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Market

News of the Competition (08/31/2010)

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MADISON, Wis. (9/1/10)
* U.S. lenders posted their largest quarterly profit in nearly three years, but the list of problem banks rose 11% to 829, the Federal Deposit Insurance Corp. (FDIC) said today. Commercial banks and savings institutions insured by the FDIC reported an aggregate profit of $21.6 billion in the second quarter of 2010, a $26 billion improvement from the $4.4 billion net loss the industry posted in the second quarter of 2009. This is the highest quarterly earnings total since the third quarter of 2007. Despite the improvement, earnings remain below historical norms. On the positive side, one in five institutions reported a net loss for the quarter, compared to almost one in three (29%) a year earlier, the FDIC said. Also, the average return on assets, a basic yardstick of profitability, rose to 0.65%, from a negative 0.13% a year ago. “This is the best quarterly profit for the banking sector in almost three years,” said FDIC Chairman Sheila C. Bair. “Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend.” For the FDIC Quarterly Report, use the link … * Large U.S. banks say that expanding the use of fair-value accounting in the U.S. would not only cause conflict with convention in other parts of the globe--it also would put at risk the Financial Accounting Standards Board’s (FASB) stated goal of merging U.S. and international accounting standards (American Banker Aug. 31). That point was made in a letter that the Financial Services Roundtable wrote in response to FASB’s request for public comment on the proposed rule. The Financial Services Roundtable lobbies on behalf of 100 of the top banks, credit card companies, insurance and securities services firms operating in the U.S. The Credit Union National Association (CUNA) raised general concerns with FASB prior to the issuance of the proposal, and CUNA remains concerned about the proposed changes (News Now Aug. 3). CUNA has been working with its accounting subcommittee to identify key problems and frame its message to FASB, and will also be working with the National Credit Union Administration and other policymakers to ensure credit union concerns are presented to and considered by FASB. The proposed changes, as set forth in a FASB exposure draft released in May, would modify generally accepted accounting principles by requiring most financial instruments to be measured at fair value, CUNA said. In addition, the changes would require loan loss reserves to be measured on a forward-looking “expected loss” basis. This differs from the current method, which uses a historical “incurred loss” approach ...

Market News (08/31/2010)

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MADISON, Wis. (9/1/10)
* Home prices in 20 U.S. cities rose in June because of the effects of the government tax credit for home buyers (The New York Times Aug. 31). Prices rose 1% in June from May--the third consecutive monthly increase, according to the Standard & Poor’s Case-Shiller 20-city home price index released Tuesday. Nationwide, the index increased 4.4% in the second quarter after falling 2.8% in the first quarter. In the nationwide index, home prices are 3.6% above their levels for the second quarter one year ago. However, there is reason for caution. “The numbers were inflated by the homebuyer tax credit,” said David Sloan, a senior economist at 4Cast Inc. “The numbers will be going down in the coming months. We could see some significant declines” (Bloomberg.com Aug. 31) … * A small improvement in the short-term outlook led to a modest rise in U.S. consumer confidence in August, according to a report released Tuesday by the private research firm The Conference Board (The New York Times Aug. 31). The board’s index of consumer confidence increased to 53.5 in August from an upwardly revised 51 in July. The increase should somewhat ease concerns of a double-dip recession (Moody’s Economy.com Aug. 31). The expectations component led the August gain, rising to 72.5 from 67.5, Moody’s said. The present situations component fell to 24.9 from 26.4. A decline in assessments of current labor market conditions contributed to weaker assessments of current conditions. However, consumers became more positive about the prospects for the labor market, Moody’s said … * August U.S. auto sales may have hit a 28-year low for the month because model-year closeout sales did not bring in enough consumers to make purchases (Bloomberg.com Aug. 31). Consumers stayed away from auto purchases because they are concerned about a worsening economy and the possibility that they may lose their jobs, Bloomberg said. A report to be released today on industrywide deliveries may show an annualized rate of 11.6 million vehicles in August--which would be the slowest August since 1982, according to Ward’s AutoInfoBank. Last year, the government’s “cash for clunkers” incentive program boosted August sales to 14.2 million--18% above this year’s pace, Bloomberg said. “Home sales are way down, the stock market is way down, the unemployment report is very disappointing and consumer confidence is sputtering,” said Jesse Toprak, vice president of industry trends at TrueCar.com. “People just don’t want to make big-ticket purchases because they’re uncertain about their jobs and the value of their homes” …

News of the Competition (08/30/2010)

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MADISON, Wis. (8/31/10)
* Some retailers may limit the type of prepaid cards they sell--or even stop offering them altogether--if a recent proposal geared to curbing money laundering goes into effect, predicted banking industry observers (American Banker Aug. 30). The proposal, if approved, would limit access to what has evolved into an increasingly popular financial tool for the underbanked, the publication said. The Financial Crimes Enforcement Network’s proposal would mandate that retailers collect identifying information when selling prepaid cards to customers. Also, retailers would have to store the data for up to five years, among other requirements, the Banker said. The network closed its comment period Friday on the proposed changes in Bank Secrecy Act rules. The plan was issued in June as part of a requirement of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, the publication said … * Freddie Mac bought fewer refinanced loans in July than in June despite a recent jump in refinance activity, reported American Banker (Aug. 30). Freddie said it bought $18.1 billion of refinanced loans in July--5% fewer than in June, according to its most recent monthly activity report. Other report highlights: Freddie issued $26.6 billion of mortgage-backed securities in July--a 9% drop from June--and 3.89% of Freddie’s single-family loans were 90 days or more past due in July--down seven basis points from June …

Market News (08/30/2010)

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MADISON, Wis. (8/31/10)
* Americans spent money last month at the fastest pace in four months because of a spike in automobile demand (The New York Times Aug. 30). Consumer spending increased 0.4% in July following three slow months, the Commerce Department said Monday. Although the July spending gain was the highest since a 0.5% rise in March, there are worries that if unemployment remains near double-digit levels, demand could fall off in the second half of the year, the Times said. Disposable incomes--money left after taxes--fell for the first time since January--indicating a lack of jobs could prevent a boost to spending (Bloomberg.com Aug. 30). “It’ll be a real slog,” said Stephen Stanley, chief economist at Pierpont Securities LLC. “We’ll see very slow growth, but it’s a far cry from a double dip.” Many U.S. consumers put money aside because of high unemployment and weak household balance sheets (The Wall Street Journal Aug. 30) … * Worldwide business sentiment is fragile, declining at the end of August and substantially since peaking in spring, according to Moody’s Analytics Survey of Business Confidence. Confidence has weakened globally and throughout all industries--particularly in businesses’ assessments of present conditions and their outlook into early 2011, Moody’s Analytics said. Survey positives are that hiring and investment intentions have remained fairly steady. Sentiment is consonant with a worldwide economy that continues to grow--but below its capacity, Moody’s Analytics said. South American businesses still are the most positive, while U.S. and Japanese companies are the most pessimistic, the survey indicated … * In another indication that U.S. consumers are exerting more control over their debt, late payments on auto loans declined in the second quarter by the largest amount in nine years (The New York Times and Dow Jones Newswires via The Wall Street Journal Aug. 30). The rate of payments 60 days or more past due dropped to 0.53% of outstanding auto loans from 0.73% a year ago, according to credit reporting agency TransUnion. “The national trend we are seeing continues to point to a clear improvement in payment behavior,” the company said in a statement Monday. “Although part of the reason for the turnaround in delinquency rates is the influence of new, lower-risk loans, consumers do not see a quick fix to the short-term economic and employment situation” …

News of the Competition (08/27/2010)

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MADISON, Wis. (8/30/10)
* Because mortgage-loan servicers are not initiating or processing foreclosures at a rate that is up to their potential, a predicted flood of U.S. foreclosures has not happened (American Banker Aug. 27). Banks and other investors have positioned themselves to gain from the slow healing of the real estate market by postponing the date at which they lock in losses, the Banker said. However, industry executives are questioning whether delaying foreclosures is set to backfire, the publication said. The stall of the overall housing market evidenced in July sales data may in part be due to the refusal to quickly foreclose on and sell distressed homes at inventory-clearing prices. That also may increase the probability of more defaults, the Banker said … * Some buyers of failed banks have realized a net bargain-purchase gain from the failed bank’s assets, according to data compiled by Foresight Analytics (American Banker Aug. 27). Roughly 32%, or 47 of the 146 banks that acquired a failed bank from Jan. 1, 2009, through Aug. 19, 2010, have recorded such a gain, the publication said. [The gains] “came at a very important time, when banks are doing everything they can to post positive earnings or boost capital,” Matt Anderson, a managing director at Foresight Analytics, told the Banker. “For some of these banks, it turned negative earnings into a positive” …

Market News (08/27/2010)

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MADISON, Wis. (8/30/10)
* The U.S. economy grew at a 1.6% annualized rate--less than previously calculated--in the second quarter, with corporate profits diminishing--additional evidence the economic recover is weakening (The Wall Street Journal Aug. 27). The revised gain in gross domestic product compares with a 2.4% estimate issued last month, the Commerce Department said Friday (Bloomberg.com Aug. 27). Second-quarter corporate profits rose at the slowest rate in a year, and employee wages in the past three months were revised lower, Bloomberg said. “The economy has slowed a bit and will probably continue to slow through the second half,” said John Silvia, chief economist at Wells Fargo Securities LLC. “We’re skating on thin ice, and we don’t have a lot of margin for error.” Second-quarter corporate profits arising from current production increased by $73 billion, because companies experienced stronger demand (Moody’s Economy.com Aug. 27.) Although the economic recovery is continuing, it remains fragile, Moody’s said … * U.S. consumer sentiment slid in late August from earlier in the month, but still rose from late July despite poor housing and labor conditions, according to the Thomson Reuters/University of Michigan’s Survey of Consumers (The New York Times Aug. 27). The overall index of consumer sentiment in the survey’s final August reading was 68.9--less than the 69.6 recorded earlier in the month. However, that’s above the 67.8 seen at the end of July--the lowest level since November, the Times said. A lack of consumer confidence portends the possibility of a consumer spending slump (Bloomberg.com Aug. 27). “Consumers are not convinced about this recovery,” said Daivd Semmens, an economist at Standard Chartered Bank in New York. “They’re feeling they don’t need to be spending. It’s a major worry for the second-half outlook” …

News of the Competition (08/26/2010)

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MADISON, Wis. (8/27/10)
* Amid growing concerns that the economy is weakening, U.S. mortgage rates dropped to the lowest level in decades for the ninth time in the past 10 weeks (The New York Times Aug. 26). The average rate for a 30-year fixed loan was 4.36% this week--down from 4.42% last week, mortgage buyer Freddie Mac said Thursday. This week’s rate is the lowest since Freddie started tracking rates in 1971, the Times said. The average rate on a 15-year fixed loan fell to 3.86% from 3.90% last week--the lowest on record since tracking began in 1991 … * The adoption of a “living will” could have prevented much of the turmoil surrounding the collapse of Lehman Brothers Holdings Inc., said the court-appointed trustee overseeing the liquidation of the company’s broker-dealer business (Dow Jones NewsWires via American Banker Aug. 26). In a report filed Wednesday in U.S. Bankruptcy Court in Manhattan, James W. Giddens said that because the firm did not have a disaster plan, it “contributed to the chaos” of its bankruptcy and the failure of its brokerage. “One possible step forward would be a regulatory requirement that each broker-dealer and, where owned by a holding company, its parent, have in place an up-to-date liquidation plan that could be monitored by regulatory authorities,” Giddens wrote ...

Market News (08/26/2010)

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MADISON, Wis. (8/27/10)
* The number of U.S. homes headed for foreclosure fell in the second quarter for the first time since the housing slump began in 2006, according to the Mortgage Bankers Association (MBA). However, the number of homeowners newly delinquent on their mortgage payments increased, MBA said (The New York Times Aug. 26). In the second quarter, the percentage of loans in the foreclosure process declined to 4.57% from 4.63% in the first quarter--due in part to the impact of temporary home-buyer tax credits and lender efforts to ease payments for homeowners, MBA said in its quarterly delinquency report. “On the surface, there is good news on the foreclosure front, but not on short-term delinquencies,” said Jay Brinkman, MBA chief economist. “There’s a little pause. It could be short-term factors instead of a trend.” The second quarter saw the first gain in early delinquencies (one overdue payment) in more than a year (Bloomberg.com Aug. 26). One-month-overdue home loans rose to 3.51% from 3.45% in the first quarter, MBA said. The gain indicates a slowing economy could increase foreclosures as mortgage holders lose their jobs, Brinkman said. “As we work through the bucket of troubled loans, we’re seeing an increase in a new crop of troubled loans,” Brinkman said. “It’s primarily driven by the jobs market. It still takes a paycheck to make a mortgage payment” … * U.S. business investment is slowing down and soon may impact the job market, further impeding an economic recovery in the largest global economy (Bloomberg.com Aug. 26). Previously one of the few positives in the recovery, capital spending fell in July, the Commerce Department said Wednesday. Employers are hesitant to hire more staff until they see more indications of durable growth, Bloomberg said. “If capital spending does weaken further, then that raises some concerns about labor demand and whether firms want to increase hires,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. A decline in private payrolls “would raise some concern about whether the recovery is proceeding or not” he added. “If you see a couple of months of decline, you’d be more confident that we actually were in a recession” … * U.S. initial claims for unemployment benefits last week decreased more than anticipated--the first decline in month--a ray of hope after many troubling economic reports The New York Times (Aug. 26). Claims fell by 31,000 for the week ended Aug. 21 to a seasonally adjusted 473,000, the Labor Department said Thursday. “Even before the recent uptick, the trend had been moderately high and that’s consistent with a lackluster pace of job growth,” Scott Brown, chief economist at Raymond James & Associates Inc., told Bloomberg.com (Aug. 26). “The private sector really hasn’t recovered enough.” Last week’s drop followed a sharp increase the prior three weeks that sent claims to their highest level in nine months. That increased fears that businesses were beginning to lay off more workers, the Times said. Meanwhile, continuing claims for unemployment fell 62,000 to nearly 4.46 million for the week ended Aug. 14 (Moody’s Economy.com Aug. 26) ...

News of the Competition (08/25/2010)

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MADISON, Wis. (8/26/10)
* Starting next year, the Internal Revenue Service (IRS) plans to require companies to provide a brief description of their uncertain tax positions and their rationale--in essence offering a road map for auditors to follow (The New York Times Aug. 24). There is a lot at stake, said the Times. This year, companies in the Fortune 500 reported more than $200 billion in uncertain tax positions--which exceeds the $138 billion in corporate taxes paid last year. The plan is intended to make tax collections more efficient and to urge businesses to comply more closely with the law, said Douglas H. Shulman, the IRS commissioner who wrote and is promoting the plan. “We are moving away from what I would describe as a contentious relationship, where we spend too much time identifying issues, to one where we know the issues from the outset and spend our time engaging on appropriate issues,” he said … * As it aims to bolster its image as a company adviser rather than a $900 billion hedge fund, Goldman Sachs Group Inc. is losing market share underwriting corporate bonds (Bloomberg.com. Aug. 25). Wall Street’s most profitable firm dipped to 10th place in assisting companies worldwide raise debt--down from ninth last year and a third-place high in 2003, according to Bloomberg-compiled data. “Goldman is struggling a little bit here,” said Richard Bove, an analyst at Rochdale Securities. “It has to overcome some pretty sizable public relations issues, which are related to the way it does business and the products it creates. The company is good enough to overcome all of this stuff, but it would be hard for me to imagine that there’s no impact as a result of what we’ve seen over the last 12 to 18 months,” Bove added … * Capital Bancorp Ltd. has divested itself of its 14th entity since April 2009--this time its 51% stake in the $64 million-asset, Geneva, N.Y.-based USNY Bank (American Banker Aug. 25). The completion of the transaction, which closed half of the 14 divestitures, was announced Monday. The USNY sale is part of a strategy to get rid of banks as a way to bolster capital shrunken by credit losses, the Banker said.

Market News (08/25/2010)

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MADISON, Wis. (8/26/10)
* New U.S. home sales in July fell to the lowest level on record, signaling that the housing market is receding, even with lower home prices and reduced borrowing costs (Bloomberg.com Aug. 25). Purchases declined 12% from June to an annualized pace of 276,000--the lowest since data tracking began in 1963, the Commerce Department said Wednesday. The median home price of $204,000 was the lowest since 2003. A lack of jobs and mounting foreclosures are hurting new-home demand, Bloomberg said. “The housing market’s recovery has taken a big step back,” said Ryan Sweet, a senior economist at Moody’s Economy.com. “The improvement in the labor market is showing signs of fatigue, and potential buyers are content to sit on the sidelines, which is understandable considering we have a near double-digit unemployment rate.” The months of housing supply on the market rose to 9.1 in July from 8 in June (Moody’s Economy.com Aug. 25). In a related matter, the Federal Housing Finance Agency’s purchase-only house price index declined 0.3% in June from May … * Mortgage application loan volume increased 4.9% for the week ended Aug. 20 on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 4.5%. The Refinance Index went up 5.7% and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 0.6%. The unadjusted Purchase Index decreased 1.1%, compared with the previous week, and was 38.8% lower than the same week one year ago. “The volume of refi applications last week was up 26% over their level four weeks ago,” said Michael Fratantoni, MBA vice president of research and economics. “Mortgage rates dropped to their lowest level in the survey, going back to 1990, as incoming data continue to indicate that economic growth has slowed. We are at a new 15-month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity,” Fratantoni said. For the MBA report, use the link … * Orders for U.S.-manufactured durable goods grew less than anticipated in July because gains in orders for cars and civilian airplanes were offset by declines outside the transportation sector (The Wall Street Journal Aug. 25). Durable-goods orders increased 0.3% to a seasonally adjusted $193.02 billion, the Commerce Department said Wednesday. Economists had expected a 2.8% gain, according to a Dow Jones Newswires survey. The factory activity pullback likely will contribute to growth deceleration in the second half of 2010, said Bloomberg.com (Aug. 25). “Even manufacturing, one sector consistently making jobs, is showing signs of fatigue,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Businesses appear to be buying new equipment simply to replace old gear or boost efficiency rather than expand already-bloated capacity,” he added …

News of the Competition (08/24/2010)

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MADISON, Wis. (8/25/10)
* Wells Fargo & Co. is jumping back into the commercial mortgage-backed securities (CMBS) market that led to the demise of the bank it bought in 2008 for $12.7 billion--Wachovia Corp. (Bloomberg.com Aug. 24). “We believe there is going to be a resurgence of CMBS, and we are investing in anticipation of it,” said Ed Blakey, head of commercial mortgage lending and servicing for Wells Fargo. “Our pipeline is growing and we intend to be a leader of this market.” During the past three months, Wells Fargo added more than 20 bankers and support personnel to increase loan originations and bundle them into CMBS, Blakey said. Wells expects to sell bonds, but it did not specify a date, Bloomberg said … * American International Group Inc. (AIG) said Monday it is making its largest repayment of bailout loans so far by using the proceeds of its recent debt sale to pay back nearly $4 billion in taxpayer aid (The New York Times Aug. 23). International Lease Finance Corp.--insurer AIG’s aircraft leasing company--completed the sale of $4.4 billion in debt. AIG will repay the Federal Reserve Bank of New York using more than $3.9 billion of the proceeds, the Times said. The payment will reduce the balance of AIG’s credit line with the Fed to roughly $15 billion--or $21 billion when interest is added, the Times said... * U.S. financial institutions continue to borrow less from the Federal Reserve’s discount window, according to a monthly Fed report released Monday (Dow Jones via American Banker Aug. 24). As of July 28, credit outstanding to banks totaled $100 million, the report said. Lending through the Fed’s discount window still is low, rising to $57 million as of Aug. 18 from $1 million a week earlier, according to the most recent Fed data on commercial borrowing, released last week. At that time, total discount window borrowing was broadly unchanged at $61.92 billion, down from $62.23 billion ...

Market News (08/24/2010)

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MADISON, Wis. (8/25/10)
* Existing U.S. home sales in July nosedived to their lowest level in 15 years, with housing inventories escalating. That indicates a weak housing market--without government support such as the homebuyer tax credit--in a depressed economy (The Wall Street Journal Aug. 24). Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2% to a seasonally adjusted annual rate of 3.83 million units in July. The sales decreased from a downwardly revised 5.26 million in June, and are 25.5% below the 5.14 million-unit level in July 2009, according to the National Association of Realtors (NAR). Sales are at the lowest level since the total existing-home sales tracking launched in 1999, and single family sales--accounting for the bulk of transactions--are at the lowest level since May 1995. Lawrence Yun, NAR chief economist, said a soft sales pace likely will continue for a few additional months. “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired,” Yun said. “Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September. However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs. Even with sales pausing for a few months, annual sales are expected to reach five million in 2010 because of healthy activity in the first half of the year. To place [that] in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years,” Yun added. For the NAR report, use the link ... * Although the housing market and U.S. economy have shown some signs of improvement, the economic recovery is not a sure thing, said Charles Evans, president of the Federal Reserve Bank of Chicago (Bloomberg.com Aug. 24). “Although there are some signs of general economic recovery and some evidence of home-price stabilization, we are certainly not out of the woods,” Evans said. The recovery “seems to be extremely modest,” he added. By reinvesting maturing mortgage-backed securities to bolster a slowing economic recovery, the Fed decided Aug. 10 to keep its bond portfolio at $2.05 trillion. Unemployment in 2011 likely will drop to the “low eights,” Evans said. July’s jobless rate was 9.5%. “A double-dip [recession] is not the most likely outcome but I am concerned about how strong the recovery will be,” Evans said (The New York Times Aug. 24) …

News of the Competition (08/23/2010)

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MADISON, Wis. (8/24/10)
* Eight banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 118, compared with 140 failures for all of 2009. Friday’s failed banks include Sonoma Valley Bank, Sonoma, Calif., assumed by Westamerica Bank, San Rafael, Calif.; Butte Community Bank, Chico, Calif., assumed by Rabobank, National Association (N.A.), El Centro, Calif.; Los Padres Bank, Solvang, Calif., assumed by Pacific Western Bank, San Diego; ShoreBank, Chicago, assumed by Urban Partnership Bank, Chicago; Community National Bank at Bartow, Bartow, Fla., assumed by CenterState Bank of Florida, N.A., Winter Haven, Fla.; Imperial Savings and Loan Association , Martinsville, Va., assumed by River Community Bank, N.A., Martinsville, Va.; Independent National Bank, Ocala, Fla., assumed by CenterState Bank of Florida, Winter Haven, Fla.; and Pacific State Bank, Stockton, Calif., assumed by Rabobank, N.A., El Centro, Calif. The eight closed institutions held roughly $4.41 billion assets as of June 30. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $474 million ... * Although the recent federal financial reform law ended pre-emption of mortgage lenders operating as subsidiaries of national banks, those banks now have a choice (American Banker Aug. 23). One option is to keep their mortgage subsidiaries as they are--which would place them under the purview of several state consumer protection laws. The other option is to roll up their subsidiaries, thereby maintaining the federal pre-emption shield but losing the practical advantages of keeping the mortgage business in a stand-alone unit, the Banker said. Most institutions likely will opt for the roll-up option, reasoning that eventually states will try to compel operating subsidiaries and potentially their individual loan officers to earn state licenses, according to industry lawyers, the publication said … * Commercial and industrial loans for U.S. banks increased $3.5 billion to roughly $1.245 trillion for the week ended Aug. 11--the most recent week for which data is available--the Federal Reserve said Friday. Revolving home equity loans declined $100 million to $594.4 billion from $594.5 billion in the prior week (Dow Jones NewsWires via American Banker Aug. 23) …

Market News (08/23/2010)

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MADISON, Wis. (8/24/10)
* The U.S. housing slump may stop the economic recovery and drag it into recession (Bloomberg.com Aug. 23). When the federal tax credit for first-time homebuyers expired at the end of April, home sales imploded, Bloomberg said. “If foreclosures continue to mount and depress home prices, that could send the economy back into recession,” said Celia Chen, an economist for Moody’s Analytics Inc. “The housing market and the broader economy are closely intertwined.” In the second quarter, spending on home construction and related items such as furniture and appliances accounted for roughly 15% of gross domestic product, said Moody’s Analytics. July sales of existing homes nosedived 12.9% from June--the largest monthly loss of 2010, according to economists surveyed by Bloomberg. Even if housing recovers, home ownership likely will never again provide rewards such as those in the second half of the 20th century, when housing yielded a sizable nest egg for home owners, said many real estate experts (The New York Times Aug. 22). “There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for real estate site Zillow. “All those theories advanced during the boom about why housing is special--that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land--didn’t hold up” … * The average interest rate on existing credit cards hit 14.7% in the second quarter--up from 13.1% a year earlier, according to Synovate, a research firm, and a unit of Aegis Group PLC. That level is the highest since 2001 (The Wall Street Journal Aug. 23). The gap between the prime rate--the benchmark against which card rates are set--and the average of credit card rates is 11.45 percentage points--the largest in 22 years, according to a Synovate estimate …

News of the Competition (08/20/2010)

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MADISON, Wis. (8/23/10)
* In the biggest takeover of a U.S. bank since late 2008, First Niagara Financial Group Inc. Thursday agreed to acquire NewAlliance Bancshares Inc. for $1.5 billion (The Wall Street Journal Aug. 20). The deal between the two robust financial institutions sparked speculation that a burst of consolidation--which has been long expected--is about to start among banks still solvent, but that continue to struggle with poor loan growth and new regulations that will hurt the industry for years, the Journal said. “When the industry heals itself a little bit further, we will see a lot of other deals,” said John Duffy, CEO of investment banking firm Keefe, Bruyette & Woods Inc. Within the next decade, the 7,932 U.S. banks and savings institutions will shrink to roughly 5,000 because of mergers and failures, Duffy predicted … * MasterCard Inc. intends to buy DataCash Group LLC--a European payment processor--for $520 million in a deal that aims to grow the card company’s electronic-commerce business (The Wall Street Journal Aug. 20). MasterCard will pay DataCash shareholders 360 pence per share--a 54% premium. The move will allow the company to grow its business online by stimulating increased use of MasterCard-branded cards for online purchases in Europe and help its launch of e-commerce products, the company said …

Market News (08/20/2010)

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MADISON, Wis. (8/23/10)
* The number of U.S. mass layoffs--involving at least 50 workers from a single establishment--dropped in July because fewer auto manufacturing layoffs offset minor deterioration in the rest of the economy (Moody’s Economy.com Aug. 20). Mass layoffs fell to 1,609 in July from 1,647 in June, according to the Bureau of Labor Statistics. The layoffs involved 143,703 workers, compared with 145,538 in June. Because vehicle sales slowly rose the past year, automakers kept plants open this summer. Normally the manufacturers shut down the plants in July. The lack of shutdowns kept mass layoffs down, Moody’s said. Construction layoffs continue at an above-average pace, with the industry dampened by a soft housing market. State and local governments still are the biggest drag on the labor market because budget-balancing layoffs continued through July, Moody’s said … * To prevent funds from being drained from the financial system, the Federal Reserve bought $3.609 billion of Treasuries last week (Bloomberg.com via American Banker Aug. 20). The purchase is part of the Fed’s program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent a drain, Bloomberg said. The Fed acquired seven of 27 maturities listed for possible purchase. The securities will mature from November 2016 through May 2017. Since the policymakers began the program Aug. 17, the purchases have totaled $6.16 billion--the first outright acquisition of U.S. debt by the Fed since October, Bloomberg said.

News of the Competition (08/19/2010)

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MADISON, Wis. (8/20/10)
* Bonneville Bancorp is prohibiting signature-based debit payments in some states to fight fraud (American Banker Aug. 19). The move is meant to ensure its customers use their personal identification number (PIN) codes to bolster security for debit purchases. Bonneville’s website has a notice, warning that because of “high amounts of fraudulent card activity in California, Florida and Georgia,” customers in those states must use their PIN codes for any debit transactions. “No signature transactions will be allowed,” the notice added, said the Banker. Although PIN numbers lend an additional security layer, signature debit transactions usually earn issuers more money. Industry observers say banks almost never determine their fraud losses to be high enough to switch off the revenue source of signature debit transactions, the publication said … * U.S. banks with large mortgage-servicing portfolios could sustain a multi-billion-dollar regulatory capital hit if proposed updates to the Basel accord go through, reported American Banker (Aug. 19). Mortgage-servicing assets would be counted as 10% of Tier 1 capital at most--and even less if the bank has substantial holdings of deferred tax assets or other intangible assets, per the capital and liquidity package that the Basel Committee on Banking Supervision issued in July. The proposal is significantly more severe than the U.S.’s current 50% cap, although it is more favorable toward domestic banks than an earlier version, the Banker said. The adoption of the rule by U.S. and international regulators is still uncertain--and its date of implementation is years away, the publication said …. * Saying the complaint was too long and not factual enough, a judge dismissed a class action lawsuit against Raymond James Financial (American Banker Aug. 19). The lawsuit accused the brokerage of reserving insufficient cash for loan losses. However, U.S. District Judge Robert Patterson in Manhattan said Monday he did see enough facts to prove Raymond James intended to deliberately defraud investors by under-funding, and then misled them about the adequacy of its reserves …

Market News (08/19/2010)

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MADISON, Wis. (8/20/10)
* For the second time in four months, the Conference Board’s index of U.S. leading economic indicators rose in July--prolonging a see-saw pattern that portends reduced growth through the end of 2010 (Bloomberg.com Aug. 19). The 0.1% gain in the private research firm’s gauge of the economy’s prospects in the next three to six months follows a 0.3% decrease in June that was larger than originally estimated and the largest since February 2009. “Economic growth is going to be slow in the second half, and we might face something a little more ominous than that,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC. “[Recent economic data] have shown marked deceleration in economic activity or even some pull-back,” he said. Key drags in July arose from building permits, consumer expectations and the real money supply (Moody’s Economy.com Aug. 19). The leading index’s small gains are consistent with an expectation for a slow recovery pace heading into 2011, Moody’s said ... * Initial claims for unemployment benefits rose by 12,000 to 500,000 last week, indicating the labor market is weakening (Moody’s Economy.com Aug. 19). Initial claims have risen by a cumulative 40,000 for the three consecutive weeks and are at their highest level since November. The elevated level is troubling because seasonal layoff factors have abated, making this most recent reading relatively clean, Moody’s said. Layoffs by state and local governments, and to a substantially lesser extent the loss of temporary Census jobs, likely have added to the rise in new filings the past few weeks, Moody’s said. Meanwhile, continuing claims declined by 13,000 to roughly 4.48 million for the week ended Aug. 7 ...

News of the Competition (08/18/2010)

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MADISON, Wis. (8/19/10)
* During the recession, the banking industry’s portion of debt held by the financial sector dipped, although it has remained relatively steady overall for the past 10 years (American Banker Aug. 18). However, many forces could change the balance, including the decline of private sector borrowing, virtually nonexistent securitization, and wholesale changes in regulation that impact banks’ competitiveness, the publication said. Debt held by the banking industry decreased 0.8 point from the third quarter of 2007-- just before the recession started--as a portion of total financial sector lending to 29.9% in the fourth quarter, according to Federal Reserve data. Buoyed by the consolidation of off-balance-sheet vehicles under new accounting rules, it bounced back to 31.2% in the first quarter, the Banker said … * U.S. banks are confronting a new round of losses from mortgage loans made just before the financial crisis, and the battle to keep them off their balance sheets is intensifying (The Wall Street Journal Aug. 18). Meanwhile, mortgage delinquencies are easing. Fannie Mae and Freddie Mac--the two government-owned finance agencies that guaranteed mortgages--are leading the effort to make originators repurchase their loans, the Journal said. Fannie and Freddie are reviewing the delinquent loans for any violations of the representations and warranties. This amounts to looking for lies made by borrowers and lenders in filling out loan applications, the Journal said. Banks are fighting back. “It’s a loan-by-loan fight,” said Brian Moynihan, CEO of Bank of America. “This will be a war that that will go on for a while” ... * Borrowing could initially become more expensive and economic growth stifled because of new international regulations on how much capital banks are required to hold, according to two studies released Wednesday by central bankers and regulators writing the new rules (Then New York Times Aug. 18). However, the economic effects will be less than anticipated, and--down the road--more stringent regulations will create more growth by preventing future bank crises, said the studies. The studies were published by the Financial Stability Board and Basel Committee on Banking Supervision--whose members include central bankers and regulators for the U.S., Europe, China and other major countries. The studies contradict assertions made by the banking industry that the new regulations could hurt growth, the Times said. The World Council of Credit Unions is working with the committee to ensure credit union interests are addressed …

Market News (08/18/2010)

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MADISON, Wis. (8/19/10)
* Mortgage loan application volume for the week ended Aug. 13 rose 13% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 12.4%. The Refinance Index went up 17.1% and was the highest Refinance Index observed in the survey since the week ending May 15, 2009. The seasonally adjusted Purchase Index decreased 3.4%. The unadjusted Purchase Index declined 4.6% and was 38.6% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index rose 2.6%. The four-week moving average is up 0.1% for the seasonally adjusted Purchase Index, while this average increased 3.2% for the Refinance Index. For the MBA report, use the link … * The U.S. economy created 6.6 million new jobs during fourth quarter 2009, while losses moderated to 6.8 million--the lowest number since the early 1990s, according to the Bureau of Labor Statistics (Moody’s Economy.com Aug. 18). Although fourth-quarter job creation improved--compared with the first-quarter of 2009’s trench--it remained weak. The difference between gains and losses was the smallest since early 2008--indicating net job gains will return in 2010, Moody’s said. Education/healthcare remained the one industry that created the most jobs, compared with jobs lost. The boost at year-end put gross hiring at the average of the previous 10 years, Moody’s said …

News of the Competition (08/17/2010)

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MADISON, Wis. (8/18/10)
* A federal judge has refused to approve the Securities and Exchange Commission’s (SEC) $75 million settlement with Citigroup, stemming from the bank’s alleged failure to disclose roughly $40 billion in subprime securities (Dow Jones Newswires via American Banker Aug. 17). Citing a lack of “sufficient information” to approve the deal, U.S. District Court Judge Ellen Segal Huvelle asked both parties to file legal briefs to support the settlement. The SEC sued Citigroup in July, alleging the bank understated its exposure to subprime assets in 2007 by nearly $40 billion. Citigroup misled investors during conference calls, when it said its sub prime exposure was $13 billion, when it actually was more than $50 billion, the SEC alleges … * Because consumers reduced mortgages and credit card accounts, U.S. household debt dropped 1.5% in the second quarter, according to a quarterly survey by the Federal Reserve Bank of New York (Bloomberg.com Aug. 17). Total consumer indebtedness was $11.7 trillion at the end of June--down 6.5% from its peak in the third quarter of 2008, the survey indicated. For the first time since early 2006, household delinquency rates decreased in the second quarter, falling to 11.4% of outstanding debt from 11.9% on March 31, said the New York Fed. “Major declines in house prices and the continuing high level of unemployment are reflected in the various measures of household debt and credit,” said Wilbert van der Klaauw, vice president in the research and statistics group at the New York Fed … * U.S. banks said they have eased lending standards for small businesses--the first such move since 2006, the Federal Reserve reported in a survey on lending practices (USA Today Aug. 17). The largest U.S. banks have done the most easing, Fed said. The most improvement occurred in loan categories in which banks faced competition. Many business owners have said they cannot obtain credit to expand, according to the Fed …

Market News (08/17/2010)

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MADISON, Wis. (8/18/10)
* U.S. industrial production increased more than expected in July, 1%, after a dip in June, in a sector that has helped drive the recovery (The Wall Street Journal Aug. 17). Industrial production rose 1% in July after having edged down 0.1% in June, and manufacturing output moved up 1.1% in July after having fallen 0.5% in June, according to the Federal Reserve Board. A large contributor to the jump in manufacturing output in July was an increase of nearly 10% in the production of motor vehicles and parts. Even so, manufacturing production, excluding motor vehicles and parts, advanced 0.6%. The output of mines rose 0.9%, and the output of utilities increased 0.1%. At 93.4% of its 2007 average, total industrial production in July was 7.7% above its year-earlier level. The capacity utilization rate for total industry moved up to 74.8%, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009. For The Federal Reserve release, use the link … * U.S. producer prices on finished goods rose in July--for the first time since March--boosted by higher costs for food and passenger cars and trucks (The New York Times Aug. 17). However, the increases were slight, indicating the weak economy is not triggering widespread price increases, the Times said. Producer prices rose 0.2% in July, and the month’s gain reverses consecutive declines in the previous three months (Moody’s Economy.com Aug. 17). Weakening growth in the U.S. and globally is evident from falling core prices for crude and intermediate goods from their elevated levels earlier in the year, Moody’s said. High and rising unemployment is keeping inflation pressures in check, Moody’s added … * Bankruptcy filings rose 20% in the 12-month period ending June 30, according to statistics released today by the Administrative Office of the U.S. Courts. A total of 1,572,597 bankruptcy cases were filed in federal courts in that period, compared to 1,306,315 bankruptcy cases filed in the 12-month period ending June 30, 2009. This is the highest number of bankruptcy filings for any period since many of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect. For U.S. Courts release, use the link …

News of the Competition (08/16/2010)

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MADISON, Wis. (8/17/10)
* One bank was taken over Friday by regulators and has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total for bank failures to 110, compared with 140 failures for all of 2009. Friday's failed bank was Palos Bank and Trust Company, Palos Heights, Ill., assumed by First Midwest Bank, Itasca, Ill. The closed institution held roughly $493.4 million in assets as of June 30. The FDIC estimated that the bank's failure will cost the Deposit Insurance Fund about $72 million ... * Led by JPMorgan Chase & Co. and Morgan Stanley, Wall Street banks could make a combined $120 million on General Motors Co.’s initial public offering (IPO). However, the banks could have collectively made four times that amount if it weren’t for Goldman Sachs Group Inc. making an offer to the U.S. Treasury Department in May to accept a fee of 0.75%, said sources familiar with the matter (Bloomberg.com Aug. 16). That percentage is a fraction of the 3% banks usually charge the biggest IPOs and significantly below the 2% offered by Bank of America Corp. and other banks that presented to Treasury, said the sources. Although Goldman Sachs did not get the top role in the IPO, the government imposed the fee presented by Goldman President Gary Cohn and his five-person team on all underwriters, which angered the banks, the sources said ...

Market News (08/16/2010)

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MADISON, Wis. (8/17/10)
* U.S. homebuilders became unexpectedly pessimistic in August, indicating the government tax credit expiration will continue to be a drag on home construction (Bloomberg.com Aug. 14). The National Association of Home Builders/Wells Fargo confidence index fell to 13 this month--the lowest level since March 2009--from 14 in July, the group said Monday. A median forecast of economists had predicted a reading of 15, according to a Bloomberg News survey. Readings below 50 indicate respondents said conditions were poor. Because mounting foreclosures are adding to housing inventory, and unemployment is predicted to hover at 9.5% through year-end, a housing recovery will require time to develop, Bloomberg said. “The housing market still has many fundamental challenges that are likely to keep it depressed,” said Zach Pandl, an economist at Nomura Securities International in New York. “The problem continues to be oversupply. There are just far too many homes” … * Since peaking in the spring, the global economy has significantly downshifted, according to the most recent global business confidence survey by Moody’s Economy.com (Aug. 16). The clearest indication of pessimism comes from businesses’ weaker responses to their assessment of the strength of present business conditions. Global growth in the third quarter is expected to be well-below growth during the first half of the year, Moody’s said. Expectations for the outlook heading into 2011 also have turned less optimistic. Although businesses are more worried than they were a few months ago, they are not indicating that the global economy is preparing for a double dip, Moody’s said. Survey responses to investment decision and hiring remain steady, Moody’s said …. * In the second quarter, China passed Japan to become the world’s second-largest economy behind the U.S., according to government figures released Monday (The New York Times Aug. 15). The milestone comes following three decades of immense growth and is the most salient evidence of China’s ascendance as a new economic superpower, the Times said. Japan’s second-quarter gross domestic product (GDP) figures reported Monday indicate its economic output was $1.288 trillion--just short of China’s $1.339 trillion (The Wall Street Journal Aug. 12). “This has enormous significance,” Nicholas R. Lardy, an economist at the Peterson Institute for International Economics, told the Times. “It reconfirms what’s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China’s region, they’re now the biggest trading partner rather than the U.S. or Japan” …

News of the Competition (08/13/2010)

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MADISON, Wis. (8/16/10)
* Federal regulators have stepped up enforcement actions since the start of 2008, issuing them to nearly 1,200 banks, with that number anticipated to rise at an accelerated rate (American Banker Aug. 13). Enforcement actions are on pace to increase 64% this year, fueling bankers’ concerns about more obstacles to recovery, the Banker said. “By the end of this year, there will be in excess of 2,000 banks under an order,” Michael Ross, president/CEO of Dearborn Bancorp Inc. in Michigan, told the publication. An enforcement order’s stigma can make it more difficult to raise capital, although some bankers said the actions have become so commonplace that investors are becoming desensitized. The increases in orders are partly because of the lag time between examinations and an order’s announcement. However, analysts and bankers said the larger impetus is that regulators want to leave a paper trail in case a bank fails, so they can defend themselves from second-guessing by inspectors general, the Banker said … * In a possibe indication that the largest component of the economy may soon stabilize, U.S. consumers’ confidence rose in August (Bloomberg.com Aug. 13). The Thompson/Reuters/University of Michigan preliminary index of consumer sentiment rose to 69.9 following a reading of 67.8 in July--the lowest reading since November. Improving confidence means a slump in consumer spending is less likely to harm the economy, Bloomberg said. However, a paucity of jobs will keep households purchases down to a pace consistent with slowing growth for the reminder of 2010, Bloomberg added. “Some of the fears about the economic outlook that were heightened in July have diminished,” said Jonathan Basile, an economist at Credit Suisse in New York. August inflation expectations were little changed from July (Moody’s Economy.com Aug. 13) …

Market News (08/13/2010)

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MADISON, Wis. (8/16/20)
* U.S. retail sales rose less than expected in July, indicating a lack of jobs is causing consumers to curtail spending (Blomberg.com Aug. 13). Led by autos and gasoline, the 0.4% increase followed a revised 0.3% drop in June, the Commerce Department said Friday. Economists had forecast a 0.5% gain, according to a Bloomberg News survey median estimate. Unless job growth picks up and stimulates consumer spending, retailers may need to increase discounting of their merchandise, Bloomberg said. “The recovery just isn’t looking that great,” said Julia Cornado, a senior U.S. economist at BNP Paribas. “The job market has lost some positive momentum. This suggests another weak reading on consumer spending in the third quarter.” Excluding autos, all other retail sales increased 0.2%, after falling 0.1% in June (The Wall Street Journal Aug. 13). Excluding autos and gas sales, retail sales fell 0.1% … * For the first time in four months, the cost of living in the U.S. increased in July, portending that price stabilization could mitigate concerns of a growth slowdown triggering deflation (Bloomberg.com Aug. 13). The consumer price index (CPI) rose 0.3%--the most in a year, the Labor Department said Friday. The so-called core rate, which excludes volatile food and fuel costs, rose 0.1%. “There’s been some firming in core inflations in recent months,” said Julia Cornado, a senior U.S. economist at BNP Paribas. “This takes some pressure off the Fed in terms of deflation.” Both headline and core CPI are entrenched in a historically low 1% year-ago rate of change, reflecting well-contained inflationary pressures in the economy (Moody’s Economy.com Aug. 13) …

News of the Competition (08/12/2010)

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MADISON, Wis. (8/13/10)
* General Motors Co. (GM) Thursday posted a $1.3 billion second-quarter profit--a sharp counterpoint to its roughly $13 billion loss a year ago (The Wall Street Journal Aug. 12). The automaker is benefiting from a leaner cost structure created through last year’s government-operated bankruptcy in which the company cut employees, factories, debt and brands, the Journal said. Also, growing worldwide demand and higher prices for U.S. consumers is increasing revenue for GM, the Journal added. GM also announced that Edward E. Whitacre Jr. would step down as CEO Sept. 1. GM board member Dan Akerson will succeed Whitacre as CEO, the automaker said. The Obama administration had brought in Whitacre, a former AT&T chairman and CEO, to run GM following its bankruptcy reorganization in 2009. He will remain GM chairman … * American International Group (AIG) entered into an agreement to sell an 80% stake in its consumer finance unit, another step in AIG’s process of paying back its multibillion- dollar bailout (nytimes.com Aug. 11). AIG will sell its stake to Fortress Investment Group, a publicly traded hedge fund and private equity manager, which will acquire control of AIG at an undisclosed price, the Times said. AIG will retain a 20% stake in the unit …

Market News (08/12/2010)

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MADISON, Wis. (8/13/10)
* U.S. initial claims for unemployment benefits went up last week, in a sign that job cuts rose as the economy slowed (Bloomberg.com Aug. 12). Claims increased by 2,000 to 484,000 for the week ended Aug. 7--the highest level since mid-February, the Labor Department said Thursday. Although the number of people receiving unemployment benefits declined, the number receiving supplemental benefits jumped by 1.34 million, reflecting the government’s extension of eligibility, Bloomberg said. The housing market, which typically helps lead the country out of recession, is now stifling the recovery because although interest rates are at record lows, too few consumers can afford to buy or refinance homes (The New York Times Aug. 11). “There’s still considerable uncertainty about the economic outlook,” said David Resler, chief economist at Nomura Securities International Inc. “Businesses are simply reluctant to put people on payrolls and are more willing to let them go. This week’s increase was more disappointing than what we’ve seen in recent weeks.” The four-week moving average--designed to smooth volatility--rose by 14,250 to 473,500. Some analysts said the data still are being distorted by seasonal adjustment problems connected with annual factory shutdowns by auto manufacturers (The Wall Street Journal Aug. 12). Meanwhile, continuing claims decreased by 118,000 to roughly 4.45 million for the week ended July 31 (Moody’s Economy.com Aug. 12) ... * Indicating that lenders may be acting faster to take back properties from homeowners who are behind in their payments, the number of U.S. homes lost to foreclosure jumped in July (Associated Press Aug. 12). Lenders repossessed 92,858 properties last month--an increase of 9% from June and a 6% increase from July 2009, foreclosure listing firm RealtyTrac Inc. said Thursday. In attempts to clear out the backlog of bad loans, banks have increased repossessions this year, the AP said. July marks the eighth consecutive month that the pace of homes lost to foreclosure has risen on an annual basis. Reduced income or unemployment now are the driving forces behind foreclosures, whereas lax lending standards were previously the cause, the AP said. Despite efforts such as the Obama administration’s Making Homes Affordable program, RealtyTrac estimates more than one million U.S. households are likely to lose their homes to foreclosure this year …

News of the Competition (08/11/2010)

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MADISON, Wis. (8/12/10)
* Wells Fargo & Co. must pay consumers $203 million because it manipulated debit card transactions without their knowledge to increase revenue from overdraft fees. The bank also must stop the practice, ruled U.S. District Judge William Alsup in San Francisco Tuesday. Three customers in 2007 had sued Wells Fargo on behalf of thousands of Californians charged overdraft fees (Bloomberg.com Aug. 11). Alsup agreed in his ruling that the practice was unfair, deceptive and fraudulent. In 2001, Wells Fargo altered the way it handled daily debit transactions and cash withdrawals, posting transactions with the highest dollar amount first, rather than in the order in which they occurred, according to the complaint. The practice--allegedly geared to bolstering revenue from overdraft fees-- resulted in customers overdrawing their accounts by small amounts, several times each day, the complaint said … * Wall Street is carefully watching the impact that the reshaping of government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac will have on a key source of income for the financial sector (American Banker Aug. 11). That income is derived from activities such as providing a market for the two GSEs’ bonds, underwriting their debt and helping them hedge their huge holdings, the Banker said. Also, Fannie and Freddie purchase mortgages from banks, guarantee the mortgages and are involved with reselling the loans into securities, the publication said … * In a new public filing, Bank of America (BofA) said it had $11.2 billion of “unresolved” mortgage buyback requests at the end of June--a 50% increase since the beginning of the year, reported American Banker (Aug. 11). Buyback disputes are increasing with secondary-market investors--Fannie Mae and Freddie Mac--BofA said. The bank also is having difficulties with claims made to mortgage insurance firms, BofA added … * JPMorgan Chase & Co. Tuesday acquired $3.5 billion of multifamily and commercial real estate loans from Citigroup Inc. JPMorgan said Citi’s “highly desirable” portfolio mirrors the Chase commercial term-lending group’s focus on “excellent borrowers in stable markets.” The companies did not disclose the total price for the deal (American Banker Aug. 11) …

Market News (08/11/2010)

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MADISON, Wis. (8/12/10)
* With imports from its largest trading partners surging, the U.S. saw its trade deficit unexpectedly widen to a record 21-month high in June (The Wall Street Journal Aug. 11). The international trading of goods and services shortfall jumped 19% to $49.9 billion from a downwardly revised $41.98 billion in May, the Commerce Department said Wednesday. Economists had expected the deficit to grow to $42.7 billion, according to a Dow Jones Newswires survey. American exports dipped 1.3% to $150.5 billion, with sales of U.S. computers, farm products and telecommunications equipment all declining (The New York Times Aug. 11). Imports increased 3% to $200.3 billion. Imports of consumer goods ballooned to a record high, with shipments of cell phones, clothing, household appliances and televisions all increasing, the Times said. “Clearly not all of these imports of consumer goods are being purchased or consumed and some of it is going into inventories,” said Aaron Smith, a senior economist at Moody’s Economy.com. “It's consistent with slower global growth. We’re going to get less of a boost from exports in the second half versus the first half” (Bloomberg.com Aug. 11) … * Mortgage application volume increased 0.6% on a seasonally adjusted basis for the week ended Aug. 6 from one week earlier, according to the Market Composite Index, part of Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 0.4%. The Refinance Index went up 0.6%, and the seasonally adjusted Purchase Index increased 0.3%. The unadjusted Purchase Index decreased 0.3% and was 34.1% lower than the same week one year ago. The four-week moving average for the seasonally adjusted Market Index is up 1.2%. The four-week moving average rose 1.8% for the seasonally adjusted Purchase Index and is up 1% for the Refinance Index. For the MBA report, use the link. In a related matter, home prices rose in nearly two-thirds of U.S. cities this spring as homebuyers capitalized on tax incentives that temporarily boosted the housing market, the National Association of Realtors said Wednesday (The New York Times Aug. 11) … * U.S. job openings were flat at 2.9 million in June--nearly identical to May’s tally, the Labor Department said Wednesday. The number of new hires also dipped, highlighting the persistent weakness in the labor market (The New York Times Aug. 11). Sluggish job growth remains one of the major threats to a fragile economic recovery, the Times said. If unemployment remains elevated, demand for goods and services will be lukewarm, which means companies will have minimal incentive to hire new workers, the Times added. “Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” said John Silvia, chief economist at Wells Fargo Securities. “The consumer continues to contribute to growth, but at a subpar pace” (Bloomberg.com Aug. 11) …

CUs can draw two conclusions from Fed action says Hampel

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WASHINGTON (8/11/10)--Credit unions can draw two conclusions from Tuesday's action by the Federal Open Market Committee (FOMC), the Federal Reserve policymakers, said Bill Hampel, Credit Union National Association chief economist, after the Fed announced it would maintain the target rate for federal funds and reinvest in mortgage-backed securities. "Although the Fed [policymakers] announced no change in interest rate policy at Tuesday's meeting, their statement suggests they are concerned about the slowing of the recovery," Hampel said. "From this we can draw two conclusions. First, it will be well into next year before the federal funds rate is increased from its current range of 0 to 25 basis points," he told News Now. "Second, should the economy show any more signs of weakening in the coming few months, the Fed is very likely to resume its purchases of longer term debt securities, known as "quantitative easing", which would further lower longer term interest rates," he added. "The Fed is signaling that it is ready to act with more quantitative easing if necessary to prevent the economy from falling into a deflationary spiral," Hampel said. The FOMC said in a press release after its meeting that it will "maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. "To help support the economic recovery in a context of price stability, the committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities," the committee said, adding it will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature. Since its June meeting, the committee acknowledged, "the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract." Nonetheless, the committee continued, it "anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated." It also said inflation measures are trending lower in recent quarters and that "inflation is likely to be subdued for some time." The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability, it said. Voting against the policy was Thomas M. Hoenig, who said the economy is recovering modestly, as projected. He maintained that continuing to express the expectation of "exceptionally low levels" of the federal funds rate for an "extended period" was no longer warranted and limits the committee's ability to adjust policy when needed. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the committee's policy objectives.

News of the Competition (08/10/2010)

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MADISON, Wis. (8/11/10)
* U.S. community banks this fall are expected to present a plethora of stock offerings because some are preparing for increased capital standards, others are looking to repay government capital and a few are aiming to pursue acquisitions (American Banker Aug. 10). “We’re picking up a new client almost every week, which is startling,” Alex Cappello, the chairman and CEO of Cappello Capital Corp., an investment bank in Santa Monica, Calif., told the publication. “It’s like night and day” compared with last year, when the industry still was “shell-shocked” by bank failures and low stock prices, he said ... * Citigroup Inc. Monday introduced commercial card features geared to providing firms with more control over event and meeting spending, reported American Banker (Aug. 10). The Citi Meeting Cards have a declining-balance function that deducts the credit amount available after purchases are made. When a commercial cardholder pays for specific events, the card’s balance continues to decline instead of resetting. The new feature also allows commercial customers to generate virtual-card accounts in real time for specific events and projects, and also can be integrated with clients’ meetings management software, the Banker said … * The California Franchise Tax Board will continue accepting applications for its first-time homebuyers’ tax credit until midnight Sunday, despite receiving so many applications that the fund likely will be exhausted (American Banker Aug .10). The agency has received 31,460 applications so far for a share of the $100 million tax credit set aside earlier this year by California legislators. However, the agency said some of the applications could be duplicates or invalid, so it will continue accepting new applications. Only 17,500 to 20,000 credit certificates can be awarded, the tax board estimated. The remaining applications will be denied, it added …

Market News (08/10/2010)

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MADISON, Wis. (8/11/10)
* U.S. worker productivity dropped in the second quarter for the first time since the end of 2008, amid increased labor costs and slower output growth (The Wall Street Journal Aug. 10). Nonfarm business productivity decreased at a 0.9% annual rate from April to June--the first decline since the fourth quarter 2008, when productivity dropped by 0.1%, the Labor Department said Tuesday. Unit labor costs inched up 0.2% in the second quarter--the first increase since the spring of 2009 (The New York Times Aug. 10). The most recent figures indicate the world’s biggest economy lost steam heading into the second year of the economic recovery--one reason why companies are not increasing employment or pay (Bloomberg.com Aug. 10). “Slower growth in output will prompt companies to continue to focus on aggressive approaches to cost cutting,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York-based forecasting firm. “This will heighten obstacles to a convincing labor-market recovery” … * Small-business optimism decreased for the second consecutive month--falling to 88.1 in July from 89 in June, according to the National Federation of Independent Business (NFIB) (Moody’s Economy.com Aug. 10). The index stayed within a narrow range the past year because sales failed to measurably improve and credit remains tight, NFIB said. The NFIB report said the July reading was “a very disappointing outcome” and added that business leaders see “sub-par growth in the second half” of the year (The Wall Street Journal Aug. 10). “The recovery in optimism we are currently experiencing is very weak compared to recoveries after 1982 or 1975,” the report said. “The small-business sector is not on a positive trajectory and with this half of the private sector ‘missing in action,’ the poor growth performance is no surprise,” it added … * For the first time in a year, U.S. CEOs’ confidence fell in the second quarter because their outlook on the economy, employment and sales weakened, according to a private survey (Bloomberg.com Aug. 10). The Young Presidents’ Organization’s index dropped to 57.5 in July from 61 in April, said the Dallas-based group. A reading above 50 indicates a positive outlook. About 62% of CEOs surveyed said they plan to hold employment steady in the coming year. Fewer said they expect to increase staff. “Employment growth in the U.S. is likely to remain in neutral for the foreseeable future,” said David Manley, a spokesman for the survey …

NEW Fed steady on rates to reinvest securities in market

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WASHINGTON (8/10/10--filed 2:50 p.m. ET)--Federal Reserve policymakers today said they will maintain the target rate for the federal funds rate at 0% to 0.25% for "an extended period." However, it will reinvest in its mortgage-backed securities and continue to roll over its holdings of Treasury securities as they mature. The Federal Open Market Committee (FOMC) said it will "maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. "To help support the economic recovery in a context of price stability, the committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities," FOMC said. "The committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature." Fed watchers described this as a symbolic move to show concern with the economic outlook and the pace of recovery. The committee acknowledged that since its June meeting, "the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract." Nonetheless, the committee continued, it "anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated." It also said inflation measures are trending lower in recent quarters and that "inflation is likely to be subdued for some time." The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability, it said in a press release after the meeting. Voting against the policy was Thomas M. Hoenig, who said the economy is recovering modestly, as projected. He maintained that continuing to express the expectation of "exceptionally low levels" of the federal funds rate for an "extended period" was no longer warranted and limits the committee's ability to adjust policy when needed. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives.

News of the Competition (08/09/2010)

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MADISON, Wis. (8/10/10)
* One bank was taken over Friday by regulators and has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total for bank failures to 109, compared with 140 failures for all of 2009. Friday’s failed bank was Ravenswood Bank, Chicago, assumed by Northbrook Bank and Trust Co., Northbrook, Ill. The closed institution held roughly $264.6 million assets as of June 30. The FDIC estimated that the bank’s failure will cost the Deposit Insurance Fund about $68.1 million ... * As it prepares for regulatory changes, Bank of America (BofA) may sell its main proprietary trading unit, according to sources familiar with the matter (Dow Jones via American Banker Aug. 9). BofA is contemplating the future of its $3 billion trading desk run by David Sobotka, former fixed-income chief for Merrill Lynch & Co., the sources said. BofA inherited the desk as part of its 2009 purchase of Merrill. One idea regarding the lucrative but relatively small trading operation is to sell it or reassign its traders to different parts of the company, Dow Jones said. Private equity or hedge-fund firms that have fewer restrictions on their trading are among the potential buyers for the trading desk, the sources said …

Market News (08/09/2010)

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MADISON, Wis. (8/10/10)
* The Federal Open Market Committee (FOMC)--the Federal Reserve's monetary policymaking group--meets today in the wake of Friday's job data and other recent economic reports indicating slower growth or, in a worse-case scenario, a double-dip recession and deflation, said Dow Jones via The Wall Street Journal (Aug. 9). The overwhelming consensus among economists and other analysts is that the FOMC will keep steady its funds rate target within the record-low range of 0% to 0.25%. The rate has stayed within that range since December 2008. They will be paying more attention to the language on whether the economy needs another round of stimulus measures. Some said the dollar could fall again if the Fed signals new stimulus measures. Investors also will watch to see if the Fed revisits outlook for U.S. economic growth. Federal funds futures indicate mid-2011 would be the earliest time that the FOMC would raise its short-term funds rate, said the article ... * U.S. investors own more Treasuries than foreign holders do for the first time since the beginning of the financial crisis in August 2007 (Bloomberg.com Aug. 9). Households, banks and mutual funds have bolstered the domestic share of the $8.18 trillion in tradable U.S. debt to 50.2% as of May, said the Treasury Department. U.S. investors’ demand for Treasuries is rising while incomes and consumer spending stagnate, and the savings rate hits its highest level in nearly 18 years--6.4% in June, Bloomberg said. “Americans are consuming less and saving more,” said Jeffrey Caughron, the chief market analyst at Baker Group, which advises community banks in investing assets totaling $23 billion. “That causes an increase in savings and deposits, which end up being invested in government securities.” Increased individual savings, along with banks purchasing more government bonds instead of increasing lending, is pushing yields lower as the Obama administration borrows record sums to finance an unprecedented budget deficit, Bloomberg said … * For the 14th consecutive month, a measure of the U.S. job market increased, although at a slower pace, according to The Conference Board, a New York-based private research firm (The New York Times Aug. 9). The board’s Employment Trends Index rose to 97 in July from 96.7 in June and is up 9.8% from one year ago. “The disappointing employment numbers may indicate that the low levels of household spending and confidence are making businesses more cautious when it comes to hiring,” said Gad Levanon, associate director, macroeconomic research at The Conference Board. “The growth rate of the Employment Trends Index slowed sharply in the past three months, suggesting that employment growth will remain too weak to keep up with the increase in the working-age population,” he said …

Consumers borrow less in June even at CUs

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WASHINGTON (8/9/10)--During June, U.S. consumers cut back on borrowing, specifically credit card use, for the fifth consecutive month. But credit unions found that their members, while borrowing less overall, increased their use of revolving credit over the previous month. Overall consumer credit, which totaled $2.418 trillion for all institutions in June, dropped $1.3 billion or 0.7%, said the Federal Reserve in its Consumer Credit June report released Friday. It was the 16th decrease in overall credit in the past 17 months, but June's decline was also the smallest drop since credit rose 1.8% in January--the only increase since January 2009. Economists had forecast that credit would decline by as much as $5 billion (Associated Press via The Mercury News Aug. 6). Before considering the that as good news, credit unions should keep in mind that economists are warning that the decline may not be over. Consumers will continue to avoid taking on more debt while unemployment situation is still high. See News Now's Market News briefs in this section. The Fed also revised May's decline in credit to a smaller drop of $5.3 billion instead of the $9.2 billion initially reported. Credit unions accounted for $228.3 billion of the overall credit in June, a drop of $0.9 billion from May. Other institutions, including commercial banks, finance companies and the federal government, experienced slight increases in the total borrowed for the month, while savings institutions and credit unions saw an overall decline. Overall revolving credit dropped $4.5 billion--or 6.5%--to $826.5 billion. This type of credit declined in June for commercial banks and savings institutions but actually increased at credit unions. Revolving credit at credit unions totaled $34.9 billion, up from $34.8 billion in May, said the Fed's report, which is based on statistics provided by the Credit Union National Association's economics and statistics department. Nonrevolving credit for all institutions rose $3.2 billion--or 2.4%--to $1.592 trillion. It dropped at credit unions and other institutions, except the federal government. Credit unions' members borrowed $1 billion less in nonrevolving credit during June, for a total of $193.4 billion, compared with $194.4 billion a month earlier. Consumer credit has dropped $163 billion since it peaked in July 2008, likely because households are feeling pressure from the recession, according to Joshua Shapiro, chief U.S. economist at MFR, in the Associated Press article. The Fed report includes credit card debt, auto loans and other debt not secured by real estate. It excludes home mortgages and home equity lines of credit. To access the Fed's report, use the link.

Market News (08/06/2010)

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MADISON, Wis. (8/9/10)
* Private employers added 71,000 jobs in July--well below economists' forecast of 90,000,--while the nation lost 131,000 nonfarm payroll jobs during the month, the Labor Department said Friday. The losses came as 143,000 Census Bureau workers left their temporary jobs, the agency said, and are more than the 60,000 forecasted by economists polled by Dow Jones Newswires (The New York Times and The Wall Street Journal Aug. 6). The July figures rose from June's revised downward loss of 221,000 jobs, originally reported as 125,000 (Moody's Economy.com Aug. 6). The number of jobs added is about half the 125,000 to 150,000 that economists say is required to accommodate new entrants into the labor market. More than eight million people have lost their jobs during the recession. The unemployment rate was unchanged--at 9.5%--and the fact that it did not worsen was due partly to the 181,000 people who left the labor force and stopped looking for work. The unchanged rate was considered another sign that the economic recovery may be waning. Economists are forecasting the jobless rate to inch higher to 9.6%. During the first seven months of 2010, the U.S. added an average of less than 100,000 jobs a month--not strong enough to bring unemployment down (The Wall Street Journal). Meanwhile employers are pushing for productivity gains among the employees left on the job, with a slight increase in the average work week, said the Times ... * The Federal Reserve is not likely to raise interest rates when its policymakers meet Tuesday, say some economists (Bloomberg.com Aug. 6). One is predicting it will be two to three years before the Fed raises the targeted funds rate as it tries to keep the economy from sliding into a double-dip recession. Pacific Investment Management Co.'s Bill Gross, who manages the world's largest bond fund, told the "Bloomberg Surveillance" radio show that Treasury two-year note yields dropped below 0.50% for the first time Friday after the Labor Department released its job losses report. The difference in yields between two- and 10-year notes is 2.33 percentage points--more than double the average 1.11% for the yield curve during the past two decades, he said. The spread reached a record 2.94% on Feb. 18. "When you analyze that portion of the curve, it says the Fed is on hold for a long, long time," Gross said. "When you get down to 50 basis points on two-years, that's giving you a signal that there's not much left on the table." He noted that if the curve stays steep and the Fed maintains its rates, "then you produce two- to two-and-a-half returns as opposed to 50 basis points." The Fed's benchmark rate has remained at 0% to 0.25% since December 2008 ...

News of the Competition (08/06/2010)

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* General Motors (GM) Co. CEO Edward E. Whitacre Jr. said Thursday that the company wants the government to sell its entire stake in an initial public offering (IPO). Whitacre said the company wants the government out. “We don’t want to be known as Government Motors,” he said (The New York Times Aug. 5). The Treasury Department holds about 61% of GM through its sponsorship of the automaker’s bankruptcy last summer. Eliminating the government ownership would be good for employee morale and would improve the automaker’s image, Whitacre said. The Treasury issued a statement in June saying the company would control the timing of the IPO but it would retain the right to decide whether to and what level to participate in the offering. The sale would allow the government to recoup some of the $43 billion in loans it converted to equity during GM’s bankruptcy last year. GM already has repaid $6.7 billion ... * American International Group (AIG) paid $23 million in claims after the Deepwater Horizon rig explosion that caused the oil spill in the Gulf of Mexico, and the insurance group plans to pay more (The New York Times Aug. 6). AIG said it will monitor the situation and that its loan loss reserves should cover more claims related to cleanup, property damage and environmental damage. In other news, AIG is in talks with regulators to become independent, CEO Robert Benmosche said. The company expects to repay the Federal Reserve Bank of New York and all of its obligations to taxpayers. AIG is divesting AIA Group Ltd. and American Life Insurance Co. to repay its 2008 bailout, which cost $182.3 billion (Bloomberg Aug. 6). After selling the divisions, AIG will be close to repaying the Fed, Benmosche said. AIG separately owes the Treasury nearly $50 billion, according to a Congressional Oversight Panel report. Treasury is considering converting AIG preferred shares into common stock. The company posted second-quarter net adjusted income last week of $1.34 billion ...

Market News (08/05/2010)

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MADISON, Wis. (8/6/10)
* New claims for unemployment insurance took an unexpected increase for the week ended July 31, climbing to the highest level in nearly four months, said the Labor Department (The Wall Street Journal Aug. 5) . Initial claims totaled 479,000--a climb of 19,000. Economists had predicted the filings would drop by 2,000 to 455,000 claims. The last time claims were so high was during the week of April 10. The four-week moving average, which smoothes out data volatility, rose by 5,250 to 458,500 claims. New claims for the previous week ended July 24 were revised up to 460,000 from the 457,000 initially reported. The Labor Department had difficulty adjusting for seasonal fluctuations because auto manufacturers skipped their annual practice of temporarily shutting down their plants in July (The New York Times Aug. 5). Claims were supposed to increase during the shutdowns, then drop. For the week ended July 24, continuing claims by workers unemployed for longer than one week dropped by 34,000 to 4,537,000 claims from the previous week's revised level of 4,571,000. A cooling economy means employers will resist hiring more staff in the next few months, which raises the risk that consumer spending will weaken, said Bloomberg.com (Aug. 5) ... * Mortgage rates for the past week fell to rock-bottom rates, the latest in a series of record lows, according to a survey released Thursday by Freddie Mac (The New York Times Aug. 5). Interest rates on 30-year, fixed-rate mortgages averaged 4.49% for the week ending Thursday. That's down from 4.54% last week and down 5.22% from a year ago, said the survey report. Thirty-year rates have fallen to record lows in six of the past seven weeks. The average rate for 15-year, fixed-rate mortgages was 3.95%, down from 4% last week and the lowest since Freddie began surveying this loan type in 1991. Loans with 15-year rates also hit new lows in five of the past seven weeks. The low rates have brought demand for loans to refinance or purchase homes--a sign that offers a margin of hope for a market struggling to gain traction in the economic recovery ... * Retail sales grew 2.9% in July, a showing below the 3.1% increase that analysts had expected and just behind June's 3% growth, according to Thomson Reuters, which tracks sales of 28 retailers (Moody's Economy.com and The Wall Street Journal Aug. 5). The July growth is a 3.1% increase over June's growth and compares with a 5.1% decline during July 2009. Unseasonably hot weather made it harder for consumers to get in the mood for early back-to-school shopping, and the economy contributed to a shift in consumers' attitudes toward not buying until there is a need. Teen retailers and department stores saw declines, despite their promotions, while wholesale and discount stores such as Costco Wholesale Corp. saw slight increases in sales. The back-to-school shopping season from late July to Labor Day is off to a sluggish start and is of concern because it typically is the second-biggest sales season of the year--behind the Christmas holiday ...

News of the Competition (08/05/2010)

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MADISON, Wis. (8/6/10)
* Goldman Sachs Group Inc.’s principal strategies business, Goldman Sachs Principal Strategies, plans to transition into a fund and raise outside money, according to Bloomberg (Aug. 5). Goldman Sachs could announce today its plans to discontinue business. The regulatory reform bill, signed by President Barack Obama last month, prevents banks like Goldman Sachs from engaging in proprietary trading. Brad Hintz, analyst at Sanford C. Bernstein and Co. in New York, said some banks like Goldman may want to “get out while the getting’s good” when spinning off their derivative desks to get ahead of the competition. Under the Volcker rule in the regulatory reform bill, banks can contribute up to 3% of the equity in hedge funds or private-equity funds ... * The European Central Bank has left its benchmark interest rate at a record low of 1%, according to The New York Times (Aug. 5). The bank’s decision to keep the rate low follows a decision by the Bank of England to maintain its rate at 0.5%. England’s bank also voted against expanding a stimulus package. The British economy had been showing signs of improvement the past four months, but some economists said it was too early to say whether Britain’s economic troubles have ended. Sluggish growth in the 16 countries that use the euro and in China could slow Britain’s recovery. Britain’s gross domestic product rose 1.1% in the second quarter, but some economists doubt that pace will continue, the newspaper added ...

Consumers save more but July bankruptcies up 9

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WASHINGTON (8/5/10)--Two new reports show that consumers are saving more, but that more of them are filing for bankruptcy. U.S. bankruptcies for July rose 9% from June, to a total of 137,698 bankruptcy filings, reported the American Bankruptcy Institute Tuesday. The institute predicted that bankruptcies might exceed 1.6 million this year (Bloomberg.com Aug. 4). That compares with 1.4 million bankruptcies filed in the U.S. in 2009--an increase of 32% over 2008. Total filings have risen since the Bankruptcy Abuse Prevention Act of 2005 was implemented. The law makes it harder for individuals to seek protection from creditors, said the institute. In 2005, bankruptcies totaled two million, reflecting consumers' attempts to get rid of their unsecured debt before the new law went into effect. In 2006, fewer consumers--598,000--filed for bankruptcy. Since then, the number of filings has increased each year. Meanwhile, consumers saved 6.4% of their after-tax income in June. The savings rate shot up as high as 8.2% in May 2009, reported The New York Times (Aug. 3). Before the recession, the rate had fluctuated around 1% to 2% for years. In earlier reports, the government had estimated families hadn't changed their spending patterns much, despite the economy's problems. Analysts said the newest data may mean that consumers had built up more of a cushion than they thought.

News of the Competition (08/04/2010)

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MADISON, Wis. (8/5/10)
* Employment at U.S. small businesses grew slightly in July, albeit at a slower pace than in the past, while there was a much faster increase of wages and hours worked by employees, according to the most recent Intuit Inc. Small Business Employment Index (ENP Newswire Aug. 3). The monthly report indicated that small-business employment grew by 0.2% in July--equating to a 2.4% annualized growth rate. That translates to about 40,000 new jobs nationwide in July. Small businesses have added about 330,000 jobs since the growth trend started in October 2009, Intuit said. The index is based on figures from the smallest U.S. businesses that use Intuit Online Payroll. Intuit is a CUNA Strategic Services Provider. For Intuit, use the link … * Overall U.S. auto sales increased 5.1% in July from a year ago to 1,049,101 cars and light trucks, according to Autodata Corp. (The Wall Street Journal Aug. 3). Boosted by an uptick in consumer buying and purchases by commercial fleets, Chrysler Group LLC, Ford Motor Co. and General Motors Co. reported higher U.S. sales in July, than in June and a year ago, Autodata said. If confirmed, the July sales pace would be the second-highest rate since September 2008, the Journal said. “July was slightly better than June, and the momentum is taking us upward,” said Earl Hesterberg, CEO of Group 1 Automotive, a large dealership chain based in Houston. “But there’s no real robust consumer behavior out there yet” … * Facebook Inc. is becoming more of a magnet to marketers that want to reach a broad online audience (Bloomberg.com Aug. 4). In the past year, Facebook’s largest advertisers have increased spending by at least tenfold, with the social network crossing the half-billion user mark. Ad prices on the site have held steady, even with an upsurge in user growth fueled by a surge in inventory--or pages that carry ads--Sheryl Sandberg, Facebook CEO, told Bloomberg. “Two years ago, the big brands were experimenting with us,” Sandberg said. “They started buying with us a year ago. Now, they’re going big.” Facebook does not disclose revenue figures, Bloomberg said …

Market News (08/04/2010)

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MADISON, Wis. (8/5/10)
* Announced U.S. job cuts rose to 41,676 in July from 39,358 in June--marking the third consecutive month of increased cuts, according to the Challenger report by Challenger, Gray and Christmas Inc. However, the cuts remain low in a historical context and are nearly 60% below the year-ago total (Moody’s Economy.com Aug. 4). The government sector and nonprofits accounted for the largest number of cuts because funding declines lagged the downturn in the business cycle, Moody’s said. Despite recent monthly increases, job-cut totals are hovering near a seven-year low reached in April (Bloomberg.com Aug. 4.) “The increases are so slight and the monthly totals so low when compared to recent years, that the trend in no way suggests a reversal of the significant slowdown in job-cut activity witnessed over the past year,” John A. Challenger, CEO of Challenger, Gray and Christmas, said. In a related matter, U.S. companies added 42,000 workers in July, following a revised 19,000 increase in June, according to ADP Employer Services. The July gain was more than the 30,000 forecast by economists in a Bloomberg News survey. “The further improvement does show some underlying momentum in hiring,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. “[At the same time], we’re still on a rocky road” … * Mortgage loan application volume for the week ended July 30 rose 1.3% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey, released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 1.4%. The Refinance Index went up 1.3%. The seasonally adjusted Purchase Index increased 1.5%. This third consecutive weekly increase in the Purchase Index was driven by government purchase applications, which rose 3.4%, while conventional purchase applications were essentially flat. The unadjusted Purchase Index increased 1.5%, and was up 7.1% relative to four weeks ago, but was 33.7% lower than the same week one year ago. For the MBA report, use the link … * In a good sign for the overall economy and job market, the U.S. service sector saw growth in July--according to the Institute for Supply Management’s (ISM) Nonmanufacturing Index, said The New York Times (Aug. 4). Its service sector index rose to 54.3 in July from 53.8 in June, ISM said Wednesday. Levels above 50 indicate growth. July marks the seventh consecutive month of expansion. A rebound in new orders indicates no further loss of growth momentum, following a slowdown in the second quarter (Moody’s Economy.com Aug. 4) ...

Market News (08/03/2010)

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MADISON, Wis. (8/4/10)
* In a sign that a lack of jobs is harming the largest part of the economy, consumer spending and personal incomes in the U.S. unexpectedly stagnated in June (Bloomberg.com Aug. 3). Consumer purchases were unchanged after a 0.1% gain in May that was smaller than previously estimated, the Commerce Department said Tuesday. With the unemployment rate near a 26-year high, confidence in the economic recovery is shaky, Bloomberg said. “Consumers are hunkered down,” said Ryan Sweet, a senior economist at Moody’s Economy.com. “The second half of this year we’re going to see slower spending.” Personal income was flat in June, compared with a 0.3% increase in May, the department said (The New York Times Aug. 3). June’s figures also indicate consumers are saving more of their cash--with personal savings as a percentage of disposable income at 6.4% in June, compared with 6.3% in May. Before the recession started, it was just above 2%, the Times said. “It reinforces the general idea that consumers are busy deleveraging and saving money,” said Dan Greenhaus, the chief economic strategist for Miller Tabak and Co. “For now, the story of the day is deleveraging” … * U.S. pending home sales edged down with near-term sales expected to be notably lower in contrast to the spring surge, when buyers rushed to take advantage of the home buyer tax credit, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator, declined 2.6% to 75.7, based on contracts signed in June, from an upwardly revised level of 77.7 in May, and is 18.6% below June 2009 when it was 93.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, said lower home sales are expected in the short term. “There could be a couple of additional months of slow home-sales activity before picking up later in the year, provided the job market continues to improve,” he said. “Over the short term, inventory will look high relative to home sales. However, since home prices have come down to fundamentally justifiable levels, there isn’t likely to be any meaningful change to national home values. Some local markets continue to show strengthening prices.” For the NAR report, use the link … * For the second consecutive month, factory orders declined in June because of lower demand for aircraft, construction machinery and steel (The New York Times Aug. 3). Factory orders decreased by 1.2% to a seasonally adjusted $406.4 billion, the Commerce Department said Tuesday. May’s drop was revised to a sharper decrease of 1.8% from an initially reported 1.4% drop. The two months of declines follow nine consecutive months of increases--as a result of manufacturers gearing up production last fall, which helped the U.S. economy grow after four quarters of contraction, the Times said. Economists had expected that orders would only fall by 0.5% in June, according to a Dow Jones Newswires survey (The Wall Street Journal Aug. 3). The economy still has a long road to go to achieve a full economic recovery, Federal Reserve Chairman Ben Bernanke said Monday ...

News of the Competition (08/03/2010)

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MADISON, Wis. (8/4/10)
* Federal Housing Administration (FHA) lending volume rose in June as lenders originated $26.4 billion of single-family loans--an 18% rise from May (American Banker Aug. 3). Of June’s 150,900 FHA loan endorsements, nearly 77% were for borrowers purchasing a home, according to figures the agency released in late July. Buyers’ average FICO score was 698. FHA also reported that 8.32% of insured single-family loans are 90 days or more past due, down 10 basis points from the previous month … * Small community banks are finding that their local focus is helping them lure customers from large banks such as Wells Fargo & Co. in the aftermath of the financial crisis than began nearly two years ago, reported American Banker (Aug. 3). Last year, the shifting of individual and business accounts to local lenders from big banks was a windfall for community bank deposits, the Banker said. At banks with $10 billion or less in assets, deposits grew roughly 2.4% in 2009, according to the Federal Deposit Insurance Corp. The trend continued in 2010, but at a slower pace, some community bankers, told the publication …. * United Western Bank--Colorado’s biggest thrift--has missed a deadline to increase its capital, and regulators are refusing to grant an extension or waiver, which means the bank is in a state of limbo American Banker (Aug. 3). However, the bank is making progress in other areas, its executives told shareholders Friday. “We are working daily with Goldman Sachs to consider all options,” said Michael McCloskey, chief operating officer at United Western Bancorp Inc., the thrift's parent company. Goldman Sachs Group Inc. also is helping United Western examine the possibility of a merger, acquisition or sale of the thrift, the publication said … * Bolstered by higher consumer spending, MasterCard Inc.’s second-quarter profit leapt 31%, outpacing analysts’ expectations (The Wall Street Journal Aug. 3). However, MasterCard’s processed transactions still are nearly flat--a sign that consumers are purchasing more expensive items since the recession, but are not making more individual purchases, the Journal said. MasterCard and its bigger competitor, Visa, don’t lend to consumers, so they have remained immune from the credit problems caused by delinquencies. Instead, the two card companies make profit from the fees they charge banks to process card payments on the plastic those banks issue, the Journal said …

News of the Competition (08/02/2010)

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MADISON, Wis. (8/3/10)
* Five banks were taken over Friday by regulators and have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the 2010 total for bank failures to 108, compared with 140 failures for all of 2009. Friday’s failed banks include Bayside Savings Bank, Port Saint Joe, Fla., and Costal Community Bank, Panama City Beach, Fla., both assumed by Centennial Bank, Conway, Ark.; The Cowlitz Bank, Longview, Wash., assumed by Heritage Bank, Olympia, Wash.; LibertyBank, Eugene, Ore., assumed by Home Federal Bank, Nampa, Idaho; and Northwest Bank and Trust, Acworth, Ga., assumed by State Bank and Trust Company, Macon, Ga. The five closed institutions held roughly $1.9 billion assets as of March 31. The FDIC estimated that the banks' failures will cost the Deposit Insurance Fund about $335 million … * Model-year closeout deals drew car-buyers into showrooms, causing U.S. auto sales to rise in July to what may be the highest level of 2010 (Bloomberg.com Aug. 2). Deliveries industrywide, which will be released today, could reach an annualized rate of 11.9 million vehicles for the month--5.3% higher than last year’s 11.3 million pace and the best month since August 2009. To clear out 2010 vehicles and make room for new models, automakers are offering discounts that are 3.8% higher than they were a year earlier, according to industry researcher TrueCar.com. “This is fueled by consumers who had postponed their purchases and now are getting back into the market,” said Jesse Toprak, TrueCar vice president of industry trends. “They’re not coming back in a flood--they’re just trickling in” …

Market News (08/02/2010)

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MADISON, Wis. (8/3/10)
* U.S. manufacturing growth in July fell to it slowest pace this year, according to the Institute for Supply Management (ISM). ISM’s manufacturing index dropped to 55.5 in July from 56.2 in June. A reading above 50 indicates growth. Manufacturing momentum has slowed since spring as consumer demand has lagged businesses’ investments (The New York Times Aug. 2). New orders decreased to the lowest level since June 2009--signaling production may slow to a more sustainable pace as the inventory rebuilding that boosted a manufacturing-led economic recovery diminishes (Bloomberg.com Aug. 2). “Manufacturing looks poised to slow a bit,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York. “Ultimately, we need more balanced growth in the economy, which means consumer spending must increase.” Also, in a bad sign for domestic demand, imports slowed noticeably in July (Moody’s Economy.com Aug. 2) … * Construction spending in the U.S. increased slightly in June, recording $836.1 billion--0.1% above the revised May level, said the Census Bureau. That is 7.9% below June 2009 totals (Moody’s Economy.com Aug. 2). Nonresidential and private residential construction spending dropped by perceptible amounts in June, but were mitigated by a surge in public construction spending, Moody’s said. Public construction spending--which had steadily declined from mid-2009 to February--has begun rising again because of a second wave of American Recovery and Reinvestment Act funding and more stable financing now that revenues are no longer decreasing, Moody’s said. Total construction spending and private construction spending are still close to cyclical lows, indicating the weak condition of the economy and the status of construction spending as a lagging cyclical indicator, Moody’s said ... * Worldwide business confidence improved during the last week of July, an indication that the plunge in sentiment in recent weeks is not a sign that global recovery is in serious trouble, said Moody’s Economy.com Survey of Business Confidence (Aug. 2). For the week ended July 30, the index jumped to 28.6 from 17.9 the previous week. Recent weekly volatility in the global business confidence survey results suggests that the global economy is near its potential, Moody’s said. Although an improvement from the conditions that existed not too long ago, it is increasingly disappointing, given that at this rate of growth, little progress will be made reducing very high global unemployment, Moody’s added. Also, the global economy has not gained traction and therefore remains very vulnerable to anything that could go wrong, Moody’s said. Confidence remains weakest in the U.S. and Japan. South American businesses remain most positive, reflecting stronger commodity prices and exports and robust capital inflows. European business confidence remains surprising resilient, although volatile week to week, Moody’s said …