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Market

News of the Competition (07/31/2008)

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MADISON, Wis. (8/1/08)
* In an effort to avert delinquencies, Freddie Mac announced Thursday that it is increasing incentives to mortgage servicers to renegotiate loans. Compensation to servicers that negotiate new loan contracts or payment plans will double to $800 and $500, respectively. Compensation for short sales, in which Freddie accepts a sale price lower than the balance of the mortgage, will double to $2,200. Freddie also said it is increasing the number of days for servicers to negotiate with delinquent borrowers to 300 days, from 120 to 299 days, in Washington, D.C. and 20 states. And Freddie will start reimbursing servicers for the cost of door-to-door contact with borrowers. The delinquency rate on Freddie-guaranteed loans more than doubled in the first five months of the year, to 0.86% (Reuters July 31) … * UBS AG has agreed to pay Massachusetts $1 million as part of an agreement to settle the state’s investigation into the bank’s sale of auction-rate securities to 17 municipalities. UBS also will repurchase $3.4 million of auction-rate securities that it sold to the cities and towns, said Massachusetts Attorney General Martha Coakley. The market for auction-rate securities froze in January, leaving municipalities with no way to sell their securities. Coakley said Swiss-based UBS duped local governments into believing that auction-rate securities were as liquid as cash. Authorities in New York and Texas also are investigating UBS for how it managed the securities (Reuters and UPI July 31) … * Massachusetts Secretary of State William Galvin claims Merrill Lynch defrauded investors in auction-rate securities by misleading them about the market’s stability. Galvin alleges that the investment bank also “co-opted” its research department to help sell the securities. An administrative claim is asking Merrill to “make good” on its sales of auction securities by compensating investors. Brokers retreated from their role as buyers of last resort earlier this year, letting the market freeze. Galvin alleges that Merrill decided to stop supporting bids for auction securities with its own money just five days after one company analyst touted them as “a good, conservative, reasonable investment.” (Bloomberg.com July 31) … * MasterCard reported a $747 million loss for the second quarter, due to a charge related to a settlement with American Express. Excluding the impact of a $1 billion after-tax charge related to antitrust litigation, the firm earned $276 million amid increased spending by cardholders, especially on debit cards. Consumers have turned more to debit cards, as the economy has weakened. Gross dollar volume on MasterCard debit cards jumped 15.8% in the second quarter. “The economic environment is pretty tough,” said MasterCard chief financial officer Martina Hund-Mejean. She added that consumers are shifting their spending from discretionary items to non-discretionary purchases including gasoline, food, and health care (Associated Press via The New York Times July 31) … * GMAC LLC posted a $2.48 billion loss for the second quarter, as losses in its mortgage unit surged and rising gasoline prices prompted writedowns of sport-utility vehicle leases. The results will dampen the bottom line of General Motors, which owns 49% of GMAC. Residential Capital, GMAC’s mortgage unit, posted a $1.86 billion loss for the second quarter, its seventh consecutive loss. Auto finance operations posted a $717 million loss. This week, GMAC announced that it is ending leasing incentives in Canada and reducing its leasing activity in the U.S. GMAC arranged a $60 billion refinancing package in June to avert a possible collapse of ResCap, which now focuses mostly on prime mortgage loans (Reuters via The New York Times July 31) …

Market News (07/31/2008)

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MADISON, Wis. (8/1/08)
* The economy contracted during the fourth quarter, the Commerce Department reported Thursday in its annual revision to gross domestic product (GDP) data. Real GDP declined 0.2%, revised from the 0.6% growth previously reported. It was the first contraction since the recession of 2001. Growth for the first quarter was revised down to 0.9% from 1%. The economy expanded by a modest 1.9% in the second quarter--despite the government’s $100 billion in tax-rebate checks. Domestic consumption rose just 1.5% during the quarter--an improvement from the 0.9% gain in the first quarter, but not the big stimulus boost many analysts predicted. Inventories fell by $62 billion, as companies expecting sluggish demand slowed production. A 9.2% jump in exports helped offset that drag. “To investors it’s very much a recession; to workers it’s a recession,” said John Lonski, chief economist at Moody’s Investors Service. “And really, what matters in the end is what’s taking place in payrolls and the unemployment rate, and they’re both moving in the direction of a labor market recession.” (MarketWatch and The New York Times July 31) … * First-time claims for unemployment benefits surged to a five-year high last week, as the government reached out to enroll workers in an extended benefits program and found that more people qualified for regular benefits. Jobless claims jumped by 44,000 during the week ending July 26 to 448,000--the highest level since April 2003, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, rose by 11,000 to 393,000. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, jumped by 185,000 during the week ended July 19 to 3.28 million, suggesting that people are having a tough time finding new jobs after they’ve been laid off (MarketWatch and Economy.com July 31) … * Employment costs rose 0.7% in the second quarter, the same as the increase in the first quarter, the Labor Department reported Thursday. Wage and salaries rose 0.7% following a 0.8% gain, while benefits increased 0.6%, the same as in the previous quarter. Over the past year, overall employment costs have increased at a 3.1% rate. Wage growth has moderated as slack developed in the job market--making it difficult for workers to demand higher earnings, noted Moody’s Economy.com (July 31). While this is hard for cash-strapped workers, a lack of wage pressure is good news for inflation and will allow the Federal Reserve to focus on encouraging economic growth … * Mortgage rates declined this week after falling commodity prices eased inflation worries, Freddie Mac reported Thursday. The 30-year, fixed-rate mortgage (FRM) fell 11 basis points to 6.52%, while the 15-year FRM dropped 11 basis points to 6.07%, and the one-year, adjustable-rate mortgage (ARM) tumbled 22 basis points to 5.27%. “Mortgage rates moved lower this week, as a drop in commodity prices eased market concerns over inflation pressures,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “For instance, the Department of Energy reported that gasoline prices were the lowest since the end of May, and oil prices were at levels not seen since early May,” added Nothaft. Mortgage rates are lower than a year ago. At this time last year, the 30-year FRM averaged 6.68%, while the 15-year FRM stood at 6.32%, and the one-year ARM was at 5.59% (MarketWatch July 31). For CUNA's Daily Financial Rates, use the link. … * Americans of all age and income groups have reduced credit-card use and cut spending on non-essential items as energy and food prices soar, home prices decline, and lenders tighten credit, according to a study by Javelin Strategy & Research. In the poll conducted in April, 37% of respondents said they have reduced spending on credit cards, while only 10% said they are spending more. And 54% said they plan to spend less on discretionary or luxury items, while just 5% said they plan to spend more. Almost 6 in 10 respondents said they are “more careful” about eating out at restaurants (Reuters July 30) … * Alaska has the highest median credit-card debt of all the states, at $3,384, according to a study by Americans for Fairness in Lending. New Hampshire was second ($2,109); followed by Connecticut ($2,094). Rounding out the top 10 were Maryland, Colorado, Nevada, Virginia, Delaware, Washington, and Massachusetts. States with the lowest median were Mississippi ($1,098); Iowa ($1,135); and West Virginia ($1,237). “Unfair practices by credit card companies are fueling these high debt levels,” said Jim Campen, executive director of the group, which advocates tougher regulations for the credit-card industry (Associated Press via msn.com July 30) …

News of the Competition (07/30/2008)

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MADISON, Wis. (7/31/08)
* The Federal Reserve said Wednesday that it plans to extend its emergency lending to Wall Street firms through January, “in light of continued fragile circumstances in financial markets.” The Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries, both launched in March, with now extend through January 31. The Fed also will begin selling 84-day loans to commercial banks under the Term Auction Facility starting next month, in addition to the sales of 28-day loans that have occurred since the program was launched in December. The Fed said the European Central Bank and the Swiss National Bank have agreed to adapt the maturities of their liquidity operations to match those of the U.S. Fed (Bloomberg.com and MarketWatch July 30) … * E*Trade Financial Corp. has agreed to pay $1 million to settle allegations that two of its brokerage firms failed to follow regulations designed to prevent money laundering. The Securities and Exchange Commission (SEC) alleged that the firms failed to properly document and verify the identities of more than 65,000 customers from October 2003 to June 2005, in violation of the Bank Secrecy Act. E*Trade settled the allegations without admitting or denying wrongdoing. “A compliance lapse of this type has the potential to undermine the nation’s anti-terrorism and anti-money laundering efforts,” said Linda Thomsen, director of the SEC’s enforcement division (Reuters July 30) … * Pax World Management Corp., a mutual-fund company that advertises its responsible-investment policies, has agreed to pay $500,000 to settle allegations that it violated its investment guidelines with investments, including firms that obtain income from gambling and liquor. The Securities and Exchange Commission (SEC) said the firm purchased a total of 41 securities between 2001 and 2005 that weren’t screened prior to purchase, representing about 8% of all new purchases during the period. “Advisers simply cannot tell investors they are going to do one thing with their funds and then not follow through on those promises,” said Linda Thomsen, director of the division of enforcement at the SEC (Reuters July 30) … * NCR Corp, a Dayton, Ohio-based maker of ATMs, checkout scanners, and self-service terminals, reported a 12% drop in earnings for the second quarter, reflecting costs from realigning its business after the spinoff last autumn of its Teradata Corp. software business. NCR said it earned $45 million, compared with $51 million in the same period last year. “NCR’s strong second quarter results were broad-based geographically and speak to continued solid demand for our self-service solutions,” said NCR Chairman and chief Executive Bill Nuti. NCR said it expects revenue growth of 6% to 8% this year (Associated Press via Yahoo! News July 29) …

Market News (07/30/2008)

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MADISON, Wis. (7/31/08)
* Consumers preferred fixed-rate mortgage (FRM) products over adjustable-rate-mortgage (ARM) products during the second half of last year, as long-term rates declined and the spread between ARMs and FRMs narrowed, according to a survey by the Mortgage Bankers Association. Tighter lending standards on subprime and nontraditional mortgage loans, which ARMs typically dominate, also lowered demand for ARMs. FRM products accounted for 63.6% of all loans made during the last half of 2007--up from 53.4% in the first half of the year. And 79% of all origination dollars were for prime loans, compared with 70%. The government-insured share of originations rose to 5.7% from 3.8%, as borrowers replaced subprime and other nontraditional loans (mbaa.org July 30) … * Mortgage activity declined last week, even as long-term rates fell, the Mortgage Bankers Association reported Wednesday (Associated Press via The New York Times July 30). The trade group’s mortgage applications index fell 14.1% during the week ending July 25 to 420.8--the lowest level of the year. Refinancings plunged 22.9% to 1074.4, while purchase applications dropped 7.8% to 309.5. Mortgage rates were mixed. The average 30-year, fixed-rate mortgage (FRM) dropped 13 basis points to 6.46%, while the one-year, adjustable-rate mortgage (ARM) increased 9 basis points to 7.25%. A bottom to the housing market still is many months away, said Moody’s Economy.com (July 30). The research firm noted that the 30-year FRM is only 4 basis points lower than a year ago, before the housing market collapsed, because mortgage lenders remain pessimistic … * The Hope Now coalition of mortgage lenders, servicers, investors, and community groups said it helped a total 181,000 troubled borrowers in June. More than 76,000 had their loans permanently modified, and another 105,000 were given repayment plans. However, the group said more than 82,039 people still lost their homes to foreclosure during the month--up 12% from May. Hope Now claims it has helped more than 1.9 million homeowners since the program was launched in July last year (CNNMoney.com July 30) … * The Treasury Department is seeking to borrow $171 billion in the third quarter--the second-highest quarterly borrowing on record--to cope with the soaring budget deficit. The federal budget deficit is expected to more than double this year to $389 billion and to hit a record-high $482 billion in the 2009 budget year. Those projections don’t include the full costs of the wars in Afghanistan and Iraq or the costs of the housing rescue plan that was signed into law this week. The Treasury Department plans to raise $17 billion by selling a new 10-year note on Aug. 6 and to raise $10 billion by selling a new 30-year bond on August 7 (Associated Press via CNNMoney.com July 30) … * More than 1.6 million U.S. businesses owe the Internal Revenue Service (IRS) more than $58 billion in unpaid taxes for Social Security, Medicare, and unemployment insurance, the Government Accountability Office (GAO) said Wednesday. The GAO said the IRS fails to fully use the tools it has to collect unpaid taxes and prevent cheating on payroll taxes. “When businesses do not remit payroll taxes, they are using employees’ money to fund business operations or the personal lifestyle of the businesses’ owners,” said Steven Sebastian, director of financial management and assurance at the GAO (Reuters via The New York Times July 30) … * World Trade Organization negotiations collapsed on Tuesday after the U.S., India, and China refused to compromise about measures to protect farmers in developing countries from increased liberalization of trade. Skepticism about the advantages of free trade has been growing in the U.S. and in Europe, as economic malaise spreads. Negotiations faltered on the rights of developing nations to protect key agricultural products from competition. On the other side, U.S. and European Union negotiators were under pressure from powerful farm lobbies (The New York Times July 30) …

News of the Competition (07/29/2008)

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MADISON, Wis. (7/30/08)
* In a bid to boost its credit ratings, Merrill Lynch has sold $8.55 billion of stock and plans to liquidate $30.6 billion of collateralized debt obligations--the mortgage-related bonds that prompted most of its losses--at one-fifth of their face value, or $6.7 billion. The nation’s third-largest securities firm has reported nearly $19 billion worth of net losses during the past year, due to bad bets on the mortgage market. Merrill has lost nearly 55% of its market value so far this year. Moody’s Investors Service affirmed Merrill’s A2 credit rating after the company announced the asset sale. Bank of America Analyst Michael Hecht estimates that Merrill will report a loss of $11.55 a share for the full year (Bloomberg.com July 29) … * Citigroup may write down about $8 billion during the third quarter from its exposure to collateralized debt obligations (CDOs) after Merrill Lynch agreed to sell its CDOs at a huge discount, said Deutsche Bank Analyst Mike Mayo on Tuesday. Citigroup has the largest CDO exposure of any financial institution. Based on Merrill’s writedowns, Citigroup could have another $7 billion in writedowns. Merrill’s CDO fire sale prompted many analysts to predict that the credit crisis still has a long way to go (Reuters via msn.com July 29) … * The 45% plunge in bank stocks since last October has hit the investment portfolios of many small banks hard. Small banks typically invest much more in financial stocks than do larger banks. Writedowns to reflect declining stock prices basically wiped out the second-quarter profits of many small banks, which already were suffering from sour loans. Investments in Fannie Mae and Freddie Mac are especially popular among small banks. “At times like this, you’re getting hit twice as hard,” said RBC Capital Markets Bank Analyst Gerard Cassidy (The Wall Street Journal Online July 29) … * In an effort to ease the credit crunch, the Federal Reserve auctioned another $75 billion in 28-day loans to commercial banks on Monday through its Term Auction Facility. The central bank received 70 bids for $90.56 billion worth of loans. Banks paid 2.35% for the loans. The awarded loans will settle on July 31, and will mature on Aug. 28 …

Market News (07/29/2008)

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MADISON, Wis. (7/30/08)
* Home prices declined for a 22nd consecutive month in May, eroding consumer wealth further even as energy and food prices continue to soar. The S&P/Case-Shiller Home Price Index of 20 cities fell 15.8% from a year earlier--accelerating from a 15.2% drop in April. Each of the 20 metropolitan areas in the index posted year-over-year declines. Nine cities posted record lows and 10 posted double-digit declines. The S&P/Case-Shiller 10-city index posted an annual decline of 16.9%. “Since August 2006, there has not been one month where we have seen overall price increases, as measured by the two Composites,” noted David Blitzer, chairman of S&P’s index committee. The 10-city index has tumbled 19.8% since it peaked in July 2006. The 20-city index has fallen 18.4%. Sun Belt cities have led the declines. Las Vegas prices plunged 28.4% over the past 12 months. Miami prices dropped 28.3%, while Phoenix prices tumbled 26.5%. Midwestern cities that have lost their manufacturing bases also have seen home prices plummet. Prices were down 17.4% in Detroit and 8% in Cleveland (CNNMoney.com and Bloomberg.com July 29) … * The inventory of homes listed for sale is finally declining, even as tight credit and rising foreclosures continue to dampen home prices. In a quarterly survey of 28 top metropolitan areas by The Wall Street Journal (July 29), 19 areas posted year-over-year declines in the supply of homes listed for sale. The trend could signal a rebound in the housing market. However, housing inventories remain quite high. A six-month supply of homes listed for sale is considered a balanced market. But the supply is 37 months in the Miami-Fort Lauderdale market, 19 months in Las Vegas, 15 months in Chicago, and 13 months in Atlanta and Phoenix. “We have the added weight of a recessionary economy” on what already was the weakest housing market since the 1930s, said Jeffrey Otteau, president of the appraisal firm Otteau Valuation Group. He doesn’t expect the housing market to recover until the job market picks up and financial firms begin to make credit more widely available … * There’s no end in sight to the U.S. housing downturn, and deteriorating credit conditions may prolong the nation’s economic slowdown, the International Monetary Fund (IMF) said Monday. “Stemming the decline in the U.S. housing market is necessary for market stabilization as this would help both households and financial institutions to recover,” said the agency in its Global Financial Stability Report. The IMF said “credit risks remain elevated” and banks must raise more capital. Asset writedowns and losses worldwide already have totaled $469 billion during the past year. “The growing concern is that, with delinquencies and foreclosures in the U.S. housing market rising sharply, and house prices continuing to fall, loan deterioration is becoming more widespread.” The agency also noted that rising inflation has made it difficult for monetary policy to support economic growth (Bloomberg.com July 29) … * Domestic automakers are tightening terms on leasing deals, as soaring gasoline prices prompt consumers to turn away from trucks and sport-utility vehicles. The resale value of the gas-guzzling models has plunged, leaving dealers holding the bag. GMAC LLC told dealers Monday that it is increasing the price on leases of trucks and sport-utility vehicles due to the “extreme losses” on those contracts. The lending unit also will no longer offer lease deals to consumers with the lowest credit ratings. And it plans to stop subsidizing leases in Canada as of August 1. Chrysler announced Friday that its Chrysler Financial unit will stop financing leases. Ford Motor told dealers it is tightening terms “due to extreme losses Ford Credit is taking on off-lease vehicles.” Ford said it is losing an average of $2,700 per unit on 24-month leases and $2,400 per unit on 36-month leases (The Wall Street Journal Online July 29) … * Consumer confidence was little changed this month amid high food and energy prices and the weakening economy. The Conference Board’s Consumer Confidence Index edged up to 51.9, from 51 in June. The index stood at a much higher 111.9 a year ago. The Expectations Index rose to 43 from 41.4, while the Present Situation Index slipped to 65.3 from 65.4. “Consumers’ assessment of current conditions was little changed, suggesting there has been no significant improvement, nor significant deterioration, in business or labor market conditions,” said Lynn Franco, director of the Board’s Consumer Research Center. Consumers remained gloomy about the job market this month. The percentage saying jobs are “hard to get” rose to 30.3%-- from 29.7% and the highest level since May 2004. The share saying jobs are “plentiful” fell to 13.5%-- from 14.1% and the lowest reading since December 2003 (Associated Press via Yahoo! News and Economy.com July 29) ...

Market News (07/28/2008)

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MADISON, Wis. (7/29/08)
* Large cutbacks in driving due to high gasoline prices are diminishing the funds available to rebuild the nation’s aging highway system and to expand transit options. Collectively, Americans have reduced their driving by 40 billion miles over the past seven months, according to a report issued Monday by the U.S. Transportation Department. Americans drove 3.7% fewer miles in May than they did a year earlier--doubling April’s 1.8% drop-off, the report said. The cutbacks are helping meet several U.S. policy goals, such as reducing consumption of oil and cutting down auto emissions. However, as people move away from gas-guzzling vehicles, they are paying less federal taxes, which mostly are used to finance highways and mass-transit systems. Many projects of this type will either be cut back or eliminated, the report said (The Wall Street Journal July 28) … * Due to bad bets on financial stocks and crude oil, hedge funds may post their worst month in almost five years, analysts said. The Global Hedge Fund Index of more than 55 funds--compiled by Hedge Fund Research Inc.--dropped 3.2% through July 24. This would constitute the biggest monthly drop since the measure began in 2003. Wagers on a decline in financial stocks and homebuilders went south after Fannie Mae and Freddie Mac shares more than doubled in six trading days up to July 23, analysts said. Positive bets on crude oil continuing its rise turned to losses, as oil dropped 15% from a record-high $145.29 per barrel on July 3, after doubling its price over the previous year (Bloomberg.com July 28) … * The global economy is continuing to avert recession, according to Moody’s Economy.com Survey of Business Confidence (July 25). Survey results indicate that the U.S., European and Japanese economies are moderately contracting, while the Asian economy continues to see growth that is close to its potential, and South American growth is just below it potential. Pricing pressures remain quite high, and businesses still have anxiety about weak sales. Investment spending and intentions to hire are soft, but remain stable … * The Federal Reserve offered $75 billion in 28-day credit through its Term Auction Facility Monday, according to a Fed press release. Participants submitted bids by phone to their local Reserve Bank between 11 a.m. and 1 p.m. Summary auction results were published on the website of Board of Governors of the Federal Reserve System. Reserve banks will notify individual institutions in their districts that have submitted winning bids of their awards … * After Standard and Poor’s Rating Services put the debt of the two biggest government sponsored enterprises on CreditWatch Negative, shares of Fannie Mae and Freddie Mac fell Monday. However, the senior unsecured debt ratings of Fannie and Freddie were affirmed at AAA/A-1+ due to the pending passage of the housing bill. S&P said in a statement that rising credit expenses that result in weakness in earnings “underscore the expected higher stress in capital and earnings the firms face over the next several quarters … the crisis of confidence regarding agencies’ capital position also is adding to the stressed business cycle and creates additional challenges for capital-raising initiatives.” (iStockAnalyst July 28) … * The aggregate unpaid principal balance of Freddie Mac’s portfolio increased to a record $791.8 billion as of June 30, 2008, according to its June Monthly Volume summary, released Friday. According to the report, the single-family delinquency rate for all loans was 86 basis points in May, up from 81 basis points in April. Freddie Mac also announced that its total mortgage portfolio has increased at an annualized rate of 9.4% year-to date and 5.7% in June. Other report highlights included: the aggregate unpaid principal balance of Freddie's retained portfolio increased to $791.8 billion as of June 30; the amount of retained portfolio mortgage purchase and sales agreements entered into during June totaled $34.7 billion, up from $26.2 billion in May; and total guaranteed PCs and Structured Securities issued have increased at an annualized rate of 9.8% year-to-date and 5% in June (DSNews.Com July 28) … * Extreme credit problems that have afflicted California lenders have now spread to other states in the Pacific Northwest. Banking companies in Idaho, Oregon and Washington hoped spring home sales would rise enough to keep residential construction loans from becoming an issue, but sales never picked up enough, analysts said. At least two companies posted second-quarter losses due to bad residential construction loans. Earnings dramatically fell at five others in Oregon and Washington. Banks in the Pacific Northwest are preparing for continued deterioration in coming quarters, said bankers and analysts (American Banker July 28) …

News of the Competition (07/28/2008)

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MADISON, Wis. (7/29/08)
* Financial holding company Encore Bancshares Inc., a Houston-based company offering banking, wealth management and insurance services, saw its second-quarter earnings decline to $481,000, or $0.04 per share, from $1.7 million or $0.20 per share, for the same period of 2007--about a 75% drop. Encore was negatively impacted by a charge-off for $2.1 million, analysts said. The charge-off was related to a $6.3 million loan to a Houston law firm, Encore said. The company’s net earnings were $1.9 million, or $0.18 per share, excluding the $2.1 million credit reserve build. Encore is expected to earn $0.16 per share for the quarter, according to two analysts (RTTNews July 25) … * Western Union Co. last week appealed to the Arizona Supreme Court a ruling that permitted state investigators to confiscate money wired people in Mexico suspected as drug smugglers and human traffickers. The company said it is appealing to protect innocent customers who send money from other U.S. states to places outside Arizona. Western Union is arguing that Arizona does not have the jurisdiction to interfere with payments that do not begin or end within its borders. The company said the seizures are indiscriminate and unconstitutional. A state appeals court earlier this month overturned a lower court ruling that agreed with Western Union’s position. The appeals court agreed with state investigators who provided evidence that the money was payment for crimes committed in Arizona. In the past seven years, state investigators have slashed by 90% the amount of illegal payments collected at Arizona Western Union outlets. However, smuggling rings devised a new tactic in which money is sent directly to Mexico, authorities said. Smuggling rings make between $1.7 billion to $2.5 billion a year from Arizona border crossings, investigators estimate (The Arizona Republic July 27) … * With demand for its sports utility vehicles and trucks eroding in the U.S., Toyota Motor Corp. Monday cut back its worldwide annual sales forecast. Even with its ongoing robust expansion in China, the Middle East and other emerging markets, the Japanese automaker will not be able to offset U.S. sales losses. This results in a bleak outlook for the year, analysts said. Toyota trimmed 2008 worldwide sales plans by 350,000 units to 9.5 million units. The Japanese automaker has been closing in on General Motors for the title of world’s largest automaker. Toyota’s new forecast would constitute a 1% increase over its 2007 global sales, and would be its weakest growth since 2001, analysts said (the Wall Street Journal July 28) … * KKR & Co., a leveraged buyout firm, plans to convert to a public company by year-end. The transaction may give the company a market value as high as $15 billion, analysts said. KKR will abort the initial public offering it announced a year ago before the buyout market imploded, and will instead go public by taking over the Amsterdam-listed buyout fund it created in May 2006, analysts said. By December when the deal is completed, the shares will be traded on the New York Stock Exchange, KKR said (Bloomberg.com July 28) ...

CUNA economist weighs in on savings trend

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WASHINGTON (7/29/08)--Bill Hampel, chief economist for the Credit Union National Association, weighed in on the effect the U.S. housing crisis will have on savings in a Sunday article that appeared in ChicagoTribune.com . Because homeowners can no longer use rising real estate valued to borrow cash, spending will fall, the article said. It originally ran in Bloomberg News. After Americans go through their tax-rebate checks this summer, consumer spending will fall into negative territory, Hampel explained. With mortgage lenders requiring 20% down payments, the average household--which saves less than 1% of after-tax pay--will have to save 10% for 10 years to buy a home. The residential housing slump will “change the structure” of the U.S. economy and force Americans to save, Neil Soss, chief economist at New York-based Credit Suisse Group, said.

News of the Competition (07/25/2008)

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MADISON, Wis. (7/28/08)
* Private-equity firms and hedge funds are becoming more interested in investing in capital-needy banks as bank stocks have rebounded. MatlinPatterson Global Advisers and Kelso & Co. are considering investing in BankUnited Financial, a Coral Gables, Fla.-based bank that has a big adjustable-rate-mortgage portfolio, say people familiar with the matter. MatlinPatterson rescued Thornburg Mortgage earlier this year. The private-equity firm also is considering an investment in Downey Financial of Newport Beach, Calif., which posted a net loss of $218.9 million for the second quarter. The trend could accelerate further if regulators ease restrictions on such investments (The Wall Street Journal Online July 25) … * The Federal Reserve is considering three measures to ease rules for private-equity firms that purchase bank stakes as lenders search for new capital, say people familiar with the deliberations. One proposal would allow buyout firms to use “silo” funds walled off from their other investments to purchase stakes. The remainder of their holdings wouldn’t be subject to increased federal oversight. Another plan would let private-equity firms take more control of the banks in which they invest. A third plan would let a group of firms invest together in a “club” deal, with the Fed agreeing to treat each firm’s investment separately instead of figuring their holdings together (Bloomberg.com July 25) … * Federal Reserve lending to commercial banks increased to an average daily record last week, while lending to investment banks remained at zero for a fourth consecutive week. Loans to commercial banks via the discount window jumped by $2.47 billion to an average $16.4 billion a day during the week ended July 23. Fed policymakers meeting on June 25 kept the target for the fed funds rate at 2%, ending their most aggressive monetary easing in two decades. The discount rate remained at 2.25% (Bloomberg.com July 24) … * In a signal that the credit markets face further deterioration, National Australia Bank (NAB) announced Friday that it will write down about $795 million of its investments in U.S. residential mortgages. NAB said loan delinquencies have jumped from 10% to 40% over the past year. “The U.S. subprime crisis has moved to other classes of mortgages,” said CEO John Stewart. NAB has now written down more than 80% of its portfolio of U.S. mortgage-related securities (The Wall Street Journal Online July 25) … * Citigroup’s request to dismiss a $2.2 billion lawsuit over the bank’s alleged role in Parmalat SpA’s 2003 bankruptcy was rejected by a New Jersey state judge on Friday, Parmalat announced Friday. The ruling clears the way for the suit to go to trial. Citigroup itself has said it was a victim of Parmalat’s accounting fraud, which has been dubbed “Europe’s Enron.” Italy’s Parmalat claims Citigroup helped conceal the fraud. The firm also has filed a lawsuit against Bank of America (Reuters via msn.com July 25) …

Market News (07/25/2008)

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MADISON, Wis. (7/28/08)
* Foreclosure filings soared in the second quarter. One in every 171 households were foreclosed on, received a default notice, or were warned of a pending auction, according to a report issued Friday by RealtyTrac. There were a total of 739,714 foreclosure filings in the second quarter--up 14% from the first quarter and 121% from a year earlier. “Forty-eight of 50 states and 95 out of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure activity,” said RealtyTrac Chief Executive James Saccadic. Spokesman Rick Sharga said the rapid increase in foreclosure filings has prompted the firm to nearly double the projected number for this year to about 2.5 million. “Based on market conditions themselves, we are nowhere near the end of this trip,” said Sharga. “Best-case scenario, we’re looking at another year of this.” (Bloomberg.com and CNNMoney.com July 25) … * Bank repossessions of homes represented 30% of all notices issued during the second quarter--up from 24% a year earlier, according to the RealtyTrac report. Bank seizures jumped 154% over the year, to 370,179. Nevada had the highest foreclosure rate in the nation, at one in every 43 households--or four times the national average. California had the highest total number of filings--at 202,599. Stockton, Calif. had the highest rate of foreclosure filings of any metropolitan area--at one in every 25 homes, seven times the national average. Detroit suffered more than any other non-Sun Belt area, with one filing for every 66 households. Also hard hit were Toledo, Ohio (one in 92); Akron (one in 93) and Cleveland (one in 108). Foreclosures have pushed all home values down by an estimated 6%, say Lehman Brothers economists Ethan Harris and Michelle Meyer. They expect home prices to drop another 15% by the end of next year (Bloomberg.com and CNNMoney.com July 25) … * New-home sales edged down 0.6% to a seasonally-adjusted annual pace of 530,000 units in June, the Census Bureau reported Friday. Sales were down 33.2% from the same month last year. The median sales price of new homes declined 2% over the past year, to $230,900. In a hopeful sign, the supply of homes at the current sales pace dropped to 10 months’ worth, from 10.4 months in May. Builders are cutting projects to get inventories in line with demand, noted Bloomberg.com (July 25). Housing starts have plunged 53% from a peak of 2.27 million in January 2006 … * As the housing slump erodes revenue, states are slashing spending and cutting workers to cope with a projected $40 billion shortfall in the current fiscal year. Sales taxes also are down, as consumers cut back spending, and income-tax collections are falling amid rising unemployment. Twenty-two states are reporting sales taxes that are below forecast, according to the National Conference of State Legislatures. In addition, 17 states have a shortfall in corporate income tax, 11 states are behind on personal-income tax, and 11 are behind on miscellaneous taxes. At the same time, states are coping with soaring costs for gasoline (The Wall Street Journal Online July 25) .. * Consumer confidence recovered slightly in July, perhaps reflecting the government’s tax-rebate checks (Reuters July 25). The Reuters/University of Michigan Surveys of Consumers said its final index increased to 61.2, from 56.4 in June. Consumer views of both current and future economic conditions improved modestly this month. However, the statistics “still indicate an ongoing downturn in spending that will last well into 2009,” said the report. Inflation expectations for the next year remained at 5.1%. High food and energy prices, tight credit, and the weak job market will continue to weigh on consumers going forward (Economy.com July 25). Offsetting these trends somewhat are lower borrowing costs for some consumers with good credit … * Orders for big-ticket durable goods posted an unexpected increase in June, a possible sign of recovery in the manufacturing sector. Orders for durables, which are designed to last three years or more, rose 0.8% to a seasonally-adjusted $215.43 billion, the Commerce Department reported Friday. The increase reflected a surge in defense orders. Orders have increased in only three of the last six months. However, orders for non-defense capital goods excluding aircraft--a proxy for future business spending--jumped 1.4% in June. That measure was up 3.8% over the 12 months ending in June (The Wall Street Journal Online and Reuters July 25) …

News of the Competition (07/24/2008)

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MADISON, Wis. (7/25/08)
* New York Attorney General Andrew Cuomo announced Thursday that he has filed a lawsuit against two units of Switzerland’s UBS AG, alleging that they misrepresented the risks of auction-rate securities before the $330 billion market collapsed earlier this year. Banks including UBS have long touted auction-rate securities as safe and liquid investments. The market for such securities seized earlier this year amid concern about the credit crisis. “Not only is UBS guilty of committing a flagrant breach of trust between the bank and its customers, its top executives jumped ship as soon as the securities market started to collapse, leaving thousands of customers holding the bag,” said Cuomo. He said his investigation discovered that UBS executives sold off $21 million in personal holdings of auction-rate securities as the market began to collapse; yet they continued to market and sell the securities to customers. Cuomo’s office has also subpoenaed 30 firms--including Citigroup, Merrill Lynch, JPMorganChase, and Goldman Sachs--seeking information about their sales of the securities (Dow Jones Newswires and Associated Press via Yahoo! News July 24) … * The city of Los Angeles has filed two lawsuits related to the municipal bond market against more than 30 Wall Street financial firms. One suit alleges that companies and brokers colluded to rig the bidding process the city uses to obtain competitive rates for its investments. The second suit alleges that the city was forced to purchase insurance from bond insurers when it issued municipal bonds, and that the insurers colluded to ensure a dual credit-rating system that assessed public entities higher premiums. Among the financial institutions named are Bank of America, Bear Stearns, JPMorganChase, Merrill Lynch, Wachovia, and Citigroup (Reuters via The New York Times July 24) … * Bankers reported deteriorating loan quality in the Philadelphia, Richmond, San Francisco, and New York districts, according to the latest Federal Reserve’s Beige Book survey. Bankers said they were responding by tightening lending standards. On the funding side, the Dallas Fed said competition for deposits is “very tough.” And the Cleveland Fed said deposits were steady or rising “as a result of a flight to safety by investors.” The report suggests banks expect to face a long period of instability (American Banker July 24) … * Delinquencies at the nation’s six largest credit-card lenders increased last month, as the impact of tax rebates waned, according to securitization data from American Express, Bank of America, Capital One Financial, JPMorganChase, Citigroup, and Discover Financial. The percentage of card debt 30 days or more overdue was 4.03% in June--up 5 basis points from May and 73 basis points from June 2007. Securitized loans make up 30% to 70% of card debt at the firms (Bloomberg.com July 24) … * Citigroup probably will take an additional $7 billion in collateralized-debt-obligation writedowns this year and will need to raise $11 billion in new capital, according to Morgan Stanley analysts. They noted that Citigroup plans to reduce its mortgage portfolio by $45 billion this year. However, higher net-interest margins and trading revenues should prompt larger overall growth. The analysts also predicted further credit deterioration among banks in coming quarters, due to falling home values (Reuters July 24) …

Market News (07/24/2008)

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MADISON, Wis. (7/25/08)
* Mortgage rates surged this week, as investors became more concerned about inflation, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage jumped 37 basis points to 6.63%--the highest rate since early July 2007. The 15-year FRM soared 40 basis points to 6.18%, while the one-year, adjustable-rate mortgage (ARM) surged 39 basis points to 5.49%. “Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve will raise short-term rates this year all combined to push mortgage rates higher this week,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that consumer prices jumped 1.1% in June. “Additionally, home prices fell 4.8% between May 2007 and 2008, according to the Office of Federal Housing Enterprise Oversight’s monthly house price index.” Mortgage rates now are only slightly lower than a year ago. The 30-year FRM averaged 6.69% a year ago, while the 15-year FRM was at 6.37%, and the one-year ARM stood at 5.69% (MarketWatch and CNNMoney.com July 24). For CUNA's Daily Financial Rates, use the link. … * Sales of previously-owned homes declined 2.7% to a seasonally-adjusted annual pace of 4.86 million units in June, the National Association of Realtors (NAR) reported Thursday (realtor.org July 24). Sales were down 15.5% from a year earlier. The national median existing-home price was $215,100 in June--down 6.1% from a year earlier. However, there is a downward distortion in the price statistics, noted NAR Chief Economist Lawrence Yun. “With short sales and foreclosures accounting for approximately one-third of transactions, it’s hard to make an apples-to-apples comparison with a year ago when they were only a minor portion of the market.” The housing market remains weak, as new foreclosures come on the market as fast as sales are occurring, said Moody’s Economy.com (July 24). Inventories will need to be worked down further before home prices can stabilize … * The percentage of homes available for sale steadied near record levels during the second quarter, according to Census Bureau data released Thursday. About 2.8% of homes--excluding rentals--were empty and on the market--down from a record-high 2.9% in the first quarter but up from 2.6% in the second quarter of last year. The vacancy rate for homes constructed in April 2000 or later was 9.8%. There were about 2.2 million empty homes up for sale in the second quarter. The national homeownership rate was 68.1%, up slightly from 67.8% in the first quarter but down from 68.2% a year earlier. “The numbers are telling us that prices have to fall more,” said Christian Menegatti, U.S. lead analyst for RGEMonitor.com. “We haven’t reached the bottom yet.” (CNNMoney.com July 24) … * A total of $5 trillion in mortgage loans are in risky asset categories, according to Bill Gross, chief investment officer at Pacific Investment Management (PIMCO). An estimated “one trillion of cumulative losses will finally mark the gravestone of this housing bubble,” wrote Goss in his August Investment Outlook letter. He estimates that 25 million homes are at risk of falling into negative equity, in which the home is worth less than what the borrower owes on the mortgage. Gross said a major problem is that 30-year, fixed-rate mortgages now are higher than when the Federal Reserve started to lower the fed funds rate in September 2007. Financial institutions have slashed dividends and initiated capital-raising efforts, as they faced more than $400 billion in writedowns and losses over the past year (Reuters via The New York Times July 24) … * The job market weakened further last week, as employers continued to face soft demand and soaring fuel costs. First-time claims for unemployment insurance increased by 34,000 during the week ending July 19 to 406,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, rose by 4,500 to 382,500. The last time weekly claims topped last week’s total was in September 2005, right after two hurricanes on the Gulf Coast threw thousands of people out of work, noted Bloomberg.com (July 24). Continuing claims, the number of people still on the benefit rolls after an initial week of aid, declined by 9,000 during the week ended July 12 to 3.107 million. Continuing claims probably will soon increase, said Moody’s Economy.com (July 24). That’s because Congress has extended the amount of time people can collect unemployment insurance for an additional 13 weeks … * The national minimum wage rose 70 cents to $6.55 an hour on Thursday, the second of three planned gains mandated by Congress. A third increase, scheduled for July 24, 2009, will boost the minimum to $7.25. Before the legislation, the minimum was unchanged since 1997, at $5.15. Even at the new minimum, a full-time worker earns below the poverty line for a two-person household, said the Economic Policy Institute. The labor-backed group also noted that the federal minimum is lower than the minimum rate in 23 states and in the District of Columbia (CNNMoney.com July 24) … * The economy has slowed during the past few weeks, especially in the manufacturing and housing sectors, even as pricing pressures increased, according to the Federal Reserve’s latest Beige Book survey of the economy. Consumer spending was mixed, weak, or slowing in almost all of the Fed’s 12 districts, despite the federal government’s stimulus checks, noted the report. Most regions reported weaker home sales, “excessive” inventories, and declining home prices. Several regions also reported rising home-vacancy rates. The Fed said there was no evidence of a bottom to the housing market in California, Arizona, and Nevada--which “have seen sharp increases in home foreclosures.” (The Wall Street Journal Online July 24) …

News of the Competition (07/23/2008)

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MADISON, Wis. (7/24/08)
* Profit at the Federal Home Loan banks, the 12 government-chartered cooperatives owned by banks, thrifts, and credit unions, jumped 14.5% in the second quarter, from a year earlier, as income growth in their investment portfolios helped offset a loss at the Chicago bank. Net income rose to $719 million, as investments jumped 12.6% from the end of last year, to $334 billion, the Federal Home Loan Bank System’s finance office said Tuesday. The Chicago bank posted a $74 million loss for the second quarter, reflecting writedowns in subprime-mortgage bonds. Some other banks could “experience reduced yields or losses” in coming quarters from investments in mortgage securities if delinquencies increase and home prices fall, said the finance office (Bloomberg.com July 22) … * The Federal Home Loan Bank of Cincinnati announced Friday that it has approved grants totaling $2.1 million to nonprofit groups for foreclosure mitigation in its district, which includes Ohio, Kentucky, and Tennessee. The bank said 55 of its 726 members are participating in the “Preserving the American Dream” program. “Through this new program, up to $3,500 will be made available to help a homeowner receive foreclosure-prevention counseling or benefit from other foreclosure-mitigation steps,” said CEO David Hehman (American Banker July 22) … * Moody’s Investors Service announced Wednesday that it may lower its ratings on Washington Mutual’s senior unsecured debt to junk territory after the thrift posted a $3.3 billion loss for the second quarter. “WaMu’s asset quality issues primarily relate to the company’s residential mortgage portfolio, but deterioration is also being experienced in the company’s credit card portfolio,” said Moody’s. The ratings agency said it expects the nation’s largest savings and loan to report large quarterly losses through next year (Reuters July 23) … * Top-rated prime jumbo mortgage-backed securities plunged to record lows last week, as investors worried that the debt will be downgraded, said JPMorgan Chase analysts in a report issued Friday. The securities declined to $12 for each $100 worth of principal below similar bonds guaranteed by Freddie Mac and Fannie Mae. That’s compares with $7 below in the prior week. Investors worried about downgrades have eliminated a “fair amount of bank portfolio and insurance company buyers,” noted JPMorgan Analyst John Sim. However, he said the bonds have only a 17% risk of being downgraded. “Certainly from a historical perspective, these levels are absurd, but any historical pricing at this point is irrelevant,” added Sim (Bloomberg.com July 22) …

Market News (07/23/2008)

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MADISON, Wis. (7/24/08)
* Rising debt and declining home prices are harming household finances and eroding economic growth, according to a new report from Moody’s Economy.com (July 23). “The mounting losses on household debt are straining financial institutions and will keep the economy struggling to grow for the remainder of this year and well into 2009,” said Economy.com Chief Economist Mark Zandi. Almost 50% of the 10.5 million borrowers with subprime, alt-A or jumbo option-ARM mortgages have outstanding balances that are far higher than their home’s value, noted the report. Credit-card receivables are increasing at almost double-digit rates, as homeowners turn to their cards for cash. Card receivables are increasing nearly 15% in California, 20% in Florida, and 30% in Nevada. First-mortgage loans in default could hit 3 million this year--up from 1.5 million in 2007 and 1 million in 2006, according to CreditForecast.com, which provides forecasts based on statistics from Equifax and economic projections from Economy.com. Household liabilities in delinquency or default totaled $775 billion at the end of June--up from 3% just two years ago and equal to 7.5% of all household debt (Dow Jones Newswires and BUSINESS WIRE via Yahoo! News July 23) … * The nation’s middle class is losing ground as it struggles with stagnant wages, rising debt levels, and soaring expenses, Harvard Law School Professor Elizabeth Warren told the Congressional Joint Economic Committee on Wednesday. Median, inflation-adjusted household income fell by $1,175 from 2000 to 2007, said Warren, even as the average family is spending $4,655 more on basic expenses such as housing, food, gasoline, and health insurance. She noted that households are using credit cards to cope with stagnant wages and soaring costs. Almost 10% of disposable income in the U.S. goes toward paying off credit-card debt. “The boom of the early 2000s bypassed working families, leaving them in a deeper hole at the end of the cycle than they were at the beginning. This time around, boom times made the rich richer, but ordinary working people got poorer--and that will make the coming hard times even harder.” (CNNMoney.com July 23) … * Mortgage rates are approaching the highest level in a year, amid concern about the financial health of Freddie Mac and Fannie Mae. Rates on conforming 30-year, fixed-rate mortgages (FRMs) increased by almost 0.40-percentage point over the past week to an average 6.71%, according to HSH Associates. The average for jumbo loans, which can’t be sold to Fannie and Freddie, was 7.84%--the highest level since December 2000. The increases reflect investor fears that Fannie and Freddie won’t be able to purchase as many mortgages in the months ahead, as they raise capital to cope with rising defaults, said Walter Schmidt, a senior vice president at FTN Financial Capital Markets. Rising mortgage rates are making it harder for borrowers facing adjustable-rate loan resets to refinance, and putting a crimp on home sales (The Wall Street Journal Online and The New York Times July 23) … * Mortgage activity retreated last week as long-term rates increased, the Mortgage Bankers Association (MBA) reported Wednesday (mbaa.org July 23). The trade group’s Market Composite Index fell 6.2% during the week ending July 18 to 489.6, as both refinancing and purchase applications declined. The 30-year, fixed rate mortgage (FRM) jumped 37 basis points to 6.59%, said the trade association, while the one-year, adjustable-rate mortgage remained at 7.16%. The 30-year FRM is now just 1 basis point lower than a year ago--suggesting that credit hasn’t really loosened for the mortgage markets, noted Moody’s Economy.com (July 23). The one-year ARM is a large 154 basis points higher than a year ago. The MBA report shows that the housing markets remain in a deflationary trap, said the research firm … * Mass layoffs surged to a five-year high in June, the Labor Department reported Wednesday. On a seasonally-adjusted basis, there were 1,643 mass layoffs, affecting 165,697 workers, last month--the highest monthly total since June 2003. The manufacturing sector accounted for the largest number of layoffs, following by administrative services and retailing. The economy has seen 9,258 instances of mass layoffs so far this year--prompting 949,639 initial unemployment claims. That’s up from 7,563 mass layoffs and 780,463 claims during the same period in 2007 (Dow Jones Newswires July 23) …

News of the Competition (07/22/2008)

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MADISON, Wis. (7/23/08)
* Federal Deposit Insurance Corp. (FDIC) officials continued to operate Superior Bank’s subprime-mortgage loan business for months after it seized the Hinsdale, Ill.-based bank in 2001, according to federal mortgage statistics. Superior funded more than 6,700 new subprime loans, at a value of $550 million, as FDIC workers supervised the bank’s daily operations. The agency then sold a large percentage of the loans to Beal Bank. That loan portfolio contained many problems that regulators have noted since then--including poor income verification and inflated appraisals, according to a report by an expert hired by the government. Now many of those borrowers are defaulting on their loans, leading to rising foreclosures. Claiming that many of the loans weren’t made properly, Beal Bank is suing the FDIC. The FDIC itself estimates that about 1,500 of the 5,315 mortgage loans it sold to Beal are either nonperforming or have defaulted. The FDIC also sold a mortgage pool to Bank of America, which bundled them up for sale to investors. Those loans are seeing rising defaults as well. Most loans in that portfolio were originated when the FDIC was operating the bank (The Wall Street Journal Online July 21) … * BankAtlantic Bancorp of Fort Lauderdale, Fla., announced Monday that it has filed a lawsuit against Stock Analyst Richard Bove, alleging that he defamed the firm in his recent research detailing which banks probably will fail. The suit also names Bove’s firm, Ladenburg Thalmann. Bove’s research examined selected ratios for 107 banks and thrifts with assets of more than $5 billion. BankAtlantic Chairman Alan Levan said Bove only looked at data from the bank’s parent company, BankAtlantic Bancorp, which he claims is “meaningless” in his firm’s case. The bank noted that it is well capitalized and has a low ratio of nonperforming loans to total loans. The bank’s shares tumbled 25% on the first day of trading after Bove’s report was released. “We’ll defend ourselves against their meritless lawsuit,” said Ladenburg Thalmann Spokesman Paul Caminit (MarketWatch and Associated Press via Yahoo! News July 22) … * American Express reported weaker earnings for the second quarter, as its affluent cardholders spent less on discretionary purchases. The firm reported net income of $653 million--down 38% from $1.06 billion a year earlier. AmEx added $600 million to its loan-loss reserves and took a $136 million charge, reflecting the declining value of its lending portfolio. “They may not be in the same situation as other [customer] segments, but the reality is that we’re seeing very affluent people who historically have had strong spending histories … change some of their spending behavior,” said AmEx Chairman and Chief Executive Kenneth Chenault. The company cautioned that delinquencies and chargeoffs may accelerate for the remainder of the year (The Wall Street Journal Online July 22) … * Wachovia Corp., the nation’s fourth-largest bank, posted an $8.86 billion loss for the second quarter amid losses linked to mortgages. The firm also slashed its dividend by 87% and said it plans to cut more than 10,700 jobs. The Charlotte, N.C.-based firm said its results included a $6.06 billion writedown of goodwill because of declining asset values, and a $4.19 billion increase in bad-loan reserves. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings all lowered their long-term credit ratings for Wachovia following the report (Reuters July 22) … * Regional banks reported losses for the second quarter, as defaults mounted and loan-loss provisions increased. KeyCorp posted a net loss of $1.13 billion, as its loan-loss provision jumped to $647 million. KeyCorp slashed its dividend by 50%. Fifth Third Bancorp reported a net loss of $202 million for the quarter, as its loan-loss provision jumped to $719 million. The firm cut its dividend by 66%. Two other regionals reported weaker net income for the quarter. SunTrust Banks reported net income of $540.4 million--down 21% from a year earlier--as its loan-loss provision jumped to $448 million from $104.7 million. Regions Financial Corp. reported net income of $206.4 million--down from $454 million a year earlier, as its loan-loss provision rose to $309 million from $60 million. The bank cut its dividend by 74% (The Wall Street Journal Online July 22) …

Market News (07/22/2008)

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MADISON, Wis. (7/23/08)
* Home prices continued to decline in May, the Office of Federal Housing Oversight (OFHEO) reported Tuesday. Nationwide, home prices fell 0.3% from April--the 12th decline in the past 13 months. Prices were down 4.8% over the 12 months ending in May--the largest year-over-year decline in the report’s history. Prices in May were about where they were in November 2005. Prices were lower over the past year in eight of the report’s nine regions. However, the Pacific region saw a 0.3% price gain from April, the first since March 2007. OFHEO Director James B. Lockhart said that small gain could be a good sign for the housing market. The OFHEO data is based on the purchase price of homes backing mortgages that have been bought or guaranteed by Fannie Mae and Freddie Mac. It doesn’t include jumbo or subprime loans, so it may understate the declines in some areas of the nation, such as California, Florida, Nevada, and Arizona (The Wall Street Journal Online and MarketWatch July 22) … * The government’s plan to stabilize Fannie Mae and Freddie Mac would probably cost taxpayers $25 billion, the Congressional Budget Office (CBO) said Tuesday. The CBO said that estimate is based on “the path of housing prices in the next several months.” There’s a 5% probability that the plan could cost $100 billion. However, the CBO said there’s a more than 50% chance that the Treasury Department won’t need to step in to rescue the mortgage giants. On July 13, Treasury Secretary Henry Paulson asked Congress to grant the department the power for 18 months to purchase equity in Fannie and Freddie and expand their credit lines amid concern that the firms don’t have enough capital. Freddie, which has registered with the Securities and Exchange Commission for the first time, is considering selling securities and cutting its dividend while it plans to issue $5.5 billion of stock (CNNMoney.com and Bloomberg.com July 22) … * Corporate-bond default rates jumped in the first half of this year, with housing-related companies among the hardest hit, according to a Standard & Poor’s report. Through last week, 42 firms--all but one based in the U.S.--have defaulted--affecting $33.6 billion worth of debt. That compares with 16 U.S. defaults in 2007 and 22 in 2006. Firms in the homebuilding, real estate, and transportation sectors were the most vulnerable to defaults, as the housing slump continued and energy prices soared, said S&P. “Companies have been under pressure with the weakening economic growth and unfolding recessionary conditions,” said Diane Vazza, head of the global fixed-income research group at the ratings agency. “We’re seeing banks tightening lending standards which means that it was much more difficult, if not impossible, to get credit or tap the capital market for companies with the most urgent needs.” (MarketWatch July 22) … * The percentage of women in the workforce declined during the last expansion--for the first time since the women’s movement began in the 1960s, according to Labor Department data. Each of the seven prior expansions since 1960 ended with a larger percentage of women in the workforce. When analysts noted a reversal of this trend earlier this decade, they theorized that many women were deciding to stay home to raise their families. However, they now say the trend instead reflects the same dynamics that are affecting men in today’s economy--layoffs, outsourcing, and stagnant wages. The percentage of women holding jobs fell to 72.7% in June 2008--down from a peak of 74.9% in early 2000. The 2.2-percentage point drop eliminates more than 12 years of increases for women. Analysts say the shift could be disastrous because households today depend on working women to stay afloat (The New York Times July 22) ... * More airlines are reporting huge losses due to soaring oil costs. United Airlines on Tuesday reported a $2.73 billion loss for the second quarter. The firm also announced that it plans to cut 7,000 jobs by the end of the year, up from the 3,800 it previously announced. CEO Glenn Tilton said the weak profit picture reflects the “unrelenting price of oil.” U.S. Airways reported a $567 million loss for the second quarter. Its CEO, Doug Parker, also said rising fuel costs are mostly responsible for the firm’s poor results. JetBlue Airways reported a $7 million loss for the quarter, and announced plans to close its Ontario, Calif. operations. “The dramatic rise in fuel prices has forced us to make the difficult decision to discontinue operations in Ontario,” said Chief Executive Dave Barger (Associated Press via Yahoo! News July 22) …

News of the Competition (07/21/2008)

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MADISON, Wis. (7/22/08)
* Freddie Mac announced plans Friday to raise $5.5 billion dollars via a new share offering. The offering “will include both common and preferred securities,” Freddie told its regulator, the Office of Federal Enterprise Oversight. “The timing, amount and mix of securities to be offered will depend on a variety of factors, including prevailing market conditions, and is subject to approval by Freddie Mac’s board of directors.” The company also announced that it has become a registrant with the Securities and Exchange Commission (SEC). “Becoming an SEC registrant marks an important milestone for the company and demonstrates our commitment to enhanced transparency and financial reporting.” (AFP via Yahoo! News July 21) … * Former Bear Stearns hedge-fund managers Ralph Cioffi and Matthew Tannin, who were indicted on fraud and conspiracy charges in June, could face additional charges. Prosecutors allege that the two men misled investors about the strength of two hedge funds that failed last year--leading to the collapse of Bear Stearns, its sale to JPMorgan Chase, and a loss of more than $1 billion for investors. Prosecutors allege that the two men thought the hedge funds were “in grave condition and at risk of collapse” as early as March 2007, but didn’t’ disclose the financial condition of the funds to investors and lenders. “The government is indeed contemplating additional charges,” said Assistant U.S. Attorney Patrick Sinclair at a preliminary hearing in New York on Friday. He said any new charges would be added by early autumn (The Wall Street Journal Online and Bloomberg.com July 21) … * Charlotte, N.C.-based Bank of America reported stronger-than-expected earnings for the second quarter. The firm posted net income of $3.41 billion--down 41% from a year earlier. Its non-performing assets rose to $9.75 billion, or 1.13% of all loans, during the latest quarter. Still, the bank’s shares jumped 11% in early trading after the results were announced. Bank of America has a strong capital position. Its Tier 1 capital ratio stood at 8.25% in the second quarter. Four of the nation’s five largest banks have now reported stronger-than-expected results, prompting a rally in financial stocks (CNNMoney.com and Associated Press via Yahoo! News July 21) … * The cost of insuring Countrywide Financial Corp.’s mortgage-loan unit increased sharply Monday after Bank of America said it doesn’t plan to guarantee the debt. Bank of America acquired Countrywide earlier this month. The cost to insure Countrywide Home Loans’ debt jumped 235 basis points to $235,000 per year for five years after the announcement, according to Phoenix Partners Group. “Today’s statement was, I think, aimed at limiting damage to Bank of America’s investors,” so they don’t think the bank would take on Countrywide’s liabilities under any terms, said BNP Paribas Analyst Ricardo Kleinbaum (Reuters July 21) …

Market News (07/21/2008)

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MADISON, Wis. (7/22/08)
* The problems at Fannie Mae and Freddie Mac could influence the level of interest rates, the value of the U.S. dollar, and the availability of credit for years to come, say analysts. Foreign investors held about $1.5 trillion worth, or one-fifth, of the securities issued by the two government-sponsored enterprises at the end of March. That means that about one of every 10 U.S. mortgages are in the hands of foreigners. If those investors become concerned about the strength of Freddie and Fannie, they could pull back--making it tougher for individuals and businesses to secure loans. So far, however, foreign investors aren’t concerned because they believe the U.S. government will back the firms (The New York Times July 21) … * Businesses are finding it harder to obtain loans, as the credit crunch enters its second year and problems at Fannie Mae and Freddie Mac roil the markets. The value of credit held by banks declined 1.5% in the second quarter--the largest quarterly contraction since 1948, according to the Federal Reserve. The central bank’s interest-rate cuts haven’t prompted lower borrowing rates because banks’ big losses have forced them to boost cash levels, tighten lending, and just generally become more cautious. With firms having a tough time obtaining loans, they’re scaling back investment and hiring plans and initiating other cost-cutting measures (The Wall Street Journal Online July 21) … * A Conference Board report shows the economy is limping along (Reuters via The New York Times July 21). The Conference Board’s index of leading economic indicators fell 0.1% in June following a 0.2% decline in May. The latest decline reflects a “deep financial crisis, a prolonged, intense slump in housing, high gasoline and food prices, weak consumer confidence and a weak dollar,” said Conference Board Labor Economist Ken Goldstein. It “wouldn’t take much to push the economy so that it’s even weaker in the second half of 2008,” added Goldstein. If not for a rush to acquire residential-building permits in New York City in June before a building-code change, the leading index would have posted a larger decline in June, noted Moody’s Economy.com (July 21). The research firm said falling stock prices and further slowdowns in the manufacturing sector boost the risk of further declines in the index … * The economy will see weak growth during the second half of this year, according to a survey by the National Association for Business Economics (NABE). In the poll taken between July 19 and July 10, 32% of respondents said the economy will grow between 1% and 2% during the last six months of the year, while 10% think the economy will contract. Just 1% anticipate growth of more than 3%. “Forecasters are approaching the second half with a lot of caution,” said Ken Simonson, point person for the survey and chief economist at the Associated General Contractors of America. Companies are boosting consumer prices while holding wages down, as they face higher costs: 75% of business economists said they’re facing higher costs for raw materials--the largest percentage since 1994. Fifty-one percent expect to hold payrolls steady, and just 20% said wages have increased--down from 31% in an April poll and the lowest level since the end of 2003 (Bloomberg.com and Associated Press via CNNMoney.com July 21) … * The current U.S. economic expansion may be the first in 60 years that will end without workers seeing an increase in their income. Household inflation-adjusted income has risen only 0.8% since the end of 2001, even as the economy expanded by an average 2.7% annually. The last time households gained on inflation was in 1998--when median income rose by 3.4%. Foreign competition and the reduced clout of organized labor have dampened wages, even as consumers face soaring prices for basic necessities. Consumer prices surged 5% year-over-year in June--the largest increase in 17 years. With the economy close to recession, or already in a downturn, households likely will see their income stagnate further. Each of the five recessions since 1969 prompted declines in inflation-adjusted median income. “Labor now is so weak that it doesn’t have the bargaining power to even keep up with inflation,” noted Center for Economic and Policy Research Co-Director Mark Weisbrot (Bloomberg.com July 21) …

News of the Competition (07/18/2008)

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MADISON, Wis. (7/21/08)
* Financial firms continued to report earnings declines last week. Citigroup reported a $2.5 billion loss for the second quarter on Friday. That’s down from a $6.23 billion profit a year earlier. Citi marked down its assets by $7.2 billion in the second quarter, due partly to the bank’s exposure to subprime mortgage-related investments. However, the bank’s shares rallied after the announcement because investors had expected a bigger loss and larger writedowns. Citi has taken almost $40 billion in writedowns since the credit crunch began last summer. Citigroup also announced Friday that it cut its workforce by about 6,000 during the second quarter and by about 11,000 during the first six months of the year (CNNMoney.com and MarketWatch July 18) ... * Merrill Lynch reported a loss of $4.65 billion for the second quarter and $9.7 billion in writedowns. The loss was more than twice as large as analysts had anticipated. The weak results prompted Moody’s Investors Service to downgrade Merrill’s senior long-term debt by one notch, to single-A2, from single-A1. Earlier last week, Merrill said it had agreed to sell its 20% stake in Bloomberg LP back to the news and financial statistics firm, a move that could help the brokerage raise capital as it faces continued writedowns. The firm also announced plans to sell Financial Data Services (The Wall Street Journal Online July 18) … * Capital One of McLean, Va., announced Thursday that its profit plunged by 40% to $452.9 million in the second quarter, compared with a year earlier. The credit-card issuer also cautioned that more of its customers are defaulting on their loans as the economic downturn continues. The percentage of credit-card accounts in default jumped to 6.26%, from 3.56% in the second quarter of last year. The firm expects that percentage to increase to 7% by the end of this year. In response, the firm has boosted interest rates on many of its cards, and has tightened loan standards (washingtonpost.com July 18) … * Despite millions spent by companies on development and marketing, consumers have little awareness of contactless cards, which allow cardholders to wave-and-pay at checkout terminals. Just 3% of consumers surveyed said they are familiar with contactless technology, according to a report by Auriemma Consulting Group. However, after reading a description of the technology, 63% of respondents said they would use a contactless card more than a regular credit card because of its “cool new technology,” and 67% said they would use one because of its “ease of use.” Still, 23% said they would not use a contactless card because of concerns about identity theft (BUSINESS WIRE via Yahoo! Finance July 16) …

Market News (07/18/2008)

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MADISON, Wis. (7/21/08)
* U.S. health care has deteriorated since 2006, as access declined and costs continued to mount, according to a report by the New York-based Commonwealth Fund. The U.S. health care system now performs worse based on measures including the outcome of treatment, quality, access, efficiency, and equity. An estimated 75 million people--42% of working-age adults--were uninsured for at least part of 2007 or were underinsured. That’s up from 35% in 2003. The U.S. ranks last out of 19 nations for deaths that could have been prevented by timely care. The fund report noted that a more efficient health-care system in the U.S. could save about 100,000 lives and at least $50 billion a year. Yet the U.S. spends more than twice as much per person for health care as most other industrialized countries. The administrative cost of the medical-insurance system consumes more health dollars in the U.S. than in other countries. “The U.S. leads the world on health care spending,” noted Cathy Schoen, a senior vice president at the fund. “We should expect a far better return on our investment.” (FT.com and The New York Times July 17) … * The U.S. loses about $100 billion per year due to offshore tax evasion, according to a report by a Senate panel, which accuses banks of helping Americans commit massive tax evasion. A Senate investigation is targeting Swiss bank UBS AG and Liechtenstein’s LGT Group for allegedly marketing tax-evasion schemes to wealthy Americans. “UBS Swiss bankers targeted U.S. clients, traveled across the country in search of wealthy individuals and aggressively marketed their services to U.S. taxpayers who might otherwise never have opened Swiss accounts,” said the Senate report. U.S. clients hold about 19,000 accounts at UBS, with an estimated $18 billion to $20 billion in assets. Investigators haven’t been able to obtain statistics from LGT, which is maintaining its secrecy. However, the Internal Revenue Service has identified at least 100 U.S. accounts there. UBS is taking some steps to repair its reputation with U.S. investigators and regulators. On Thursday, UBS said some Swiss-based private bankers will stop offering U.S. clients Swiss bank accounts, and these clients will be told to use U.S.-based accounts or one of UBS’ international units--which are registered with the Securities and Exchange Commission (The Wall Street Journal Online and Associated Press via Yahoo! News July 18) … * The global economic outlook has improved slightly, but economies still face the increasingly hard job of trying to battle inflation without weakening growth further, the International Monetary Fund (IMF) said last week. “The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies,” said the IMF in its report. The fund now expects global economic growth of 4.1% this year, up modestly from its last 3.7% forecast. Growth for 2009 was increased slightly to 3.9% from 3.8%. For the U.S., the IMF now expects economic growth of 1.3% in 2008, up from its 0.5% previous forecast. However, U.S. economic growth will be flat or “decline modesty” during the second half of this year due to tight credit and higher commodity prices, said IMF Chief Economist Simon Johnson. The IMF forecasts economic growth of just 0.8% in the U.S. next year, up from its previous 0.6% forecast (The Wall Street Journal Online July 18) … * Confidence in the global economy weakened this month amid concern about high oil prices and the deepening financial crisis, according to a survey of Bloomberg News users on six continents (Bloomberg.com July 17). The Professional Global Confidence Index dropped to 10.3 in July, from 21 in June, as confidence about the U.S., German, Japanese, French, and U.K. economies declined. The housing slump in the U.S. prompted a credit crunch that’s weakened the global economy. Banks worldwide have recorded more than $415 billion in losses and writedowns. Soaring oil prices also have weakened consumer and business finances and fanned inflation so that central banks are raising interest rates, even as economies continue to weaken. “We’re starting to approach that tipping point when the oil price is really going to impact economies,” said Fortis Bank Economist Nick Kounis, a participant in the survey … * Oil prices rebounded to more than $131 a barrel on Friday, as investors fretted about news of a production cut in Nigeria. Light, sweet crude for August delivery jumped by $1.88 to $131.17 a barrel in afternoon trading on the New York Mercantile Exchange. A military official in Nigeria said an explosion damaged a pipeline there. Traders seeking an opportunity to buy after prices had declined for two days also boosted prices Friday. The declines occurred after comments by Federal Reserve Chairman Ben Bernanke about weak economic growth. His comments boosted expectations that slower growth will dampen oil demand (Associated Press via The New York Times July 18) …

News of the Competition (07/17/2008)

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MADISON, Wis. (7/18/08)
* The St. Louis headquarters of Wachovia Securities, an affiliate of Wachovia Corp., was raided by securities regulators from several states on Thursday as part of an investigation into practices involving auction-rate securities. Regulators sought information about the firm’s sales and marketing practices, and its internal evaluations of the market for auction-rate securities, said Missouri Secretary of State Robin Carnahan’s office. Officials said regulators from Illinois, Massachusetts, New Jersey, Pennsylvania, and other states also were part of the probe. Missouri has served subpoenas on more than a dozen agents and executives of Wachovia Securities. “Hundreds of Missouri investors have called my office because of inability to access their money,” said Carnahan. “They were told these investments were safe and easy to cash in, but now they cannot run their business, make medical payments, or pay school tuition.” (Reuters July 17) … * Failed lender IndyMac Bank is one of 21 banks that are under investigation by the Federal Bureau of Investigation (FBI) for possible mortgage fraud. The probe began shortly before the Pasadena, Calif.-based bank was seized last week, in the third-largest bank failure in U.S. history. “Given the volatility of today’s subprime market, we have seen an increase in subprime-related complaints,” said the FBI in a statement. IndyMac specialized in subprime and low-documentation mortgage loans (The Wall Street Journal Online July 17) … * JPMorgan Chase reported Thursday that its profit plunged 53% during the second quarter, as mortgage and other loan defaults mounted. The company earned $2 billion--down from $4.23 billion in the same period last year. JPMorgan took a provision for credit losses of almost $3.5 billion. The firm said the chargeoff rate for its prime mortgages--which included $34 billion in jumbo loans and $2.5 billion in alt-A loans--almost doubled from the first quarter to the second quarter, from 0.48% to 0.91%. However, the results were stronger than analysts expected. Wells Fargo also reported stronger-than-expected results on Wednesday. The two reports helped lift Wall Street yesterday (Associated Press via The New York Times July 17) … * Merrill Lynch has agreed to sell its 20% stake in Bloomberg LP back to the news and financial statistics firm, said a source familiar with the matter on Wednesday. Merrill also has decided to retain its 49.8% stake in money manager BlackRock Inc. The sale of the Bloomberg stake could help the brokerage raise capital as it faces increased writedowns related to the mortgage meltdown. New York Mayor Michael Bloomberg owns about 70% of the Bloomberg firm. The deal is valued at about $4.5 billion (Reuters via The New York Times July 17) …

Market News (07/17/2008)

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MADISON, Wis. (7/18/08)
* A change in New York laws helped lift housing starts in June, even as single-family construction continued to weaken. Housing starts jumped 9.1% to an annual pace of 1.167 million units last month--rebounding from a 2.7% drop in May, the Commerce Department reported Thursday. Building permits jumped 11.6% to an annual pace of 1.091 million units. However, the department noted that Northeast multifamily building activity posted the largest gains. New York City enacted a new set of construction permits that boosted the overall statistics. Excluding the Northeast multifamily data, there was a 4% drop in housing starts for June, and a small 0.7% increase in building permits. Single-family housing starts declined by 5.3% to an annual rate of 647,000 units in June. Sluggish sales, declining home prices, and lower purchase-mortgage applications all suggest continued weak demand for housing, noted Moody’s Economy.com (July 17). The jump in inflation for June also is bad for the housing outlook, said the research firm, because it may prompt the Federal Reserve to boost interest rates sooner, and because the inflation rate reflects high energy and material costs that could increase housing costs … * In another weak sign for the housing market, the National Association of Home Builders (NAHB) reported Wednesday that builder confidence in the market for new single-family homes declined for a third consecutive month in July, to a new record low. The NAHB/Wells Fargo Housing Market Index dropped two points to 16, with each of the index’s three components declining to new lows. The index measuring current sales conditions fell one point to 16, while the index measuring sales expectations dropped 4 points to 23, and the index gauging the traffic of prospective buyers fell 4 points to 12. “Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve,” said NAHB Chief Economist David Seiders (nahb.org July 16) … * Mortgage rates declined this week, as investors bet the Federal Reserve may not raise interest rates this year because the economic outlook remains uncertain, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) fell 11 basis points to 6.26%, while the 15-year FRM dropped 13 basis points to 5.78%, and the one-year, adjustable-rate mortgage declined 7 basis points to 5.10%. “Mortgage rates fell this week amid market speculation that the Federal Reserve may not raise the overnight bank-lending rate this year after all,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “In addition, in his July 15th semi-annual testimony before Congress, Fed Chairman Bernanke indicated that the FOMC (Federal Open Market Committee) participants had considerable uncertainty surrounding their outlook for economic growth,” added Nothaft. Mortgage rates are lower than a year ago. At this time last year, the 30-year FRM averaged 6.73%, while the 15-year FRM stood at 6.38%, and the one-year ARM was at 5.72% (Reuters July 17). For CUNA's Daily Financial Rates, use the link. … * Federal Reserve policymakers debated the need for interest-rate increases--with some members saying a rate hike was needed “very soon” to control inflation, according to minutes of the Fed’s June 25-26 meeting released late Wednesday. The Fed decided to keep interest rates steady at that meeting, the first time in nine months that it didn’t lower rates. While some participants were encouraged by few signs of wage pressure and predicted that high energy prices were temporary, others viewed the inflation threat as preeminent. “In the view of most members, the outlook for both economic activity and price pressures remained very uncertain, and thus the timing and magnitude of future policy actions was quite unclear,” said the minutes. “Strong increases in energy and other commodity prices would prompt a difficult adjustment process involving both lower growth and higher rates of inflation in the near term.” The Fed’s next policy meeting is on Aug. 5. Analysts have been predicting a possible rate hike at that meeting. However, the collapse of IndyMac Bank and mounting problems at Freddie Mac and Fannie Mae could keep monetary policy on hold (CNNMoney.com and Economy.com (July 17) … * The job market remains weak, even as consumers continue to cope with rising energy and food costs and financial uncertainty. First-time claims for unemployment insurance rose by 18,000 during the week ending July 12 to 366,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, declined by 4,500 to 376,500. Continuing claims, the number of people still on the benefit rolls after an initial week of aid, declined by 81,000 during the week ended July 5 to 3.122 million. The high level of continuing claims suggests people are having a tough time finding new jobs after they’ve been laid off. Weekly claims have averaged 362,400 so far this year--compared with a 321,000 average last year, noted Bloomberg.com (July 17). Last year the economy generated an average 91,000 new jobs per month. The economy lost 438,000 jobs during the first six months of this year …

Hampel to IBloombergI Consumer spending will go negative

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WASHINGTON (7/18/08)--As the continuing U.S. housing crisis is leading more Americans to save rather than spend, consumer spending will soon head into negative territory, Bill Hampel, chief economist at the Credit Union National Association, told Blooomberg Wednesday. Spending will decline because homeowners can no longer borrow cash by using rising real estate value as collateral, the article said. Also, lenders will issue 53% less purchase-mortgages in 2008 compared with 2006, which will impede home sales and slow down a housing recovery, Guy Cecala, publisher of industry newsletter Inside Mortgage Finance, told Bloomberg . U.S. consumers borrowed $837.5 billion in 2006, according to a report by former Federal Reserve Chairman Alan Greenspan and Senior Fed Economist James Kennedy, Bloomberg reported. While rising 7.5% since the beginning of last year, consumer spending will drop into negative territory after Americans use up their tax rebate checks this summer, Hampel told Bloomberg.

News of the Competition (07/16/2008)

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MADISON, Wis. (7/17/08)
* Countrywide Home Loans, the nation’s largest loan servicer, has agreed to pay $325,000 to the Pittsburgh Chapter 13 bankruptcy trustee to settle a suit accusing the lender of abusive practices in nearly 300 mortgage loans overseen by the bankruptcy court. Ronda J. Winnecour, Chapter 13 trustee for the district of Western Pennsylvania, asked the court to impose sanctions against Countrywide, saying the firm had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure. Winnecour said she was concerned that the lender added late fees and legal costs although it was responsible for destroying or misplacing the homeowners’ checks. Countrywide, which was acquired by Bank of America this month, generated $285 million in late fees in 2007--up 20% from 2005 (The New York Times July 16) … * Fitch Ratings on Wednesday lowered its issuer default rating for Bank of America by two notches, to A+, due to its large home-equity loan portfolio and its exposure to the California and Florida housing markets. Looking forward, Fitch said, Bank of America also will see credit pressure from its credit card portfolio, the option adjustable-rate mortgage portfolio it acquired from Countrywide Bank, and from commercial loans. Pending litigation for Countrywide Bank and Countrywide Financial Corp. add additional risk (Reuters July 16) … * UBS AG, which has come under increasing scrutiny from its sales of auction-rate securities, said it is working to develop a structure that will let it buy back auction-rate preferred shares. The new Trust Preferred Securities product would allow the company to offer to purchase all auction preferred stock issued by registered closed-end, tax-exempt funds held by eligible UBS advisory and brokerage clients in UBS accounts at par. The $330 billion auction-rate securities market failed in February, when dealers stopped supporting it amid concern about the credit crunch. Investors then had no way to sell their shares. UBS and other firms are facing lawsuits related to their sales of the securities. Litigants claim the firms misrepresented the safety and liquidity of the securities (Dow Jones Newswires July 16) … * Wells Fargo reported a 21% drop in its net income Wednesday as it set aside $3 billion for loan losses. The San Francisco-based bank said its net income fell to $1.75 billion in the second quarter, from $2.28 billion in the same period last year. Net chargeoffs rose to 1.55% from 0.87%. The firm’s non-performing assets--those near default--jumped to 1.02% from 0.51%. Still, the news wasn’t all negative. Wells said it will increase its dividend by 10%. “We are open for business and getting lots of it,” said President/CEO John Stumpf. “We also continued to benefit from opportunities in this environment to gain new business and customers through selective acquisitions,” added Stumpf (The Wall Street Journal Online July 16) … * Lydian Data Services, a consulting subsidiary of Lydian Trust Co., has created a unit to offer quality control services for loans insured by the Federal Housing Administration and the Department of Veterans Affairs. Lydian said Lydian Data Government Services will help the mortgage industry cope with increased demand for FHA and VA loans. It also will consult with mortgage originators who want to be approved by FHA. The collapse of the subprime market has increased demand for qualified FHA lenders, said Brian Fitzpatrick, executive vice president at Lydian Data Services (American Banker July 16) …

Market News (07/16/2008)

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MADISON, Wis. (7/17/08)
* Consumer inflation accelerated in June as food and energy prices soared--making it even tougher on households struggling with declining home prices and stagnant wages. The Consumer Price Index jumped 1.1% last month and was up 5% over the 12 months ending in June, the Labor Department reported Wednesday. The monthly gain is the second-largest in the past 26 years, topped only by a 1.3% increase in September 2005 in the aftermath of Hurricane Katrina (Associated Press via Yahoo! News July 16). The year-over-year gain was the largest since 5% in May 1991. Energy prices jumped 6.6% in June, while food prices rose 0.8% … * Excluding the volatile food and energy categories, the core CPI rose 0.3% in June and was up 2.4% over the past year, according to the Labor Department report. The monthly increase in the core largely reflected a 0.5% rise in housing costs and a 3.8% jump in transportation costs, as motor fuel and public transportation costs soared. Medical-care costs rose 0.2% in June, and were up 4% from a year earlier. Inflation eroded workers’ wages last month. Real (inflation-adjusted) weekly earnings declined by 0.9% in June and were down 2.4% from a year earlier … * Workers are raiding their retirement savings to cope with unemployment and rising costs for food, energy, and medical care. An average 12% of families with 401(k) retirement plans borrowed from them between 1998 and 2004, according to a study released Wednesday by the Center for American Progress. The study found that people were borrowing from their plans to get through financial crises such as unemployment and medical emergencies. As economic conditions grow even weaker, the number of people dipping into their retirement money will increase, said Christian Weller, an author of the study. People will pay the price when they retire. For example, a $5,000 loan from a retirement plan could lower retirement savings by 22% even if the loan is repaid without penalty, noted the study (Associated Press via The New York Times July 16) … * Inflation “is too high,” said Federal Reserve Chairman Ben Bernanke yesterday in a second day of congressional testimony. “It is very important for us to maintain price stability,” added Bernanke. He said surging energy and commodity prices are due to “factors out of the control of the Federal Reserve,” and he noted that the nation needs to have a national energy strategy. In other comments, Bernanke said Fannie Mae and Freddie Mac are well capitalized and are in no danger of collapsing. “The housing market is really the essential element of this crisis.” (The Wall Street Journal Online July 16) … * In yet another obstacle for homebuyers, mortgage insurers are raising requirements and making mortgage insurance more difficult to obtain. At the same time, more homebuyers need mortgage insurance this year. “Piggyback” loans, in which a borrower can obtain a second loan to cover the downpayment, have all but disappeared. And more loans are being funded by Freddie Mac and Fannie Mae, which require mortgage insurance on loans without a big downpayment. Mortgage insurers themselves have seen rising defaults and downgrades by ratings agencies. To reduce their exposure to bad loans, they are defining a rising number of housing markets as declining, and they’re requiring higher premiums. Mortgage lenders and real-estate agents complain that the insurers include too broad an area in their pricing models. Mortgage insurers counter that statistics aren’t precise enough to offer much detail by neighborhood. They add that a more disciplined approach to mortgage insurance could have helped avoid the housing crisis (The Wall Street Journal Online July 15) … * Mortgage applications increased for a third consecutive week, according to the Mortgage Bankers Association (mbaa.org July 16). The trade group’s Market Composite Index rose 1.7% during the week ending July 11 to 522.2. The Refinance Index jumped 6.9% to 1474.9, offsetting a 1.7% decline in the Purchase Index to 359.7. Refinancings made up 39.2% of overall applications in the latest week, up from 37.3% the previous week. Mortgage rates declined last week. The average 30-year, fixed-rate mortgage dropped 21 basis points to 6.22%, while the one-year, adjustable-rate mortgage (ARM) declined 8 basis points to 7.16%. Demand for purchase mortgages remains weak amid declining home prices, tighter credit, and borrowers’ damaged credit ratings in many areas, noted Moody’s Economy.com (July 16). The research firm predicts that purchase demand will remain weak until mortgage rates are much lower and there’s strong evidence of a market bottom …

Schenk to IMarketWatchI Fed backstop should foster mortgages

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NEW YORK (7/17/08)--The U.S. Treasury’s plan to ask Congress to increase a line of credit for mortgage lending behemoths Fannie Mae and Freddie Mac to keep cash flowing to home lenders, “confirms that the government would step in and provide liquidity,” Mike Schenk, senior economist at the Credit Union National Association (CUNA), told MarketWatch Wednesday. The Treasury and the Federal Reserve plan to ask Congress for a temporary increase in the long-standing line of credit to bolster confidence in the two government-sponsored enterprises, the article said. While Fannie and Freddie don’t loan directly to consumers, they perform a crucial role in the housing market by purchasing mortgages from lenders, and also repackaging those loans as securities--which are then sold to investors. Schenk noted that credit unions hold 70% of their mortgage loans in portfolio and sell 30% into the secondary market. Consumer confidence may have been shaken by the Fannie Mae and Freddie Mac problems (shares dropped more than 80% during the past year), along with the seizure of IndyMac Bank by federal regulators, Schenk told MarketWatch. “Many consumers might be concerned about borrowing,” he said.

News of the Competition (07/15/2008)

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MADISON, Wis. (7/16/08)
* The number of online credit-card applications submitted by subprime applicants --consumers with FICO scores of 660 or less--jumped by 30% in the first quarter, compared with a year earlier, according to comScore Inc. The number of applications submitted by prime applicants--with a FICO score above 660-- declined by 16%. “During challenging economic times, it’s not surprising to see dramatic shifts in consumer behavior in the online banking and credit card industries,” said comScore Vice President Kevin Levitt. An increase in certain online searches also reflects economic distress, noted comScore. The number of searches for the term “cash advance” more than doubled, while searches for the term “foreclosures” jumped 68% (/PRNewswire-FirstCall/ July 14) … * Securities regulators are pursuing more than four dozen cases related to the subprime-mortgage crisis, focusing on whether lenders and investment bankers misled investors, said Securities and Exchange Commission (SEC) Chairman Christopher Cox. “We are investigating whether mortgage lenders properly accounted for the loans in their portfolios and whether they” set aside enough money for potential losses, Cox told a Senate Banking Committee on Tuesday. The SEC is “investigating the role of various parties involved in the securitization process,” including investment banks, credit-rating agencies, and insurers, added Cox. He also noted that the SEC plans to limit short sales by primary dealers trading shares of Freddie Mac and Fannie Mae. Cox said an emergency order, to be released Tuesday, will subject short sales in both firms to a “preborrowed requirement.” (Bloomberg.com and Reuters July 15) … * Shares of Wachovia Corp. fell 20% in morning trading on Tuesday after Oppenheimer Analyst Meredith Whitney said the bank’s earnings outlook has dramatically diminished. She downgraded the firm’s stock to “underperform.” Wachovia shares have plunged 75% so far this year. Whitney expects Wachovia to post losses this year and in 2009. She forecasts loan-loss provisions of $9.5 billion for the second quarter. Wachovia has cut its dividend by more than 40%, and has raised $8 billion in new capital (Reuters July 15) … * U.S. Bancorp announced a larger-than-expected decline of 18% in quarterly profit due to mounting losses. The nation’s sixth-largest bank said its second-quarter net income declined to $950 million. The firm set aside $596 million for credit losses--three times higher than its year-ago level. Its net charge-offs doubled to $396 million. U.S. Bancorp’s stock fell 8.7% to $21.32 in morning trading yesterday, the lowest level in more than five years (Reuters July 15) … * E*Trade Financial Corp. has agreed to sell its Canadian operations to Bank of Nova Scotia for $442 million. “We continue to make solid progress against our 2008 turnaround plan by monetizing noncore assets to generate capital while delivering consistent organic growth in the retail business,” said CEO Donald H. Layton. While known mostly as an online brokerage, E*Trade also made mortgage loans and invested in mortgage-backed securities. That diversification prompted big losses, as the credit crunch emerged. The losses forced the resignation of CEO Mitch Caplan last November (The Wall Street Journal Online July 15) …

Market News (07/15/2008)

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MADISON, Wis. (7/16/08)
* The U.S. is facing significant risks to both growth and inflation, said Federal Reserve Chairman Ben Bernanke. The economy will grow “appreciably below its trend rate” for the remainder of this year because of continued weakness in the housing market, high energy prices, and tight credit, said Bernanke in testimony to the Senate Banking Committee yesterday. He said Fed policymakers will need to carefully track new information about inflation and economic growth. “Many financial markets and institutions remain under considerable stress, in part because the outlook for the economy and thus for credit quality, remains uncertain.” Fed officials expect the economy to expand by 1% to 1.6% this year. Consumer prices are forecast to increase 3.8% to 4.2% (Bloomberg.com and Associated Press via Yahoo! News July 15) … * Wholesale inflation accelerated in June amid rising costs for food and energy. The Producer Price Index (PPI) jumped 1.8% following a 1.4% advance in May, the Labor Department reported Tuesday. The price index for energy goods jumped 6% after a 4.9% gain, while the price index for consumer foods rose 1.5% after a 0.8% advance. Excluding the volatile food and energy categories, the core PPI rose just 0.2% in June, the same as in May. Over the past 12 months, the core PPI was up 3%. However, the overall PPI soared 9.2%--the largest year-over-year increase since a 10.4% gain in June 1981, when the nation last faced a “stagflation” period of low growth and high inflation (Reuters via The New York Times July 15). Data on sluggish growth continues to mount … * Retail sales rose only 0.1% in June, as a decline in sales at auto dealers offset strong growth at gasoline stations, the Commerce Department reported Tuesday. Sales at auto dealers fell 3.3%, while sales at gasoline stations jumped 4.6%--reflecting high prices. Sales at gasoline stations were up almost 25% over the past year, while sales at auto dealers were down nearly 10%. Furniture and building supply stores also posted declines, as did department stores, while growth remained strong at nonstore retailers and warehouse clubs and supercenters. Consumers continue to face high food and energy prices, even as the job market remains weak and real wealth is declining (Economy.com July 15) … * Oil prices plunged by more than $9 to about $136 a barrel in volatile trading on Tuesday, as traders took profits and as concern about a Brazilian oil strike receded. “The news that Brazil’s oil production is back at capacity despite a strike is negative for oil prices, as crude earlier rallied on prospect of lower output from there,” said Alaron Trading Analyst Phil Flynn. Also dampening prices, the Organization of Petroleum Exporting Countries lowered its forecast for global oil demand this year. However, traders are tracking the possibility of storms that could enter the Gulf of Mexico and weaken oil output there (Reuters via The New York Times July 15) … * Soaring oil prices are prompting a shift in automakers’ growth strategies. General Motors announced Tuesday that it plans to suspend its dividend for the first time since 1922, sell off $4 billion to $7 billion worth of assets, and cut its management payroll by 20%. GM anticipates oil costing $130 to $150 a barrel. On July 2, Merrill Lynch said the automaker needed to raise $15 billion, and that a Chapter 11 bankruptcy filing is “not impossible” should sales continue to slump. GM, which turns 100 this year, reported its biggest annual loss last year, at $38.7 billion. It hasn’t posted a profit since 2004 (Bloomberg.com and CNNMoney.com July 15) … * Business inventories increased at a slower-than-expected pace in May, suggesting that the weak economy is making companies cautious about restocking. Inventories rose by 0.3% to a seasonally-adjusted $1.479 trillion in May, the Commerce Department reported Tuesday. Business sales rose by 0.8% to $1.180 trillion. The inventory-to-sales ratio edged down to 1.24 in May, from 1.25 in April. The ratio measures how many months it will take to sell current inventory at the current sales pace. Business inventories were up 5.2% over the 12 months ending in May, while sales were up 6.6% (The Wall Street Journal Online and Associated Press via The New York Times July 15) …

News of the Competition (07/14/2008)

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MADISON, Wis. (7/15/08)
* Shares of Freddie Mac and Fannie Mae rallied Monday after the federal government announced a plan to shore up the two firms. Freddie shares jumped 20% soon after the market opened, while Fannie stock jumped 30%. They had both lost more than 80% of their value this year. The Treasury Department said it plans to seek Congressional approval for a temporary increase in its line of credit for the two firms. The department also said it will seek temporary authority to purchase equity in the firms “if needed.” The Federal Reserve on Sunday voted to give the New York Fed authority to lend to Fannie and Freddie “should such lending prove necessary.” (Dow Jones Newswires July 14) … * Regulators are preparing for dozens of banks to fail over the next year, as home prices continue to decline, and loan defaults continue to increase. As many as 150 banks, out of 7,500 nationwide, may fail over the next 12 to 18 months, say analysts. Others may pursue mergers or shut down branches. Federal regulators seized IndyMac Bank, one of the nation’s largest thrifts, on Friday. So far this year, six banks--including IndyMac--have failed. As of this spring, the Federal Deposit Insurance Corp. (FDIC) listed 90 banks that it considered troubled. That number is expected to increase. The FDIC estimates that the IndyMac failure will consume $4 billion to $8 billion of the $53 billion it has set aside to reimburse consumers for their deposits at failed banks. However, analysts note that the government may see fewer failures than in the past because private investment funds may acquire some troubled institutions (The New York Times July 14) … * M&T Bank Corp. on Monday said its second-quarter profit tumbled 25% on losses tied to mortgages. The Buffalo, N.Y.-based bank’s net income fell to $160.3 million, from $214.2 million in the same quarter last year. M&T set aside $100 million to cover bad debt--more than three times higher than the $30 million it set aside in the same period in 2007. M&T has about $190 million in unsecured debt with Freddie Mac and Fannie Mae (Bloomberg.com July 14) … * Global merger and acquisition (M&A) activity is poised to fall this year, as company valuations decline and debt-to-earnings ratios increase, according to a research report by KPMG. “All indicators are pointing at a marked fall in the market, across all regions and sectors,” wrote Stephen Barrett, global head of corporate finance practice at KPMG. During the first five months of this year, global M&A deals totaled $1.4 billion--down from $2.16 billion in the second half of 2007, according to Dealogic (Dow Jones Newswires July 14) …

Market News (07/14/2008)

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MADISON, Wis. (7/15/08)
* A government plan to shore up Fannie Mae and Freddie Mac won’t provide a turning point for the U.S. housing slump, according to Goldman Sachs economists. “Ultimately, we do not view these measures, dramatic as they look, as either a turning point for the U.S. market or as a sign that the downturn will be much worse than previously believed,” wrote the economists in a research note. The Treasury Department and the Federal Reserve on Sunday announced a plan to lend funds and, if necessary, purchase equity in Fannie and Freddie. These measures “simply reaffirm our long-held--and widely shared--view that the government will do everything it can to avert a meltdown in the conforming mortgage market and will continue to stand behind the government-sponsored enterprises,” wrote the economists (Reuters July 14) … * Global business confidence remains weak, but has improved since bottoming out two months ago, according to Moody’s Economy.com Survey of Business Confidence (July 14). U.S. businesses remain the most pessimistic, consistent with a recession. The European economy also remains weak, while Asian economies are the most upbeat. Pricing pressures have accelerated. A net 40% of businesses say they are boosting prices--up from around 25% at the beginning of this year. The record high was almost 50%, set in mid-2006, when oil prices rose to $75 a barrel. Oil prices are now almost double that reading, showing that inflation remains constrained because of the weak economy … * Oil prices rebounded to a range of more than $145 a barrel on Monday, as supply worries continued. Light, sweet crude for August delivery on the New York Mercantile Exchange jumped 55 cents to $145.63 a barrel in late morning trading. Concern about a strike by Brazilian oil workers helped boost prices. Also on Monday, gasoline prices hit a new record high of almost $4.11 a gallon, according to AAA and the Oil Price Information Service. “Supply-side concerns in Brazil, Iran and Nigeria are putting a high floor on prices,” said Victor Shum, an analyst with Purvin & Gertz. “We see limited downside risk and expect higher highs in the coming weeks.” (Associated Press via The New York Times July 14) … * Midwest Airlines has become the latest airline to cut employees amid soaring fuel prices. Midwest announced Monday that it plans to cut 1,200 employees, or 40% of its workforce. Within the past two weeks, Northwest Airlines said it plans to slash 2,500 jobs as fuel costs mount, and American Airlines said it plans to lay off about 7,000 employees. This year will be the second-worst for layoffs this decade in the airline industry, according to the outplacement firm Challenger, Gray & Christmas. Airlines cut more than 100,000 employees in 2001 following the terrorist attacks (Reuters and Associated Press via The New York Times July 14) … * Retail sales, excluding vehicles, posted the largest monthly gain in seven months during June, as consumers spent some of their tax rebate checks, according to MasterCard Advisor’s Spending Pulse report. Sales rose 1.1% following a 0.6% increase in May. However, much of the June gain also reflected higher prices for gasoline and food, not a surge in demand for discretionary goods, noted Kamalesh Rao, director of economic research at MasterCard Advisors, a unit of MasterCard Worldwide. He predicted that sales will retreat in the months ahead as the effects of the rebate checks subside. “The retail picture looks pretty bleak.” (Reuters July 14) … * MasterCard Inc. will replace General Motors in the Standard & Poor’s 100 Index and Ace Ltd in the S&P 500 Index, said the ratings agency Friday on its website. S&P said business-insurer Ace is moving its incorporation to Switzerland, which disqualifies it from the index (Bloomberg News July

CUs still can work with troubled Fannie Freddie

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MADISON, Wis. (7/14/08)--Credit unions still should be able to work with Fannie Mae and Freddie Mac, despite the tumble the shares of the two government-sponsored enterprises (GSEs) took last week, says Bill Hampel, chief economist of the Credit Union National Association (CUNA). "The big declines last week have been in the value that equity investors have in Freddie Mac and Fannie Mae," explained Hampel. "The debt of the two GSEs, which they use to finance mortgage purchases, has not been losing value. If a federal bailout becomes necessary, it would likely protect the creditors of the GSEs but not the equity holders." Hampel told News Now that "because of the importance of the GSEs to mortgage finance, it is very unlikely that the federal government would create significant changes in their current roles in the short run. This means that credit unions should still be able to deal with Freddie and Fannie as they have been. "However," Hampel cautioned, "over the longer term, it is likely that support of the housing finance sector by the federal government and its agencies will be more expensive than it has been in the past." The drop in the shares of Fannie Mae and Freddie Mac again Friday came amid worries that the government will need to take over the mortgage-finance firms (The New York Times July 11). Freddie stock fell 45% to $4.42 a share, while Fannie’s shares dropped 39% to $8.06 a share. Freddie’s stock lost almost 70% of its value during the week, while Fannie’s stock dropped 55%. Federal officials struggled to reassure investors. “Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” said Treasury Secretary Henry Paulson on Friday. “We appreciate Congress’ important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO (Office of Federal Housing Enterprise Oversight) will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission,” added Paulson. Paulson’s statement suggests that the administration plans to keep Fannie and Freddie as shareholder-owned firms, rather than placing them under government control, said analysts (Bloomberg News July 11). The two GSEs own or guarantee nearly half the nation’s $12 trillion in home loans outstanding, including that of many credit unions.

News of the Competition (07/11/2008)

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MADISON, Wis. (7/14/08)
* Consumers’ knowledge of credit scores remains poor, but has increased over the past year, according to a survey released Thursday by the Consumer Federation of America and Seattle-based Washington Mutual. In its June poll, 28% of respondents correctly identified 700 as the minimum score to quality for a prime mortgage rate, up from 24% in a survey conducted last year. Most respondents didn’t understand that credit scores are based on their payment histories and how they used credit in the past. Raising a credit score by 30 points could lower credit-card finance charges by $105 a year, said Anthony Vuoto, president of Washington Mutual’s card services unit. Annual savings would total $28 billion if all consumers raised their credit scores by that amount, noted Vuoto (Associated Press via Yahoo! News and Bloomberg.com July 11) … * Morgan Stanley has packaged corporate loans into a new structure that can be swapped for financing from the Federal Reserve, according to a regulatory filing the securities firm made last week. About $2 billion of such loans were moved to Ascension Loan Vehicle LLC to made them eligible for Fed financing. Lehman Brothers Holdings and JPMorgan Chase also have repackaged high-risk, difficult-to-sell corporate loans into assets that can be swapped for Fed financing. “You could make criticisms from the point of view of being a taxpayer, but I think it’s good for Morgan Stanley,” said Sanford C. Bernstein & Co. Analyst Brad Hintz. “The way to make yourself bulletproof is to structure your balance sheet so as much of it as possible is eligible for the discount window.” (Bloomberg.com July 11) … * Bank of America, the nation’s largest mortgage lender--which may need to raise an additional $12 billion in capital during the fourth quarter--cut its dividend by 20%, according to a report by Morgan Stanley. The investment bank downgraded Bank of America to “underweight.” The report said large U.S. banks will need to set aside an additional $265 billion for loan losses through the first half of 2010, as declining home prices prompt mounting mortgage-loan losses, and as lower consumer spending weighs on commercial loans (The News Journal via Yahoo! News July 11) … * In another move to improve its finances, Citigroup announced Friday that it has agreed to sell its German retail business to France’s Credit Mutuel, in a $7.7 billion cash deal that will generate an after-tax gain of $4 billion. The transaction doesn’t include Citigroup’s corporate and investment-banking business in Germany. “This is another strategic step in our effort to reorganize Citi, strengthen our balance sheet, and put us squarely on the path to future growth driven by our core businesses,” said CEO Vikram Pandit. His announced goal is to unload $400 billion worth of unwanted assets to help repair Citigroup’s balance sheet, which has been hit hard by huge losses and writedowns in the credit crisis (The Wall Street Journal Online July 11) …

Market News (07/11/2008)

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MADISON, Wis. (7/14/08)
* Consumer confidence remained near a 28-year low in early July amid concern about rising costs for food and energy and the weak economy. The Reuters/ University of Michigan Surveys of Consumers preliminary July index edged up to 56.6, from 56.4 in June. The June index was the lowest reading since 51.7 in May 1980. Rising job loses and surging prices continue to worry consumers, said the Surveys of Consumers in a statement. The report said a record-high number of consumers complained about rising food and energy prices and smaller income gains. The fewest number of respondents said they expected improvement in their finances than at any other time in the history of the index, which has been conducted since 1952. “More than nine in 10 consumers think that the economy is now in recession, and a deepening downturn was widely anticipated during the year ahead.” (Reuters July 11) … * Economists also are concerned about rising costs and sluggish economic growth. Of the 53 economists polled by The Wall Street Journal Online (July 11), 22 said the Federal Reserve should be more worried about economic weakness than inflation, while 21 said inflation should be the bigger concern. The remainder said the risks were evenly balanced or declined to reply. On average, respondents expect consumer prices to jump 4% this year. That’s up sharply from a 2.3% forecast in a poll conducted early this year. However, Lehman Brothers Economist Ethan Harris noted that a wage-price inflationary spiral like the one that occurred during the 1970s probably won’t happen. “The average person is saying, ‘I’m worried about inflation because I can’t get a wage increase,’” said Harris. “It’s not, I’m worried about inflation and therefore I’m going to ask my boss for a raise.” … * Consumers already stung by high food and gasoline prices could face significantly higher costs to heat their homes later this year. Oil prices jumped to a new record high on Friday amid growing tension between the U.S. and Iran, and concern about attacks on Nigerian oil facilities. Light, sweet crude for August delivery jumped to a record-high $147.27 a barrel on the Nymex in early trading Friday. Heating oil futures on the New York Mercantile Exchange surged almost 11 cents to a record-high $4.1586, while natural-gas futures jumped 14.1 cents to $12.436 per 1,000 cubic feet. Rising costs and the weak labor market have dampened consumer confidence significantly this year (Associated Press via The New York Times July 11) … * Consumers also are concerned about tight credit. In a poll commissioned by Deloitte LLP, 67% of consumers who applied for a mortgage said they found the process more difficult than before the housing slump began a year ago (Reuters via Yahoo! News July 11). In addition, 67% of respondents seeking home-equity loans reported greater difficulty, as did 62% of those applying for personal loans. Deloitte said the results reflected banks’ stricter loan standards, as well as consumer concerns about their finances in the weak economy. More than 90% of respondents said they think the economy is either barely expanding or in a recession … * Teenagers are facing the weakest job market for their age group in 50 years. June employment for teenagers plunged almost 40% below 2007 levels as employers cut extra jobs, according to an analysis of Labor Department data by the outplacement firm Challenger, Gray & Christmas. “Companies tend to hire teens to build their pipelines for the future and give kids a chance to get into the workplace,” said John Challenger, chief executive of the Chicago-based firm. “But those jobs are the first ones that companies cut back when they need to pare down.” If the trend continues, as expected, summer hiring will total about 1.2 million--the smallest gain in teen summer employment since 1958, added Challenger (CNNMoney.com July 11) … * In a bit of good news for the U.S. economy, the nation’s trade deficit narrowed in May, as exports jumped to a record high. The trade gap fell 1.2% to $59.8 billion, even as imports hit new record highs, the Commerce Department reported Friday. Imports rose 0.3% to a record $217.3 billion. Higher prices pushed the nation’s imported crude-oil bill to a record-high $31.2 billion, even as the quantity of imported oil edged down. Exports rose by 0.9% to a record-high $157.6 billion. The declining value of the U.S. dollar has made U.S. exports cheaper for foreign buyers (Associated Press via Yahoo! News July 11) …

News of the Competition (07/10/2008)

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MADISON, Wis. (7/11/08)
* A failure of Pasadena, Calif.-based IndyMac Bancorp could be one of the most expensive in recent history due to the weak market and a high level of dependence on Federal Home Loan bank advances. With $10 billion in advances to IndyMac, the Federal Home Loan Bank of San Francisco would be a secured lender, trumping the Federal Deposit Insurance Corp.’s (FDIC) right to offset its costs by assuming assets. In addition, payment option adjustable-rate mortgages make up about one-fourth of the thrift’s single-family home mortgage outstandings. The FDIC wouldn’t make much selling off these mortgages in the current credit market. An IndyMac insolvency probably would require the FDIC to draw down the Deposit Insurance Fund, resulting in bigger premiums for banks (American Banker July 10) … * Bank of America is poised to assume all debts of the former Countrywide Financial Corp., which it acquired last week for $2.5 billion, said CreditSights Inc. Analyst David Hendler on Wednesday. A regulatory filing by Bank of America on Tuesday revealed how the bank will treat some of Countrywide’s debt obligations. “Countrywide’s bank credit facilities have been repaid and its outstanding debt has been assumed by an indirect subsidiary, created and wholly owned by B of A,” wrote Hendler. “Our view continues to be that B of A will ultimately honor the outstanding indebtedness from (old) Countrywide, based on our discussion with the company following this filing, as well as our prior analysis.” (Reuters via The New York Times July 9) … * Colorado Federal Savings Bank in Greenwood has been slapped with a “prompt corrective action” directive requiring the thrift to abide by the amended capital plan it submitted to the Office of Thrift Supervision (OTS) on May 30. It is prohibited from paying dividends, accepting brokered deposits, or paying executive bonuses without OTS approval. The thrift also can’t make any capital distributions, acquire another bank or branch, or enter a new business line unless such actions are consistent with the capital restoration plan (American Banker July 10) … * MasterCard on Wednesday announced the addition of three new seminars to expand merchants’ knowledge of data security standards. The seminars are titled “Data Encryption: Understanding Encryption and PCI DSS,” “Network Segmentation,” and “Maximize Internal Preparations for PCI DSS.” “By expanding our Merchant Education Program, we are bolstering our collaborative efforts to help protect our customers and cardholders from data theft and fraud, and are helping to facilitate the global implementation of consistent data security measures,” said Joshua Peirez, chief payment system integrity officer at MasterCard (/PRNewswire-FirstCall/ July 9) … * While banks and brokerages are cutting jobs and other costs to cope with the credit crunch, they still plan to boost information-technology (IT) spending. In a survey by International Business Machines Corp. and the Securities Industry and Financial Markets Association, 21% of IT executives said they plan to boost IT spending by as much as 10% this year. And 18% anticipate increases of more than 10%. Another 20% plan to cut spending, while the remainder either didn’t respond or said they saw flat spending (The Wall Street Journal Online July 10) …

Market News (07/10/2008)

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MADISON, Wis. (7/11/08)
* Foreclosure filings soared in June while bank repossessions posted the largest increase since RealtyTrac Inc. began tracking the data in January 2005. Foreclosure filings--including notices of default, notices of auction sales, and bank repossessions--jumped 53% in June, compared with a year earlier, to 252,363--or one in every 501 U.S. households. For the first six months of this year, filings jumped 56% to 1.4 million. Foreclosure activity is the highest since the Great Depression during the 1930s, noted Rick Sharga, vice president of marketing at RealtyTrac. Bank seizures jumped 171% to 71,563 in June. Falling home prices have created a cycle in which declining equity drives homeowners into foreclosure, which in turn pushes home prices down even further, said Sharga. “We’ll have 1 million bank-owned properties by the end of the year. That will represent between one-fourth and one-third of all home sales.” (Bloomberg.com and CNNMoney.com July 10) … * Nevada had the highest foreclosure rate in the nation in June--for the 18th consecutive month, according to the RealtyTrac report. One in every 122 households in that state was in some stage of foreclosure--more than four times the national average. California ranked second, with one filing for every 192 households, followed by Arizona (one in 201); Florida (one in 211); Michigan (one in 375); and Ohio (one in 382). California had seven of the 10 metropolitan areas with the highest rates. “The foreclosure problem is getting worse and will stay with us well into the next decade,” said Mark Zandi, chief economist at Moody’s Economy.com. “The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you’ve got negative equity, and you’re more likely to give up your house if you’re deeply underwater.” (Bloomberg.com and CNNMoney.com July 10) … * The supply of homes available for sale in 18 top metropolitan areas fell 2.4% in June, compared with a year earlier, according to ZipRealty Inc. It was the first decline since the real-estate brokerage company began tracking the data in mid-2006. Still, the supply of homes for sale remains high, according to the National Association of Realtors (NAR). There were about 4.5 million existing homes listed for sale at the end of May--an 11-month supply at the current sales pace. Both the NAR and the Zip data probably undercount the supply of homes available for sale because not all foreclosed properties are listed on multiple-listing services (The Wall Street Journal Online July 10) … * Mortgage rates were little changed this week amid mixed housing reports. The average 30-year, fixed-rate mortgage edged up 2 basis points to 6.37%, while the 15-year FRM slipped 1 basis point to 5.91%, and the one-year, adjustable-rate mortgage (ARM) was unchanged at 5.17%, Freddie Mac reported Thursday. “Pending sales for existing homes fell more than expected in May but April’s increase was revised even higher, according to the National Association of Realtors,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “Offsetting this decline, the number of mortgage applications for home purchases over the week ending July 4 was nearly 10% above the over-five-year low set just two weeks prior, despite the holiday break, according to the Mortgage Bankers Association,” added Nothaft. Rates remain lower than year-ago levels. The 30-year FRM averaged 6.73% a year ago, while the 15-year FRM stood at 6.39%, and the one-year ARM was at 5.71% (MarketWatch July 10) … * First-time claims for unemployment insurance fell by 58,000 during the week ending July 5 to 346,000, the Labor Department reported Thursday. The four-week moving average, which smoothes out weekly volatility, declined by 10,000 to 380,500. However, continuing claims--the number of people still on the benefit rolls after an initial week of aid--jumped by 91,000 during the week ended June 28 to 3.202 million. The surge in continuing claims shows the job market may not have reached a bottom yet, noted Moody’s Economy.com (July 10). People are staying unemployed longer, as employers remain cautious about hiring. The Wall Street Journal Online (July 10) also noted that jobless claims have remained in a range of 300,000 to 400,000 for the past 30 years, even as the labor force has grown more than 50%, to 154 million workers. That’s because there are now about 2.2 million more self-employed people than in 1978. They aren’t eligible for unemployment benefits. And the economy is more efficient and less volatile today, with fewer new layoffs and rehirings …

Hampel to IBloombergI Mortgages not out of woods yet

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WASHINGTON (7/10/08)--Although U.S. mortgage applications rose for a second consecutive week, an indication that falling home prices are attracting some buyers, the housing market still is facing problems, Bill Hampel, chief economist at the Credit Union National Association, told Bloomberg Wednesday. The Mortgage Bankers Association (MBA) index of applications to purchase a home or refinance a loan rose to 513.4 for the week ending July 4, up from 477.7 the previous week--a 7.5% uptick. MBA’s refinancing indicator shot up 8.7%, and its purchase index increased 6.7%. Although declining home prices are making housing more affordable to consumers who can obtain mortgage loans, the abundance of unsold homes on the market and rising borrowing costs indicate the housing slump won’t likely end in the near future, analysts said. “Unprecedented declines in home prices are beginning to work to level off the sales,” Hampel said. “But the housing market isn’t out of the woods yet.”

News of the Competition (07/09/2008)

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MADISON, Wis. (7/10/08)
* Federal prosecutors are investigating whether two former brokers at Credit Suisse Group lied to investors about how their money was placed in short-term securities. Clients have claimed the brokers told them the securities were backed by student loans when instead they were backed by collateralized debt obligations (CDOs). CDOs that were in part tied to subprime mortgages have tumbled in value during the housing downturn. The two New-York-based brokers, Eric Butler and Julian Tzolov, resigned last year. The two men subsequently went to work at Morgan Stanley, but were fired on Monday. Currently, investors hold about $6 billion to $10 billion worth of auction-rate securities that are backed by CDOs. Auctions for such securities began failing last August (The Wall Street Journal Online July 9) … * Wachovia Corp. and Piper Jaffray announced Tuesday that they had received inquiries from federal and state regulators related to their auction-rate securities. Charlotte, N.C.-based Wachovia also said it was named in a class-action suit filed by holders of auction-rate securities. The suit claims the bank misrepresented the risk and quality of the securities. The market for auction-rate securities began failing last year, after banks that normally stepped into the market to purchase the securities began to retreat (Reuters via The New York Times July 9) … * Hedge funds posted their weakest performance on record during the first half of 2008, according to industry-tracker Hedge Fund Research. Hedge funds dropped by 0.75%--the weakest performance since the firm started collecting the data in 1990. The decline occurred as subprime-mortgage bonds failed and commodity prices soared, prompting declines in the stock markets. The 30-stock Dow Jones Industrial Average plunged 14.4%, while the S&P 500 fell 12.8% (CNNMoney.com and Bloomberg.com July 9) … * Doubts about Freddie Mac’s financial condition are being driven by fear, said Freddie Chairman/CEO Richard Syron on Tuesday. At issue is a Lehman Brothers report that said Freddie would have to raise $29 billion in capital if the Financial Accounting Standards Board makes an accounting change. “The geography of where an asset is shouldn’t’ affect the amount of capital that’s held against it,” said Syron. But he did acknowledge that mistakes by both Freddie and Fannie in the past have made investors distrustful (American Banker July 9).

Market News (07/09/2008)

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MADISON, Wis. (7/10/08)
* Mortgage activity increased for a second consecutive week, according to the Mortgage Bankers Association (mbaa.org July 9). The trade group’s Market Composite Index rose 7.5% during the week ending July 4 to 513.4. The increase followed a 3.6% gain the previous week. In the latest week, the Refinance Index rose 8.7% to 1379.3, while the Purchase Index increased 6.7% to 365.8. Mortgage rates increased last week. The 30-year, fixed-rate mortgage (FRM) jumped 10 basis points to 6.43%, while the one-year, adjustable-rate mortgage (ARM) increased 10 basis points to 7.24%. The 30-year FRM is down 23 basis points from a year ago, while the one-year ARM is up a large 163 basis points, noted Moody’s Economy.com (July 9). The research firm said the increases in mortgage activity the last two weeks could signal a long-waited bottom to the housing slump. However, it will be a long time before home prices begin to recover … * Credit-rating firms put profits ahead of quality, as they scrambled to keep up with the explosive growth of mortgage-related debt products in recent years, the Securities and Exchange Commission (SEC) reported Tuesday. SEC Chairman Christopher Cox said the agency found “serious shortcomings” in practices of the three biggest firms: Moody’s Corp., Standard & Poor’s, and Fitch Ratings. The agency found that the firms had weak disclosure policies, and no procedures that directed the analysis of mortgage-related debt. The report said the firms also paid little attention to managing conflicts of interest. It noted that there “does not appear to be any internal effort to shield analysts” from discussions about their fees (The Wall Street Journal Online July 9) ... * Consumers will see much higher electric bills in 2009, according to the latest Energy Information Administration (EIA) forecast. The agency predicts that electricity prices will increase an average 9.8% next year. Just a month ago, the EIA forecast a much smaller 3.6% increase. “Within the past few weeks, a number of utilities have requested permission from state regulators to raise electricity rates in response to rapidly increasing delivered fuel costs for power generation,” said the EIA. “It is likely that most other utilities will soon need to pass through these increased costs to retail customers as well.” EIA Economist Tancred Lidderdale said rising natural-gas prices are a major factor behind the expected surge in electricity prices. Natural gas makes up about 20% of electricity prices (CNNMoney.com July 9) … * Severe weather occurrences in recent years are probably linked to global warming, and more such events will happen, said analysts from Munich Re on Tuesday. Severe thunderstorms in the first six months of this year prompted a record $8.1 billion worth of insured damage in the U.S. Weather-related events have more than doubled since 1980, said Carl Hedde, head of risk accumulation for Munich Re America. He predicts that heavy rainfall, hurricanes, and droughts will increase in the future (Dow Jones Newswires July 9) … * Northwest Airlines has become the latest airline firm to slash jobs because of soaring oil prices. The company announced Wednesday that it plans to cut 2,500 management and frontline jobs this year. Northwest President/CEO Doug Steenland said the cuts are necessary because oil prices have more than doubled over the last year. The layoffs represent about 8% of Northwest’s workforce. American Airlines announced last week that it plans to lay off about 7,000 employees by the end of this year, about 8% of its workforce, as fuel costs mount. This year will be the second-worst for layoffs this decade in the airline industry, according to the outplacement firm Challenger, Gray & Christmas. Airlines cut more than 100,000 employees in 2001 following the terrorist attacks (The New York Times, Associated Press, and Reuters July 9) …

Market News (07/08/2008)

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MADISON, Wis. (7/9/08)
* The National Association of Realtors’ (NAR) index for pending sales of previously owned homes fell 4.7% in May to 84.7 from 88.9 in April, which suggests that the housing market still has not bottomed out, analysts said. Analysts had predicted that pending sales in May would drop 2.8%. Some pullback in May was expected, said Lawrence Yun, NAR economist. “The overall decline in contract signings suggests we are not out of the woods by any means,” he said. “The housing stimulus bill that is being considered in the Senate is critical to assure a healthy recovery in the housing market, jobs and the economy.” In its forecast, NAR expects modest near-term improvement in existing home sales, with a recovery in sales seen during the second half of the year. The pending Home Sales Index remains 14% below the 98.5 level it stood at in May 2007 (National Association of Realtors and The Wall Street Journal July 8) … * U.S. chain store sales inched up a slight 0.2% in the week ending July 5--the second consecutive small uptick, according to the International Council of Shopping Centers (ICSC). Year-over-year growth edged up to 2.3%--the strongest level in nine weeks. Reported sales were inconsistent across retailers, with support coming from promotional activity and sales rebates, but still limited by high energy prices. The number of constraints on consumer budgets and spending remains significant, ICSC said. In addition to the downward push caused by energy prices, loss of jobs and resulting slower growth in wage income are a big hindrance. Other factors slowing down sales include: escalating food prices, falling home prices and personal wealth, debt and financial burdens, inadequate consumer savings, reduced availability of mortgages and more restrictive consumer lending standards--which hurt household cash flow. In this environment, sales will continue to be flighty, marked by weak growth, ICSC concluded (Economy.com July 8) … * Wholesale U.S. inventories met consensus expectations, rising 0.8% in May, which follows an upwardly revised 1.4% gain in April, according to the Census Bureau. With the increases in April and May, wholesale inventories should contribute to gross domestic product (GDP) growth in the second quarter. The Census Bureau’s forecast for second-quarter GDP growth is for 2.2% annualized gain, with inventories contributing 0.2%. Durable and nondurable inventories both rose in May. Stable petroleum and farm product inventories suggest rising prices had a lesser role in May’s inventory accumulation than in past months. Sales in May remained unchanged, rising 1.6% compared with an upwardly revised 1.6% in April. The inventory-to-sales ratio, which measures the number of months it would require to deplete current inventories at the existing sales pace, dropped to 1.08 in May from an unrevised 1.09. The ratio is at an all-time low (Economy.com July 8) … * U.S. consumer credit increased by $7.8 billion in May--equivalent to a 3.6% annualized rate of growth--to $2.571 trillion, according to the Federal Reserve. Most of the month’s increase was due to rapid growth of revolving credit, which increased by $5.7 billion--an annualized rate of 7.1%. This indicates consumers are willing to sustain spending by increasing their credit card balances, the Fed said. Non-revolving lines of credit increased more slowly, as the 1.6% increase was below the average rate of increase seen so far in 2008. Slow new-vehicle sales are having a negative impact on the extension of non-revolving credit (Economy.com July 8) … * Crude oil prices will not fall below $100 a barrel again, and the U.S. should invest more money in natural gas to cut its dependence on foreign oil, said oil tycoon T. Boone Pickens on Tuesday. “U.S. natural gas can replace foreign oil. It’s the only natural resource we have that can do that,” Pickens said at a press event accompanying the release of his new energy plan--“The Pickens Plan.” Natural gas found in North America could replace 38% of U.S. oil imports, he added. Earlier this year, the Texas billionaire said he was investing heavily in wind power (The New York Times July 8) …

News of the Competition (07/08/2008)

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MADISON, Wis. (7/9/08)
* As a result of high-grade collateralized debt obligations, Merrill Lynch & Co. will likely report a second-quarter loss of $3.95 per share after posting $6 billion in writedowns, a CitiGroup Inc. analyst said. New York-based Merrill, the third-largest U.S. securities firm, will have raised more capital than its $14.9 billion of net loses incurred during the past six quarters, even when taking into account the second-quarter loss, according to a Monday report published by Citigroup Analyst Prashant Bhatia. Last week, Meredith Whitney, Oppenheimer & Co. analyst, estimated that Merrill’s second-quarter loss would be $4.21 per share, based on writedowns of $5.8 billion. By selling part of its stake in BlackRock Inc.--a New York-based money manager--Merrill might raise $1 billion to $2 billion, Bhatia said (Bloomberg.com July 7) … * After regulators told IndyMac Bancorp Inc. it isn’t “well capitalized,” the Pasadena, Calif.-based lender saw its shares drop 37% in early trading Tuesday. Indy Mac will pull back on lending and cut its workforce by 53% to 3,400 employees, the company said Monday on its website. The company is working with regulators to develop a new business plan. In the past 12 months, IndyMac has lost more than 95% of its market value. In a Tuesday filing, the company said that comments made by U.S. Sen. Charles Schumer (D-N.Y.) in which he said the bank may be on the brink of failure due to reliance on deposits purchased from third parties, have caused “elevated levels of deposit withdrawals.” IndyMac said Schumer’s comments also are causing added restrictions on the lender’s borrowings (Bloomberg.com July 8) … * After a regulator said Tuesday that the two government-sponsored enterprises (GSEs) should have adequate returns to raise capital, shares rose for Fannie Mae and Freddie Mac--the two largest providers of U.S. mortgage finance. An accounting rule change should not drive capital changes at the two GSEs, said James Lockhart, director of the Office of Federal Housing Enterprise Oversight. On Monday, shares of Fannie and Freddie dropped to their lowest levels since the early 1990s. The drop is based on losses that were larger than expected and concerns that the two GSEs might need to raise billions of dollars in new capital (Reuters July 8) … * Having already incurred a $2.4 million fine for alleged unfair card practices, Georgia-based Columbus Bank and Trust Co. also has received a lower Community Reinvestment Act (CRA) rating. The Federal Deposit Insurance Corp. (FDIC) said in a Saturday filing that it lowered the CRA rating for the bank--a $6 billion-asset unit of Synovus Financial Corp.--because it “needs to improve” from its 2005 “satisfactory” rating. In orders issued last month by FDIC, the bank was one of three financial institutions targeted for alleged dealings with CompuCredit Corp., which FDIC said has inadequately disclosed fees and other information in its credit card marketing. The bank and other firms did little to stop these practices by CompuCredit, FDIC said. The agency said the bank had violated provisions of the Federal Trade Commission Act and Equal Credit Opportunity Act (American Banker July 8) …

Market News (07/07/2008)

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MADISON, Wis. (7/8/08)
* The Federal Reserve Bank needs to be prepared to make hard choices when warranted and cannot merely be “hopeful” that inflation will abate, Janet Yelling, president of the San Francisco Federal Reserve Bank, said during a speech at the University of California-San Diego Monday. Memories of the inflationary spiral of the 1970s are “very alive” at the Federal Open Market Committee, she added. When answering questions after her speech, Yellin said the Fed is “in a bind” when it tries to deal with rising inflation during a time of weak growth (The New York Times July 7) … * For the fourth consecutive quarter, profits at U.S. companies probably shrank--the longest sustained downturn since 2002, analysts said. Citigroup and Merrill Lynch and Co. continue to take on more losses from the mortgage market collapse. There may have been an 11% drop in the second quarter from a year earlier in earnings of Standard and Poor’s 500 Index companies, according to data from Bloomberg. Profits dropped 16% in the first quarter 2008, 23% in the fourth quarter 2007, and 2.5% in the third quarter 2007, analysts said. Financial industry profits likely dropped 60%. Since January 2007, banks and brokerage firms worldwide have posted over $400 billion in writedowns and credit losses related to the housing market slump (Bloomberg.com July 7) ... * The price of crude oil dropped roughly $5 per barrel while the dollar rose to a one-week high against the euro last week--as speculation rose that leaders from the Group of Eight industrialized nations will signal support for the dollar. As oil fell, prices for commodities such as silver and gold also dropped. With the dollar reaching record lows against the euro this year, investors used commodities to hedge against decline in U.S. currency. President Bush said Sunday that “the U.S, believes in a strong-dollar policy.” As the dollar strengthens, it makes commodities such as oil more expensive for everyone else in the world, and make them less willing to buy oil, explained Peter Beutel, president, Cameron Hanover, Inc.--a New Canaan, Conn.-based energy consultant company (Bloomberg.com July 7) … * General Motors Co. is preparing to eliminate thousands more white collar jobs and is considering whether to close or sell more of its brands, said sources familiar with the situation. The latest developments come in light of the automaker’s profound sales decline and a half-century low watermark for its stock price, analysts said. Both moves are part of a broader plan--which involves a reevaluation of GM’s strategy--to return to profitability by 2010, the sources said. They added the job cuts should be approved in early August when GM’s board of directors meets. At that time, company management may present the board with options for raising more cash to buoy GM against the downturn. The board also will likely hear management’s ideas concerning whether GM should cut the number of brands offered in the U.S., the sources said. (The Wall Street Journal July 7) …

News of the Competition (07/07/2008)

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MADISON, Wis. (7/8/08)
* Investment banks did not borrow at the U.S. Federal Reserve discount window last week, analysts said. As of Wednesday, no loans were made through the primary dealer credit facility. That compares with $1.690 billion in lending the previous week. For the week ended July 2, average daily borrowing was $1.738 billion, compared with $6.095 billion the previous week. Total borrowings at the discount window were at $12.920 billion Wednesday, down from $15.402 billion the previous week. Average daily borrowing stood at $16.780 billion, which was down from $20.874 billion the previous week. The Fed data disclosed Thursday also revealed the net portfolio holdings amount for a company that was formed to acquire the assets of Bear Stearns Cos. The holdings were valued at $28.893 billion as of Wednesday, according to Fed data. The Fed agreed to lend $29 billion in March for the acquisition of Bear by JPMorgan Chase and Co. JPMorgan said it would lend $1 billion (djnewswires.com July 3) … * Shares of multi-bank holding company Zions Bancorp dropped nearly 15% after it announced Thursday it had completed an offering of its Series C non-cumulative perpetual preferred stock. It obtained only $45.7 million in its attempts to raise $150 million in a preferred equity private placement. Since Zions was unable to obtain enough new capital, markets seemed to take the news as an indication that Zions would have to sell common shares, which would dilute the value of what its shareholders are holding, analysts said. In the past three months, Zion shareholders have witnessed a 43% drop in the value of their stocks. However, after the weekend passed, some Wall Street analysts said the market’s reading of Zions’ announcement may have been off base. JPMorgan Chase and Citigroup even recommended buying Zions shares. Zions said the amount raised was in line with its expectations of $40 million to $50 million (The Wall Street Journal Online July 7 andRTTNews July 3 … * Unsound management and a weakened capital position were cited by the Federal Deposit Insurance Corp. (FDIC) as reasons to issue a May 9 cease-and-desist order to Palos Altos, Ill.-based Family Bank and Trust Company. The order, made public last week, said the $81 million-asset unit instilled management policies that were “detrimental to the safety and soundness of the bank” and that it was operating “with an inadequate level of capital for the kind and quality of assets held.” FDIC ordered the bank to maintain a Tier 1 capital ratio of 7%, reduce its risk exposure to “substandard” assets, and retain qualified management within 60 days--among other requirements (American Banker July 7) …

Market News (07/04/2008)

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MADISON, Wis. (7/7/08)
* The labor market weakened further last month, as employers continued to cope with sluggish demand and soaring energy costs. Non-farm payrolls fell by 62,000 in June--the sixth consecutive decline, the Labor Department reported Thursday. The drop brought total job losses for the first six months of this year to 438,000. The unemployment rate held steady at 5.5% in June, after jumping by 50 basis points in May. The jobless rate was 4.6% a year earlier. The number of long-term unemployed--those who were jobless for 27 weeks or more--was essentially unchanged at 1.6 million in June--accounting for 18.4% of the unemployed. Job losses continued in construction, manufacturing, and employment services in June, while health care and mining added jobs. Construction employment dropped by 43,000, and has plunged by 528,000 since peaking in September 2006. Manufacturing employment fell by 33,000. Employment in that sector has tumbled by 353,000 over the past 12 months … * The number of “officially” unemployed people was basically unchanged in June--at 8.5 million, according to the Labor Department report. That’s up from 7 million a year earlier. Another 5.4 million people worked part time for economic reasons last month--up by 1.1 million over the past 12 months. These people were working part time either because their hours had been cut or because they were unable to find full-time employment. In addition, about 1.6 million people were marginally attached to the labor force, essentially unchanged from a year earlier. Such individuals wanted and were available for work and had sought employment sometime in the previous 12 months, but weren’t counted among the unemployed because they hadn’t sought work during the four weeks prior to the employment survey. These three groups totaled 15.5 million in June--up from 12.9 million a year earlier. Many economists say this unemployment figure more accurately demonstrates the strength of the labor market. The sharp increase explains why consumers have become much more pessimistic about the job market and their own finances this year … * Soaring fuel costs are prompting airlines to slash jobs this year. American Airlines announced Thursday that it plans to lay off almost 7,000 employees by the end of this year, about 8% of its workforce, as it cuts flights and grounds airplanes. The cost of jet fuel has surged more than 80% this year. Other airlines are cutting their workforces. United Airlines has said it plans to cut up to 1,600 salaried and management jobs, and 950 pilots. It also has offered voluntary retirement to 600 flight attendants. Continental Airlines has announced plans to eliminate 3,000 jobs. Smaller airlines also plan to cut jobs as fuel costs mount. Altogether, airlines have said they plan to slash about 30,000 jobs in 2008. This year will be the second-worst for layoffs this decade in the airline industry, according to the outplacement firm Challenger, Gray & Christmas. Airlines slashed more than 100,000 employees in 2001 following the terrorist attacks (The New York Times July 3) … * Soaring fuel and food costs are hitting both the service and manufacturing sectors this year, prompting mounting job losses. The Institute for Supply Management (ISM) reported Thursday that its service-sector index dropped to 48.2 in June--from 51.7 in May. A reading under 50 indicates contraction in the sector, which includes banks and retailers. Higher prices--led by fuel and food--were the biggest factor in the index’s decline. The prices-paid index jumped to a record-high 84.5 in June, from 77 in May. The new-orders index declined to 48.6 from 53.6. Service-sector companies are laying off employees, as demand declines and costs soar. The employment index fell almost 5 points to 43.8 in June--the lowest level on record excluding the time immediately after the September 2001 terrorist attacks. The report mirrors an ISM report on manufacturing released earlier last week. The group’s manufacturing index registered 50.2 in June, little changed from 49.6 a month earlier. The prices-paid index jumped to 91.5--from 87 and the highest reading since 1979. The employment index fell to 43.7 from 45.5 (Economy.com and Associated Press via Yahoo! News July 3) … * Mortgage rates declined last week, ending three weeks of increase, as the Federal Reserve said inflation will moderate this year. The average 30-year, fixed-rate mortgage (FRM) dropped 10 basis points to 6.35%--the first decline in three weeks, Freddie Mac reported Thursday. The 15-year FRM fell 12 basis points to 5.92%, while the one-year, adjustable-rate mortgage (ARM) declined 10 basis points to 5.17%. “Mortgage rates reversed their three-week rise, falling this week after the release of the latest Federal Reserve’s policy statement that it expects inflation to moderate later this year,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. That statement prompted the markets to lower their expectations for future interest-rate increases, added Nothaft. Mortgage rates are down from a year ago. At this time last year, the 30-year FRM averaged 6.63%, while the 15-year FRM stood at 6.30%, and the one-year ARM was at 5.71% (CNNMoney.com and Reuters July 3). For CUNA's Daily Financial Rates, use the link. …

News of the Competition (07/04/2008)

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MADISON, Wis. (7/7/08)
* Fewer homeowners received help for their mortgage loans in May, according to a report by Hope Now, an alliance of mortgage lenders, servicers, and housing counselors. About 170,000 homeowners received help to avoid foreclosure--down 7% from 183,000 loan workouts in April. Group spokesman Stan Collender said the decline will be more than made up later this year. Hope Now estimates that it has helped 1.7 million people avoid foreclosure since last July. About 60% of the workouts in June were repayment plans, while 40% were loan modifications--little changed from April. Consumer advocates say loan modifications are more effective in avoiding foreclosure because repayment plans often just postpone the inevitable. “They don’t help anyone if the underlying loan is bad,” said Center for Responsible Lending Spokeswoman Kathleen Day. A report by RealtyTrac found that foreclosures jumped 35% in May--to 73,000 (CNNMoney.com and washingtonpost.com July 3) … * U.S. banks’ trading profits plunged 84% during the first quarter, compared with a year earlier, as they continued to struggle with losses on mortgage-linked securities. Banks posted $1.13 billion in trading gains--down from $7 billion in the same period last year, according to the Office of the Comptroller of the Currency (OCC). However, the first-quarter results were an improvement from the almost $10 billion worth of trading losses posted during the fourth quarter--the first loss on record. Trading activity includes bets on interest rates, foreign currency, commodities, and credit instruments. The OCC said lower interest rates let banks make bigger bets during the first quarter. Total credit exposure among U.S. banks increased to $465 billion in the first quarter, said the OCC, up 159% from the same period last year. Analysts predict that losses from the credit crisis will total $1 trillion worldwide (Associated Press via msn.com July 3) … * The credit crunch toppled another big leveraged-buyout deal last week. Buyout firms Fortress Investment Group and Centerbridge Partners canceled their $6 billion deal to acquire Penn National Gaming Inc. It is the largest buyout to collapse since J.C. Flowers canceled a $25 billion deal to purchase Sallie Mae parent SLM Corp. last year. Global loan volume plunged 61% in the first six months of this year, compared with the same period last year, according to Dealogic. U.S. loan volume tumbled 53% during the period. Leveraged loans worldwide are priced 21 points higher this year. In the U.S., leveraged loans are priced 36 points higher. Shares of casino-operator Penn National have been pressured in recent months, as consumers hit by soaring food and fuel prices curbed their gambling activity (Reuters and forbes.com via msn.com July 3) … * Most employees of Lehman Brothers Holdings will receive mid-year stock bonuses--even though the firm’s stock has plunged 66% so far this year. The bonuses equal 20% of the stock employees received in 2007. In a move to ensure loyalty, Lehman CEO Richard Fuld Jr. has worked to make the company employee-owned since it went public in the early 1990s. Employees already own about a 30% stake in the brokerage (The Wall Street Journal Online July 3) … * Soaring oil prices helped push bank stocks down last week. The KBW Bank index dropped 2.14% on Wednesday, as oil prices jumped to around $144 a barrel. JPMorgan Chase and SunTrust Banks were the only banks with market capitalization over $10 billion to post gains--at just 1.7% and 0.7%, respectively. Posting large declines were Bank of America--down 5.3% only a day after completing its acquisition of Countrywide Financial--and Bank of New York Mellon, which dropped 5.2% (American Banker July 3) …

News of the Competition (07/02/2008)

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MADISON, Wis. (7/3/08)
* Hackers stole more than $2 million from Citibank’s network of ATMs inside 7-Eleven stores, according to recent court filings. The criminals accessed PIN numbers by attacking the back-end computers that approve withdrawals. “PINs were supposed to be sacrosanct--what this shows is that PINs aren’t always encrypted like they’re supposed to be,” said Gartner Security Analyst Avivah Litan. “The banks need much better fraud detection systems and much better authentication,” added Litan. The hackers broke into the ATM network through a third-party processor’s server. The thefts occurred from October 2007 through March 2008. Citibank has declined to comment on how many accounts were compromised (Associated Press via CNNMoney.com July 2) … * Small banks will see mounting losses this year from soured construction loans made mostly to homebuilders, The Wall Street Journal Online reported Wednesday. More than 7% of the $631.8 billion of construction loans outstanding at the end of March were delinquent, according to the Federal Deposit Insurance Corp. The newspaper’s analysis of FDIC data found that almost one in three banks had construction-loan portfolios that were more than 100% of their risk-based capital. And 73 of those banks had delinquency rates of more than 25% on their construction loans. The banks said they had enough capital to cope with their losses. However, some bankers complained that regulators are pressuring them to write down their loans, which could force more loans into default. Some institutions are selling off their bad loans at a discount, curbing new lending, and stopping construction project--practices that could worsen the credit crunch … * The Internal Revenue Services (IRS) won a victory Tuesday, as a federal judge ruled to let the agency serve legal papers on Zurich-based UBS AG related to an investigation of U.S. taxpayers who used overseas accounts to avoid taxes. “The order clears the way for the IRS to take the next steps against wealthy individuals who don’t pay their taxes,” said IRS Commissioner Doug Shulman. Investigations by the Justice Department and the IRS are being helped by information from Bradley Birkenfeld, a former UBS banker who pleaded guilty last month to helping U.S. clients evade taxes. Prosecutors say Birkenfeld and other bankers helped California billionaire Igor Olenicoff hide $200 million in offshore accounts. Olenicoff pleaded guilty last year and agreed to pay the IRS more than $52 million (Associated Press via The New York Times July 2) … * Citigroup may need to write down $8.7 billion, and Merrill Lynch may write down $4.5 billion for the second quarter, say UBS analysts. They also forecast a $1.4 billion writedown for JPMorgan Chase. The analysts predict a full-year loss of $2.55 a share for Merrill. The brokerage also is expected to need to raise capital to cope with mounting losses from mortgage-backed securities and collateralized debt obligations (Reuters via The New York Times July 2) …

Market News (07/02/2008)

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MADISON, Wis. (7/3/08)
* Overdue payments on home-equity-lines-of-credit (HELOCs) increased at the fastest pace in two decades during the first quarter, as consumers had problems coping with mounting job losses and rising food and energy costs, the American Bankers Association (ABA) reported Wednesday. HELOCs that were 30 days or more overdue jumped 14 basis points to 1.1% of accounts. It was the largest increase since the trade association started collecting the data in 1987, noted ABA spokeswoman Carol Kaplan. In another sign of consumer distress, delinquent credit-card accounts rose 13 basis points to 4.51%--the highest since 2006--and mobile-home delinquencies surged 30 basis points to 3.22%. “It’s a sign of the overall condition of the economy that people are having trouble making their payments,” said Caplan (Bloomberg.com July 2) … * Heavy layoffs by financial firms pushed corporate-layoff announcements up 21% during the first half of the year, compared with the same period last year, according to a report by the outplacement firm Challenger, Gray & Christmas. Layoffs totaled 475,948 in the first six months of 2008--compared with 393,499 in the first half of 2007. So far this year, the financial sector has announced 85,258 layoffs. “Downsizing in the financial sector has remained heavy, but now we’re seeing increased job cuts in other non-housing-related industries, mostly due to the added burden of skyrocketing oil prices,” said John A. Challenger, chief executive of the Chicago-based firm. Layoffs have increased in the computer, transportation, telecommunications, and auto sectors, due partly to rising energy costs. However, Challenger noted that layoffs haven’t been as widespread as in past downturns. “Companies were more cautious when it came to hiring after the dot-com collapse,” said Challenger (MarketWatch and Bloomberg.com July 2) … * The number of unemployed people in rich nations will surge by 1 million this year and more than 2 million in 2009 as global economic growth slows, the Paris-based Organization for Economic Cooperation and Development (OECD) said Wednesday. The unemployment rate will edge up to 5.7% this year and 6% in 2009, compared with 5.6% in 2007. “The declining trend in unemployment in recent years is projected to reverse in 2008,” said the OECD. The group predicts that the unemployment rate in the U.S will increase to 5.4% this year and 6.1% in 2009, from 4.6% in 2007. The OECD expects global compensation growth to ease as unemployment rises. Average real (inflation-adjusted) compensation growth is expected to increase just 0.5% this year, compared with 1.2% growth last year (Bloomberg.com July 2) … * Vehicle sales geared down sharply in June as consumers faced mounting job losses and rising food and energy costs. Vehicles sold at an annual pace of 13.7 million units--down from 14.3 million in May and 15.7 million a year earlier. A shift by U.S. automakers away from low-margin fleet sales also fueled the slowdown in sales last month. In addition, consumers wanting to trade in their SUVs for more fuel-efficient models are having a tough time, as dealers offer lower prices or refuse to accept the gas-guzzling vehicles. The market probably will remain weak for the remainder of this year. Vehicle sales will total 14.7 million this year and 15.2 million in 2008, compared with 16.1 million in 2007 (Economy.com July 2) … * Factory orders edged up in May, probably buoyed by higher prices. Orders for manufactured goods rose 0.6% after a 1.3% gain in April, the Commerce Department reported Wednesday. Transportation orders jumped 2.5% following an 8.3% drop. Excluding the volatile transportation category, orders were up just 0.4% in May. Orders for nondefense capital goods excluding aircraft--a proxy for future business investment--declined 0.4% following a 3.1% jump in April. Another report by the Institute for Supply Management on Tuesday showed a modest improvement in the manufacturing sector in June, along with sharply higher prices. The group’s factory index edged up to 50.2%, from 49.6 in May. It was the first time since January that the index topped the 50 mark that suggests expansion. However, the prices-paid index jumped to 91.4--from 87 in May and the highest reading since 1979. The report showed that manufacturers are still coping with high input prices, even as demand continues to slow, said Norbert J. Ore, chairman of the group’s manufacturing business survey committee. (The Wall Street Journal Online and Reuters July 2) … * Mortgage activity rebounded last week, according to the Mortgage Bankers Association (mbaa.org July 2). The trade group’s Market Composite Index rose 3.6% during the week ending June 27 to 477.7. The Purchase Index increased 2.8% to 342.8, while the Refinance Index rose 4.7% to 1269.2. The refinance share of overall activity edged up to 36.8%, from 36.3% the previous week, and the adjustable-rate mortgage (ARM) share of activity remained at 8.5%. The average 30-year, fixed-rate mortgage (FRM) fell 6 basis points to 6.33% last week, while the one-year ARM rose 5 basis points to 7.14%. The 30-year FRM is 18 basis points lower than a year ago, while the one-year ARM is 165 basis points higher, said Moody’s Economy.com (July 2). The research firm also noted that the Federal Reserve is warning about the need to control inflation, even as banks are using high mortgage rates to screen borrowers, and home prices continue to decline--suggesting no bottom in sight for the housing slump …

News of the Competition (07/01/2008)

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MADISON, Wis. (7/2/08)
* Bank of America completed its acquisition of Countrywide Financial Corp. on Tuesday, a deal that makes Bank of America the largest mortgage originator and servicer in the U.S.--controlling an estimated 20% to 25% of the national mortgage market (Associated Press via The New York Times July 1). The bank plans to cut about 7,500 jobs from its combined workforce. In other news, Florida Attorney General Bill McCollum said Florida hopes to negotiate a settlement with Bank of America related to what the state calls the deceptive lending practices of Countrywide Financial (Reuters July 1). The state claims Countrywide gave subprime mortgage loans to people who couldn’t repay the loans, gave subprime loans to people who qualified for prime loans, and engaged in other unfair practices. A Bank of America spokesman couldn’t immediately be reached to comment on the suit … * Freddie Mac, the nation’s second-largest provider of funds for residential mortgages, announced Tuesday that it plans to give troubled mortgage-insurer Republic Mortgage Insurance Co. a chance to prove its worth (Reuters July 1). Last week, Moody’s Investors Service downgraded Republic’s rating to A1, from Aa3. The higher rating will be retained as Republic completes its remediation plan, said Freddie. Other mortgage insurers are struggling to retain their top ratings, as defaults rise. An estimated 67,967 people fell at least 60 days behind on their mortgages in May, according to the Mortgage Insurance Companies of America (Bloomberg.com June 30). Only 40,687 borrowers got back on track with their mortgage payments--the 26th consecutive month that delinquent homeowners with mortgage insurance outnumbered homeowners who caught up on their payments … * CIT Group is exiting the home-mortgage business to focus on its commercial finance business. The firm plans to sell its mortgage business to Loan Star Funds for $1.5 billion in cash plus $4.4 billion in assumed debt and its manufactured housing portfolio to Vanderbilt Mortgage and Finance Inc. at a $300 million loss. “These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class, and advances our strategic transformation into a company focused entirely on commercial finance,” said CIT Chairman/CEO Jeffrey M. Peek. CIT has struggled with huge losses on its residential mortgage business, as the mortgage markets continue to deteriorate. The company has raised $1.6 billion in new capital since April (Associated Press via The New York Times July 1) … * Visa Inc. has rescinded its rule that required merchants to treat Visa-branded PIN-debit cards differently than signature debit cards. The rule is being dropped as a result of a Department of Justice investigation of whether the rule harmed competition by restricting some PIN debit transactions. Visa processed the transactions when the cards were used as signature cards. “The department’s Antitrust Division will close its investigation now that Visa has rescinded its operating regulation and adopted new regulations that should eliminate any potential for competitive harm,” said the department in a statement (Associated Press via Yahoo! News and Reuters July 1) …

Market News (07/01/2008)

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MADISON, Wis. (7/2/08)
* Exports boosted manufacturing growth last month, even as inflationary pressures mounted and inventories jumped--a combination that means more trouble for the sector ahead. The Institute for Supply Management’s manufacturing index edged up to 50.2 in June, from 49.6 in May. It was the first time since January that the index topped the 50 mark that indicates expansion. However, the prices-paid index jumped to 91.5 in June--from 87 in May and the highest reading since 1979. Manufacturers are “experiencing higher prices for their inputs while demand for their products is slowing,” said Norbert J. Ore, chairman of the group’s manufacturing business survey committee. The new-orders index edged down to 49.6 from 49.7. New-export orders dropped 1 point to 58.5. Manufacturers continue to cut jobs as their business slumps. The employment index fell to 43.7, from 45.5. Inventories jumped to 51.2 last month, from 48 in May. Manufacturers are facing the dilemma of declining demand and rising inventories, even as price pressures mount--a problem that the economy as a whole continues to experience (Associated Press via Yahoo! News and Economy.com July 1) … * Inflation has accelerated worldwide amid soaring energy prices--making it difficult for central bankers to manage monetary policy, according to a report by the Paris-based Organization for Economic Cooperation and Development. The annual inflation rate in the group’s 30 member nations rose to 3.9% in May--from 3.5% in April and the highest level since 4.1% in June 2001. Energy prices jumped 14.6% over the 12 months ending in May, up from a 12.4% year-over-year gain in April. Food prices were up 6.1% after a 5.7% gain. Core inflation--excluding the volatile food and energy categories--remained tame, at 2.1% year-over-year in May following a 2% gain in April (The Wall Street Journal Online July 1) … * Soaring gasoline prices are hitting U.S. consumers hard. Nine out of 10 consumers expect rising energy costs to squeeze them financially over the next six months, according to a survey by Associated Press/Yahoo! News (June 30). Almost half of respondents said they expect the financial hardship will be serious. To cope with soaring costs, most consumers say they are driving less and using less energy in their homes, while about half are cutting vacation plans and considering buying vehicles that are more fuel efficient. The problems are hitting both lower- and higher-income people. For example, about two-thirds of those earning less than $25,000 a year say they are cooling and heating their homes less--compared with about 60% of those who earn more than $100,000 … * The U.S. Justice Department is pressing Zurich-based UBS AG to turn over the names of wealthy U.S. clients who allegedly used the bank to avoid paying taxes. The department is seeking a federal court order, a move that could set a precedent as other nations seek to pursue alleged tax cheats in Switzerland and other jurisdictions. In a statement, UBS said it “takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities, consistent with Swiss law and the legal frameworks for intergovernmental cooperation and assistance.” The Swiss government also said it is working with the U.S. government to resolve the matter. The investigations by the Justice Department and the Internal Revenue Service have been helped by information from Bradley Birkenfeld, a former UBS banker, who pleaded guilty last month to helping U.S. clients evade taxes (The Wall Street Journal Online July 1) … * Construction spending declined by 0.4% in May following a 0.1% dip in April, the Commerce Department reported Tuesday. It was the fourth decline in the past five months. Construction spending was down 6% year-over-year in May. Spending on private construction fell 0.7% in May, while spending on public construction rose 0.4%. Overall construction spending is expected to remain weak this year, as the housing slump continues, and state and local governments struggle with declining revenue from the economic downturn …