NEW YORK (12/11/13)--American Express informed Platinum and Centurion cardholders last week that they would be stripped of travelers' benefits ahead of the merger between US Airways and American Airlines.
The two carriers told the credit card company that they would withdraw Amex cardholders' access to their travelers lounges. American Airlines will only offer Admirals Club access in the U.S. to customers of the Citibank-issued Executive AAdvantage World Elite MasterCard (American Banker Dec. 6).
American Express customers signed up for its Priority Pass Club will also lose access to the American Airlines travelers' lounges.
The card company said that it is working toward establishing its own network of clubs, branded Centurion Lounges, at high-traffic airports. One opened in Dallas in October, and American Express plans to open more in San Francisco and New York in 2014.
Cardholders of the Citibank-issued MasterCard product had previously been granted entrance to the Admirals Club.
In May, Citibank petitioned a federal judge to force American Airlines to decide whether it would honor the companies' prior contracts in the wake of the airline's decision to file for bankruptcy.
American Banker described frequent flier cards as important to banks because lounge access and frequent flier miles are seen by cardholders as important perks.
In early January, American Airlines and U.S. Airways customers can earn and redeem frequent flier miles when traveling with either company. American Admirals Club and US Airways Club Lounges will be available to customers of both companies early next year, too (L.A. Times Dec 9).
LOS ANGELES (12/11/13)--A $500 million settlement between Bank of America and investors who claimed its Countrywide unit misrepresented mortgage-backed securities has been finalized by a federal judge in Los Angeles.
U.S. District Judge Mariana Pfaelzer denied investors the chance to recoup losses from Countrywide's parent company. Pfaelzer followed prior rulings and agreed with the Charlotte, N.C.-based multinational bank that allowing investors to seek additional damages could bankrupt Countrywide (Bloomberg.com Dec. 10).
The class-action lawsuit was based on allegations that Countrywide misled investors about the quality of home loans at the heart of mortgage-backed securities. Countrywide was taken over by Bank of America in 2008, a few months before the subprime mortgage contributed to the global financial system collapse.
Bank of America is also on the verge of settling an $8.5 billion lawsuit over mortgage-backed securities in New York state court. That deal seeks to resolve a dispute over Countrywide's alleged breach of contract for failing to replace delinquent loans aggregated for the financial instruments.
Bank of America still faces litigation from investors who opted out of the class-action lawsuit finalized Tuesday. They're seeking claims on securities excluded by Pfaelzer after the first case was filed in 2007.
The National Credit Union Administration has sued a number of Wall Street banks in similar cases. In November, JP Morgan agreed to pay the NCUA $1.4 billion in a settlement over mortgage-backed securities issued, underwrote and sold to now-defunct corporate credit unions in 2006 and 2007 (News Now Nov. 20). The wholesale lenders collapsed in 2009 due, in part, to the faulty instruments.
The federal regulator has also settled claims of more than $170 million with Citigroup, Deutsche Bank Securities and HSBC. It is still involved in suits against RBS Securities, Wachovia Capital Markets and Wells Fargo, Barclay's Capital Inc., Goldman Sachs, and UBS Securities.
WEST CHESTER, Pa. (12/10/13)--A measure of worldwide business confidence was at a post-recession high for the week ending Dec. 6.
Firms in the U.S. had even higher morale, with the week's Business Confidence poll showing 39% with a net-positive outlook, said a survey conducted by Moody's Analytics. Moody's also showed the percentage of businesses with a net-positive view on the economy was up to 37.2, from 33.7 for the week ending Nov. 29 (Economy.com Dec. 9).
A major factor behind the survey's result was the 70% of respondents who said they believe economic conditions will improve in the coming months. With a spate of good economic news, businesses are reporting an increasingly rosy outlook. Many of those who took the survey said they're planning to invest in equipment and software, despite recently published data revealing relatively weak business capital expenditures, said Economy.com.
The measure of business climate has not been this positive since the housing boom in the middle of last decade, with around 45% of survey questions receiving positive answers last week.
The four-week moving average of the Moody's measure was also up for the fifth week in a row, at 32.9%. The same measure for U.S. business confidence finished the week ending Dec. 6 at 35%.
Businesses reported regulatory and legal issues as being among their top concern, with one-third of respondents listing it as their top worry.
Moody's claims that an economy expands at potential when its business confidence measure is at a net-positive of between 20% and 30%, and that an economy is in recession when less than 10% of responses are net-positive. The all-time low was at -30% in December 2008, and the last high was just more than 40% in March 2011.
CAMBRIDGE, Mass. (12/10/13)--The U.S. government has a long way to go before it can declare victory over "Too Big to Fail," according to Massachusetts Institute of Technology business professor Simon Johnson.
Johnson claimed that the Federal Reserve still has the ability to bail out moribund Wall Street banks, and that banks' "living wills"--plans for bankruptcy with minimal disruption to the global financial system--lack significance. He also said that institutions with assets in multiple countries cannot be unilaterally wound down by the U.S. government.
The Sloan School of Management professor and Federal Deposit Insurance Corp. Systemic Resolution Advisory Committee member made the observations in a Bloomberg column after a speech made last week by Treasury Secretary Jack Lew (Bloomberg.com Dec. 8). Lew said that "Too Big to Fail" has not ended yet, but is on its way to soon becoming a thing of the past.
Johnson said that the New York Fed, however, can bypass language in the Dodd-Frank Act--which prohibits the government from discriminatory bailouts like those that saved American International Group Inc. in September 2008.
"As long as support is available to a broad class of assets or to a set of companies, almost anything remains possible," he wrote, adding that reforms that sought to rein in the Federal Reserve's ability to bail out banks after 2008 are "formalities."
"The next bailout won't come from Congress," he said. "It will come from, or at least via, the Fed."
Johnson also contradicted Lew's assessment of big banks' "living wills," opining that the plans are not "credible" and that to "suggest regulators are really going to use this power is hardly plausible." Lew said regulators will force firms to revise plans if they lack credibility.
Johnson concluded with an argument that cross-border resolution would lead to "another destabilizing scramble for assets" in the absence of multilateral collaboration between regulators. He said that non-discriminatory policies that fully protect foreign creditors would leave taxpayers holding the bag "if a large financial institution fails."
The professor also said he doesn't have confidence that the impending finalization of the Volcker rule--mandating, in theory, the segregation of retail and investment banking--will stabilize the banking system.
WASHINGTON (12/9/13)--The unemployment rate fell to a post-recession low of 7%, according to labor market data released Friday. The economy added 203,000 jobs in November after a downwardly revised gain of 200,000 jobs in October.
The average monthly rate of net jobs gains over the past three months is 193,000, increasing the odds, according to Moody's analysts, that the Federal Reserve will scale back Quantitative Easing later this month. The relative labor market strength comes from a drop in layoffs (Economy.com Dec 6).
Observers who spoke to MarketWatch, however, said that the labor market has not shown enough sustained improvement for the Fed to slow its bond purchasing program. Up to a quarter of jobs created last month could reflect seasonal hiring. The number of long-term job-seekers who can't find work, 4.1 million, was unchanged last month, and the steady decline in unemployment can be attributed to people dropping out of the labor force (MarketWatch Dec. 6).
The labor force added 455,000 jobs in November, bringing the participation rate up to 63%. In September, however, it was 63.2% and in November 2012 it was 63.3%.
The length of the work week and average hourly earnings also increased slightly last month, with the former increasing to 34.4 hours to 34.5 hours and the former up by 0.2% from 0.1%.
Payroll gains were recorded in 63.5% of private industries, with the largest increases reported in retail, transportation, warehousing, business services, healthcare and manufacturing.
WASHINGTON (12/9/13)--Consumer credit issued by credit unions was up on a non-seasonally adjusted basis by $1.3 billion in October, according to Federal Reserve data released Friday.
The rise was part of a larger increase that saw consumer credit across the nation go up by $18.2 billion in October--the biggest increase recorded by the Fed in five months.
Driving the gains were increases in student loans and car loans. Households still appear reluctant to accumulate credit card debt, comparatively speaking (Economy.com Dec 6). However, revolving debt, which includes purchases made with credit cards, was up by $4.3 billion in October after declining by $218 million in September. Non-revolving credit rose $13.9 billion in October after rising $16.5 billion in September (Bloomberg.com Dec. 6).
Consumers borrowing increased by $16.3 in September, with an average increase of $16.7 billion over the past three months.
WASHINGTON (12/6/13)--Third quarter Gross Domestic Product (GDP) growth was revised upwards Thursday by the U.S. Commerce Department to a seasonally adjusted annualized rate of 3.6%.
The estimated advance reading, 2.8%, was changed after the department's Bureau of Economic Analysis received a more complete dataset. The new numbers revealed strong growth in inventory investment that contributed 1.7% to overall growth, making up the entire revision.
Overall economic growth last quarter was also boosted by a deceleration of imports, and a faster pace of state and local public spending.
Third-quarter inflation rose by 2%. Core inflation--subtracting fuel and food--increased by 1.5%.
The sharp rise in inventory growth, however, casts a shadow over the fourth quarter, according to Moody's (Economy.com Dec. 5). Bolstering anxiety is the fact that real final sales of domestic product--GPD growth which doesn't account for inventory investment--fell to. 1.6% from 1.7% on an annual basis, the weakest reading in three years. The measure's growth contracted to 1.9%, from 2.1% on a quarterly basis.
Gross domestic income growth also fell to 1.4%, a year-low, and corporate profits grew by just 1.8%--down from 3.3% in the second quarter.
The effect of October's partial government shutdown will also be felt in the fourth quarter. It is expected to shave a half percentage point off GDP growth.
Another round of budget and debt-ceiling negotiations coming in the new year could shock consumer confidence and bring a new round of austerity measures, which were at their most intense this year since the end of World War II (Economy.com Dec. 5).
Moody's analysts did say that expectations for increased consumer spending and residential investment should see GDP growth accelerate gradually next year, despite the current inventory glut.