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Economys big driver still on sidelines CUNA tells IReutersI

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WASHINGTON (9/1/09)--Credit Union National Association Chief Economist Bill Hampel had the lead quote in an article widely distributed by Reuters Friday about consumer confidence and the pressure on households from falling housing prices and increasing unemployment, which translates to a reluctance to spend. "The big driver of the economy is still on the sideline," Hampel told the news outlet. "The household sector is worried about the job market and until that shows some significant improvement, households are going to be pretty restrained," he said. Several reports indicate that although reports about home sales and factory activity and others are seemingly upbeat, consumers likely will play a limited role in the recovery from the recession. U.S. consumer confidence dropped to a four-month low in August, while consumer spending saw a modest increase during July, indicating what could be a lethargic recovery from the recession. The Reuters/University of Michigan Surveys of Consumers Friday said its final index for confidence during August dropped to 65.7--the lowest measure since April. In July, the index was 66. Meanwhile consumer spending inched up 0.2% during July, said the Commerce Department, after increasing 0.6% during June. The spending was the result of the government's Cash for Clunkers program, which fueled auto demand. For the full article, use the link.

News of the Competition (08/31/2009)

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MADISON, Wis. (9/1/09)
* Three more U.S. banks were closed Friday by the Federal Deposit Insurance Corp. (FDIC), bringing the total number of failed banks this year to 84. The closures included: Affinity Bank, Ventura, Calif.; Bradford Bank, Baltimore; and Mainstreet Bank, Forest Lake, Minn. The closures this year have cost FDIC’s deposit insurance fund an estimated $446 million. The escalating number of failed banks is placing great pressure on FDIC’s resources, analysts said. At the end of June, FDIC had $10.4 billion in its deposit insurance fund, compared with more than $50 billion last year. There are 416 banks on the FDIC’s troubled list, meaning there are likely to be many more failures, analysts said (The Wall Street Journal Aug. 31) … * To curb market abuses, it is “critical” for regulators to have more access to information about derivative transactions, said Mary Schapiro, chairman of the Securities and Exchange Commission. That information will allow regulators to construct an audit trail so they can find any manipulation, insider training and other concerns that affect the whole marketplace, she added. In the aftermath of price movements causing concern last year that financial firms were approaching failure, lawmakers began studying derivatives. Derivatives are financial instruments derived from bonds, loans, stocks, currencies and commodities, or connected to specific events such as changes in the weather or interest rates (Bloomberg.com Aug. 28) … * The largest U.S. banks have seen the fair value of their loans steadily decline--an indication that credit markets have not yet rebounded. That raises concerns about the efficacy of government efforts to help banks weather the credit crisis, analysts said. The difference between carrying values and fair values rose 14.4% to $164.4 billion from Dec. 31 to June 30, according to federal regulators’ stress tests of banks in May. The data indicate it is harder to find buyers for stressed loans, and banks’ efforts to rid themselves of bad assets could be delayed, analysts said (American Banker Aug. 31) …

Market News (08/31/2009)

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MADISON, Wis. (9/1/09)
* Whether the Federal Reserve’s huge infusion of credit into the U.S. economy will cause inflation to rise in the next couple of years is a matter of debate among business economists. Half of the National Association for Business Economics’ (NABE) 266 members surveyed in August said they don’t think inflation will result in the next few years due to the Fed’s move, according to the NABE. However, 41% of economists surveyed disagree, saying inflation could result from “monetization of the debt,” “lagged effects of policies now in effect,” and “ineffective exit strategy.” Inflation--excluding energy and food--is expected to average 3% from 2014 to 2018, according to the economists (The Wall Street Journal Aug. 31) … * In signs the U.S. is coming out of its deep two-year long recession, numerous reports issued Monday indicate that some regions in the country are gaining economic momentum, analysts said. Midwest business activity grew at a faster-than-expected pace in August, bringing it to the brink of expansion, according to the Institute for Supply Management-Chicago’s business barometer. The gauge rose to 50.0 in August--exceeding the forecast of 48.0--from 43.4 in July. The 50-mark is considered the dividing line between growth and contraction, analysts said. However, while there was a significant increase in new orders, employment stayed soft--stoking fears that the U.S. could be experiencing a “jobless recovery” once real gross domestic product starts growing again, analysts said (The New York Times Aug. 31) … * The World Trade Organization (WTO) ruled Monday that American goods will see roughly $295 million in sanctions from the U.S. government’s failure to stop illegal subsidies to domestic cotton growers. The amount is lower than sanctions sought by Brazil. Brazil said it was disappointed by Monday’s decision. It had won several rulings against the U.S. in the past seven years. The South American country had targeted American drug patents and goods for economic retaliation totaling $2.5 billion, analysts said. The U.S. government had argued that the WTO award to Brazil should not exceed $30 million (The New York Times Aug. 31) …

Market News (08/30/2009)

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MADISON, Wis. (8/31/09)
* Small companies employing fewer than five workers accounted for a disproportionate share of job losses during fourth quarter 2008, according to the Labor Department. They employ 5.1% of the private-sector work force but experienced 14.5% of the job losses for the period (The Wall Street Journal Aug. 20). During fourth quarter, 1.8 million private-sector jobs ended, while 6.7 million jobs were created in the sector. The largest companies--with 1,000 or more employees and where 38% of the private-sector work force is employed--saw nearly 20.7% of job losses during the fourth quarter, as well as 18.2% of job gains. Reporting the lowest percent of job losses were the midsize companies. Those employing 500 to 999 employees accounted for 5% of the job losses, while those with 250 to 499 employees lost 5.9% …

News of the Competition (08/27/2009)

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MADISON, Wis. (8/24/09)
* With customers feeling reassured by government support, U.S. banks have collected a record $7.5 trillion in deposits. However, the largest banks are experiencing some frustration as longtime customers spread their business and deposits among other banks, analysts said. Consumers placed 44% of their financial business with their primary bank one year ago, according to Mercatus--a consulting firm. Today, consumers conduct only about one-third of their business at their primary bank. Consumers report frustrations engendered by failed banks, bonuses for bankers who receive bailouts, and escalating account fees at government-supported banks. Higher customer turnover makes it harder to estimate banks’ future “normalized earnings”--the type of profits they’ll make when the recession is over, analysts said. Those earnings are key since financial stocks have more than doubled since March on hopes that banks will start to realize profits when the U.S. recession ends, they added (The Wall Street Journal Blog Aug. 20) …

Market News (08/27/2009)

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MADISON, Wis. (8/24/09)
* Unemployment was the driving force in the second quarter, which pushed a record number of U.S. homeowners into delinquency or foreclosure on their home loans, according to the Mortgage Bankers Association (MBA). At the end of the second quarter, 4.3% of loans were in the foreclosure process--an increase of 45 basis points from the first quarter and 25 basis point from one year ago. The combined percentage of loans in foreclosure and at least one payment past due was 13.16% on a seasonally adjusted basis--which is the highest level ever recorded in the MBA’s delinquency survey. For MBA National Delinquency Survey, use the link (www.mbaa.org and The Mercury News Aug. 21) … * July sales for existing U.S. homes increased for the fourth consecutive month--the first time in five years this has happened, according to the National Association of Realtors (NAR). Purchases rose 7.2% to a seasonally adjusted annual rate of 5.24 million units in July from 4.89 million in June. Sales are 5% higher than the 4.99 million-unit pace in July 2008. June 2004 was the last time sales rose for four consecutive months. “The housing market has decisively turned for the better,” said Lawrence Yun, NAR chief economist. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.” For Strong Gain in Existing-Home Sales Maintains Uptrend, use the link … * The number of mass layoffs--which involve 50 workers or more from a single establishment--in July was 2,157--down from 2,763 in June, according to the Bureau of Labor Statistics. Employers laid off 206,791 workers in July, compared with 279,231 in June. All figures are seasonally adjusted. The drop-off in layoffs is consistent with smaller payroll job losses in July and with trends in the Job Openings and Labor Turnover Survey, analysts said. However, the broad-based employment downturn continues to weigh down every region in the country. Layoffs have been prompted by tax revenues for many financially troubled local and state governments coming in below budget expectations, analysts said (Moody’s Economy.com Aug. 21) …

News of the Competition (08/20/2009)

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MADISON, Wis. (8/21/09)
* Private-label mortgage securities--by definition, those without government guarantees--are among the original “toxic assets,” analysts said. Last month, the volume of those securities liquidated through foreclosures was almost as high as the amount that defaulted for the first time, said Amherst Securities Group LP. Since January, the rate of first-time defaults in the sector has been declining. If that trend continues, liquidations could soon outpace defaults, analysts said. These securities are filled with subprime, Alt-A and other nontraditional mortgages that helped spark the global financial crisis more than two years ago, they added. Cutting back on the nonperformers in these areas would lessen the strains on the housing market and economy, analysts said. The total principal amount of mortgages backing private-label bonds has decreased roughly 12% since October to about $1.6 trillion in July, per Amherst data (American Banker Aug. 20) … * Most U.S. companies will have to wait about a year to a year-and-a-half for a return to profitability. They must rebuild their capital before they can start increasing their dividend payouts, analysts said. A few stronger companies such as JPMorgan Chase & Co. and U.S. Bancorp could start upping their payouts this winter. However, lower earnings likely will lead to lower payouts than in previous cycles. This is because banking companies are apt to focus on less risky and less profitable products, hold on to more capital and endure great regulatory costs such as increased deposit insurance premiums, analysts said (American Banker Aug. 20) … * Marking its eight consecutive quarterly profit decline, discount retailer Target Corp.’s second-quarter profit declined 6.4%. However, the results significantly exceeded expectations as the company continued to slash costs and inventory, analysts said. Gross margin rate for the second quarter rose to 31.9% from 31.2%, but Target’s credit card operations continued to experience troubles, and it increased provisions for bad debt. Target cut costs by tightening credit card underwriting standards, cutting staff, suspending senior management salary increases, and cutting back on planned store openings. The retailer also altered its product mix by adding consumables. This non-discretionary merchandise--while producing lower margins--is believed to help draw customers into stores, analysts said (Dow Jones Newswires via The Wall Street Journal Aug. 18) … * CIB Marine Bancshares Inc. is extending the time allowed for some of its debt-holders to vote on the company’s proposed reorganization until Sept. 9. The move was made after company executives became aware that they had not yet received sufficient votes to approve the plan, analysts said. CIB Marine Bancshares is the holding company for CIB Bank, which operates as Marine Bank in the Milwaukee area, Indianapolis and Scottsdale, Ariz., and operates as Central Illinois Bank in mid-state Illinois. On July 16, CIB Marine announced a planned prepackaged Chapter 11 reorganization in which the holding company would convert its securities to preferred stock. The reorganization would allow CIB Marine to emerge as a better, more robust business, the holding company said (The Business Journal of Milwaukee Aug. 18) …

Market News (08/20/2009)

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MADISON, Wis. (8/21/09)
* Mortgage loan delinquency rates on one-to-four-unit residential properties increased to a seasonally adjusted rate of 9.24% of all loans outstanding by the end of the second quarter 2009, according to the Mortgage Bankers Association (MBA) National Delinquency Survey. The delinquency rate breaks the record set in the first quarter. Records are based on MBA data that go back to 1972. The rate is up 12 basis points from the first quarter and up 283 basis points from one year ago. The non-seasonally adjusted delinquency rate rose 64 basis points to 8.86% in the second quarter, from 8.22% in the first quarter. The increase was driven by prime fixed-rate loans, which accounted for one-in-three foreclosure starts (www.mbaa.org Aug. 20) … * For the week ending Aug. 15, initial claims for unemployment benefits rose by 15,000 to 576,000--more than anticipated and suggesting improvement in the labor market is not advancing as much as previously thought, according to the Employment Training Administration. Continuing unemployment claims rose 2,000 to 6.241 million the week ending Aug. 8--which is still high by historical standards, analysts said. Slow hiring is the main obstacle to more substantial labor market improvement, as businesses opt to squeeze more productivity out of workers they have--which is typical behavior when the economy is coming out of a recession, said Moody’s Economy.com (Aug. 20) … * For a fourth consecutive month, the index of U.S. leading economic indicators rose in July--another signal that the worst recession since the 1930s is nearly over, analysts said. Increased factory output, rising stock prices and fewer job losses are signs that government efforts to mitigate the financial crisis and jumpstart the economy are working, analysts said. However, forecasts of the jobless rate reaching 10% and declining home values indicate that any economic expansion will be muted while consumers keep a lid on spending and increase their savings, analysts said. The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6%--below predictions after a revised 0.8% increase in June, the board said. The increase in July marks the longest series of increases since 2004, the board added (Bloomberg.com Aug. 20) … * Although U.S. pension funds contributed to the record $1.2 trillion raised by private-equity firms this decade, the pension plans’ private-equity cash is being depleted by declining profits, analysts said. Three of the biggest investors--the California Public Employees’ Retirement System, the Oregon Public Employees’ Retirement Fund and the Washington State Investment Board--put in at least $53.8 billion. However, by the end of 2008, they had recouped just $22.1 billion in cash from buyout funds started since 2000, according to data from Bloomberg. This constitutes a 59% shortfall. In total, the three funds have not realized a paper gain for the funds in the past seven years, analysts said. A national credit contraction that slowed deal making to a near standstill, diminished the value of assets on private-equity firms’ books and kept the firms from cashing-out in public share sales, analysts said (Bloomberg.com Aug. 20) …

News of the Competition (08/19/2009)

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MADISON, Wis. (8/20/09)
* JPMorgan Chase & Co. will provide California with $1.5 billion in loans to help the state begin redeeming IOUs Sept. 4 and end its IOU program a month ahead of schedule. The state, hamstrung by a big budget deficit, began issuing the IOUs July 2 to pay many of its business vendors and other creditors. The IOUs were set to mature Oct. 2, but California Controller John Chiang said last week the budget passed by the state legislature allowed earlier redemption--if the state could obtain a $1.5 billion short-term loan by Aug. 28. In addition to the interest it will earn on the $1.5 billion loan, JPMorgan’s move in the matter will likely put it back in good standing in a state that has a plethora of fee-generating financing needs, analysts said (latimes.com Aug. 19) … * BB&T Corp. said Tuesday it will sell new common stock to raise more than $900 million. A public offering of 33.45 million shares of common stock was priced at $26 per share, the Winston-Salem, N.C.-based bank said. Underwriters will have a 30-day option to buy up to an additional five million shares to cover any over-allotments. Net proceeds of the offering will be about $837.1 million after underwriting commissions are deducted, but prior to deductions for other transaction expenses, the bank said. If the underwriters fully exercise their over-allotment option, net proceeds will be roughly $962.5 million. The money will be used for general corporate purposes, the bank added (MarketWatch and Associated Press via Forbes.com Aug. 18) … * The Home Valuation Code of Conduct, which took effect May 1, was intended to reduce conflicts of interest in home appraisals while also protecting the independence of the people who conduct them, analysts said. Real estate agents and brokers no longer are permitted to order appraisals--lenders now are in charge of the entire process. However, the code has caused a conflict among lenders, mortgage brokers, real estate agents, regulators and appraisers, who are fighting over whether an effort to fix one problem has engendered many new ones, analysts said. Agents are asking the federal government to suspend the code until 2011 because they say it is blocking home sales by encouraging the use of inexperienced appraisers. Appraisers said the change was well-meaning, but they contend that the code is destabilizing the economics of their profession (The New York Times Aug. 19) … * General Motors Co. (GM)--in large part responding to increased demand engendered by the government’s Cash-for-Clunkers vehicle incentive program--is adding shifts and having employees work overtime to build more cars, analysts said. GM said it would bring back to work 1,350 idled workers in Ohio and Ontario, Canada, and pay overtime shifts for roughly 10,000 workers. GM said it intends to boost production at nearly all of its U.S. plants. The automaker said that by the end of August it expects to have fewer than 30 days’ supply of the vehicles popular among Cash-for-Clunkers participants, such as Chevrolet Malibu and Malibu sedans (The New York Times Aug. 19) …

Market News (08/19/2009)

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MADISON, Wis. (8/20/09)
* Will the U.S. still be in recession six months from now? The probability dropped to 35% from 37% in July, according to Moody’s Economy.com. Signs of recovery from the recession are becoming more evident, analysts said. Real gross domestic product will rebound in the second quarter, but the initial rebound will be gradual, according to forecasts. The U.S. economy will still need to confront obstacles such as rising unemployment, declining home prices, and certain dysfunctional credit markets, analysts said. The probability of recession has been decreasing for the past eight consecutive months, they added (Moody’s Economy.com Aug. 19) … * A measure of mortgage loan application volume--the Market Composite Index--rose 5.6% on a seasonally adjusted basis for the week ending Aug. 14, from one week earlier. The index is part of the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey. The index--on an unadjusted basis--increased 4.8% from the previous week and rose 25% compared with the same week a year ago. The Refinance Index rose 6.9% on the heels of a 7.2% drop the previous week. For the third consecutive week, the seasonally adjusted Purchase Index rose--increasing 3.9% (www.mbaa.org Aug. 19) … * A severe credit crunch for commercial sectors, weak consumer spending and continued job losses have caused commercial real estate activity to suffer, according to the National Association of Realtors (NAR). However, the decline seems to be slowing, NAR added. Commercial real estate activity will remain flimsy, according to a forward-looking indicator, but recent Federal Reserve actions should increase the capital flow into commercial lending, NAR said. The Commercial Lending Indicator for Brokerage Activity dropped 1.3% to an index of 101.5 in the second quarter from a downwardly revised 102.8 in the first quarter. The measure is 13.7% below the 117.6 recorded for second quarter of 2008. The index is at its lowest level since the first quarter of 1994, NAR said (www.realtor.org Aug. 19) … * The number of gross job gains from expanding and opening business establishments in the fourth quarter of 2008 dropped to 6.7 million from 6.8 million in the third quarter, according to data from the Business Employment Dynamics data series provided by the Bureau of Labor Statistics. Gross jobs losses that resulted from closing or shrinking businesses increased to 8.5 million from 7.8 million in the third quarter. For the fourth quarter, the net employment change was 1.755 million jobs lost, compared with 932,000 lost in the third quarter. The data indicate the swift deterioration in labor market conditions at the end of 2008, analysts said. Education/health care and utilities were the only two industries that experienced net fourth-quarter job gains. Louisiana and North Dakota were the lone states to experience net job gains (Moody’s Economy.com Aug. 19) …

News of the Competition (08/18/2009)

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MADISON, Wis. (8/19/09)
* The top 22 U.S. banks upped their mortgage lending and home equity lines of credit in June, according to a monthly survey of the banks issued by the Treasury Department. The survey also indicated that banks are cutting back on other types of consumer lending. New-home purchases and seasonal renewals in commercial-and-industrial and commercial real estate loans led to a 13% growth in origination of loans, the Treasury said. However, banks’ lending for credit cards decreased. Also, lending decreased for new commitments on commercial real estate and other consumer products. In June, total outstanding consumer loans made by all banks dropped 1%, the Treasury said (Bank Investment Consultant Aug. 18) … * In signs the toxic asset market may be reviving, Bank of America Corp. (BofA) is planning to auction $90 million in nonperforming and current loans, analysts said. Also, PHH Corp. is testing the waters on a $15 million portfolio. A BofA auction notice indicates BofA took over the loans as part of a collateral pledging agreement from 2006. The auction deadline is Aug. 25 (American Banker Aug. 18) …

Market News (08/18/2009)

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MADISON, Wis. (8/19/09)
* U.S. housing starts unexpectedly dropped 1% in July to an annual rate of 581,000--dragged down by a fall-off for multifamily dwellings, analysts said. However, single-family housing starts--which constitute most (75%) of the housing industry--shot up to the highest level since October, rising 1.7% to a 490,000 rate. The July drop was the first in three months and followed a 587,000 June rate, the Commerce Department said Tuesday. Falling home values and government stimulus efforts, such as a tax credit for first-time buyers, are beginning to roll back the housing downturn that sparked the U.S. financial crisis, analysts said. Although the economy is projected to grow this quarter, the recovery will be dampened by job losses, foreclosures and tight credit, they added (Bloomberg.com Aug. 18) … * Producer prices for finished goods dropped significantly (0.9%) in July as declines were seen across the board. The decline came after three months of increases, according to the Bureau of Labor Statistics. The decline suggests that demand is weak all through the spectrum of production--from consumer goods to intermediate goods such as chemicals and raw materials, analysts said. The price drop erased much of the unexpected rise in prices in June, analysts said. Energy prices declined at all processing levels. With finished goods, core inflation was negative for just the second time this year. However, with intermediate and crude products, core prices rose again in July, after turning around earlier in the summer (Moody’s Economy.com and The New York Times Aug. 18) … * Chain store sales declined 0.9% for the week ending Aug. 15, according to the International Council of Shopping Centers (ICSC). With sales 0.6% below their year-ago level--the fifth year-ago decline in the past six weeks--year-ago growth is trending nearly flat. Warmer-than-normal weather aided sales. However, sales may have been negatively effected by sales-tax holidays the prior week, analysts said. Lately, sales have been limited by lower inventory levels and weak wage income. Also, consumers still are reluctant to spend, analysts said (Moody’s Economy.com Aug. 18) … * Customer satisfaction scores for all three Detroit automakers increased, according to the University of Michigan’s 2009 American Customer Satisfaction Index, released Tuesday. Concerning improvement scores, Ford Motor Co.--the only U.S. automaker to circumvent bankruptcy and not accept emergency government aid--rose 5%, which was second only to Volkswagen. In brand rankings, General Motors (GM) Cadillac tied for first place with chief competitor Lexus. Buick and Lincoln Mercury placed third and fourth respectively. So, domestic brands held three of the top four spots. The study indicates that GM, Ford and Chrysler are progressing in rehabilitating their reputations. However, in several rankings, they still trailed Asian and European rivals (The New York Times Aug. 18) …

Market News (08/17/2009)

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MADISON, Wis. (8/18/09)
* Foreign demand for long-term U.S. financial assets rebounded in June because investors were seeking the safety in Treasuries amid worries about the timing of a global recovery in economies and financial markets, analysts said. Total net purchases of long-term equities, bonds and notes for the month were more than forecast at a net $90.7 billion--compared with net sales of $19.4 billion in May, the Treasury said Monday. Net buying of U.S. government notes and bonds in June was $100.5 billion--the highest level since record-keeping began in 1977--compared with net selling of $22.6 billion in May. Japanese and United Kingdom investors upped their holdings of U.S. assets as the Obama administration funded economic stimulus spending and financed the U.S record budget deficit by selling debt, analysts said (Bloomberg.com Aug. 17) … * Second-quarter retail e-commerce sales improved, advancing 2.2% compared with 0.7% in the first quarter, according to the Census Bureau. Consumer spending--even online purchases--has been negatively impacted by the U.S. economy’s being in recession, analysts said. Consequently, sales have fallen 4.4% from a year ago. The trend is expected to continue through most of the year and could get worse if the recession hangs on longer than anticipated, analysts said. Drivers for consumer spending are still negative--particularly the housing market, they added (Moody’s Economy.com Aug. 17) … * For the second consecutive week, global business confidence remained positive last week, according to Moody’s Survey of Business Confidence. The last time confidence was consistently positive was nearly one year ago. Businesses are responding most positively to broad assessments of the current economic climate and the outlook into early next year, analysts said. Businesses are as robust as they have been since the summer of 2007 when the current financial crisis began. Although businesses are increasing their investment in equipment and software, they continue to reduce their payrolls--although at a slower rate than a few weeks ago, the survey indicates. Demand for office space and inventory investment constitute the weakest responses. The global recession is approaching its end, but it’s not quite done, the business survey results suggest, analysts said (Moody’s Economy.com Aug. 24) … * In another sign that the worst of the housing decline may be over, U.S. homebuilder confidence jumped to a one-year high, according to the National Association of Home Builders/Wells Fargo confidence index. The index rose to 18--matching predictions by economists and hitting the highest level since June 2008. Home sales have stabilized due to lower prices and government tax credits for first-time buyers, which have paved the way for home builders to gradually ramp up construction from record-low levels, analysts said. However, job losses, increasing foreclosures and tight credit are still impediments to any recovery--which will be slow to develop, they added (Bloomberg.com Aug. 17) … * As demand for most loan types continued to weaken, fewer U.S. banks tightened their lending standards the past few months, according to the Federal Reserve’s July 2009 Senior Loan Officer Opinion Survey. Roughly 30% of U.S. banks surveyed reported implementing stricter standards on commercial and industrial (C&I) loans to larger firms--compared with 40% in April and a peak of 85% in November. About 35% said they tightened standards on C&I loans for small firms--down from roughly 40% in April and 70% in January. The main reason for tightening lending remained “less than favorable or more uncertain economic outlook”--the same factor mentioned in the last two Fed surveys (Reuters via Forbes.com Aug 17) …

News of the Competition (08/17/2009)

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MADISON, Wis. (8/18/09)
* Five more banks failed Friday, bringing the total this year to 77. The Federal Deposit Insurance Corporation (FDIC) shut down Colonial BancGroup ($25 billion) of Montgomery, Ala.--the largest bank closure this year. Colonial bank’s 346 branches in Alabama, Florida, Georgia, Nevada and Texas reopened under normal business hours Saturday as branches of BB&T. The four other banks that FDIC shut down include: Community Bank of Arizona, Phoenix; and Union Bank, Gilbert, Ariz.--both acquired by Mid First Bank, Oklahoma City; Community Bank of Nevada, Las Vegas; and Dwelling House Savings & Loan, Association, Pittsburgh--acquired by PNC Bank, National Association, Pittsburgh. An overarching issue is that many banks took risks when the economy was in a boom period and now they are experiencing diminishing capital at an alarmingly fast rate, analysts said (The Wall Street Journal and The Daily Exchange Aug. 17) … * The U.S. Supreme Court will hear a case on executive pay this fall--Jones v. Harris Associates--which developed from huge fees that mutual funds pay to their investment advisers, analysts said. A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit, in Chicago, dismissed a lawsuit last summer brought by investors in three Oakmark mutual funds who claimed the funds overpaid their investment adviser--Harris Associates. The Supreme Court’s ruling on the matter could be its first significant statement about the corporate culture that many believe helped lead to the recession, analysts said (The New York Times Aug. 18) … * The Federal Reserve Board and the Treasury Department announced Monday that they approved an extension through March 31 of the Term Asset-Backed Securities Loan Facility (TALF)--an emergency program aimed at restarting credit markets. The move could buffer the commercial real-estate industry from rising mortgage defaults and declining real estate prices, analysts said. Government officials previously had said they would authorize TALF loans through Dec. 31. The move was made because markets for certain securities are still distressed, analysts said. TALF loans against newly issued asset-backed securities and legacy commercial mortgage-backed securities will be extended (Bloomberg.com and The Wall Street Journal Aug. 17) … * Mortgage bankers made a marginal profit of $184 per loan on every loan they originated in the second half of 2008, according to the Mortgage Bankers Association (MBA). The profit was made despite higher production operating expenses and lower net warehousing income, analysts said. The profit also marks an improvement over average pre-loan losses in 2006 and 2007, according to the MBA’s Annual Mortgage Bankers Performance Report. “Many independent mortgage companies and bank subsidiaries made radical changes in their product offerings in order to remain alive in 2008,” said Marina Walsh, MBA’s associate vice president of industry analysis. “Among this group, the government share of total originations--mainly Federal Housing Administration (FHA) loans--was 45% in the second half of 2008, compared with less than 10% the year before. Small and mid-sized mortgage bankers were able to quickly respond to changing secondary market conditions as they had the flexibility to realign their business models toward FHA business, and it was a key to their profitability,” she said (mbaa.org Aug. 17) …

News of the Competition (08/14/2009)

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MADISON, Wis. (8/17/09)
* The Obama administration is giving its Cash-for-Clunkers program a tune-up by allowing consumers to order vehicles that dealers don’t have in stock. The administration also is trying to assuage auto dealers’ concerns about not getting reimbursement through the program on a timely basis. The program gives participants a $3,500 or $4,500 credit on a new car when they trade-in an old low-gas-mileage car. The popularity of the program combined with dealer confusion about its rules has led to an administrative logjam, analysts said (The Wall Street Journal Aug. 14) … * Nonperforming (toxic) loans that equal 5% or more of a company’s holdings are currently owned by more than 150 publicly traded U.S lenders. Former regulators said that this level can destroy a bank’s equity and threaten its survival. In the year running through June, the number of banks that exceeded the threshold more than doubled, data compiled by Bloomberg indicated. The increase is caused by real estate and credit card defaults spiking, analysts said. Nearly 300 banks reported that 3% or more of their loans were nonperforming--a term that indicates consumer and commercial debt ceased collecting interest or will no longer be paid in full (Bloomberg.com Aug. 14) … * Citigroup Inc. is adding annual fees to some existing credit card accounts to offset provisions of the Obama administration’s Credit Card Accountability, Responsibility and Disclosure Act, which took effect in May, analysts said. Citi’s new charge goes into effect if a cardholder does not spend enough. It is one of several different annual fee experiments that the industry expects to see in the next six months, analysts said. Citi has informed some cardholders they will be assessed an annual fee of $30 to $90 if they fail to spend a minimum amount per year--usually $2,400, according to posts on several consumer blogs (American Banker Aug. 14) … * During last week, lending conducted through the Federal Reserve Board’s discount window rose 3.3% to $109.2 billion. Lending to weak institutions dropped roughly 19% to $705 million. Borrowing from commercial banks rose 14.6% to $38 billion, the Fed said. Investment banks continued to abstain from using the window, analysts said. Borrowings against asset-backed commercial paper remained steady during the week at $113 million (American Banker Aug. 14) ...

Market News (08/14/2009)

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MADISON, Wis. (8/17/09)
* Consumer prices stayed the same in July with no changes in the top-line Consumer Price Index (CPI) for urban consumers, following a 0.7% rise in June. The steady rate was mainly because gasoline prices for July stabilized after a sharp uptick in June, analysts said. However, prices were 2.1% lower than one year earlier--the fastest annual pace since 1950. The core CPI increased by 0.1% in July, slowing from June when prices went up 0.2%, and up 1.5% from a year earlier. Oil prices contributed to the energy CPI’s drop of 0.4% in July. The food CPI also dropped--by 0.3%. With the exception of the Cash-for-Clunkers vehicle incentive program, in which the government subsidy artificially lowers prices, slow consumer sales are keeping inflation resurgence down, analysts said. Deflation is a significant downside risk, they added (Moody’s Economy.com and The Wall Street Journal Aug. 14) … * Industrial production rose 0.5% in July--the first monthly increase since December 2007, aside from a hurricane-related rebound in October 2008, according to the Federal Reserve. Manufacturing output grew 1% in July. Most of the increase came from a rise in motor vehicle assemblies to an annual rate of 5.9 million units in July from 4.1 million units in June. Manufacturing production nudged up 0.2%--excluding motor vehicles and parts. Indicative of unseasonably mild temperatures in July, utilities’ output dropped 2.4%. Total industrial production was 13.1% below its year-ago level, registering at 96% of its 2002 average. The capacity utilization rate for total industry in July moved up to 68.5%--12.4% below its 1972-2008 average (www.federalreserve.gov Aug. 14) … * Led by Nevada and Florida, U.S. homeowners slashed their prices for the year through Aug. 1 by $27.8 billion, according to Trulia Inc. Homeowner in states impacted hardest by the housing slump cut prices the most. These include Nevada (15%), Florida (13%) and Arizona (13%). Roughly 25% of U.S. home sellers lowered their prices at least once by an average of 10%, the San Francisco-based real estate provider said Friday. In the second quarter, the median U.S. price of an existing single-family home fell a record 15.6% to $174,100, according to the National Association of Realtors. With buyers taking advantage of discounts, sales rose 11% for new homes and 3.6% for existing homes, according to Commerce Department and realtor data (Bloomberg.com Aug. 14 … * For the second consecutive month, U.S. consumer confidence took a hit as worries about jobs and wages increased, according to the Reuters/University of Michigan preliminary index of consumer sentiment. The August index dropped to 63.2--the lowest level since March--from 66 in July. In November, the measure reached a three-decade low of 55.3. Salaries have stagnated as a result of the worst employment slump in seven decades, which has negatively impacted even those Americans still employed, analysts said. In coming months, spending still will be depressed because of the need to rebuild savings after the record drop in wealth that occurred because of the nosedive in stock prices and home values, analysts said (Bloomberg.com Aug. 14) …

Bankruptcy filings up 38 CUs can expect more

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WASHINGTON (8/14/09)--Bankruptcy filings in the U.S.--both business and personal--rose sharply during the 12 months ended June 30, as the recession continued to take its toll. Credit unions can expect more members and businesses to file in coming months, despite the fact the recession will be technically over by year-end, said Steve Rick, senior economist with the Credit Union National Association (CUNA). Overall bankruptcy filings rose 35%, with 1.3 million bankruptcy cases filed in bankruptcy courts between July 2008 and June 2009. That is up from the 968,000 filed for the same period a year earlier, according to the Administrative Office of the U.S. Courts, which (Reuters Aug. 13). With an unemployment rate near 9.25% to 9/4%, credit unions will see an increase in bankruptcies among their members, said Rick. "Economists say we're coming out of a recession, but the unemployment rate likely will stay high for another year. Bankruptcies will go up. Roughly 247,000 people lost jobs last month. That's 247,000 prospective bankruptcies down the line. The recession will be technically over by the end of the year, but bankruptcies will be high through next summer," Rick told News Now. He noted foreclosures also are at record highs. "A lot of people are underwater with their homes as well as losing jobs." Credit risk has two components: collateral risk, which is going down, and default risk, which is going up, he said. Collateral risk or when the value of the home or car put up for collateral falls, is "huge," Rick said. Default risk involves the consumers' ability and willingness to pay back a loan. "Everything in the economy--housing prices, unemployment, wage cuts, furloughs, reduction of full-time jobs to part-time-- all that leaves consumers under financial stress. And they're not able to pay back their loans." To put the filings into perspective, Rick noted that one needs to look at bankruptcy filings before 2005, when the bankruptcy reform law went into effect, and during the last recession, in 2001. Second quarter's bankruptcy filings remain low compared with the period prior to the new law in 2005, according to Moody's Economy.com (Aug. 13). This also complicates interpretation of the data since some portion of the increase may be attributable to a slow return to a new equilibrium level after the reforms became law, Moody's said. Personal filings also remain below the level of the 2001-2004 period, when credit conditions were better. Total filings are predicted at 1.4 million this year, the highest since 2005, when consumers surged to file before the bankruptcy reform law went into effect. Second-quarter bankruptcy filings rose nearly 38% compared with second quarter a year ago. During second quarter, 381,000 bankruptcies were filed, up 15% from first quarter. The number of business failures rose 64% from second-quarter 2008, and Chapter 11 business filings more than doubled in the first half, compared to first-half 2008 (Reuters).

News of the Competition (08/13/2009)

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MADISON, Wis. (8/14/09)
* Second-quarter net-income at the Federal Home Loan Banks increased 56% from a year earlier to $1.12 billion. Net gains on derivative contracts and hedging activities of about $979 million benefited the 12 regional banks, analysts said. However, results were impacted by write-downs in the value of private-label mortgage securities--which are not backed by the U.S. government--of $437 million. Significant losses on these securities during the past year have depleted some of the home loan banks’ capital, analysts said (Dow Jones Newswires Aug. 12) … * The Libor-OIS spread--which indicates the reluctance among banks to lend--has narrowed to a level regarded as “normal” by Alan Greenspan, former Federal Reserve chairman. This adds to evidence that the U.S. credit market freeze is thawing, analysts said. The Fed said Wednesday that financial markets “improved further in recent weeks.” The spread dropped one basis point Thursday to 25 basis points--the least since Jan. 24, 2008. On Oct. 10, the spread jumped to 364 basis points after Lehman Brothers Holdings Inc. imploded in September. In June 2008, Greenspan said he wouldn’t think of the credit markets as being back to “normal” until the spread was at 25 basis points (Bloomberg.com Aug. 13) … * The five biggest U.S. credit card issuers cut aggregate consumer credit lines between October and July by 15%, totaling $480 billion in cuts, according to a Moody’s Investors Service report. The reduction was mostly made by closing inactive accounts, Moody’s said. However, the nominal credit line available to the average credit card borrower increased during that same period, Moody’s added. The company analyzed data submitted to the Treasury by American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc. and JPMorgan Chase & Co. (CardLine via American Banker Aug. 13) … * Bank of America Corp. (BofA) is suing troubled lender Colonial BancGroup Inc. for more than $1 billion in cash and loans. BofA also asked a federal court to order Colonial not to sell specified assets--which is causing the company further hardship, analysts said. BofA requested a temporary restraining order to prohibit Colonial from selling certain proceeds it received from Freddie Mac. Colonial faces a criminal probe by the U.S. Department of Justice regarding accounting irregularities at its mortgage lending unit, the company said Friday. Colonial warned that it could be placed under receivership (Reuters Aug. 13) … * Ford Motor Co.--in efforts to meet higher demand engendered by the government’s Cash-for-Clunkers program--is increasing its factory production by 26% in the second half of this year. The only major U.S. automaker to circumvent bankruptcy, Ford is increasing production 18% in the third quarter to 495,000 cars and trucks. In the fourth quarter, the automaker intends to boost plant output by 33%. Ford will increase production of its small Escape sport utility vehicle by bringing workers back from a scheduled shutdown at its Kansas City, Mo. factory, beginning Aug. 21-22. To increase output of its Focus small car model, the automaker is scheduling overtime and adding Saturday shifts at its Wayne, Mich., plant (Bloomberg.com and The New York Times Aug. 13) …

Market News (08/13/2009)

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MADISON, Wis. (8/14/09)
* There was an unexpected increase in the number of newly laid-off workers filing claims for unemployment benefits last week, while the number of continuing claims dropped significantly. Initial claims for unemployment benefits rose by 4,000 to 558,000 for the week ending Aug. 8. Analysts had expected the new claims to drop to 545,000. Continuing claims declined by 141,000 to 6.2 million in the week ending Aug. 1--which is still high by historical measures, analysts said. The driving force behind the moderation in net job declines is a slower pace of layoffs, they added. States with the biggest drop in claims include California (7,258), followed by Michigan, Tennessee, Florida and Georgia. Alabama had the largest increase in claims (721), followed by Washington, Nebraska, Kentucky and Delaware (The New York Times and Moody’s Economy.com Aug. 13) … * Optimism is growing among major U.S. employers, according to a new survey by consulting firm Watson Wyatt Worldwide Inc. The survey of human resource executives at 175 predominantly midsize and large U.S. firms indicates few are planning more layoffs and many are looking to do an about-face on cost-cutting initiatives such as salary freezes in the next few months. Specifically, the survey indicated that 33% intend to unfreeze salaries within the next six months and 79% within the next year. A similar survey conducted in June indicated that 17% of respondents said they planned to unfreeze salaries within six months. About 60% of responding companies had frozen salaries, according to the new survey. This month’s survey is in line with reports of recent declining job losses, analysts said (The Wall Street Journal Aug. 12) … * U.S. retail sales unexpectedly dropped 0.1% in July, the Commerce Department said Thursday. Economist surveyed had forecast a 0.1% gain. A spark provided by the Cash-for-Clunkers vehicle incentive program could not overcome other spending cuts, analysts explained. The decline--the first in three months--came on the heels of a revised 0.8% gain in June, which was larger than previously estimated, the Commerce Department said. July purchases, excluding automobiles, dropped 0.6%--also more than expected. The report highlights the threat to consumer spending that results from the job market’s continued deterioration, analysts said (Bloomberg.com and The Wall Street Journal Aug. 13) … * For the 10th straight month, total U.S. business inventories declined, falling 1.1% in June. Businesses are running down inventories to synchronize them with underlying demand, analysts said. Retail inventories declined 1%, according to a report from the Census Bureau. The I/S (inventory/sales) ratio fell to 1.38--a further improvement from the high of 1.46 earlier this year, they added. For almost a year, businesses have been lowering their inventories. As demand stabilizes, the rate of decline in inventories will soon moderate--a process that will provide a critical jumpstart to overall economic output in the second half of 2009 and in 2010, analysts said (Moody’s Economy.com Aug. 13) …

Fed rate inaction means more bottom-line pressure

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MADISON, Wis. (8/13/09)--The Federal Reserve policymakers' announcement Wednesday that the target fed funds interest rate range would stay steady at 0% to 0.25% is no surprise to credit unions, who will likely see an continued visibility in bottom-line pressures, said a Credit Union National Association (CUNA) economist. "The inactivity on the part of the Fed is no surprise," said Mike Schenk, CUNA senior economist and vice president of economics and statistics. "Most credit union managers anticipated that the Fed would stand pat. "The good news is that the inaction will mean the yield curve will remain steep, with a wide difference between the long-term and short-term rates. Credit unions will continue to see funding costs that trail asset yields by a significant margin," Schenk told News Now. "Of course, the bigger issue is what has been happening with balance sheet flows," Schenk said. "Savings are growing very quickly, and loan demand is relatively low. This means that investments will continue to grow quickly. But short-term investment yields will remain close to zero. So earnings pressures related to the changing asset mix may overwhelm the positive rate-related effects of a steep yield curve," he added. "The bottom-line pressures [for credit unions] are likely to continue to be obvious going forward," Schenk said. The decision of the Federal Open Market Committee (FMOC), which met Tuesday and Wednesday, was unanimous and based on information it received in June that suggests economic activity "is leveling out," the committee said. "Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit," FOMC said Wednesday. "Businesses are still cutting back on fixed investment and staffing, but are making progress in bringing inventory stocks into better alignment with sales," it added. "Although economic activity is likely to remain weak for a time, the committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a graduate resumption of sustainable economic growth in a context of price stability," FOMC stated. It noted prices of energy and commodities have risen but that "substantial resource slack is likely to dampen cost pressures, and the committee expects that inflation will remain subdued for some time." Under the circumstances, the Fed "will employ all available tools to promote economic recovery and to preserve price stability." Among them:
* Maintaining the target range for federal funds and anticipating conditions that are likely to warrant exceptionally low levels on the rate "for an extended time." * Keeping to the Fed's previous announcement that it would purchase up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. * Buying $300 billion of Treasury securities but gradually slowing the pace of these transactions, while anticipating that the full amount will be purchased by the end of October. FOMC said this was "to promote a smooth transition in markets as these purchases" are completed. * Continuing to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. "The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted," FOMC said.

News of the Competition (08/12/2009)

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MADISON, Wis. (8/13/09)
* The U.S. and Switzerland agreed to settle a U.S. Justice Department tax lawsuit against UBS AG that sought the names of Americans suspected of tax evasion conducted through 52,000 secret Swiss bank accounts. The two governments will sign a final accord later, Stuart Gibson, a Justice Department lawyer, told U.S. District Judge Alan Gold Wednesday in Miami. Gibson did not reveal settlement details or a timetable for when it would be delivered to Gold. The countries agreed in principle and asked Friday for more time to settle the case, Gibson told Gold. UBS is expected to disclose thousands of accounts after divulging data on 250 clients Feb. 18 to the Internal Revenue Service (IRS). Zurich, Switzerland-based UBS agreed at that time to pay $780 million to defer prosecution for tax evasion. Since then, three UBS clients pleaded guilty in the U.S. to hiding their assets from the IRS, and thousands sidestepped prosecution by voluntarily disclosing their accounts to the IRS in a program that ended Sept. 23, tax lawyers said (Bloomberg.com Aug. 12) … * Ben Bernanke should be reappointed to another term as Federal Reserve chairman, economists said in near-unanimity, according to a recent Wall Street Journal survey. The Journal surveyed 52 economists with 47 responding. Economists predict there is a 71% chance that President Barack Obama will ask Bernanke to remain in his position, the survey indicated. Most economists surveyed said the recession that started in December 2007 is over. Bernanke’s handling of the financial crisis should garner him another four years as Fed chief, respondents said (The Wall Street Journal Aug. 12) … * Second-quarter earnings for the Federal Agricultural Mortgage Corp.--known as Farmer Mac--rose 18% on significantly higher net investment gains, analysts said. Farmer Mac’s ongoing efforts to enhance its financial condition, mitigate risk and better its marketplace position are reflected in the results, said CEO Michael Gerber. He noted that Farmer Mac has a $100 million capital surplus--up from a March 31 level of $67 million and a Dec. 31 mark of $13 million. During the quarter, the company raised $20 million of capital associated with new business, Gerber added. In 1988, Congress created Farmer Mac to purchase mortgages and other loans that banks made to farmers and ranchers. Farmer Mac repackages the loans into asset-backed securities. After credit markets froze, the company’s business model was under duress, and a lending group’s $65 million capital infusion in October saved it. However, Farmer Mac’s losses stemmed from failed investments rather than poor lending standards as with Fannie Mae and Freddie Mac, economists said (Dow Jones Aug. 11) … * Nearly 25% of U.S. mortgage holders were underwater--or owed more on their mortgages than their homes were worth--in the second quarter, according to Zillow.com. That percentage could climb to 30% by mid-2010 as job losses and foreclosures increase, the Seattle-based real estate data service added. Home-price declines are hurting homeowners, analysts said. Second-quarter home median values for single-family homes fell to $186,500--a 12% decline from a year earlier and the 10th consecutive quarterly decrease, said Zillow in its Tuesday report. The company noted that home values in the second quarter declined from a year earlier in nearly 90% of the 161 U.S. metropolitan areas Zillow surveyed (Bloomberg.com Aug. 11) …

Market News (08/12/2009)

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MADISON, Wis. (8/13/09)
* The U.S. trade deficit grew 4% to $27.01 billion in June from a slightly revised $25.97 billion in May, the Commerce Department reported Wednesday. The deficit was attributed to costlier oil imports offsetting gains derived from exports of capital goods and industrial supplies. June is the first month that both gross exports and gross imports increased since June of 2008. The June deficit was lower than consensus expectations. A Dow Jones Newswires survey of economists forecast a $28.7 billion trade shortfall. Although the ongoing recession had dampened consumer demand and began to erode the big trade gap earlier this year, the recent uptick in oil prices drove the deficit back up, analysts said (The Wall Street Journal and Moody’s Economy.com Aug 12) … * Second-quarter existing-home sales showed robust gains from the first quarter in most states, according to the most recent survey by the National Association of Realtors (NAR). In most metropolitan areas, price declines have boosted affordability, NAR said. Overall state existing-home sales--which include single-family and condo sales--increased 3.8% to a seasonally adjusted rate of 4.76 million units the second quarter from 4.58 million units the first quarter. However, second-quarter sales are 2.9% below the 4.90 million-unit pace of second-quarter 2008. In this year’s second quarter, 39 states experienced sales increases from the first quarter, and nine states were higher than a year ago, NAR added (www.realtor.org Aug 12) … * The volume of mortgage applications decreased 3.5% on a seasonally adjusted basis from a week earlier to 499 from 517.3 for the week ending Aug. 7, according to the Weekly Mortgage Applications Survey’s Market Composite Index--a measure of mortgage loan applications volume. On an unadjusted basis, the index--released by the Mortgage Bankers Association--declined 3.7% compared with the previous week and rose 16.1% compared with the same week one year earlier. The seasonally adjusted Purchase Index rose 1.1%--the third gain in the last four weeks. The Refinance Index dropped 7.2%, as a result of the increase in the average 30-year fixed-mortgage rate--a turnabout from the prior week’s 7.2% increase (www.mbaa.org and Moody’s Economy.com Aug. 12) … * Based on indications that the worst recession since World War II could be ending, confidence in the world economy jumped to a 22-month high in August, according to a Bloomberg survey conducted on six continents. Bloomberg’s Professional Global Confidence Index leapt to 58.12 this month from 39.13 in July. It is the first time the reading exceeded 50 in the past 22 months, indicating optimists outnumbered pessimists. A gauge of U.S. participants’ confidence in the global economy increased to 47.3 from 29.5, the survey indicated (Bloomberg.com Aug. 12) … * Hiring remains weak and despite a respite in layoffs, a hiring improvement is necessary to turn around the labor market, the Job Openings and Labor Turnover Survey (JOLTS) for June indicated. The June number of job openings stayed roughly even with May at 2.6 million, while the number of June hirings dropped below 3.8 million from 3.9 million in May. The June hire rate was 2.9%. The number of June separations was roughly equal to May’s figure--4.3 million. The separations rate also was unchanged at 3.3% (Moody’s Economy.com Aug. 12) …

Market News (08/11/2009)

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MADISON, Wis. (8/12/09)
* With employers pulling as much as they can out of existing staff to maximize profits, second-quarter non-farm business productivity of U.S. workers rose at the fastest pace in nearly six years. Productivity, which indicates how much an employee produces for each hour worked, grew at a 6.4% annual pace--which exceeded forecasts--following a 0.3% rise the previous three months, according to Labor Department data issued Tuesday. Also, labor costs declined by the largest amount in eight years, the department said. With lower costs, companies may not need to cut as many workers as sales stabilize--which would be an initial step in curtailing the worst employment slump since the end of World War II, analysts said. Also, gains in worker productivity help keep inflation down--which allows Federal Reserve policymakers, who are meeting this his week, more time to remove stimulus, analysts said (Bloomberg.com and Moody’s Economy.com Aug. 11) … * In anticipation of the Federal Reserve’s Open Market Committee (FOMC) announcement about interest rates today, Wall Street experienced some slippage Tuesday. The FOMC also will explain how the economy is performing and what role the Fed will take going forward. Analysts predict the FOMC likely will give out a “stay-on-course” message today. Hardly anyone expects the Fed to raise interest rates from current levels of nearly 0%. However, investors likely will look to the Fed for its pronouncements on inflation, how quickly an economic recovery will occur, and the Fed’s purchases of more than $1 trillion worth of mortgage-backed securities and government bonds, analysts said (The New York Times Aug. 11). Watch News Now for a rates update this afternoon … * For the week ending Aug. 8, U.S. chain store sales remained basically unchanged, according to the International Council of Shopping Centers (ICSC) sale index. Also, year-ago growth is nearly flatlining with sales 0.4% higher than their year-ago level. The sales disrupted a string of four consecutive weeks with a small year-ago drop. A later start to the back-to-school shopping season aided sales. However, cooler-than-normal temperatures restrained sales somewhat, ICSC said. Also, consumer fundamentals remain mostly weak and not supportive of spending. Job losses remain the biggest and most important drag on spending, ICSC added (Moody’s Economy.com Aug. 11) … * Among college students who graduated with bachelor’s degrees in 2007-2008, roughly one-third had no debt at all--about the same as in the 2003-2004 academic year, the College Board said Tuesday. Although a small percentage of students borrow an extremely high amount, most students have manageable debt when they graduate, said Sandy Baum, the policy brief’s author. The median debt load was $19,999 for bachelor’s degree recipients who did not borrow--an increase of 5% from $18,973 four years earlier, according to figures from the federal Department of Education’s National Postsecondary Student Aid Study--which is conducted every four years. Roughly 6% who completed a bachelor’s degree or certificate--and 10% of those receiving a bachelor’s degree--borrowed more than $40,000, the brief said (The New York Times Aug. 12) …

News of the Competition (08/11/2009)

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MADISON, Wis. (8/12/09)
* One year after ending the practice, GMAC Inc.--the financing arm of General Motors Co.--said Monday it will resume leasing selected vehicles in most U.S. states. Leasing has been made more lucrative due to rising used-car values, the restructuring of General Motors Co. (GM) and better funding flexibility, the lender said. The GMAC program covers the Chevrolet Malibu, 2009 Cadillac CTS, Chevrolet Traverse, 2010 Buick Enclave, Buick LaCrosse, Chevrolet Equinox and GMC Acadia in 45 states. Also, GM announced Tuesday that its Chevrolet Volt extended-range electric vehicle will have a fuel rating of 230 miles-per-gallon when it is released in 2011. The rating assumes that all city driving would be conducted almost completely on the battery charge, analysts said. The fuel-economy rating--based on the Environmental Protection Agency’s criteria--would make the Volt the most fuel-efficient vehicle available, GM said. However, other manufacturers have not yet disclosed the gas mileage for their electric-model vehicles (Reuters Aug. 10 and The New York Times Aug. 11) … * Troubled loans on banks’ books still pose a risk, even though the Treasury Department’s $700 billion bailout program has stabilized the U.S. banking system, according to a report issued Tuesday by a congressional oversight panel. Originally, the Troubled Asset Relief program was designed so the government could purchase troubled and unsalable mortgages and mortgage-backed securities. However, the Treasury has not used the program to buy assets--partly because it was more expedient to invest money directly into U.S. banks and partly because banks were not willing to sell their problem loans and record the loss on their books, analysts said. “The nation’s banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell,” wrote the panel in the monthly report. Because of this, many banks could experience a shortage of capital if the economy goes south again and banks’ losses from troubled loans escalate, analysts said (The New York Times Aug. 11) … * Bankers now have an overview of the Federal Housing Administration’s (FHA) FHA 203(k) Home Rehabilitation Mortgage Insurance Program. The Office of the Comptroller of the Currency (OCC) recently published the program’s benefits in its Community Developments Insights report. The program makes available FHA mortgage insurance for loans that combine home purchase and rehabilitation financing. Loans to rehabilitate and refinance a borrower’s current resident area also are available. The program can reduce a lender’s risk while restoring some foreclosed U.S. properties and helping stabilize neighborhoods, said John C. Dugan, comptroller of the currency (Mortgageorb.com Aug. 7) … * Saying he needs more information from Bank of America (BofA) and the Securities and Exchange Commission (SEC), a federal judge Monday delayed a decision whether to approve a $33 million settlement on a lawsuit that alleges BofA did not disclose to investors that Merrill Lynch agreed to pays billions in bonuses on the eve of its merger with BofA. U.S. District Judge Jed S. Rakoff said at the hearing he wants more information about who was responsible for the alleged wrongdoing, the rationale for the settlement, and whether an evidentiary hearing should be conducted to assess the facts of the case. BofA and SEC lawyers will file papers to satisfy the judge’s request by Aug. 24 and file response papers by Sept. 9 (The Wall Street Journal Aug. 11) …

News of the Competition (08/10/2009)

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MADISON, Wis. (8/11/09)
* Three banks were closed Friday and have been purchased and assumed by other banks, the Federal Deposit Insurance Corp. (FDIC) announced Friday. Community First Bank, Prineville, Ore., with eight branches, has been acquired and deposits assumed by Home Federal Bank, Nampa, Idaho. Two Sarasota, Fla., banks will be purchased and their deposits assumed by Stearns Bank, National Association, based in St. Cloud, Minn. They are First State Bank, with nine branches, and Community National Bank, with four branches … * General Motors Co. (GM) says it will begin today to sell trucks and cars of the auction website, eBay, in an attempt to reach new prospective customers and boost its market share (The New York Times Aug. 11). The program will initially involve up to 20,000 vehicles from 225 dealerships in California. GM said it would expand the program nationally in September. At its portal, gm.ebay.com, which has the slogan, "Our best cars. Your best offer," shoppers can browse inventories, get answers to questions, negotiate prices and arrange financing. GM will be the first automaker to sell new models on eBay. More than three million used vehicles have been auctioned off previously by individuals and dealers on eBay Motors. GM considers the eBay partnership critical to returning to profitability after five years of losses. The auto manufacturer reorganized under a bankruptcy a month ago … * Discover Financial Services and said they are eliminating overlimit fees on consumer credit cards, which some point to as the first clear example of how a new credit card law will restrict issuers' profits. Amex will eliminate overlimit fees on all its consumer credit cards with its Oct. 1 billing statements, it said. However, it will continue to make point-of-sale decisions on whether to allow cardholders to make purchases that exceed their limit. Discover said it would start informing its cardholders soon that it will eliminate the fees. The law in question will restrict issuers' ability to raise interest rates and assess penalty fees by February. It was signed into law in May. Many issuers have anticipated the restrictions by hiking interest rates and fees on their existing cardholder accounts this summer (American Banker Aug. 10) … * Banks in the Northeast--particularly those in New England--are surviving the recession better than banks in the rest of the nation (American Banker Aug. 10). They outperformed banks in the West, South and Midwest on credit quality, deposit growth and loan growth, according to research firms Sandler O'Neill & Partners LP and KBW Inc's Keefe Bruyette and Woods Inc. Mark Fitzgibbon of Sandler O'Neill & Partners gave two reasons for the disparity by geography: Northeastern companies emerged from the early 1990s recession later than the rest of the country, learned their lesson and tightened their underwriting standards. And they had fewer construction loans because New England already is developed and there's less room to build …

Market News (08/10/2009)

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MADISON, Wis. (8/11/09)
* Federal Reserve policymakers, faced with a strengthening but fragile economy, are expected to keep interest rates at near zero this week. However, some analysts say that inflation concerns are growing and that could force the Fed eventually to boost the rates. Federal Reserve Chairman Ben Bernanke will convene the Federal Open Market Committee (FOMC) today for a two-day meeting on monetary policy. Among the items to address is whether to extend some of the asset-purchasing programs the Fed created to ease the financial crisis. Although no change in interest rates is expected, investors will be interested in whether the Fed sounds a note of cautious optimism in the FOMC's statement (USA TODAY and The Wall Street Journal Aug. 10) … * Commercial property values have dropped 35% since October 2007 and likely will be a significant drag on economic growth, according to Moody's Investor Service and Barclays Plc. (Bloomberg.com Aug. 10). Property owners are having difficulty refinancing nearly $165 billion in mortgages for shopping malls, hotels, and skyscrapers. The commercial real estate problems are preventing Federal Reserve Chairman Ben Bernanke from declaring the economy and financial markets "healed." Lawmakers such as Reps. Barney Frank (D-Mass.) and Carolyn Maloney (D-N.Y.) are advocating that the Fed extend its aid program to restore the flow of credit. The commercial real estate problems could force the Fed to leave the programs in place and keep its benchmark close to zero for longer than some investors expect. Bernanke told the Senate Banking Committee July 22 the Fed is "paying very close attention" on the real estate market … * Global business confidence took a positive turn last week for the first time since early October, according to Moody's Economy.com (Aug. 10) Survey of Business Confidence. The gain was felt in all global economy and industries, with assessments of the current economic environment and outlook into next year largely "upbeat." Business responses to questions about the strength of sales and hiring intentions remain negative on net but have notably improved in recent weeks. Weakest responses were from inventory investment and demand for office space, said Moody's … * Options traders are taking bets that the steepest rally in the Standard & Poor's 500 Index since the 1930s won't survive September, which is traditionally the worst month of the year for U.S. equities, says Bloomberg.com (Aug. 10). They expect the VIX, which gauges expected stock swings, to increase 13% in the next five weeks, based on futures prices at the end of last week. That would be the largest spread since August 2008, before the S&P 500 plunged into its steepest two-month drop in 21 years. Bloomberg's data, however, indicate the indexes have moved in the opposite direction 81% of the time the past five years. The S&P 500 has rallied 49 points in five months, pushing valuations to the highest levels since December 2004. Last week the S&P 500 gained 2.3% as home sales rose and the unemployment rate declined. Ronald Egalka, CEO of Rampart Investment Management, Boston, said the situation is "a danger sign," with people expecting volatility to pick up in the future. That would imply the market will go into a downward movement, he said …

Consumer credit down 5.25 for 2Q credit at CUs up

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WASHINGTON (8/10/09)--Overall consumer credit in the U.S. decreased at an annual rate of 5.25% during second quarter, according to statistics released Friday from the Federal Reserve. However, credit at credit unions was up. Revolving credit for the quarter decreased at an annual rate of 8.25%, while nonrevolving credit dropped at an annual rate of 3.50%. In June, consumer credit decreased at an annual rate of 5%. Credit totaled $2,502.7 billion, seasonally adjusted, in June, compared to $2,513 billion for May and $2,535.8 billion for first quarter. June's revolving credit totaled $917 billion and non-revolving credit added up to $1,585.7 billion, both seasonally adjusted. On a non-seasonally adjusted basis, credit for second quarter totaled $2,485 billion, compared with $2,516.9 billion first quarter. At credit unions, credit during second quarter--on a non-seasonally adjusted basis--totaled $235.9 billion. That compares with $235.6 billion in May and $234.8 billion for first quarter. Credit unions' revolving credit totals included $33.5 billion (out of a total $911 billion revolving credit) for June. That compares with $33 billion in May and $32.2 billion in first quarter. Non-revolving credit at credit unions for the period totaled $202.4 billion out of the total $1,574 billion overall. That compares with $202.6 billion in May and $202.7 billion during first quarter for credit unions. For the full report, use the resource link.

Market News (08/07/2009)

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Madison, Wis. (8/10/09)
* Job losses in the U.S. slowed more than expected during July, with 247,000 people losing their jobs after June's 443,000 job losses (revised from 467,000), reported the Labor Department Friday. The jobless rate dropped to 9.4% in July, from June's 9.5%., instead of increasing as expected. The unemployment rate was under 6% less than one year ago. Although economists expect businesses to continue cutting positions throughout the remainder of 2009, the figures were seen by some as a hopeful sign that the recession is ending (The New York Times Aug. 7). Mark Zandi, chief economist at Moody's Economy.com suggested that the economy is going from "massive job losses to just big job losses on our way to a stable market," which he expected by next spring. Others said the unemployment rate declined because roughly 400,000 discouraged job hunters have left the labor force. Manufacturing shed 52,000 jobs, compared with 131,000 in June. Auto manufacturing posted a rare increase, likely because seasonal layoffs failed to occur last month (The Wall Street Journal Aug. 7). July's numbers brought total jobs lost since the recession began in December 2007 to roughly 6.7 million--the largest decline in any post-World War II economic slump, said Bloomberg.com (Aug. 7) … * Another positive statistic from the Labor Department's unemployment report for July: the slight increase in the length of the work week--to 33.1 hours from 33 hours. This is the first increase since August and is a sign that employers are not scaling back work hours to cut payroll costs (The New York Times Aug. 7). The aggregate hourly index, a proxy of gross domestic product growth, was flat, which suggests the economy is close to bottoming our, according to Moody's Economy.com (Aug. 7). Over the past three months, the index has dropped at a 6.1% annualized rate … * Economists say the Obama administration's $787 billion economic stimulus package, passed by Congress nearly six months ago, has helped blunt the economic downturn and helped the economy begin to bottom out faster than it would have without the program (The New York Times Aug. 7). The stimulus package's tax cuts had less effect, they said, because people saved the money or used it to pay down debt rather than spend it. The White House has estimated the stimulus program injected about $100 billion into the economy through June. Some analysts said it added at least one percentage point to economic growth during second quarter--not enough to prevent the economy from shrinking and joblessness from increasing, but enough to slow the pace of the decline, compared with first quarter. Analysts are predicting the stimulus program could lift economic growth by as much as three percentage points in the coming months, which would allow the economy to expand at an annualized rate of nearly 3% by fourth quarter of this year … * Inflationary pressures in the U.S. for July are subdued, reports the Economic Cycle Research Institute's Future Inflation Gauge for North America (Moody's Economy.com Aug. 7). July's inflation gauge rose to 84.6 from 81.7. However, a smoothed-out annualized growth rate rose to -8.6% from -18.9%. The gauge has reported four consecutive gains. While low by historical standards, the rate may be a starting point to emerging inflation pressures down the road, said Moody's. Inflationary pressures began easing in late 2005, with the last high at 125.1 in October of 2005. Moody's also said inflation is not an immediate concern because the recovery from the recession will be gradual. Still, despite the positive unemployment rate reports from Friday, the labor market strain remains significant, with job losses continuing. A weak economy, said Moody's, leaves little room for businesses to raise prices and for workers to negotiate wage increases …

News of the Competition (08/07/2009)

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Madison, Wis. (8/10/09)
* During second quarter Fannie Mae lost $14.8 billion, or 36.2% less than in the first quarter. However, the amount is more than six times that of second quarter 2008 (American Banker Aug. 7). Most of the losses stemmed from credit expenses, which declined to $18.8 billion--a 10% drop from the previous quarter. That figure is more than three times credit expenses for the same period last year. The government-sponsored enterprise also said that its regulator, The Federal Housing Finance Agency, has requested another $10.7 billion from the Treasury Department to cover the GSE's net-worth deficit. If the funds are granted, the government would have invested a total $45.9 million in Fannie … * CIT Group Inc., a New York-based lender trying to avoid bankruptcy, has suspended dividend payments on four series of preferred stock. The move is to improve liquidity and preserve capital, CIT spokesman Curt Ritter told Bloomberg.com (Aug. 7). However, Sean Egan, president of Egan-Jones Ratings Co., based in Haverford, Pa. noted the actions are consistent with a company preparing to file for bankruptcy. Other analysts said that if the company succeeds in its tender for August notes, lenders should make the company restructure out of court through debt exchanges with a pre-packaged bankruptcy option. CIT Group reported $3 billion in losses the past eight quarters … * The Federal Reserve Board's lending to weak financial institutions increased dramatically last week--to $870 million from $121 million a week earlier. The loans outpace the previous record of $140 million on May 20 and is the most lent this year. The Fed didn't say whether the $870 million was one loan or multiple loans. Lending through the Fed's discount window declined 3.8% --to $105.7 billion--during the past week, the Fed said Wednesday. Loans to commercial banks dropped to $33.2 billion, a decline of 8.8%. Loans based on asset-backed commercial paper through money market mutual funds dropped by a whopping 86% to $113 million (American Banker Aug. 7) … * The American International Group (AIG) reported Friday its net income for second quarter is $1.8 billion, compared with a loss of $5.3 billion in second quarter 2008. The federal government, which became the insurance giant's largest shareholder after bailing AIG out last fall, will receive $1.5 billion of the profits. That means a profit of $311 million or $2.30 a share for the company. Chairman/CEO Edward M. Liddy said factors driving the profit include a slowdown in investment losses that partly resulted from an accounting change, and general improvement in market conditions (The New York Times Aug. 8) … * Goldman Sachs Group Inc. says its mortgage lending unit, Litton Loan Servicing LP, will rework mortgages under the Home Affordable Modification Program pushed by the Obama administration. Litton said that it has offered more than 38,000 modifications since March to homeowners struggling and added it has the infrastructure to make the modifications. Litton President/CEO Larry B. Litton Jr. said that in the 12 months prior to the program's implementation, his company modified more than 44,000 loans or 10% of its portfolio (American Banker Aug. 7) … * Payment processor ACI Worldwide reported last week its second-quarter revenue, totalling $87.2 million, is down 22% from a year earlier, and that it was posting a net loss of $3.2 million, compared with $1.3 million in income a year ago. The New York-based company said that during second quarter 2008, it signed several major deals and rolled out new services, and that the 2008 figures were driven upward by $15 million in initial licensing fees paid by customers to sign up for its payments services. The services were introduced in Europe and the Middle East (American Banker Aug. 7) …

News of the Competition (08/06/2009)

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MADISON, Wis. (8/7/09)
* Maurice “Hank” Greenberg, former American International Group (AIG) chairman, will pay $15 million to settle a lawsuit by the Securities and Exchange Commission (SEC), which could be filed this week. The suit comes after more than four years of investigation and a federal government bailout of the firm he helped build into the largest global insurer. Previously, Greenberg said he would contest the allegations against him. He was ousted in 2005 amid accusations of accounting fraud in a probe conducted by then-New York Attorney General Eliot Spitzer into reinsurance--the business of selling insurance to insurers. The company later restated $3.4 billion in earnings. AIG agreed to pay more than $1.6 billion in 2006 to settle SEC and state claims that it misled investors (Bloomberg.com Aug. 6) … * A federal judge has put the brakes on a settlement related to the acquisition of Merrill Lynch by Bank of America (BofA). The settlement between the Securities and Exchange Commission (SEC) and BofA would resolve SEC allegations that BoFA made false and misleading statements to shareholders about bonuses promised to Merrill employees. Judge Jed Rakoff of the U.S. District Court in Manhattan said in a Wednesday order that the settlement could be unfair to the public. He set a hearing date on the matter for next Monday. BofA has agreed to pay $33 million in an agreement with the SEC to settle the case (The New York Times Aug. 6) … * With the suspension of Taylor, Bean and Whitaker Mortgage Corp. as a member of the Federal Housing Administration’s (FHA) list of lenders, cash-poor consumers could have a more difficult and expensive time financing their home purchases, analysts said. Citing possible fraud, the FHA Tuesday suspended Taylor Bean--it third-largest lender. The SEC action could result in the dissolving of Taylor Bean, said David Lykken, managing partner at Mortgage Banking Solutions--a consulting firm in Austin, Texas. If Taylor Bean shutters its business, mortgage rates could go up as lenders face less competition, said Michael Moskowitz, president of Equity Now Inc., a home lender, which last sold a loan to Taylor Bean about a year ago (Bloomberg.com Aug. 5) ... * A least three European card networks that would compete with systems operated by MasterCard Inc. and Visa are being developed by European network executives. Colruyt Group, a Belgian retailer, is set to test the Payfair debit card, beginning in October at five stores, with a wider rollout anticipated in 2010. Some of Europe’s largest banks, including Deutsche Bank AG of Germany and two French banking companies--BNP Paribus and Societe Generale--are proposing to roll-out a system called Monnet. Another proposal is geared toward unifying several of Europe’s many national debit networks. However, analysts say alternative payment networks will need substantial time and effort to effectively compete with well-established card networks such as MasterCard and Visa (American Banker Aug. 6) …

Market News (08/06/2009)

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MADISON, Wis. (8/7/09)
* Signaling that some employers have quit cutting employees as the recession moderates, U.S. initial jobless claims declined last week more than economists had predicted. For the week ending Aug. 1, applications dropped by 38,000 to 550,000--the fifth straight week that claims were below 600,000. They had been above that level since the beginning of the year, according to U.S. Labor Department figures. Economists had forecast the claims would drop to 580,000. However, the total number of people collecting unemployment insurance increased. Continuing claims rose by 69,000 to 6.31 million for the week ending July 25, which is high in relation to historical trends, analysts said. Although slowing unemployment claims growth is a good sign for the economy, there is still a long way to go before the labor market is healthy, they added. The pace of job cuts isn’t falling quickly enough to keep overall unemployment from increasing, and declining home values and stagnate wages will result in a slow recovery in consumer spending--which accounts for roughly 70% of the economy, analysts said (Bloomberg.com and Moody’s Economy.com Aug. 6) … * U.S. mortgage rates dropped for the first time in three weeks, increasing the possibility of a further strengthening of the housing market, analysts said. The average 30-year rate fell to 5.22% from 5.25%, Freddie Mac said Thursday. For the week ending Thursday, the 15-year rate averaged 4.63%. In this fourth year of the housing recession, lower interest rates could spark demand for homes, analysts said. Spurred by declining home prices and a government tax credit, new- and existing-home sales increased in June, they added. By implementing a program to purchase securities backed by mortgages, Federal Reserve Chairman Ben Bernanke is attempting to lower loan costs (Bloomberg.com Aug. 6) … * Retail same-store sales in July remained sluggish although they beat forecasters’ low expectations. Leaner inventories that resulted in fewer clearance options, changes in tax holidays and cooler weather were reasons for forecasters’ poor July expectations, analysts said. Although government subsidies appear to have jumpstarted sales of new cars and homes, they seem to have drained enough discretionary income to harm retailers’ July sales, they added. For the most part, discounters--which have held the line during the recession--reported lower sales results. Costco Wholesale Corp. reported a 2% U.S. drop, excluding gasoline. Target Corp. continued to struggle with a worse-than-predicted 6.5% decline. Overall chain store sales, excluding Wal-Mart, dropped 5% in July, according to the International Council of Shopping Centers. The drop followed declines of 5.1% in June and 4.6% in May (The Wall Street Journal and Moody’s Economy.comAug. 6) … * Reasoning that the recession is “deeper” than previously believed, the Bank of England decided Thursday to enlarge its asset-purchasing plan, even though it said the British economy is showing hopeful signs. The bank’s policy committee voted to expand the amount of assets it planned to purchase--mainly government bonds--by 50 billion pounds--or $85 billion. This amount is in addition to the 125 billion pounds--or $212 billion-- already spent. Also, the bank voted to keep its benchmark interest rate unchanged at a record-low 0.5% (The New York Times Aug. 6) …

News of the Competition (08/05/2009)

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MADISON, Wis. (8/6/09)
* The Internal Revenue Service (IRS) is working on regulations for how merchant acquirers should report their customers’ card payments. Starting Jan. 1, 2011, financial institutions that pay merchants settlements for their card transactions must report these payments. However, the IRS is likely to require reporting entities to include a merchant’s legal name--as opposed to its “doing business as” name, according to Paula D. Porpilia, a principal at TIN Compliance Consultants. Omission of the proper legal name could result in an IRS penalty, she added. During the next 10 years, the reporting requirement could engender $10 billion in additional tax revenue from small-business revenues that may be going uncollected, analysts said (American Banker Aug. 5) … * Faster new-vehicle rollout was mandated by the General Motors Co. (GM) board at its first meeting. It was a sign that the new 13-member board will take on a wider role than the old one, analysts said. Although GM would not specify which vehicles will be pushed to market, Edward Whitacre Jr., GM board chairman, said Wednesday that the board is emphasizing fuel efficiency and other areas. The automaker ended July with 18.9% of the U.S. market--down from 20.5% a year ago. In the 1950s, GM controlled more than 50% of the market (The New York Times Aug. 5) … * After turning a second-quarter profit, Ocwen Financial Corp. said it intends to raise $250 million through a public offering of common stock to stoke its growth. The loan servicing company, based in West Palm Beach, Fla., earned $17.8 million on second-quarter revenue of $109.1 million. For the same period in 2008, Ocwen lost $2.7 million on revenue of $131.2 million. The company intends to acquire more loan portfolios to service, said William Erbey, Ocwen chairman/CEO. Erbey also said he is evaluating several servicing portfolios that are for sale. As of June 30, Ocwen has serviced $38.4 billion in loans (South Florida Business Journal Aug. 4) … * The world’s largest private equity firm may report its first profit in a year. Blackstone Group LP said the value of its holdings have bounced back along with financial markets, resulting in a second-quarter gain of nine cents per share. That excludes costs connected to its public offering, according to a Bloomberg survey of seven analysts. In the same period in 2008, Blackstone saw a gain of 15 cents per share--the last time the company created a profit for its investors. A second-quarter 20% gain in global stock markets could allow Blackstone to sell investments through public offerings, analysts said (Bloomberg.com Aug. 5) ...

Market News (08/05/2009)

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MADISON, Wis. (8/6/09)
* Downsizing of U.S. companies continued in July but at a slower rate compared with earlier in the year, according to a report from Challenger, Gray and Christmas Inc. Companies and nonprofits/government increased job cuts by 97,373 in July--up from June’s tally of 74,393. In spite of the uptick, the July total was significantly less than job cuts announced earlier in the year and is 6% below the year-ago level. The transportation industry, which announced plans to cut 27,954 positions, led the July increase. It was followed by telecommunications with 17,601 job cuts; non-profit/government with 7,131; industrial goods with 6,548; and financial services with 5,030. The slower pace of job cuts in recent months could indicate some degree of stabilization in economic conditions, analysts said. However, job cuts have a tendency to follow seasonal patterns, and the late spring and summer months usually experience the least number of cuts, they added (Moody’s Economy.com Aug. 5) … * The Market Composite Index--a measure of mortgage loan application volume--rose to 517.3 for the week ending July 31, a 4.4% increase, seasonally adjusted, from one week earlier. The index is part of the Weekly Mortgage Applications Survey issued by the Mortgage Bankers Association (MBA). The index increased 4.1% compared with the previous week and 18% compared with the same week one year earlier, on an unadjusted basis. Also, the Refinance Index rose 7.2% from the previous week to 1,996.7. The index has increased roughly 35% above its recent low at the end of June. Although these increased measures are encouraging, erratic mortgage rates, rising unemployment, falling house prices and still-tight credit conditions are deterring home purchases, analysts said. However, home sales likely have bottomed out, they added (www.mbaa.org and Moody’s Economy.com Aug. 5) … * With concerns about rising unemployment affecting consumers, U.S. service industries shrank at a faster-than-expected pace in July. The Institute for Supply Management’s index of non-manufacturing businesses--which constitute almost 90% of the U.S. economy--dropped to 46.4 from 47 in June. The dividing line between expansion and contraction is 50. Most of the economy has not reaped the benefits from government programs, such as the “cash-for-clunkers” auto-purchase incentive plan, aimed at revitalizing manufacturing, analysts said. Consumer spending will be slow to recover due to stagnate wages, declining home values, increasing bankruptcies and the highest jobless rate in 25 years, they added (Bloomberg.com Aug. 5) … * In the most recent sign that the struggling U.S. manufacturing sector is recovering, factory orders posted an unexpected gain in June, rising for the fourth time in five months, analysts said. Factory orders increased 0.4%, following a 1.1% uptick in May. Economists had anticipated a 1% decline, according to a Thomson Reuters survey. Orders for nondurable goods such as chemicals and textiles jumped 2.7%--the most since June 2008--and were the driving force behind the overall increase, analysts said. With oil prices rising, orders for petroleum and coal products leapt 13.2%. Orders for durable goods--high-priced items such as appliances and aircraft--dropped 2.2% (The New York Times Aug. 5) …

News of the Competition (08/04/2009)

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MADISON, Wis. (8/5/09)
* When it comes to modifying loans for struggling homeowners, Bank of America Corp. (BofA) and Wells Fargo & Co. are the worst-rated performers among the largest U.S. banks, said a Treasury Department report. Under the federal government’s Making Home Affordable program, BofA began trial loan modifications on just 4% of its eligible loans, the report indicated. Wells Fargo had a 6% rate; JPMorgan Chase & Co., 20%: and CitiGroup Inc., 15%. Several of the loan servicers were expected to implement the modifications “better, faster and more consistently,” and to do more to implement the modifications, said Michael Barr, assistant Treasury secretary for financial institutions. To date, the anti-foreclosure program has placed 235,247 borrowers on the loan-modification path out of about four million targeted for help (Bloomberg.com Aug. 4) … * In the Obama administration’s efforts to assist struggling homeowners, only 9% of eligible borrowers have received trial home-loan modifications, according to a U.S. Treasury Department report released Tuesday. The performance of participating mortgage servicers in the Making Home Affordable loan modification program has been “uneven,” the administration said Tuesday. It is asking servicers to more than double the total of trial modifications by Nov 1. Currently, 235,247 modifications have been started. Also, the administration said it has asked Freddie Mac to audit loan modification applications that have been rejected. In the meantime, the Treasury announced Tuesday plans to provide monthly transparency reports on loan modifications (Dow Jones Newswires Aug. 4) … * Bank of America (BofA) will pay $33 million to settle a civil lawsuit brought by the Securities and Exchange Commission (SEC). The suit alleges BofA misled shareholders regarding roughly $5 billion in bonuses promised to Merrill Lynch & Co. employees when BofA bought the struggling firm during the peak of the financial crisis last year. In settling the lawsuit, BofA neither admitted nor denied wrongdoing. BofA called the settlement a “constructive conclusion” to the situation. The size of the Merrill bonuses outraged the American public and became emblematic of the over-the-top compensation for Wall Street executives. Despite taking excessive risk, their companies were bailed out by the taxpayers via government. BofA said it didn’t support the bonuses but felt compelled by federal regulators to accept them to finish the Merrill deal quickly (The Wall Street Journal and the New York Times Aug. 4) … * Struggling Alabama lender Colonial Bancorp Inc. said it received a search warrant connected to a federal investigation into the U.S. bank rescue program. Colonial, who has not received Troubled Asset Relief Program (TARP) funds from the Treasury Department, did not reveal the impetus for the warrant. The lender said last week that its survival was uncertain. TARP’s inspector general and the Federal Bureau of Investigation are conducting the probe, said a source familiar with the matter (Bloomberg.com Aug. 3) ...

Market News (08/04/2009)

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MADISON, Wis. (8/5/09)
* U.S. personal incomes sustained the biggest decline in four years, falling 1.3% in June. The decline was more than the 1%-drop forecast and signals that consumer spending will need time to recover, analysts said. Also, June’s figures mean private wages and salaries declined for four consecutive months, sliding a seasonally adjusted $28.6 billion after an $11.2 billion decline a month earlier. Although consumers spent more in June, it was because food and energy prices rose--not because they were ready to spend freely again, analysts said. Personal incomes slid because employers continued to trim wages and cut back on hours, they added. Also, the personal saving rate--which had been increasing--fell steeply from May as one-time government transfer payments stopped arriving in consumers’ bank accounts, analysts said (The New York Times and Bloomberg.com Aug. 4) … * Pending home sales rose for a fifth consecutive month--the first time in six years (July 2003) such a streak has been recorded, according to the National Association of Realtors (NAR). The pending home sales index--a forward-looking indicator based on contracts signed in June--rose 3.6% between May and June to 94.6, exceeding expectations for a smaller 1.5% increase, analysts said. A combination of positive factors is creating the gains, according to Lawrence Yun, NAR chief economist. “Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines,” he said. “Activity has been consistently much stronger for lower-priced homes. Because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by Nov. 30” (www.realtor.org and Moody’s economy.com Aug 4) … * New-vehicle sales in July leapt to a seasonally adjusted annualized sales rate of 11.2 million units in July. The increase was attributed to the government’s popular “cash for clunkers” incentive--which gives car buyers up to $4,500 for trading in older, gas-guzzling vehicles for more fuel-efficient cars. About 250,000 car buyers took advantage of the offer, analysts said. Cars accounted for most of the additional sales, and most automakers improved their sales with the “clunkers” incentive. The 16% month-to-month increase in the annualized sales rate was the largest gain since 0% financing began in October 2001. However, despite July’s significant improvement, sales are still well below the auto industry’s decade-long average sales rate of 16 million units. Consumers will continue to be buffeted by the shrinking labor market, declining income and house prices, and shaky consumer confidence, analysts said (Moody’s Economy.com Aug. 3) … * When buying U.S. home-loan bonds, investors should be “cautious” because the housing slump hasn’t diminished as much as home-price data suggest, said analysts at Barclays Capital Inc. A rally primed by cash “spilling in from the sidelines” may fade out within months, wrote Barclays analysts Ajay Rajadhyaksha and Glenn Boyd in a Friday report. Although an S&P/Case-Shiller index for May indicated a 2% seasonally adjusted annualized drop--the first month-over-month price increase since 2006--a more-true reading would have been a 10% to 15% annualized decline, they wrote. “Absent a sustained improvement in home prices, we do not see any change in the fundamental outcome for residential credit defaults and losses,” the Barclays’ analysts wrote (Bloomberg.com Aug. 3) …

News of the Competition (08/03/2009)

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MADISON, Wis. (8/4/09)
* A fifth regional bank was shut down by regulators Friday in addition to four others News now has already has reported. That brings the tally for U.S. failed banks to 69 this year. Mutual Bank in Harvey, Ill., was the most recent and largest bank to fail Friday. It had total assets of $1.6 billion and deposits of $1.6 billion. The bank’s 12 branches reopened Saturday as branches of United Central Bank of Garland, Texas. United Central assumed all Mutual Bank’s deposits. Also failing on Friday were First BankAmericano, Elizabeth, N.J.; Peoples Community Bank, West Chester, Ohio; Integrity Bank, Jupiter, Fla., and First State Bank, Altus, Okla. (CNN.Money.com July 31) … * U.S. banks that received federal bailout funds are helping the government keep in check the costs of borrowing by increasing their purchases of Treasuries, analysts said. Bank holdings of U.S. government securities rose 15.6% from a year ago--which is nearly double the 8% average annual growth rate since 1973 when the Federal Reserve began tracking this type of data. As sales of corporate bonds and federal agency debt of companies such as Fannie Mae slow, lenders will look for places to put their rising deposits. That means purchases of government securities may accelerate, analysts said (Bloomberg.com Aug. 3) … * Lisa Madigan, Illinois attorney general, filed a lawsuit Friday against Wells Fargo--the second largest U.S. mortgage lender--for allegedly steering blacks and Latinos into expensive subprime mortgage loans. “As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities’ predominantly African-American and Latino neighborhoods into ground zero for subprime lending,” said Madigan in a statement. The illegal sales practices caused high foreclosure rates, Madigan alleged (Reuters July 31) … * Ford Motor Co.’s “cash for clunkers” program--which gives car buyers up to $4,500 for trading in older, gas-guzzling vehicles for more fuel efficient cars--has pushed the car company to its first monthly sales increase since 2007, analysts said. The program sparked industry-wide deliveries of new vehicles to the highest levels for the year. Buyers used subsidies to trade in older models for new cars and lighter trucks with better fuel efficiency, using up the $1 billion available under the federal Car Allowance Rebate System in less than a week. The House approved an additional $2 billion for the program Friday. The Obama administration will continue offering the incentives until the Senate votes on more funding this week, said Transportation Secretary Ray LaHood (Bloomberg.com Aug. 3) …

Market News (08/03/2009)

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MADISON, Wis. (8/4/09)
* In the most recent sign the U.S. housing sector might be recovering, construction spending increased in June for the second time in three months as residential building rose. Construction spending rose by a seasonally adjusted annual rate of 0.3% for the month, according to the Commerce Department. Analysts had expected a 0.5% drop. However, construction spending of $965.7 billion is 10.2% lower than the year-ago level. After falling 3.1% in May, residential construction rose at a 0.5% rate. The data come after reports a few days ago that new- and existing-home sales increased in June, and construction of new homes rose by the largest amount in eight years (The New York Times Aug. 3) … * U.S. manufacturing shrank less than forecast in July and at the slowest pace in 11 months, according to the Institute for Supply Management. The institute’s factory gauge increased to 48.9--an 11-month high--from 4.8 in June. Readings below 50 indicate a contraction. The index has been recovering from December’s low of 32.9. The factory downturn is abating due to improving demand for products from overseas, fewer inventories, and reduced cutbacks in business investment, analysts said. These developments indicate that the worst recession since the Great Depression in the 1930s will end this year, they added. Also, the federal “cash-for-clunkers” program is sparking demand for cars. However, escalating unemployment may dampen the economy’s recovery, analysts said (The Wall Street Journal and Bloomberg.com Aug. 3) … * With scant credit and declining rental income making it more difficult for borrowers to pay debt, late payments and defaults on loans bundled into commercial mortgage-backed securities (CMBS) could top 7% by year-end, according to research firm Reis Inc. The most recent time that the overall commercial delinquency rate rose above 6% was 1991 in the wake of the savings and loan crisis, Reis said. “It would not be surprising to see delinquency rates rise past 7% by the end of the year,” Reis analysts Christopher Stanley and Kyle McLaughlin wrote in the company’s quarterly CMBS report. “Downward pressure on net operating income and declining property values continue to make refinancing for existing loans a challenge.” CMBS constitute roughly 22% of the country’s $3.4 trillion in commercial real estate debt, according to the Real Estate Roundtable. The recession and credit crisis are reducing occupancies for apartment buildings, offices, shopping malls, hotels and warehouses and increasing defaults for CMBS in the $700 billion U.S. market, analysts said (Bloomberg. com July 30) … * Profits from tax refund anticipation loans are declining to the point that some in the industry think they will disappear. Consumers have been less inclined to pay extra cash for quicker refunds during the ongoing recession, analysts said. Also, proposed federal regulatory reforms would increase scrutiny on the loans. Another factor that could lead to their demise: the Internal Revenue Service is updating its computer systems to process refunds faster. The loans, which financial institutions issued to underbanked consumers, were once profitable products, analysts said. Many credit unions participating in Volunteer Income Tax Assistance programs have helped members avoid taking out refund anticipation loans (American Banker Aug. 3) …