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Market Archive

Market

Small business employment up 0.09 says Intuit index

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MOUNTAIN VIEW, Calif. (7/1/10)--Small business employment rose during June by 0.09%--or a 1.10% annual growth rate, accounting for roughly 18,000 new jobs during the month, according to the latest Intuit Inc. Small Business Employment Index. Intuit is based in Mountain View, Calif. The company's financial services division, Intuit Financial Services (anchored by the former Digital Insight) is a CUNA Strategic Services provider. The new figures equate to a revised estimate of 330,000 total new jobs since October, 2009, said Intuit, which bases the report on the U.S.'s smallest businesses that use Intuit Online Payroll. The employment increase "was at a slower rate for June than for previous months," said Dr. Susan Woodward, an economist who worked with Intuit to create the index. "At this point in a recovery, the labor market is still sufficiently slack so small businesses should still be hiring vigorously. They are hiring, but not as fast as in the first quarter." Compensation per worker grew by 0.3% for the month and is now $2,577 per month, compared with a revised estimate of $2,570 in May. Monthly hours worked rose by 0.05% to 103.5 hours, compared to a revised 104.4 hours for May. This translates to about $30,900 per year for all employees and a 23.5-hour week for hourly employees, said Intuit. Monthly compensation per employee continued to rise at about the same rate as for the past five months. "We do not see the same slowing in compensation as in employment or hours worked."

Market News (06/30/2010)

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MADISON, Wis. (7/1/10)
* Mortgage loan applications for the week ended June 25 rose 8.8%, seasonally adjusted, from the previous week, according to the Market Composite Index in the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey. The unadjusted index rose 8/3%. Refinancings increased 12.6%--the highest Refinance Index in the survey since the week ended May 22, 2009. The seasonally adjusted Purchase Index dropped 3.3% from the previous week and was 36% lower than the same week one year ago. "Amid continuing market volatility, mortgage rates dropped again last week, with rates on 15-year loans reaching a record low for the MBA survey," said Michael Fratantoni, vice president of research and economics at MBA. "Refinance applications jumped in response, but remain at about half the level seen in the spring of 2009. Purchase applications declined for the seventh time in the last eight weeks, keeping the purchase index near 13-year lows," Fratantoni said. The four-week moving averages, seasonally adjusted, were 1.5% higher for the Market Index, 0.8% lower for the purchase index and 2.1% more for the refinance index. Refinances accounted for 76.8% of total applications, up from 73.8% the previous week ... * U.S. private-sector jobs rose by 13,000 in June--much less than the 60,000 gain expected by economists, said payroll processor Automatic Data Processing Inc. (ADP) and consultant Macroeconomics Advisers (The Wall Street Journal June 30). May's job change was revised upward to a gain of 57,000 from a 55,000 increase reported earlier. The Bureau of Labor Statistics' nonfarm payroll data, which includes government workers, will be announced Friday. Because the Census Department has begun to lay off many of the hundreds of thousands of temporary workers it hired for the Census, economists said Friday's report likely will include a drop in total payrolls by 110,000. The June unemployment rate is expected to inch up to 9.8% from May's 9.7%. Two Federal Reserve officials--Chicago Fed President Charles Evans and Federal Reserve Governor Elizabeth Duke--said unemployment likely will stay high for a long time, which suggests the Fed will be in no hurry to raise its target funds' interest rates (The New York Times June 30). Evans predicted that unemployment will stay high for "a number of years before it's going to get down to any type of rate that we might almost say is acceptable," during an interview on CNBC. The sluggish economic rebound means the U.S. job market will "likely recover only slowly," said Duke. "It's going to be ... a long period for jobs to recover," she said ... * The nation's business activity expanded during June, for the ninth consecutive month, which means manufacturing is overcoming the financial markets' volatility. According to the Institute for Supply Management (ISM)-Chicago Inc., June's business activity declined to 59.1--near the 59 mark expected by economists--from May's 59.7 reading. Figures greater than 50 signal expansion; those below 50 signal contraction (Bloomberg.com June 30). New orders softened in June, but the index is consistent with a sturdy demand, said Moody's Economy.com. The inventory index was more volatile, swinging from 56.4 to 46.5 during the month. The gap between new orders and inventories--seen as a predictor for future production--doubled to 12.6 from 6.3. The second quarter average is 60.9, largely the same as first quarter reading of 61 ...

News of the Competition (06/30/2010)

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MADISON, Wis. (7/1/10)
* Ford Motor Co. will pay about $3.8 billion in cash to the United Auto Workers Retiree Medical Benefits Trust, defying the expectations of analysts who predicted the second largest U.S. automaker would pay a portion in stock (Bloomberg.com June 30). The Dearborn, Mich.-based Ford was required to pay $859 million to the trust by yesterday to fund benefits for former hourly workers. Under an agreement with UAW last year, the company had the option to pay as much as $610 million in stock. It also prepaid $2.9 billion toward its health-care obligations. The payment will drop the debt owed by Ford to the fund to $3.6 billion. Analysts had forecast it would pay part of the debt in equity because Ford's shares had traded down since closing at a 52-week peak of $14.46 on April 26. Ford said it also is paying $255 million in deferred dividend payments to another trust held by other investors. During the quarter, Ford slashed its debt by $7 billion and cut annual interest payments by $470 million. At the end of first quarter, the company's debt totaled $34 billion. The payments will cut that debt to as low as $27 billion ... * The European Central Bank's (ECB) offer of three-month funds Wednesday had few takers from the region's financial institutions. The demand fell short of expectations, bringing reassurance about the euro region's banking system and relieving fears that banks there depended on the ECB's bailouts to stay afloat (The Wall Street Journal and The New York Times June 30) . The ECB allotted $160.92 billion in funds for 91 days at a fixed rate of 1% to 171 banks, well below expectations. The offering came before today's deadline requiring 1,121 banks to repay $540 billion in one-year crisis loans they received in June 2009 to stimulate lending in the euro zone's 16 nations ...

News of the Competition (06/29/2010)

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MADISON, Wis. (6/30/10)
* With the financial overhaul bill set to possibly be voted on this week in the U.S. Senate and House, some Maine credit unions are urging U.S. Sens. Olympia Snowe (R-Maine) and Susan Collins (R-Maine) to vote against the bill. Credit unions oppose the bill because of its regulation of interchange fees charged to merchants on debit card transactions (The Wall Street Journal June 29). “We don’t support reform as long as interchange is a part of it,” said John Murphy, president of the Maine Credit Union League in the article. Banks say they would lose billions of dollars in revenue and warned they would have to increase fees paid by their customers. CitiGroup estimated big banks would lose 6% of annual earnings … * The European Union (EU) has expanded ongoing stress tests to include 70 to 120 banks to provide the EU with a better picture of national and regional financial fortitude, a source familiar with the situation said Tuesday (The Wall Street Journal June 29). The Committee of European Banking Supervisors are cooperating with national regulators to conduct the tests, which also will be broadened in scope to include “sovereign shock,” said the source. Results of the expanded testing will be published at the end of July along with test-results of the initial 25 cross-border banks, the Journal said …

Market News (06/29/2010)

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MADISON, Wis. (6/30/10)
* With Americans becoming more pessimistic about the economy and labor market, U.S. consumer confidence in June dropped more than expected, according to research firm The Conference Board’s confidence index (Bloomberg.com June 29). The index fell to 52.9 this month from a revised 62.7 in May. The median forecast expected a drop to 62.5, according to a Bloomberg News survey of economists. “The job market hasn’t taken off quite as much as people had hoped,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC. “With borrowing broken, consumers simply don’t have the same incentives to be aggressive spenders.” The expectations component led the decline, decreasing to 71.2 from 84.6--revised from the original estimate of 85.3 (Moody’s Economy.com June 29). The present situation component fell to 25.5 from 29.8--previously 30.2. Consumers were especially worried about job and business prospects. Buying plans also nose-dived. The lack of homebuyer incentives played a role, although the decline in auto-buying plans was not expected, Moody’s said … * Spurred by the expanded homebuyer tax credit, existing U.S. home prices rose in April in 20 cities, according to the S&P/Case-Shiller home price index (Moody’s Economy.com June 29). The index went up 3.8% between the three months ending in April 2009 and the three months ending in April 2010--the largest percentage increase in nearly four years. “We’re done with the big downward plunge in prices,” said Omair Sharif, an economist at RBS Securities. “[Even so], prices have come off so significantly from the peak that we don’t expect to see big gains this year. Since the tax credit pulled activity forward, sales will drop for the next few months” (Bloomberg.com June 29) … * U.S. chain store sales rose 2.1% for the week ended June 26--the biggest gain since early April and putting the index at its highest level in seven weeks, according to the International Council of Shopping Centers (ICSC). The year-ago change increased to 3%. Customer traffic was above last year’s level--particularly for department stores, ICSC said. Also, warm weather boosted sales, ICSC added (Moody’s Economy.com ….

News of the Competition (06/28/2010)

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MADISON, Wis. (6/29/10)
* Three failed banks closed Friday by regulators have entered into purchase-and- assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 86, compared with 140 failures for all of 2009. Friday’s failed banks include First National Bank, Savannah, Ga., assumed by The Savannah Bank, National Association, Savannah, Ga..; Penninsula Bank, Englewood, Fla., assumed by Premier American Bank, Miami; and High Desert State Bank, Albuquerque, N.M., assumed by First American Bank, Artesia, N.M. The three closed institutions held roughly $977.1 million assets as of March 31. The FDIC estimated that the banks' failures will cost the Deposit Insurance Fund about $284.6 million ... * The largest global economies are developing rules that would require banks to hold more capital and become better suited to absorb losses when financial conditions worsen. However, at the Group of 20 (G-20) nations summit Sunday in Toronto, Canada, it became evident that it could be several years before the rules take effect (The New York Times June 27). The rules are slated to be completed in November at the next G-20 meeting in Seoul, South Korea. Although progress is being made on new capital standards, disagreements still remain, said Timothy Geithner, U.S. Treasury secretary. “We’re narrowing those differences, but we’re still some ways apart,” Geithner said. “And the best way to strike that balance is to make sure you set ambitious standards, but give people a transition period so they can adapt over time to those standards” … * Discover Financial Services’ net profits rose during the fiscal second quarter because of improving economic conditions that included lower delinquencies and chargeoffs, greater cardholder spending, and a substantial reversal in loan-loss reserve requirements (American Banker June 25). The company anticipates continuing improvement because many consumers who have experienced long-term unemployment have already moved through the delinquency and chargeoff stages, said David Nelms, Discover CEO …

Market News (06/28/2010)

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MADISON, Wis. (6/29/10)
* In a sign that Americans are being cautious about the economic recovery, consumer spending rose just 0.2% in May, the Commerce Department said Monday (The New York Times June 28). May spending was an improvement from April, which had no change. Spending was expected to inch up only 0.1% in May, according to a Thomson/Reuters survey of analysts. Because spending on goods actually declined, most of the spending increase likely reflected more use of electricity and other utilities, the Times said. “The labor market is gradually improving, labor income is picking up and that should continue to support lending,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “We see a solid, trend-like growth in spending [in coming months]” (Bloomberg.com June 28). For the U.S. economy to continue to grow this year, household spending and company investments will have to make up for diminishing government stimulus, said The Wall Street Journal (June 28) … * Worldwide business confidence held steady at the end of June--consonant with a global economy that is growing close to its potential, according to Moody’s Economy.com Survey of Business Confidence (June 25). Since mid-April, sentiment has remained largely unchanged, Moody’s said. Continued strength in sales, and most recently hiring, is encouraging, portending that the debt crisis in Europe has not significantly affected global growth prospects to-date, Moody’s said. Sales and hiring are back to the level they were at in 2007 before the financial crisis and recession. South American businesses are the most positive, while North American businesses are the most cautious, Moody’s said … * Because negatives in the U.S. economy largely outweigh positives, it is not likely that home-purchase mortgage origination volume will rise above $530 million in 2010, said market research firm iEmergent (American Banker June 25). “There are not enough positives to fuel a big upswing in the housing market, because the demand side--U.S. households and homeowners--remain stuck in big negatives,” Dennis Hedlund, iEmergent president, said in a press release Tuesday. The negatives include “job anxieties, extended under-employment and unemployment, the existence of too much debt, no savings, tougher credit [and] foreclosures” …

Market News (06/25/2010)

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MADISON, Wis. (6/28/10)
* The Commerce Department lowered its estimate of how much the U.S. economy grew in the first quarter--saying consumers spent less than it previously calculated (The New York Times June 28). Gross domestic product grew at a 2.7% annual rate--down from a 3% prior estimate--in the quarter, indicating a smaller gain in consumer spending and a larger trade gap (Bloomberg.com June 25). The revised figures reflected an economy that was more dependent on inventory restocking and less driven by consumer demand and businesses before the European debt crisis grew more serious, Bloomberg said. “It’s a moderate kind of recovery,” said Jay Feldman, an economist at Credit Suisse. “[Consumer spending] is not growing as fast as in prior recoveries.” A 2.7% growth rate would be considered healthy in normal times, but it is considered relatively weak for a recovery that comes after a deep recession, the Times said … * U.S. consumer confidence in June increased to the highest level in more than two years, according to the Thomson Reuters/University of Michigan index of consumer sentiment (Bloomberg.com June 25). The index rose to 76--the highest level since January 2008--from 73.6 in May. Stock price declines triggered by the European debt crisis didn’t dampen consumer sentiment, the index indicated. Consumer confidence gains need to be accompanied by quicker job growth to create a boost in consumer spending, which accounts for 70% of the U.S. economy, Bloomberg said. “People don’t seem to have been influenced by what’s happening in the markets,” said Nigel Gault, chief U.S economist at IHS Global Insight. “It suggests that though the consumers are not going to be a leader, they’re not pulling back.” Added Richard Curtin, director of surveys for the University of Michigan Survey of Consumers: “The June 2010 survey recorded the most favorable news heard by consumers about jobs in five years. Unfortunately, consumers do not anticipate significant declines in unemployment during the year ahead” (The New York Times June 25) …

News of the Competition (06/25/2010)

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MADISON, Wis. (6/28/10)
* Morgan Stanley will pay $102 million to Massachusetts to settle claims that the company financed and securitized unfair home loans, said Martha Coakley, state attorney general (Bloomberg News via American Banker June 25). The bank will pay $58 million to more than 1,000 Massachusetts homeowners and will provide payments to the Massachusetts Pension Fund for investment losses and the state’s General Fund, Coakley added. “This has become an all-too-familiar pattern in which the deceptive practices of Wall Street devastated homeowners and investors, and ultimately contributed to the collapse of our economy,” she said. “Our extensive investigation revealed that Morgan Stanley not only backed loans for homeowners that it should have known were destined to fail, it also caused additional damage in the subprime marketplace” … * Although some of the biggest U.S. banks in the past few months have said they will lend more to small businesses, it is questionable if the efforts will help small-business owners obtain more financing, said The Wall Street Journal (June 24). Among the large banks that separately announced programs to funnel more money to entrepreneurs are Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. Many entrepreneurs have had their lines of credit reduced or eliminated during the credit crunch, the Journal said. The banks’ efforts to bolster business lending come in the aftermath of the Obama administration efforts to pressure all banks to stem a sharp drop-off in small-business lending, the Journal said … * Freddie Mac announced in a regulatory filing Friday that one of its executive vice presidents had been fired (The New York Times June 25). Michael Perlman was the mortgage lending company’s executive vice president of operations and technology. He will remain with the company until early August. Freddie gave no reason for his dismissal …

News of the Competition (06/24/2010)

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MADISON, Wis. (6/25/10)
* For the first time since March 2009, the share of performing mortgages for March rose slightly. However, loan performance was still down from a year earlier, federal bank regulators said Wednesday (Dow Jones via American Banker June 24). As of the end of March, the share of current and performing mortgages rose to 87.3%--up from 86.4% at the end of last year. The share of seriously delinquent loans fell to 6.5% in March from 7.1% in December--with delinquencies improving across all risk categories. The Wednesday report, compiled by the Office of Thrift Supervision and the Office of Comptroller of the Currency, covers about 34 million U.S. home mortgage loans, with a total of nearly $6 trillion in unpaid principal balances … * Large banks are ardently opposing a last-minute House proposal to add ailing mortgage behemoths Fannie Mae and Freddie Mac to a category of companies that would be subject to liquidations at the financial industry’s expense (The New York Times June 24). Republican lawmakers insisted that House negotiators add the provision to a huge overhaul of financial regulations. Senate negotiators oppose it, the Times said. The bill would mandate that the governments dissolve big failing companies. In 2008, the federal government took over Fannie and Freddie after they sustained large loan losses in the housing implosion … * The U.S. Supreme Court ruled Thursday that a federal fraud law--the “honest services’’ law--could not be used in convicting Jeffrey Skilling, the former Enron CEO, for his role in the company’s collapse (The New York Times June 24). However, Justice Ruth Bader Ginsberg, in her majority opinion for the court, said the ruling doesn’t necessarily require Skilling’s conviction to be overturned. In another ruling Thursday, the Supreme Court placed new limits on foreign investors who want to use U.S. securities law and domestic courts to sue foreign firms for fraud. Specifically, foreigners may not sue American or foreign companies for misconduct related to securities traded on foreign exchanges, the court said ...

Market News (06/24/2010)

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MADISON, Wis. (6/25/10)
* U.S. mortgage rates this week dropped to their lowest level on record--giving consumers more reasons to secure low payments on home purchases and refinancings (The New York Times June 24). The average 30-year fixed-rate loan fell to 4.69%--the lowest since 1971 when Freddie Mac began tracking rates--from 4.75% the prior week, the mortgage company said Thursday. During the past two months, mortgage rates have dropped as investors have shifted money into the safe harbor of Treasury bonds after becoming wary of the European debt crisis, the Times said. Mortgage rates usually follow the yields on long-term Treasury debt, the Times added. Also, rates on 15-year fixed-rate mortgages fell to an average 4.13%--the lowest on record going back to September 1991 and down from 4.2% a week earlier … * Initial claims for unemployment benefits declined by 19,000 to 457,000 for the week ended June 19, the Labor Department said Thursday. The decrease more than offsets the prior week’s 17,000 jump and brought claims down to their still-elevated range held through much of 2010 (Moody’s Economy.com June 24). Last week’s decrease in claims indicates an improvement in the labor market that is taking time to gain momentum (Bloomberg.com June 24). Although payroll levels have risen every month in 2010, the pace of private hiring hasn’t been substantial enough to spark self-sustaining gains in consumer spending, Bloomberg said. “The trend certainly has been toward improvement in the labor market,” said Jim O’Sullivan, global chief economist at MF Global Ltd. “The question is to what extent improving momentum has been disrupted by the turmoil in the markets. It’s possible the labor market has lost a little momentum.” Meanwhile, continuing claims for unemployment benefits fell by 45,000 to roughly 4.55 million for the week ended June 12, the Commerce Department said … * The number of U.S. mass layoffs--which involve at least 50 workers from a single establishment--decreased to 1,412 in May--the lowest level since September 2007-- from 1,856 in April, according to the Bureau of Labor Statistics. The layoffs involved 135,789 workers, compared with 200,870 in April (Moody’s Economy.com June 24). Labor market conditions continue to improve, with most of the improvement at large firms, Moody’s said … * New orders for U.S. durable manufactured goods dropped 1.1% in May, following April’s 3% increase, according to the Census Bureau. Shipments declined 0.4%. Inventories rose 0.8%--the fifth consecutive monthly increase (Moody’s Economy.com June 24). The May increase--the fourth consecutive monthly gain--indicates U.S. manufacturing will help maintain the economic recovery (Bloomberg.com June 24) ...

Settle in get used to low interest rates CUNA economist

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MADISON, Wis., and WASHINGTON (6/24/10)--The Federal Open Market Committee's (FOMC) announcement Wednesday that the Federal Reserve policymaking group would maintain the target range for the federal funds rate at 0% to 0.25% means credit unions should settle in and get used to low rates, according to Steve Rick, senior economist at the Credit Union National Association (CUNA). The FOMC's statement "has increased the likelihood that the Federal Reserve will borrow the Bank of Japan's monetary policy play book and keep interest rates exceptionally low for a really, really long time, rather than just the "extended period" language used in its press releases," Rick told News Now. "The Federal Reserve noted the weak housing and labor markets will weigh on the nascent and fragile economic recovery. As government economic stimulus spending wanes later this year, it appears the consumer and business sectors will not be in a good position to grab the economic growth baton," Rick said. "And with the Euro-Zone debt crisis possibly shaving 0.5 percentage points off second-half GDP (gross domestic product) growth, the specter of deflation is now more likely than not," he said. "The fed funds futures market is not pricing in an interest rate increase until the second quarter of 2011. We may not see any rate increase, however, through all of 2011. Credit unions should settle in and get used to exceptionally low interest rates for quite some time," Rick said. "It's time to accept and adjust to this new abnormal economic environment," he said. In its statement after its two-day meeting, the FOMC said it continues to anticipate that economic conditions, including low rates of resource use, subdued inflation trends, and stable inflation expectations, are "likely to warrant exceptionally low levels of the federal funds rate for an extended period." Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. However, the FOMC said it anticipates a gradual return to higher levels of resource use in a context of price stability--although the pace of economic recovery is likely to be moderate for a time. Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time, the committee said. The FOMC said it will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. The lone dissenter was Thomas M. Hoenig, who said that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the FOMC’s flexibility to begin raising rates modestly.

Market News (06/23/2010)

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MADISON, Wis. (6/24/10)
* May new-home purchases in the U.S. dropped to a record low as the homebuyer tax credit expired at the end of April, indicating the housing market still is dependent on government support (Bloomberg.com June 23). Sales of new single-family homes nosedived a record 33% to an annualized pace of 300,000 in May from April--the fewest since 1963, the Commerce Department said Wednesday. “May was a bad month for the economy,” said J. Alfred Broaddus, former president of the Federal Reserve Bank of Richmond. He predicted that when the Fed releases it policy statement Wednesday, its remarks on the economy would be “markedly more pessimistic,” he added. Although the end-of-April deadline for the homebuyer’s tax credit was the biggest driver behind the May sales decline, weaker than expected recovery of the job market may also be a factor in the decrease (Moody’s Economy.com June 23) … * Mortgage loan application volume for the week ended June 18 decreased 5.9% seasonally adjusted from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Index declined 6% compared with the previous week. The Refinance Index dropped 7.3% and the seasonally adjusted Purchase Index fell 1.2%. The unadjusted Purchase Index decreased 2.3% and was 36.8% lower than the same week one year ago. The decline in total purchase applications was driven by a 4.4% drop in government applications, while conventional purchase applications increased by 1%. For the MBA report, use the link … * With expectations of stronger sales and more hiring in the next six months, CEOs in the U.S. became more optimistic in the second quarter, according to the Business Roundtable’s economic outlook index. The measure rose to 94.6 in the April-to-June period--the highest level since the second quarter 2006, said the Washington, D.C.-based group (Bloomberg.com June 23). The measure increased from 88.9 in the first quarter. Readings above 50 are consonant with economic expansion. About 79% of CEOs said they anticipate sales will expand in the next six months--up from 73% in the first quarter. Also, 39% said they will increase their payrolls--an uptick of 10 percentage points. Roughly 43% said they plan to spend more on equipment--down from 47%. The survey was conducted from May 24 to June 14, with 106 CEOs responding. The economy will grow 2.7% this year, survey respondents estimated …

News of the Competition (06/23/2010)

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MADISON, Wis. (6/24/10)
* Goldman Sachs Group Inc. is contemplating a corporate branding campaign to rehabilitate its tarnished image after accusations that Goldman defrauded customers in a complex mortgage investment (Dow Jones via American Banker June 23). Goldman said it might even put its CEO, Lloyd Blankfein, on “The Oprah Show.” As an industry leader, Goldman has to do a better job explaining what it needs to do and how it does it, Fiona Laffan, Goldman’s head of media relations in Europe, the Middle East and Africa, recently told a communications industry event in London. “We found ourselves in a place that we’re quite uncomfortable with … it’s all been very challenging,” Laffan said. One of the bank’s conclusions is “perceptions of the firm directly affect our license to operate” ….

News of the Competition (06/22/2010)

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MADISON, Wis. (6/23/10)
* The Federal Housing Finance Agency (FHFA) purchase-only price index rose 0.8% from March to April. However, the index remains 1.5% below its April 2009 level and is 12.8% under its April 2009 zenith. The April increase is a sign that the looming expiration of the homebuyer tax credit at the end of June not only boosted home sales, but also home prices, FHFA said. The FHFA price index likely will move into several more months of slow decline before it starts steadily rising in the aftermath of economic recovery, the agency said (Moody’s Economy.com June 22) … * Credit availability is improving, and companies are stockpiling unprecedented cash reserves--indicating the U.S. economy is ready to experience accelerated growth, said Treasury Secretary Timothy Geithner (Bloomberg.com June 22). “Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said Tuesday in testimony to the Congressional Oversight Panel. Corporations are raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth,” he added. Geithner defended the government’s management of the $700 billion Troubled Asset Relief Program, which he said “played a critical role” in improving access to credit. The program, criticized by both Democratic and Republican lawmakers as putting Wall Street ahead of small businesses, will cost taxpayers $105 billion, according to Geithner’s most recent estimate--down from an estimate of $341 billion in August ...

Market News (06/22/2010)

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MADISON, Wis. (6/23/10)
* Existing-home sales remained at elevated levels in May on buyer response to the tax credit [end of June deadline], characterized by stabilizing home prices and historically low mortgage interest rates, according to the National Association of Realtors (NAR). Gains in the West and South were offset by a decline in the Northeast; the Midwest was steady. Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2% from an upwardly revised surge of 5.79 million units in April. May closings are 19.2% above the 4.75 million-unit level in May 2009; April sales were revised to show an 8% monthly gain. Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. “We are witnessing the ongoing effects of the homebuyer tax credit, which we’ll also see in June real estate closings. However, approximately 180,000 homebuyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales. In addition, many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance.” For The NAR report, use the link … * With the second consecutive weekly decline, U.S. chain store sales decreased 0.5% last week, according to the International Council of Shopping Centers (ICSC) sales index--which dropped to its lowest level since February. The year-ago change fell 2.5%--consonant with continued spending growth at a slower pace than the first quarter, ICSC said. Customer traffic--especially for department stores--was lower than last year’s level. (Moody’s Economy.com June 22) …

News of the Competition (06/21/2010)

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MADISON, Wis. (6/22/10)
* A failed bank closed Friday by regulators has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total for banks to 83, compared with 140 bank failures for 2009. Friday’s failed bank was Nevada Security Bank, Reno, Nev., which was assumed by Umpqua Bank, Roseburg, Ore. The closed institution held roughly $480 million in assets as of March 31. The FDIC estimated that the latest failure will cost the Deposit Insurance Fund about $81 million ... * The U.S. Supreme Court Monday said it would hear JPMorgan Chase & Co.’s appeal over a lawsuit alleging the bank violated federal law because it failed to notify credit card holders in advance of raising interest rates due to defaults or late payments (Reuters June 21). James McCoy, lead plaintiff in the class-action lawsuit, alleged that Chase Manhattan Bank violated the Truth in Lending Act by raising interest rates retroactively to the start of his payment cycle after his account was closed after a late payment to Chase and another creditor. Chase said it disclosed the conditions with which McCoy had to comply to stay eligible for the lower interest rates and the maximum interest rate that could be applied if he violated the terms …

Market News (06/21/2010)

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MADISON, Wis. (6/22/10)
* U.S. consumer confidence slipped for the week ended June 13 by one point to -45, but still is within a point of its most recent high-point, according to the ABC News/Washington Post consumer confidence index. The increase results in the index being in the upper portion of its range since the beginning of the year. Assessments of the condition of the U.S. economy remain the biggest drag on the overall index--and that component was the main reason for a lower rating in the latest week--reversing the prior week’s gain (Moody’s Economy.com June 15) … * Worldwide business confidence bounced back last week, suggesting that the debt crisis in Europe has not dampened global growth prospects to-date, according to Moody’s Economy.com Survey of Business Confidence (June 21). A continuing strength in sales is most encouraging, with businesses saying sales are as robust as they have been since early 2007--in advance of the recession and financial crisis, Moody’s said. Businesses also are positive about the outlook through the end of the year. However, businesses are less upbeat about hiring and inventory investment, although responses to s to those questions are gradually improving, Moody’s said. Across industries, businesses and financial services have experienced the strongest improvement in sentiment in recent months …

News of the Competition (06/18/2010)

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MADISON, Wis. (6/21/10)
* Citigroup Inc. said it intends to raise more than $3 billion for its private equity and hedge funds, even though U.S. lawmakers are considering a ban on banks owning and investing in so-called alternative funds, said sources familiar with the matter (Bloomberg.com June 18). Citi Capital Advisors may seek $750 million for hedge funds and $1.5 billion for private equity this year, with an additional $1 billion being eyed in 2011 for hedge funds, the sources said. “Citi must be comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business. “I don’t think any of these bills envisioned not being able to manage someone else’s money. It’s the bank capital that’s still an open question” … * The Securities and Exchange Commission (SEC) asked JPMorgan Chase & Co. to disclose more information about its reserves that were earmarked to cover costs of repurchasing bad loans it sold to Freddie Mac, Fannie Mae and other investors, according to a Jan. 29 letter the SEC made public Thursday (Bloomberg News via American Banker June 18). The SEC also told JPMorgan Chase to furnish more specifics on the manner and the timeframe it uses to recognize losses on modified mortgages and for soured credit card debt. In 2009, Fannie and Freddie asked the bank to repurchase $2.7 billion in defective loans and $1.4 billion for the same in 2008 …. * Boston Private Financial Holdings Inc. said Wednesday it repaid the remaining $104 million it owed the Troubled Asset Relief Program (American Banker June 18). The $6 billion-asset company had issued $154 million in preferred securities to the Treasury, but in January it had redeemed $50 million of that investment …

Market News (06/18/2010)

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MADISON, Wis. (6/21/10)
* The probability of the U.S. still experiencing a recession in six months remained unchanged at 23% in May, according to Moody’s Economy.com (June 18). Although there are indications the economic recovery is turning into a self-sustaining expansion, Europe’s debt problems and more rigid conditions in global financial markets are problematic, Moody’s said. Real gross domestic product (GDP) is predicted to rise 3% at an annualized rate this quarter before the recovery slows down in the second half of 2010. Real GDP is anticipated to increase about 2.5% in the third quarter, Moody’s said ... * The Economic Cycle Research Institute (ECRI) weekly leading index dropped to 122.5 for the week ended June 11 from a revised 123--previously 123.2 the prior week. The smoothed, annualized growth rate declined to -5.7% from a revised -3.7%, which previously was -3.5%. For six consecutive weeks, the index and the growth rate both have declined, portending potential trouble for the economy in 2011, ECRI said. The early stages of the economic recovery have mostly been driven by the shifting inventory cycle. Inventories were responsible for more than half of gross domestic product growth in the fourth quarter 2009 and the first quarter 2010, ECRI said (Moody’s Economy.com June 18) … * European governments Thursday agreed to submit their banks to public stress tests to ascertain their soundness. The move constitutes the continent’s largest step to-date to dispel worries worldwide that its financial system is masking troubled loans that place Europe’s economy at risk (The Wall Street Journal June 18). The U.S. has been urging Europe to make public the results of its bank stress tests. The disclosure of U.S. banks’ stress test results last year was a watershed moment in the financial crisis that helped alleviate market doubts about banks’ health, U.S. officials have maintained. Tests in the spring of 2009 resulted in 10 big banks raising tens of billions of dollars to assuage capital shortfalls that regulators identified, the Journal said …

News of the Competition (06/17/2010)

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MADISON, Wis. (6/18/10)
* Alleging widespread fraud of nearly $2 billion, the Justice Department Wednesday announced a 16-count indictment against Lee Bentley Farkas, the former head of mortgage lender Taylor Bean and Whitaker (American Banker June 17). The department alleges Farkas abused his company’s business relationship with the $25 billion-asset Colonial BankGroup, made bogus loans to hide problems at both companies and tried to help Colonial fool the Troubled Asset Relief Program. Under the arrangement, Colonial held loans on its books at face value, when they actually were worthless, the Banker said. Colonial failed in August 2009 … * Mortgage giant Fannie Mae and Citigroup announced Wednesday they are offering mortgage relief to homeowners in the Gulf of Mexico area impaired by the huge BP oil spill (AFP June 16). “We want to give homeowners every opportunity to weather this unprecedented disaster, including relief from their mortgage payment if that will help them get back on their feet and stay in their homes,” said Michael Williams, Fannie president/CEO. Also, a three-month foreclosure-suspension program--effective Thursday through Sept. 17--for CitiMortgage-owned mortgages in the area was announced by Citigroup CEO Vikram Pandit. Borrowers with first-mortgage loans owned by CitiMortgage and who meet other criteria will not be subject to foreclosure sales or foreclosure notifications, the bank said … * Wal-Mart Stores Inc. would not have a role in operating the bank holding company--Utah-based Bonneville Bancorp--that Green Dot Corp., a prepaid card provider, is attempting to buy, reported American Banker (June 17). In a Securities and Exchange Commission filing earlier this month, Green Dot--which intends to go public--said it issued roughly 2.2 million shares of class A common stock to Wal-Mart. The move stoked speculation that Wal-Mart is trying to enter the banking arena indirectly following its unsuccessful attempts to do so three years ago, the publication said ...

Market News (06/17/2010)

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MADISON, Wis. (6/18/10)
* In a sign the world’s largest economy will continue to expand in the second half of 2010, the index of U.S leading indicators increased 0.4% in May, according to the Conference Board’s gauge of the outlook for the next three to six months (Bloomberg.com June 17). The private, New York-based private research firm’s index climbed for the 13th time in the past 14 months. “Europe is a little bit of a headwind, but we’re looking for decent growth in the second half,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA. “The U.S. is in a self-sustaining recovery.” Since April 2009, the index has mostly been rising--buoyed by slow improvements in the job market, the increasing amount of money in the economy, and a rebound in manufacturing (The New York Times June 17). However, new weakness in the housing market and chaos in the stock markets weighed on the index in May, the Times said … * Initial claims for unemployment benefits rose 12,000 to 472,000 for the week ended June 12--the second consecutive weekly gain in initial claims. Initial claims have stubbornly failed to move lower in recent months--which would be a sign consistent with a recovering labor market (Moody’s Economy.com June 17). However, a more positive sign is that the four-week moving average--geared to smoothing volatility in data--decreased slightly--by 500 to 463,500--for the week ended June 12 (The Wall Street Journal June 17). Economists are worried by the elevated level of claims because the slow pace of their decline indicates that employers are reluctant to hire and instead are relying on existing workers to help meet demand, the Journal said. Meanwhile continuing claims increased by 88,000 to roughly 4.57 million for the week ended June 5, Moody’s said ... * For the second consecutive month, U.S. consumer prices dropped in May, with cheaper energy prices the main driver (The New York Times June 17). The consumer price index fell 0.2% after a 0.1% dip in April, the Labor Department said. May’s decline marked the largest drop in consumer prices since they decreased 0.7% in December 2008. Core consumer prices, which exclude volatile food and energy, rose 0.1% in May after being flat in April. Energy prices decreased 2.9%--the most in a year, with gasoline prices posting the largest decline--down 5.2%. Significant slack in the economy and a halt in the previously climbing commodity prices are keeping inflation solidly in check (Moody’s Economy.com June 17) …

Market News (06/16/2010)

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MADISON, Wis. (6/17/10)
* Industrial production advanced 1.2% in May--the most since August--after having risen 0.7% in April. Manufacturing output climbed 0.9% last month, its third consecutive monthly gain of about 1%, and was 7.9% above its year-earlier level, according to the Federal Reserve monthly report on Industrial Production and Capacity Utilization. Outside of manufacturing, the output of mines slid 0.2%, and the output of utilities increased 4.8%. The jump in utilities reflected unseasonably warm temperatures that boosted air conditioning use in May after uncharacteristically temperate weather in April that reduced heating demand. At 103.5% of its 2002 average, total industrial output in May was 7.6% above its year-earlier level. The capacity utilization rate for total industry rose one percentage point to 74.7%, a rate 6.2 percentage points above the rate from a year earlier but 5.9 percentage points below its average from 1972 to 2009. For the Fed Report, use the link. “Manufacturing is the strongest part of the economy,” said Stephen Stanley, chief economist at Pierpont Securities LLC. “There’s still a long way to go to get to anything that resembles health in the economy” (Bloomberg.com June 16). In a related matter, U.S. wholesale prices--for the third time in the past four months--declined in May because of a drag created by lower energy and food costs, and because European default worries threaten to slow global growth, Bloomberg said … * Mortgage loan application volume increased 17.7% for the week ended June 11 on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Index increased 29.7%, compared with the previous week, which was a shortened week due to the Memorial Day holiday. The Refinance Index increased 21.1%. This is the highest Refinance Index recorded in the survey since May 2009. The seasonally adjusted Purchase Index rose 7.3%, which is the first increase in six weeks. The unadjusted Purchase Index grew 17.4% and was 31.3% lower than the same week one year ago. “Mortgage applications for home purchases increased last week, the first increase in over a month,” said Michael Fratantoni, MBA vice president of research and economics. “Refinance applications also picked up significantly over the week. While it is clear that purchase applications in May dropped sharply as a result of the tax credit-induced increase in applications in April, it is unclear whether we are seeing the beginnings of a rebound now.” For the MBA report, use the link … * U.S. housing starts dropped 10.3% in May--the largest decline since March 2009--to a 593,000 annualized rate, the Commerce Department said Wednesday. The decrease was more than expected after the expiration at the end of April of a government tax credit for first-time homebuyers--suggesting the real estate market will struggle without government incentives (Bloomberg.com June 16). “Builders are obviously feeling very cautious, justifiably cautious, given the only moderate speed of the recovery so far, and the concern is that home buying will pull back on the other side of the tax credit,” said Robert Dye, a senior economist at PNC Financial Markets Group Inc. Third-quarter home construction is “going to be weak and will be a drag on” the economy, he added …

News of the Competition (06/16/2010)

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MADISON, Wis. (6/17/10)
* In its first test of a credit-tightening tool that could be used to help siphon off a near-record amount of cash--$1.05 trillion in excess reserves--from the U.S. banking system, the Federal Reserve said it sold $1.15 billion in deposits (Bloomberg News via American Banker June 16). The Fed said it offered $1 billion for 14 days through its Term Deposit Facility and received bids worth $6.14 billion. Banks with successful bids will deposit money with the Fed from June 17 through July 1 and receive interest of 0.27%. Presently, banks receive 0.25% interest on their excess reserves. Fed Chairman Ben Bernanke intends to use the program to eventually aid policymakers in raising interest rates, Bloomberg said … * The Internal Revenue Service (IRS) is taking a close look at several banks that sought large tax refunds for charging off bad loans in 2009 (American Banker June 16). If the inquiries evolve into audits, they could have substantial ramifications for community and regional banks, the publication said. If the IRS denies a refund, a bank would lose the right to count it as greatly needed capital, the Banker said. For a community bank, “it could wipe out $1 million to $2 million in capital,” Bill Massey, a shareholder and certified public accountant at Saltmarsh, Cleaveland & Gund in Pensacola, Fla., told the publication …

Market News (06/15/2010)

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MADISON, Wis. (6/16/10)
* In a sign that housing demand may be slowing even more than expected after the expiration of a government tax credit, U.S. builders became more pessimistic in June, according to the National Association of Home Builders (NAHB)/Wells Fargo confidence index (Bloomberg.com June 15). The index fell to 17 from 22 in May--the largest decrease since November 2008, NAHB said. Readings below 50 indicate more respondents said conditions were poor. “Home constructions are just going to be very slow [to improve],” said David Semmens, an economist at Standard Chartered Bank. “You need to start seeing stronger job growth.” Although the expiration of the homebuyer’s tax credit at the end of April led to a noticeable drop in home sales--which was not a surprise--the decline was much larger than expected, NAHB said (Moody’s Economy.com June 15). The index was forecast to drop to 21 this month, according to the median projection of economists in a Bloomberg News survey … * Worldwide demand for long-term U.S. financial assets rose more than expected in April because investors in China, Japan and the United Kingdom increased their holdings of Treasuries, said a Treasury Department report released Tuesday (Bloomberg.com June 15). Net buying of long-term equities, bonds and notes tallied $83 billion, compared with net purchases of a record $140.5 billion in March. Economists surveyed by Bloomberg News had projected a net increase of $70 billion in April. Indications of a continuing U.S. economic recovery and investors fleeing turmoil in European financial markets could increase the investment flow into the U.S. economy, Bloomberg said. Also, for the 11th consecutive month, international investors accumulated Treasuries, the report said. “Overseas investors still love Treasuries,” said Ward McCarthy, chief financial economist at Jeffries & Co. “Safety is still the primary concern. I expect this pattern will be repeated in the May and June data as well” … * U.S. chain store sales declined 0.7% for the week ended June 12--undoing most of the prior week’s gain--according to the International Council of Shopping Centers (ICSC) sales index. Because sales fell a similar amount in the comparable week last year, the year-ago change slipped slightly to 2.9%, ICSC said. Although lower gasoline prices and warm weather were supporting factors, customer traffic still decreased in the week. The largest and most prominent drag is high unemployment--which leads to only small growth in wage income and dampens consumer confidence (Moody’s Economy.com June 15) …

News of the Competition (06/15/2010)

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MADISON, Wis. (6/16/10)
* Lincoln National Corp. announced a planned sale Monday to repay the government more than $1 billion of stock and debt (Dow Jones via American Banker June 15). The company is one of three insurers bailed out by the U.S. government. Under the plan, Lincoln intends to sell a minimum of $335 million of common stock and up to $750 million of senior notes. The company will repurchase the government’s preferred shares from proceeds of the stock offering and $250 million of notes, along with cash from the holding company, Dow Jones said ... * Citigroup Inc. has agreed to sell its Canadian MasterCard business to the Canadian Imperial Bank of Commerce, Citi announced Monday (American Banker June 15). Although terms of the deal were not disclosed, the transaction will not affect capital ratios or net income, the company said. Citi said the sale will shrink the assets in Citi Holdings by roughly $1.94 billion …

News of the Competition (06/14/2010)

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MADISON, Wis. (6/15/10)
* A failed bank closed Friday by regulators has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total for banks to 81, compared with 140 bank failures for 2009. Friday’s failed bank was Washington First International Bank, Seattle, which was assumed by East West Bank, Pasadena, Calif. The closed institution held roughly $521 million in assets as of March 31. The FDIC estimated that the latest failure will cost the Deposit Insurance Fund about $158.4 million ... * Freddie Mac is attempting to block Bank of America Corp. (BofA) from conducting a probe of Freddie’s business relationship with failed lender Taylor Bean & Whitaker Mortgage Corp. (Dow Jones via American Banker June 14). Freddie is urging the federal bankruptcy court in Jacksonville, Fla., to stop BofA from conducting the investigation, which Freddie said would cost $10 million or more. “The breadth of the discovery sought by [BofA] is so vast that Freddie Mac estimates that it will cost at a minimum $10 million to provide the discovery sought,” Freddie Mac said Thursday in court papers. “[BofA] seeks to unfairly shift the cost of compiling and providing such records to Freddie Mac by means of a broad ‘fishing expedition.’” BofA is seeking access to Freddie’s books and wants to question Freddie’s “extensive business relationship” with Taylor Bean, Dow said … * An increasing number of banking companies participating in the Troubled Asset Relief Program (TARP) is racking up missed payments of preferred shares held by the federal government, a Treasury Department report revealed Friday (American Banker June 14). The report indicates that 16 TARP participants missed four payments, while eight have missed five payments as of May 31. Those figures were an increase from 11 recipients missing four payments and one missing five as of March 31--the last time the Treasury released the figures, the publication said. One bank--the $70 million-asset, Westminster, Calif.-based Saigon National Bank has missed six consecutive payments. A total of 101 bailed-out banks--nearly all of them small--have missed paying the government a dividend, which was a condition for accepting the aid (Washington Post June 14). The number of banks missing payments rose 25% since February and has nearly doubled since November. The escalating number of so-called “deadbeat” banks could compel the Treasury to become more involved in the affairs of small financial firms experiencing troubles, the Post said ...

Market News (06/14/2010)

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MADISON, Wis. (6/15/10)
* Business confidence worldwide declined last week--the first significant weekly sentiment setback in two months, according to Moody’s Economy.com Survey of Business Confidence (June 14). Confidence dropped to a level of 19.9 from 24.8 the previous week. It still is too early to determine if this reflects a substantial shift in sentiment, Moody’s said. However, because of the trouble in global financial markets and Europe, the level merits close watching, Moody’s added. The most noteworthy decrease was in business assessments of present conditions, which despite the drop, still remains high. Overall, sentiment remains widely consistent with a global economy that is growing near it potential, Moody’s said … * The European debt crisis has engendered an environment in which investors are focusing on negative developments--even in instances when data indicate economic recovery, according to the Bank for International Settlements (BIS) (Bloomberg.com June 14). “Against this background of heightened uncertainty, market participants focused on the deteriorating financial-market conditions while often ignoring positive macroeconomic news,” the Basel, Switzerland-based BIS said Sunday in its quarterly report. “The April jobs report, for example, saw U.S. nonfarm payrolls increase by 100,000 more jobs than expected to 290,000, but the Standard & Poor’s 500 Index fell by 1.5% on the day.” The debt crisis caused the euro to fall to a four-year low against the dollar on June 7 and has drained more than $4 trillion from worldwide stock markets in 2010. European leaders introduced a $910 billion rescue plan in May to halt the negative economic tide from Greece, initially turning back a rise in the risk premium on Spanish and Portuguese bonds. “The relief in markets turned out to be temporary, however, as investor confidence soon deteriorated on worries about the possible interactions between public debt and growth,” the BIS said …

News of the Competition (06/11/2010)

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MADISON, Wis. (6/14/10)
* The oil spill in the Gulf of Mexico could have significant effects on Mississippi banks if the situation is prolonged and harms the fishing, oil and tourism industries (American Banker June 11). Last week, Mississippi had its first bank failure in a decade. Mississippi banks had anticipated remaining healthy with few failures this cycle, the publication said. Mississippi likely will have more bank failures--but they probably will be limited to rural areas, and be much fewer than the failures in other Southeastern states such as Georgia and Florida, the article said. Unlike Georgia and Florida, Mississippi did not have a speculative real estate boom, nor did its banks finance real estate activity with brokered deposits, as did some failed banks in those other states, the Banker added … * Some struggling U.S. banks are asking investors to sell trust-preferred securities back to them, saying they otherwise may fail, reported American Banker (June 11). However, a small group of investors are labeling the banks’ requests a bluff. Some troubled banking companies in recent months have tried to retire their trust-preferreds for less than face value--often as a component of a plan to raise fresh equity. However, for banks that issue the securities into pooled collateralized debt obligations, it has been nearly impossible to get approval to buy them back, the publication said …

Market News (06/11/2010)

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MADISON, Wis. (6/14/10)
* U.S. consumer confidence increased in June to the highest level in more than two years, according to the Thomson ReutersUniversity of Michigan preliminary index of consumer sentiment. The index rose to 75.5--the highest level since January 2008--from 73.6 in May. “The most important factor is the labor market, and that’s showing some improvement,” said Ryan Wang, an economist at HSBC Securities USA Inc. “The recent drop in gas prices, on the margin, is a help.” The two components of the index--expectations and present conditions--rose by the same 1.9 points as the total index. Inflation expectations dropped substantially (Moody’s Economy.com June 11) ... * U.S. inventories rose 0.4% in April after an upwardly revised estimate of a 0.7% gain in March, the Commerce Department said Friday. The increase was less than the 0.6% April gain in total business sales--the 13th consecutive monthly gain. The hope is that demand will remain robust enough to get businesses to keep restocking their inventories (The New York Times June 11). The total inventory-to-sales ratio remained at 1.23--down from 1.43 a year ago. Inventories are lean, and economic recovery is ongoing, providing businesses the need to add inventories (Moody’s Economy.com June 11). Although the need to replenish depleted inventories helped bolster economic growth during the past two quarters, that spark likely will diminish in the coming months (Bloomberg.com June 11). “Inventory accumulation should be slowing, contributing less to economic growth,” said Michael Gregory, a senior economist at BMO Capital Markets. “One of the reasons why I think you would start to see inventory growth slow a bit is anticipation of sales slowing” … * Retail sales in the U.S. declined in May by the largest amount in eight months because consumers cut back on spending in several categories, including autos and clothing. This is raising new concerns about the sustainability of the economic recovery (The New York Times June 11). Sales fell 1.2% last month, the Commerce Department said Friday. Auto sales dropped 1.7%. Sales--excluding autos--decreased 1.1%. Many areas of the economy also saw declines, including apparel stores, gas stations and general merchandise stores (Moody’s Economy.com June 11). Sales also fell at building supply stores--reversing more than half the gain of the prior two months, Moody’s said …

News of the Competition (06/10/2010)

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MADISON, Wis. (6/11/10)
* The Securities and Exchange Commission (SEC) is conducting a probe of Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation (CDO) sold in 2006, said a source familiar with the matter (Bloomberg.com June 10). Since the SEC filed a lawsuit against Goldman related to its 2007 sale of a CDO called Abacus, Goldman’s shares have dropped 26%, Bloomberg said. Goldman sales of CDOs such as Hudson raised “a real ethical issue,” U.S. Sen. Carl Levin (D-Mich.) said in April. “The ethical issue is valid, but Goldman isn’t the only investment bank [that sold CDOs],” said Ambrose Chang, a Hong Kong-based fund manager at Daiwa SB Investments HK Ltd. “After the financial crisis, all Wall Street Banks’ reputations have been fundamentally damaged” … * Community Trust Bancorp Inc., a $3.2 billion-asset, Pikeville, Ky.-based company, said Tuesday it has agreed to purchase the privately held Lafollette First National Corp. for $16.1 million in cash, or $650 per share, roughly 1.05 times LaFollette’s book value (American Banker June 10). The $184 million-asset First National Bank of LaFollette would be merged into Community Trust Bank Inc., per the deal which is slated to close in the fourth quarter, the publication said ... * Rates on 30-year fixed mortgages dropped this week to the lowest level of 2010 and just shy of the all-time low, according to mortgage finance company Freddie Mac (The Associated Press via The New York Times June 10). The average rate fell to 4.72%--down from 4.79% last week and barely above the record-low of 4.71% set in December. For 15-year fixed-rate mortgages, the rate hit 4.17% this week--down from 4.2% last week--and the lowest on record since August 1991. However, the housing market hasn’t benefited from mortgage rates being at such low levels, said The Associated Press. The number of customers applying for a mortgage to purchase a property last week dropped to the lowest level in 13 years, according to the Mortgage Bankers Association. That’s an indication the housing market is down without the $8,000 federal tax credit for first-time homebuyers, which expired at the end of April, The Associated Press said …

Market News (06/10/2010)

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MADISON, Wis. (6/11/10)
* The U.S. trade deficit in April grew to the highest level in more than a year because exports declined more than imports (Bloomberg.com June 10). The gap widened 0.6% to $40.3 billion--the most since December 2008, the Commerce Department said Thursday. The gap’s increase indicates trade will detract from economic growth in the second quarter. Problems associated with the European debt crisis may continue to limit trade flows in the next few months, Bloomberg said. Also, the rise in the value of the dollar since the European turmoil began makes American goods less competitive abroad, Bloomberg added. Trade in high-tech products, including computers and semi-conductors, is playing a growing role in both exports and imports (Moody’s Economy.com June 10) … * In a sign that job cuts remain elevated, even though the economy is growing, more Americans than expected filed applications for unemployment benefits last week (Bloomberg.com June 10). Initial claims for unemployment benefits declined by 3,000 to 456,000 for the week ended June 5--a third straight weekly decline (Moody’s Economy.com June 10). A median forecast of economists surveyed by Bloomberg News had projected 450,000 claims. “The labor market is not as healthy as it should be at this stage of the recovery,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC. “Hiring isn’t ramping up and this means there are downside risks to growth, income and consumption.” Meanwhile, continuing claims dropped by 255,000 to roughly 4.46 million for the week ended May 29 …

Fed beige book All districts report modest growth

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WASHINGTON (6/10/10)--Economic activity improved across all 12 Federal Reserve Districts since their last report, according to the Fed's Beige Book report released Wednesday. Many districts described the growth pace as "modest." Eight times a year, the 12 Federal Districts describe the economic conditions in their districts. The last report was April 14. Consumer spending and tourism improved, with spending continuing to be concentrated on necessities instead of discretionary big-ticket items, said the book. Several districts noted retail sales growth in April and May were uneven. The Atlantic district reported that the BP oil spill in the Gulf of Mexico and Tennessee floods disrupted tourism with cancelled vacations. Business spending also rose modestly since April. Manufacturers' inventories leveled off in the Cleveland, Chicago and Dallas districts while retailers' inventories did the same in Boston, Atlanta and St. Louis districts. Employment and capital spending inched up but inventory investment slowed. Some sectors reported that auto manufacturing was not keeping pace with demand. The sectors that continued to gradually improve included nonfinancial services, manufacturing and transportation, said the report. Residential real estate activity in many districts was buoyed by the April 30 deadline for the homebuyer tax credit. Most districts reported an increase in home sales and construction before the deadline, followed by a corresponding slowing in activity in May. Tight credit, the high inventory of homes available for sale, and "shadow inventory" of foreclosed properties on banks' balance sheets dampened residential development in the New York, Cleveland, Atlanta and Chicago districts. Commercial real estate remained weak. However, some districts reported an increase in leasing. Financial activity changed little since the April report. Commercial and industrial lending by banks remained weak in most districts. However, Philadelphia, Chicago, Dallas and San Francisco reported business loan demand was firming. Consumer lending was weaker in most districts. Real estate lending increased even though standards on these loans were tighter than on other loans. The secondary market for residential mortgages improved in Chicago. Loan quality was stabilizing or improving gradually in most districts but remained an issue for banks with large exposures to real estate. Prices of final goods and services were largely stable. The higher costs of input were not passed along to customers. Also wage pressures continued to be minimal. For the full report, district by district, use the resource link.

Market News (06/09/2010)

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MADISON, Wis. (6/10/10)
* The Federal Reserve will delay the raising of interest rates until 2011 because of record-low inflation and protracted unemployment, according to a Bloomberg News survey of economists (Bloomberg.com June 9). The Fed’s preferred price gauge will increase 1.1% this year--the smallest rise in data since 1960--and the jobless rate will average more than 9% through 2011, according to the median estimate of 65 economists surveyed between June 2 and June 9. “The Fed won’t be in any rush to raise rates,” said Nariman Behravesh, chief economist at IHS Global Insight. “There is no worry about inflation, the situation in Europe suggests more fragility, and there are some concerns about the growth momentum in the U.S.” … * Mortgage loan application volume decreased 12.2% for the week ended June 4 on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). The week’s results include an adjustment to account for the Memorial Day holiday. On an unadjusted basis, the index decreased 21.1%, from the previous week. The Refinance Index dropped 14.3%, and the seasonally adjusted Purchase Index fell 5.7%. The unadjusted Purchase Index declined 16.3%, compared with the previous week and was 30.4% lower than Memorial Day week last year. “Purchase applications are now 35% below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April,” said Michael Fratantoni, MBA vice president of research and economics. “Although rates remained essentially flat, refinance applications dropped this past week for the first time in a month. Despite the historically low rates, many homeowners have already refinanced recently, remain under water on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance.” For the MBA report, use the link … * For a fourth consecutive month, U.S. wholesale inventories increased, while sales rose for a 13th consecutive time. Both gains constitute encouraging signs that indicate a sustained economic recovery (The New York Times June 9). Inventories rose 0.4% in April after increasing 0.7% in March--previously 0.4% revised. Sales rose by 0.7%--from a downwardly revised 2% in March that previously was 2.4%. The inventory-to-sales ratio declined by one basis point to 1.13 in April (Moody’s Economy.com June 9). April saw increased demand for autos, computers, electrical equipment and lumber, the Times said. A sustained increase in demand would hopefully cause businesses to ratchet up orders and restock depleted inventories--thereby giving factories a lift and inducing them to increase hiring, the Times said …

News of the Competition (06/09/2010)

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MADISON, Wis. (6/10/10)
* Although the U.S. economy likely will continue to grow this year and next, the pace will not be sufficient to heal the jobs market or slash a giant budget deficit, said Federal Reserve Chairman Ben Bernanke Wednesday (The Wall Street Journal June 9). A continued rise in consumer spending and business investment should substitute for a fading government stimulus in sustaining the economy, Bernanke told the House Budget Committee. However, because economic growth by itself won’t be enough to repair the U.S.’s finances, steps must be implemented to reduce the budget deficit, Bernanke told the committee. “To avoid sharp, disruptive shifts in spending programs and tax policies in the future, and to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges,” he said in prepared remarks. For Bernanke’s House testimony, use the link … * The banking industry has not sufficiently adjusted its pay practices to reduce risk-taking, said federal regulators, who are reviewing major banks’ compensation policies (The New York Times June 8). After six months into a compensation review of the largest 28 U.S. financial companies, the Federal Reserve discovered that many of the bonus and incentive programs that economists say contributed to the financial crisis still are in place, said sources familiar with the examinations. The review indicated that banks tend to put in place similar bonus formulas for wide-ranging sets of employees and often do not adjust payouts that take into account risks taken by mortgage lending officers or traders, the Times said. The Fed’s review is concentrating on the structure of compensation arrangements--not their amounts. The results have not been made public. Last month, the Fed sent letters to each CEO of the 28 banks detailing its concerns about the institutions’ pay practices. The letters ordered the banks to make prompt changes, the Times said …

April consumer credit--overall and for CU-- is up

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WASHINGTON (6/9/10)--Consumer credit rose by $1 billion in April, indicating consumers took out more loans, as expected, according to the Federal Reserve Board's monthly consumer credit report released Monday. Overall credit rose at an annual rate of 0.5% during April to about $2.44 trillion from $2.44 trillion from March, said the Fed. However, the Fed revised the total for March to a $5.4 billion decline from the previously released $2 billion increase. That means consumer credit rose in April for the second time in 14 months. The other month was January. During the past 12 months, total consumer debt has fallen 3.2% to $2.439 trillion from $2.521 trillion in April 2009 (Daily Finance June 8). Nonrevolving credit drove the increase with a 7.1% increase to $ 838 trillion in April from 846.5 trillion in March. Revolving credit, however, dropped by an annual rate of 12% to $1,602 trillion from $1,592.5 trillion. At credit unions, consumer credit rose to $228.7 billion in April from $228 billion in March. That is still a decrease from 2009, when consumer credit at credit unions totaled $237.2 billion. Revolving credit at credit unions totaled $34.3 billion, up slightly from $34.3 billion in April and down slightly from $35.4 billion in 2009. Credit unions saw nonrevolving credit total $194.3 billion, an increase from $193.7 billion in March but a decrease from 2009's overall $201.7 billion.

News of the Competition (06/08/2010)

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MADISON, Wis. (6/9/10)
* The Swiss Parliament’s lower house voted Tuesday to reject a deal with the U.S. to transfer bank data of 4,450 American clients of UBS--the largest Swiss bank--who are suspected of tax evasion (The New York Times June 8). UBS is attempting to end a tax conflict with the U.S. Department of Justice, in which the bank already has paid $780 million in fines stemming from charges that it aided Americans’ attempts to avoid billions of dollars in taxes, the Times said. Last August, the U.S. and Switzerland reached a deal. Then in April, the Swiss government introduced a special bill that would have set in motion the means to hand the names of Americans over to the U.S. The Swiss Senate approved the bill last week … * Two of three failed banks closed Friday by regulators have entered into purchase-and-assumption agreements with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 81, compared with 140 bank failures for all of 2009. Friday's failed banks include First National Bank, Rosedale, Miss., assumed by The Jefferson Bank, Fayette, Miss.; Tier One Bank of Lincoln, Neb., assumed by Great Western Bank, Sioux Falls, S.D., and Arcola Homestead Savings Bank, Arcola, Ill., which had a payout of its insured deposits approved by the FDIC. The three closed institutions held roughly $2.88 billion assets as of March 31. The FDIC estimated that the banks' failures will cost the Deposit Insurance Fund about $313.6 million ... * The Treasury Department announced that it has commenced a secondary public offering of up to 2.6 million warrants to buy common stock of Sterling Bancshares Inc. The proceeds of the sale will provide another return to American taxpayers from Treasury’s investment in the company. The auction will commence today at 8 a.m. and close at 6:30 p.m. ET. Potential bidders can bid at any price, in increments of five cents, at or above the minimum bid price of 85 cents per warrant. Deutsche Bank Securities is the sole underwriter of the auction ...

Market News (06/08/2010)

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MADISON, Wis. (6/9/10)
* Although U.S. small-business confidence remains “disturbingly low,” it has gained some traction in recent months, according to the National Federation of Independent Business (Moody’s Economy.com June 8). Small-business optimism increased to 92.2 in May from 90.6 in April, the federation said--constituting the second consecutive monthly gain and taking the index to its highest level since September 2008. Even though economic recovery began in August, confidence is slowly being restored, Moody’s said. Of the 11 components that comprise the overall index, the biggest positive contributions came from responses on economic expectations, improved--although still low--sales volume, and inventory plans, Moody’s added … * The U.S. economic recovery will not rapidly bring down the unemployment rate--which will stay “high for a while,” Federal Reserve Chairman Ben Bernanke told ABC news journalist Sam Donaldson Monday (Bloomberg.com June 8). The recovery is “moderate paced,” given the depth of the recession, Bernanke added. “The unemployment rate is still going to be high for a while, and that means that a lot of people are going to be under financial stress,” he said. The banking system is not yet totally healthy, and lenders are “cautious” in providing credit, Bernanke added … * Although neither the number of job separations nor hires changed much in April from March, the number of job openings measurably rose--providing hope for additional improvement in the labor market in coming months, according to the Job Openings and Labor Turnover Survey (JOLTS). About 4.3 million people were hired in April--down from 4.33 million in March. In the meantime, four million workers left their jobs in April--roughly equal to March. For the third consecutive month, hires exceeded separations. In a related matter, employment expectations are improving in most areas of the world, although a mild downturn can be detected in a few European economies, according to the Manpower Employment Outlook Survey (Moody’s Economy.com June 8) ...

News of the Competition (06/07/2010)

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MADISON, Wis. (6/8/10)
* One of two failed banks closed Friday by regulators has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 80, compared with 140 bank failures for all of 2009. Friday’s failed banks include First National Bank, Rosedale, Miss., assumed by The Jefferson Bank, Fayette Miss.; and Arcola Homestead Savings Bank, Arcola, Ill., which had a payout of its insured deposits approved by the FDIC. The two closed institutions held roughly $77.4 million assets as of March 31. The FDIC estimated that the banks' failures will cost the Deposit Insurance Fund about $15.8 million ... * Bank of America (BofA) has agreed to pay $108 million to settle charges by the Federal Trade Commission (FTC) that the bank’s Countrywide Financial mortgage subsidiary collected excessive fees from troubled homeowners and engaged in other abusive practices in the years before BofA acquired Countrywide in July 2008 (The New York Times June 7). The money will go to more than 200,000 homeowners whose loans were serviced by Countrywide before July 2008, when it was acquired by BofA, the FTC said in an announcement Monday. “Countrywide profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed,” said Jon Leibowitz, FTC chairman. The $108 million payment is one of the biggest overall judgments in the FTC’s history and resolves its largest mortgage servicing case, the Times said. … * Saigon National Bank in Westminster, Calif., missed a sixth quarterly dividend payment that was due in May under the Treasury Department’s Troubled Asset Relief Program (TARP). The situation sets up a test for how the federal government will treat repeat delinquencies under TARP (Dow Jones via American Banker June 7). The bank concentrated on lending to the area’s Vietnamese business community, and has not paid dividends since obtaining $1.55 million in TARP funds in December 2008. “We can't pay a dividend without the Office of the Comptroller of the Currency’s (OCC) approval, and they haven't approved payment of the dividend,” said Roy Painter, Saigon’s chief financial officer, referring to the OCC, which regulates the bank. To date, Saigon National is the only TARP recipient to miss six dividend payments--a signpost that triggers the Treasury's right to appoint two directors to a bank’s board ...

Market News (06/07/2010)

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MADISON, Wis. (6/8/10)
* Worldwide business confidence remained strong in early June, despite the continuing European debt crisis and the shakiness in global financial markets, according to Moody’s Economy.com Survey of Business Confidence (June 7). Sentiment is strongest in South America, but even European confidence remains solid, Moody’s said. So far this year, sales and hiring have made the most improvement. Businesses’ general assessments for current and prospective economic conditions through the rest of 2010 still are quite strong, Moody’s said. The one cause for concern is a paucity of inventory accumulation and low demand for office space, Moody’s added … * The Group of 20 (G-20) nations failed to reach agreement at a meeting Friday and Saturday in Busan, South Korea, on a proposal to place a global tax on banks (USA Today June 7). The proposal was geared toward making the financial industry absorb the costs of bailouts. The G-20 instead settled for guidelines, the newspaper said. The group’s finance ministers and central bank governors said in a statement that the governments will consider each nation’s circumstances and options. That will allow nations whose banks were less negatively impacted by the global financial crisis to skip a tax, the paper said. The U.S. and European countries have advocated the levy. “The world may end up in a period of sub-potential growth for two or three years,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “We need to accept that all of us cannot simultaneously grow our way out of trouble” (Bloomberg.com June 7) …

News of the Competition (06/04/2010)

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MADISON, Wis. (6/7/10)
* During the next five years, Bank of America Corp. (BofA) pledged to buy $10 billion of goods and services from small and midsize businesses (American Banker June 4). The $2.3 trillion asset BofA expects to increase those types of purchases by 5% annually, the company said Thursday in a press release. “What businesses of all sizes are telling us they need most right now is more business,” Brian T. Moynihan, BofA president/CEO, said in the release. “We want to increase our support by purchasing more of their products and services.” Last year, BofA said it spent $1.9 billion with small and midsize businesses. It made $19.4 billion in loans to small and midsize businesses in first quarter 2010--or 18% more than a year earlier … * U.S. and Canadian bank card delinquencies declined in April from March, while charge-offs increased slightly, according to Standard & Poor’s (S&P) Ratings Services (Dow Jones via American Banker June 4). Delinquencies on many consumer loans may have peaked, Dow Jones said. Charge-offs increased 0.1 of a percentage point to 10.2%. However, 30-day delinquencies declined 0.2 of a point to 5.4%, S&P said. “We continue to expect credit card losses to remain in the 10% to 11% range in the next 12 months in light of the declining receivables balance,” said analyst Kelly Luo. “However, if delinquencies continue to fall and receivables balances stabilize in the coming months, we believe credit card losses could decline to about 9.5%.” Delinquencies at least 90 days behind fell for a second consecutive month, decreasing 0.1 of a point to 2.9%. Declines were greater for store-branded cards, Dow Jones said …

Market News (06/04/2010)

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MADISON, Wis. (6/7/10)
* The Economic Cycle Research Institute’s (ECRI) leading index declined to 124.1 for the week ended May 28 from 125.6 the prior week. The smooth, annualized growth rate dropped to 0.4% from 5.1%. This constitutes the fourth consecutive week of falling growth rates and index values, ECRI said. The index’s weaker performances suggest that the economy could have trouble speeding up growth as the recovery matures early in 2011, ECRI said (Moody’s Economy.com June 4). In a related matter, ECRI’s U.S. future inflation gauge decreased to 98.9 in May from 101.8 in April. The smoothed annualized growth rate slowed to 12.5% from 23.4%. European financial problems have dampened inflationary pressures--especially with commodity price inflation--after months of gains, ECRI said. With inflationary pressures appearing to lessen, deflation becomes a greater near-term concern, ECRI added … * Showing uncertainty that may lead to sluggish economic growth, U.S. employers hired fewer workers in May than expected (Bloomberg.com June 4). Payrolls increased by 431,000 last month, and included a 411,000 jump in government hiring of temporary workers for the 2010 Census, the Labor Department said Friday. However, economists had forecast a 536,000 gain, according to a Bloomberg News survey. “Hiring looks soft,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “It does raise some red flags that businesses are still pretty cautious.” Private-sector job creation--a key measure--reached only 41,000, which was well below expectations of 180,000 (The New York Times June 4). Meanwhile, the unemployment rate decreased to 9.7% from 9. 9% in April, with the labor force contracting because more Americans dropped out of the work force (Moody’s Economy.com June 4) …

News of the Competition (06/03/2010)

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MADISON, Wis. (6/4/10)
* An independent analysis of the Federal Home Loan Bank (FHLB) of San Francisco’s investment portfolio conducted by Pluris Valuation Advisors is raising concerns about the financial health of the bank--the biggest of the 12 such institutions in the FHLB system, reported American Banker (June 3). Although the bank maintains that it anticipates only a $68 million credit loss on a roughly $20 billion portfolio of mortgage-backed securities, Pluris said it expects a loss in the area of $5 billion--an amount that would eliminate the bank’s retained earnings. The bank insists its estimates are accurate, the publication added … * Bank of America Corp. (BofA) said Wednesday that it is altering its loan modification plan. Instead of offering principal reductions under a company program, BofA will channel the reductions to a Treasury Department program that provides the servicer with incentive payments (American Banker June 3). The program will offer quicker relief for troubled borrowers--making principal reductions permanent after three years versus five years for the bank’s program, Jack Schakett, BofA credit loss mitigation executive, told the publication … * Britain’s financial regulator--The Financial Services Authority--fined JPMorgan Chase $49 million Thursday for failing to keep client funds separate from the company’s money (The New York Times June 3). The regulator said JPMorgan did not “adequately protect” client money in the possession of its futures and options business. The error occurred following the merger of JP Morgan and Chase and was undetected for nearly seven years. The error would have put client funds at risk if the firm had become insolvent, the regulator said. JPMorgan failed to separate client funds worth between $1.9 billion and $23 billion from 2002 to 2009, according to the British regulator …

Market News (06/03/2010)

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MADISON, Wis. (6/4/10)
* U.S. nonfarm business productivity grew in the first quarter, but at a slower rate than previously thought--a possible sign that businesses are at the limit of their abilities to boost output with fewer workers (The New York Times June 3). First-quarter productivity grew an annual rate of 2.8%--the slowest rate in a year--revised down from 3.6% reported a month ago, the Labor Department said Thursday. The change resulted from a downward revision to output and an upward revision to hours worked (Moody’s Economy.com June 3). Unit labor costs were revised upward to a 1.3% first-quarter decline from a previously reported 1.6% decrease. Productivity growth is slowing as the economic recovery gains speed, and falling unit labor costs--partly due to a still-weak labor market--also are providing firms a strong incentive to hire, Moody’s said … * For the second consecutive week, U.S. initial claims for unemployment decreased--a sign that job cuts remain elevated, even though the economy is growing (Bloomberg.com June 3). Claims last week declined by 10,000 to 453,000, the Labor Department said Wednesday. “Claims would suggest the underlying state of the job market remains somewhat fragile,” said John Herrmann, senior fixed-income strategist at State Street Global markets. “There is a disconnect, given the improvement we are seeing in economic growth.” Meanwhile, continuing claims rose by 31,000 to more than 4.66 million for the week ended May 22 (Moody’s Economy.com June 3). In a related matter, the Monster employment index, measuring help-wanted ads placed online, rose by one point between April and May to 134. Also, U.S. private-sector jobs increased by 55,000 in May, according to a national employment report published by payroll company Automatic Data Processing Inc. and consultancy Macroeconomic Advisers (The Wall Street Journal June 3) ... * Retail sales in the U.S. during May were lackluster and signaled an uneven recovery in consumer spending, even though most stores reported higher monthly sales over year-ago comparisons (The Wall Street Journal June 3). In general, retailers said sales were slow early in the month, and they reported differing levels of spending on discretionary items, the Journal said, adding that retailers still are expected to experience higher sales for the month. Cool weather and new concerns about the economy left consumers uninspired and resulted in cautious spending in May after a lukewarm April (The New York Times June 3). May retail sales reports released Thursday highlight how fragile the consumer spending recovery remains, the Times said …

News of the Competition (06/02/2010)

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MADISON, Wis. (6/3/10)
* Tactics designed by Washington Mutual Inc. to force creditors to stop pursuing those they blame for the collapse of Washington Mutual Bank (WaMu) have come under fire from federal bankruptcy officials (Dow Jones via American Banker June 1). Washington Mutual’s Chapter 11 bankruptcy plan is predicated on a settlement of legal claims the company brought against JPMorgan Chase & Co--which bought WaMu, and the Federal Deposit Insurance Corp., which arranged the sale of the troubled thrift--from lawsuits over the deal, Dow Jones said. The Chapter 11 plan contains a “trap door” that punishes those who don’t want to allow potentially responsible parties to go free from blame, said U.S. Trustee Roberta A. DeAngelis in a court filing, adding that’s not fair or legal. Creditors who “opt out” of the plan will be stripped of legal rights--with some receiving nothing from the bankruptcy proceeding, DeAngelis warned … * Moody’s Corp. “gave up its analytical distinctiveness,” in part by intimidating analysts who were too strict or who angered influential investment bankers, a former Moody’s lawyer planned to tell a congressional panel(The Wall Street Journal June 2). The lawyer had worked in the ratings firm’s structured finance group for 10 years. Mark Froeba--in written testimony to the Financial Crisis Inquiry Commission--alleged Moody’s managers “deliberately engineered a change to its culture intended to ensure that rating analysis never jeopardized market share and revenue” …

Market News (06/02/2010)

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MADISON, Wis. (6/3/10)
* U.S. pending home sales have increased for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions, said the National Association of Realtors (NAR). The Pending Home Sales Index rose 6% to 110.9, based on contracts signed in April, from an upwardly revised 104.6 in March. The index is 22.4% higher than April 2009 when it was 90.6. That follows gains of 7.1% in March and 8.3% in February. Pending home sales are at the highest level since last October when the index reached 112.4 and first-time buyers rushed to beat the initial deadline for the tax credit. The data reflect contracts--not closings. Lawrence Yun, NAR chief economist, said this second round of surging sales from the tax credit extension looks as strong as the original tax credit sales. “There were concerns that only a small pool of buyers was left to take advantage of the tax credit extension,” Yun said. “But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales. The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.” NAR said it expects a net of one million additional jobs in the second half of this year and about two million in 2011. For the NAR report, use the link … * Mortgage loan application volume for the week ended May 28 rose 0.9%, seasonally adjusted from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey, released Tuesday by the Mortgage Bankers Association (MBA). Unadjusted, the index increased 0.3%, compared with the previous week. The Refinance Index rose 2.4%. This was a smaller increase than in previous weeks, but was still the fourth consecutive weekly increase for the Refinance Index and at its highest level since October 2009. The seasonally adjusted Purchase Index decreased 4.1%. That index declined for the fourth consecutive week and is at its lowest level since April 1997. The unadjusted Purchase Index fell 5.2% and was 16.8% lower than the same week one year ago. “With another week of historically low mortgage rates, the trend from the prior three weeks continued, as refinance applications increased while purchase applications dropped,” said Michael Fratantoni, MBA vice president of research and economics. “Purchase applications are now almost 40% below their level four weeks ago, while the refinance share, at 74%, is at its highest level since December.” Also, the adjustable rate mortgage share dropped last week to its lowest level since March, as borrowers locked in at historically low fixed mortgage rates. For the MBA report, use the link … * U.S. job cuts have diminished dramatically, according to the May report by Challenger, Gray and Christmas Inc. Even though the number of announced cuts rose slightly to 38,810 from about 38,300 in April, the level of cuts “is still remarkably low,” the report said. Monthly job cuts averaged roughly 50,000 prior to the recession. About half the April cuts were in government/nonprofit sectors--which lag changes in the private sector. With lower tax revenues coming in, municipal and state governments are being forced to adjust their budgets, the report said (Moody’s Economy.com June 2) … * Nearly half (49%) of the more than 2,000 respondents to a survey said they would never be able to save enough money for a down payment on a home, said the National Foundation for Credit Counseling (NFCC). That is “discouraging news for the housing market in general, lenders, potential buyers and existing homeowners,” NFCC said in a press release. “Owning a home has traditionally been considered a significant part of a person’s wealth-building strategy,” NFCC added. “With almost half of the poll respondents indicating that they would never be able to save enough money for a down payment on a home, the implication is that they feel that buying a house is, and may always be, out of reach for them. Historically, finding the money for a down payment was only a problem for first-time home-buyers. After buying the first home, between the equity growing due to making monthly house payments and the value of the house appreciating, buyers could satisfy the down-payment requirement on the new home from the proceeds of the sale of the former house. This is often no longer the case” …

Market News (06/01/2010)

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MADISON, Wis. (6/2/10)
* U.S. construction spending in April jumped by the biggest amount in nearly a decade--a sign that the most severely impacted sector of the economy is beginning to recover (The New York Times June 1). Construction spending rose 2.7% last month from March--the largest one-month improvement since August 2000, the Commerce Department said Tuesday. Housing construction leapt 4.4% to a seasonally adjusted annual rate of $263 billion, aided by homebuyer tax credits that expired at the end of April. Without the tax credits, economists worry about the housing recovery’s durability, the Times said. Private residential and private nonresidential construction spending rose significantly in April, as did public construction spending (Moody’s Economy.com June 1) … * For the 10th consecutive month, U.S. manufacturing expanded because factories bolstered payrolls to keep pace with rising domestic and international sales (Bloomberg.com June 1). The Institute for Supply Management’s (ISM) manufacturing index fell less than expected to 59.7 from 60.4 in April--the highest level in nearly six years. Readings above the 50 level indicate expansion. Also, ISM’s export index rose to the highest level in two decades. “Manufacturing is still doing very well,” said Ken Mayland, president of ClearView Economics LLC. “Fundamentally, confidence has come back to the consumer, and so consumer spending is increasing moderately. We’re seeing strong rebounds from capital spending on equipment and exports, and the third factor is inventory stocking.” Also, new orders remain elevated--a positive sign for future production, he said (Moody’s Economy.com June 1) … * Canada raised interest rates Tuesday--the first of the Group of Seven nations to raise rates since the worldwide financial crisis. However, it added that any future increases would be dependent on global economic conditions (The New York Times June 1). The Bank of Canada raised its main interest rate by a quarter point to 0.50% from a record- low rate of 0.25%. Canada weathered the global economic crisis better than most developed countries because it did not have any major financial institutions fail, and it avoided a harmful mortgage implosion or banking crisis due to increased regulation, the Times said. “While Canada joined with other countries in taking interest rates down to virtually zero, the sense of crisis was never as great there,” said Avery Shenfield, senior economist at CIBC World Markets …

News of the Competition (06/01/2010)

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MADISON, Wis. (6/2/10)
* Five failed banks closed Friday by regulators have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for banks to 78, compared with 140 bank failures for all of 2009. Friday’s failed banks include Bank of Florida-Southeast, Fort Lauderdale, Fla., Bank of Florida-Southwest, Naples, Fla., and Bank of Florida, Tampa, Fla., all assumed by EverBank, Jacksonville, Fla.; Sun West Bank, Las Vegas, assumed by National Bank, Los Angeles; and Granite Community Bank, N.A., Granite Bay, Calif., assumed by Tri Counties Bank, Chico, Calif. The five closed institutions held roughly $1.95 billion assets as of March 31. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $317 million … * American International Group (AIG) Tuesday rejected a bid by Prudential PLC to lower the United Kingdom insurer’s $35.5 billion purchase price of AIG’s Asian operations (The New York Times and The Wall Street Journal June 1). The rejection likely means the takeover bid is over and could raise questions about the future of Tidjane Thiam, Prudential CEO, the Journal said. In a Tuesday statement, AIG said it would not revise the deal’s terms, which it had already revised once. The rejection hurts Prudential’s goal of becoming a dominant force in the insurance market, and also could slow AIG’s ability to repay the $182 billion in U.S. government aid it has received, the Times said …