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News of the Competition (08/31/2012)

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MADISON, Wis. (9/4/12)

  • The Federal Deposit Insurance Corp. is requiring de novo banks to file a change in business plans when they reach previously estimated growth estimates, expand into new lending areas, open branches or make acquisitions. Regulators have increased oversight after many de novos--those open seven years or less--failed during the financial crisis (American Banker Aug. 31). Those that remain intact are prevented from growing assets more than 10% to 25% annually in some cases. Regulators are suspicious of de novos that grow substantially faster than their growth share within a market, said Walter Moeling IV, a partner at Bryan Cave …

Market News (08/30/2012)

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MADISON, Wis. (8/31/12)
  • Consumer spending rose 0.4% in July, its largest increase since February, the Commerce Department said Thursday (The New York Times Aug. 30).  Personal income rose 0.3% for the second straight month. Because spending went up slightly faster than income, the U.S. savings rate dropped to 4.2% in July from 4.3% in June. Consumer spending accounts for 70% of the nation's economic activity. Real consumer spending fell 0.1% in June. Slow consumer spending limited economic growth to a 1.7% annual rate in the second quarter, said the Times
  • Applications for jobless benefits in the U.S. totaled 374,000 for the week ending Aug. 25, the same as the previous week, according to the Labor Department's report released Thursday (Moody's Economy.com Aug.30) .  Filings for the previous week were revised up by 2,000 to 374,000. Economists surveyed by MarketWatch had projected the latest claims would fall to 370,000 (MarketWatch Aug. 30).  The Labor Department said the four-week moving average of claims totaled 370,250,  which is up from the previous week's  four-week average of 368,750.   Initial jobless claims have risen in three of the past five weeks, said Moody's. However, they remain below their monthly average of last spring--a sign that the job market has improved, Moody's said …

News of the Competition (08/30/2012)

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MADISON, Wis. (8/31/12)

  • The five largest mortgage servers--Bank of America, CitiMortgage, Ally Financial, JPMorgan Chase and Wells Fargo--reported that they granted $10.56 billion in relief to about 138,000 borrowers between March 1 and June 30 as part of the $25 billion national mortgage foreclosure settlement. Bank of America did not complete any loan modifications or refinancings since the settlement took effect March 1, but it did complete $4.8 billion in short sales to about 40,000 borrowers (American Banker Aug. 30). BofA is on track to approve nearly $3 billion in principal reductions to borrowers, according to the national mortgage settlement report. Under the settlement, servicers agreed to provide $17 billion in debt forgiveness, forbearance plans and short sales, and about $3 billion in refinancings. The mortgage servicers have two years to meet 75% of their goals that give them credits toward the settlement …
  • Gulf Coast banks used lessons learned from Hurricane Katrina in 2005 to maintain service to their customers during Hurricane Isaac this week. Bankers primarily ensured they were stocked with plenty of cash in the event of power outages that would curtail the use of credit and debit cards. In Katrina, unlike banks, credit unions were able to continue serving their members through shared branching networks …

Market News (08/29/2012)

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MADISON, Wis. (8/30/12)

  • The U.S. economy as measured by the gross domestic product (GDP) grew at a 1.7% annual rate during second quarter-- more than the 1.5% previously estimated, according to the Commerce Department (Moody's Economy.com and Bloomberg.com Aug. 29). That follows a gain of 2% recorded for first quarter. The increase reflects higher consumer spending and fewer imports than initially reported (MarketWatch Aug. 29), but a weak gain in new equipment investment in the business sector has placed a drag on the growth pace, said Bloomberg.  Personal spending rose 1.7% (instead of the estimated 1.5%), while imports--which subtract from the GDP-- rose 2.9%, instead of 6%. Moody's said the pace means the nation's unemployment will be stuck above 8% for some time …
  • Pending home sales in the U.S. rose 2.4%, to 101.7, in July, the highest level since April 2010, according to the National Association of Realtors (NAR). The figures are seasonally adjusted, said NAR. The gain is consistent with an improving housing market and indicates stronger existing-home sales in coming months, said Moody's Economy.com (Aug. 29). The sales are 12.4%  higher than the 99.3 recorded for July 2011, and come after June sales had declined 1.4% to 99.3, said NAR. The rise in pending home sales was uneven across the U.S., with the South seeing the most increase--5.2% month over month in July.  The July pending home sales increased 3.4% from June for the Midwest and 0.5% in the Northeast.  The sales declined 1.7% in the West. The sales for July are higher in all regions than they were in July 2011 …
  • U.S. mortgage applications declined 4.3% from one week earlier, largely due to a drop in refinances, according to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending Aug. 24. The overall Market Composite Index figure was seasonally adjusted from one week earlier. Unadjusted, the index declined 5%.  The MBA's Refinance Index decreased 6% from a week earlier to its lowest level since May 11. It accounted for 79% of total applications, down from 80% the previous week. The Purchase Index, seasonally adjusted, rose more than 1% from the previous week, while the unadjusted Purchase Index dropped nearly 1%.  Of total applications for the period, 4% were adjustable rate mortgages. The average contract interest rate for 30-year, fixed-rate mortgages with conforming loan balances (balances of $417,500 or less) dropped to 3.8% from 3.86%, said MBA …

IBeige BookI Economy expanded gradually in JulyAug.

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WASHINGTON (8/30/12)--Reports from the 12 Federal Reserve Districts indicate that the economy continued to expand gradually in July and early August across regions and economic sectors, the Fed said Wednesday.  However, many districts reported softening in the manufacturing sector.

"Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, outputs, or orders," said the Federal Reserve's Beige Book, which was released Wednesday afternoon. The book is a compilation of anecdotal reports collected by the districts.

Among those districts with declining shipments and orders, Philadelphia noted that the rate of decline was tempering. There was little change in manufacturing employment with no major layoffs or hiring noted in the districts' reports.

Financial institutions reported that credit conditions in the districts improved over the reporting period.  "Credit spreads were lower and competition for high quality borrowers among lending institutions has increased," said the Beige Book.  The New York District noted that shrinking spreads were observed particularly in commercial and industrial loans as well as in commercial mortgages. Some bankers in the Cleveland District mentioned a moderate loosening of lending guidelines, while the New York, St. Louis and Kansas City Districts reported unchanged credit standards. New York and Cleveland noted declining delinquency rates.

The direction and magnitude of changes in loan demand varied among districts and according to the type of loan, said the report.  Richmond and Atlanta Districts reported generally low demand for loans but said there were some pockets of growth.

Chicago noted growth in business loan demand was generated mostly from small and mid-size firms. The purpose of the loans was largely for refinancing rather than financing capital expenditures. Cleveland, St. Louis and San Francisco noted small positive or negative changes in business credit demand and relatively strong demand for consumer credit.

Kansas City reported stable demand for commercial and industrial loans and commercial real estate loans, while Dallas said demand for loans overall was softer. However, Kansas City and Dallas noted increases in demand for residential real estate loans. New York and Philadelphia reported growth in most lending categories.

Other highlights of the Beige Book included:

  • Most districts--except Atlanta and Boston--reported that retail sales were stronger when compared to May sales. Automobile sales are up in six districts, flat in three and slower (but still strong) in two.
  • Prices of finished goods were still stable, while input costs increased. The increase was attributed to the drought.
  • The housing outlook was generally positive across districts, with all 12 districts citing increases in home sales, prices and construction.

News of the Competition (08/29/2012)

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MADISON, Wis. (8/30/12)

  • At least three former employees of Hampton Roads Bankshares have filed lawsuits claiming the bank used its status as a recipient of Troubled Asset Relief Program (TARP) funds to deny them compensation to which they were entitled. The bank said that under the TARP program, it is prohibited from paying golden-parachute severance payments and insurance benefits. Hampton Roads Bankshares received $80.3 million in TARP bailout money in 2008 (American Banker Aug. 29). The question of whether employment contracts are an exception to the TARP rule remains unanswered, said Stacey Trimmer, a lawyer at Chadbourne & Parke. Hampton Roads appears to be the only banking company with active litigation related to the TARP compensation rule …
  • The American Bankers Association (ABA) and the Financial Services Roundtable have jointly created fTLD Registry Services, a group formed to submit applications to the Internet Corporation for Assigned Names and Numbers (ICANN) for generic top line domains, or gTLDs, with the internet address endings .bank and .insurance (American Banker Aug. 29). Banks could begin to replace the .com from their Web addresses with the more descriptive .bank ending by next year. The domain-name change process includes a $185,000 registration fee and thousands of dollars in quarterly fees, insurance and transaction costs. The ABA and the roundtable, which are operated by financial institutions, have not disclosed who has invested in fTLD, but they have released a list of endorser. The list includes Allstate, BB&T, BBVA, Comerica, KeyCorp, PNC, Regions Bank, U.S. Bancorp, State Farm and banking trade groups in Canada, the U.K. and Australia. The Credit Union National Association (CUNA) submitted an application to ICANN for the ".creditunion" domain name …

Market News (08/28/2012)

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MADISON, Wis. (8/29/12)

  • Prices for existing U.S. homes saw their first gain in nearly two years, according to the S&P/Case-Shiller index of homes in 20 U.S. metropolitan areas for June. There were more buyers but fewer homes for sale during the first half of the year, said the index, which was released Tuesday (The Wall Street Journal and Bloomberg.com Aug. 28).  In June, home prices rose 0.5% from a year earlier, breaking a streak in which declines were recorded for 20 consecutive months.  Economists surveyed by Bloomberg had forecast median prices would drop by 0.05%. Still, the prices are about 31% below 2006's peak prices, said the Journal. Demand has risen, driven by near record-low mortgage costs, and made a dent in the unsold houses on the market. Bloomberg suggested this could give property values a lift. That, along with fewer foreclosures and greater access to credit, would help stabilize the housing industry, Bloomberg said.  Thirteen of the 20 cities posted year-over-year increases, especially in Phoenix, Minneapolis, Miami and Denver.  Cities that decreased included Atlanta, New York and Las Vegas, said the Journal
  • Consumer confidence unexpectedly declined in August to a nine-month low, according to The Conference Board's consumer confidence index released Tuesday.  The index dropped to 60.6--or 4.8 points from a July's downwardly revised index of 65.4 (revised from 65.9). Driving the drop was a 7.9 decline in the expectations segment, while perceptions of present conditions remained essentially the same, said Moody's Economy.com (Aug. 28). The August index is the lowest since November (MarketWatch Aug. 28). Consumers were "noticeably more downbeat" on future business conditions, said Moody's. Those who said business conditions would be worse in six months increased 2.6 points to 17.7%, the highest level since October, Moody's said. Although consumers indicated they are less hopeful for the future, those surveyed said they have seen little deterioration in the economy, MarketWatch reported …

News of the Competition (08/28/2012)

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MADISON, Wis. (8/29/12)

  • Compliance software providers are leveraging the LIBOR crisis to promote solutions designed to help banks maintain better control of regulatory oversight and internal policies and procedures (American Banker Aug. 28). LIBOR is used by financial institutions to set interest rates on a variety of financial products, including mortgages, student loans and credit cards. LIBOR for the U.S. dollar is based on information provided by 18 global financial institutions, including several U.S. banks (News Now July 18). British bank Barclays PLC recently admitted that some of its employees between 2005 and 2009 conspired with employees of other financial firms to manipulate LIBOR and the Euro Interbank Offered Rate to support their own financial positions. The firm was fined by the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission and the United Kingdom's Financial Services Authority. Providers such as Xactium and SAS are promoting solutions that engage the Internet and cloud services to help minimize risk. Both firms claim their software can provide more responsive updates to help avoid the manipulation tactics that caused the LIBOR scandal …
  • Roughly 84% of the 281 banks in the Treasury Department's Small Business Lending Fund (SBLF) are adding business loans, according to the Treasury Department (American Banker Aug. 28). About half of those banks are paying the lowest dividend rate based on their loan growth, said SNL Financial. Roughly 16% of the program's participants reported declines in qualified business loans as of March 31. Representatives from banks with the largest growth rates attribute the increases to improvement in their markets rather than to the SBLF program, in the American Banker. The Credit Union National Association (CUNA) and credit unions are urging Congress to increase credit unions' member business lending (MBL) cap to 27.5% of assets from 12.25%. Doing so would open up more opportunity to offer MBLs, inject $13 billion in business loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA said …

FDIC-insured institutions earned 34.5 billion in 2Q

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WASHINGTON (8/29/12)--Commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported an aggregate net income totaling $34.5 billion during second quarter of 2012. That figure is up $5.9 billion from the $28.5 billion in profits banks and thrifts reported for second quarter of 2011.

The gain in profits marks the 12th consecutive quarter that the institutions' earnings increased year-over-year, said the FDIC's latest Quarterly Banking Profile, which was released Tuesday.

The agency attributed the gains to lower provisions for loan losses, higher gains on sales of loans and other assets, and a fourth increase in loan balances in the past five quarters.

"The banking industry continued to make gradual but steady progress toward recovery in second quarter," said FDIC Acting Chairman Martin J. Gruenberg. "Levels of troubled assets and troubled institutions remain high, but they are continuing to improve."

Roughly 62.7% of institutions reported improvements in quarterly net income from second quarter a year ago.  The share of institutions reporting net losses was 10.9%, a decrease from 15.7% a year earlier. The average return on assets increased to 0.99% from 0.85% a year earlier.

Second-quarter loss provisions totaled $14.2 billion, or more than 26% less than the $19.2 billion set aside for losses for the same period in 2011.  Net operating revenue (net interest income plus total noninterest income) totaled $165.4 billion, a 0.8% increase over the year. Gains from loan sales rose $3 billion.

Banks and thrifts charged off $20.5 billion in uncollectible loans during second quarter, a 29.1% decrease from second quarter 2011.

Other findings in the profile:

  • Total loan balances increased by 1.4% or $102 billion.
  • The flow of money into deposit accounts continued to slow, with deposits increasing by $61.6 billion in second quarter, compared with rising $74.7 billion in first quarter and $186 billion in fourth quarter 2011.
  • The number of problem institutions dropped to 732 from 772--the smallest number of problem banks since year-end 2009.
  • The unaudited Deposit Insurance Fund balance rose to $22.7 billion during second quarter, from $15.32 billion in first quarter.
Use the link to read the entire profile.

Market News (08/27/2012)

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MADISON, Wis. (8/28/12)

  • Business confidence continues to remain subdued with sentiment remaining largely unchanged this year, according to Moody's Analytics Survey of Business Confidence for the week ending Aug. 24 (Economy.com Aug. 27). The difference between the positive responses and negative responses to nine survey questions was 19%, with 18% on a four-week moving average. Moody's cited the ongoing financial woes of Europe, the looming fiscal cliff in the U.S., and the economic slowdown in the emerging world for the lack of change.  However, the survey report said there is no indication that the economic recovery is at risk. In fact, it is encouraging that the results are as strong as they are, said Moody's.  The soft survey results are due to a low number of positive responses to survey questions. The percentage of negative responses has been low and stable in the past few months.  In the U.S., business confidence was 21% for the week and 16% on a four-week moving average. Sentiment is stuck at a level consistent with an economy that is growing, at best, at the very low end of its potential, Moody's added …
  • A California law that prohibits local governments from taking property and conveying it to a private company could curtail a proposal by three municipalities to seize underwater mortgages through eminent domain. Under the proposal, the San Bernardino County and the cities of Ontario and Fontana would buy underwater loans with the help of a San Francisco venture capital firm, Mortgage Resolution Partners, which would then take over the loans and restructure them (American Banker Aug. 27). No previous case law applies, so Proposition 99, which forbids such transfers from taking place, must be applied, said Bronwyn F. Pollock, a partner in Los Angeles at the law firm Mayer Brown. The California law was passed following a Supreme Court decision that allowed a Connecticut municipality to take private homes and give the land to developers for a redevelopment led by the pharmaceutical company Pfizer …

News of the Competition (08/27/2012)

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MADISON (8/28/12

  • The Federal Reserve Board Monday began its new practice of publishing quarterly, unaudited combined Fed Reserve Bank financial reports. In a press release, the Fed said the enhanced financial reporting procedures will provide greater transparency by communicating financial information more frequently and in greater detail. To access the reports for the first and second quarters of 2012, use the link. Third-quarter information for the Reserve Banks will be released within 60 days after the quarter ends. For many years, the board has published annual financial statements for the Board of Governors and Reserve Banks, audited by an independent firm, said the Fed. For additional information about the auditing of the Federal Reserve, visit the link  …
  • The credit quality of large loan commitments owned by U.S. and foreign banks and nonbanks improved in 2012 for the third consecutive year, according to the Shared National Credits (SNC) Review for 2012, the Federal Reserve said Monday. A loan commitment is the obligation of a lender to make loans or issue letters of credit as outlined in a formal loan agreement. The volume of criticized loans remained high at $295 billion compared with levels before the financial crisis, but declined 8.1% from 2011, according to the Fed. A criticized loan is rated "special mention," "substandard," "doubtful," or "loss." Reasons the Fed cited for improvement in credit quality included better operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets. Despite the improvement, poorly underwritten loans that were originated in 2006 and 2007 continued to adversely affect the SNC portfolio. While the overall quality of underwriting of SNCs that were originated in 2011 was better than in 2007, some easing of standards was noted, specifically in leveraged finance credits, especially compared with the relatively tighter standards present in 2009 and the latter half of 2008. Refinancing risk eased during the past year with 37.1% of SNCs maturing during the next three years, compared with 63.4% for the same time frame in the 2011 SNC Review …

News of the Competition (08/24/2012)

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MADISON, Wis. (8/27/12)

  • Credit card customers are reporting more satisfaction with card companies' customer service, interest rates and rewards programs, as competition among companies escalates. Card companies are aggressively attempting to keep customers happy and attract new ones during a down economy, according to a study released by J.D. Power & Associates (American Banker Aug. 23). Card issuers are concentrating especially on "transactors"--the higher spending cardholders who usually don't carry a balance on their accounts, James Miller, senior director of banking services at J.D. Power, told the Banker. Across card issuers, the average customer satisfaction score was 753--up from 731 in 2011 and 714 in 2010, said the J.D. Power study …
  • Community lenders and regional banks are making a large surge into credit card lending, heading into a business they had abandoned earlier because of the influx of bigger financial institutions into the market (The Wall Street Journal Aug. 23). The move is being made because smaller players are being pressured by new regulations that make debit cards less profitable and because they are being inundated by deposits that they must put to use, the Journal said.  Smaller financial institutions--as they try to grow in an environment of low interest rates--are discovering they can no longer afford to allow others to serve their best customers, the Journal said  ...
  • General Motors (GM) is unveiling a new smaller Cadillac model--the Cadillac ATS--in hopes of  bringing to the market a new signature model that would compete with the No. 1 car in the industry segment--the BMW 3-series (The New York Times Aug. 23). The move would help fulfill GM's pledge--made three years ago when it emerged from bankruptcy--to compete with the best automakers in the world, the Times said. The move indicates how far GM has come since its implosion and $50 billion government bailout, analysts told the Times. GM views the introduction of the ATS as crucial to becoming a true player in the global luxury car market, the Times said …

Market News (08/24/2012)

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MADISON, Wis. (8/27/12)

  • U.S. orders for durable manufactured goods--long-lasting goods designed to last three years--recorded the strongest increase of the year in July. Orders were sparked by higher demand for cars and airplanes, although demand remained soft outside the transportation area (The Wall Street Journal, Bloomberg.com and Moody's Economy.com Aug. 24). Manufacturers' orders rose 4.2% last month to a seasonally adjusted $230.73 billion, the Commerce Department said Friday. Excluding transportation, new orders declined 0.4%. Total shipments climbed 2.6%, while inventories inched up 0.7%. Orders for durable goods have increased for three consecutive months. The report continues to suggest a slowdown in business investment and weaker conditions for manufacturers, Moody's said ...
  • The Economic Cycle Research Institute (ECRI) Weekly Leading Index--which measures economic growth--rose to 123.3 for the week ended Aug. 17 from 123 the prior week (Moody's Economy.com Aug. 24). That marks the third consecutive weekly gain. The smoothed annualized growth rate dipped to 0.1% from 0.4% the previous week. Although both measures have made significant gains during the past several weeks, they still are weak by historical benchmarks, Moody's said. Households' purchasing power is being eroded by a severe drought in the Midwestern and Western states, which is pushing up food prices. That is reducing consumers' ability to boost the economic recovery, Moody's said  ...

News of the Competition (08/23/2012)

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MADISON, Wis. (8/24/12)

  • To comply with terms of the national mortgage settlement signed in June, the five biggest U.S. mortgage servicers are modifying loans and offering principal reductions. However, they say they are worried that borrowers will ignore their entreaties because of solicitation fatigue (American Banker Aug. 22). To be in compliance with the settlement, Ally Financial, Bank of America, Chase, Citigroup and Wells Fargo have been sending distressed homeowners mass mailings, which offer principal reductions, refinancings and other forms of financial relief, the Banker said. However, some assert that borrowers are so tired of solicitations--several from scam artists--that they no longer return phone calls or open letters, the Banker said …
  • The Federal Reserve OK'd  a revised capital plan submitted by Fifth Third Bancorp in June after the Fed denied the Cincinnati-based bank's request to buy back stock and raise its dividend. That request was made after Fifth Third passed its stress test earlier this year (American Banker Aug. 22). The revised plan could possibly include upping the dividend to 10 cents from eight cents in the third quarter. It also could call for share repurchases--through the first quarter of 2013--of up to $600 million, Fifth Third said Tuesday …
  • PayPal is partnering with Discover Financial Services to offer mobile payments service to customers (The Wall Street Journal Aug. 22). PayPal and the credit-card company hope to increase the use of eBay Inc.'s mobile-payments service to potentially seven million merchant locations--by the middle of 2013--from a few thousand now, the Journal said. The effort could speed up PayPal's goal of changing itself from a vehicle for online purchases to becoming a workable choice for transactions in brick-and-mortar merchants, the Banker said. That market has been controlled for a long time by traditional card-payment networks such as American Express Co., Discover, MasterCard Inc. and Visa Inc., the Journal said …

Market News (08/23/2012)

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MADISON, Wis.  (8/24/12)

  • Initial claims for U.S. unemployment benefits rose last week to a one-month high, indicating scant progress in the labor market (The Wall Street Journal, Bloomberg.com and Moody's Economy.com Aug. 23).  Claims increased by 4,000--to 372,000--for the week ended Aug. 18, the Labor Department said Thursday. After slashing jobs during the recession, companies may be keeping their work forces spare while they wait for signs that economic growth will accelerate, Bloomberg said. Business and investor confidence is being tempered by the European fiscal crisis and the economic slowdown in Asia, Bloomberg added. Meanwhile, continuing claims for unemployment benefits climbed 4,000--to 3.317 million for the week ended Aug. 11. In a related matter, the number of mass layoff events--those layoffs involving at least 50 workers from a single establishment--rose in July to 1,340 from 1,317 in June (Moody's Economy.com Aug. 23). The number of individuals affected increased 6,014--to 137,420 in July from 131,406 in June …
  • New single-family U.S. home sales climbed more than forecast in July--matching a two-year high and suggesting that the housing industry, which helped spark the recession, is on the mend (Bloomberg.com and Moody's Economy.com Aug. 23). Sales rose 3.6% to an annualized pace of 372,000, after a 359,000 rate in June, the Commerce Department said Thursday. Economists had predicted an increase to 365,000 for July, according to a Bloomberg survey. Record-low mortgage rates and cheaper properties are enticing buyers to return to the housing market and bolster orders at housing manufacturers, Bloomberg said. Also, home prices measured by the Federal Housing Finance Agency's monthly purchase-only price index rose 0.7% from May to June, and are 3.6% higher than June 2011 (Moody's Economy.com Aug. 23) …
  • U.S. consumer confidence dropped last week to the lowest level since January because consumers harbored more negative views of their personal finances, according to the Bloomberg Consumer Comfort Index (Bloomberg.com and Moody's Economy.com Aug. 23). The index fell to -47.4 for the week ended Aug. 19 from -44.4 the prior week--its sixth consecutive weekly decline. That weekly series of decreases is the longest such stretch since 2008, when the U.S. was in recession. Poor job growth, ongoing high unemployment, higher gas prices and rising food prices engendered by drought in some parts of the U.S. may further negatively impact personal finances, Bloomberg said ...

FOMC minutes Fed discussed options for policy

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WASHINGTON (8/23/12)--Saying that stimulus would be needed soon unless the economy grew substantial stronger, the Federal Open Market Committee (FOMC), the Federal Reserve's monetary policymaking body, is preparing steps to boost the nation's economic recovery, according to the FOMC minutes for its July 31-Aug. 1 meeting. Members of the FOMC discussed several alternatives.

The minutes, released Wednesday afternoon, noted that "many members expected that at the end of 2014, the unemployment rate would still be well above their estimates of its longer-term normal rate and that inflation would be at or below the committee's longer-run objective of 2%. A number of them indicated that additional accommodation could help foster a more rapid improvement in labor market conditions in an environment in which price pressures were likely to be subdued.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action," said the minutes.

According to The Wall Street Journal (Aug. 22), the statement suggested support for action is growing within the Fed. At its June meeting, only "a few members" of the committee indicated further stimulus would likely be needed, the newspaper said. "The caveat that a substantial and sustainable pickup in growth could forestall action suggested that the Fed has set a high bar to holding off. Some recent economic data have picked up, but few economists have described the improvements as substantial," the Journal said.

The FOMC minutes noted that "members agreed that [their statement] should acknowledge the deceleration in economic activity, the small gains in employment, and the slowing in inflation reflected in the economic data over the intermeeting period. Because most saw no significant changes in the medium-run outlook, they agreed to continue to indicate that the committee anticipates a very gradual pickup in economic activity over time and a slow decline in unemployment, with inflation at or below the rate that it judges most consistent with its dual mandate," the minutes said.

"Many members expressed support for extending the committee's forward guidance, but they agreed to defer a decision on this matter until the September meeting," said the minutes.  The statement also reiterated the FOMC's intention to extend the average maturity of its securities holdings as announced in June.

"Consistent with the concerns expressed by many members about the slow pace of the economic recovery, the downside risks to economic growth, and the considerable slack in resource utilization, the committee decided that the statement should conclude by indicating that it will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

The Fed discussed several options of possible action:

  • A change in the date over which the Fed expected to keep its target range for the federal funds rate between 0% and 0.25%, perhaps with a statement that a "highly accommodative stance" was likely to be maintained as the recovery progressed. The Fed has pledged to keep rates at "exceptionally low levels" through at least late 2014.
  • A third round of quantitative easing (QE3) in a "new large-scale asset purchase program."  Some FOMC members said another bond-buying program might boost business and consumer confidence. However others were concerned about how effective QE3 would be and whether it might make it more difficult for the Fed to unwind its large portfolio of assets later.  Many officials said it was important for any future program to be flexible to account for changes in the economy, the minutes said.
  • Lowering the interest the Fed pays banks on the required and excess reserves they park at the central bank.
The next FOMC meeting will be Sept. 12-13.

News of the Competition (08/22/2012)

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MADISON, Wis. (8/23/12)

  • Although big U.S. banks control most of the total outstanding loans in the industry, smaller banks are taking on loans at a quicker rate, according to the most recent report from Keefe, Bruyette & Woods (KBW) (American Banker Aug. 21). Total loans at small and mid-cap banks increased 2% in the second quarter from the first quarter, while large-cap banks saw loans rise 1.4%. Following four consecutive monthly declines, the second quarter marked the fifth consecutive quarter that total loans rose from the prior quarter, KBW said. Total loan and leases overall rose 1.5% in the second quarter from the first quarter--to nearly $5.3 trillion and increased 4.6% over the same period in 2011. Increased commercial and consumer lending drove the second-quarter gains, more than mitigating the steep drop-off in construction and home-equity lending, KBW said …
  • Since 2009, at least seven U.S. banks have filed for Chapter 11 bankruptcy protection to rid themselves of debt (American Banker Aug. 21). The maneuver has been on the rise, with bank advisers for the past several years advocating bankruptcy to prevent a bank from failing, the Banker said. Proponents claim that bankruptcy allows the banking unit an opportunity to move on, even though stockholders' interests in the parent company are diminished if not completely negated, the Banker said. Although filing for bankruptcy is tricky, conditions exist to foster more of them, deal advisers told the Banker. More bankruptcies are in the pipeline because debt still impedes raising equity, and bankruptcy opens up the bedrock value of the organization, Christopher Zinski, chairman of Schiff Hardin Strategic Advisers, told the Banker
  • Although large banks claim that big companies need the banks for complex financial services such as global management, deal advice and large loans, big businesses do not necessarily see big banks as indispensable (American Banker Aug. 21). A new upsurge of criticism claims the biggest banks' size and the mixing of commercial and investment banking pose significant threats to the financial system, the Banker said. Although separating large banks' commercial and capital market operations would increase costs and be inconvenient to large businesses, the Banker said downsides exist to dealing to with mega financial firms, according to corporate treasurers and their representatives. Since the financial crisis, the increasing concentration of banking industry assets has meant companies often must deal with the largest banks, which often involves buying bundled services to procure the best rates on credit, the Banker said. Still, no one interviewed by the publication advocated breaking up big banks …

Market News (08/22/2012)

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MADISON, Wis. (8/23/12)

  • In fiscal year 2012, the U.S. government will incur a budget deficit of $1.1 trillion, or 7.3% of gross domestic product, according to an estimate in a new report released Wednesday by the nonpartisan Congressional Budget Office (CBO) (MarketWatch Aug. 22). The new estimate falls below the $1.2 trillion estimate that CBO made in March. CBO forecasts the U.S. economy will expand at a 2.1% rate this year. However, if scheduled spending cuts and tax increases take effect in January--the "fiscal cliff"--the economy will decline by 0.5% between the fourth quarter of 2012 and the fourth quarter of 2013. That would result in a recession, with U.S. unemployment surging to roughly 9% in the second half of 2013 from its current level of 8.3%, CBO said …
  • U.S. mortgage application volume decreased 7.4% for the week ended Aug. 17 from one week earlier, according to the Mortgage Bankers Association (MBA) Market Composite Index. The index is part of MBA's Weekly Mortgage Applications Survey released Wednesday. On an unadjusted basis, the index declined 8% from the previous week. The Refinance Index dropped 9% during the period to the lowest level since early July. The seasonally adjusted Purchase Index increased 0.9% from one week earlier. The unadjusted Purchase Index fell 0.9%, compared with the previous week and was 3% more than the same week one year ago. The refinance share of mortgage activity decreased to 80% of total applications from 81% the previous week. The Home Affordable Refinance Program share of refinance activity was unchanged, at 24%. The adjustable-rate mortgage share of activity rose to 4% of total applications. For the MBA report, use the link …
  • Sales of existing U.S. homes increased in July, even with constraints of affordable inventory, and the national median price is showing five consecutive months of year-over-year increases, according to the National Association of Realtors (NAR). Monthly sales rose in every region but the West, where inventory is tight. Total existing-home sales--which are completed transactions that include single-family homes, townhomes, condominiums and co-ops--grew 2.3% to a seasonally adjusted annual rate of 4.47 million in July from 4.37 million in June. They are 10.4% above the 4.05 million-unit pace in July 2011. Lawrence Yun, NAR chief economist, said housing affordability conditions are very good. "Mortgage interest rates have been at record lows this year, while rents have been rising at faster rates," he said. "Combined, these factors are helping to unleash a pent-up demand. However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions."  For the NAR report, use the link …

News of the Competition (08/21/2012)

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MADISON, Wis. (8/22/12)

  • Auditors inspecting brokerage firms' financial statements seem to be taking shortcuts and failing to perform the necessary work for proper audits, the Public Company Accounting Oversight Board said Monday (The New York Times Aug. 20). The regulator--after finishing its first review of brokerage firm audits--said Monday that its inspectors discovered deficiencies in every audit reviewed. That does not indicate that any of the 23 brokerage firms' audits reviewed by board inspectors misrepresented the firms' financial conditions. Rather, the board concluded that, in most cases, the audit firm did not perform the requisite work to make certain the financial statements were accurate or that the companies held sufficient capital …
  • U.S. Bank has launched a new charge card to help small businesses (American Banker Aug. 20). With no annual or monthly fee, the U.S. Bank Business Visa Charge Card helps small businesses manage cash flow, build their credit and earn rewards, the bank said Monday. Because customers pay in full every month, the card--available online and at U.S. Bank branches--has no revolving balances or interest charges. Other features include: up to 1% cash back on purchases, a minimum 25-day grace period to pay bills, and access to ScoreBoard--an online tool for users to track spending patterns, keep an eye on expenses and review sales data …
  • The Jumpstart Our Business Startups, or JOBS ACT, which was signed into law early this spring, should allow banks to publish research on an initial public offering (IPO) the day of, or even before, the IPO, some lawyers said  (The Wall Street Journal Aug. 20). In the past, there was a ban on publishing such research by underwriters until 40 days after the deal. Now the new standard for publishing IPO research appears to be 25 days after the deal, based on analysis of the roughly 20 companies covered by the JOBS Act, which applies to corporations with less than $1 billion in annual revenue, the Journal said. The 25-day "quiet period" has been reached, the Journal said, as the result of an informal consensus among big Wall Street banks that are wary of legal actions stemming from the JOBS Act, according to several lawyers and bankers. That likely will not change unless securities regulators issue more guidance on how to interpret the law, they told the Journal

Market News (08/21/2012)

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MADISON, Wis.  (8/22/12)

  • U.S. citizens are having fewer babies, and that is diminishing consumer spending, which is a driving force in the national economy (Bloomberg.com Aug. 21).  Since the 2008 financial crisis, Americans have had fewer births each year--dropping to a 12-year low in 2011, according to data compiled by the National Center for Health Statistics. The low birth rate, along with a reduced rate of immigration, has caused the smallest population gain since World War II. From April 1, 2010, to July 1, 2011, the U.S. population rose 0.92%, or 2.8 million people, to 311.6 million--the slowest rate during a similar period since the mid-1940s, according to the Census Bureau. When families have children, consumption goes up, Dean Maki, chief U.S. economist at Barclays Plc in New York, told Bloomberg. Fewer births have created a drag on consumers' spending. If lower birth rates become a steady trend, it could be a cause for concern, he added …
  • The International Council of Shopping Centers (ICSC) chain store sales index decreased 1.5% for the week needed Aug. 18--the third consecutive weekly decline in the past four weeks (Moody's Economy.com Aug. 21). Rising gasoline prices dampened sales, but back-to-school promotions boosted them, ICSC said. Sales growth year-over-year dipped to 3.1% last week from 3.6% the prior week--matching its year-to-date average. Although consumers are staying conservative in their spending, they are not aggressively cutting back, ICSC said …

News of the Competition (08/20/2012)

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MADISON, Wis. (8/21/12)

  • Borrowers using Fifth Third Bank's Early Access deposit advance program were illegally charged too much for the loans as specified by Ohio state law, alleges a class-action lawsuit filed earlier this month (American Banker Aug. 17). Functioning similar to a payday loan, Early Access, begun  in 2008, allows borrowers to take out up to $750-- and in some instance $1,000--to be repaid out of the user's next direct deposit, the Banker said. Although Fifth Third says it doesn't charge interest and instead requires a $10 fee per $100 loaned out, plaintiffs claim the fee is tantamount to interest and therefore should be limited to the 25% annual percentage rate established for banks under Ohio law, the Banker said  …
  • The U.S. falls behind Canada and Europe when it comes to bank safety, according to magazine Global Finance's annual list of the world's 50 safest banks (American Banker Aug. 17). European banks were awarded the most top-50 positions, with 20. Canada placed the most banks of any single country, with seven.  In comparison, five U.S. banks made the list--Bank of New York Mellon (29), CoBank (32), U.S. Bancorp (37); Northern Trust (39) and Wells Fargo (48). The rankings are based on total assets and debt ratings from Fitch, Moody's and Standard & Poor's, Global Finance said ...
  • In a cautionary tale for mutual thrifts contemplating going public, First Financial Northwest is locked in an ongoing legal battle with an activist investor, Stilwell Group, over a contested proxy battle (American Banker Aug. 17). The $1 billion asset, Renton, Wash.-based company earlier this month announced a succession plan for Victor Karpiak, the chairman and CEO that Stillwell is attempting to force to leave, the Banker said. Since 2007, firms such as Stilwell have targeted more than 20 thrifts, which are vulnerable during conversions. They involve an initial step of a mutual holding company selling some common stock to depositors and then a second step of selling holding company shares. By investing in recently converted stocks, activist investors can obtain a good price at early stage and then make a profit if they can induce a sale, Gary Bronstein, a lawyer at Kilpatrick Townsend & Stockton, told the Banker

Market News (08/20/2012)

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MADISON, Wis. (8/21/12)

  • U.S. banks are buying more Treasuries because the gap between their deposits and loans is expanding at the quickest pace in two years (Bloomberg.com Aug. 20). In the two months ended July 31, deposits rose 3.3% to $8.88 trillion, while business lending increased 0.7% to $7.11 trillion, according to data compiled by the Federal Reserve. That resulted in a record gap of $1.77 trillion that grew 15% since May--the largest similar-period expansion since July 2010. So far this year, banks already have purchased $136.4 billion in Treasury and government agency debt--more than twice the $62.6 billion for the entire year of 2011. That has pushed banks' holdings to a record high of $1.84 trillion. Banks are lending at below pre-recession levels, with an unemployment rate above 8% for more than three years, a slowing U.S. economy, and regulations compelling them to hold more and higher-quality assets, Bloomberg said ...
  • Business confidence worldwide remains tenuous, with businesses still worried about continuing financial turmoil in Europe and concerns about the rapidly approaching fiscal cliff in the U.S., according to Moody's Analytics Survey of Business Confidence (Moody's Economy.com Aug. 20). However, there are no signs that the economic recovery is at risk, Moody's said. Moody's sees fewer positive responses to survey questions, while the number of negative responses remains low, Moody's said. The business services and manufacturing sectors remain more upbeat, while investment spending is staying solid, Moody's said ….
  • The Chicago Fed National Activity Index rose to -0.13 in July from -0.34 in June, but for the third consecutive month it stayed in negative territory (Moody's Economy.com Aug. 20). Three of the four categories of the index saw an improvement from June, but only the production and income category made a positive impact on the index, Moody's said. Overall, the data indicate the U.S. economy will continue to confront headwinds and is not ready to accelerate into a higher gear, Moody's said …

News of the Competition (08/17/2012)

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MADISON, Wis. (8/20/12)

  • More and more, U.S. banks of all sizes said they are simplifying disclosures that explain account rules and fees for consumers (American Banker Aug. 16). Although banks say they have been working on the changes for years in attempts to promote transparency, the current driver for simpler disclosures may be the intensifying regulatory oversight of some checking account fees, the Banker said. Since December, several major financial institutions, including Bank of America, Citigroup, JPMorgan Chase, Regions Financial and Wells Fargo, have instituted more basic disclosures. Earlier this month, Capital One became the most recent bank to unveil new disclosures by providing customers a four-page menu describing account fees and requirements, the Banker said …
  • Discover Financial Services is permitting consumers to use Discover's website to link Discover cards to Google's mobile wallet (American Banker Aug. 16). That move will provide Discover cardholders with more convenience and flexibility to pay for purchases, Sanjay Gosalia, Discover director of mobile, said in a press release. Issuers do not need to agree to be a part of the mobile wallet in Google's new method of enrolling cards, the Banker said. However, by partnering with Google, issuers can select and add their own art and other details for consumers to view as they link their cards to Google Wallet, the Banker said…

Market News (08/17/2012)

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MADISON, Wis. (8/20/12)

  • Signaling sustained growth in the world's biggest economy, the index of U.S. leading economic indicators rose more than forecast in July, according to private New York-based research firm The Conference Board  (Bloomberg.com, The Wall Street Journal and Moody's Economy.com Aug. 17). The board's leading index--a gauge of  the economic outlook for the next three to six months--climbed 0.4% last month reversing a 0.4% decline in June. Economists had predicted the gauge would increase 0.2%, according to a Bloomberg survey. A rise in retail sales and consumer spending, along with an improved housing market lifted the index. However, an unemployment rate that remains above 8% is consistent with the Federal Reserve position that economic growth will "remain moderate over coming quarters," Bloomberg reported. In a related matter, the Economic Cycle Research Institute (ECRI) Weekly Leading Index--which measures economic growth--climbed to 122.8 for the week ended Aug. 10 from 122.5 the prior week (Moody's Economy.com Aug. 17) …
  • The probability that the U.S. will be in recession in six months fell to 33% in July from 35% in June, according to Moody's Risk of Recession gauge (Moody's Economy.com Aug. 17). Signs of improving conditions in the housing and retail sectors and in the job market are providing a good start to the third quarter, Moody's said. The odds of recession also were lowered by better financial market conditions in July, Moody's added. Although this was the first decline in the Risk of Recession gauge since February, the probability of recession remains nearly unchanged from a year ago, said Moody's. Despite uncertainty about U.S. fiscal policy and European financial turmoil, growth is expected to increase throughout the remainder of the year, Moody's added ...
  • U.S. consumer confidence unexpectedly climbed in August, after two consecutive months of declines, bolstering chances for more robust consumer spending in the third quarter, according to the Thomson Reuters/University of Michigan Consumer Confidence Survey index (Bloomberg.com and Moody's Economy.com Aug. 17). The index increased 1.3 points to 73.6 this month from July's 72.3 reading. The gauge was forecast to remain nearly unchanged at 72.2,  according to a Bloomberg survey of economists. A better-than-expected employment report--buoying views of current economic conditions and mitigating a moderate drop in expectations--likely caused the rise, Moody's said …

News of the Competition (08/16/2012)

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MADISON, Wis. (8/17/12)

  • An already half-hearted merger-and-acquisition environment for U.S. banks could be further dampened by proposed Basel III capital requirements (American Banker Aug. 15). Although increased regulation normally prompts weak banks to sell, there is a widening concern that specific proposed rules in Basel III could negatively impact the valuations of some banks, the Banker said. During merger negotiations, lower valuations could create an even wider rift between buyers and sellers, say industry observers. Certain proposals that could cause lead buyers to offer low bids to at-risk banks include the requirement for higher risk weighting on residential real estate and capital buffers, the Banker said. That, in turn, could result in some buyers curbing their desire for acquisitions so they can keep more capital, the Banker added …
  • Wells Fargo has launched a homebuilder banking group to help residential developer customers in the Midwest, Texas, and on the East Coast, the Charlotte, N.C.-based bank said Wednesday (American Banker Aug. 15). The group comprises 14 bankers nationwide who will provide products--which include project and corporate financing facilities--and a referral network to insurance, mortgage and capital market products and treasury management, Wells said. Also, the team will assist existing customers who are searching for new business within their coverage area …
  • A group of large U.S. retailers said Wednesday it is creating a company to offer customers a means for paying for purchases with their smartphones (The New York Times Aug. 15). The group--which is joining a wide swath of businesses looking to carve out a segment of the mobile purchases market--includes Best Buy, CVS, 7-Eleven and Wal-Mart, the Times said. The group--with 14 companies and more expected to join later--will be called Merchant Customer Exchange. It said its payment application would be compatible with just about any smartphone and would provide transactions using a secure technology …

Market News (08/16/2012)

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MADISON, Wis. (8/17/12)

  • Initial U.S. claims for unemployment benefits barely inched up last week, indicating the labor market is stabilizing after employment accelerated in July (The New York Times, Bloomberg.com and Moody's Economy.com Aug. 16). Claims rose by 2,000--to 366,000 for the week ended Aug. 11, the Labor Department said Thursday. Last week's tally took the less volatile four-week moving average down 5,500--to 363,750--the lowest level since March 31. During the past two months, claims have trended lower, a signal that firms were laying off fewer workers and hiring was increasing, the Times said. If claims drop below 375,000 for a steady rate of time, it usually indicates that hiring is at a sufficient level to lower the unemployment rate, the Times said. Meanwhile, continuing claims for U.S. unemployment benefits dropped 31,000 for the week ended Aug. 4 ...
  • Housing starts in the U.S. declined in July, but the number of building  permits--a proxy for future construction--climbed to the highest level in four years, signaling the housing industry will continue its ascent in the second half of 2012 (Bloomberg.com and Moody's Economy.com Aug. 16). Starts decreased 1.1% to an annualized rate of 746,000 from June's 754,000 pace, the Commerce Department said Thursday. Building permits increased to an 812,000 pace--the most since August 2008.  In a related matter, U.S. homebuilder confidence rose to the highest level in more than five years, indicating builders believe the housing market recovery can continue its momentum (MarketWatch and Moody's Economy.com Aug. 15). The National  Association of Homebuilders/Wells Fargo housing market index--in the market for newly constructed single-family homes--increased two points last month to a seasonally adjusted reading of 37--the highest level since February 2007 …
  • An elevated U.S. unemployment rate and escalating fuel prices caused consumers last week to be the most pessimistic about the economic outlook since late last year, according to the Bloomberg Consumer Comfort Index (Bloomberg.com and Moody's Economy.com Aug. 16). The index fell 2.5 points to land at -44.4 for the week ended Aug. 12--the fifth consecutive week of erosion in consumer sentiment. The percentage of households that said the economy is going in the wrong direction increased to 45% in August--the most since November. It was 36% in July …

News of the Competition (08/15/2012)

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MADISON, Wis. (8/16/12)

  • To settle claims made by the Securities and Exchange Commission (SEC), Wells Fargo will pay out more than $6.5 million (American Banker Aug. 14). The payment is a result of improper disclosure of risks related to investments connected to mortgage-backed securities (MBS) by Wells' brokerage firm and a former executive. The SEC discovered that Wells did not properly sell asset-backed commercial paper to municipalities, nonprofits and others. That commercial paper was structured with high-risk MBS and collateralized debt obligations. The SEC also said that Wells did not procure sufficient information about those investments, but instead relied primarily on their credit ratings  ...
  • Banks are starting to take on some complex data management projects they began in the early 2000s, but set aside when the financial crisis and recession ensued and pre-empted them (American Banker Aug. 14). However, those type of projects are being whittled down to a single issue--such as making same-day liquidity-risk reporting better--as opposed to attempting to change data systems throughout an entire company at one time, SAP's top banking executives told the Banker. The Walldorf, Germany-based software company's executives told the Banker about what they are hearing about and seeing in regard to managing large data silos--sometimes called Big Data …
  • U.S. banks approaching the $10 billion asset level have to make an important decision whether they want to stop growing or exceed that threshold (American Banker Aug. 14). That's because regulators and lawmakers chose the $10-billion mark as the demarcation between small and large banks in terms of areas such as consumer protection, interchange fees and stress testing, in the aftermath of the low point of the financial crisis. There are about two dozen banks with assets in the $8 billion to $11 billion range, according to the Federal Deposit Insurance Corp., and it is clear those banks are formulating their strategy, analysts say. Banks approaching the dividing line must decide whether to stay below it or to acquire another bank to get well beyond the $10 billion dividing line, the Banker said. Just barely going over the line and taking on more regulation doesn't make much sense for most banks, the Banker said …

Market News (08/15/2012)

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MADISON, Wis. (8/16/12)

  • U.S. consumer prices in July remained unchanged, the fourth consecutive month that the consumer price index (CPI) retreated or did not advance. That indicates a weak economy is keeping inflation pressures in check, as a slight decline in energy costs offsets a modest rise in food prices (The Wall Street Journal, The New York Times and Moody's Economy.com Aug. 15). Excluding volatile food and energy costs, the core CPI inched up 0.1%, the Labor Department said Wednesday. Prices rose 1.4% in the 12 months ending in July--the smallest annual increase since November 2010. A harsh Midwestern drought could result in higher prices at supermarkets later this year, the Times said. However, the cost of food ticked up only 0.1% in July. Lower inflation provides the Federal Reserve with more room to maneuver in initiating new programs to bolster growth, the Times said. Also, moderate price gains leave consumers with more cash to spend, which can spur economic expansion, the Times added …
  • U.S. mortgage applications decreased 4.5% for the week ended Aug. 10 from one week early, said the Mortgage Bankers Association (MBA) in its Market Composite Index. The index is part of MBA's Weekly Mortgage Applications Survey released Wednesday. On an unadjusted basis, the index declined 4.7%. The Refinance Index dropped 5%. The seasonally adjusted Purchase Index fell 2%. The unadjusted Purchase Index went down 3%. The refinance share of mortgage activity decreased slightly from the previous week and is about 81% of total applications. The adjustable-rate mortgage (ARM) share of activity is nearly 4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 3.76%, with points increasing to 0.47 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans. The effective rate increased from last week. For the MBA report use the link …
  • Industrial production in the U.S. rose in July, pushed by a bounce-back in utility use and a pickup in motor vehicle output (Bloomberg.com Aug. 15). Production increased 0.6% in July after having risen 0.1% in both May and June, according to the Federal Reserve. Revisions to the rates of change for recent months left the level of the index in June little changed from its previous estimate. Manufacturing output rose 0.5% in July, the same rate of increase as was recorded for June. In July, the output of mines increased 1.2%, and the output of utilities rose 1.3%. At 98% of its 2007 average, industrial production in July totaled 4.4% above its year-earlier level. Capacity use for total industry moved up 0.4 percentage point to 79.3%  a rate one percentage point below its long-run (1972--2011) average.  For the Fed release, use the link …

News of the Competition (08/14/2012)

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MADISON, Wis. (8/15/12)

  • U.S. bankers are making tough decisions on delinquent agricultural loans in dealing with the effects of the worst Midwest drought in 20 years (American Banker Aug. 13). Because they have strong connections to farming communities, agricultural lenders want financial regulators to affirm that banks know the best way to deal with distressed borrowers, John Blanchfield, a senior vice president at the Center for Agricultural and Rural Banking of the American Bankers Association, told the Banker. If bankers believe their farming customers can recover from the drought, they will renegotiate or modify the terms of the loans, he added. Many banks do not want to classify agricultural loans as troubled-debt structurings because it will alter how an asset is treated in their accounting procedures, the Banker said …
  • During the next five years, smartphones will account for more than $730 billion worth of purchases, according to British firm Juniper Research (American Banker Aug. 13). The increasing purchases of nondigital products and services from major brands and retailers through smartphones will drive the mobile transaction growth, Juniper said. Sales for U.S. companies such as Domino's and the U.K.'s Argos already have 6% to 7% of their total sales arriving through the mobile channel, Juniper added. In a related matter, JPMorgan Chase started offering mobile-banking features to consumers who use its prepaid card, Liquid, so users can transfer money to the card, view account balances and check transaction history, receive alerts for low account balances, and add funds with remote deposit capture, the Banker said ...

Market News (08/14/2012)

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MADISON, Wis. (8/15/12)

  • For the first time on record, the U.S. national interest rate on five-year certificates of deposit (CD) fell below 1%, according to Market Rate Insight (MarketWatch.com and Bloomberg.com Aug. 13). The national average rate is 0.99% this week--the lowest yield ever recorded, the San Anselmo, Calif.-based financial research firm said Monday. The five-year CD's interest rate reached hit its zenith in June 1981 when it went above 20%. In the past decade, it hit its high-water mark at 6.25% in August 2000 before steadily trending downward, MarketWatch said. Other long-term CD rates have fallen even further. The four-year CD hit an all-time low this week at 0.78%, and the three-year CD is at 0.63%. When the rates of all CD terms from three months to five years are averaged another record low is reached--at 0.46% …
  • Confidence at U.S. small-businesses stayed tenuous in July, as they evaluate the effect of the slowdown in consumer spending in recent months, according to the National Federation of Businesses (NFIB) Small-Business Survey (Moody's Economy.com Aug. 14). The survey indicated confidence dipped to 91.2 last month from 91.4 in June. With lagging sales, profits are being diminished, NFIB said. Because of the downturn, few businesses said they intend to make capital expenditures during the next six months, the survey indicated. However, plans to hire notched up slightly since June's survey, NFIB said ...
  • Business inventories in the U.S. increased at the slowest pace in nine months while a sales drop-off provided companies with less incentive to keep more goods available (Bloomberg.com and Moody's Economy.com Aug. 14). The 0.1% gain in stockpiles last month followed a 0.3% increase in May, the Commerce Department said. Although the inventory-to-sales ratio rose to 1.29 from 1.27, businesses still are successfully managing their inventories, Moody's said. Amid U.S. and European fiscal uncertainties, businesses are proceeding with caution and closely monitoring how much and how fast they increase their inventories, Aaron Smith, a senior economist at Moody's Analytics in West Chester, Pa., told Bloomberg
  • For the first time in four months, U.S. retail sales--bolstered by more spending on autos, clothing, electronics and furniture--increased in July, indicating consumers may begin spending more despite worries about the economy (The Wall Street Journal, The New York Times and Bloomberg.com Aug. 14). Retail and food-service sales increased 0.8% last month to a seasonally adjusted $403.93 billion, following three consecutive monthly declines, including a 0.7% drop in June, the Commerce Department said Tuesday. July's tally is a 21.4% increase from the recession low, hit in March 2009, the Times said ...

News of the Competition (08/13/2012)

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MADISON, Wis. (8/14/12)

  • Visa is attempting to win back PIN debit business lost from new federal regulations that require card issuers to place a minimum of two unaffiliated networks on debit cards (American Banker Aug. 10). The payments network, which had previously constituted roughly 50% to 60% of the market, lost about half of that market share at the midpoint of 2012, according to analysts' estimates. The loss occurred because Visa had several debit contracts with issuers that included exclusive use of its signature and PIN debit networks, the Banker said. An amendment to the Dodd-Frank Act mandated the rule banning exclusivity and took effect in April. However, Visa's latest estimates provided in July indicate the worst of those losses may have passed, as the card company had predicted, the Banker said …
  • Based on its patent applications, iPhone maker Apple Inc.'s intentions with mobile payments are hard to decipher, said American Banker (Aug. 10). However, Apple recently procured a patent for a shopping application involving Near Field Communication (NFC) that indicates--in addition to being used for purchases--it also could be deployed to create a shopping list or scan items for pricing, the Banker said. The new patent could signal that Apple is poised to accelerate its NFC payment plans, although its public announcements may indicate otherwise, the Banker said …
  • Security risks that expose banks to liability are prevalent with remote deposit capture, and that is providing an opportunity for BB&T to step in and fill a need (American Banker Aug. 10). Last week, the bank started offering part of its internally created Web-based remote deposit capture (RDC) compliance suite to other banks. The service, made available through BB&T's Creative Payment Solutions unit, allows banks' business clients to conduct self-assessment to ensure they are in compliance with federal guidance and other rules governing RDC in which remote devices such as a smartphones and scanners are used to prepare images of checks for deposit, the Banker said. BB&T is looking to differentiate itself in a crowded RDC compliance market by offering testing, analysis and advisory services to aid businesses with RDC compliance, the Banker said …

Market News (08/13/2012)

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MADISON, Wis. (8/14/12)

  • Credit card companies' debt collection practices now are experiencing the same problems that dogged the U.S. foreclosure process (The NewYork Times DealBook Aug. 12). Companies such as American Express, Citigroup and Discover Financial are heading to court to recoup their money as they work through a plethora of bad loans, the Times said. However, incomplete records, erroneous documents and generic testimony from witnesses constitute a good portion of the lawsuits, according to judges in charge of the cases. Lenders are filing lawsuits with scant regard for accuracy, leading to the improper collection of debts from consumers, the judges said. Those concerns are similar to a foreclosure system abuse known as robo-signing--in which banks produced essentially the same documents for homeowners without reviewing them, the Times said. About 90% of credit card lawsuits contain errors and cannot prove the consumer owes the debt, Noach Dear, a Brooklyn, N.Y., civil court judge who oversees up to 100 such cases daily, told the Times
  • The current jump in mortgage refinancing in the U.S. likely will not add immediate benefits to growing the economy--but rather will accumulate over years--because consumers are focusing on restocking their savings and decreasing their debt (Bloomberg.com Aug. 13). The value of home loans refinanced in 2012--boosted by record-low interest rates and the growth of government programs--will increase to $932 billion from $858 billion in 2011, estimated the Mortgage Bankers Association (MBA). At the end of July, the volume of credit being modified rose to the highest level in three years, according to an MBA gauge that tracks credit volume …
  • Business confidence worldwide is tenuous, with businesses seemingly concerned about the rapidly approaching financial cliff and ongoing European financial troubles, according to Moody's Analytics Survey of Business Confidence (Moody's Economy.com Aug. 13). Sentiment remains at a level that is indicative of an economy expanding at the low end of its potential, Moody's said. However, there are no signs that the overall economic recovery is at risk, Moody's added. Also, workers in business services and manufacturing remain more positive, and investment spending continues to be solid, Moody's said …

News of the Competition (08/10/2012)

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MADISON, Wis. (8/13/12)

  • The Justice Department and the Securities and Exchange Commission (SEC) have ended two separate investigations into Goldman Sachs Group and its employees' actions involving possible financial fraud related to the mortgage crisis (The Wall Street Journal and The New York Times DealBook Aug. 9). In ending its year-long investigation, the Justice Department said Thursday there was "not a viable basis to bring a criminal prosecution" against Goldman and "the burden of proof" to prosecute Goldman could not be met. Also, the SEC announced Thursday it had ended its investigation--taking no action regarding a $1.3 billion subprime mortgage deal involving Goldman …
  • American Express (AmEx) has concluded a deal with Walgreens Co. to place AmEx's reloadable prepaid cards in 7,200 brick-and-mortar Walgreens stores nationwide by the end of last week, an AmEx spokeswoman said (American Banker Aug. 9). The cards already are available online and at other retailers such as Barnes and Noble campus bookstores, Office Depot and Target. AmEx has made an aggressive push into the prepaid card market with the card, which has nearly no fees, the Banker said …
  • FreeMonee Network--a San Mateo, Calif.-based company that attempts to differentiate itself from competitors by allowing merchants to offer personally targeted cash gifts to consumers rather than coupons or general gift cards--has attracted an infusion of cash (American Banker Aug. 9). Since its inception in 2011, FreeMonee has contracted Capital One and U.S. Bank to be merchant acquiring partners. Also, it recently raised another $34 million, which quadruples its total funding to $45 million, the Banker said. The personally targeted cash gifts are predicated on an individual consumer's established inclination to shop at a specific retailer, the Banker said  …

Market News (08/10/2012)

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MADISON, Wis. (8/13/12)

  • The U.S. trade gap significantly narrowed in June, marking the third consecutive month of the shrinking of the deficit, which is the smallest since 2010, according to the Bureau of Economic Analysis/Census Bureau (Moody's Economy.com Aug. 9). The deficit narrowed to $42.9 billion in June from $48 billion in May. The biggest segment of the narrowing was in the real goods balance, which decreased to -$44.2 billion from -$47.7 billion--resulting from a smaller nonpetroleum deficit. That bodes better for second-quarter growth than the government originally estimated, Moody's said.  In a related matter, U.S. import prices declined for a fourth consecutive month, which reflected lower food and fuel costs (Bloomberg.com and Moody's Economy.com Aug. 10). The July import-price index fell 0.6%, after a 2.4% decline in June, the Labor Department said Friday …
  • Nonfarm business productivity of U.S. workers showed slight growth in the second quarter, indicating a gradual improvement in the economy overall, even though labor costs increased (The Wall Street Journal and Moody's Economy.com Aug. 8). Productivity rose at a seasonally adjusted annualized rate of 1.6%, the Labor Department said Wednesday. Unit labor costs went up 1.7% in the quarter. Data revisions indicate growth in productivity was significantly more robust in 2011 than previously reported--which partially explains the reason businesses have not hired more substantially during the economic recovery, Moody's said  …
  • Median prices for existing single-family homes are rising in more U.S. metropolitan areas, but a lack of inventory--notably in lower price ranges--is limiting buyer choices in more markets nationwide, according to the latest quarterly report by the National Association of Realtors (NAR). The median existing single-family home price, which rose in 110 out of 147 metropolitan statistical areas, is based on closings in the second quarter compared with the same quarter in 2011. Three areas were unchanged and 34 had price declines. In the first quarter of 2012, there were 74 areas showing price gains from a year earlier, while in the second quarter of 2011 41 metros were up. Home prices are set to rise in more markets during upcoming quarters, said Lawrence Yun, NAR chief economist. "It's most encouraging to see a growing number of metro areas with rising median prices, which is improving the equity position of existing homeowners," he said. "Inventory has been trending down and home builders are still under-producing in relation to growing demand. Some of the improvement in prices is due to a smaller share of sales in low price ranges where inventory is tight." For the NAR report, use the link …

News of the Competition (08/09/2012)

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MADISON, Wis. (8/10/12)

  • PHH, the parent company of PHH Mortgage--the biggest U.S. nonbank mortgage lender--said it will reduce its presence in the correspondent lending market where it ranks seventh nationwide, after PHH posted a $57 million loss in the second quarter (American Banker Aug. 8). In 2005, CUNA Mutual Group sold its mortgage operations to PHH Mortgage, which provides private label mortgage services (News Now Oct. 4, 2005). PHH, based in Mount Laurel, N.J., said its second-quarter performance was because of a charge connected to the ending of an "inactive" mortgage reinsurance agreement and "elevated foreclosure" related reserves …
  • Although record-low interest rates on mortgages and refinancings are significantly helping borrowers, the larger beneficiaries are the banks making the loans, said The New York Times (Aug. 9). Because banks are taking profits that are much higher than the historical norm, they are making unusually large profits on mortgages, analysts told the Times. If banks were content with the profit margins of just a few years ago, the 3.55% interest rate for a 30-year mortgage would be closer to 3.05%, the Times said. That lower rate would save a borrower roughly $30,000 in interest payments during the life of a $300,000 mortgage. Credit union interest rates tend to be lower than bank rates because credit unions are not-for-profit financial institutions, the Credit Union National Association pointed out …
  • While PayPal, a unit of eBay, continues to be the market leader for supporting person-to-person (P2P) money transfers, it is contending with a rising tide of strong competitors, according to Javelin Strategy & Research (American Banker Aug. 8). Fiserv's Popmoney and clearXchange are a threat to challenge PayPal's market supremacy, Javelin said.  Consumers transferred more than $195 billion last year using mobile, online and other channels. P2P accounted for $21.6 billion, or 11%, of the transfers, Javelin said  …

Market News (08/09/2012)

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MADISON, Wis. (8/10/12)

  • The U.S. delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.58% of all loans outstanding for second quarter of 2012, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. That is an increase of 18 basis points (bp) from the first quarter, but a decrease of 86 basis points from one year ago. The non-seasonally adjusted delinquency rate increased 41 bp to 7.35% in the second quarter from 6.94% in the first quarter. Delinquency rates typically increase between the first and second quarters of the year. That rate includes loans that are at least one payment past due but does not include those in the process of foreclosure. For the MBA report, use the link. In a related matter, foreclosure filings dropped 10% in July from a year earlier because new legislation and court rulings slowed the home-seizure process in some states, according to RealtyTrac Inc. (Bloomberg.com Aug. 9) ...
  • Initial claims for U.S. unemployment benefits declined last week, an indication the labor market may continue its ascent after the job market saw gains in July (Bloomberg.com and Moody's Economy.com Aug. 9). Claims fell 6,000--to 361,000--for the week ended Aug. 4, the Labor Department said Thursday. Fewer job cuts indicate employers have enough demand for their products and services to keep staff, a sign the U.S. economy is maintaining the economic recovery following the recession, Bloomberg said. Meanwhile, continuing claims for unemployment benefits for the week ended July 28 increased 53,000--to 3.332 million--after dipping the prior week …
  • U.S. consumer confidence dropped last week to the lowest level in two months--mainly due to consumers becoming more discouraged about the economy, according to the Bloomberg Consumer Comfort index (Bloomberg.com and Moody's Economy.com Aug. 9). The index fell to -41.9  for the week ended Aug. 5 from -39.7 the prior week. The index has not risen since the end of June. The component measuring consumers' views of the economy fell to the lowest level since February. That dimmer view of the economy was accompanied by less positive outlooks on personal finances and the buying climate--indicating consumer spending will need more time to accelerate, Bloomberg said. Also, confidence among lower-income households has been dampened by recent gasoline price hikes and little improvement in the labor market, Bloomberg said …

News of the Competition (08/08/2012)

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MADISON, Wis. (8/9/12)

  • Starbucks Corp., the biggest coffee-shop chain in the world, announced Wednesday it will partner with Square Inc., a mobile payments start-up, to use Square's payment system in 7,000 Starbucks stores (Bloomberg.com and The New York Times Aug. 8). Starbucks' $25 million investment in Square will make it easier for customers to use their mobile phones to make purchases, Bloomberg said. Square will start processing all credit and debit card transactions this fall at U.S. Starbucks stores. Eventually, customers will be able to order items and charge it to their credit cards just by saying their names, the Times said …
  • Cardtronics USA has bought the assets--including customer relationships, merchant contracts, online store and Web properties-- of ATM Network, an independent sales organization (ISO) (American Banker Aug. 8). Cardtronics also purchased the ISO's head office, based in Minnesota, announced parent company Cardtronics Inc.  Wednesday. Financial terms of the deal, which closed Monday, were not disclosed. Cardtronics' merchant-owned number of ATMs increases to 21,300 machines with the acquisition. Counting merchant- and company-owned ATMs, Cardtronics now has 61,200 machines, it said …
  • Consumer spending with prepaid cards is extremely varied and short-lived, with many questions unanswered about the consumers who use them, according to a report by the Federal Reserve Bank of Philadelphia (American Banker Aug. 7).  Collecting data on how the cards are used, what the cost is and the duration of use, the Philadelphia Fed analyzed more than 280 million prepaid  card transactions conducted on three million cards issued by Meta Payment Systems. Even if prepaid cards function like checking accounts, the way the revenue stream works is significantly different because a typical prepaid card is active for six months or less, the report said. Recovery of fixed and variable costs is probably different than with checking accounts. The report also noted that establishing direct deposit is one way to extend a card's life and markedly increase revenue

Market News (08/08/2012)

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MADISON, Wis.  (8/9/12)

  • U.S. production and non-supervisory workers' weekly incomes have risen a scant three cents--in inflation-adjusted numbers--since March 2010--the month after employment bottomed out following the recession (USA Today Aug. 6). Wages are stagnating, and hours worked are not increasing, Diane Swonk, chief economist at Mesirow Financial, an asset management firm in Chicago, told the newspaper. It's difficult for workers to ask for a raise because the job market still is fluid and unsettled, Gus Faucher, PNC Financial senior economist told the paper. This group of workers--nearly five out of every six private-sector employees--received roughly a $5 weekly raise in the first year of jobs coming back after the 1982 recession. That amount would be worth $11.40 today. Workers have lost nearly $4 a week in inflation-adjusted pay since October 2010 ...


  • Mortgage application volume in the U.S. for the week ended Aug. 3 decreased 1.8% from one week earlier, according to the Market Composite Index. The index is part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 2%. The Refinance Index dropped 2%, and the seasonally adjusted Purchase Index fell 1%. The unadjusted Purchase Index dropped 2% and was 12% lower than the same week one year ago. The refinance share of mortgage activity was unchanged from the previous week at 81% of total applications. The adjustable-rate mortgage share of activity decreased to 4% from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.76% from 3.75%, with points decreasing to 0.46 from 0.51 (including the origination fee) for 80% loan-to-value ratio loans. The effective rate declined from last week. For the MBA report, use the link ...


  • Second-quarter U.S. home prices increased by their biggest percentage in at least seven years, driven by high demand for bargain-priced foreclosures and low inventories of properties for sale, according to two reports from CoreLogic Inc. and Freddie Mac (The Wall Street Journal Aug. 7). Constituting the biggest quarterly jump since 2005, home prices rose 2.5% in June from a year ago and 6% from the first quarter this year, said Santa Ana, Calif.-based data firm CoreLogic. Freddie Mac's study--employing a different methodology--indicated second-quarter home prices jumped 4.8% from first quarter--the biggest gain since 2004 ...

News of the Competition (08/07/2012)

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MADISON, Wis. (8/8/12)

  • In efforts to boost economic growth and diminish unemployment, the Federal Reserve should start an aggressive open-ended bond-buying campaign, Eric Rosengren, president of the Federal Reserve Bank of Boston told The Wall Street Journal (Aug. 7). Rosengren is not one of the five regional Fed bank presidents with a vote on monetary policy. All 12 regional presidents take part in Fed deliberations, but just five join the seven Fed governors in Washington, D.C., for a formal committee vote, the Journal said. Rosengren is among several policy activists at the Fed seeking stronger actions to boost a weak economy, the Journal said. His decision to aggressively go public with his call is a sign that there is momentum growing inside the Fed for a new round of action, the Journal said  …
  • More and more financial institutions intend to offer mobile phone deposits--using smartphones to deposit checks--and soon the service will become mainstream. It no longer will differentiate an institution from its competitors, said American Banker (Aug. 6). Conestoga Bank in Chester, Pa., was one of the first banks to offer mobile remote deposit capture (RDC). In the first year, its account openings increased 10%, with the bank crediting RDC. The bank's average monthly deposits through mobile RDC have risen to $1.5 million at the $622 million asset bank. Twenty percent of Conestoga customers use mobile RDC, the Banker said. Conestoga Bank's success with mobile RDC indicates it could be a business enhancer for institutions of all sizes, not just major banks, the Banker said …
  • eCommerce Hack Day, held in Manhattan last weekend, saw roughly 225 young computer geeks gathered to pull a 30-hour all-nighter in attempts to hack digital commerce platforms to create new applications (American Banker Aug. 7). Programmers manipulated near-field communication technology, payment systems such as PayPal and text messages to try to discover new methods of making purchases and payments, the Banker said. The marathon coding event ended with 37 innovative tech hacks, highlighting the potential for disrupting banks and payment networks, the Banker said  ...

Market News (08/07/2012)

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MADISON, Wis. (8/8/12)

  • U.S. job openings increased in June to the highest level in four years, suggesting increasingly steady employment gains for the second half of 2012, according to the Job Openings and Labor Turnover Survey (JOLTS) released Tuesday by the Labor Department (Bloomberg.com and Moody's Economy.com Aug. 7). The number of job positions waiting to be filled rose 105,000--to 3.76 million, the most since July 2008--following 3.66 million in May. An increasing need for workers indicates some employers are growing their businesses as sales expand, Bloomberg said. That paves the way for employment gains that may help boost consumer spending, which constitutes 70% of the U.S. economy, Bloomberg added …
  • Continuing its rally, the U.S. CoreLogic Home Price Index rose 1.3% from May to June and is 2.55 higher than its June 2011 level, according to CoreLogic Inc. (Moody's Economy.com Aug. 7). The index, excluding distress sales, did better--increasing 2% from May to June and 3.2% from June 2011. The U.S. index rose for the fourth consecutive month in June and is a sign that distress sales now are less of a drag on the housing market, than they were last year, Moody's said  …
  • The International Council of Shopping Centers (ICSC) chain store sales index was mostly unchanged for the week ended Aug. 4--and did not reverse the big 1.7% decline in the prior week, ICSC said (Moody's Economy.com Aug. 7). Escalating gasoline prices and less favorable weather dampened sales, ISCS reported. Year-over-year growth rose to 2.4% from 1.8% the prior week, but still is below the year-to-date average, ICSC said …

Consumer debt rises 3 in June down 1.3B at CUs

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WASHINGTON (8/8/12)--Consumer borrowing grew in June at a 3% annual rate, the slowest growth in eight months and well below the $10 billion increase expected by economists. At credit unions, members' total debt in June was $228.1 billion, a drop of $1.3 billion from May's $229.4 billion.

Consumers overall borrowed $2.577 trillion, an increase of $6.46 billion from the $2.570 trillion borrowed in May, according to the Federal Reserve's Consumer Credit Report for June, released Tuesday afternoon. Economists surveyed by Bloomberg News had projected  consumers would increase their debt in June by $10.3 billion increase.

Revolving credit, which includes credit card debt, totaled $864.6 billion, a $3.7 billion or 5.1% decrease from the $868.3 billion borrowed during May.

Credit data is difficult to analyze, because cutting back on debt is not always seen as an indication of pessimism. Some consumers may use credit cards less  because they have more income to spend,  said  Reuters (Aug. 7).

Non-revolving credit, which includes student loans and loans for motor vehicles and mobile homes, rose 7.2% to nearly $1.713 trillion from the  nearly $1.703 trillion consumers borrowed in May.

Several sources pointed out that May's revised $16.7 billion gain had seen an expansion that was the fastest in five months and a surprise, given the sluggish job market and slowing growth (The Wall Street Journal, Bloomberg, and Reuters Aug. 7).

At credit unions, consumers borrowed $228.1 billion in June, down $1.3 billion from May's $229.4 billion but up from the $220.9 billion of debt acquired in June 2011.  The second quarter total  is more than the $223 billion borrowed in both first quarter 2012 and fourth quarter 2011.

Revolving debt at credit unions in June totaled $37.4 billion, up from $37.2 billion in May  and well over the $35.8 billion members borrowed in June 2011. June's revolving debt compares  with $37.9 billion in fourth quarter 2011 and $36.4 billion in first quarter 2012 at credit unions.

Nonrevolving debt borrowed at credit unions totaled $190.8 billion in June, a $1.4 billion decline from May's $192.2 billion but higher than the $185.1 billion consumers borrowed from them in June 2011.  The figures compare with $185.1 billion borrowed during first quarter at credit unions, and $186.6 billion borrowed from them in first quarter 2012.

To view the Fed's full Consumer Credit report, use the link.

News of the Competition (08/06/2012)

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MADISON, Wis. (8/7/12)
  • The Federal Deposit Insurance Corp. (FDIC) announced a bank closing Friday, bringing total bank failures this year to 40. That compares with 92 for the entire year in 2011. The failed bank is Waukegan (Ill.) Savings Bank, assumed by First Midwest Bank, Itasca, Ill. The closed bank held about $89 million in assets. The FDIC estimated the latest failure will cost its Deposit Insurance Fund roughly $20 million …
  • The 1999 repeal of 1935's Glass Steagall Act, implemented after the Great Depression to separate commercial banks from investment banks, has repeatedly been misrepresented in media including TV shows, public television, blogs, Op-Ed pages and an Oscar-winning documentary, said a Washington Post columnist (American Banker Aug. 3). Many liberal people believe the financial crisis in 2008 was wrought by the repeal of Glass-Steagall, said Post columnist Steven Pearlstein. However, that is false, similar to the right's argument that Fannie Mae and Freddie Mac caused the financial crisis, he wrote. Both scenarios are nothing more than simple conspiracy theories about the crisis that bolster what those groups already believe about economic policy and financial markets, Pearlstein added …

Market News (08/06/2012)

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MADISON, Wis. (8/7/12)

  • New York State's Department of Financial Services--led by Superintendent Benjamin Lawsky--is examining whether life insurers are potentially cloaking their true financial health through dealings with related companies, said sources familiar with the investigation (The Wall Street Journal Aug. 5). In July, the department sent a letter to 80 life insurers--which included some big firms such as MetLife Inc.--asking for details regarding their financial arrangements with affiliated entities called captive insurance companies, the sources said. Lawsky is leading New York regulators in a probe of those "reinsurance transactions" for possible risks, the sources said …
  • Business confidence worldwide remains low, with an economy expanding at the bottom of its potential, according to Moody's Analytics Survey of Business Confidence (Moody's Economy.com Aug. 6). The survey index dropped to 20.3 for the week ended Aug. 3 from 25 the prior week. Heading into next year, expectations for the economy nosedived to 7.7 from 36.1 the previous week--which  could be an indication of worries regarding the rapidly approaching fiscal cliff (simultaneous implementation of government spending cuts and expiration of Bush-era tax cuts) at the end of the year, Moody's said. Also, sales and pricing are lukewarm. Overall, however, the economic recovery seems to be solid, Moody's concluded …

News of the Competition (08/03/2012)

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MADISON, Wis. (8/6/12)

  • U.S. home loan modifications through the Home Affordable Modification Program (HAMP) have been increasingly approved at major banks, but have been mostly rejected at many nonbank mortgage servicers and a few smaller banks, according to Treasury Department HAMP data (American Banker Aug. 2). The top five mortgage servicers control 66% of mortgage servicing. The bank with the highest cumulative approval  rating at the end of June for HAMP modifications was Citigroup (77%), followed by Wells Fargo (69%),  Bank of America and JPMorgan Chase (both at 67%), and Ally Financial (36%) ...
  • Toyota Motor Corp. Friday announced its biggest quarterly profit in four years and also elevated its forecast for total production this year to a record-breaking level of 10.05 million vehicles (The Wall Street Journal and The New York Times Aug. 3). Toyota posted a second-quarter profit of $3.71 billion, compared with 99.4% declines in the year before. The Japanese automaker's second-quarter performance was the best since second-quarter 2008, the Journal said. The mending of damaged supply chains from last year's tsunami and a boost from Japanese government incentives on fuel-efficient cars are credited with breathing new life into Japanese domestic markets, the Times said …

Market News (08/03/2012)

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MADISON, Wis. (8/6/12)

  • Nonfarm U.S. payrolls increased more than forecast in July, with automakers and health-care providers stepping up hiring, even as the unemployment rate unexpectedly rose to a five-month high in the economy's uneven road to recovery (The Wall Street Journal, Bloomberg.com, The New York Times and Moody's Economy.com Aug. 3). Payrolls rose 163,000 last month after gaining 64,000 in June, the Labor Department said Friday. Economists had predicted a 100,000 gain for July, according to a Bloomberg News survey. Meanwhile, the unemployment rate inched up to 8.3% last month from 8.2% in June. In a related matter, the  U.S. Monster Employment Index--which measures help-wanted ads placed online by U.S. employers--dipped six points to 147 in July from 153 in June (Moody's Economy.com Aug. 3) …
  • The U.S. Future Inflation Gauge inched up to 100.9 in July from a revised 100.7--previously 101.2--in June, according to the Economic Cycle Research Institute (ECRI) (Moody's Economy.com Aug. 3). July's reading is lower than the 101.4 year-to-date average, but 1.9 points higher than its year-ago level, ECRI said. Through most of this year, the index has trended in a narrow range at a relatively muted level, with July's level roughly in the middle of the range, ECRI added …
  • The Institute for Supply Management's (ISM) index of U.S. nonmanufacturing businesses--which constitutes roughly 90% of the economy--indicates services improved marginally in July. The index rose to 52.6 in July from 52.1 in June (Bloomberg.com and Moody's Economy.com Aug. 3). Although the general business activity index increased to 57.2 last month from 51.7 in June, the employment index dropped below its neutral mark of 50 for the first time since December, Moody's said. In a related matter, U.S. factory orders decreased 0.5% in June from May--the third consecutive decline in the past four months, according to figures released Friday by the Commerce Department. The statistics indicate more weakness in manufacturing (The New York Times Aug. 2) …

News of the Competition (08/02/2012)

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MADISON, Wis. (8/3/12)

  • The commercial real estate (CRE) market in the aftermath of the financial crisis has become a bountiful area for loan growth for smaller U.S banks (American Banker Aug. 1). CRE has gradually made a comeback because some banks are hesitant to go to battle in a price war stemming from strong competition for commercial and industrial (C&I) loans (American Banker Aug. 1). There is less competition for CRE loans because of banks' regulatory restrictions and lingering capital constraints, industry observers told the Banker. Banks more suited to CRE loans can be more selective when taking on clients and can issue loans with better pricing than with C&I loans. The crucial factor is to conduct better underwriting to avoid past mistakes, the Banker said …
  • In a move to bolster partnerships with banks, Google has updated its mobile wallet to allow users to make payments from any credit or debit card (American Banker Aug. 1). The new arrangement allows consumers to link any American Express, Discover, MasterCard or Visa card to a virtual MasterCard account issued by The Bancorp Bank. Previously, Google required banks to partner with it before providing the card as an option to customers within its mobile wallet, the Banker said …

Market News (08/02/2012)

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MADISON, Wis. (8/3/12)

  • Initial claims for U.S. unemployment benefits decreased last week as part of an ongoing pattern influenced by volatility from seasonal auto plant shutdowns for annual retooling (The Wall Street Journal, The New York Times, Bloomberg.com and Moody's Economy.com Aug. 2). Claims for the week ended July 28 fell 8,000--to a seasonally adjusted 365,000--the Labor Department said Thursday. The four-week moving average of claims--which smoothes out weekly data anomalies--fell by 2,750--to 365,500--the lowest level since March. The labor market may need time to become healthy, with a worldwide slowdown and pending U.S. fiscal policy changes making employers hesitant to hire, Bloomberg said. In a related matter, U.S. job layoffs decreased for a second consecutive month in July, with employers announcing 36,855 cuts--a  2% decrease from June and the lowest level since April 2011, according to the Challenger Report issued by the firm of  Challenger Gray and Christmas Inc. (Moody's Economy.com Aug. 2) …
  • U.S. consumer confidence fell last week with perceptions of the condition of the economy dropping to the lowest level in five months, according to the Bloomberg Consumer Comfort Index (Bloomberg.com and Moody's Economy.com Aug. 2). The index decreased to -39.7 for the week ended July 29 from -38.5 the prior week. For the first time in six weeks, the personal  finances section of the survey has dipped into negative numbers, brought on by a bounce-back in higher gas prices and escalating food costs that are stressing household budgets, Moody's said …
  • In a sign the housing market is recovering, the home-vacancy rate in cities most-impacted by the housing market implosion--such as Las Vegas and Phoenix--is dropping, according to Trulia Inc., a San Francisco real estate information company (Bloomberg.com Aug. 2). The biggest decline in a metropolitan area came in San Jose, Calif., with a 21.4% decline in the number of empty homes and apartments in 2012 through mid-July. San Jose was followed by Las Vegas, Denver, the Bakersfield and Orange county areas of California, Seattle and Phoenix …
  • The 60-plus-day delinquency rate for loans within U.S. commercial mortgage-backed conduit/fusion securities increased to 9.93% in June from 9.83% in May, according to Moody's Investors Service (Moody's Economy.com Aug. 2). After staying relatively flat in 2011, the delinquency rate has resumed inching up in 2012, Moody's said. In June, the outstanding balance of delinquent loans increased $300 million--to $55.4 billion …

News of the Competition (08/01/2012)

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MADISON, Wis. (8/2/12)

  • In what could be a crucial test of the free-checking model, TCF Financial decided in late June to eliminate monthly fees on some checking accounts while other banks look to recoup lost income (American Banker July 31). The Wayzata, Minn.-based bank made the move because of demand from customers and to curb attrition resulting from the elimination of its free product for customers in 2010, the Banker said. Early returns show attrition has diminished, and new-account openings have risen since the bank reinstituted free checking, bank CEO William Cooper said in a July 19 earnings conference call …
  • Bank of America (BofA) announced it is closing more ATMs, eliminating dozens in two grocery store chains--Bi-Lo stores and Harris Teeter Supermarkets--throughout the Southeast in June and July (American Banker July 31). In total, it will remove 36 ATMs from locations at Harris Teeter stores and 25 from Bi-Lo stores--some of which did not accept deposits and were not available 24 hours a day, the Banker said. BofA said it wanted to concentrate on full-service ATMs with 24-hour access, according to Reuters. Last month, the Charlotte, N.C.-based BofA said in a regulatory filing it has shut down 1,500 ATMs this year--roughly 9% of its fleet-- leaving it with 16,200 ATMs as of the end of June (Los Angeles Times July 24 via News Now) ...
  • Chrysler Group LLC's U.S auto sales jumped 13% in July, led by purchases of Chrysler 200 and Chrysler 300 sedans  (The Wall Street Journal  Aug. 1). Chrysler said it sold 126,089 vehicles last month--up from 112,026 a year ago, but 13% less than June sales of 144,811. Overall, July U.S. new-auto sales are expected to increase 10% from a year earlier and decline 9.2% from June, according to car-shopping website Edmunds.com

Market News (08/01/2012)

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MADISON, Wis. (8/2/12)

  • U.S. mortgage applications increased 0.2% for the week ended July 27 from one week earlier, according to the Market Composite Index. The index is part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Associations (MBA). On an unadjusted basis, the index rose 0.2%. The Refinance Index jumped 0.8% to its highest level since the week ending April 17, 2009. The gain in refinance activity was muted by a 6% drop in government refinance applications, while conventional refinance activity increased about 2%. The seasonally adjusted Purchase Index decreased about 2%. The unadjusted Purchase Index also declined. The refinance share of mortgage activity increased to 81% of total applications, its highest level since the week ending Jan. 20. The adjustable-rate mortgage share of activity decreased to 4.1% of total applications from the previous week. For the MBA report, use the link …
  • U.S. manufacturing stagnated in July, indicating a key sector of  the economy is struggling, with a worldwide slowdown reducing export orders, according to the Institute for  Supply Management's (ISM) factory index (The Wall Street Journal, Bloomberg.com, Moody's Economy.com Aug. 1).The index remained nearly the same at 49.8 last month, compared with 49.7 in June. Fifty is the borderline between contraction and expansion. Economists had forecast a July reading of 50.2, according to a Bloomberg News survey. The manufacturing sector, which was a source of growth for the economy, could be further dampened by an unemployment rate above 8%, a reduction in household purchases, the European debt crisis and slower worldwide economic growth, Bloomberg said  ...
  • Companies in the U.S. hired more workers in July than forecast, signaling the labor market was stabilizing going into the second half of the year, according to a report from ADP Employer Services released Wednesday (Bloomberg.com Aug. 1). Last month's 163,000 gain in employment followed a 172,000 increase in June. Economists had predicted a 120,000 rise in July, according to a Bloomberg News survey. Although the fact that companies are looking to hire is encouraging, job growth still is not robust enough to significantly reduce the unemployment rate, James Knightley, a senior economist at ING Bank NV in London, told Bloomberg

Fed policy the same CUs cost of funds near zero

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WASHINGTON (8/2/12)--As expected, the Federal Reserve's monetary policymaking group took note of a downgraded economy and kept its policy stable by keeping the targeted fund rates at near 0%-0.25% and its asset-buying plans steady. The low rate continues to lower credit unions' net interest margins, said a Credit Union National Association (CUNA) senior economist.

The Fed's policy making group, the Federal Open Market Committee (FOMC) made the announcement after its monthly meeting Tuesday and today.  It held the targeted fed funds interest rate steady at 0% to 0.25%, where the rates have remained since December 2008, and announced it would keep its asset-buying policy in place through the end of the year.

"In the face of a weakening economy, the Federal Reserve chose not to take additional action to spur aggregate demand of households and businesses," said Steve Rick, CUNA senior economist.   

He told News Now that over the past six months, "Fed policies have flattened the yield curve and thus caused most credit unions to experience lower net interest margins.  Credit union net interest margins for the first time in history fell below 3% of average assets in the first quarter, as asset yields fell faster than funding costs. 

"Credit union cost of funds are asymptotically approaching zero as maturing share certificates reprice into today's lower interest rates," Rick added.  "But yield on assets is falling faster as old loans reprice into today's record low interest rates.  Even though the Fed announced it expects to keep rates exceptionally low through late 2014, many in the financial markets expect the Fed not to raise short-term interest rates until 2015 or even later," he said.

The lack of specific other action is no surprise to economists. Eighty-three percent of economists surveyed by Bloomberg News (Aug. 1) said the FOMC would refrain from starting a new round of  purchases today, while 48% indicated expectations that the committee would announce its large-scale asset purchases at its Sept. 12-13 meeting.

In downgrading its view of the economy, the FOMC said in a statement released after its meeting concluded Wednesday that "economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable."

The committee said it expects economic growth "to remain moderate over coming quarters and then to pick up very gradually" and that consequently it expects "the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate" of fostering maximum employment and price stability.

The FOMC also took note that "strains in global financial markets continue to pose significant downside risks to the economic outlook. The committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate."

The committee also said it "expects to maintain a highly accommodative stance for monetary policy" by keeping the target range for the federal funds low and said it "anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

In continuing to keep its program to extend the average maturity of its holdings of securities, as announced in June, through the end of the year, the FOMC said it "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities."

FOMC will "closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.

Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

To access the full statement use the link.

NEW Fed holds steady on monetary policy

 Permanent link
WASHINGTON (FILED at 2:45 p.m. ET 8/2/12)--As expected, the Federal Reserve's monetary policymaker group today continued its policy of  keeping the targeted fed funds rate at near 0% and its asset-buying plans steady. However, it downgraded its view of the overall economy.

The Federal Open Market Committee (FOMC) made the announcement after its monthly meeting Tuesday and today.  It held the targeted fed funds interest rate steady at 0% to 0.25%, where the rates have remained since December 2008, and announced it would keep its asset-buying policy in place through the end of the year.

The lack of specific other action is no surprise to economists. Eighty-three percent of economists surveyed by Bloomberg News (Aug. 1) said the FOMC would refrain from starting a new round of  purchases today, while 48% indicated expectations that the committee would announce its large-scale asset purchases at its Sept. 12-13 meeting.

In downgrading the economy view, the FOMC statement released after today's meeting said that "economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable."

The committee said it expects economic growth "to remain moderate over coming quarters and then to pick up very gradually" and that consequently it expects "the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate" of fostering maximum employment and price stability.

The FOMC also took note that "strains in global financial markets continue to pose significant downside risks to the economic outlook. The committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate."

The committee also said it "expects to maintain a highly accommodative stance for monetary policy" by keeping the target range for the federal funds low and said it "anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

In continuing to keep its program to extend the average maturity of its holdings of securities, as announced in June, through the end of the year, the FOMC said it "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities."

FOMC will "closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.

Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

To access the full statement use the link.