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Housing starts thaw, mortgage rates stand pat

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WASHINGTON (4/17/15)--Housing starts rebounded in March, but not nearly enough to reverse the losses seen over the past four months, according to numbers released by the Census Bureau Thursday.

Driven by single-family homes, housing starts rose by 2% from February, but sit 2.5% below levels seen last year at this time ( April 16).

Single-family starts climbed 4.4% for the month, but still fall 2.7% behind last year's pace, while multifamily starts dropped by 7.1% from February, and are down 4.7% on an annual basis.

"Although residential construction has started to regain some of the activity that was delayed by the winter snowstorms, the overall trend is still disappointing," said Andres Carbacho-Burgos, Moody's analyst ( "Multifamily permits and starts have regained their prerecession volume, but have leveled off and are even momentarily declining as builders wait for newly built apartments to be absorbed before starting new projects."

Housing permits were also mixed during the month.

Total housing permits fell 5.7% in March, but detached single-family homes experienced an increase of 2.1% from February, and sit 4.1% higher year-over-year.

Two- to four-unit structure permits plunged by 13.8% during the month however, as did structures with five or more units, by 16%.

Mortgage rates, meanwhile, inched up last week, with the 30-year fixed-rate mortgage rate climbing to 3.67% from 3.66%, according to Freddie Mac (MarketWatch April 16).

The 15-year fixed-rate mortgage rate edged up to 2.94% from 2.93%, while the five-year Treasury-indexed adjustable-rate mortgage rate climbed to 2.88% from 2.83%.

News of the Competition (4/16/15)

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  • WASHINGTON (4/16/15)-- A recent column in American Banker called "Why Marketplace Lenders May Snuff out Credit Cards" delves into the emerging product that's creating major competition for credit card companies: loans from marketplace lenders. Marketplace lenders essentially refinance credit card debt for consumers carrying large balances on their credit cards with personal loans. The loans carry interest rates that are on average nearly one-third cheaper than what consumers pay on their credit card balances. "These companies are targeting the most lucrative credit card customers: people with large revolving loan balances paying interest rates in the high double digits," wrote Nick Clements, author of the column and co-founder of consumer price comparison website . Added Clements: "In a traditional credit card business, the heavy revolvers subsidize the people who pay in full each month. However, in a personal loan business, there are no unprofitable rewards customers requiring a subsidy" ...
  • NEW YORK (4/16/15)-- After suffering a $276 million loss in the first quarter of 2014--a decline driven by the massive settlements the big bank forked over in the wake of its role in contributing to the housing market crash in 2008--Bank of America posted a modest profit in the first quarter of this year ( Forbes April 15). Net income climbed $3.36 billion for the quarter, while earnings dropped 5.9% on an annual basis. As a result, shares climbed by 27 cents, according to Forbes . Bank of America spent roughly $6 billion in litigation expenses last year dealing with the fallout from selling junk mortgage-backed securities in the period leading up to the financial crisis ...
  • NEW YORK (4/16/15)-- Bank of New York Mellon was fined 126 million pounds, or roughly $185 million, this week by British regulators for failing to adhere to rules that aim to safeguard client assets when a bank becomes insolvent ( The New York Times April 15). The New York-based bank's London branch, in addition to its international unit, failed to keep so-called entity specific records for accounts that it held, according to the Financial Conduct Authority (FCA) of Britain. The FCA said the bank improperly recorded information about its clients, including failing to list the actual legal entities to which the assets belonged, which must be identified in all client contracts, The Times reported. Without such information on record, it would be much more difficult to identify the owner of assets should insolvency occur, according to the FCA ...

Level of economic growth varies across 12 districts: Beige Book

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WASHINGTON (4/16/15)--While all 12 districts tracked by the Federal Reserve in its Beige Book experienced economic expansion from mid-February through the end of March, the rate of growth greatly varied.

Richmond, Chicago, Minneapolis, Dallas and San Francisco reported a moderate increase in economic activity, while New York, Philadelphia and St. Louis cited only modest growth.

Further, Cleveland reported only a slight increase in the pace of growth, and Kansas City and Atlanta described conditions as steady.

"A majority of districts reported higher retail sales, and they cited consumer savings from lower energy prices as helping boost transactions," the Fed said in its report, which provides a snapshot of economic conditions nationwide.

Residential real estate activity was steady to improving across the majority of districts, "although there was some slowing in housing starts due to abnormal seasonal patterns owing to the harsh weather," the Fed said, adding that most districts noted tight supplies of residential real estate.

The Fed further saw improvement in loan demand across all districts, and described banking conditions as "largely stable." Auto sales also climbed across most districts.

Labor markets either remained stable or continued to improve at a moderate pace; layoffs related to declining oil prices were reported across a number of districts; and the majority of districts reported having difficulty finding skilled workers.  

"Districts noted modest upward pressure on wages and overall prices," the Fed added.

News of the Competition (4/15/15)

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  • NEW YORK and SAN FRANCISCO (4/15/15)--Shareholders of two of the nation's biggest banks learned how their investments faired in the first quarter Tuesday, as Wells Fargo and JPMorgan Chase both released their quarterly profit reports. Wells Fargo, the largest mortgage lender in the country, reported a surprising drop in quarterly profits (Reuters April 14). The performance marks the first time in five years profits at the San Francisco-based bank have suffered a setback. As a result, shares fell 2% to $53.58 Tuesday. JPMorgan Chase, on the other hand, reported that first-quarter profits soared by 1%, hitting a new all-time high ( April 14). Earnings reached $5.9 billion, or $1.45 a share, for the month, and the bank saw profits climb 12% on an annual basis. The mega-financial institution cited strong growth in its investment banking, asset management and mortgage-lending divisions as reasons for the increased profits ...

Small-biz owners down on economy in March: NFIB

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MADISON, Wis. (4/15/15)--A measure of small-business owner confidence in the economy slipped in March, potentially signaling quieter levels of hiring and capital spending in the near term.

The National Federation of Independent Business' (NFIB) small-business optimism index dropped to 95.2 in March from 98 the prior month. 

The Madison, Wis.-based small-business association said the reading was the lowest since June of last year, pushing the index below its long-term average (The Wall Street Journal April 14).

Also dropping in March were the subindexes for plans to add jobs and to raise capital.

Payroll expansion dropped 2 percentage points to 10%, while capital outlays dropped 2 percentage points to 24%, which is "not a strong reading historically," the report said.

Further, only 10% of respondents said now is a good time to expand their business, a 3-point drop from February.

"Spending (by businesses) has not caught fire in spite of historically low interest rates," the report said (The Journal). "There is too much uncertainty and expected growth is too soft."

Meanwhile, the subindex tracking business-condition expectations dropped six points to -7% for the month, while real sales expectations dropped 2 points to 13%.

Upbeat March retail sales end 3-month steak of declines

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WASHINGTON (4/15/15)--Retail sales rebounded in March after three straight months of declines, according to Census Bureau numbers released Tuesday.

Sales jumped 0.9% and were driven by climbing vehicle sales, which rose 2.7% for the month. Excluding vehicle sales, sales still posted a strong month with a 0.4% gain.

"The March retail sales report confirms that at least some of the recent weakness was temporary, related to weather and the plunge in gasoline prices," said Scott Hoyt, Moody's analyst ( April 14). "What is particularly encouraging is that the strength in March came without a rebound in spending at gasoline stations, providing hope consumers are beginning to spend some of the money they have been saving at the pumps."

Gas station sales, which dropped by 0.6% in March, fell 22% on an annual basis.

At building supply stores, sales increased 2% during the month, while furniture stores, department stores, and miscellaneous retailers and apparel stores all reported growth increases of more than 1%.

Grocery stores, electronics and appliance stores, and nonstore retailers all experienced falling sales for the month, however.

Annually, retail sales climbed 1.3% in March, the weakest pace of growth since 2009, according to Moody's. Controlling for gas station sales, however, growth rose 4%.

Annual growth increases were driven by restaurants, drugstores and auto dealers, according to the numbers, while gas stations, department stores, and electronics and appliance stores were the only major segments to record year-over-year declines.

News of the Competition (4/14/15)

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  • NEW YORK (4/14/15)--The eight largest U.S. banks continue to operate with risky capital-to-asset ratios, putting the public again at risk of having to bail out these vulnerable mega-financial institutions, according to a recent Op-Ed from the editorial board of The New York Times. The eight big banks held capital levels of 4.97% in 2014, data from Thomas Hoenig, vice chair of the Federal Deposit Insurance Corp., found--well below the regulatory minimums (The New York Times April 11). The banks can carry such low levels of capitalization, The Times explained, because the Federal Reserve--using American accounting rules--fails to acknowledge the volatility of derivatives, which are unpredictable and, thus, risky, especially during economic hardship. Based on numbers from the Federal Reserve, which leaves derivatives off balance sheets, thereby improving bank capitalization, the banks held an average capital-to-asset ratio of 12.9% in 2014. But Hoenig says this doesn't reflect the full picture. "The Global Capital Index illustrates how financial resiliency is still sorely lacking," Hoenig said. "The sector of the financial industry with the greatest concentration of assets is the least well capitalized. Plainly put, it operates with the largest amount of borrowed, or as we say, leveraged funding, and thus is the least well-prepared to absorb loss" ...