

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MADISON, Wis. (6/17/09)
* Loan volume at the 21 biggest banks that took government bailout money declined 7% in April, according to a Treasury Department survey. The dollar amount of new loans at the 21 largest recipients of Troubled Asset Relief Program funds dropped 7% to $273 billion. Fifteen of the 21 banks reported a drop in loan originations. The report said part of the decline reflected reduced demand for commercial and industrial loans. However, mortgage, credit card and other consumer loans also were weak in April (CNNMoney.com June 16) … * Maurice Greenberg, former chief executive of American International Group (AIG), plundered the firm’s retirement program of billions of dollars because he was angry about being forced to leave the company, an attorney for AIG told jurors Monday at the beginning of a civil trial. Attorney Theodore Wells said Greenberg improperly withdrew $4.3 billion in stock from the firm in 2005 after the company asked him to resign amid allegations of accounting irregularities. Greenberg claims he had a right to the stock because it was owned by a private company he controlled. Greenberg is expected to take the witness stand this week (Associated Press via Yahoo! News June 16) … * A U.S. judge has approved a legal settlement requiring Optimal Investment Services, a unit of Banco Santander, to pay $235 million for giving New York financier Bernard Madoff billions of dollars. Judge Burton Lifland of U.S. Bankruptcy Court in Manhattan said he approved the settlement, announced May 26, because it would increase recoveries for victims’ of Madoff’s $65 billion Ponzi scheme. Madoff’s sentencing is scheduled for June 29. He pleaded guilty in March (Reuters via The New York Times June 16) … * Visa Europe, the largest payment-card operator in the 27-nation European Union (EU), is facing an antitrust complaint from the retailer group EuroCommerce. The interchange fees paid by retailers, which are set by Visa and member banks, violate EU antitrust rules, claims EuroCommerce. “Retailers are forced to pay for a range of services from which they do not benefit,” said Xavier Durieu, secretary general of EuroCommerce. “Bank rates are the only services which retailers, even the largest ones, are not able to negotiate,” added Durieu. Visa Europe disputes the claims. “EuroCommerce’s claims are unfounded and do not reflect the interests of consumers,” said Visa Europe spokesman Simon Kleine. Visa Europe already is facing charges by the European Commission that its fees prevent competition among banks and boost costs for businesses (Bloomberg.com June 15) … * Independent Community Bankers of America announced Monday that its California Independent Bankers has merged with Community Bankers of California to create a new group called California Independent Bankers. The economy played a role in the decision to merge, said David Haithcock, executive director of the new group. He noted that more than half of the Community Bankers of California’s members were part of the pre-merger California Independent Bankers (American Banker June 16) …

Market News (06/16/2009)

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MADISON, Wis. (6/17/09)
* Home construction rebounded in May, the Commerce Department reported Tuesday. Privately owned housing starts surged 17.2% to a seasonally adjusted annual rate of 532,000 units. The May gain was the largest since a 17.6% increase in February. Multi-family starts surged 61.7% last month, while single-family starts rose 7.5%. However, overall housing starts were down 45.2% from a year earlier. In a hopeful sign for the future, building permits rose 4% to an annual rate of 518,000 units in May. Homebuilders became slightly less hopeful about the market this month. The National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index fell 1 point to 15 in June as builders became more concerned about the future (nahb.org June 15). “As expected, the housing market continues to bump along trying to find a bottom,” noted NAHB Chief Economist David Crowe. “Meanwhile, builders are taking their cue from consumers, who remain uncertain about the economy and their own situation. Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes,” added Crowe … * Credit card defaults rose to record highs in May, with a steep deterioration in Bank of America’s lending portfolio. Delinquency rates declined industrywide, but analysts said the drop reflected a seasonal trend as consumers used tax refunds to pay down debt. Bank of America said its default rate jumped to 12.50% in May, from 10.47% in April. American Express reported that its default rate surged to 10.4% from 9.9%. Defaults typically rise as unemployment increases. Analysts say the jobless rate could peak at 10% by year end, creating loan losses of more than $70 billion. In a hopeful sign, smaller lenders reported lower-than-expected defaults for May. Capital One said its credit-card default rate rose to 9.41% from 8.56%, while Discover Financial said its rate edged up to 8.91% from 8.26%. Lenders are tying to protect themselves by tightening credit limits and standards, shutting down accounts, slashing rewards, and boosting fees (Reuters via msn.com June 15) … * Wholesale prices remained tame last month amid the weak economy. The Producer Price Index (PPI) rose 0.2 in May following a 0.3% gain in April and a 1.2% plunge in March, the Labor Department reported Tuesday. A 2.9% jump in energy prices more than offset a 1.7% drop in food prices in May. Excluding these volatile categories, the core PPI declined 0.1% in May, following a 0.1% gain in April and the first decline since October 2006. The overall PPI declined 5% over the 12 months ending in May--the largest year-over-year decline since August 1949 (MarketWatch June 16). The decline could spark deflation concerns. However, the core PPI was up 3% over the past year … * Industrial production plunged 1.1% in May following a 0.7% drop in April, as the recession eroded demand. The May drop was widespread, the Federal Reserve said in its report. Manufacturing production fell 1%, while the output of miles declined 2.1%, and the output of utilities fell 1.4%. The production of durable goods fell 1.8% last month, with the largest declines in motor vehicles and parts and in machinery. Industrial production was down 13.4% from a year earlier. The rate of capacity utilization fell to a record-low 68.3% in May, from 69% in April and 12.6 percentage points below its 1972-2008 average. Prior to the current recession, the record low was 70.9% in December 1982. Plant closures at General Motors and Chrysler will continue to weigh on industrial production going forward … * The U.S. economy will begin to recover modestly during the third quarter, and the housing market will hit bottom in the fourth quarter, according to the latest UCLA Anderson Forecast. “The free-fall stage of the recession appears to be over and in fact we anticipate that the economy will record positive, albeit minimal, growth as early as the third quarter,” said the report. However, home prices are expected to take another three years to recover. And unemployment is predicted to peak at 10.4% next year. “We are forecasting the weakest economic recovery of the post-war era with real growth in the order of 2% to 3%,” said the report (Reuters via Yahoo! News June 16) … * Delinquencies on commercial mortgage-backed securities continued to increase in May, Fitch Inc. reported Monday. The delinquency rate jumped to 2.07%, up 19 basis points from April and the highest percentage since Fitch began reporting the data in 2001. At 4.55%, the multifamily delinquency rate was the highest among all property types. The delinquency rate for the retail sector was 2.24%. Fitch expects that rate to continue increasing as consumer spending tightens further, and as retailers lose tenants. Delinquencies on loans backed by hotels remained below average, at 1.91%. However, Fitch expects that rate to increase in the months ahead (Dow Jones Newswires June 16) …

News of the Competition (06/15/2009)

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MADISON, Wis. (6/16/09)
* Lincoln Financial Group announced Monday that it plans to take federal bailout money and sell stock and debt to raise $2 billion for shoring up its insurance unit and repaying older debt. The firm also said it plans to sell its UK subsidiary to Canada’s Sun Life Financial for $319 million. Last month, the government said six large insurers are eligible for money under the Troubled Asset Relief Program. On Friday, Hartford Financial Services said it would take as much as $3.4 billion in bailout money and sell up to $750 million of common stock to boost its capital. Four other insurers--Allstate, Ameriprise, Principal Financial Group and Prudential Financial--have declined the money (Reuters via The New York Times June 15) … * Citigroup has agreed to work with a private-sector arm of the World Bank to develop a $1.25 billion funding facility in a three-year program to stimulate emerging-markets trade. Global trade has plunged over the past year as the recession deepened. The bank announced Monday that it will provide 70%, or about $750 million, to lenders in Asia, the Middle East, Africa, and Latin America. The International Finance Corp. and other development agencies will purchase participations for the remaining $500 million. The funding is expected to support as much as $7.5 billion in trade flows (Reuters via The New York Times and The Wall Street Journal Online June 15) … * European governments have approved $5.3 trillion of aid to support banks during the credit crisis, according to a European Union (EU) document obtained by Bloomberg News (June 15). The total tops Germany’s $3.3 trillion economy, the largest in the region. At $1.1 trillion, the UK. pledged the largest sum of any of the 27 members of the EU. In comparison, the U.S. has spent, lent or committed $12.8 trillion, a sum that almost equals the value of everything produced in the nation last year … * The Department of Housing and Urban Development (HUD) has suspended three lenders--Golden First Mortgage Corp. of Great Neck, N.Y., Great Country Mortgage Bankers of Coral Gables, Fla., and Beneficial Mortgage Corp. of San Juan, Puerto Rico--from originating Federal Housing Administration single-family loans while the agency investigates their lending practices. HUD’s Mortgage Review Board cited Golden First and Beneficial for failing to notify HUD of investigations by other regulators. HUD said an audit of Great Country found multiple violations of FHA requirements (National Mortgage News via American Banker June 15) … * The Federal Home Loan Bank of Pittsburgh and the Federal Home Loan Bank of Topeka reported their first-quarter results on Friday, the last two FHLBs to post results. The Pittsburgh bank said it lost $23.6 million as it took a $30.5 million other-than-temporary impairment (OTTI) charge against its income and set aside $35.3 million as reserves against its exposure to Lehman Brothers. The Federal Home Loan Bank of Topeka earned $60.9 million as it took more than $1 billion of OTTI charges, most of which were run against other comprehensive income, which doesn’t affect net income (American Banker June 15) …

Market News (06/15/2009)

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MADISON, Wis. (6/16/09)
* Auto-loan delinquencies soared during the first quarter, TransUnion reported Monday. The 60-day delinquency rate was 0.83%, up almost 28% from 0.65% a year earlier. While remaining relatively low, the increase suggests that “consumers continue to be stressed,” said Peter Turek, automotive vice president at TransUnion. Other data from the credit-reporting agency show consumer stress as well. The mortgage-delinquency rate jumped to 5.22% in the first quarter, up 62% from a year earlier and the ninth consecutive quarterly increase. The delinquency rate for bank-issued credit cards surged 11% to 1.32%. For auto-loan delinquencies, Mississippi saw the highest rate in the first quarter, at 1.49%, followed by Louisiana, at 1.4%. TransUnion predicts that average auto-loan delinquencies will continue to increase through year-end, to about 1%--the same level as during the 2001 recession. Mortgage and credit card delinquencies also are expected to continue rising (Associated Press via The New York Times June 15) … * Credit card interest rates wavered during the past week, according to Bankate.com. Overall, the average annual percentage rate (APR) on variable-rate credit cards edged up to 10.88%, from 10.85% the previous week. Low-interest cards continued to charge an average 9.01%, unchanged from the previous week. The APR for cash-back cards fell to 14.1% from 14.28%, while the average APR for balance-transfer cards fell to 13.47% from 13.62% (Associated Press via The New York Times June 15) … * The International Monetary Fund (IMF) boosted its forecast for the U.S. economy this week. The U.S. economy is expected to contract 2.5% this year before expanding 0.75% in 2010. An April forecast called for a 2.8% contraction this year, followed by no growth in 2010. However, the IMF said risks are “tilted to the downside,” and the Federal Reserve may need to ease credit further. “The combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010,” said the agency. Unemployment is expected to peak at 10% in 2010, keeping core--excluding food and energy--inflation at “very low levels.” However, the IMF cautioned that increased government debt will place “significant pressure on Treasury bond rates.” The federal budget deficit is projected to average 9% of the nation’s gross domestic product from 2009 through 2010 (Bloomberg.com June 15) … * Global financial leaders from the Group of Eight leading countries are beginning to discus how they will unwind their emergency spending programs and bank rescues amid signs of a bottom to the financial crisis. In the U.S., jobless claims have begun to stabilize, and consumer spending has stopped declining on a monthly basis. However, leaders also emphasized that the economic danger isn’t over, and they aren’t yet suggesting spending cuts. “Where we have seen improvements, they are the result of the unprecedented scope and intensity of policy actions to support demand and financial repair,” said U.S. Treasury Secretary Timothy Geithner. “These early signs of improvement are encouraging, but the global economy is still operating well below potential, and we still face acute challenges.” (The Wall Street Journal Online and The New York Times June 15) … * Foreign demand for U.S. financial assets slowed in April as China and Japan trimmed holdings of Treasury securities, the Treasury Department reported Monday. Net purchases of stocks, notes and bonds dropped to $11.2 billion, from $55.4 billion in March. International holdings of Treasuries rose a net $41.9 billion, compared with $55.3 billion. China trimmed holdings to $763.5 billion from $767.9 billion. Japan reduced holdings to $685.9 billion from $686.7 billion. Including short-term securities such as stock swaps, foreigners sold a net $53.2 billion of U.S. financial assets in April, compared with net buying of $25 billion in March (Bloomberg.com and Associated Press via Yahoo! News June 15) … * An estimated 1.9 million jobs were eliminated across the European Union (EU) during the first three months of this year--the biggest decline on record, the EU statistical agency Eurostat reported Monday. The plunge occurred as demand for goods and services in Europe and in export markets declined. The number of people employed in the EU declined 0.8% in the first quarter, the sharpest decline in records going back to 1995. EU business federation BusinessEurope predicts that 4.5 million workers will lose their jobs this year (Associated Press via The New York Times June 15) … * The manufacturing sector in the New York region weakened in early June, according to a report by the New York Federal Reserve Bank. The Empire State Index dropped to a negative 9.4, from a negative 4.6 in May. In June, 38% of manufacturers said business weakened, compared with 28% in May. The index has improved from the record-low 38.2 hit in March, but has remained below zero for the past 14 months. On the bright side, manufacturers have become more optimistic about the future. The future business index increased four points to 47.8 in June, the highest level in almost two years (MarketWatch June 15) …

News of the Competition (06/12/2009)

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MADISON, Wis. (6/15/09)
* Citigroup’s bailout has returned taxpayers three times as much as the Standard & Poor’s 500. The return, including dividends, since the government first bought a stake in Citigroup on Oct. 28 has been 7.5%, compared with a 2.4% return for the S&P 500. The government has pumped a total of about $45 billion in bailout money into Citigroup. Returns have been boosted by dividends on preferred shares linked to that money, as well as a tripling in the firm’s stock price since March. The government’s $45 billion investment in Bank of America hasn’t fared as well. Taxpayers have received just a 2.5% return on that bailout (Bloomberg.com June 12) … * Hartford Financial Services Group announced Friday that it will take as much as $3.4 billion of federal bailout money and sell up to $750 million of common stock to boost its capital following huge investment losses. The firm lost $2.75 billion last year. Hartford would be the only insurer so far to participate in the Troubled Asset Relief Program (TARP) after the government in May gave preliminary approval for six insurers to participate. Allstate, Ameriprise Financial, Principal Financial Group and Prudential Financial have declined the money. Lincoln National hasn’t disclosed its intentions (Reuters via The New York Times June 12) … * British bank Barclays has agreed to sell its Barclays Global Investors (BGI) unit to U.S.-based BlackRock, in a $13.5 billion deal that would create the world’s largest asset manager. The agreement calls for Barclays to take a 19.9% stake and two seats on the board of the enlarged firm, which would be named BlackRock Global Investors. The sale would boost Barclays core Tier 1 capital ratio by 150 basis points to 8%. Barclays refused aid from the British government at the beginning of the global crisis, leaving its capital ratio behind rivals including Lloyds Banking Group and Royal Bank of Scotland Group (Reuters June 12) … * Seven merchant groups sent a joint letter to the Payment Card Industry (PCI) Security Standards Council asking it to change its data-security standards (DSS). The groups include the National Retail Federation, the National Restaurant Association, the American Hotel and Lodging Association, the National Council of Chain Restaurants, the Association for Convenience and Petroleum Retailing, the Merchant Advisory Group, and the International Franchise Association. They want individual council members to review and comment on proposed revisions, and they want to push back the sunset date for version 1.1 by a year. They also want an option for merchants to not store card data. Members of the groups “take data security seriously and have spent in excess of $1 billion on PCI DSS compliance as part of their security programs. However, it is becoming increasingly difficult for our members to comply with the program’s requirements in a cost-effective and timely manner, especially in this difficult economic climate,” said the letter (CardLine via American Banker June 12) … * The Federal Reserve’s balance sheet shrank to $2.05 trillion last week, from $2.08 trillion the previous week, even as the Fed increased purchases of Treasury securities by $22.52 billion to $628.69 billion. Borrowing by commercial banks through the discount window declined to $35.41 billion from $41.93 billion, while borrowing by primary dealers remained at zero for a fifth consecutive week. The data suggest the central bank is shifting from lending to offering credit through facilities targeted at improving specific market segments. The Fed’s holdings under the Term Asset Backed Securities Loan Facility increased to $25.24 billion, from $15.38 billion, while its net portfolio holdings in connection with a commercial-paper funding facility dropped $4.20 billion to $138.44 billion (Dow Jones Newswires June 11) …

Market News (06/12/2009)

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MADISON, Wis. (6/15/09)
* Rising bond yields pushed the 30-year, fixed-rate mortgage (FRM) to a seven-month high last week, Freddie Mac reported Thursday. The rate jumped 30 basis points to 5.59%, the highest level since 5.97% during the week ended Nov. 26. The average 15-year FRM surged 27 basis points to 5.06%, while the one-year, adjustable-rate mortgage (ARM) increased 23 basis points to 5.04%. “Mortgage rates followed the increase in bond yields this week as the May employment report showed that the economy lost fewer jobs than the market consensus had expected,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He also noted that rising mortgage rates so far have slowed refinancings, but not home purchases. Mortgage rates are still lower than they were a year ago. At this time last year, the 30-year FRM averaged 6.32%, while the 15-year FRM stood at 5.93%, and the one-year ARM was at 5.09%. For CUNA's Daily Financial Rates, use the link … * After taking huge hits to their retirement portfolios, many seniors are turning to reverse mortgages to supplement their income. A new law that boosted the maximum value seniors can borrow also has helped stimulate demand for reverse mortgages. And the housing slump has made it tougher for seniors to sell their homes and downsize. The number of federally insured reverse mortgages surged almost 20% in March and April, compared with a year earlier. The government insured 11,660 reverse mortgages in April, the highest monthly total since the government-backed mortgage program was launched in 1990. In comparison, the number of new home-equity loans plunged about 70% in the first quarter, according to trade publication Inside Mortgage Finance. Still, some consumer advocates caution that reverse mortgages are expensive. The loans can cost as much as 10% of a home’s value over the life of the loan in fees, notes David Certner, legislative policy director for AARP (The Wall Street Journal Online June 10) … * Consumer confidence hit a nine-month high in June, even though consumers remained quite concerned about their jobs and income. The Reuters/ University of Michigan Surveys of Consumers’ preliminary index of confidence for June edged up to 69, from 68.7 in May and the fourth consecutive gain. “Job and income uncertainty, however, remained high and constitute a significant barrier for completing planned purchases,” said the report. “The economic recovery was thought to be weaker than originally anticipated, leading consumers to expect a longer period of time before the recovery gets underway.” Consumers’ assessment of current conditions rose to 74.5 in June, from 67.7 the previous month and the highest level since September. However, consumer expectations for six months from now dropped to 65.4 from 69.4. The report overall suggests consumers will remain cautious about their spending (Reuters and Bloomberg.com June 12) … * The nation’s unemployment rate will remain above 9% through the end of next year, according to the latest survey of economists by The Wall Street Journal (June 11). The consensus calls for the recession to end in August. Most respondents believe the Federal Reserve won’t increase interest rates until next spring at the earliest. Home prices are expected to continue declining until the first half of 2010, then remain mostly flat for the rest of the year. Economists say inflation isn’t a near-term threat. The consensus calls for the consumer price index to remain at 2% or lower through 2010, within the Fed’s comfort level. And respondents view the recent surge in the 10-year Treasury yield as a sign that markets are stabilizing, not as an indication that investors are worried about the U.S. deficit and higher inflation … * The U.S. economy is performing better in the global recession than Europe. The U.S. economy is expected to contract 2.8% this year, compared with an expected 4.2% downturn in Europe’s economy. And many analysts expect Europe’s recession to continue well into 2010, while the U.S. is expected to resume growth in the fourth quarter. “The shock originated in the U.S., but Europe is paying a higher price,” noted Jean Pisani-Ferry, director of the Brussels-based Bruegel research center. The U.S. government has committed huge sums of money to shore up its financial system and stimulate economic growth, while Europe has lagged due to budget and inflation concerns. Still, some analysts say Europe could come out ahead in the long term because it won’t be as burdened by debt as the U.S. (The New York Times June 12) … * The U.S. federal budget deficit soared in May, boosting the total shortfall for the current fiscal year to almost $1 trillion, the Treasury Department reported last week. The deficit totaled $991.95 billion in the first eight months of the fiscal year, compared with $314.4 billion in the same period of the previous fiscal year. The deficit totaled $454.8 billion for all of the previous fiscal year. The current deficit makes up about 12% of the nation’s gross domestic product--the highest level since World War II, noted Gus Faucher, director of macroeconomics at Moody’s Economy.com. “We’re going to see very large budget deficits for the next couple of years,” said Faucher (CNNMoney.com June 11) …

News of the Competition (06/11/2009)

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MADISON, Wis. (6/12/09)
* Washington Mutual and its new owner, JPMorgan Chase, are illegally reducing and freezing customers’ home equity lines of credit (HELOCs), according to a federal class action lawsuit filed Thursday. The suit said the firms use flawed automated valuation models that deliberately undervalue homes so they can freeze HELOCs. The suit was filed on behalf of Michell Kimball, a small businesswoman who found out her credit line was frozen when a check drawn on her account was dishonored. She alleges that when she contacted Chase, a customer service person said an automated valuation model showed that her home had lost equity. Chase refused to provide data on the assessment. An independent appraisal showed that Kimball’s home value actually was 1.5 times Chase’s estimate (PRNewsChannel June 9) … * New York Attorney General Andrew Cuomo announced Thursday that Riverstone Holdings has agreed to pay $30 million to resolve its involvement in a “pay-to-play” investigation involving the New York State Common Retirement Fund, the state’s largest pension fund. Cuomo said Riverstone is the second investment firm to agree to a code of conduct about investments in state pension funds. The code includes a ban on placement agents and lobbyists, and restrictions on campaign contributions to officials who can influence investment decisions. Cuomo has issued subpoenas to more than 100 investment firms and their agents in his ongoing investigation. Cuomo said he hopes the code of conduct will be incorporated into law in the state. “This pay for play has gone on from one comptroller to the next. It will continue until the system is changed,” said Cuomo (The Wall Street Journal Online June 11) … * A proposed $586 million settlement to end investor lawsuits over initial public offerings (IPOs) during the late 1990s stock-market boom was given preliminary approval by Judge Shira Scheindlin on Thursday. The settlement would end more than eight years of litigation in more than 300 suits against 55 investment banks and 300 firms what went public. The suit claims the prices of many IPOS were manipulated, and that underwriters required investors to purchase shares at inflated prices. The settlement would be much less than the $1 billion initially sought. Scheindlin said a larger settlement was unlikely in the current economy. Bank defendants include JPMorgan Chase, Morgan Stanley, Goldman Sachs, and Credit Suisse Group (Reuters via Yahoo! News June 11) … * Many credit card issuers are coping with the economic slump by halting their acquisition efforts and focusing on current customers, according to MasterCard Inc. “Marketing campaigns that existed a year ago to acquire accounts … have pretty much shut down,” said Chris McWilton, U.S. markets chief at the card firm. Instead, issuers are “working through credit losses,” and trying to manage risks and potential losses, added McWilton. However, Aite Group analyst Adil Moussa said issuers haven’t totally retreated from customer acquisitions, but instead are focusing more on online efforts and branch acquisitions (CardLine via American Banker June 11) …

Market News (06/11/2009)

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MADISON, Wis. (6/12/09)
* Foreclosures edged down in May, but probably will remain elevated this year and into 2010 as layoffs rather than subprime mortgages become the primary reason for defaults. Foreclosure filings fell 6% in May, compared with April, but were up 18% from a year earlier, according to a report by RealtyTrac Inc. More than 321,000 people received at least one foreclosure-related notice last month, representing one in every 398 households. Banks repossessed about 65,000 homes in May, up from 64,000 the previous month, due to surges in several states including Michigan, Arizona, and Nevada. RealtyTrac predicts that 4 million foreclosure filings will be made this year on about 3.1 million households. In 2008, there were 3.1 million filings on 2.4 million households. In a typical year, there are only about 800,000 filings on 550,000 households, noted Rick Sharga, senior vice president at RealtyTrac. “We need to give the administration’s programs a little bit of time to gain traction. If unemployment continues to worsen, all bets are off on foreclosure rates.” (Reuters and Associated Press via Yahoo! News June 11) … * Retail sales rebounded in May amid gains in gasoline and autos. Sales rose 0.5%, following declines of 0.2% in April and 1.2% in March, the Commerce Department reported Thursday. However, sales were down 9.6% from a year earlier. Sales are adjusted for seasonal difference, but not for price changes. Gasoline sales surged 3.6% last month, reflecting higher prices. Motor vehicle sales rose 0.5%. Excluding autos and gasoline, sales rose just 0.1% in May. Sales are trending about flat, a big improvement from the large, sustained declines in the second half of 2008, noted Moody’s Economy.com (June 11). However, the personal savings rate has surged by more than 5.7 percentage points during the past year. The research firm predicts that consumers will remain focused on savings amid the weak job market, huge declines in wealth, and tight credit … * Households lost $1.33 trillion of their wealth in the first quarter as property and portfolio values declined in the recession, the Federal Reserve reported Thursday. The total net worth of households declined 2.7%, or $1.33 trillion, to $50.38 trillion in the first quarter--the lowest level since the third quarter of 2004. The decline followed an 8.6% drop in the fourth quarter. The value of households’ stock holdings fell by 5.8% in the first quarter, and the value of real-estate holdings declined 2.4%. Homeowners collectively had just 41.4% equity in their homes--down from 42.9% in the fourth quarter and the lowest on records going back to 1945. There are some hopeful signs ahead for households. The stock market began to rally in early March, and the housing market has shown some tentative signs of stabilization (Associated Press and The Wall Street Journal Online June 11) … * Household debt fell at a 1.1% annual rate in the first quarter, following a 2% drop, according to the Federal Reserve report. Home-mortgage debt was unchanged in the first three months of this year, while consumer credit fell at a 3.5% pace. Nonfinancial business borrowing declined at a 0.3% pace. “The slowdown was concentrated in commercial paper, loans, and commercial mortgage borrowing,” said the Fed. State and local government debt rose at a 4.9% pace in the first quarter, compared with a 0.4% dip in the previous quarter (The Wall Street Journal Online June 11) … * Long-term unemployment rose to another record high, even as initial claims for unemployment insurance declined, according to the Labor Department. Continuing claims--the number of people still on the benefit rolls after an initial week of aid--jumped by 59,000 during the week ending May 30 to 6.816 million--the highest on records going back to 1967. Data for the previous week were revised to an increase of 6,000 from the previous report of a 15,000 decline. Continuing claims have set records for the last 19 consecutive weeks, indicating that people are having a very difficult time finding new jobs after they’ve been laid off. The government also reported that first-time claims for unemployment insurance declined by 24,000 during the week ended June 6 to 601,000, suggesting that the pace of layoffs is slowing, even as employers remain hesitant to hire. Initial claims are down sharply from the 674,000 level hit in March. However, auto-factory closures and layoffs probably will cause an increase in new claims in the months ahead (Associated Press via Yahoo! News and Moody’s Economy.com June 11) … * Economic conditions remained weak and even deteriorated in many regions of the nation from mid-April through May, according to the Federal Reserve’s latest Beige Book survey. Retail spending remained soft nationwide, and several districts reported that tight credit crimped auto sales. Labor markets also remained weak. The commercial real estate market showed no signs of a bottom, with almost all districts reporting higher vacancy rates and declining rents. However, the housing market showed some signs of life during the period. Higher home sales and some stabilization in home construction was reported by the New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas and San Francisco districts. Lower mortgage rates, higher affordability, and the first-time homebuyer tax incentive helped lure fist-time buyers into the market (The Wall Street Journal Online and Moody’s Economy.com June 11) … * The global economy will shrink about 3% this year as unemployment continues to rise and production remains weak, the World Bank said Thursday. The forecast is more dismal that the 1.7% contraction expected in March. “Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain,” said World Bank President Robert Zoellick. He noted that requests for loans from the bank hit records this fiscal year. The bank predicts that developing countries may need $350 billion to $635 billion this year to help them cope with the global economic crisis. On a hopeful note, Zoellick said Chinese growth could surprise on the upside, a factor that could help stimulate global growth (Bloomberg.com and Reuters June 11) …

News of the Competition (06/10/2009)

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MADISON, Wis. (6/11/09)
* The default rate on commercial mortgages held by banks will jump to a 17-year high of 4.1% by year end as the recession dampens rents and refinancing remains difficult, according to an analysis of Federal Deposit Insurance Corp. data by Real Estate Econometrics LLC. “The dramatic decline in real economic activity and labor markets since last September has undercut property fundamentals,” noted Sam Chandan, chief economist at the New York property research firm. The forecast translates into defaults on $44.3 billion of commercial mortgages in the $1.08 trillion held by banks in the first quarter. Commercial defaults already arose to a 15-year high of 2.3% in the first quarter, from 1.6% at year-end 2008. The firm predicts that the default rate will hit 5.2% by year-end 2010, and then peak at 5.3% in 2011 before beginning to decline (Bloomberg.com June 9) … * Citigroup has finalized a deal with the federal government that will recapitalize the firm with $58 billion of new common stock and make the taxpayer its biggest shareholder. The government will have about a 36% stake in Citigroup. The stock swap, which was scheduled to occur in April, was slowed by negotiations between Citigroup and federal officials. The conversion rate will be $3.25 a share, a 32% premium over the closing price the day before the offer was announced (MarketWatch and Dow Jones Newswires June 10) … * Issuance of securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie May will slow next month as the recent surge in mortgage rates weakens refinancings, say mortgage-bond analysts at Citigroup. Issuance probably will total $115.9 billion in July. That’s down from a $164.6 billion forecast made May 11. Yields on mortgage securities have surged as prices tumbled, boosting borrowing costs and undermining efforts to stabilize home prices. On Tuesday, yields on Fannie Mae’s current-coupon, 30-year, fixed-rate mortgage bonds edged down by 0.05 percentage point to 4.97%. In comparison, the rate was 3.94% on May 20. The average 30-year, fixed-rate mortgage rose to 5.51% on Monday, from a record-low 4.85% on April 28, according to Bankrate.com (Bloomberg.com June 10) … * The Federal Home Loan Bank of Seattle may be undercapitalized, has lost its largest customer, exhausted its retained earnings, and is experiencing continued problems with mortgage investments, prompting analysts to question if its business can recover. The Federal Housing Finance Agency has given the bank 30 days to appeal last week’s notification of potential undercapitalization. Seattle bank CEO Richard Riccobono says accounting rules are responsible for its problems. “We have not lost a nickel on our private-label MBS (mortgage-backed securities),” said Riccobono. But the Seattle bank is facing bigger problems than other Federal Home Loan banks. It lost its largest customer, Washington Mutual, when that firm was acquired by JPMorgan Chase. It also lost Merrill Lynch, which was bought by Bank of America. The Seattle bank’s advances dropped 13.8% in the first quarter. Riccobono hopes JPMorgan Chase will use a Utah charter to become a member of the bank (American Banker June 10) …

Market News (06/10/2009)

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MADISON, Wis. (6/11/09)
* Refinancings continued to decline last week following another surge in mortgage rates, the Mortgage Bankers Association reported Wednesday (mbaa.org June 10). The trade group’s Market Composite Index fell 7.2% during the week ending June 5 to 611. The Refinance Index tumbled 11.8% to 2605.7, offsetting a 1.1% gain in the Purchase Index. The refinance share of mortgage activity was 59.4% last week--down from 62.4% the previous week and the lowest level since November 2008. The average 30-year, fixed-rate mortgage rose 32 basis points to 5.57%, and the one-year, adjustable-rate mortgage (ARM) increased 14 basis points to 6.75%. The 30-year FRM is now up 100 basis pints from the low hit in late March, and this has discouraged refinancings, said Moody’s Economy.com (June 10). However, the stabilizing economy and improved affordability has encouraged homebuying. The research firm also noted that foreclosures will continue to dampen home prices until early 2010 … * In a hopeful sign for the housing market, the nation’s housing inventory declined again in many cities in May, according to a report by ZipRealty. The supply of homes available for sale in 28 top metropolitan areas was down 3.9% in May, compared with the previous month. May inventory was down 24% from a year earlier. Analysts note that the statistics don’t include all foreclosed homes on the market. But the recent drop in inventories and the slow pace of homebuilding “indicate that home prices in many parts of the country could be nearing a bottom,” said housing economist Thomas Lawler (The Wall Street Journal Online June 10) … * Soaring unemployment will delay a recovery in consumer spending and could weaken the economic recovery when it occurs, according to a survey of economists by Bloomberg News (June 10). Respondents expect the jobless rate to rise to 10% by year-end 2009. Restructuring in the auto sector suggests even more job losses ahead. Lower home values, tight credit, and the declining value of retirement funds will blunt spending as well. Consumer spending is projected to decline at a 0.6% rate in the current quarter before picking up to a modest 1.1% pace in the last half of the year. For all of this year, spending is expected to decline 0.7%, the weakest showing since 1974. The economy is projected to contract 2.7% this year, the largest decline in the post-World War II period … * The decline in auto manufacturing has hit Michigan hard. Since 2000, about 800,000 jobs have been lost, or about one in every six. At 12.7%, Michigan’s unemployment rate is the highest in the nation. Restructuring in the auto sector also has helped deepen the nationwide recession. The auto industry, centered in Michigan, now makes up just 1.5% of U.S. economic output--down from 3% in 2007 and a peak of 5% during the 1950s. “If not for the problems in the auto industry, this recession would have been much milder,” said Macroeconomic Advisors economist Ben Herzon. Michigan is trying to reinvent its economy to cope with the auto decline. It is pursuing various technologies, including battery, wind and sun power to help send thousands of auto engineers back to work. And many former autoworkers are going back to school to retrain for new types of jobs (The New York Times June 10) … * Italian automaker Fiat completed its deal to acquire the bulk of Chrysler’s assets Wednesday in exchange for sharing the technology the firm needs to manufacture more fuel-efficient vehicles. The previous day, Chrysler won a battle to eliminate its secured debt after the Supreme Court declined to rule on objections to the Fiat sale from Indiana pension and construction funds. The Fiat deal creates Chrysler Group LLC, which is not under bankruptcy protection and is now free of billions of dollars in debt, 789 dealerships, and thousands of workers. CEO Sergio Marchionne said he plans to soon reopen Chrysler factories that were shut down during the bankruptcy. They will concentrate on producing fuel-efficient vehicles. The federal government will loan the firm $4.7 billion, which will be repaid within eight years with interest and $288 million in fees (Associated Press via Yahoo! News June 10) … * The nation’s trade deficit widened for a second month in April as oil prices surged, the Commerce Department reported Wednesday (The New York Times June 10). The deficit grew to $29.2 billion, from $28.5 million in March. Exports declined $2.8 billion to $121.1 billion in April, while imports fell $2.2 billion to $150.3 billion. Imports of crude oil jumped by $1 billion in April. The trade deficit remains much lower than monthly imbalances of more than $60 billion last year, when oil bumped up to $145 a barrel. However, analysts say the gap could continue to widen as oil prices rise. Oil prices surged to more than $71 a barrel on Wednesday, hitting a new high for the year (Associated Press June 10). Prices have more than doubled in the past three months amid increased expectations for an economic recovery, and as the value of the dollar has declined against other currencies. However, analysts say higher oil prices threaten to derail the recovery as consumer spending on other goods and services is diminished …

News of the Competition (06/09/2009)

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MADISON, Wis. (6/10/09)
* The Treasury Department announced Tuesday that it has agreed to allow 10 of the nation’s biggest banks to repay $68 billion in government bailout money. The banks want to repay the money so they can avoid government restrictions such as caps on executive compensation. The department didn’t name the banks. However, eight banks that took government money and passed the government’s stress tests last month confirmed that they have received permission to repay the money. They are JPMorgan Chase, American Express, Goldman Sachs, U.S. Bancorp, Capital One, Bank of New York Mellon, State Street, and BB&T Corp. Morgan Stanley, which didn’t pass the test, said Tuesday that it was approved to repay the money because it has raised enough capital. Northern Trust, which wasn’t subject to the stress tests, said it also had received permission to repay the money. More than 600 banks received nearly $200 billion in funds, and 22 smaller institutions already have repaid the money they received. Critics say the government is giving up $1.8 billion in annual interest payments by allowing the banks to repay the funds. And taxpayers could still be on the hook for future losses (Associated Press via Yahoo! News and The New York Times June 9) … * Reverse mortgages could be the next subprime mortgage product to see growth soar while taking advantage of a vulnerable part of the population, said Comptroller of the Currency John Dugan. Speaking at an American Bankers conference on compliance issues Monday, Dugan said regulators are creating guidelines to insure consumer protection for reverse mortgages. In a reverse mortgage, an older homeowner receives money from a lender. The funds don’t have to be repaid as long as the borrower lives in the home. “While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages, and that should set off alarm bells,” said Dugan. Most reverse mortgages are insured by the Federal Housing Administration and have little credit risk. However, Dugan noted that proprietary products offer little consumer protection. He said regulators should crack down on lenders that bundle reverse mortgages with other financial products such as annuities or life insurance (Reuters and Chicago Sun-Times June 8) … * New York Attorney General Andrew Cuomo is investigating 15 loan-modification companies over the fees they charge homeowners. Amerimod is one of the firms being investigated for allegedly charging improper upfront fees and using false advertising to lure struggling homeowners. The firm’s typical fee equals 1% of the outstanding mortgage. Cuomo plans to serve that firm with an “intent to sue” letter. Amerimod and company president Salvatore Pane Jr. didn’t immediately return a call for comment on the matter. Cuomo said many of the loan-modification firms charge upfront fees that “are specifically prohibited by law.” He said the “entire industry is a scam” in many ways because the Department of Housing and Urban Development offers free assistance to homeowners. “These are services that homeowners don’t need to pay for in the first place,” Cuomo said (Bloomberg.com and Reuters June 9) … * Bank of America has agreed to settle claims that its employees misled investors about the value and safety of certain securities. The company agreed to “facilitate” the return of more than $3 billion to California clients who bought auction-rate securities (ARS). The market for ARS froze last year when investors started dumping the securities and banks didn’t step forward to purchase them as they routinely did in the past, in turn leaving investors with securities that couldn’t be sold. The California Department of Corporations announced the settlement Monday. The state reached similar agreements with Citigroup and Wachovia in March. Bank of America agreed to a similar settlement with Massachusetts in September (The Wall Street Journal Online and Bloomberg.com June 8) …

Market News (06/09/2009)

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MADISON, Wis. (6/10/09)
* Employers remain reluctant to hire workers in the months ahead, but the pace of job losses has stabilized. In a survey by staffing firm Manpower Inc., 67% of employers said they plan to hold staff levels steady during the third quarter, unchanged from the two previous quarters. “While the numbers may not be as optimistic as we would like, it is positive to see no further deterioration,” said Manpower CEO Jeffrey Joerres. Only 15% of respondents said they plan to add jobs, while 13% expect to cut payrolls, and 5% were undecided. Companies in the leisure and hospitability industry were the most optimistic, with a net 18% planning to hire new workers (CNNMoney.com and MarketWatch June 9) … * The recent rebound in gasoline prices could slow the economic recovery, as consumers have less money to spend on other goods and services. Gasoline prices now average $2.62 a gallon, up sharply from $1.62 at the end of last year. Analysts say the surge reflects investor optimism about an economic recovery, the recent decline of the dollar against other currencies, and production cuts by oil exporters. Last summer, consumers were spending $1.5 billion per day to fuel their vehicles, according to the Oil Price Information Service. They were spending about $600 million per day at the beginning of this year. Now they’re spending about $1 billion per day, said Tom Kloza, chief oil analyst at the firm (The New York Times June 9) … * The global recession may have hit bottom after central banks and governments helped ease credit strains--thus boosting investor sentiment, the Bank for International Settlements (BIS) said Monday. Economic statistics “turned out to be less gloomy than expected, particularly for the U.S.,” said the report. The Labor Department reported Friday that job losses slowed sharply in May. But the BIS report also noted that government bond yields have increased as policy measures encouraged an increase in “risk appetite” for investors. The BIS said investors have become concerned that governments may not be able to meet their growing obligations (Bloomberg.com June 8) … * The recession moderated this spring as a rebound in seasonal hiring helped offset the effects from rising bankruptcies and foreclosures, according to the Associated Press’s Economic Stress Index (June 8). The average Stress score was 9.7 in April, down from 10.3 in March but up from 5.9 a year earlier. All but 23 of the counties surveyed saw higher unemployment in April than a year earlier, amid growing job losses in manufacturing, construction, retail and financial activities. Foreclosure rates edged up in about half the counties. More economic stress will occur in Michigan and Ohio over the next three to six months “as we see a lot of auto-related jobs disappear,” said Steven Cochrane, managing director of Moody’s Economy.com … * Global business confidence remains consistent with a synchronized recession, but one that is quickly moderating, according to the latest Moody’s Economy.com Survey of Business Confidence. U.S. and Canadian confidence has improved in recent weeks. And businesses have become more confident about the outlook through year-end. However, businesses continue to slash jobs, and inventories and pricing remains weak. In a hopeful sign, sales are stabilizing in the U.S. and Canada … * Rising bond yields are threatening the housing-market recovery as mortgage rates rise in tandem. “Volatility has increased dramatically and it seems to get more each day,” said Thomas Roth, head of U.S. government-bond trading at Dresdner Kleinwort. “A lot of that has to do with uncertainty about whether the Fed will increase purchases of Treasuries,” added Kleinwort. The daily range of the 10-year Treasury yield has averaged 12 basis points since March 18, up 8.6 basis points since 2002. The average 30-year, fixed-rate mortgage rose to 5.45% last week, up from a low of 4.85% in April, according to Bankrate.com data. The Congressional Budget Office estimates that the federal deficit will hit $1.85 trillion in the fiscal year ending Sept. 30, compared with last year’s $455 billion deficit. (Bloomberg.com June 8) …

News of the Competition (06/08/2009)

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MADISON, Wis. (6/9/09)
* Bank of Lincolnwood was shut down by federal regulators late Friday--the 37th bank failure this year, and the sixth in Illinois. Oak Brook, Ill.-based Republic Bank of Chicago agreed to assume Lincolnwood’s $202 million of deposits and to purchase $162 million of the bank’s $214 million in assets. The Federal Deposit Insurance Corp. (FDIC) will retain the remainder of the assets. The FDIC estimates that the failure will cost the deposit insurance fund $83 million (The Wall Street Journal Online June 8) … * A Wells Fargo-owned investment fund has agreed to pay $40 million to settle charges that it inflated the value of a mutual fund that invested primarily in securities linked to mortgage loans, the Securities and Exchange Commission announced Monday. The agency also alleged that the fund only selectively informed shareholders about the fund’s problems. Boston-based Evergreen Investment Management Co. and an affiliate agreed to pay $33 million to compensate shareholders, civil fines totaling $4 million, and $3 million in restitution (Associated Press via The New York Times June 8) … * Former Credit Suisse broker Julian Tzolov has been declared a fugitive. An arrest warrant was issued May 11 and remained under seal until June 4. He is charged with lying to clients about placing more than $1 billion of their money in mortgage-related securities. Tzolov’s attorney said Friday that he doesn’t know the location of his client. Prosecutors say he has been missing since May 9, when he violated bail conditions by leaving his New York home. Eric Butler, another Credit Suisse broker, also is charged in the case and has pleaded not guilty. The two are charged with conspiracy, securities fraud, and multiple counts of wire fraud. A federal judge will decide Monday whether to delay the start of Tzolov’s trial (The Wall Street Journal Online June 8) … * Banks sent out 500 million credit card solicitations during the first quarter, down about half from the fourth quarter and the lowest number since 2000, according to Mintel Comperemedia. Uncertainty about the new credit card law and rising delinquencies prompted the slowdown. However, banks increased advertisements for checking accounts by 29%, and boosted ads for stand-alone debit cards by 96%. A separate Mintel study released in February found that the wealthiest customers continued to receive about the same number of credit card offers (The New York Times June 8) … * Debit card issuers predict that transaction volume will increase 7% in 2009 for both personal identification number (PIN) and signature debit, according to a Pulse Network report that covered a survey conducted by Oliver Wyman. Respondents reported 8% transaction growth in debit cards in the second half of last year. PIN debit volume rose by 15%. Signature debit volume rose 4%. “Debit card use is expected to continue to grow as the economy bottoms out and begins to recover because consumers use their debit cards for a large portion of necessary everyday expenses,” noted Pulse Executive Vice President Cindy Ballard (CardLine via American Banker June 8) …

Market News (06/08/2009)

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MADISON, Wis. (6/9/09)
* The credit card delinquency rate--for bank-issued cards 90 days or more overdue--rose to 1.32% in the first quarter, up 9.1% from the previous quarter and 11% from a year earlier, TransUnion reported Monday. Average borrower debt increased 4.09% over the year to $5,776. Balances usually increase in the first quarter as holiday spending comes due, noted Ezra Becker, director of consulting and strategy at TransUnion’s financial services group. However, this year’s higher balances probably reflect consumers using their cards to pay for necessities, given that holiday spending was weak, added Becker. He said delinquencies increased because consumers used their tax refunds to pay for everyday expenses instead of paying down balances. TransUnion predicts that the delinquency rate will increase to 1.7% by year-end 2009, then peak during 2010 or in early 2011 (CNNMoney.com and Associated Press via The New York Times June 8) … * High medical bills cause almost two-thirds of bankruptcies, according to a study published online last week by The American Journal of Medicine. Medical problems contributed to 62.1% of all bankruptcies in 2007. That number probably has increased during the current recession, which began in December 2007. The report also noted that between 2001 and 2007, the percentage of all bankruptcies attributable to medical problems surged by 50%. Among families who were bankrupted by medical problems, those with private insurance had average medical bills of $17,749, compared with average costs of $26,971 for those without insurance. “The U.S. health care financing system is broken, and not only for the poor and uninsured,” wrote the study’s authors. “Middle-class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones.” (The New York Times June 8) … * Less-educated workers have been hit especially hard by the current recession, according to Labor Department data. The unemployment rate for workers aged 25 years and older who haven’t completed high school surged to 15.5% in May, from 8.4% a year earlier. The jobless rate for people who haven’t been educated beyond high school rose to 10% from 5.2%. In comparison, the unemployment rate for those with four-year college degrees increased to 4.8% from 2.3%. The current recession is less “egalitarian” than the previous ones in 2001 and in 1990-1991, noted Harvard University Labor Economist Lawrence Katz. For less-educated men the current recession “is more like the early 1980s and the 1970s, when that was the group that really got creamed,” Katz added (The Wall Street Journal Online June 8) … * The job market strengthened slightly in May, suggesting a slow recovery, the Conference Board reported Monday. The Board’s Employment Trends Index (ETI) edged up to 89.9, from 89.7 in April. Still, the index was down 20% from a year earlier. “While it is too early to say that the ETI has bottomed, the moderation of the last two months is certainly a sign that the decline in job losses is real and signals that the worst is over,” said Conference Board Senior Economist Gad Levanon. “However, as the economic recovery over the coming months is likely to be very slow, we still expect the unemployment rate to continue to increase to double digits by the end of this year and into 2010.” (conference-board.org June 8) … * Consumer borrowing plunged by $15.7 billion in April, the second-largest decline on record, as the deep recession prompted consumers to cut spending, the Federal Reserve reported Friday. The decline followed a $16.5 billion drop in March. In percentage terms, consumer credit declined at a 7.4% annual rate following a 7.8% decline in March. Revolving credit, which includes credit cards, tumbled at an 11% rate after an 11.2% drop. Nonrevolving credit, which includes auto and vacation loans, fell at a 5.3% rate after a 5.8% decline (Associated Press via Yahoo! News June 5) … * Global airlines will lose a total $9 billion this year, the International Air Transport Association (IATA) reported Monday. The loss is almost twice the previous prediction of $4.7 billion back in March. The IATA said weak consumer confidence, high inventories, and rising oil prices will make any recovery in air travel slow. “There is no precedent for today’s economic meltdown,” said IATA CEO Giovanni Bisignani. “This is the most difficult situation that the industry has faced.” (Associated Press via Yahoo! News June 8) …

Job losses slow unemployment rate up CUs on track

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MADISON, Wis. (6/8/09)--The slowdown in job losses announced Friday is good news that points to an improved economy, but labor weakness suggests a long recovery, according to Mike Schenk, senior economist at the Credit Union National Association (CUNA). Credit union forecasts are on track.
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Nonfarm payroll employment declined by 345,000 in May, about half the average monthly decline in the previous six months, the Labor Department reported Friday. However, the unemployment rate jumped to 9.4%, from 8.9% in April and is the highest since 1983 (see chart). "The easing of employment declines is great news because it's one more important piece of information that strongly suggests the worst of our recent economic turmoil is behind us," Schenk told News Now. "At the same time, we expect labor markets to continue to weaken--albeit at a lower pace--with the unemployment rate drifting up to 10% by year-end and nearing a cyclical peak of 10.5% in 2010. This continued labor market weakness, combined with high debt loads, weak income growth and depressed net worth (stemming from anemic real estate market activity) suggest that recovery will be a relatively long, slow process," Schenk said. "For credit unions this suggests our recently-revised baseline forecast is on track: Expect relatively soft loan growth and continued bottom-line pressures related to fast growth in low-yielding investments and deteriorating asset quality (with higher delinquencies and net chargeoffs)," he added. The number of unemployed people surged by 787,000 to 14.5 million in May. The unemployment rate has increased by 4.5 percentage points since the recession began in December 2007. The number of long-term unemployed (those jobless for 27 weeks or longer) rose by 268,000 to 3.9 million in May. That number has tripled since the beginning of the recession. Including laid-off workers who have given up seeking new jobs and those who have settled for part-time work, the unemployment rate would be 16.4% in May--up from 15.8% in April and the highest number on records going back to 1994 (Associated Press June 5). The average work week dropped by 0.1 hour to 33.1 hours in May, the lowest on records going back to 1964. Manufacturing employment plunged by 156,000 in May. Since its recent peak in February 2000, employment in motor vehicles and parts has declined by 50%. Employment in construction fell by 59,000 in May, down from average monthly job losses of 117,000 during the prior six months. Job losses in retail trade have moderated during the past two months. The sector lost just 18,000 jobs in May. Financial services employment fell by 30,000, while health-care employment rose by 24,000.

News of the Competition (06/05/2009)

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MADISON, Wis. (6/8/09)
* The Securities and Exchange Commission (SEC) has filed civil fraud charges against former Countrywide Financial CEO Angelo Mozilo and two other former executives of the failed mortgage lender. Mozilo, former chief operating officer and president David Sambol, and former chief financial officer Eric Sieracki are charged with securities fraud “for deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share,” said the SEC in a statement. Mozilo also was charged with insider trading for selling his Countrywide stock based on non-public information. The stock sale gave Mozilo $140 million in profits. The SEC complaint claims the three executives “actually knew, and acknowledged internally, that Countrywide was writing increasingly risky loans and that defaults and delinquencies would rise as a result.” Countrywide was the nation’s largest mortgage lender before it was acquired by Bank of America last July (AFP via Yahoo! News June 5) … * Nine people have been indicted on charges of conspiring to defraud Washington Mutual Bank and DLJ Mortgage Capital Inc. in a $92 million mortgage-fraud scheme, prosecutors announced Thursday. Real estate developer Thomas Kontogiannis and eight other defendants are charged with orchestrating fraudulent loans that were sold to the financial firms. They are accused of staging sales of properties financed by mortgage loans. Phony appraisals supported the price of the properties, even when they had fictional addresses. The loans allegedly were financed by lenders controlled by Kontogiannis and then sold to Washington Mutual and DLJ. The nine defendants are charged with conspiracy to commit bank and wire fraud (Reuters June 5) … * Banks are depending on preferred-stock conversions for 22% of their capital fundraising, according to Bloomberg.com data (June 5). Bank of America will use stock conversions to account for $9.5 billion of the $33.9 billion it needs to raise in response to the federal government’s stress tests. The 10 banks instructed by regulators to raise $74.6 billion have announced plans covering $70.6 billion of that amount. They’ll obtain about $15.4 billion of that sum from preferred stock conversions. Banks offering shares are benefiting from a market rebound. The KBW Bank Index is up 113% from its early March bottom … * The Federal Deposit Insurance Corp. has shut down Silverton Bank, an Atlanta-based “bank of banks,” instead of selling the firm to private-equity investors, said a person familiar with the matter. Silverton provides services to other banks. It doesn’t take consumer deposits. Regulators created a “bridge bank” to run Silverton after it was seized on May 1. A consortium of private-equity investors had been in negotiations with regulators about a deal. But ownership restrictions and regulatory problems are making it difficult to get such deals finalized (The Wall Street Journal Online June 5) … * The Federal Reserve’s asset holdings remained at $2.08 trillion in the week ending June 3, the central bank reported Thursday. Total discount window borrowing rose to $124.24 billion, from $123.57 billion the previous week. Borrowing by primary dealers remained at zero for a fourth consecutive week. However, commercial-bank borrowing rose to $42.09 billion from $38.05 billion. The Fed’s portfolio of Treasury securities increased by $6.03 billion to $606.17 billion. The Fed’s holdings under the Term Asset Backed Securities Loan Facility edged down to $15.38 billion from $15.45 billion, while its net portfolio holdings in connection with the commercial-paper funding facility declined by $6.75 billion to $142.64 billion (Dow Jones Newswires June 4) …

Market News (06/05/2009)

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MADISON, Wis. (6/8/09)
* Job losses could soar in the months ahead due to the bankruptcies at General Motors and Chrysler. The Center for Automotive Research predicts that the economy will see 63,000 permanent job losses related to the automakers’ bankruptcies this year, even if the bankruptcies proceed smoothly. Another 179,000 job losses related to the bankruptcies are expected to occur in 2010. If the bankruptcies don’t proceed smoothly, the research firm expects 1.3 million more job losses this year, followed by another 446,000 job losses in 2010. Those estimates don’t include temporary job losses at the auto firms, or the slashing of output at competitors such as Ford Motor and Toyota Motor due to weak sales (CNNMoney.com June 5) … * General Motors has a tentative agreement to sell its Saturn brand to dealership group owner Roger Penske, both firms announced Friday. Penske Automotive Group would get Saturn’s 350 dealerships. Penske said he plans to offer all dealers new franchise deals. He expects to retain all 13,000 Saturn employees. Penske said GM will continue to manufacture Saturn autos for the next two years. However, he is negotiating with other automakers worldwide about making Saturn vehicles after that period. GM announced earlier last week that it found a Chinese buyer for its Hummer brand. GM also wants to shed its Pontiac and Saab brands (Associated Press via Yahoo! News June 5) … * Oil prices surged to more than $70 per barrel Friday following a Labor Department report that showed job losses easing in May. The loss of just 345,000 jobs last month encouraged hope that the economy may have hit bottom. Benchmark crude for July delivery rose to $70.32 per barrel in late morning trading, the highest since October. The stronger-than-expected employment report also sparked a rally in stocks Friday. The Dow Jones Industrial Average jumped 63.35 to 8,813.59 in early afternoon trading. Treasury prices fell, pushing long-term yields to their highest levels of 2009. “There is pretty good evidence that the recession is bottoming,” noted Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. “Just because we’re reaching a bottom doesn’t mean a bounce is imminent,” added Roberts (Associated Press via Yahoo! News June 5) … * The 30-year, fixed-rate mortgage (FRM) surged last week as long-term bond yields soared, Freddie Mac reported Thursday. The 30-year FRM jumped 38 basis points to 5.29%, the highest weekly average in six months. The 15-year FRM increased 26 basis points to 4.79%, while the one-year, adjustable-rate mortgage (ARM) rose 12 basis points to 4.81%. The 30-year FRM “caught up to the recent rise in long-term bond yields this week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The slowdown in the housing market has now detracted from economic growth for the past 13 quarters, the longest quarterly stretch since at least 1947, according to the Bureau of Economic Analysis.” However, he said the housing market may have hit bottom. For CUNA's Daily Financial Rates, use the link … * States are boosting taxes and fees as the recession erodes tax collections. States will pass as much as $24 billion in tax and fee increases in coming weeks, according to a report by the National Governors Association and the National Association of State Budget Officers. Governors’ proposed budgets for fiscal-year 2010 show a 2.5% decline in general fund spending, following a projected 2.2% drop in the current fiscal year. Spending typically increases 6% per year. States are slashing spending on government programs, even though demand for services has surged in the economic slump. According to the report, 25 states have proposed cuts to Medicaid and corrections, and 23 are cutting funds for public assistance (CNNMoney.com June 5) …

Market News (06/04/2009)

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MADISON, Wis. (6/5/09)
* The number of Americans receiving unemployment insurance slightly dropped last week for the first time in 20 weeks, the U.S. Labor Department said Thursday. Also declining was the number of new jobless claims. Although both figures remain substantially above the levels associated with a strong economy, the report does provide a measure of good news for job seekers, analysts said. The number of first-time claimants for jobless benefits dropped to a seasonally adjusted 621,000 from the previous week’s revised tally of 625,000. The total number of jobless benefits recipients declined by 15,000 to 6.7 million--the first drop since early January. Continuing claims--whose data lag initial claims by one week--had set record highs each week since the week ending Jan. 24 (The New York Times June 5) … * The Monster employment index--which measures online help-wanted ads placed by U.S. employers--fell by two points in May to a level of 118. The drop takes the index back down to its January level--which indicates no overall improvement in job availability since the beginning of the year. During May, recruitment declined in all nine census divisions and in 17 of the 20 industries tracked by the index. Overall, the report suggests hiring will not make much progress over the next several months, analysts said (Moody’s Economy.com June 4) ... * First-quarter productivity growth was revised strongly upward and was above the consensus forecast. Nonfarm business productivity grew 1.6%--seasonally adjusted annual rate (SAAR)--from a 0.8% growth in the preliminary release. The consensus was 1.2%. A smaller decline in output caused the revision. Growth in labor unit costs were slightly revised downward. They went up 3% (SAAR) in the first quarter, compared with a previously reported 3.3% increase. Despite the weak economy, productivity growth is good, and there are no inflationary pressures arising from the labor market, analysts said (Moody’s Economy.com June 4) … * Sales for U.S. retailers were lower than expected. The sales were attributed to looking for bargains and basics in May, even though the targets for most chain stores were low, analysts said. Although consumer confidence has improved, factors such as unemployment and the sluggish housing market have caused many Americans to spend less, analysts said. Upscale department stores experienced some of the sharpest declines in sales at stores open at least a year. So far, 13 of 22 retailers reported less-than-expected same-store sales, according to Thomson Reuters statistics (The New York Times June 4) … * The European Central Bank (ECB) and the Bank of England did not change their benchmark interest rates Thursday. The ECB kept its key interest rate--known as the refi--at 1%. Since October it has dropped 4.25%. The British bank kept its main rate at a record-low 0.5%. Both banks instead opted to concentrate on the asset-buying programs that they began, which aim to stimulate the economy, analysts said (The New York Times June 5) …

News of the Competition (06/04/2009)

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MADISON, Wis. (6/5/09)
* JPMorgan Chase & Co. is dissolving an investment banking unit that deals with financial arenas such as hedge funds, leveraged buyouts and real estate. Most of the roughly 150 bankers in the group will be spread out elsewhere in the investment bank, said a person familiar with the matter. JPMorgan will essentially close operations in the U.S. and Europe, but will keep the group’s Asian Private-equity team. Also, the unit’s real estate team, along with the tax-oriented and structured investing component of the group, will be folded into the securitized products business. The move is in step with CEO Jamie Dimon’s strategy to reduce risk throughout the bank’s operations, analysts said (The Wall Street Journal June 3) … * Capital Financial Corp. said Wednesday that the effects of new credit card legislation will be far-reaching for lenders nationwide with a good amount of reinvention of pricing and fee structures in the industry. Capital One CEO Gary Perlin, speaking at an industry convention in New York Wednesday, said areas that will see significant change are the ability of a lender to adjust or reprice outstanding debt, and how much lenders can charge consumers in various fees. Roughly 80% of Americans use credit cards and about half of those carry a balance, according to the White House. The U.S. is about $2.5 trillion in debt--which doesn’t include home mortgages, the Federal Reserve said (Associated Press June 3) … * Green Dot Corp. is on the brink of dramatically changing its fee structure--which could hasten the maturing of the nascent prepaid card market, analysts said. Green Dot is one of the largest and oldest companies in the prepaid market. The move will provide Green Dot cardholders with an incentive to reload and reuse their cards after the initial amount has been spent, analysts added. Green Dot executives said it will cut its up-front fees for all its customers beginning in August. The company also will start waiving monthly maintenance fees for those who use the cards regularly. The new pricing structure will reward repeated use--like frequent flier programs, said Steve Streit, Green Dot founder and CEO. The idea is to incent customers to use the product repeatedly and to not have fees become a consideration in whether they use the card, he added (American Banker June 4) … * American Express Co. and JPMorgan Chase & Co. made moves Monday to sell more common stock to help them repay U.S. government money they received during the financial crisis. American Express intends to raise $500 million through its offering, while JPMorgan said it hopes to raise $5 billion in a share sale. JP Morgan was one of the original U.S. banks to receive government money in October when it accepted $25 billion from the Treasury Department’s Troubled Asset Relief Program (TARP). Late last year, American Express converted into a bank holding company to obtain access to $3.4 billion under the guidance of TARP (MarketWatch June 1) … * Bank of America, Deutsche Bank and Royal Bank of Scotland settled civil charges Wednesday that were filed by the Securities and Exchange Commission (SEC) and the New York Attorney General’s Office. The charges alleged that the three banks misled investors about the risks associated with auction-rate securities. The firms will provide nearly $6.7 billion to 9,600 customers who invested in the securities before the market froze in February 2008. By taking the action, the firms neither admit nor deny the charges. This is the latest in a string of settlements in the SEC’s wide-ranging auction securities case, analysts said (Dow Jones Newswires June 3) ...

News of the Competition (06/03/2009)

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MADISON, Wis. (6/4/09)
* Losses at savings-and-loan associations narrowed during the first quarter, but the number of institutions in trouble increased, the Office of Thrift Supervision (OTS) reported Tuesday. Thrifts lost $47 million, down from losses of $5.4 billion in the fourth quarter and $617 million a year earlier. The first-quarter performance was the strongest since September 2007. Thrifts set aside $5.8 billion for loan losses in the first quarter, down from $9.3 billion in the fourth quarter. However, the number of “problem thrifts” rose to 31, from 26 in the fourth quarter. “We are seeing encouraging signs in the performance of the thrift industry … but it’s too early to say we’ve hit bottom or that the industry’s troubles are behind us,” said OTS acting director John Bowman (Associated Press via Yahoo! News June 3) … * In its first move to use GMAC LLC for incentives, Chrysler LLC is offering five-year, zero-interest loans on some of its models (Bloomberg.com June 3). The financing is an alternative to the rebates of as much as $6,000 for consumers purchasing through credit unions in the Invest in America program. GMAC took over financing from Chrysler Financial as part of the automaker’s government-backed bankruptcy filing. Chrysler wants to clear out inventory before restarting its factories, which have been idled since May 1. Chrysler had an 87-day supply at the current sales pace at the end of May, compared with an industry standard of 60 days … * Sallie Mae expects loan losses to peak this year but remain high into 2010, said CEO Albert Lord. Speaking at a Keefe, Bruyette & Wood’s conference in New York, Lord said losses hit 5.1% of Salle Mae’s private loan portfolio during the first quarter. “Even with chargeoff levels where they are, we’re able to see the edge of the forest,” said Lord. He said most loan losses came from a group of non-traditional loans that were originated from 2003 through 2007. Salle Mae set aside $297 million for managed private-education loan losses during the first quarter. The firm also charged off $202 million in privately managed education loans, up from $159 million in the fourth quarter (Reuters and Associated Press via Yahoo! News June 3) … * In the fourth round of funding through the Term Asset-Backed Securities Loan Facility (TALF), investors in June applied for $11.45 billion in loans from the Federal Reserve to purchase bonds backed by consumer debt. That’s up from $10.6 billion in loans during May and just $4.7 billion in March. “Momentum is growing stronger,” said Michael Wade, head of asset securitization origination at New York-based Barclays Capital. “There are more issuers, more asset classes, and more investors,” added Wade. Still, demand remains centered on auto and credit card asset-backed securities. Investors requested $6.2 billion for credit card TALF loans and $3.3 billion for auto TALF loans (Dow Jones Newswires and Reuters via Yahoo! News June 3) … * KeyCorp and Huntington Bancshares, two of Ohio’s largest banks, announced plans Wednesday to raise common equity as they position themselves to repay federal bailout funds. Cleveland-based KeyCorp. offered to swap common stock for as much as $1.3 billion of convertible preferred stock and trust preferred securities. Columbus-based Huntington plans to sell $300 million of common stock. Regulators ordered KeyCorp to raise $1.8 billion after the government’s “stress tests.” The firm already has raised $1.3 billion. It also received $2.5 billion form the Troubled Asset Relief Program (TARP). Huntington received $1.4 billion from TARP (Reuters and Associated Press via The New York Times June 3) …

Market News (06/03/2009)

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MADISON, Wis. (6/4/09)
* The economic recovery will remain weak as job losses continue and credit conditions remain tight, said Federal Reserve Chairman Ben Bernanke. In Congressional testimony yesterday, Bernanke said the economy probably will bottom out by mid year and then rebound later this year. “A number of factors are likely to continue to weigh on consumer spending, among them the weak labor market, the declines in equity and housing wealth that households have experienced over the past two years, and still-tight credit conditions,” said the Fed chairman. Employers probably “will be cautious about hiring and the unemployment rate is likely to rise for a time, even after economic growth resumes.” Bernanke also noted that it is important to start making plans to reduce the federal deficit. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance,” said the Fed chairman (CNNMoney.com and MarketWatch June 3) … * Vehicle sales accelerated last month as consumers responded to record-high incentives. Vehicles sold at a seasonally adjusted annual rate of 9.9 million units in May, compared with a 9.3 million-unit pace in April. Still, sales were down 30% from a year earlier. Automakers offered incentives worth an average $6,900 in May, up 6% from a year earlier, according to CNW/Marketing Research. Vehicle sales probably have hit bottom. However, sales won’t recover to a more normal pace as job losses continue and credit conditions remain tight. Expect a 10.3-million unit pace by year-end 2010, compared with the 16 million- to 16.5 million-unit pace seen before the recession (Moody’s Economy.com June 3) … * Mortgage activity declined last week as mortgage rates rose and refinancings plunged, the Mortgage Bankers Association reported Wednesday (mbaa.org June 3). The trade group’s Market Composite Index fell 16.2% during the week ending May 29 to 658.7. The Refinance Index tumbled 24.1% to 2953.6, offsetting a 4.3% gain in the Purchase Index, to 267.7. The average 30-year, fixed-rate mortgage (FRM) jumped 44 basis points to 5.25% last week, while the one-year, adjustable-rate mortgage (ARM) edged up 6 basis points to 6.61%. The housing market will remain soft due to high inventories, mounting job losses, and continued home-price declines, said Moody’s Economy.com (June 3). Home prices probably won’t hit bottom until the first quarter of next year … * Mortgage delinquencies rose for a ninth-consecutive quarter during the first three months of this year, according to a TransUnion report. The percentage of borrowers who were 60 days or more overdue on their mortgage payments increased to 5.22%, from 4.58% in the fourth quarter and 3.23% a year earlier. About 7% of mortgages will be 60 days or more overdue on payments by the end of this year if unemployment continues to increase, said Keith Carson, a senior consultant in TransUnion’s financial services group. “Credit performance generally lags economic conditions,” added Carson. “Thus although there have been some pockets of promising news on the economic front, we see unemployment and deflated housing prices continuing to push up delinquency rates through the remainder of this year.” (/PRNewswire/ and Associated Press via Yahoo! News June 3) … * Planned layoffs at large corporations declined in May, compared with the previous month, but remained higher than a year ago, the outplacement firm Challenger, Gray & Christmas reported Wednesday. Employers announced 111,182 job cuts last month, down 16% from April, but up 7.4% from May 2008. The pace of layoffs probably will accelerate as state and local governments downsize and automakers continue to cut jobs, noted John A. Challenger, chief executive of the Chicago-based firm. “While the automakers expect a rebound in the second half of the year, we could continue to see heavy job cuts in the sector, as low output across the board trickles down through the supplier chain,” said Challenger. Employers have announced 822,282 job cuts so far this year, more than double the 394,193 layoffs announced during the same period last year (Reuters via The New York Times and MarketWatch June 3) … * The service sector shrank in May at the slowest pace since October. The Institute for Supply Management’s index for service industries--including retailers, financial services, and health care--rose to 44, from 43.7 in April and the highest reading since last October. Still, a reading below 50 indicates contraction in the sector, which makes up about 70% of the economy. The level of new orders fell to 44.4 last month, from 47 in April, while the employment index rose to 39 from 37. In other news, the Commerce Department reported Wednesday that factory orders rose 0.7% in April, the second gain in the past three months. However, orders for nondefense capital goods excluding aircraft, a proxy for future business spending, declined 2.4% in April, suggesting that manufacturers are still cutting spending amid the weak economy (Associated Press via The New York Times June 3) …

Market News (06/02/2009)

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MADISON, Wis. (6/3/09)
* GMAC Financial Services--the former financing arm of General Motors (GM)--said Monday it continues to meet all its financial obligations and will not seek bankruptcy protection under the U.S. Bankruptcy code. GM, which filed for bankruptcy protection Monday, owns less than 10% of GMAC--which is short on cash, analysts said. The lender received a $5 billion capital infusion from the Treasury Department’s Troubled Asset Relief Program several months ago when it became a bank holding company. GMAC, which is a creditor of GM, said it is following the “appropriate steps” to safeguard its interests during the automaker’s restructuring. GM submitted a motion to the bankruptcy court that would permit the automaker to conduct business with GMAC while GM’s bankruptcy case proceeds (Dow Jones Newswires June 1) … * Yields on Freddie Mac and Fannie Mae’s mortgage bonds are pushing mortgage rates up, which could hamper a housing market recovery, analysts said. Thirty-year fixed-rate mortgages rose 0.22% to 4.54% Monday, according to Bloomberg. The level--which was driven higher Monday by rising benchmark Treasury yields--is up from 3.94% on May 20. Last month’s rise in loan rates undid about one-third of the increase in affordability to buyers for homes, analysts said. About two million more homeowners were able to refinance this year because of the Fed’s plan to buy $1.25 trillion of securities so far this year--a lower than anticipated level, analysts said (Bloomberg News June 2) … * Pending U.S. home sales in April rose the most since 2001, climbing 6.7 %, said the National Association of Realtors (NAR). The gain in the index of signed purchase agreements, or pending home sales, was more than forecast and the fourth increase in five months. Lower home prices attracted more buyers, analysts said. The April number was up 3.2% compared with a year earlier. Declines in home values driven by foreclosures may have placed more homes within reach of first-time buyers, which stabilized the market, analysts said. However, with mortgage rates ceasing to drop and unemployment on the rise, the real estate industry could stay near record lows for months before a sustained recovery occurs, analysts said. (Bloomberg.com June 2) … * The struggling economy and continued credit crunch have led to increases in commercial and multifamily mortgage delinquencies during the first quarter of 2009, according to the Commercial/Multifamily Delinquency Report released Tuesday by the Mortgage Bakers Association (MBA). “Commercial and multifamily mortgage delinquency rates continued to rise in the first quarter,” said Jamie Woodwell, MBA vice president of commercial real estate research. “Delinquency rates on commercial and multifamily mortgages held by banks and thrifts, by Fannie Mae and in commercial mortgage-backed securities (CMBS) are all now at levels higher than at any time since the 2001 recession. First-quarter delinquency rates on commercial mortgages held by life insurance companies remained below the 2001 recession levels.” From the fourth quarter of 2008 to first quarter of 2009, the 30-plus-day delinquency rate on loans held in CMBS rose 0.68 percentage points to 1.85%. The 60-plus-day delinquency rate on loans held in life insurance company portfolios rose 0.05 percentage points to 0.12%. The 60-plus-day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.04 percentage points to 0.34 % while the 90-plus-day delinquency rate rose 0.08 percentage points to 0.09% ... * The court-sanctioned sale of most of Chrysler LLC’s assets to a group led by Fiat SPA will bypass U.S. District Court and be appealed directly to the U.S. Court of Appeals, Bankruptcy Judge Arthur Gonzalez said Tuesday. A group of Indiana pension funds made the appeal. The request to bypass District Court was by Chrysler and Fiat. If the sale is not finalized by June 15--with a one-month extension for antitrust approvals--Fiat can opt out of the sale. “This case involves a matter of public importance, and an immediate appeal may materially advance the progress of this case,” Gonzalez wrote in a two-page order (Bloomberg.com June 2) … * General Motors (GM) announced Tuesday it has a deal to sell its Hummer brand of large trucks. GM did not disclose the name of the buyer or the price. If the deal goes through, it would save roughly 3,000 U.S. jobs, including 153 domestic dealerships, and Hummer would remain U.S-based. GM also said it has 16 buyers interested in purchasing its Saturn brand. The auto manufacturer is pursuing manufacturing agreements with a Saturn buyer, said Ray Young, chief financial officer. Also, three parties are interested in the Swedish Saab brand. GM will sell or shed Hummer, Saab, Saturn and Pontiac in efforts to downsize into a leaner, more robust company through its filing for bankruptcy protection, analysts said (The New York Times June 2) …

News of the Competition (06/02/2009)

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MADISON, Wis. (6/3/09)
* Banks that received funds from the Troubled Asset Relief Program (TARP) decreased their lending on average by 0.8% in March, compared with February, according to a Treasury report issued Monday. Commercial loans from financial institutions that were part of the U.S government’s $700 billion bank bailout fund declined 1.2%, on average, during March, while consumer lending dropped 0.5%. Banks that received funds from the Capital Purchase Plan (CPP) made $2.88 trillion in consumer loans in March, down from $2.9 trillion in February. CPP recipients made $2.35 trillion in commercial loans in March--down from $2.4 trillion in February (MarketWatch June 1) … * Freddie Mac announced its plans Monday to repurchase up to $30 billion of debt securities that are coming due in the next 15 months. The tender offer expires Friday. The move is part of the government sponsored enterprise’s strategy to restructure its balance sheet, analysts said. Freddie’s debt has $69.9 billion in principal outstanding. Last month, Freddie reported a first-quarter loss of $9.85 billion, fueled by mounting mortgage default costs, and said it will require an additional $6.1 billion of capital from the Treasury Department. The debt buyback aims to decrease refunding risk and match longer-duration modified mortgage assets, said Margaret Kerins, head of agency strategy at Royal Bank of Scotland (Dow Jones Newswires June 1) ... * The Dow Jones Industrial Average will soon replace Citigroup Inc. with Travelers Companies Inc.--which Citi sold seven years ago. Analysts said the development is the most recent embarrassment for Citi, which will lose its place on the Dow Monday after losing money off mortgage-related debt, accepting billions in federal government rescue funds and seeing its stock fall to as low as 97 cents. “This has no impact on the company’s strategy or our efforts to return Citi to sustained profitability, Citi said Monday. “Citi has strong businesses and good growth prospects.” In another move, the Dow dropped General Motors in the wake of its bankruptcy filing (Dow Jones Newswires June 1) … * Morgan Stanley, American Express Co. and JPMorgan Chase Co. have raised at least $7.7 billion selling stock after the Federal Reserve stipulated that additional capital requirements be met by firms that seek to repay U.S. rescue funds. JPMorgan, the second largest U.S. bank, sold $5 billion of common stock; Morgan Stanley, the sixth largest U.S. bank by assets, sold $2.2 billion; and American Express Co., the credit card company, sold $500 million (Bloomberg.com June 2) ...

News of the Competition (06/01/2009)

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MADISON, Wis. (6/2/09)
* O. Temple Sloan, long-time director of Bank of America Corp. (BofA), this week offered his resignation to new board chairman Walter Massey, BofA said. BofA did not disclose Sloan’s reason for resigning. Sloan, 70, served for 13 years as BofA director. During that time, Sloan was chairman of the executive committee and the compensation and benefits committee. “Temple has been a trustee adviser who has made an invaluable contribution to the success of our company,” Kenneth Lewis, BofA CEO said in a statement. “We will miss his counsel and leadership.” (Sacramento Business Journal May 29) … * Citigroup Inc. said Friday it intends to sell an additional $4 billion of bonds that are backed by credit cards and also eligible for the Federal Reserve Board’s Term Asset-backed Securities Loan Facility (TALF). The highest-rated securities could yield 210 basis points more than the one-month London interbank offered rate, said a person familiar with the offering. During the first round of financing under TALF in March, the Fed extended $2.8 billion of loans to fund the purchase of securities in Citigroup’s $3 billion offering (American Banker June 1) … * Citigroup Inc. might be the only large U.S. bank that has to accept an offer that Federal Reserve Chairman Ben Bernanke’s made in February. The offer: when financial stocks dropped to their lowest level in 17 years, the Fed would buy substantial stakes in banks. Vikram Pandit, Citigroup CEO, has a plan to convert $25 billion of government-held preferred shares into a 34% voting stake. The plan contrasts with negotiations that Goldman Sachs Group Inc. and JPMorgan are conducting to redeem preferred shares they sold in October to the U.S. through the Troubled Asset Relief Program, analysts said (Bloomberg.com June 1) …

Market News (06/01/2009)

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MADISON, Wis. (6/2/09)
* General Motors Corp. (GM) filed for Chapter 11 bankruptcy Monday in U.S. Bankruptcy Court in Manhattan, culminating a long debate about the automaker’s future after it received federal bailout money in December to stay solvent. GM couldn’t finish its restructuring out of court, so it filed for court protection to get billions of dollars in help from U.S. taxpayers, analysts said. The federal government has agreed to provide another $30 billion in aid to GM on top of the $20 billion GM already has borrowed. The additional aid aims to help GM through its restructuring and departure from bankruptcy protection, analysts said. As part of the deal, the government will obtain a controlling stake--60%--in the company. Also, the Canadian and Ontario governments are chipping in $9.5 billion for a 12.5% stake. Despite the reorganization, risks still abound, ranging from legal challenges to uncertainty about when there will be a rebound in consumer demand for cars, said the analysts (The Wall Street Journal June 1) … * U.S. construction spending rose in April, reaching a total that was 0.8% above the revised March level. Compared with April 2008, construction spending was still down 10.7%. Private construction spending for the month was 1.4% above its March level. Two components of the gain are a 1.8% monthly increase in non-residential spending and a 0.7% increase in residential construction spending--the first increase of its kind since August. Public construction spending in April was 0.6% below March levels. The increase in total construction spending, especially in residential construction is a good sign for a struggling U.S. economy, analysts said (Moody’s Economy.com June 1) … * Personal income grew 0.5% in April, after decreasing 0.2% in March from the previously reported -0.3%. Wage income ended five consecutive monthly declines. But this was due to a downward adjustment for removing smaller-than-normal bonuses, analysts said. Spending declined 0.1%, following an upwardly revised decline of 0.3% in March. Real spending fell 0.1%. The core personal consumption expenditures deflator rose 0.3%, following three consecutive 0.2% gains. The top-line deflator increased 0.1%. The savings rate ballooned to 5.7% as tax payments plunged due to stimulus effects, analysts said (Moody’s Economy.com June 1) … * May’s U.S. manufacturing decreased less than predicted, as new orders rose for the first time since the start of the recession. This is a sign that companies are experiencing increasing confidence that the recession will end this year, analysts said. The Institute for Supply Management’s factory index rose to 42.8 from 40.1 in April. Readings less than 50 indicate a contraction. The measure of new orders shot up to 51.1 from 47.2. An increasing number of companies are recovering from slashed output, and payrolls that resulted from Lehman Brothers Holdings Inc. collapse in September--which added to the economic downturn back then, analysts said. However, unemployment could increase and slow any economic growth later in the year because of the bankruptcies of Chrysler LLC and General Motors Corp., analysts added (Bloomberg.com June 1) … * Foreclosure actions were started on 1.37% of first mortgages in the first quarter of 2009--a 29-basis-point increase compared with the fourth quarter of 2008, and a 36-basis-point increase from a year ago, according to the Mortgage Bankers Association (MBA) National Delinquency Survey (May 28). The foreclosure level and size of the quarter-over-quarter increase are record highs. The mortgage loans’ delinquency rate on one- to four-unit residential properties was 8.22% on a non-seasonally adjusted basis--down 41 points from 8.63% in the fourth quarter of 2008. The seasonally adjusted delinquency rate was 9.12% of all loans outstanding at the end of the first quarter--up 124 basis points from the fourth quarter of 2008--and up 277 basis points from a year ago … * By approving a sale of Chrysler’s assets to a new entity operated by Fiat of Italy, a federal judge cleared the way Sunday for Chrysler to exit bankruptcy. Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court of the Southern District of New York approved the government-backed plan after hearing 12 hours of testimony and arguments, and rejecting more than 300 objections to the sale. “Because of the overriding concern of the U.S. and Canadian governments to protect the public interest, the terms of the Fiat transaction present an opportunity that the marketplace alone could not offer,” Gonzalez wrote in his opinion--which will be followed by a formal order. With the judge’s approval, Chrylser should be out of bankrupcty as early as next week--roughly one month after seeking protection. This is an extremely short time for a financial reorganization, analysts said (The New York Times June 1) …