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News of the Competition (07/31/2009)

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MADISON, Wis. (8/3/09)
* Nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million each for 2008, according to a report released Thursday by New York Attorney General Andrew Cuomo. Goldman Sachs paid bonuses of more than $1 million to 953 traders and bankers. Morgan Stanley paid 428 employees seven-figure bonuses at a time when compensation was more than seven times the bank's profit. And Citigroup and Bank of America paid hundreds of employees million-dollar awards. Cuomo said the bonuses are particularly galling given that the banks needed government bailouts to survive the financial industry crisis (The New York Times July 31) … * Four more banks failed Friday, bringing the total number of failed banks for the year to 68, said the Federal Deposit Insurance Corp. (FDIC). First BankAmericano, Elizabeth, N.J., will transfer its deposits to Crown Bank, Brick, N.J. The deposits of Peoples Community Bank, West Chester, Ohio, will transfer to First Financial Bank of Hamilton, Ohio. Deposits at Integrity Bank of Jupiter, Fla., will go to Stonegate Bank of Fort Lauderdaile, Fla. And First State Bank of Altus, Altus, Okla., will transfer its deposits to Herring Bank of Amarillo, Texas (MarketWatch July 31) … * The U.S. government and Switzerland Friday agreed in principle to settle out of court the case in which the U.S. sought the names of Swiss bank USB AG's American clients suspected of tax evasion, according to an attorney familiar with the negotiations. As a result, Judge Alan S. Gold of the U.S. District Court in Miami said he would cancel the trial that had been scheduled to begin today. Justice Department Prosecutor Stuart Gibson told the judge in a conference call that a final deal would be reached by Friday. The Internal Revenue Service had demanded identities of 52,000 U.S. account holders at UBS. UBS and the Swiss government claimed that turning over the names would violate Swiss bank secrecy provisions (The Wall Street Journal and The New York Times July 31) … * Federal Reserve data released Thursday show losses related to the central bank's investments in troubled institutions has slowed. Maiden Lane III, which was created to assume American International Group's collateralized debt obligations, reported a $2.3 billion second-quarter gain over first quarter--to $21.14 billion. The growth minimizes the $3.4 billion Maiden Lane lost in first quarter, to bring its value almost to its initial $21.15 billion. However, Maiden Lane has two other facilities that continue to lose value. Maiden Lane II, which has AIG's residential mortgage-backed securities holdings, dropped in value by $616 million, which was less than the $1.6 billion it lost in first quarter. Maiden Lane, which facilitated JPMorgan Chase's acquisition of Bear Stearns Cos., lost $186 million (American Banker July 31) … * The Federal Home Loan Bank (FHLB) of Pittsburgh has filed a $41.5 million lawsuit against Lehman Brothers Holdings Inc. alleging Lehman improperly transferred cash to its affiliates after its collapse and sale to Barclays PLC. The cash, which is collateral posted by the FHLB and held by Lehman, related to swap transactions between the two firms. Lehman was the fourth largest investment bank before it collapsed on Sept. 15, 2008 (American Banker July 31). After the collapse, the FHLB terminated a derivatives agreement with Lehman Brothers Special Financing Inc. that would have authorized a payment of $275 million of its collateral to the Lehman unit. The lawsuit maintains the FHLB should have received the balance of its collateral, which totals $41 million plus interest. Last year the bank sued both Lehman and JP Morgan Chase & Co., but dropped the suit against JP Morgan. It learned later that Lehman--instead of holding the collateral in a segregated account--regularly swept the cash from its subsidiaries' accounts and transferred it to other units …

Market News (07/31/2009)

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MADISON, Wis. (8/3/09)
* Gross domestic product (GDP) fell 1% at an annualized rate in second quarter, according to the Commerce Department. The rate was less than the 1.5% consensus economists had expected. The reading, a broad gauge of the U.S.'s output, follows a contraction of 6.4% in GDP for first quarter, and indicates the economy has contracted for a record four straight quarters for the first time since recordkeeping began in 1947 (The New York Times July 31). The better performance was attributed to less drastic spending cuts by businesses, the resumption of spending by local and federal governments and improved trade. While the second-quarter results suggest that a recovery is beginning, consumer spending and rising unemployment statistics indicate a subdued rebound. Consumer spending fell by 1.2% while Americans saved 5% of their disposable income. The personal consumption expenditures price index, which the Federal Reserve closely monitors as a measure of inflation, rose an annualized rate of 1.6% during second quarter. On a year-ago basis, real GDP dropped by 3.9% in second quarter, the largest decline since World War II (The Wall Street Journal, Moody's economy.com and Bloomberg.com July 31) … * Second-quarter costs for employers rose 0.4%, slightly above the 0.3% growth expected, said a report released Friday by the Bureau of Labor Statistics (Moody's economy.com July 31). Second quarter total compensation growth declined to 1.8% from the same period a year ago and 2.1% from first quarter 2009, for the slowest year-ago expansion in total compensation since 1982, when the report was initiated. Wage and salary growth were up 0.4% during the second quarter, while the cost of benefits rose 0.3%. Both wage and salary and benefits growth were up from the 0.2% growth in each component or first quarter. "The general trend of slow wage growth is putting pressure on consumers," said Moody's … * Another sign the economic outlook is improving: U.S. business activity contracted at a slower pace for July. The Institute for Supply Management-Chicago Inc.'s purchasers' index rose to a 10-month high--43.4, from 39.9 in June. Readings below 50 indicate a contraction. The 3.5-point increase in July compares with a cumulative gain the past two months of 8.5 points, with both new orders and employment rising during the month. Lean inventories, small reductions in investment by businesses and an improving demand from overseas helped ease the factory slump and reinforce expectations that the U.S. will see the recession end this year (Bloomberg.com and Moody's Economy.com July 31) … * Mortgage rates increased last week, according to Freddie Mac's weekly survey, announced Thursday. The 30-year, fixed-rate mortgage averaged 5.25%, up from the previous week's 5.2% and down from 6.52% a year earlier. And 15-year, fixed-rate mortgages were 4.69%, an increase over the previous week's 4.68% but down from 6.07% a year earlier. Five-year Treasury hybrid adjustable-rate mortgage (ARMs) averaged 4.75%, an increase from 4.74% during the previous week and 6.07% lower than the rate a year earlier. One year, Treasury-indexed ARMs averaged 4.8%. That's an increase over 4.77% the previous week but a decline from 5.27% the year earlier (American Banker July 31) …

CUNA on ICNNMoneyI Taste of recession to linger

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WASHINGTON (8/3/09)--The gross domestic product (GDP) shrank less than expected during second quarter, buoying Wall Street hopes that the recession may be nearly over. However, Credit Union National Association Chief Economist Bill Hampel warned CNNMoney that a "taste" of recession will linger. "Although the recovery is about to begin, it is a technical recovery," Hampel said. "The economy will be growing, but growth will be so modest that 70% to 80% of the population won't notice it," he added. "The unemployment rate is not going to improve for some time, so it will look, feel and taste like a recession well until next year," Hampel said. For more detail on the GDP report, see Market News.

Market News (07/30/2009)

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MADISON, Wis. (7/31/09)
* U.S. economic activity continues to be weak going into the summer, according to reports from the 12 Federal Reserve Districts--in the Fed’s The Beige Book. However, most districts indicated the pace of decline has moderated since the last report or that economic activity has begun to stabilize--although at a low level. Most districts reported sluggish retail activity. Two districts--Minneapolis and San Francisco--cited large increases in home sales compared with 2008 levels. Other districts reported rising sales in some submarkets. Commercial real estate markets were described as either “weak” or “slow” in all 12 districts. Districts generally reported modest price changes across sectors and products. In most districts, overall lending activity was stable or weakened further for most loan categories. Consumer lending in early summer remained below previous-year levels in most districts. Auto sales were mixed nationwide. Reports on the manufacturing sector remained subdued but were slightly more positive than in the previous Beige Book. Many districts said manufacturing activity remained depressed, but with selected signs of modest improvement. As a result of better weather in most of the U.S. in June and early July, the farm sector reported the supply and condition of many crops have improved, but prices have fallen. For The Federal Reserve Board’s Beige Book, use the link … * Seasonal adjustment issues--distortions--were responsible for initial claims for unemployment benefits increasing by 25,000 to 584,000 for the week ending July 25. The claims exceeded analysts’ estimates of 570,000, according to the Labor Department. The increase resulted after claims were artificially depressed earlier in July by the timing of temporary auto factory shutdowns, which occurred earlier this year than in most years, a department analyst said. The week’s total is down from the 617,000 claims reported in late June before the seasonal distortions began. This reflects a trend that indicates a declining pace of layoffs, economists said (The New York Times and Moody’s Economy.com July 30) … * With unemployment and declining home prices causing home-loan defaults, Las Vegas and Cape Coral-Fort Myers, Fla., led U.S. metropolitan areas in foreclosures during the first half of the year, according to RealtyTrac Inc. Las Vegas had the highest rate of foreclosure filings with 7.5%--six times the national average--of household properties being taken by a lender or else receiving a default or auction notice. The Cape Coral-Fort Meyers area, located on the Gulf Coast of Florida, was second with a 7.2% rate. “Foreclosure activity continued its upward trajectory nationwide and in the majority of metro areas in the first half of the year,” James Saccacio, CEO of RealtyTrac, said in a statement. “While some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, new markets like Provo, Utah, and Boise, Idaho, have seen large increases.” Home prices in 20 major U.S. metropolitan areas dropped 17.1% in May from a year earlier, according to the S&P/Case-Shiller index (Bloomberg.com July 30) …

News of the Competition (07/30/2009)

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MADISON, Wis. (7/31/09)
* In efforts to obtain evidence of fraud in last years’ mortgage-market meltdown, a Senate panel has subpoenaed several financial institutions, including Deutsche Bank AG and Goldman Sachs Group, said people familiar with the matter. The subpoenas are the most recent series of congressional moves to find the roots of the financial crisis, analysts said. The congressional investigations ostensibly seem to be zeroing in on whether financial institutions’ internal communications--e-mails for example--indicate that bankers had private doubts about whether mortgage–related securities they were assembling were as financially sound as was suggested in public communications, analysts said. The plummeting value of those securities was a driving force behind last year’s financial crisis, they added (The Wall Street Journal and Reuters July 30) … * American Express Co. bought back the last of the government’s stake, paying $340 million for warrants held by the Troubled Asset Relief Program--the Treasury’s bailout program. American Express is the largest U.S. credit card company by the number of purchases. The warrants would have allowed the U.S. government to buy 24.3 million common shares, American Express revealed in a Wednesday regulatory filing. The company said June 17 it repurchased $3.39 billion in preferred shares sold to the U.S. government. Lawmakers are putting pressure on the Treasury to obtain higher prices from companies wanting to buy back warrants and repay the government, analysts said (Bloomberg.com July 29) … * Visa Inc.’s fiscal third-quarter earnings spiked 73% due to gains from the card company’s initial public offering (IPO) on its international arm, analysts said. The results exceed analysts’ expectations. Visa and arch-rival MasterCard are buffered from credit problems because they earn their money from transaction fees rather than lending, analysts said. Also, Visa reported earnings for the quarter ended June 30 at $729 million--or 97 cents per Class A share--compared with $22 million or 51 cents per share, a year earlier. The IPO gain was 30 cents per share (The Wall Street Journal July 30) ... * Commercial property companies intend to put up roughly $3 billion of mortgage-backed securities for sale, starting in September. The sale is part of a U.S. program to invigorate lending for hotels, shopping malls and skyscrapers. The transactions would mark the first new issues in the $700 billion U.S. market for commercial mortgage-backed securities since the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) closed in 2008 as credit markets froze, analysts said. More than a dozen real estate investment trusts should participate in the Fed’s TALF sale, said Steven Wechsler, CEO of the National Association of Real Estate Investment Trusts (Bloomberg.com July 29) …

News of the Competition (07/29/2009)

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MADSION, Wis. (7/30/09)
* Neil Barofsky, a special inspector general overseeing the Troubled Asset Relief Program (TARP), said he’s worried that officials are not being effective enough in preventing tax dollars from being wasted or stolen. He testified Tuesday before the House Oversight and Government Reform committee. Barofsky was questioned about a controversial number he published in a report issued Monday. The total dollar amount of federal rescue efforts totaled $23.7 trillion, the report said. Treasury Department officials are contesting the figure as “inflated.” Barofsky, in turn, took issue with the department, citing a refusal to employ some of his earlier recommendations, such as requiring banks to report exactly how they are using their bailout dollars. He also said he would like to see Treasury report the actual worth of assets it has purchased through the bailout (CNN.Money.comJuly 27) … * Bank of America Corp. (BofA) said Tuesday it will settle lawsuits associated with the 2003 bankruptcy of Italian dairy company Parmalat SpA and its affiliates by paying nearly $100 million to Parmalat. Complaints filed in the U.S. and Italy allege BofA knew about Parmalat’s financial travails, but still sold investors Parmalat bonds that eventually soured--allegations BofA continually has denied. BofA revealed the $100 million payment consists of a cash and a non-cash component. In a 2004 lawsuit, Parmalat sought $10 billion in multiple claims, alleging sales of bonds by BofA employees helped trigger Parmalat’s implosion. Both sides said the settlement will pave the way for future business between the companies (Associated Press July 27) … * American International Group (AIG) sold its insurance financing unit to Winstone Financial Corp. for roughly $679.5 million. The unit, called a “premium finance business,” makes loans to wealthy life insurance buyers, analysts said. Lake Forest, Ill.-based Winstone may purchase additional assets for $61.2 million, AIG said in a statement Wednesday. CEO Edward Liddy is liquidating AIG after the insurer received a $182.5 million government bailout following losses connected to home loans, analysts said. AIG has made more than 20 deals for roughly $7.3 billion, including sales of an auto insurer, an equipment guarantor and a Japanese office tower (Bloomberg.com July 28) … * Wells Fargo, a diversified financial services company, is partnering with money transfer company Western Union to make available Wells Fargo’s same-day online bill-payment feature to consumers nationwide. Currently, the feature only is available to a select group who pay a fee for the service. Other payees can be added anytime. Wells Fargo’s bill-pay service presents bills online for nearly 460 merchants, lenders and other billers. The bank sends customers online and mobile alerts that notify them when a bill arrives, if it doesn’t arrive or when a bill is due or a payment sent (thepayers.com July 29) …

Market News (07/29/2009)

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MADISON, Wis. (7/30/09)
* New durable goods orders at U.S. factories dropped sharply in June, as demand for motor vehicles and commercial aircraft nosedived from a month earlier, the Commerce Department reported Wednesday. The 2.5% decline in manufacturers’ orders was the biggest drop in the past five months. However, the overall scenario is better than it appears, economists said. Excluding unstable orders for transportation equipment, manufacturers’ orders rose 1.1% in June--more than forecasters had anticipated. June’s figures indicate more stability in the manufacturing arena after months of downturns spawned by factory closings or cuts in production and inventories, as manufacturers dealt with the worst economy since the 1930s, economists said. Manufacturing now seems to be stabilizing, they added (The New York Times July 29) … * Mortgage applications decreased 6.3% during the week ending July 24. The Market Composite Index--a measure of mortgage loan application volume--was 495.4, a decrease of 6.3% on a seasonally adjusted basis from 528.9 one week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). The index decreased 6% on an unadjusted basis compared with the previous week, and increased 16.1% compared with the same week a year ago. The Refinance Index dropped 10.9% to 1862.1 from 2089.7 the previous week. The seasonally adjusted Purchase Index remained unchanged from one week earlier at 262.0. Refinances accounted for 52.6% of applications … * Small-business owners experienced rising confidence in the economy in July--for the second consecutive month, according to the most recent Discover Small Business Watch by Discover Financial Services. The index rose to 82.1 from 80.9 in June. However, small-business owners’ concerns about their ability to pay bills spiked significantly in July. Also, cash-flow concerns in July reached the highest level in the Watch’s three-year existence. More than half--53%--of small-business owners said they have encountered temporary cash-flow issues in the past 90 days that have caused them to delay paying some bills. That number is up from 42% in June. “Although they seem to have a gradual sense that things are improving in the economy, small business owners are still hurting for profits,” said Ryan Scully, director of Discover's business credit card. “They continue to take home less, more of them are borrowing and the majority have not increased prices in the past six months to reflect higher costs of doing business. We still don’t have a definitive sense whether small-business owners will be the ones leading us out of this recession or riding the tailwinds” …

News of the Competition (07/28/2009)

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MADISON, Wis. (7/29/09)
* Citigroup Inc. finished its $58 billion stock offering, in which the company said nearly all public holders of its preferred and trust-preferred securities agreed to swap their shares for roughly 5.83 billion shares of common stock. The move bolsters the troubled bank’s balance sheet and paves the way for the government to take a 34% ownership stake in the company, analysts said. “The successful completion of the exchange offers marks a significant milestone for Citi,” said Vikram Pandit, Citgroup CEO, in a statement Sunday. “Citi will have approximately $100 billion of Tangible Common Equity and a Tier 1 Common ratio of approximately 9% based on our June 30 results. That unquestioned financial strength, combined with our strategy to return Citi to its core franchise of institutional and consumer businesses spanning an unmatched global footprint, are driving Citi’s return to sustained profitability and growth” (BusinessWeek July 27) … * Chrysler Group LLC said its “cash for clunkers” program--a government trade-in plan for less fuel-efficient cars--provided the automaker the “vehicle” to attract the most potential buyers it has had in two years. Roughly 70% of customers who visited dealerships said they were enticed by the program’s federal credit of up to $4,500 to trade in older vehicles to be scrapped. The program could propel July U.S. auto sales to an annual pace of more than 10 million for the first time this year, analysts said. The federal government published rules for the program on July 24. About a third of customers who came to its dealerships had vehicles that qualified for the program, Chrysler said (Bloomberg.com July 28) … * The Federal Reserve Bank of New York appointed Kathryn Wylde to its board of directors Tuesday. Wylde, 63, takes the Class C seat vacated by Stephen Friedman, chairman of Stone Point Capital. Wylde’s term expires Dec. 31, 2010. The post she is assuming is one of three seats chosen by the Fed’s board of governors in Washington, D.C., to represent the public. The New York Fed is one of 12 regional Fed banks which--together with the board of governors--constitutes the Federal Reserve System (The New York Times July 27) …

Market News (07/28/2009)

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MADISON, Wis. (7/29/09)
* Adding to concerns that rising unemployment will hurt households, U.S. consumer confidence eroded more than forecasted in July. The Conference Board’s confidence index fell to 46.6--a second consecutive decline--after attaining a reading of 49.3 in June, indicated the board’s Tuesday report. The index hit a record low of 25.3 in February. With a projected 10% unemployment rate by early 2010, consumer buying power could be further diminished, inducing Americans to save more, analysts said. Because consumer spending constitutes 70% of the economy and is predicted to be slow in rebounding, it will act as a drag on any recovery from the worst recession in five decades, analysts said (Bloomberg.com July 28) … * U.S. home prices in May experienced their first monthly gain in nearly three years, according to a measure of values in 20 major U.S. cities. The S&P/Case-Shiller home-price index rose 0.5% from April--the first monthly gain since July 2006 and biggest since May of that year. The increase was down 17.1% from May 2008--which is less than the 17.9% economists predicted and the smallest year-over year decline in nine months. Prices could keep moderating due to steadying demand and distressed properties accounting for a smaller piece of the overall transaction pie, analysts said. However, a rebound may take more time because of rising unemployment, tepid confidence and wealth loss due partly to a decline in property values, they added (Bloomberg.com July 28) … * Bank of America Corp. (BofA) intends to reduce its 6,100-branch network by 10%, CEO Kenneth Lewis told investors last week. The move would signal the end of two decades of expansion that saw BofA grow its presence from coast to coast. BofA’s reduction plan would involve closing many of the lender’s biggest branches, people familiar with the situation said. The impetus behind the closings is customer preferences, Liam McGee, president of BofA’s consumer and small-business bank, reportedly said, as the growth of mobile and online banking has reduced transactions at traditional branches (The Wall Street Journal July 28) …

News of the Competition (07/27/2009)

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MADISON, Wis. (7/28/09)
* Behemoth money manager BlackRock is creating an investment fund that will give average Americans the opportunity to make money off the financial bailouts they are paying for with their tax dollars, the company said. On Friday, BlackRock filed plans to raise money for the venture. However, potential risks for investors are substantial, analysts said. The closed-end fund aims to purchase distressed mortgage securities from financial companies. These types of securities are what have damaged many banks, analysts said. The fund would be the first product narrowly geared to Main Street that is connected to the governments now-depleted Public Private Investment Program--which is designed to help institutions rid themselves of troubled investments, analysts said (The New York Times July 27) … * Starting in August, the Federal Reserve will cut the amount of money it will loan to banks though each of its two Term Auction Facility offerings to $100 billion from $125 billion. This is seen as a signal that the Fed thinks credit markets are on the mend, analysts said. The move is the second time in the past two months that the Fed has reduced it offerings through the facility--which hit a high-water mark of $150 billion per auction last fall, analysts said. “This reduction is consistent with the expectation … that [Term Auction Facility] amounts would be reduced gradually further in coming months if market conditions continue to improve,” the Fed said Friday (The Wall Street Journal July 25) … * The homeowner vacancy rate--the percentage of U.S. homes empty and for sale--dropped to 2.5% last quarter from 2.7% in the first quarter--the lowest since the third quarter 2006, according to U.S. Census figures. However, the homeownership rate also dropped to 67.3% in the second quarter--down from 67.4% in the previous quarter and the lowest level since 2000. The number of vacant homes for sale dropped to 1.9 million in the second quarter, compared with a normal level of 1.5 million vacant homes, according to Barclay’s Capital estimates. That number suggests the amount of vacant homes has tightened to about 400,000 from a high of 750,000 at the end of 2008, analysts said (Bloomberg.com and The Wall Street Journal July 27) … * Freddie Mac announced an agreement in a statement Friday with Home Retention Services Inc., a subsidiary for Stewart Lending Services Inc.--to assist several regional servicers process thousands of additional applications for Home Affordable Modifications. The move is meant to support President Barack Obama’s Making Home Affordable program, Freddie said. Home Retention Services will assess the eligibility of delinquent borrowers with Freddie Mac-owned mortgages for Home Affordable Modifications or other possible workouts and then process borrower financial information for the servicers’ review and approval …

Market News (07/27/2009)

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MADISON, Wis. (7/28/09)
* Providing evidence that the deepest housing downturn since the great depression could be stabilizing, U.S. new-home sales increased 11% in June, the biggest jump in eight years. The increase in sales rose to a 384,000 annual pace--exceeding the forecast of economists surveyed by Bloomberg News and the biggest gain since November, according to statistics released by the Commerce Department Monday. The number of houses on the market fell to the lowest level in more than a decade. Declining mortgage rates and drops in home prices have enticed buyers, even though the unemployment rate is going up, analysts said. With downturns in manufacturing and housing moderating, the worst U.S. recession in five decades could be ending, economists said (Bloomberg.com July 27) … * The global technology industry might be on the road to recovery as it has shown significant improvement in the past few weeks after experiencing an extremely deep downturn, said the Organization for Economic Cooperation and Development (OECD) in Paris. Production of computers, mobile phones, semiconductors and other electronic equipment is still significantly down from pre-crisis levels, but has bounced back strongly from the end of 2008 and early 2009, OECD said in a report to be released this week. After sustaining the steepest downturn, Asia recovered the most quickly, led by South Korea, the report indicated. U.S. production in June was down roughly 15% year-on-year, but stable from the previous month, the report added (The New York Times July 28) … * The consensus among federal regulators and banking executives is that unemployment will top off at just above 10%. However, there is a growing consensus among analysts and economists that the 10% projection may be may be too low. Consequently, more thought is being devoted to how growing unemployment could further weaken investment portfolios, how it would affect banks and if the government would need to re-examine standards for its stress tests, analysts said. A July survey of analysts by Friedman, Billings, Ramsey Group Inc. indicates more than half of the 191 respondents forecast a peak unemployment rate of 11%. Also, more economists are upping their predicted peak rate to 11%, analysts said (American Banker July 27) …

Market News (07/24/2009)

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MADISON, Wis. (7/27/09)
* With increasing unemployment and depressed wages impacting households, U.S. consumer confidence fell in July for the first time in five months, according to the University of Michigan consumer sentiment index. The index fell to 66 from 70.8 in June but was above the preliminary reading of 64.6. The July decline was led by a steep drop in expectations, although assessments of current conditions also declined. More Americans may feel their jobs are in jeopardy due to the largest unemployment slump of any recession in the past eight decades, analysts said. This uncertainty coupled with declining home values is causing households to curtail spending and save more--which means an economic recovery will need more time to gain momentum, analysts said. Also, short-term inflation expectations were down and remained unchanged longer term from June, the index indicated (Moody’s Economy.com and Bloomberg.com July 24) … * Aided by a $1 billion government program to get less-fuel efficient cars off the nation’s roads, U.S. sales of cars and light trucks could reach a 10 million annual pace in July for the first time this year, analysts said. Automakers’ “Cash-for-Clunkers” program “is being viewed as having the potential to drive a meaningful uptick in sales over the final week of the month,” wrote Rod Lache, a U.S.-based analyst with Deutsche Bank. In a report Thursday, he estimated a 10.2 million annual sales rate. At no time this year has the pace been any higher than 9.9 million, due to the recession constricting consumer credit and eroding consumer confidence, analysts said. J.D. Power & Associates, a research firm, and Edmunds.com, an auto-information provider, concur in their estimates that the July pace will exceed 10 million--a signal that auto sales are rising from their bottom, analysts said (Bloomberg.com July 24) … * The Economic Cycle Research Institute (ECRI) Weekly Lending Index (WLI) rose to 118.4 for the week ended July 17 from an unrevised 118.1 a week earlier. The smoothed annualized growth rate increased to 7.7% from an unrevised 7%. The growth rate has been heading steadily higher, which indicates a return to growth late this year, analysts said. The growth rate has turned positive for the first time in almost two years, which is promising, they added. The ECRI WLI may indicate that the economy will begin to level off by year-end, although it won’t return to its potential until the second half of 2010, analysts said (Moody’s Economy.com July 24) … * Unemployment checks for the nation’s jobless are being delayed due to increased activity with the ongoing recession and stress put on the nation’s unemployment system after years of neglect on state and federal levels, analysts said. More than a million applicants have seen the process delayed, and hundreds of thousands more have had to wait months to obtain their checks. Websites and call centers have been overpowered by increased demand for services. With unemployment funds exhausted, 16 states are paying benefits with borrowed money, and that number could double by the end of the year, analysts said. Still, the unemployment program pays more than 80% of initial payments within three weeks--only slightly below the standard set by federal law, analysts said. Since 2007, the number of unemployed Americans has doubled to 15 million, and the unemployment program is more than tripling in size. Those collecting unemployment benefits number about 9.5 million--up from 2.5 million two years ago. Also, spending on unemployment is expected to total nearly $100 billion this year--triple the amount of two years ago, analysts said (The New York Times July 24) …

News of the Competition (07/24/2009)

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MADISON, Wis. (7/27/09)
* American Express Co.’s second-quarter net income dropped 48% as consumers cut back on spending by 16%. The company reported quarterly income of $337 million, or nine cents per share--down from $653 million, or 56 cents per share in the same period a year earlier. The second-quarter per-share income figure factors in a reduction of 18 cents resulting from the company’s repayment of $3.4 billion in government bailout money. American Express reported increasing write-offs, although the rate of delinquencies slowed down. The company’s loss provisions decreased 13% to $1.6 billion from $1.8 billion a year earlier. Unlike other card companies, which either issue cards or process the transactions, American Express does both, which means a good portion of its revenue results from fees it charges banks and merchants to process card payments. However, as economic troubles grow, consumer spending slackens and cuts into the fees that American Express earns from transactions, analysts said (Dow Jones Newswires July 23) … * Capital One Financial Corp. said it posted a second-quarter loss due mostly to the impact of repaying Troubled Asset Relief Program (TARP) funds to the federal government. Capital One’s second quarter loss was $275.5 million, or 65 cents per share, compared with a net income of $452.9 million, or $1.21 per share a year earlier. The McLean, Va.-based company repaid $3.5 billion in TARP money in June, and also bought back preferred shares from the Treasury Department. The credit card company and bank saw its total revenue rise 11.2% from the previous quarter to $4.1 billion, largely due its acquisition of Chevy Chase Bank, analysts said. Gains in revenue margins and net interest also helped Capital One, they added (Atlanta Business Chronicle July 24) … * NCR Corp. said Thursday its second-quarter profits were nearly cut in half due to reductions in capital spending within the financial services, retail and hospitality industries. However, the Duluth, Ga.-based ATM and kiosk manufacturer’s results still exceeded Wall Street estimates. And the company backed its full-year outlook, which led to share prices rising more than 9% Thursday, analysts said. Second-quarter revenue of $1.12 billion was down 16% from $1.33 billion in the same period last year--and just below analysts’ expectations of $1.14 billion (Associated Press via Forbes.com July 23) … * CIT Group, one of the biggest U.S. lenders to small and midsize businesses, said Friday is has enhanced some terms of its buyback offer for $1 billion of debt. However, CIT reiterated that it may have to seek bankruptcy protection if sufficient noteholders do not agree to the buyback. If the offer is successful, the New York-based financial company will not file for bankruptcy and will pursue an unspecified company restructuring, CIT said in a regulatory filing. The company is struggling to locate new funding as it deals with maturing debt and liquidity pressures, analysts said. Last week, the federal government refused to intervene and save the company (The New York Times July 24) …

News of the Competition (07/23/2009)

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MADISON, Wis. (7/24/09)
* Several automakers were able to report good news this week. Ford Motor Company reported a second-quarter profit of $2.3 billion Thursday, which exceeded expectations mainly because of a $3.4 billion debt restructuring that led to one-time gains, analysts said. However, Ford--the only U.S. automaker not to go through bankruptcy protection--saw its automotive operations lose money. Ford said its quarterly profit equaled about 69 cents per share. Excluding the restructuring and other special items, Ford would have lost $638 million--or 21 cents per share--which is still a substantial upgrade from the $1.4 billion it lost on continuing operations a year ago and less than half the loss analysts said they had anticipated. Also, Hyundai reported a record quarterly profit Thursday with net income jumping 48% from a year earlier to 811.9 billion won, or $650 million. In other news, Volkswagen AG--the largest European car maker--said its supervisory board has agreed to merge with Porsche SE, which would end a battle for control of the two German automakers, analysts said (The New York Times July 24 and Bloomberg.com July 23) … * The federal government and Congress should consider fiscal measures to support the commercial real estate market due to risks for loans in this area, Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee Wednesday. Borrowers are facing difficulties refinancing the loans--through banks or the securitization market, he said. Among the potential actions would be government guarantees for commercial mortgages, he said. The Term Asset-Backed Securities Loan Facility (TALF) began accepting commercial mortgage-backed securities last month. TALF is a Fed emergency program that lends to investors so they can buy securities backed by consumer and business loans (Bloomberg.com July 22 and Dow Jones Newswires July 21) ... * About 95% of the roughly half-million people nationwide who are receiving their Social Security payments through a Social Security debit card are satisfied with the U.S. Direct Express program, said a new study by the U.S. Treasury Department. Although many seniors have payments directly deposited with their financial institution, the program--which began in September 2008--makes it easier for people without an account at a financial institution to receive Social Security payments. No permanent address is required to sign up for the card (Associated Press July 22) … * The Payment Card Industry Security Standards Council has published guidelines for applying its protocols to wireless technology. The council helps businesses understand methods and concepts for deploying secure wireless in payment card transaction environments. The Wireless Guidelines include nine requirements and provide guidance and installation suggestions for testing or deploying wireless local networks (Banking Business Review July 21 and CardLine July 23) …

Market News (07/23/2009)

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MADISON, Wis. (7/24/09)
* With home prices declining less steeply in June and inventory easing, existing U.S. home sales rose for the third consecutive month, according to the National Association of Realtors (NAR) Thursday. Sales of existing single-family homes, townhomes, condominums and co-ops increased 3.6% to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May. However, the June level is still 0.2% lower than the 4.90 million unit level in June 2008, NAR said. Lawrence Yun, NAR chief economist, expressed optimism about the gain. “The increase in existing home sales occurred in all major regions of the country,” he said. “We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions. Despite the rise in closed transactions, many realtors are reporting lost sales as a result of new appraisal standards that went into effect May 1 of this year” … * Initial jobless claims nationwide rose by 30,000 to 554,000 for the week ending July 18, according to the Employment Training Administration. Compared with trends so far this year, the week’s claims remain quite low. This was expected when factoring in the remaining seasonal adjustment issues related to auto-industry shutdowns the past several weeks, the agency said. The trend is not a signal of an improving labor market, the agency added. Also, continuing claims dropped 88,000 to 6.225 million in the week ending July 11--which is still high compared with a year ago, analysts said (Moody’s Economy.com July 23) … * Mass layoffs--the number of layoffs involving at least 50 workers from a single establishment--totaled 2,763 in June, compared with 2,933 in May, according to the Bureau of Labor Statistics. The layoffs involved 279,231 workers, compared with 312,880 in May’s record levels, the bureau said. All figures are seasonally adjusted. Since the recession began in December 2007, the U.S. economy has lost 6.5 million jobs--4.7% of total employment. Since that time, the unemployment rate has gone up five percentage points, while the economy has contracted by about 2.5% (Moody’s Economy.com and The Wall Street Journal July 23) … * U.S. mortgage rates rose for the first time in four weeks--a signal that the federal government’s attempts to lower borrowing costs are losing steam, analysts said. The average 30-year fixed-rate mortgage rose to 5.2% from 5.14%, Freddie Mac said in a statement Thursday. The 15-year fixed-rate was 4.68%. Last week, mortgage rates had dropped to their lowest level since May, spurred by the Federal Reserve’s $1.25 trillion plan for buying mortgage-backed securities, analysts said. Declining rates helped spark refinancing and purchase applications for home loans, they added (Bloomberg.com July 23) ...

Market News (07/22/2009)

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MADISON, Wis. (7/23/09)
* In a sign that the worst of the three-year housing slump--the centerpiece of the worldwide recession--could be over, U.S. home prices had the smallest annual decline in 10 months, according to the Federal Housing Finance Agency (FHFA). Prices dropped 5.6% in May from a year earlier and rose 0.9% from April, FHFA said. Five U.S. regions experienced price increases in May from April, the agency said. Record foreclosures spurred by job losses dissuaded home buyers and resulted in U.S. home prices dropping 33% since a July 2006 peak, according to the S&P/Case-Shiller index. Government efforts to revitalize real estate demand were impeded by the largest foreclosure rate on record and the highest level of unemployment since 1983, analysts said (Bloomberg.com and Moody’s Economy.com July 22) … * U.S. mortgage applications increased for the week ending July 17, according to the latest Mortgage Bankers Association’s weekly survey issued Wednesday (mbaa.com July 22). The Market Composite Index--a measure of mortgage loan application volume--saw an increase of 2.8% on a seasonally adjusted basis to 528.9 from 514.4 one week earlier. On an unadjusted basis, the index rose 2.9% compared with the previous week and increased 6.6% compared with the same week a year earlier. The refinance index went up 4% to 2089.7 from 2009.4 the previous week. The seasonally adjusted Purchase Index increased 1.3% to 262.1 from 259.8 one week earlier … * General Motors Co. (GM) saw its second-quarter sales fall 15% worldwide from the same period a year earlier. However, GM said its second-quarter sales rose from the previous quarter on the strength of demand in Asia. Robust sales in the Asia-Pacific region helped the automaker sell 1.94 million vehicles in the second quarter---up 20% from the first quarter, GM said Wednesday. Asia Pacific sales increased 17% from year ago, which now pushes GM’s international sales to 72% of the company’s total sales. North American sales dropped 32% in the quarter (The Wall Street Journal July 22) … * The Federal Reserve will need to keep interest rates close to zero at least until unemployment begins to abate, Fed Chairman Ben S. Bernanke told Congress Tuesday. The reason is that--even though the economy is showing signs of improvement--there are challenges ahead, Bernanke said. His testimony addressed rising concerns on Wall Street and in Congress that a jump in inflation could be an unavoidable result of the Fed’s decision to contain interest rates indefinitely, while simultaneously injecting hundreds of billions of dollars into the economy to save banks and shore up the credit system (The New York Times July 22) …

News of the Competition (07/22/2009)

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MADISON, Wis. (7/23/09)
* Even though the biggest U.S. banks are intensifying their underwriting standards for a second consecutive year, credit risks continue to rise across all loan products, according to a survey by the Office of the Comptroller of the Currency (OCC) released Tuesday. In its survey of the 59 largest U.S. banks, OCC found that 86% reported tightening underwriting standards--the second consecutive year of such actions after four years of easing standards from 2004 to 2007. The survey, which covers the 12-month period ended in March, indicated commercial construction, home equity and residential lending experienced the most tightening (Dow Jones Newswires July 21) … * Three large U.S. banks saw their earnings decline in the second quarter. Wells Fargo & Co., Morgan Stanley and Bank of New York Mellon experienced earnings downturns. Because the recession made it more difficult for borrowers to keep up with payments, Wells Fargo said it experienced an uptick in bad loans in the second quarter. Assets no longer collecting interest rose 45% to $18.3 billion as of June 30, the bank said in a statement Wednesday. Morgan Stanley said its repayment of government bailout funds and other accounting charges surpassed its revenue in the second quarter. Morgan Stanley also reported weaknesses in its institutional-securities and wealth-management businesses. Bank of New York Mellon--the largest custody bank in the world--said its investment losses increased 68% in the second quarter due to declining real estate values. Write-downs rose to $256 million from $152 million a year earlier, the New York bank said Wednesday (Bloomberg.com and The Wall Street Journal July 22) …

News of the Competition (07/21/2009)

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MADISON, Wis. (7/22/09)
* Among the youngest U.S. adults, mobile banking adoption tripled in the past year to 21% of consumers, according to a survey that was to be released Tuesday by Mercatus LLC. Soon, financial institutions will not just be testing mobile banking, but offering it to consumers who expect the services, said Robert B. Hedges Jr., managing partner of the Boston-based consulting firm. The change in expectations will occur in the next 12 to 18 months when consumers will make their decisions on where to bank, based on the availability of mobile services, he predicted. However, the adoption will be strongest with younger consumers. Those over the age of 50 have shown less interest in mobile banking than those who are younger, he said (American Banker July 21) ... * New York Attorney General Andrew Cuomo’s efforts to obtain a settlement over a Charles Schwab Corp. unit’s marketing and sales of auction-rate securities has led to Schwab fighting back. On Monday, Cuomo made public a July 17 letter to the online brokerage that said New York would sue unless Schwab provided investors with “the liquidity they were promised” when they purchased the securities. Cuomo’s letter added that the brokerage “stonewalled its customers.” Schwab--the biggest independent U.S. brokerage by client assets--said it would defend itself against Cuomo’s allegations and it is confident it will win (Bloomberg.com July 21) … * Lehman Brothers Holdings Inc. is seeking bankruptcy court approval to inject $950 million into its troubled Delaware banking subsidiary so it can pay off more than $500 million worth of brokered certificates of deposit that are due in August. Without the cash injections, the unit could be seized by federal regulators, Lehman said. Lehman intends to provide Aurora Bank FSB--formerly Lehman Brothers Bank FSB--with $450 million to help the bank’s liquidity. Lehman also intends to provide Aurora with another $500 million in short-term financing to help the bank’s servicing unit (The Wall Street Journal July 20) … * Swiss bank UBS AG’s well-publicized argument with the U.S. Internal Revenue Service (IRS) has spurred some Swiss banks to curb business or cut it off altogether with American clients to avoid crossing U.S. authorities, analysts said. Some banks are no longer accepting deposits from U.S. customers or allowing them to open accounts. The cause of the growing stalemate is that the IRS is seeking access to 52,000 UBS client accounts in attempts to discover possible tax fraud. Granting access would potentially breach Swiss bank-secrecy laws. UBS is expected to pay a substantial settlement to resolve the situation before it goes to court, some analysts said. The move would not only end the case but also protect UBS clients’ identities, they added (The Wall Street Journal July 21) ...

Market News (07/21/2009)

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MADISON, Wis. (7/22/09)
* Although the economy is showing “tentative signs of stabilization,” the Federal Reserve Bank plans to maintain a “highly accommodative” monetary police for “an extended period,” said Fed Chairman Ben S. Bernanke Tuesday in testimony before the House Financial Services Committee. Although the pace of decline seems to have substantially slowed, monetary policy will continue to focus on economic recovery because of slack in the economy and subdued inflationary pressures, Bernanke added. In a report submitted as part of Bernanke’s testimony, Fed officials said monetary policy will be “tightened” when there is improvement in the labor market, the economy starts to recover and the forces keeping inflation in check lessen. He also urged lawmakers to make plans to halt the deficit, warned Congress not to interfere with the Fed’s independent nature, and defended the Fed’s steps taken to restore financial stability (Bloomberg.com July 21) … * There is risk the U.S. economy could experience a “double-dip” contraction, as the recession may not be coming to an end, said Martin Feldstein, economics professor at a Harvard University. Although the economy in the third quarter could “flatten out” or “even be positive,” it will then likely contract again in the fourth quarter because positive effects from the federal stimulus program are fading, and companies are finalizing the restocking of their inventories, Feldstein added. Even though recent data has provided positive news on the economy, there won’t be enough to sustain a consistent recovery, he said. Also, Moody’s Economy.com reported that the chance the U.S. will be in recession in six months was relatively unchanged at 37% in June, compared with 38% in May. Feldstein will be one of the featured speakers at Southwest Corporate FCU’s 32nd annual Economic Forum Oct. 27-28 in Dallas (Bloomberg.com and Moody’s Economy.com July 21) … * The pay of top U.S. wage earners is eroding the Social Security fund, which is expected to be completely depleted by 2037, according to a Wall Street Journal analysis of Social Security Administration data. Pay of employees who receive more than the Social Security wage base--currently $106,800--increased by 78%, or nearly $1 trillion, during the past decade. This growing percentage of pay that exceeds the maximum amount subject to payroll taxes is accelerating the weakening of the Social Security trust fund, analysts said. In May, the government said the fund could be exhausted in 2037--four years earlier than predicted in 2008 (The Wall Street Journal July 21) … * The Federal Reserve Bank of Chicago’s national activity index increased to -1.8 in June from an unrevised -2.3 in May. The three-month average rose to -2.12 from an upwardly revised -3.65 in May. Although the index has indicated substantial improvement, it is still consistent with a deep recession, analysts said. The index measures four broad categories, including: production and income, employment, consumption and housing, and manufacturing. Regarding manufacturing, President Barack Obama has declared, “The fight for American manufacturing is the fight for America’s future.” However, the U.S. ranks behind every industrial nation except France in the percentage of overall economic activity devoted to manufacturing--13.9%--down four percentage points in a decade, according to the World Bank. Analysts said the 19-month-old recession has exacerbated the decline significantly and industrial production has dropped 17.3%--the steepest decline during a recession since the 1930s (Moody’s Economy.com and The New York Times July 21) …

WSJ article features CUNA on small biz loans

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NEW YORK (7/22/09)--Credit unions are a good source for small-business loans, Bill Hampel, chief economist for the Credit Union National Association, told The Wall Street Journal Tuesday. Hampel commented in an article about how troubles at CIT Group--a high-profile small-business lender--accentuate the importance of small businesses having back-up plans for borrowing. “Going to a credit union can improve the chances of success,” the article said. “Most credit unions didn't get embroiled in the subprime debacle and have cash on hand to lend." Although a 1998 law limits the amount of business loans a credit union can issue to 12.25% of assets, “many still haven't reached the limit,” Hampel told the Journal. Business loans are offered by one in four U.S. credit unions, and the average size of a loan last year was $200,000, he added.

Market News (07/20/2009)

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MADISON, Wis. (7/21/09)
* In a sign the economy could be coming out of the worst recession in five decades, the index of U.S. leading economic indicators went up for the third consecutive month in June. The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.7%, which is more than forecast, after a revised 1.3% gain in May. This marks the first time the index has risen for three straight months since 2004, analysts said. Stabilization in manufacturing and homebuilding, rising stock prices, and smaller job losses are providing evidence that government efforts to halt the financial crisis and lower the cost of borrowing might prove successful, analysts added. However, a jobless rate predicted to reach 10% and declining home prices will keep any economic expansion subdued as consumers continue to grow their savings and reduce spending, analysts said (Bloomberg.com July 20) ... * The Federal Reserve’s emergency short-term lending programs are experiencing less demand for their services--a signal that credit markets are healing, analysts said. A program the Fed launched to support the market for commercial paper--short-term corporate IOUs--has seen borrowing fall to less than one-third its peak level. Also, overseas central banks’ borrowing from the Fed is less than a fifth of its $583 million peak, analysts added. In related signs of improvement: the program through which the Fed auctions to banks has declined nearly 45% since March. And a Fed facility that allows securities firms to trade hard-to-sell collateral for Treasury debt recently had $4 billion in volume, down from more than $235 billion in October (The Wall Street Journal July 20) … * New York Attorney General Andrew Cuomo sent an official notice Friday to Charles Schwab & Co. warning that his office intends to sue the largest U.S. online brokerage firm for civil fraud in connection with its marketing and sales of auction-rate securities to clients. Auction-rate securities are short-term debt instruments whose prices reset in periodic auctions. The securities caused billions in losses for investors after the $330 billion market imploded in early 2008, analysts said. Schwab’s brokers didn’t really know what they were selling and failed to tell clients the market was collapsing, according to e-mails and testimony cited in the letter (The Wall Street Journal July 20) … * CIT Group Inc. appears to have reached a deal to keep the beleaguered lender out of bankruptcy court, said people familiar with the matter. The deal reached Sunday secures $3 billion in last-minute rescue financing from CIT’s bondholders. Details of the arrangement were expected to be released soon this week. The deal charges CIT high interest rates and doesn’t permanently fix the company’s long-term financing needs, said people involved in the transaction (The Wall Street Journal July 20) …

News of the Competition (07/20/2009)

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MADISON, Wis. (7/21/09)
* Moody’s Investors Service Inc. downgraded $980.1 million of Bear Stearns Cos.’ residential mortgage-backed securities that were made up of adjustable-rate alternative-A mortgages, and were issued in 2005. The downgrade was made due to higher-than- expected delinquencies, Moody’s said. The alt-A mortgages generally were given to prime-rated borrowers who did not document their assets and/or income. These types of loans--originated from 2005 to 2007--have delinquencies that exceeded 25% for each year, Standard & Poors said (Dow Jones Newswires July 20) … * JPMorgan Chase has agreed to forgive debts of 13,000 cardholders who it said were defrauded by several Florida debt-settlement companies. The companies promised cardholders that their credit card debts would be forgiven. Chase Bank USA, which is JPMorgan Chase’s Wilmington, Del., subsidiary, agreed to the forgiveness under a settlement finalized Monday with a receiver appointed to run Hess Kennedy Chartered LLC and affiliated companies. The receiver was appointed in July 2008 after a separate lawsuit was filed by Florida’s attorney general, who said the companies were “scam artists who prey on the vulnerable” (Philadelphia Business Today July 16) … * The Brazilian Justice Ministry’s antitrust unit began a probe on credit card operator Redecard, which has an exclusive contract with MasterCard. The probe claims Redecard impeded access to Web-based competitors, said daily newspaper Valor Economico Friday. Redecard allegedly changed rules on the use of the Master Card brand by Internet-based companies such as PayPal and Mercado Libre in Brazil, according to an official at the ministry--a move that could prevent consumer fees from dropping, the newspaper said. RedeCard acts as a clearinghouse and authorizes merchants, issuers and transactions. Brazil is working to strengthen competition in its $190 billion credit card industry--in which merchants and customers have complained about high costs and a lack of options (Reuters July 17) ...

Hampel to WSJ CUs largely hamstrung by MBL limits

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WASHINGTON (7/21/09)--Credit unions are one of four options mentioned for small-business loans in a story posted on The Wall Street Journal Online Monday. The section is based on the reporter's interview with Credit Union National Association Chief Economist Bill Hampel. The article was prompted by the problems of CIT Group--a large lender to small business that is negotiating a $3 billion emergency loan from its bondholders to stay in business. Other lenders to small businesses have discontinued lending to small businesses, the article says. Hampel notes that credit unions are still in the game and are lending. However, they could do even more to meet small business needs if they were not limited by the statutory 12.25% lending cap. Credit unions have the capacity to make more loans, but they're largely hamstrung by a 1998 federal law that caps the amount of assets credit unions can loan to businesses, Hampel said. As big banks falter, demand for business loans at credit unions is rising and outpacing the cap at some credit unions, he said. A bill to raise the cap to 20% was introduced last year in Congress but failed to get enough votes. Hampel expects credit unions to boost lending by at least 10% by year's end. "Loans are available. Small businesses with good credit need to start looking around," he said. For the full article, use the link.

Market News (07/17/2009)

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MADISON, Wis. (7/20/09)
* New home construction in the U.S. rose 3.6% in June to a seven-month high, said the Commerce Department in a report released Friday. The increase was stronger than the 530,000 forecast by economists (Bloomberg.com July 17). Housing starts rose to 582,000 annualized units from May's upwardly revised (by 6%) starts of 562,000. The figure brings a 10% annualized increase for housing starts for the second quarter. It is the first quarter-over-quarter gain since mid-2005 (Moody's Economy.com and The New York Times July 17). Leading the gain was single-family starts, with a 14.4% month-to-month increase in June to 470,000 units, annualized. That is still 28% below the year-ago starts, but slightly higher than in November. June building permits--which indicate future construction-- increased by 8.7% to 563,000 units over May, the highest level of the year but down 52% from one year ago. The report signals an early stage of the recovery and is another sign that the housing slump may be nearing the bottom, analysts said … * Foreclosures were filed in one of every 84 American homes during the first half of the year, totaling 1.9 million--a 15% increase from the same period a year earlier, according to RealtyTrac, an online marketplace for foreclosure properties. June was the fourth consecutive month that foreclosures were more than 300.000. The number of filings in the second quarter totaled 889,829, up 11% from first quarter and 20% more than one ago. That figure is the highest since 2005, when the Irvine, Calif.-based RealtyTrac began its reports. The 1.9 million filings include default notices, auction sale notices and repossessions by banks. California led the nation in foreclosures filed--391,611 during the first six months of 2009. The highest foreclosure rate was in Clark County, Nev., where Las Vegas is located. One out of every 16 Nevadan housing units saw at least one foreclosure filing. Arizona and Florida had the second and third highest foreclosure rates, respectively. (USA TODAY and The New York Times July 16) … * Lending through the Federal Reserve Board's discount window totaled $113.3 billion Wednesday, less than 1% more than the week before. Commercial banks' traditional borrowing rose 0.6% to $34.7 billion, with no loans made to weak institutions (American Banker July 17). Borrowing against commercial paper held by money market mutual funds and backed by assets plunged 42.8%, to $5.5 billion. Investment banks continued to avoid using the discount window. Meanwhile, the Fed's balance sheet grew 4% to $2.04 trillion as reserves held by financial institutions at the Fed grew nearly 8% to $808.8 billion. The Fed acquired $111.1 billion in commercial paper in the week that ended Wednesday. The amount is $1.6% less than the previous week …

News of the Competition (07/17/2009)

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MADISON, Wis. (7/20/09)
* Two of the nation's largest banks--Bank of America and Citigroup--are reporting solid profits for the second quarter. Bank of America said its profits totaled $3.2 billion--a 5.5% decline from a year earlier (The New York Times and Bloomberg.com July 17). Citigroup indicated profits totaling $4.3 billion, which came as a surprise to Wall Street. Analysts had predicted a loss (CNNMoney.com July 17). Still, the earnings of both banks were down from a year ago, and the profits stemmed largely from one-time gains through sales. Bank of America sold a stake in a Chinese bank, and Citigroup's earnings were boosted by a $6.7 billion after-tax gain after it sold most of its wealth management division, Smith Barney, to Morgan Stanley. Earlier last week, Goldman Sachs and JPMorgan Chase reported robust earnings, which stunned analysts, said various news reports. BofA and Citigroup also took advantage of their trading operations to generate earnings. Both banks have set aside billions of dollars to cover potential losses on consumer loans stemming from the economy, a signal that although they are profitable, tough times aren't over yet … * Private National Mortgage Acceptance Co. (Penny Mac) has agreed to purchase about $170 million in notes tied to American International Group Inc. (AIG)-originated mortgages (Bloomberg.com July 16). The deal is expected to be completed by the end of the month, according to a filing by PennyMac Mortgage Investment Trust, a new real estate investment trust division at PennyMac. Penny Mac, based in Calabasas, Calif., is operated by former Countrywide Financial Corp. President Stanford Kurland. AIG, based in New York, plans to sell about $1.6 billion in notes through Credit Suisse Group AG. PennyMac was hired to service roughly $2 billion in loans from a pool related to an AIG/Credit Suisse deal. AIG's subprime unit, American General Finance Corp., expects to receive $925 million-$975 million in the sale. AIG would retain subordinated interest in the loan pool and would take first losses. PennyMac plans to raise funds in an initial public offering for the new investment trust. The company's two other funds have secured $584 million in capital commitments, including those connected with the pending sale. It has reviewed 60 portfolios worth more than $100 billion and bought four--including home loans with $558 million of balances from the failed First Nevada Bank of Nevada. PennyMac bought those from the Federal Deposit Insurance Corp., said the filing …

Schenk tells iMarketWatchi CITs struggles may tighten credit

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SAN FRANCISCO (7/20/09)--It might be more difficult for CIT Group Inc. customers to access credit lines in the future, according to a Credit Union National Association (CUNA) economist. CIT Group Inc. shares dropped more than 70% Thursday after the government said it would not bail out the lender for a second time. CIT has already received one government bailout and is preparing for a possible bankruptcy (MarketWatch July 16). Mike Schenk, CUNA senior economist, told MarketWatch that current CIT customers with closed-end loans may not feel much of an effect from the company’s financial troubles. “But if they have lines of credit or open-end arrangements, of course it’s going to be much more difficult for them to access those lines in the future,” he said. Schenk also noted that credit unions are increasing their loans to small businesses. CIT is a major small business lender.

Economy still fragile Hampel tells IWash. PostI

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WASHINGTON (7/16/09)--The economy is fragile, and any economic recovery will take time, Bill Hampel, chief economist at the Credit Union National Association (CUNA), told the Washington Post Thursday. "The bottom line is that the economy is still very weak and very fragile," Hampel said. "We're talking about a recovery beginning in the third or fourth quarter, but that's just barely a recovery." He made the comments after the Federal Reserve projected that the unemployment rate will pass 10% by year's end and that the economy may grow but not fully recover for at least five years. The Fed is expecting a potential "jobless recovery," where the economy begins growing again but U.S. workers still experience tough times. The relationship between economic growth and job creations had broken down in the past two recessions, said The Post. Economists aren't sure of the reason, although some believe this reflects companies' efforts to downsize and emerge from difficult times more efficiently. Hard on the heels of Wednesday's report from the Fed was Thursday's jobless claims report for the week ending July 11 from the Labor Department. For the second consecutive week, initial jobless claims fell sharply--by 47,000--to 522,000 from a revised downward 569,000 claims the week before. However, Moody's Economy.com (July 16) said this is "overstating the health of the labor market." The latest numbers are depressed by shifts in the timing of the shutdown of various auto manufacturing plants. Continuing claims also dropped by 642,000 to 6.27 million in the week ending July 4, said Bloomberg.com (July 16).

News of the Competition (07/16/2009)

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MADISON, Wis. (7/17/09)
* American Express Co. said its write-offs on credit cards for the second half of 2009 could be better than previously forecast. In June, costs tied to uncollectible debt dropped to 9.9% of managed U.S. card loans from 10% in May, according to an American Express federal filing. “Assuming delinquency and bankruptcy trends continue to be below previously expected levels, the company believes that it is highly likely” that write-offs for the third and fourth quarters on U.S. cards “will be better than previously forecast,” the filing said (Bloomberg.com July 15) … * A federal judge rejected Citigroup Inc.’s claim that Wachovia Corp. did not have the right to accept a takeover by Wells Fargo & Co.--which obstructed Citi’s acquisition bid. Judge Shira Scheindlin ruled Monday that Citigroup lost its exclusive right to deal with Wachovia after the federal Emergency Stabilization Act became law Oct. 3--the same day Wells Fargo made public its takeover of Wachovia. The act authorized the Troubled Asset Relief Program, the federal government’s $700 billion bank bailout (Reuters July 15) ... * Bank of America Corp. (BofA) is attempting to rehire several of the more than three dozen senior Merrill Lynch & Co. investment bankers who quit their jobs after the two firms merged, said people familiar with the situation. Brian Moynihan, 49, who heads up the combined firms’ investment bank and retail brokerage, is quarterbacking the effort while also promoting Merrill Lynch veterans still at the firm. Samuel Chapin, 52, a Merrill vice chairman who departed in April, is among those approached in recent weeks to be rehired. BofA, the biggest U.S. bank by assets, is striving to retain investment bankers while also dealing with government pressure to limit compensation after it accepted a $45 billion U.S. bailout, analysts said (Bloomberg.com July 15) … * Former Treasury Secretary Henry Paulson testified Thursday before the House Oversight and Government Reform panel that he exerted pressure last year on Bank of America Corp. (BofA) to follow through on his plans to buy Merrill Lynch. However, Paulson testified he did not tell BofA CEO Kenneth Lewis to hide potential losses from shareholders. Paulson said he warned Lewis that Lewis could lose his job if he did not go through with the purchase of Merrill. Negotiations were kept secret to protect investors, Paulson told the panel. “We didn’t want to overly scare people and make it worse,” he explained (Associated Press July 16) … * Shares of CIT Group--one of the largest U.S. commercial lenders--nose-dived Thursday when the company’s survival was put in doubt after federal officials rejected pleas to rescue it for a second time. Unless a buyer comes forward for CIT--an unlikely prospect according to analysts--the company could collapse. CIT received a $2.33 billion taxpayer-financed bailout in December. The fate of CIT--which provides loans to roughly a million small and midsize businesses, especially in the sluggish retail sector--constitutes a key test of the Obama administration’s efforts to bring order to the U.S. financial industry, analysts said (The New York Times July 16) ...

Market News (07/16/2009)

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MADISON, Wis. (7/17/09)
* Financial markets are sending “important signs of recovery,” Treasury Secretary Timothy Geithner said Thursday. He was attempting to allay fears about a new and excessive round of bonuses on Wall Street, analysts said. Geithner’s comments were to some extent a reaction to a quick uptick in earnings this week at two of the largest U.S. investment banks--JPMorgan Chase and Goldman Sachs, the analysts added. Chase announced Thursday a $2.7 billion second-quarter profit, while Goldman Sachs announced a $3.4 billion quarterly profit Monday. “We are seeing some very important signs of recovery and repair in U.S. markets, which [are] essential for recovery,” Geithner told an online forum. “The best signs of this are in the amount of new capital that has come into the U.S. financial system, the improvement in risk premia and credit spreads, and the beginnings of improvement in consumer and business confidence” (The New York Times July 16) … * With home-loan financings surging due to lower borrowing costs, U.S. mortgage rates dropped to their lowest level since May. The average 30-year rate fell to 5.14% from 5.20%, said mortgage buyer Freddie Mac Thursday. The 15-year rate was 4.63%. The Mortgage Bankers Association’s index of home loan applications increased 4.3% to 514.4 for the week ended July 10. While purchase applications declined 9.4%, requests to refinance rose 18%. That indicates prospective buyers are still afraid of falling home prices, but property owners are capitalizing on low rates to reduce their monthly payments, analysts said. Federal Reserve Chairman Ben Bernanke is attempting to lower borrowing costs through a $1.25 trillion program to repurchase securities that are backed by home loans, analysts added (Bloomberg.com July 16) … * To reduce the size of homeowners’ debts below the value of their properties, mortgage-bond investors want more homeowners to be given aid, an executive at Fortress Investment Group told Congress Thursday. However, banks that control loan-modification decisions as servicers have obstructed such relief because other types of changes to mortgage terms don’t require banks to sustain losses on their holdings of home-equity loans, Curtis Glovier, a Fortress managing director, told the Senate Banking Committee Thursday in prepared testimony. “Investors are willing to do our part by making a significant sacrifice in reducing mortgage principal,” he said. Glovier was speaking on behalf of a group formed in April--Mortgage Investors Coalition--which represents 11 companies with $200 billion of assets under management (Bloomberg.com July 16) …

Market News (07/15/2009)

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MADISON, Wis. (7/16/09)
* Mortgage applications for the week ending July 10 increased 4.3% on a seasonally adjusted basis to 514.4, from 493.1 one week earlier, according to the Market Composite Index in the Mortgage Bankers Association (MBA) weekly mortgage applications survey. Unadjusted, the index increased 15.3% over the previous week and decreased 2.7% over the same week a year ago. Refinancings rose 17.7% to 2009.4 from the previous week's 1707.7, and purchases were down 9.4%--to 258.8 from 285.6 a week earlier. The four-week moving average for the market index was unchanged, was down 0.2% for the purchase index and up 0.2% for refinancings. The average contract interest rates for 30-year, fixed-rate mortgages dropped to 5.05% from 5.34%. For 15-year, fixed-rate mortgages, the rate decreased to 4.59% from 4.83%. The average contract interest rate for one-year adjustable-rate mortgages dropped to 6.47% from 6.58%, said MBA (mbaa.org July 15) … * The Federal Reserve saw the economy as vulnerable to further shocks last month, says the Federal Open Market Committee (FOMC) minutes of its June 23-24 meeting (Bloomberg.com July 15). Most officials rejected an expansion in asset purchases. They expressed concern that a decline in consumer spending would resume after the short-lived effect of the government's stimulus package benefits wears off, and that the housing market would decline while mortgage rates rose. FOMC concluded it should not change its programs for purchasing Treasuries and mortgage debt. Fed officials also were split over the outlook for inflation, with some concerned that the rate could rise temporarily above levels consistent with its mandate. They also upped their forecasts for unemployment and gross domestic product in 2009 and 2010. The minutes were released Wednesday … * Consumer prices climbed 0.7% in June--their fastest growth since last summer and more than the 0.6% predicted by economists (The New York Times and Moody's Economy.com July 15). The Labor Department reported Wednesday that the Consumer Price Index's (CPI) core rate, which doesn't include food prices or energy, also grew faster than anticipated, to 0.2% from May. The increases were attributed to a 17.3% jump in gasoline prices hitting budgets of families whose real income was less. Wages in the U.S. fell by 1.2% in June, as unemployment soared to 9.5%. That figure is adjusted for inflation, said the Labor Department in a separate report. Analysts said the CPI figures are not alarming and that fears of a broader inflation likely won't materialize. The CPI has fallen 1.4% since one year ago--the steepest decline since 1950 … * Industrial production at factories, mines and utilities for June fell 0.4%--less than expected and the smallest decline in eight months, reported the Federal Reserve Wednesday. Manufacturing production dropped 0.6% after its 1.1% decrease in May. The manufacturing statistics bolster projections that the current recession will halt during the second part of the year, said Bloomberg.com July 15). Still some analysts expect a limited recovery with little inflation as the share of American factory capacity in use dropped to a record low … * The Federal Reserve may begin to inch up its target interest rate from the current near zero level in the first half of 2010, says a Princeton University economist, Alan Blinder, a former Fed vice chairman. The Fed lowered the rate to almost zero in December, and switched to asset purchases and credit programs as its main policy tools. Some have warned that leaving the rates that low for too long could spark inflationary pressures. Blinder said that forecasting Fed funds rate to remain near zero for years would be a "very dire" outlook. The median forecast by economists indicates the Fed will raise rates beginning in the third quarter of 2010 (Bloomberg.com July 15) …

News of the Competition (07/15/2009)

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MADISON, Wis. (7/16/09)
* Goldman Sachs said Tuesday it earned $3.44 billion in the second quarter--the largest quarterly profit in its history as a public company. Goldman’s earnings were $4.93 per share--up from $4.58 during the same period last year. Goldman is only a few months past a federal rescue package that included emergency approval to become a bank holding company, direct federal aid of $10 billion, and government help to borrow additional billions of dollars to finance its operations. In Goldman’s announcement, it stressed the company has emerged in better financial shape than other survivors, which means it can pursue other opportunities in the wake of the financial crisis (The Washington Post July 15) … * Moody’s Investors Service downgraded its bank financial-strength ratings on Royal Bank of Scotland’s U.S banking operations--Citizens Financial Group Inc.--because of the section’s drop in profitability. Citizens had its financial-strength rating lowered one level to B and its long-term deposit ratings cut to A1--four steps from Aaa. Citizens ratings outlook was changed in December to negative--and that view was changed again to watch for a further downgrade, analysts said. Moody’s said the unit has been hurt by its “reduced capacity to absorb losses” and also lower interest rates and higher non-interest costs (Dow Jones Newswires July 15) ... * Consumers are charting a different course in how they use card rewards programs, moving toward necessities--such as discounts on mortgage and student loan payments--and away from luxuries, industry executives said. The trend goes back to the third quarter of 2008, when the economy began to decline, said bankers from several major issuers. A key segment of growth has been in cash and gift-card redemptions, said Diane Don, spokeswoman for Capital One Financial Corp. However, travel is still a driving force in the rewards program, according to some issuers, who are continuing to develop travel programs--even though consumers are not using the rewards programs as much as they did in the past (American Banker July 15) …

News of the Competition (07/14/2009)

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MADISON, Wis. (7/15/09)
* New York-based $75 billion asset CIT Group--the nation's 25th largest bank holding company and one of the largest lenders to small businesses--has sparked a "too big to fail" debate. CIT Group has been unsuccessful in persuading the federal government to back its debt sales. The company already received a $2.33 billion taxpayer bailout. But analysts see the company as a litmus test for where the Obama administration might draw a line on bailouts. Treasury Secretary Timothy Geithner said the government has the authority and ability to address the CIT Group crisis and a significant interest in trying to make sure the financial system gets through the crisis. However, he declined to comment on what measures the government would take with CIT Group. The government could provide a debt backstop or additional capital from the Troubled Asset Relief Program. If the government lets the company fail, it would be the largest failure since last September when Lehman Brothers and Washington Mutual collapsed (The New York Times and American Banker July 14) … * Citigroup Inc. CEO Vikram Pandit's plans for the bank to expand in foreign markets may be at odds with regulators' emphasis on reducing risks, according to Bloomberg via LiveMint.com July 13). Pandit said in a Detroit speech June 15 that Citigroup is looking to harness globalization for gains away from credit creation and the U.S. consumer. The view isn't shared by Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair, who says the bank should reduce risk by selling off businesses, including some overseas, said unnamed sources familiar with the situation. The bank should target global units that might get good prices without becoming big cash producers. Citigroup relies on FDIC to support more than $60 billion of its debt. Alan Villalon, senior research analyst with FAF Advisors Inc., noted that the U.S. will be the main governing body of what will happen to the bank … * The Obama administration has signaled it is considering another effort to help small businesses with bailout funds. However, it is worried about a repeat of an earlier attempt in March where lenders failed to take up the offer. In mid-March, the administration unveiled a $15 billion program to direct some of the $700 billion available through the Troubled Asset Relief Program (TARP) toward small business. In that situation, broker-dealers holding the securities balked because of fears they would be subject to strict conditions on the TARP program (American Banker July 14). Small Business Administration (SBA) lenders may have a similar reaction on the latest go-round, said Christopher Crawford, president/CEO of the National Association of Development Companies … * A U.S. District Court Judge in Miami granted a joint request Monday by the U.S. and Swiss governments and UBS AG to delay a key court hearing so they would have more time to reach a possible settlement in a tax dispute. Proceedings were originally scheduled for Monday, but Judge Alan Gold delayed the hearing until Aug. 3, on condition the parties confer with him by telephone by July 29. The federal government is seeking the identities of 52,000 American UBS clients, who may be evading taxes by using secret Swiss bank accounts (American Banker July 14) …

Market News (07/14/2009)

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MADISON, Wis. (7/15/09)
* Chargeoff rates have hit a record 10% on credit cards issued by U.S. banks in May, according to Standard & Poor's U.S. Credit Card Quality Index. The delinquency rate fell to 5.7% in May from 6.1% in April. Private labels saw their May delinquency rate decline to 6.9% from 7.1% a month earlier. S&P's attributed the chargeoffs to the nation's highest unemployment levels in 26 years and the delinquencies decline to the season--consumers used tax refunds to pay back debts (CardLine July 14) … * Energy prices led to a 1.8% increase in producer prices for finished goods during June, reported the Labor Department's Producer Price Index, which measures prices retailers pay to factories and farmers. The increase, which was across the board, was more than double economists' forecasts, said The New York Times (July 14). In May, the index rose 0.2%. Prices for finished goods, energy and core goods all grew at their fastest rate since the recession began, said Moody's Economy.com (July 14) … * The U.S. Department of Justice is investigating credit derivatives, said Markit Group Ltd., a London-based data provider in which Wall Street's largest banks have a majority ownership. The $592 trillion over-the-counter credit-default swaps market played a key role in the credit crisis that led to the recession. The department's antitrust division requested information about the price transparency in the markets, said a source familiar with the probe (The Wall Street Journal and Bloomberg.com July 14). Credit derivatives work much like insurance contracts, paying off for the buyer if the underlying debt defaults … * Total business inventories declined 1% during May for the ninth consecutive month. Inventories at manufacturers fell 0.6%, and wholesalers' inventories dropped 0.8%. The ratio of inventory to sales dropped to 1.42--high but lower than the 1.46 at the beginning of the year, according to the Census Bureau. Retail inventories fell 1.6%--which is a decline of more than 10% from a year earlier. Retail inventories excluding retail auto inventories, fell at 0.6%. All major categories except food and beverage experienced declines for the period. The largest decline for non-auto retail inventory was for building materials dealers (Moody's Economy.com July 14) ...

News of the Competition (07/13/2009)

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MADISON, Wis. (7/14/09)
* The Bank of Wyoming was shut down by the Federal Deposit Insurance Corp. (FDIC) late Friday--boosting the total number of failed banks and savings and loan associations shut down this year to 53. The FDIC, which was named receiver, sold all of the failed bank’s retail deposits to Lander, Wyo.-based Central Bank & Trust. Bank of Wyoming’s capital was eroded by chargeoffs on commercial and industrial loans, construction loans, and commercial real estate loans. The failure is expected to cost the FDIC’s bank insurance fund $27 million (TheStreet.com and American Banker July 13) … * A federal judge in Florida is considering a postponement of hearings in a case against Zurich-based UBS AG to allow more time for settlement negotiations. The Internal Revenue Service filed a lawsuit against the Swiss bank in an effort to get the company to identify thousands of Americans suspected to being tax evaders. A court filing said a delay would “allow the two governments to continue their discussions seeking a resolution of this matter” (Associated Press via Yahoo! News July 13) … * Bank of America is attempting to avoid paying billions of dollars in fees to the government for guarantees against losses at Merrill Lynch. Regulators say the bank owes at least part of the $4 billion fee it agreed to pay in January because the firm benefited from an implied backing by the federal government on $118 billion worth of Merrill Lynch assets, say people familiar with the matter. BofA contends it owes the Treasury Department nothing because the rescue agreement wasn’t signed and the funding wasn’t used (Bloomberg.com July 13) …

Market News (07/13/2009)

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MADISON, Wis. (7/14/09)
* A bankruptcy judge has approved a plan to allow General Motors to partner with a private-equity firm to acquire Delphi Corp., and take the firm’s former auto-parts unit out of bankruptcy. The deal also will ensure GM has a steady supply of parts. All of the assets and costs related to the deal will transfer to the new GM, the firm’s attorney, Robert Lemons, told the court. Delphi has been under bankruptcy protection since October 2005. The firm was GM’s parts unit before it was spun off in 1999 (Associated Press via Yahoo! News July 13) … * Construction spending on offices, retail centers and hotels will tumble 16% this year and 12% in 2010, according to the latest forecast by the American Institute of Architects. Rising unemployment and cuts in business spending prompted the group to change its forecast from January, when it predicted that non-residential construction would decline 11% this year and 5% next year. “People are seeing a real tough environment out there and not a lot of incentive to invest in projects,” noted Kermit Baker, chief economist at the Washington-based institute. He said the situation won’t improve until the employment situation picks up and consumer spending rebounds (Bloomberg.com July 13) … * The number of homeless families in suburban and rural areas of the nation surged by 56% last year, according to a report by the Department of Housing and Urban Development (HUD). The number of homeless individuals in such areas jumped by almost 34%. Suburban and rural areas have been hit especially hard by the housing downturn. HUD said it will try to follow homelessness more closely as soaring unemployment and foreclosures push more people onto the streets (CNNMoney.com July 13) …

News of the Competition (07/10/2009)

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MADISON, Wis. (7/13/09)
* The Treasury Department may be undervaluing billions of dollars of stock warrants it received from banks that obtained loans through the bailout program, according to findings of a Congressional oversight panel. That undervaluation could cost taxpayers as much as $2.1 billion. The banks have a “right of first refusal” to purchase back the warrants at “fair market value.” But that value wasn’t defined in the loan agreements. “In general, Treasury has been selling its warrants back to banks at below market value,” concluded the panel. It recommended that the government hold a public auction for the warrants. An auction would make it easier to ascertain a market price (The New York Times July 10) … * The percentage of new mortgage applications for government-insured products was 35.9% in June--the highest level since November 1990, the Mortgage Bankers Association (MBA) reported Thursday (mbaa.org July 9). The government-insured share was up from 25.7% in May and 27% in June last year. The lowest level was 5.8% hit in August 2005. The government-insured share of purchase applications was 38.6% in June, up from 27.8% a year earlier. “A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” noted Orawin Velz, associate vice president of economic forecasting at the trade association. He also said lender standards usually are tighter for conventional loans. The MBA reported that the government-insured share of refinance applications rose to 33.6% in June … * Ameriprise Financial Services on Friday agreed to pay $17.3 million to settle regulators’ charges that it failed to disclose $31 million it received from selling certain investments to its brokerage customers. According to the Securities and Exchange Commission (SEC), the company failed to disclose compensation it received from selling certain real estate investment trusts to customers between 2000 and May 2004. “Few things are more important to investors than getting unbiased advice from their financial advisers,” said Robert Khuzami, enforcement director for the SEC. “Ameriprise customers were not informed about the incentives its brokers had to sell these investments,” added Khuzami (Associated Press via The New York Times July 10) ... * Claims from victims of Bernard Madoff’s massive Ponzi scheme total more than 15,400--much higher than the original tally of 8,800. A report filed in bankruptcy court last week identifies more than 60 “potential corporate assets and interests.” The investigation found cases in which funds flowed from Madoff accounts into companies in which neither he nor his firm had any apparent ownership interest. “It is the trustee’s intention to recover any improperly transferred corporate assets from family members,” and from other third parties, said the report (The New York Times July 10) …

Market News (07/10/2009)

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MADISON, Wis. (7/13/09)
* Mortgage rates declined last week amid concerns about the weak job market, Freddie Mac reported Thursday. The average 30-year, fixed-rate mortgage (FRM) fell 12 basis points to 5.20%, while the 15-year FRM dropped 8 basis points to 4.69%, and the one-year, adjustable-rate mortgage declined 12 basis points to 4.82%. “Interest rates for 30-year FRMs fell for the second week in a row to the lowest level in six weeks amid market concerns over a weakening labor market,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. He noted that another 467,000 people lost their jobs in June, and the nation’s unemployment rate rose to a 26-year high of 9.5%. “Moreover, hourly employee wages increased at an annual rate of 0.7% on average in the second quarter of 2009, the smallest gain since records began in 1964” … * Unemployment worries are causing many consumers to postpone home purchases despite declining mortgage rates and bargain prices. In a survey by Realtor.com, 53% of respondents who said they were planning to buy a home also said they’re not yet ready to take the step. Fear of layoffs was the most- cited reason to postpone a purchase. Almost one in every three respondents said that concern was the main reason to keep out of the housing market. About 16% cited worries about selling their own home, and 8% said they’re worried home prices will continue to decline. More than 15% said they don’t expect prices to decline further. However, they’re taking their time to find the right home because it’s a buyers’ market (Associated Press via Yahoo! News July 9) … * Consumers are staying away from the shopping mall as they fret about the prospect of losing their job. Retail sales tumbled 6.7% in June--in sharp contrast to a 3.9% gain a year earlier, according to the Goldman Sachs Retail Composite Index. Wal-Mat, which has benefited from its discount wares in the recession, is no longer reporting monthly sales data. Year-over-year comparisons also suffered because consumers had no tax rebates to buoy spending this year (The New York Times July 9) … * Consumers became more pessimistic in early July amid persistent concern about jobs. The Reuters/University of Michigan Surveys of Consumers’ preliminary index of confidence for July declined to 64.6, from 70.8 in June. “Consumers reported a larger negative shift in their longer term outlook for the economy,” said the survey. “The majority of consumers thought that widespread unemployment would persist over the next five years.” The poll’s measure of current conditions fell to 70.4 from 73.2. The index of expectations for six months from now tumbled to 60.9--from 69.2 and the largest decline since October (Reuters and Bloomberg.com July 10) … * The Securities and Exchange Commission (SEC) last week published a set of proposed regulations that would increase the safety of money-market funds. The new rules would make funds safer by requiring companies to keep a percentage of their portfolios in vehicles that easily could be converted into cash. The weighted average maturities of portfolios also would be reduced. And funds that “break the buck” would be allowed to suspend redemptions so that assets could be liquidated in an orderly fashion. Among numerous other rules, funds would be restricted from investing in second-tier securities, and they would have to conduct periodic stress tests. Public comments on the proposed rules must be submitted by Sept. 8. “The health of money market funds is important not only to their investors, but also to a large number of businesses and state and local governments that finance current operations through the issuance of short-term debt,” said the SEC (American Banker July 9) … * The nation’s trade deficit narrowed by 9.8% to $26 billion in May, the smallest gap since November 1999, the Commerce Department reported Friday. So far this year, the deficit is running at an annual rate of $350 billion, only about half the $696.9 billion deficit for all of 2008. Analysts expect the deficit to continue declining as the weak economy and fear of job losses depress demand for imported goods. U.S. exports also are down this year, but not as much as imports (Bloomberg.com and Associated Press July 10) …

News of the Competition (07/09/2009)

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MADISON, Wis. (7/10/09)
* Dallas-based 7-Eleven is using its 6,300 stores nationwide to send a message about interchange fees to the credit card industry and legislators. The firm launched a campaign this week to collect 1 million signatures from consumers petitioning Congress to change what the retailer says are unfair and excessive credit card transaction fees. Convenience stores paid $8.4 billion in such fees last year--up 10.5% from 2007 and more than the $5.2 billion the industry made in profit, according to the National Association of Convenience Stores. The trade association is leading the campaign along with 7-Eleven. The National Retail Federation estimates that consumers spend $2 out of every $100 on transaction fees, at an estimated cost of $400 a year for the average household. 7-Eleven’s petition drive will continue through Aug. 10 (Dallas Morning News via Yahoo! News July 8) … * MasterCard plans to pay early, at a discount, the remainder of the funds it owes several retailers under a 2003 antitrust lawsuit. According to a Securities and Exchange Commission filing, MasterCard will make a final $335 million payment on Sept. 30, in lieu of the total $400 million in annual payments over the next four years. The agreement lets the firm “put the remaining piece of this legacy litigation behind us,” said a company representative. MasterCard in 2003 agreed to pay $1.025 billion to settle its share of a class-action suit brought against it and Visa Inc. by retailers. The suit alleged that it was unfair to make retailers accept debit cards if they accept credit and charge cards. In the original settlement, MasterCard agreed to pay $125 million in 2003 and $100 million each year from 2004 through 2012. The firm also agreed to set debit-interchange rates that were at least one-third below the previous rates (CardLine via American Banker July 7) … * Manhattan District Attorney Robert M. Morgenthau announced Wednesday that 13 people, including three executives of mortgage broker AFG Financial Group, have been indicted in an alleged $100 million mortgage fraud. AFG President Aaron Hand, principals Eugene Culbreath and Eric Shields, and 10 other people have been charged with enterprise corruption, grand larceny, scheme to defraud and conspiracy. AFG itself has also been indicted. Twelve other people have pleaded guilty in the case. Morgenthau said AFG was operated as a fraudulent enterprise. He said the defendants found distressed properties in New York City and then defrauded banks by arranging fake property sales, often by getting straw buyers to take out mortgages on the properties (Dow Jones Newswires July 8) … * American International Group (AIG) has resumed negotiations to sell its American Life Insurance unit to MetLife in an effort to help the firm raise more than $15 billion, according to The Financial Times (Reuters via Yahoo! News July 9). AIG is struggling to sell assets so it can repay $83 billion in loans from the federal government. The company filed a lawsuit against its former chief executive, Maurice Greenberg, saying he improperly took $4.3 billion in company stock. However, a jury rejected the company’s argument this week …

Market News (07/09/2009)

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MADISON, Wis. (7/10/09)
* Pope Benedict XVI on Tuesday proposed a new global financial order, one that would be guided by ethics, dignity and the search for the common good for all people. He denounced the current “profit-at-all-cost” mentality that he said has plunged the global economy into the worst economic downturn since the Great Depression. “Profit is useful if it serves as a means toward an end,” said the German-born Benedict. “Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.” His statement was released a day before a meeting of the leaders of the Group of Eight industrial nations. Those leaders of wealthy nations are discussing ways to cope with the global crisis. Benedict decried the move to outsource work to the cheapest labor, saying it has “endangered” workers’ rights. He called for a new global order that would value ethics and social responsibility over dividend returns (Associated Press via The New York Times July 7) … * The economies of industrialized nations still face significant downside risks, leaders from the Group of Eight nations said Thursday. “While there are signs of stabilization, including a recovery of stock markets, a decline in interest rate spread, and improved business and consumer confidence, the situation remains uncertain and significant risks remain to economic and financial stability,” the group said in a statement at the conclusion of the first day of their meeting. The leaders pledged to coordinate a repair of the global financial system. And they expressed concern about volatile oil prices. “It is in the interest of both producers and consumers to enhance transparency and to strengthen their dialogue towards reducing excessive volatility in the market,” the group said (The Wall Street Journal Online July 8) … * Continuing claims surged to a new record high, the Labor Department reported Thursday. The number of people still on jobless-benefit rolls after an initial week of aid jumped by 159,000 during the week ending June 27 to 6.883 million--the highest on records dating back to 1967. Although the pace of layoffs is slowing, people are having a tough time finding new jobs after they’ve been laid off. The government reported that first-time claims for unemployment insurance fell by 52,000 during the week ended July 4 to 565,000. However, the decline largely reflected seasonal distortions related to auto-industry shutdowns. Layoffs in that sector typically occur in early July, as plants retool for new models. However, plant shutdowns instead took place in the spring this year as General Motors and Chrysler Corp. moved forward with restructuring (Associated Press and Moody’s Economy.com July 9) … * Job openings were scarce in May--making it hard for the unemployed to find new work. There were 5.7 unemployed workers for each job opening, up from 5.5 in April, according to the Labor Department. There were 2.6 million job openings at the end of May, about the same as in April, but down sharply from 4 million openings in May 2008. There was little evidence that employers will begin hiring soon. The hires rate was 3% in May, about the same level as it has been since February, and still the lowest level since the government began tracking the statistics in December 2000. “There are huge lines in front of the door of every job opening,” noted Heidi Shierholz, an economist with the Economic Policy Institute (The Wall Street Journal Online July 8) … * The nation’s office-vacancy rate soared to a four-year high during the second quarter amid rising unemployment and sagging retail sales. The average weighted office-vacancy rate jumped to 15.9%--from 15.2% in the first quarter and 13.2% a year earlier, reports Reis Inc., a New York-based research company. In comparison, the rate hit 16% in the first quarter of 2005. “Office properties are still facing extreme pressure in a troubled leasing environment,” said Victor Calanog, Reis’ director of research. Asking rent during the first quarter dropped 1.4% to $28.43 per square feet. Over the past year, rent plunged 6.7%--the largest quarterly decline since the first quarter of 2002. Reis predicts that the office-vacancy rate will top out at 18.2% in 2010. Rent is expected to continue declining through 2011 amid an anemic economic recovery (Reuters and Bloomberg.com July 8) … * Fitch Ratings has cut California’s general-obligation debt to BBB, only two notches above speculative grade. The ratings agency cited the state’s budget and revenue crisis in making the change. Tom Dresslar, a spokesman for State Treasurer Bill Lockyer, said Standard & Poor’s and Moody’s Investors Service may soon follow suit. Last week, California began issuing “IOU” promissory notes for some obligations to conserve cash. Lower credit ratings will boost the state’s borrowing costs (Reuters July 8) …

Market News (07/08/2009)

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MADISON, Wis. (7/9/09)
* The global economic recovery next year will be stronger than previously forecast in April, the International Monetary Fund (IMF) said Wednesday in a revised forecast. The more robust recovery is due to the financial system stabilizing and the pace of contraction around the world, the IMF said. The global economy will grow 2.5% in 2010, compared with its April projection of 1.9% growth. Contraction this year will be 1.4%--worse than IMF’s April forecast of a 1.3% drop. The forecasts indicate differing stages of recovery worldwide, with emerging economies--such as China--helping pull the world out of the worst recession in 60 years, while Europe lags behind the U.S. and Japan, analysts said. The improvement in the economy is expected to be “sluggish,” and repairing the international banking system is a priority, the IMF added (Bloomberg.com July 8) … * Mortgage applications increased 10.9% during the weekend ending July 3, said the Mortgage Bankers Association (MBA) in its Weekly Mortgage Applications Survey released Wednesday. The week ending July 3 was a shortened week due to the Independence Day holiday. This week’s results include an adjustment to account for the holiday. The Market Composite Index, a measure of mortgage loan application volume, was 493.1, an increase of 10.9% on a seasonally adjusted basis from 444.8 one week earlier. On an unadjusted basis, the index decreased 0.5% compared with the previous week and increased 7.2% compared with the same week one year earlier. The Refinance Index increased 15.2% to 1707.7 from 1482.2 the previous week and the seasonally adjusted Purchase Index increased 6.7% to 285.6 from 267.7 a week earlier. The four- week moving average for the seasonally adjusted Market Index is down 5.6%. For MBA Weekly Mortgage Applications Survey, use the link … * The New York Stock Exchange and various government agency websites were victims of cyber-attacks launched by what is believed to be North Korea. A hostile group or government appear to have launched cyber-attacks that stymied the websites of several American and South Korean government agencies since the July 4th holiday, the main South Korean government spy agency said Wednesday. South Korea’s National Intelligence Service didn’t identify the party they believed is responsible for the attacks, but Yonhap--the South Korean news agency--said the spy agency implicated North Korea or pro-North Korea groups. A widespread, sophisticated and especially resilient computer attack that began on July 4 stifled websites of several U.S. government agencies, including some responsible for deterring cybercrime, reported the Associated Press. Agencies whose websites all were down at various times during the holiday weekend and into this week include: the Federal Trade Commission, Secret Service, Transportation Department and Treasury Department. At least 11 major South Korean websites either crashed or were slowed to a crawl since Tuesday evening (The New York Times July 9) … * Crude oil inventories declined by 2.9 million barrels during the week ending July 3--below expectations of a 2.8 million barrel buildup, according to the Energy Information Administration. Gasoline inventories grew by 1.9 million barrels, exceeding expectations of a 900,000-barrel buildup. Distillate inventories increased by 3.7 million barrels--well beyond expectations of a 1.8 million-barrel increase. Refinery operating capacity dropped slightly to 86.8% from 87%. Total U.S. petroleum demand rose. This week’s report should give oil prices much-needed support, analysts said (Moody’s Economy.com July 8) ... * Consumer credit decreased at an annual rate of 1.50% in May 2009, compared with a decrease of 7.8% in April. In May, revolving credit decreased at an annual rate of 3.75%, and non-revolving credit decreased at an annual rate of 0.25%, compared with April decreases of 11.1% and 5.9% respectively. For G.19 Consumer Credit Federal Reserve Statistical Release, use the link …

News of the Competition (07/08/2009)

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MADISON, Wis. (7/9/09)
* Investor requests through the Term Asset-Backed Securities Loan Facility (TALF) for loans to purchase asset-backed securities dropped to $5.4 billion in July, according to the New York Federal Reserve Bank. Investors sought TALF funds to buy bonds backed by auto, credit card, small-business and educations loans and servicing advances, said the New York Fed. Roughly $12 billion of securities were available in the fifth monthly round compared with about $15 billion in June. The Fed is counting on the program to reduce borrowing costs and open up credit to consumers, small businesses and commercial real estate borrowers. Although no bonds were sold, TALF was opened up to newly issued commercial mortgage-backed debt in June (Bloomberg.com July 7) … * In efforts to cover rising credit losses and regulators’ future capital requirements, U.S. banks may have to raise as much as $300 billion, according to Deutsche Bank analyst Matt O’Connor. A minimum of $100 billion might be needed to rebuild Tier 1 common equity--a metric that regulators employ to measure a bank’s ability to withstand losses, O’Connor wrote in a report. With credit pressures continuing, bank results in the second quarter are expected to continue to be weak, O’Connor said. Since the beginning of the U.S. fiscal crisis in 2007, banks already have raised roughly $507.1 billion, according to data compiled by Bloomberg. After conducting stress tests on the largest U.S. lenders earlier this year, the Federal Reserve made 10 of them raise $75 billion as a hedge against a deepening recession, analysts said (Bloomberg.com July 7) … * Alleging that a “phony Rapid Debt Reduction” program charged participants up to $899 but did not reduce the consumers’ debts, the Federal Trade Commission (FTC) has sued Mutual Consolidated Savings--also known as United Savings Center Inc.--and it principals, the FTC said Wednesday. The Tacoma, Wash.-based company misrepresented its ability to reduce consumers’ credit card interest rates, save them up to thousands of dollars and help them pay off their debt up to five times faster, the agency said. Also the company did not honor its promise to refund customers’ money if their interest rates were not lowered. In U.S. District Court in Tacoma, the FTC obtained a temporary restraining order, froze the company’s assets and appointed a temporary receiver at the company (Puget Sound Business Journal July 1) … * Delinquency rates on bank-issued credit cards and home equity loans have been pushed to near- or over-record levels due to rising unemployment in the U.S, said a Standard & Poor’s (S&P) economist. Historically, high delinquency rates are tied to high jobless rates, the economist, David Wyss, said. With the unemployment rate at a 26-year high of 9.5%, delinquency rates on bank-issued credit cards rose to 4.75% in the first quarter--up from 4.52% in the fourth quarter 2008, the American Bankers Association reported. Home equity loans with more than 30 days without a payment increased to 3.52% in the first quarter, while delinquency rates on lines of credit increased to 1.89%--both records, analysts said (UPI July 7) …

News of the Competition (07/07/2009)

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MADISON, Wis. (7/8/09)
* More than $12 billion of consumer loan-backed deals are coming into the market ahead of the Federal Reserve’s loan-application deadline for investors to receive cheap funding under the Term Asset-Backed Securities Loan Facility (TALF). Bank of America Auto Trust was expanded to $3.939 billion, from $2.523 billion, according to Dan Nigro of New York-based Dynamic Credit Partners. Other issuers include Honda Motor, Harley-Davidson, Discover Financial Services, Ford Motor, Chrysler Auto and Sallie Mae. The issuance stream “continues to show that the program is a success,” noted Nigro. The Fed expanded the program to new commercial mortgage-backed securities (MBS). It probably will include existing commercial MBS this month (Dow Jones Newswires July 7) … * Three large banks in California have begun accepting customers’ state IOUs as lawmakers battle the budget. JPMorgan Chase, Wells Fargo and Bank of America said they will accept IOUs given to businesses and individuals owed money by the state. They will accept them until July 10. California expects to issue about $3.4 billion worth of the IOUs by the end of this month. The state has said it plans to repay banks for the IOUs by October, said Bank of America spokeswoman Colleen Haggerty (American Banker July 6) … * Bank of America’s board has authorized about $713 million in dividend payments to the federal government under the Troubled Asset Relief Program (TARP). BofA paid $402 million worth of dividends in February and another $713 million in May. It may take another two or three years to repay all TARP money, said BofA CEO Ken Lewis in March. Other banks have exited the program because of rules imposed on recipients (Dow Jones Newswires July 5) … * Bank of America is facing a 10% surge in uncollectible loans--to $7.6 billion--when it reports earnings for the second quarter, according to a report by Credit Suisse analyst Moshe Orenbuch. About $1.9 billion linked to home equity is part of the bad debt. And 10.4% of credit card loans will be written off. Orenbuch noted that BofA wrote off $6.9 billion in bad debt for the first quarter. According to stress tests conducted by the federal government in May, the company may see $136 billion in loan losses through 2010 during a prolonged recession (Bloomberg News via American Banker July 7) … * London’s Financial Services Authority (FSA) plans to triple some of the fines it imposes on transgressors in the financial sector to deter companies and individuals from breaking market rules. “By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules,” said Margaret Cole, director of enforcement at the FSA. “These proposals are an important step in pushing forward our ethos of credible deterrence,” added Cole. Under the new proposals, fines will be more closely tied to income and set to achieve “the appropriate deterrent effect,” said the agency. Companies breaking rules would be fined as much as 20% of the earnings they make from any relevant product or activity (Reuters via The New York Times July 6) …

Market News (07/07/2009)

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MADISON, Wis. (7/8/09)
* Consumer loan delinquencies rose to another record-high in the first quarter as unemployment continued to increase, the American Bankers Association (ABA) reported Tuesday. The composite delinquency rate among eight types of closed-end installment loans edged up to 3.23%--topping the previous record of 3.22% set in the fourth quarter and the highest on records going back to the mid-1970s. “The No. 1 driver of delinquencies is job loss,” said ABA Chief Economist James Chessen. “When people lose their jobs, they can’t pay their bills,” added Chessen. The trade association also reported that the credit-card delinquency rate--based on the number of delinquent loans--rose to 4.75% in the first quarter, from 4.52% in the fourth quarter and close to the record high of 4.81% set in the second quarter of 2005. The delinquency rate, based on outstanding credit-card debt, did hit a record high in the first quarter, at 6.60% (Associated Press via Yahoo! News July 7) … * Workers’ wages have stagnated as employers cut back shifts and imposed furloughs, a trend that threatens to make any recovery during the second half of this year weak. Average hourly earnings rose only three cents between April and June, to $18.53--the smallest quarterly gain in records going back to 1964, according to the Labor Department. The average workweek declined to 33 hours in June, from 33.6 hours a year earlier and the lowest on record. The unemployment rate rose only 0.1 percentage point to 9.5% in June. However, the gain was softened by 358,000 workers who stopped seeking employment and therefore weren't counted in the labor force. The federal government’s stimulus spending isn’t expected to be much of a growth engine during the second half of the year because some of the funds are only filling gaps in state funding as local tax revenue has plunged (The Wall Street Journal Online July 6) … * Auto-supplier Lear Corp. filed for bankruptcy protection on Tuesday. The firm made the move after receiving support from its lenders and bondholders. In the bankruptcy filing, Lear listed $1.27 billion in assets and $4.54 billion in liabilities. The company said its subsidiaries outside the U.S. and Canada aren’t part of the filing. “We are conducting business as usual and are very pleased to have received strong support from our lender and bondholder groups for our debt restructuring plan,” said CEO Bob Rossiter. The bankruptcy filings by General Motors and Chrysler Group have idled many factories, in turn slashing business at auto suppliers. Lear asked the bankruptcy court to let it continue providing compensation to its workers and payments and for its pensions in the U.S. and Canada while it works its way through bankruptcy (Associated Press via Yahoo! News July 7) … * Oil prices have become extremely volatile over the past 18 months, making forecasts difficult and threatening the global recovery. Prices have more than doubled since the beginning of the year despite the recession. The rising prices have prompted deep losses at airlines and automakers. Airlines are expected to post $9 billion in losses this year, following $10.4 billion in losses in 2008, according to the International Air Transport Association. Domestic automakers have been forced into bankruptcy as buyers shunned gas guzzlers. And discretionary consumer and business spending has been hobbled as prices rise. “Crude oil prices appear to have been divorced from the underlying fundamentals of weak demand, ample supply and high inventories,” noted Deutsche Bank analysts in a recent report (The New York Times July 6) … * Federal regulators are considering whether to impose new curbs on the number of futures contracts in oil and other energy commodities held by speculative traders, Gary Gensler, head of the Commodity Futures Trading Commission, announced Tuesday. The agency will consider opinions on the proposal from consumers, businesses and market participants in a hearing to be held later this month. Oil traders and brokers say exchange-traded funds have poured billions of dollars into energy commodities, artificially boosting energy prices. The agency already limits futures contracts in some agricultural products to curb manipulation. But the futures exchanges themselves decide whether or not to place any limits on energy commodities. “This different regulatory approach to position limits for agriculture and other physically delivered commodities deserves thoughtful review,” said Gensler (The New York Times July 7) …

News of the Competition (07/06/2009)

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MADISON, Wis. (7/7/09)
* Another seven banks were shut down by regulators on Thursday--pushing total failures for this year to 52. Last year, 25 banks failed nationwide. Six regional banks in Illinois and one in Texas were shut down, according to the Federal Deposit Insurance Corp. (FDIC), costing the insurance fund an estimated $314.3 million in total. The six banks in Illinois were all controlled by one family. The failures stemmed from investments in collateralized debt obligations and other loan losses. In Illinois, 12 banks have failed this year. Thursday’s bank failure in Texas, that of the Millennium State Bank, was the first for that state this year. The total cost to the FDIC of bank failures this year is $12.3 billion, compared with $17.6 billion for all of 2008 (CNNMoney.com July 3) … * Banks boosted home-equity loans last year, even though home values already had begun to decline. The combined volume of home-equity loans outstanding at the nation’s top 200 banks surged 25% to $815 billion in 2008, according to SNL Financial statistics. Acquisitions contributed to the surges in home-equity loans at some lenders. JPMorgan Chase, which bought Washington Mutual, saw home-equity assets surge 54.9% to $131.4 billion. Wells Fargo, which acquired Wachovia, saw a 53% jump to $129.9 billion. However, analysts noted that the overall surge in bank home-equity lending last year also reflected borrowers drawing down their existing lines of credit. No doubt banks will have to take writeoffs on many home-equity loans. The delinquency rate on home-equity loans--over due by 60 days or more--jumped to 4.06% in April, from 2.55% a year earlier, according to LoanPerformance data (American Banker July 2) … * The combined net income of the 12 Federal Home Loan Banks tumbled 51% to $345 million in the first quarter, from $697 million a year earlier, according to the banks’ Office of Finance. The decline reflects $516 million in writedowns on mortgage securities held by some banks, which are cooperatives owned by more than 8,000 commercial banks, thrifts, credit unions and insurers. Demand for advances from member financial institutions has declined. Total advances outstanding at the banks fell to $817.41 at the end of the first quarter, from $928.64 billion at the end of December. Losses have strained capital at the banks. The 12 banks’ combined capital was 3.65% of capital at the end of the first quarter, down from 3.81% at the end of last year (The Wall Street Journal Online July 3) … * Huge Wall Street pay packages are set for a comeback this year as earnings increase (The Wall Street Journal Online July 3). Goldman Sachs is on track to pay out as much as $20 billion in compensation this year, or $700,000 per employee, based on earnings projections. That compares with just $363,000 in 2008 and $661,000 in 2007. Other firms will see similar gains in compensation, provided earnings don’t disappoint later this year. Some Wall Street firms have paid back government money to avoid curbs on executive compensation …

Market News (07/06/2009)

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MADISON, Wis. (7/7/09)
* Foreclosures will peak in the second half of 2010, and home prices will continue to drop through the end of next year, according to Barclays Capital economist Michelle Meyer. Home prices will decline by another double-digit percentage--translating into an overall 40% drop by the time foreclosures peak during the second half of next year, predicts Meyer. “While the early signs of improvement are in place for housing, the market will likely remain out of balance for some time, given the flood of foreclosures,” wrote Meyer. Prospective homebuyers are being deterred by rising mortgage rates, the highest unemployment since 1983, and the longest recession in the post-World War II era. However, Myer said home sales probably have already bottomed. She expects sales of existing homes to increase to 5.41 million next year, from 4.75 million this year. New-home sales are forecast to rise to 440,000 from 350,000. “The slowing in the economic recession, with fewer job cuts and greater consumer confidence, along with improvement in financial conditions, should help support home sales,” said Meyer (Reuters via Yahoo! News and Bloomberg.com July 6) … * Long-term mortgage rates retreated last week--a good sign for the housing market, Freddie Mac reported last week. The average 30-year, fixed-rate mortgage (FRM) fell 10 basis points to 5.32%, while the 15-year FRM dropped 10 basis points to 4.77%. The one-year, adjustable-rate mortgage (ARM) edged up 1 basis point to 4.94%. “Lower mortgage rates are helping to support the housing market,” said Freddie Mac Vice President and Chief Economist Frank Nothaft. “The 30-year FRM peaked this year over the week of June 11 and is now around a quarter-of-a-percentage point lower this week,” noted Nothaft. “The decline in house prices may be moderating as well.” Mortgage rates remain much lower than they were at this time last year. A year earlier, the 30-year FRM stood at 6.35%, while the 15-year FRM averaged 5.92%, and the one-year ARM was at 5.17% … * States that let debt collectors seize consumers’ wages have much higher bankruptcy rates than nearby states that prohibit or limit the practices, according to an analysis by Associated Press (Yahoo! News July 5). The analysis found that the five states--North Carolina, Pennsylvania, South Carolina, Florida and Texas--that prohibit or strictly limit wage seizures have much lower bankruptcy rates than their neighboring states. The differences are especially stark along borders, which have similar economic conditions. The national bankruptcy rate is 42% higher than the rates in those states than prohibit or limit wage seizures. Attorneys say just the threat of a wage seizure can cause someone to seek bankruptcy protection … * The service sector contracted less than expected in June, according to the Institute for Supply Management. ISM’s index for non-manufacturing businesses--including banks and retailers--rose to 47, from 44 in May but still below the 50 level that indicates expansion. However, it was the strongest reading since September. Business activity, new orders, and employment all contracted at a much slower pace in June than in May. Export orders helped buoy growth. The export-orders index rose to 54.5 from 47. Employment, although improved, remained extremely weak in June. The employment index rose to 43.4 from 39. Pricing pressures firmed. The prices index rose to 53.7, from 46.9 in May and the first time the index was above 50 since October 2008 (Associated Press and The Wall Street Journal Online July 6) … * General Motors can sell most of its assets to a new company, a bankruptcy judge ruled late Sunday. The ruling by U.S. Judge Robert Gerber potentially clears the way for the firm to quickly emerge from bankruptcy protection. However, the ruling may be appealed. A Chicago-based law firm representing people who have sued the automaker in auto-accident cases filed paperwork Monday saying it would appeal. The deadline for appeals is Thursday. Attorneys for some of GM’s bondholders, unions, as well as some consumer groups, have argued for a rejection of the asset sale (Associated Press via Yahoo! News July 6) …

Hampel to IBloombergI Recovery pushed back to 4th Q

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MADISON, Wis. (7/6/09)--The U.S. economic recovery may slide back to the fourth quarter of 2009 from the previously predicted third quarter, Bill Hampel, chief economist at the Credit Union National Association, told Bloomberg TV Thursday. Hampel was responding to questions from host Pimm Fox on Bloomberg’s “Taking Stock” show about disappointing unemployment numbers from the U.S. Labor Department in the June jobs report, released Thursday. “We thought the third quarter would be the turning point of the tepid recovery,” Hampel said. “We are now pushing it back to the fourth quarter. But the stimulus package should get the economy recovering--just not at a barn-burner pace.” Although the June jobs report was a disappointment, with national unemployment edging up to 9.5%, “one month of data doesn’t mean we have to change the total outlook,” Hampel said. “The last two months taken together are still up from the free fall of the fourth quarter of last year,” he added. “Employment numbers are a lagging indicator, so the last thing we will see improve is employment.” Hampel also was asked about the state of loan growth at credit unions. “We have two indicators,” Hampel said. “In the first five months of this year, deposit growth has been the strongest we’ve had in years. However, loan growth is down. “The household sector has moved to restoring its savings,” he added.

News of the Competition (07/05/2009)

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MADISON, Wis. (7/6/09)
* A more than 20% drop in regional bank stocks and the inability of transportation companies to negate their annual loss could be a harbinger that a rally in the Standard & Poors (S&P) 500 index might fizzle out, analysts said. Builders have lost 26% since May 4 when they reached their highest level since October. Smaller lenders lost 24% after reaching a four-month high May 8. The companies predicted to be among the biggest beneficiaries of $12.8 trillion in government stimulus spending have seen declines because of concerns about credit losses, foreclosures and mortgage rates, analysts said. Declines in bank stocks have been indicators of previous declines in the S&P 500, analysts added. If the credit and housing markets led the U.S. into the economic decline, they will have to stabilize before the economy improves, said Mark Demos, a Minneapolis-based money manager at Fifth Third Asset Management (Bloomberg.com July 1) … * Consumers are not as interested in redeeming travel reward points on their credit cards because economic conditions are forcing many to use points for cash rewards and everyday items, according to payments executives. Currently, travel is not popular, but it will rebound when the economy picks up, said Mark Johnson, president/CEO of Loyalty 360, a Cincinnati trade group. Consumers often saved their points before the recession for a big trip, but now they are using them for practical necessities such as discounts on mortgage and student loan payments, said Nancy Gordon, executive vice president for Citigroup’s ThankYou Rewards program (CardLine July 2) … * The European Central Bank Thursday left its main interest rate unchanged for the second consecutive month. The bank is waiting to see how the effects of its policy changes in recent months play out, analysts said. The bank reduced its main refinancing rate in October to 1% from 4.25%, reduced its main interest rates and implemented other steps geared toward increasing bank lending and economic activity. Any new major initiatives now seem remote, analysts say, unless the current financial crisis heightens once again (The New York Times July 3) ...

Market News (07/05/2009)

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MADISON, Wis. (7/6/09)
* Job losses continued to mount in June, the Labor Department reported Thursday. Nonfarm payroll employment tumbled by 467,000, following a 322,000 drop in May. The unemployment rate edged up to 9.5% from 9.4%. Job losses were widespread across industries, with large declines in manufacturing (-136,000), professional and business services (-118,000), and construction (-79,000). Since the beginning of the recession, the number of unemployed people has risen by 7.2 million, and the jobless rate has increased by 4.6 percentage points. The number of people working part-time for economic reasons--involuntary part-time workers--was little changed at 9 million in June. The number of involuntary part-timers has increased by 4.4 million since the beginning of the recession. The number of long-term unemployed--those without a job for 27 weeks or longer--increased by 433,000 in June to 4.4 million. In June, three in 10 unemployed people were jobless for 27 weeks or more … * Vehicle sales weakened further in June as soaring job losses deterred potential buyers, according to Moody’s Economy.com (July 1). Vehicles sold at a seasonally adjusted annual pace of just 9.6 million units last month--down from a 9.9-million unit pace in May and a 13.7-milliion unit rate a year earlier. Slower truck sales accounted for most of the June decline, as cash-strapped consumers worried about high gasoline prices. Trucks made up only 47% of overall sales last month, down from 49% the previous month and the smallest percentage since July 2008. Economy.com predicts that sales for all of this year will total just 9.9 million units, before picking up next year to 11.8 million units. The research firm says sales won’t regain any real momentum until 2014, reaching about 17 million units … * Consumers fell behind and defaulted on their credit cards at record rates in June as more people lost their jobs, Fitch Ratings reported last week. The chargeoff rate jumped to a record-high 10.44%, up 62% from a year earlier. The delinquency rate--60 days or more overdue--rose to a record-high 4.45%. Chargeoffs and delinquencies are expected to remain high as unemployment continues to rise. Fitch also reported that the three-month excess spread index fell below the 5% level for the first time since November 1998. “Excess spread remains a key measure of credit card ABS [asset-backed securities] performance as it protects credit card ABS investors against early amortization and potential losses,” noted Fitch Managing Director Michael Dean. However, Fitch expects current ratings of senior tranches to remain stable because issuers have added more credit enhancement and structural protections (Reuters and BUSINESS WIRE via Yahoo! Finance July 1) … * Freddie Mac has received $6.1 billion in new money from The Treasury Department to help it cope with rising liabilities, according to a filing submitted last week to the Securities and Exchange Commission. The Federal Housing Finance Agency requested the funds after Freddie’s liabilities exceeded its assets by more than $6 billion. Freddie has now received $51.7 billion from the government. It has access to another $149.3 billion if needed. Freddie reported a $9.9 billion loss for the first quarter, reflecting $8.8 billion in credit losses due to rising delinquencies and declining home prices, and $7.1 billion in writedowns on the value of its mortgage-backed securities (Associated Press via Yahoo! News July 1) … * Fannie Mae reported last week that 3.42% of its single-family mortgages were overdue by 90 days or more in April, up from 3.15% in March. Previously, Freddie Mac said its single-family delinquency rate rose to 2.62% in May, from 2.44% in April. Mounting job losses are responsible for rising delinquencies, said economist Richard DeKaser. He also noted that the “evaporation” of home equity due to declining home prices leaves many homeowners without a cushion when they lose their jobs. Jay Brinkman, chief economist at the Mortgage Bankers Association, said prime mortgage loans are now pushing foreclosures higher because most troubled subprime loans already have gone through the system (The Wall Street Journal Online July 1) … * Stock-fund inflows continued in May, according to the Investment Company Institute (ICI). Investors poured $18.31 billion into stock funds during the month, following an $11.9 billion inflow in April. The May inflow was the strongest since February 2007 and the third gain in the last five months. The ICI predicts further gains in stock funds in the months ahead as the stock markets continue to rebound. Bond-fund inflows also were strong last month. Bond funds took in a record $31.65 billion in May, following a $28.53 billion inflow in April. May’s inflow topped the $27 billion inflow for all of 2008. The ICI noted that investors shifted into bonds as the yield curve steepened slightly. Rates on long-term Treasury bonds increased 0.31 percentage points to 3.47%, while three-month T-bill rates remained at 0.14% (Investor’s Business Daily via Yahoo! News June 30) …

Market News (07/01/2009)

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MADISON, Wis. (7/2/09)
* Pending home sales posted a fourth consecutive gain in May, as strong housing affordability and the first-time homebuyer tax credit boosted activity, the National Association of Realtors (NAR) reported Wednesday (realtor.org July 1). The trade group’s Pending Home Sales Index rose by 0.7% to 90.7 in May following a 7.1% surge in April. The May index was 6.7% higher than in May 2008. NAR’s Housing Affordability Index remained near a record high in May. The index fell to 171.6, from 178.8 in April, which was the highest on record going back to 1970. “Under these conditions, the typical family would devote only 14.6% of gross income to mortgage principal and interest, which is one of the lowest percentages on record,” noted NAR Chief Economist Lawrence Yun … * Mortgage activity retreated last week, according to a report by the Mortgage Bankers Association (mbaa.org July 1). The trade group’s Market Composite Index declined by 18.9% to 444.8. The Refinance Index tumbled 30% to 1482.2, while the Purchase Index dropped 4.5% to 267.7. Mortgage rates declined last week. The 30-year, fixed-rate mortgage dropped 10 basis points to 5.34%, and the one-year, adjustable-rate mortgage edged down 2 basis points to 6.52%. Continued job losses, rising foreclosures, and tight credit remain obstacles to any recovery in the housing market, noted Moody’s Economy.com (July 1). However, the research firm said home sales probably will trend upward slowly in the months ahead, and home prices should begin recovering early next year … * Constructing spending declined by 0.9% to a seasonally adjusted annual rate of $964 billion in May, the fourth decline in the past four months. Construction spending was down 11.6% from a year earlier. Residential construction dropped 3.5% in May, while public construction decreased 0.6%. Construction probably will remain weak in the months ahead amid a glut of homes on the market due to foreclosures, and as job losses continue … * In a glimmer of hope for the job market, the number of job cuts announced in June declined for a fifth consecutive month, after hitting a 7-year high in January. The outplacement firm Challenger, Gray & Christmas reported that job-cut announcements by major U.S. firms totaled 74,393 in June, down 33% from May and the lowest total since March 2008. Announcements were 9% lower than in June 2008. “This recent drop-off may be indicative of an overall downward trend in layoff activity,” said John Challenger, chief executive of the Chicago-based firm. However, states hit with declining tax revenue and soaring deficits continue to lay off workers. The government/non-profit sector announced 19,438 job cuts in June, the highest of any sector. At 7,882, the auto sector had the second-highest total of planned job cuts last month. “The government and non-profit sector will continue to be a source of heavy job cutting for the remainder of the year,” said Challenger. “Meanwhile job cuts in financial services, industrial-goods manufacturing, computer and consumer products have slowed considerably and may continue to do so with the economy stabilized,” he added (Bloomberg.com and Moody’s Economy.com July 1) … * The manufacturing sector contracted at a smaller-than-expected pace in June. The Institute for Supply Management reported that its manufacturing index rose to 44.8 in June, from 42.8 in May but still below the 50 level that suggests expansion. In a hopeful sign, the production index rose to 52.5 in June, from 46 in May. It was the first growth reading following nine months of decline. On the downside, new orders declined to 49.2 in June, after expanding in May for the first time in 17 months. “A slow recovery for manufacturing is forming,” said Norbert Ore, chair of the group’s manufacturing business survey committee (Associated Press via Yahoo! News July 1) …

News of the Competition (07/01/2009)

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MADISON, Wis. (7/2/09)
* The Office of Thrift Supervision and the Federal Deposit Insurance Corp. have fined two subsidiaries of American Express Co. $250,000 each. American Express--the largest U.S. credit card company by purchases--agreed to pay the $500,000 in fines and $3.5 million in refunds after its actions caused customers to incur penalties on convenience checks. American Express sent out convenience checks so customers could obtain money from their credit card accounts. The company then lowered participants’ credit limits and refused to honor some of the checks--which set off penalties for the checks’ users. American Express will pay the refunds without admitting any wrongdoing, according to a Tuesday regulatory filing (Bloomberg.com June 30) … * Citigroup Inc. raised interest rates on up to 15 million U.S. credit card accounts it co-brands with retailers such as Sears before restrictions on such increases could take place early next year, Financial Times reported. “We have adjusted pricing and card terms for some customers as part of our regular account reviews,” Citigroup said in a statement. “This is an ongoing process to ensure we offer terms, interest rates, credit lines and products, based on individual needs and risk profiles.” The changes also are a response to the significantly higher cost of doing business in the credit card industry, as the company strives to keep a broad availability of credit, Citigroup told the newspaper (Reuters July 1). A number of banks have announced rate increases on credit cards recently, generating criticism from consumer groups … * The idea that the 19 largest U.S banks would pay higher-than-average rates on certificates of deposit (CD) and money market accounts isn’t true, according to research by Market Rates Insight. The national average rate for a one-year CD was 1.2% for the top 19 banks versus an average rate of 1.62% for 1,300 other banks between Jan. 1 and May 26. For money market accounts up to $100,000, the top banks’ national average was 0.53%, compared with 0.78% for the other banks. The general thinking was that because the biggest banks received money from the Troubled Asset Relief Program and had demand for deposits, they could afford to pay higher rates (American Banker July 1) …