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News of the Competition (01/29/2010)

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MADISON, Wis. (2/1/10)
* In sculpting its $30 billion program to help community banks lend to small businesses, the Obama administration is hoping to remove preconditions that have discouraged financial institutions from taking part in other capital programs, reported American Banker (Jan. 29). Although details are still being worked out, the plan is geared to assist banks with assets of less than $10 billion in channeling Troubled Asset Relief Program (TARP) funds to small businesses. Banks that do so would pay a small dividend to the government. Participants in the plan would not have any of the restrictions that were part of previous TARP initiatives such as executive compensation limits or warrants, the publication said. By removing the stigma of applying for TARP funds, the plan could succeed where previous efforts have not, industry observers said. The plan would require congressional approval … * Government-sponsored enterprises Freddie Mac and Fannie Mae are gearing up efforts to increase workouts of distressed mortgages by going beyond mortgage servicers (American Banker Jan. 29). On Thursday, Freddie Mac said it had recruited nonprofits nationwide to staff walk-in centers and conduct phone campaigns to reach troubled borrowers who never contacted their servicers or gave up, the publication said. Fannie Mae, which already operates through local housing agencies to assist borrowers, said it intends to move beyond that by opening its own offices so it can directly counsel borrowers. Once borrowers receive advice from Fannie, they would have to return to the servicer for a workout, the publication said. Freddie and Fannie’s programs highlight the escalating broad dissatisfaction with the efforts of servicers to stem foreclosures, the publication said …

Market News (01/29/2010)

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MADISON, Wis. (2/1/10)
* The U.S. economy grew at the fastest pace in six years during the fourth quarter of 2009 because factories ramped up assembly line production and companies upped their investment in equipment and software, analysts said. Gross domestic product (GDP) grew at an annual rate of 5.7% in the quarter, exceeding analyst’s expectations. That follows a 2.2% rise in the third quarter, the Commerce Department said Friday. Analysts had predicted annualized growth of 4.8% in the fourth quarter. In all of 2009, GDP fell 2.4%--the biggest drop for an entire year since a 10.9% decline in 1946, analysts said. Manufacturers may continue to lead the recovery as increasing sales induce companies to restock inventories, analysts said. “It was an excellent report, but it’s not clear how sustainable this pace of growth is,” said John Ryding, chief economist at RDQ Economics. “We need numbers like this for the next two years, and I don’t think we can achieve that” (Bloomberg.com, The New York Times and The Wall Street Journal Jan. 29) … * U.S. consumer confidence in January rose to the highest level in two years because the economic recovery and expansion spurred companies to limit jobs cuts, analysts said. The University of Michigan consumer sentiment index rose slightly to 74.4 from 72.5 in December. The preliminary reading for January was 72.8. The index moved to a new cyclical high, surpassing September’s 73.5. The current-conditions component drove the larger portion of the gains, although the overall upward revision was largely due to better expectations, analysts said. Also in January, inflation expectations increased from December. “Signs of a recovery are becoming increasingly visible to consumers,” said Ryan Sweet, a senior economist at Moody’s Economy.com. “We’re seeing some of the improvements in consumer confidence paying dividends to spending. [However,] consumers are still nervous about their jobs because of the lack of hiring,” he said (Bloomberg.com and Moody’s Economy.com Jan. 29) … * With purchase orders and employment increasing, U.S. companies expanded in January at the fastest pace in more than four years, according to the Institute for Supply Management-Chicago Inc. The institute said Friday its business barometer rose to 61.5--the highest level since November 2005--from 58.7 in December. Readings of more than 50 indicate expansion, analysts said. Government stimulus programs in the U.S. and abroad sparked gains in demand, setting the stage for manufacturers to increase output, they added. “Coming into the year, we had an incredible amount of momentum in the industrial side of the economy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd, in New York. “That’s a reaction to pent-up demand coming forward. Those are the things that recoveries are made of” (Bloomberg.com Jan. 29) …

News of the Competition (01/28/2010)

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MADISON, Wis. (1/29/10)
* Ending three consecutive annual losses, Ford Motor Co. posted net income of $2.7 billion in 2009. The automaker also forecast a 2010 pretax operating profit. The 2009 profit--Ford’s first full-year profit since 2005--is equal to 86 cents per share and was a positive swing of $17.5 billion from 2008 when Ford lost $14.8 billion. At the end of 2009, the company had $25.5 billion in cash reserves--nearly double the $13.4 billion it recorded at the start of the year, analysts said. “Ford is well along the road in its turnaround,” said John Wolkonowicz, an analyst at IHS Global Insight. “[Ford officials] did it without government help and by themselves. That’s giving them the highest consideration and public acceptance they’ve had in decades” (Bloomberg.com and The New York Times Jan. 28) … * Numerous homeowners have complained that their home equity lines of credit (HELOCs) were being reduced or ended under false pretenses. This has led Florida State Sen. Mike Haridopolos (R-26) to become the latest elected official to call for hearings to investigate claims that some lenders fraudulently cut or terminated HELOCs. Federal regulations allow lenders to suspend or reduce HELOCs when financial circumstances worsen or when property values fall, but there are limits, analysts said. For example, Regulation Z stipulates that lenders may not widely terminate accounts in areas where property values have declined on the whole without assessing the individual values of each home, analysts said. There have been more than a dozen class action lawsuits filed in the U.S., alleging arbitrary terminations or reductions of HELOCs, said Jay Edelson, managing partner of Edelson McGuire law firm (American Banker Jan. 28) … * Micropayments--usually considered as payments of less than $10--could be poised for a big year in 2010, analysts said. Several factors have restricted growth in such transactions. Merchants, saying that accepting payments costs too much, discouraged customers from using debit cards or credit cards for small transactions by imposing minimum transaction amounts. That is in violation of card network rules, analysts said. Reluctance or inability to use mobile phones--which some companies directly bill--for payments has been another factor. However, networks are pressing the use of their cards for small transactions and merchants are beginning to succumb to the pressure, analysts said (Payments Source via American Banker Jan. 28) …

Market News (01/28/2010)

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MADISON, Wis. (1/29/10)
* For the week ending Jan. 23, fewer Americans filed first-time claims for unemployment insurance, and total benefit rolls declined, the Labor Department said Thursday. The total number of people receiving unemployment benefits dropped to the lowest level in a year. The week’s drop indicates U.S. companies are approaching the end of staff reductions because the economy is recovering, analysts said. Initial jobless claims dropped to 470,000 for the week--higher than anticipated but down from 478,000 the prior week, the department said. Initial jobless claims were predicted to decrease to 450,000 from a previously reported 482,000 the prior week, according economists surveyed by Bloomberg. Although consumer spending is growing, it is in part being “constrained by a weak labor market,” Federal Reserve policy makers said Wednesday. “We’re still improving at a very moderate, very slow pace,” said Julia Coronado, a senior economist at BMO Capital Markets. “The economy is having difficulty making the transitions from the ending of firings to the beginning of hiring,” she added (Bloomberg.com Jan. 28) … * Orders for U.S. durable goods went up 0.3% in December--well below the 2% gain economists had been expecting, the Commerce Department said Thursday. The gain was not enough to offset the fact that orders plunged a record amount for the year, analysts said. For all of 2009, durable goods orders fell 20.2%--the biggest drop since 1992. The 2009 decline follows a 5.8% drop in 2008--the first back-to-back annual declines since the recession of 2001 and 2002, analysts said. However, December’s uptick indicates a pickup in business investment that will help the U.S. economy grow, analysts said. “You’re starting to see a good turnaround in equipment spending,” said Michael Feroli, an economist at JPMorgan Chase & Co. “Generally, you do see equipment spending and hiring moving together, so this is hopefully a good sign that businesses are coming out of their shells” (The New York Times and Bloomberg.com Jan. 28) … * A review of 160 socially responsible mutual funds from 22 members of the Social Investment Forum (SIF) indicates that most funds--65%--outperformed their benchmarks in 2009--many by significant margins, SIF said in a statement. Those SIF funds exceeded benchmarks across nearly all asset classes, including balanced, large cap, small cap and global funds, and bonds. The performance data that was analyzed by SIF covered all of 2009 and was provided by an independent third party, Thomson Reuters, SIF said. “This analysis underscores the reality that socially responsible investments offer what are genuinely competitive returns,” said Cheryl Smith, SIF chairman and president at Boston-based Trillium Asset Management Corp. “In fact, the 2009 data show that SIF funds specializing in large cap stocks have turned in an extremely strong performance that outpaced the S&P 500 over both the short term and the long term” …

NEW FOMC holds the course on rate policy

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WASHINGTON (Filed at 2:45 p.m. ET 4/28/10)--As expected, Federal Reserve policymakers today made no changes in the targeted funds 0% to 0.25% interest rate or in the language of its "extended period" policy pledge, it announced at the end of a two-day Federal Open Market Committee meeting. It also closed all but one of its special liquidity facilities that had been created during the financial crisis. The Fed's policy statement noted that economic activity "has continued to strengthen and that the labor market is beginning to improve." The Fed will maintain the rate and "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." It cited growth in household spending, but added the growth "remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit." While bank lending continues to contract, financial market conditions remain supportive of economic growth, the Fed said. "Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability." It noted that inflation is likely to be subdued for some time. The improved functioning of the financial markets led the Fed to close all but one of its special liquidity facilities--the Term Asset-Backed Securities Loan Facility. It is scheduled to close June 30 for loans backed by new-issue commercial mortgage-backed securities; it already closed on March 31 for loans backed by all other types of collateral. Voting against the policy action was Thomas M. Hoenig, who reiterated his belief that continuing to express the expectation of exceptionally low levels of the federal funds rate "for an extended period" was no longer warranted. He said it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates modestly, said the Fed's statement. The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Fed action will help maintain steep yield curves for CUs

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WASHINGTON (1/28/10)--The Federal Reserve policymakers Wednesday held steady the current target range for the federal funds rate at 0% to 0.25%. That will maintain steep yield curves, which means credit unions with strong loan demand should increase net interest margins. That will help them cover loan chargeoffs and meet the assessments by the National Credit Union Administration, said a Credit Union National Association (CUNA) economist. "In a relatively upbeat statement regarding the sustainability of the nascent economic recovery, the Federal Open Market Committee (FOMC) repeated its earlier forecast that conditions "likely warrant exceptionally low levels of the federal funds rate for an extended period of time,'" said Steve Rick, senior economist with CUNA. "What is an extended period of time?" he asked. "The federal funds future market is pricing in a 25-basis point increase in six to seven months, with the Federal Reserve raising its fed funds interest rate target to 0.75% by January 2011. The fed funds rate is important because it's used as a benchmark for many business and consumer loans," Rick told News Now. "So the Fed will maintain the target range for the federal funds interest rate at 0% to 0.25%, which is considered to be an emergency interest rate due to the financial crisis," Rick explained. "This will maintain a steep yield curve for a while longer. Longer-term interest rates could rise further if financial market participants see short-term political pressure impairing the Federal Reserve's independence," Rick said, adding, "This could push up inflation expectations and therefore longer term interest rates. "For those credit unions with strong loan demand, the steep yield curve should increase net interest margins in 2010 as low-rate short-term deposits are used to fund longer-term higher-rate loans. The higher net interest margins should help credit unions cover loan chargeoffs and NCUA assessments and therefore earn their way out of the current financial crisis." The Federal Reserve's policymakers, citing strengthening economic activity and a moderate pace of recovery, Wednesday announced they will maintain the current target range for the federal funds rateThe steep yield curve should increase net interest margins for credit unions with strong loan demand during 2010 and help credit unions over charge-offs and regulatory assessments After its meeting Wednesday, the FOMC said that in addition to maintaining the federal funds rate, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. For a smooth transition, the FOMC is "gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter." It will continue to evaluate its purchases of securities against the evolving economic outlook and financial market conditions. The Fed had previously announced it will close the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on Feb. 1. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on Feb. 1. The Federal Reserve also is winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on Feb. 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. FOMC said the Fed is prepared to modify these plans if necessary to support financial stability and economic growth. The committee said that "economic activity has continued to strengthen and that the deterioration in the labor market is abating." It noted a moderate expansion of household spending, the weak labor market, modest income growth, lower housing wealth, and tight credit. Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability." With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time, the FOMC said. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. The lone dissenter was Thomas M. Hoenig, who said he believed that economic and financial conditions had changed sufficiently so that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

News of the Competition (01/27/2010)

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MADISON, Wis. (1/28/10)
* Bank of America (BofA), the largest private sector U.S. mortgage lender, said Tuesday it is the first lender to agree to lower or eliminate payments on second mortgages through a federal government program called the Second Lien Modification Program. With the program, second mortgage holders are paid incentives to work closely with first-mortgage holders under the Home Affordable Modification Program. First-mortgage holders have been hesitant to lower payments when there was a second lien involved because they did not want to absorb losses while leaving payments on the second mortgages intact, analysts said. “For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment,” said Barbara Desoer, president of Bank of America Home Loans (CNNMoney.com Jan. 26) … * The International Monetary Fund (IMF) said the worldwide financial system remains “fragile” with debt creating a risk to markets and significant losses anticipated from commercial real estate. As banks try to repair their balance sheets, commercial real estate losses are apt to “increase substantially,” the report said. Credit markets are likely to remain impaired because banks are tightening lending conditions while attempting to bolster their capital. “A combination of continued bank writedowns, funding and capital pressures, and weak credit growth are expected to limit future bank profitability,” the report said. “Even with overall improvement, however, the repair of the financial system is far from complete, and financial stability remains fragile” Bloomberg News via American Banker Jan. 27) …

Market News (01/27/2010)

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MADISON, Wis. (1/28/10)
* Sales of new U.S. homes unexpectedly fell in December--a sign that the first-time homebuyer tax credit is no longer bolstering demand, analysts said. Purchases of single-family homes declined 7.6% to an annual pace of 342,000--the fewest since March, the Commerce Department said Wednesday. A survey of economists by Dow Jones Newswires had estimated sales would rise 2.8% to 365,000. The December drop follows a 9.3% November plunge--revised upward from an originally reported 11.3%. Overall in 2009, sales declined 23% to 374,000--the lowest level since records began in 1963. Other factors contributing to the December drop include joblessness and cold weather, analysts said. “The recovery in the market for new homes went off the rails at year-end as consumers remained downbeat,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Americans continue to face the headwinds of constrained credit and double-digit unemployment” (Bloomberg.com, The Wall Street Journal and Moody’s Economy.com Jan. 27) … * Mortgage application loan volume for the week ending Jan. 22 declined 10.9% on a seasonally adjusted basis from a week earlier, according to the Market Composite Index--part of the Weekly Mortgage Applications Survey released by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index dropped 10.1% from the previous week and declined 19.8% compared with the same week a year ago. The Refinance Index dropped 15.1% from the previous week and the seasonally adjusted Purchase Index decreased 3.3% from one week earlier. “Refinance activity fell substantially last week,” said Michael Fratantoni, MBA vice president of research and economics. “Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today’s rates.” The unadjusted Purchase Index increased 2.8% compared with the previous week and was 4.5% lower than the same week one year ago. For the MBA report, use the link … * In December, mass layoffs--those involving at least 50 workers from a single establishment--declined to 1,726 from an upwardly revised 1,813 in November, according to the Bureau of Labor Statistics. The December decrease is the lowest since July 2008. Last month’s layoffs involved 153,127 workers--down from a peak of 306,788 in May. A record for the most number of mass layoffs was set in 2009, but labor markets significantly improved in the second half of the year, analysts said. The decline in the frequency of mass layoffs is spearheaded by a stabilization in manufacturing, they added. Compared with last December, the number of manufacturing workers involved in mass layoffs declined across all manufacturing industries. The durable goods industries experienced the most improvement. Also, vehicle sales are on the mend--providing better job security for auto-assembly workers and parts suppliers, analysts said ( Moody’s Economy.com Jan. 27) …

Market News (01/26/2010)

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MADISON, Wis. (1/27/10)
* U.S. consumer confidence increased in January to the highest level since September 2008, with consumers becoming more positive about their immediate future and an improving labor market, analysts said. The confidence index, as measured by the Conference Board--a private research firm--rose to 55.9 from a revised 53.6 in December. Last February, the index registered an all-time low of 25.3. This month, the present situation component led the gain, increasing to 25 from 20.2 (revised from 18.8). The expectations component rose less to 76.5 from 75.9 (revised from 75.6). Assessments of current labor market conditions improved slightly, while views of future labor market conditions were more mixed, the board said. An improved outlook could induce Americans to spend more, which could boost the economy since consumer spending accounts for 70% of the economy, analysts said. “It’s a slight improvement, and given where consumer confidence has been the last four, five months, a slight improvement is a nice takeaway,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC. “It appears labor market conditions are not getting any worse, and that’s a plus” (Bloomberg.com and Moody’s Economy.com Jan. 26) … * For the sixth consecutive month, U.S. home prices in 20 cities increased in November, in a sign that the housing industry--which helped cause the worst recession since the 1930s--is stabilizing, analysts said. For November, the S&P/Case-Shiller home price index rose 0.2% from the prior month on a seasonally adjusted basis. The measure was down 5.3% from November 2008, and was the smallest year-over-year decline in two years. Home sales were boosted by a government tax credit for first-time home buyers, which was a factor in higher home prices in some markets, analysts said. A projected increase in foreclosures this year and steady high unemployment indicate that property values may not go up much more, they added. “We’re seeing what looks to be a bottoming out in prices,” said Michelle Meyer, an economist at Barclays Capital Inc. “There is a risk we see further downside, given the large amount of foreclosures set to enter the market and the uncertainty of the effects of the homebuyer tax credit on prices.” In a related matter, the Federal Housing Finance Agency (FHFA) purchase-only house price index rose 0.5% in November from a year ago--the first time since mid-2007 that the index was above year-ago levels, FHFA said (Bloomberg.com and Moody’s Economy.com Jan. 26) …

News of the Competition (01/26/2010)

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MADISON, Wis. (1/27/10)
* Wells Fargo & Co. has more than doubled the list of countries to which its customers can electronically send money through its remittance network. Wells added eight countries in Latin America to its ExpressSend network, including Argentina, Bolivia, Colombia, Dominican Republic, Ecuador, Honduras, Nicaragua and Peru. Also, Wells expanded its network in Mexico after completing a deal with Telecomunicaciaones de Mexico--a telecommunications company. In general, Hispanics “are the fastest growing segment in the [U.S.],” said Danny Ayala, Wells Fargo executive president and head of its global remittance business services Dow Jones Newswires via The Wall Street Journal Jan. 26) ... * U.S. banks can now electronically submit regulatory filings online to the Federal Reserve, the central bank said Monday when it introduced Electronic Applications, or E-Apps, for financial institutions. The Internet-based system is free. “E-Apps allows firms and their representatives to file applications online, eliminating the time and expense of printing, copying and mailing the documents, the Fed said (Dow Jones Newswires via American Banker Jan. 26) … * Bond Street Bank’s purchase Friday of the failed $350 million-asset Premier America Bank in Miami could be a sign that “either private equity is bidding more or there are fewer bidders at the table,” Dan Bass, a managing director for Carson Medlin Co., told American Banker (Jan. 26). More than a year ago, the Office of the Comptroller of the Currency granted a shelf charter to Bond Street Bank--a private equity group. On Friday, Bond Street completed the first purchase of a failed bank, using the charter, the publication said. “What's happening here is an education process where private equity and the Federal Deposit Insurance Corp. (FDIC) and the other bank regulatory agencies are learning about each other and learning how to accommodate each other’s needs,” Tom Vartanian, a partner at Fried, Frank, Harris, Shriver & Jacobson LLP, told the publication. “Getting a deal like this done where there are private-equity investors and a shelf charter involved will do more for loosening up the environment and making more capital available to the FDIC than anything else,” he said ...

Market News (01/25/2010)

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MADISON, Wis. (1/26/10)
* For the week ending Jan. 2, global business confidence leapt to it highest level since late 2007--before the start of the most recent recession, according to Moody’s Economy.com Survey of Business Confidence (Jan. 25). Although it’s too early to say that businesses are coming out of their malaise, the week’s uptick in confidence was worldwide, Moody’s said. Businesses are most positive when responding to general questions about current conditions and the outlook into the summer, analysts said. However, businesses are still cautious when responding to specific questions about hiring, inventories, pricing and sales. Despite the week’s gain, sentiment continues to be soft and consistent with only a tentative worldwide economic recovery, analysts concluded … * U.S. existing home sales nosedived 16.7% in December to a seasonally adjusted annual rate of 5.45 million from 6.54 million sales in November, according to the National Association of Realtors (NAR). A drop was expected because a first-time homebuyer tax credit ended. However, the December decline--the largest on record--is significantly higher than anticipated, NAR said. Economists surveyed by MarketWatch had anticipated an 11% drop to 5.8 million. Still, sales in December were up 15% compared with December 2008. December’s median sales price increased to $178,300--a 1.5% increase from a year earlier. The month’s gain is the first year-over-year increase in prices since August 2007, NAR said. The decline in December sales pushed the months of inventory up to 7.2 (MarketWatch and Moody’s Economy.com Jan. 25) …

News of the Competition (01/25/2010)

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MADISON, Wis. (1/26/10)
* Regulators shut down five banks on Friday, bringing the total number of bank failures in 2010 to nine, following 140 closures in 2009, according to the Federal Deposit Insurance Corp. (FDIC). Friday’s failures included: Premier American Bank, Miami, $350.9 million assets; Bank of Leeton, (Mo.), $20.1 million assets; Charter Bank, Sante Fe, N.M., $1.2 billion assets; Evergreen Bank, Seattle, $88.5 million assets; Columbia River Bank, The Dalles, Ore., $.1 billion assets. Evergreen Bank reopened Monday as Umpqua Bank. Bank of Leeton reopened Saturday as Sunflower Bank, N.A. and Columbia River Bank reopened Saturday as Columbia State Bank. Charter Bank and Premier American Bank both reopened as newly chartered institutions Monday … * Ed Whitacre, chairman and CEO of General Motors Co. (GM), announced Monday that he intends to remain the permanent GM CEO, said sources familiar with the matter. Whitacre took over as interim CEO on Dec. 1 when the GM board of directors asked Fritz Henderson to step down. Whitacre said he intends to reaffirm GM’s commitment to repay its government loans by mid-year, said the sources. In December, Whitacre said that GM had employed a search firm to look worldwide for a candidate to head up the largest U.S. automaker, and that the endeavor could take up to one year (Bloomberg.comand The New York Times Jan. 25) … * President Barack Obama’s plan to curb U.S. banks’ risk-taking will depend on how strictly regulators define proprietary trading at large banks, analysts said. The White House currently defines proprietary trades as those that are not conducted for the benefit of customers, said a senior administration official. Obama’s plan could cost Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group, UBS AG and Deutsche Bank AG roughly $13 billion in revenue next year, according to analysts at JPMorgan Chase & Co. Obama’s plan would impact Goldman Sachs the most, creating an estimated $4.67 billion drop in earnings in 2011, they said. UBS would lose the least--an estimated $1.92 billion. “Goldman Sachs is most at risk with its principal-investments business at risk and high fixed-income gearing,” analysts wrote (Bloomberg.com Jan. 22) …

News of the Competition (01/22/2010)

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MADISON, Wis. (1/25/10)
* Morgan Stanley, the world’s largest brokerage, and Bank of Nova Scotia were at the forefront of roughly $22.5 billion of U.S. corporate bond sales last week, with banks selling debt at the fastest pace since 1998, analysts said. In its biggest dollar-denominated debt sale since May, Morgan Stanley issued $4 billion of five- and 10-year notes Thursday, according to Bloomberg data. Bank of Nova Scotia, the third-largest Canadian bank by assets, sold $2.5 billion of bonds in a two-part offering Tuesday. Banks constituted at least $11 billion of overall issuance, according to Bloomberg data (Bloomberg.com Jan. 22) … * A UBS AG client won an appeal in a Swiss Court ruling that could prevent data disclosure to U.S. authorities in at least 25 cases involving suspected tax fraud, analysts said. In a judgment released Friday, Switzerland’s Federal Administrative Court ruled that the failure to complete specific U.S. tax forms or declare income isn’t “tax fraud” that requires disclosure per treaties between the two countries. This is the second ruling this month criticizing government decisions to release data to the U.S., analysts said (Bloomberg.com Jan. 22) … * A mortgage broker paid $35,000 to settle charges that he violated the Fair Credit Reporting Act by allegedly dumping 40 boxes of consumers’ financial records into a public trash bin. The settlement with the Federal Trade Commission (FTC), announced Wednesday, prohibits Gregory Navone of Las Vegas from misrepresenting measures taken to protect sensitive consumer information and from failing to take reasonable actions to protect credit report information during the disposal, analysts said. The settlement also requires Navone to adopt a “comprehensive information security program for sensitive consumer information, and to hire an independent, third-party security professional to review the program every year for 10 years,” the FTC said (CollectionsCreditRisk.com via American Banker Jan. 22) …

Market News (01/22/2010)

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MADISON, Wis. (1/25/10)
* In December, most states saw a rise in the unemployment rate, with California (38,800), Ohio (16,700) and Texas (23,900) experiencing the biggest job losses, the Labor Department said Friday. Forty-three states and the District of Columbia posted higher unemployment rates, while only four states registered decreases. Nonfarm payroll employment increased in only 11 states--eight fewer than in November. The largest overall gains occurred in Virginia and Oklahoma. While the road to economic recovery will be bumpy as evidenced by U.S. regional labor markets eroding in December, the pace of job losses and the rate of unemployment increases have leveled off substantially the past few months, analysts said. Also, labor markets have a positive trajectory, they added (Moody’s Economy.com and Bloomberg.com Jan. 22) … * Because it set aside less money to cover bad debt, American Express Co.’s (AmEx) fourth-quarter profit nearly tripled, the company said Thursday. Net income for the quarter tallied $716 million--up from $240 million in the same period a year ago. Income derived from continuing operations attributable to common shareholders was 59 cents per share, compared with 26 cents per share a year ago. AmEx was expected to make 54 cents per share, according to a Thomson Reuters survey’s average estimate by 23 analysts. Consolidated provisions for losses registered $748 million--down 46% compared with a $1.4 billion loss in the same period a year ago. “A huge chunk of the income gain was derived from reduced credit losses--although this is to be very much applauded, it is important to point out that overall revenue was basically stagnant,” said Red Gillen, senior analyst at financial research and consulting firm Celent, “While this may be relatively acceptable in a recessionary environment, it will not be well-received by investors in a growing world economy” (MarketWatch Jan. 21) … * Members of the U.S. housing industry denounced appraisers and lenders last week at the National Association of Home Builders convention for impeding acceptance of environmentally friendly building products. There will not be enough incentive for widespread adoption of green innovation unless appraisers and lenders learn to recognize its value, said William Nolan, a housing industry consultant. “Appraisers are out to lunch on this,” he said. “We’re having a huge fight on this. We can’t get lenders to appreciate the value of the net costs, and if we can’t get the values recognized, [manufacturers] can’t justify moving these products forward,” he added (National Mortgage News via American Banker Jan. 22) …

Hampel Obama plan limits banks ability to woo customers

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WASHINGTON (1/22/10)--President Barack Obama's plans to limit big banks' size and trading capabilities will also limit their ability to woo new customers, Bill Hampel, chief economist at the Credit Union National Association, told Associated Press Thursday after the president's announcement. Obama's proposal will involve tougher regulations to head off more and more failures that required bailout funds. They would include restricting banks in the use of depositor money and limiting how big banks they can become. Hampel said that big banks under new rules may have a limited ability to court new customers aggressively because they would not be able to cover better pricing on the retail side with as much revenue from trading. The new rules mean national banks would lose the tools that have helped them off-set huge loan losses the past year, but those tools are also the same ones that created their problems in the first place.

News of the Competition (01/21/2010)

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MADISON, Wis. (1/22/10)
* Goldman Sachs Group Inc. Thursday reported record earnings that exceeded expectations, as the bank slashed its bonus pool in response to adverse public reaction to executive compensation, analysts said. Fourth-quarter 2009 net income was $4.95 billion, or $8.20 per share, on $9.6 billion in revenue. For 2009 overall, the bank said it earned a profit of $13.3 billion on revenue of $45.2 billion. The average estimate from 21 analysts surveyed by Bloomberg was $5.18 per share. “The big story is compensation,” said Keith Davis, an analyst at Farr, Miller & Washington LLC. “They got the message that politically they can’t be paying out close to 50% of revenues anymore, at least for the time being. Obviously, that’s the primary reason for the beat” (Bloomberg.com and The New York Times Jan. 21) … * The amount of consumer loans going bad at some of the U.S.’ largest lenders is beginning to level off, analysts said. Executives at Bank of America, Wells Fargo and other larger banks sound positive that the worst could be over soon, although no one is pronouncing a full-fledged recovery, analysts added. “The good news is there is light at the end of the tunnel, and it’s not an oncoming train,” said Scott Hoyt, senior director of consumer economics at Moody’s Economy.com. “A year ago, you couldn’t have said that.” However, although “it is possible … that consumer losses in total may have already peaked,” the number of loans souring remains very high, said Howard I. Atkins, chief financial officer at Wells Fargo (The New York Times Jan. 21) …

Market News (01/21/2010)

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MADISON, Wis. (1/22/10)
* Signaling that the U.S. economy will keep growing through the first half of 2010, the index of U.S. leading economic indicators rose more than anticipated in December, analysts said. The index, compiled by the Conference Board--a New York-based private research firm--is a gauge of the outlook for the next three to six months. It rose 1.1%--the most in three months--after increasing 1% in November. December experienced the ninth consecutive monthly gain, and exceeded a Bloomberg News survey median forecast of a 0.7% rise. The index was sparked by fewer firings, rising stock prices and Federal Reserve efforts to keep short-term interest rates low--which may help keep consumers spending, analysts said. Sustained rises in employment--which have not yet occurred--will be necessary for faster economic growth to be realized, analysts said. “The economic recovery still has momentum,” said Tim Quinlan, an economist at Wells Fargo Securities LLC. “Right now, the linchpin is confidence. Both businesses and consumers need to feel like it’s a worthwhile thing to start spending money again” (Bloomberg.com and Moody’s Economy.com Jan. 21) … * For the week ended Jan. 16, initial U.S. unemployment claims rose by 36,000 to a seasonally adjusted 482,000, the Labor Department said Thursday. Economists surveyed by Dow Jones Newswires had expected a decrease of 4,000 initial claims, while Wall Street economists had anticipated a small drop in claims, said Thompson Reuters. The week’s increase is partly due to an administrative backlog in claims processing in some states from the Christmas and New Year’s holidays, said a U.S. Labor Department economist. The four-week moving average, designed to smooth volatility in data, also increased for the week by 7,000 to 448,250 from the previous week’s average of 441,250 (The Wall Street Journal and The New York Times Jan. 21) … * The World Bank said Wednesday it believes the global economic recovery will slow later this year because the effects of stimulus spending by national governments will fade. Global gross domestic product will grow by 7.2% in 2010 and 3.2% in 2011, the bank said. In 2009, there was a 2.2% decline--the first drop, in absolute terms--since World War II, analysts said. In a related matter, the International Monetary Fund said Tuesday it predicts global gross domestic product this year will slightly exceed its previous 3% projection. The disparity between the predictions of the two organizations is partly due to different methods used in calculating gross domestic product, analysts said (The New York Times Jan. 21) …

News of the Competition (01/20/2010)

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MADISON, Wis. (1/21/10)
* Wounded by its repayment of U.S. government bailout aid and still-high loan losses, Bank of America (BofA) reported a larger-than-expected quarterly loss Wednesday. The fourth-quarter loss--including the cost to exit the Troubled Asset Relief Program (TARP)--widened to $5.2 billion or 60 cents per share from $2.4 billion, or 48 cents per share a year earlier, according to a BofA statement. Analysts’ average forecast was a loss for 52 cents per share, according to a survey by Thomson Reuters. BofA’s deficit--excluding TARP costs--was $194 million--its third deficit in the past five quarters. However, the largest U.S. bank, based in Charlotte, N.C., said its credit problems are starting to stabilize. In the fourth quarter, its provision for loan losses was $10.1 billion--down 14% from the third quarter. “I would describe the outlook statement as cautiously optimistic,” said Neil Smith, an analyst at WestLB. “It could have been worse. The key phrase is, ‘We have seen stabilization of credit costs.’ That’s got to be good for the consumer business” (The New York Times and Bloomberg.com Jan. 20) … * Morgan Stanley, the world’s largest brokerage, is still struggling to rebound from the financial crisis as evidenced by its sharp drop in trading revenue that hurt its fourth-quarter profit, analysts said. The bank realized a profit of $617 million--or 29 cents per share--on $6.8 billion of revenue in the last three months of 2009. Analysts had anticipated a profit of 36 cents per share on revenue of $7.8 billion (The Wall Street Journal and The New York Times Jan. 20). In a related matter, Morgan Stanley added staff faster than it made money, allocating 62% of its revenue to pay employees in 2009--the highest percentage in more than a decade, analysts said (Bloomberg.com Jan. 20) … * U.S. taxpayers could be getting back some of their $182.3 billion used to keep American International Group (AIG) afloat, pending the outcome of its negotiations it is in to sell a large international life-insurance unit to rival MetLife Inc. for $14 billion to $15 billion, said sources familiar with the situation. Obama administration officials said a purchase by MetLife of the American Life Insurance Co. unit--combined with a separate public offering of another unit--American International Assurance Ltd.--ultimately could garner up to $45 billion for taxpayers (The Wall Street Journal Jan. 20) …

Market News (01/20/2010)

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MADISON, Wis. (1/21/10)
* Mainly because of inflation among food products, producer prices for finished goods increased in December (0.2%), according to the Bureau of Labor Statistics. Core prices for finished goods--excluding food and energy--were unchanged for the month. Core prices rose steeply for both crude (5%) and intermediate (0.5%) goods during December. For the second consecutive month, prices for food products rose sharply across all levels of processing, analysts said. Price increases for cheese, pork, poultry, milk and vegetables were especially pronounced, they added. Prices for finished energy products dropped 0.4% in December, led by declining gasoline prices. However, over the past year, energy prices remained sharply elevated across all stages of production, analysts said (Moody’s Economy.com Jan. 20) … * U.S. housing starts in December fell a more-than-anticipated 4% from the previous month to a seasonally adjusted 557,000 annual rate, the Commerce Department said Wednesday. Economists had anticipated starts would dip by 0.2% to an annual rate of 573,000, according to a survey by Dow Jones Newswires. The December annualized rate is the second worst pace in about a half-year, analysts said. However, the number of building permits unexpectedly jumped--a signal that inclement December weather may have prevented builders from going to worksites. “When it’s cold and rainy, you can’t pour concrete and lay foundations, but you can get a permit,” said Patrick Newport, an economist At IHS Global Insight. “Overall, this is a really good report [and the housing recovery] has legs,” he added (The Wall Street Journal, Bloomberg.com and Moody’s Economy.com Jan. 20) … * For the week ending Jan. 15, mortgage loan application volume rose 9.1%, seasonally adjusted, from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 10.4% from the previous week and decreased 52.3% from the same period one year earlier. The Refinance Index increased 10.7% from the previous week, and the seasonally adjusted Purchase Index was up 4.4%. The unadjusted Purchase Index rose 9.8 points, compared with the previous week and was 19.1% lower than the same week one year ago. For the MBA report, use the link …

Market News (01/19/2010)

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MADISON, Wis. (1/20/10)
* Businesses worldwide remain in a state of limbo, according to Moody’s Economy.com Survey of Business Confidence. Although consumer sentiment is substantially above where it was a year ago during the height of the financial crisis, businesses remain very cautious, Moody’s said Tuesday. Confidence is consonant with a tentative and fragile global economic recovery--which has been the situation since the recession ended last summer, analysts said. Businesses are most positive regarding broad questions about current conditions and expectations through the middle of 2010. However, businesses remain cautious when responding to specific questions about hiring, inventories, pricing and sales, analysts said … * The likelihood that the U.S. will be in recession in six months fell in December to 28% from 29% in November, according to Moody’s economy.com (Jan. 19). Increases in consumer confidence and equity prices helped push the probability of recession lower, Moody’s said. Likewise, the steady decrease in initial claims for unemployment benefits is encouraging and suggests the labor market is stabilizing, analysts said. However, the U.S. economy will not strengthen enough in 2010 to significantly lower the unemployment rate--which will reach its zenith at nearly 11% in the second half 2010, Moody’s said … * International demand for long-term U.S. stocks, bonds and financial assets increased in November, resulting in a net purchase of $129.3 billion in long-term U.S. securities, the Treasury Department said Tuesday. That compared with net buying of $19.3 billion in October. Growing corporate profits and an economic recovery from the steepest recession since the 1930s are making U.S. investments more attractive, analysts said. Countries such as China, Japan and the United Kingdom are increasing their demand for U.S. securities, which may help keep interest rates low, they added. “The world is not a safe place, and U.S.-based assets have always stood the test of time during periods of great uncertainty,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd in New York. “The worldwide recession may be technically over, but global investors are not so sure” (Bloomberg.com Jan. 19 and Moody’s Economy.com Jan 19) … * The end of the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) could place some parts of the consumer-loan-backed market at more of a disadvantage than others when the Fed ends the program in March. The Fed used the program to keep the market afloat. Stronger issuers and higher-quality bonds will not be affected, say industry participants. However, weaker issuers in deals backed by loans that have a higher probability of underperforming will lose out, analysts said. TALF’s end will have little effect on certain assets classes such as credit card and prime auto, said Michael Wade of Barclay’s Capital in New York. However, others such as floor plan, private student loans, retail credit cards and subprime auto will be affected more by the expiration of TALF, he added. “The impact of the end of TALF may be different for the generic on-the-run asset classes versus less-liquid, less-frequently securitized asset classes,” Wade said, adding that they are less prevalent and still rely significantly on TALF investors (Dow Jones Newswires via American Banker Jan. 19) …

News of the Competition (01/19/2010)

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MADISON, Wis. (1/20/10)
* Although its fourth-quarter 2009 loss narrowed from a year earlier, Citigroup Inc. still is experiencing stress from the bank’s huge portfolio of troubled loans that helped lead to the financial crisis, analysts said. Citigroup, which is 27% owned by the Treasury Department, ended a three-quarter profit streak, experiencing a $7.6 billion loss--33 cents per share--on costs to exit the government’s bailout program. The loss was narrower than the record loss of $17.3 billion--or $3.40 per share--a year earlier, Citigroup said Tuesday. The bank was forecast to lose 30 cents per share, according to the average estimate of 18 analysts surveyed by Bloomberg. Citigroup’s losses in domestic mortgages and credit units overshadowed gains from investment banking--a trend that likely will continue, analysts said. In 2010, Citigroup may spend most of the year recovering from the bailout, struggling with more loan losses, and trying to unload unwanted businesses with more than $600 billion in assets--a third of the bank’s total, they added (The Wall Street Journal, The New York Times and Bloomberg.com Jan. 19) … * Among European banks, Barclays PLC and Royal Bank of Scotland Group may pay the most to satisfy President Barack Obama’s proposed tax on banks. Barclays and RBS could face annual costs of $967 million and $621.9 million, respectively, Jaap Meijer, an analyst at Evolution Securities Inc, said Friday. “The impact can be particularly large for the investment banks [but limited for retail banks with ‘strong’ U.S deposits],” he wrote in a research note. Also, Credit Suisse Group AG may pay $557 million, and HSBC Holdings PLC, $484 million, according to Evolution. The levy would be deployed on up to 50 financial companies and would aim to recover the costs of the bailout of U.S. banks, analysts said (Bloomberg News via American Banker Jan. 19) …

News of the Competition (01/18/2010)

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MADISON, Wis. (1/19/10)
* After at least six consecutive months of delinquency increases, Capital One Financial Corp. reported its credit card delinquencies lessened in December. However, charge-off levels continued to increase from a month earlier. Charge-offs--loans Capital believes it will be unable to collect--increased to 10.14% in December from 9.6% in November in its U.S. credit card business. They also rose to 9.58% from 9.5% internationally, analysts said. A weak economy and high unemployment have put adverse pressure on Capital One and other financial institutions’ balance sheets, causing them to grapple with credit concerns, analysts said. Delinquencies can provide a window to look at lenders’ potential losses and how much they may need to earmark to cover them, analyst added. In December, Moody’s Investors Service predicted U.S. credit card delinquencies would continue to increase through most of the winter because of seasonal trends. Moody’s forecast that charge-off rates would reach their zeniths at 12% to 13% in the middle of 2010 (The Wall Street Journal Jan. 15) … * JPMorgan Chase announced Friday that its profit and pay for 2009 skyrocketed. The company earned $11.7 billion last year--more than double its profit in 2008, and generated record revenue, analysts said. In just the fourth quarter, the bank earned $3.3 billion. Also, JPMorgan said it designated $26.9 billion to compensate its workers, an increase of roughly 18% with employees earning, on average, about $129,000. Much of that will be as bonuses. JPMorgan’s investment bank employees earned, on average, about $380,000 each. However, top producers can expect to a earn multimillion-dollar paychecks, analysts said (The New York Times Jan. 15) … * Amcore Financial Inc. said Wednesday the Office of the Comptroller of the Currency (OCC) rejected Amcore Bank’s Capital Restoration Plan (CRP). OCC said in a response letter that the plan was unacceptable because it did not meet the statutory requirements that the plan be predicated on “realistic assumptions” and be likely to succeed in restoring the bank’s capital, Amcore said in a regulatory filing. Last week, Rockford, Ill.-based Amcore said it would sell 12 branches and two stand-alone drive-ups in Illinois, on the heels of selling four rural Wisconsin branches in November. OCC recently said asset sales by Amcore have increased the overall risk to its capital base (Reuters Jan. 13) …

Market News (01/18/2010)

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MADISON, Wis. (1/19/10)
* The seasonally adjusted consumer price index (CPI) increased 0.1% in December from the previous month--slightly lower than consensus expectations, according to the Labor Department. The December number follows an unrevised 0.4% increase in November. The core CPI, which excludes volatile food and energy prices, also advanced by 0.1% in December, following a mostly flat reading in November, analysts said. Because of a still-low level of spending and stable gasoline prices, inflation is close to zero and well within the Fed’s safe boundary, they added. Overall in 2009, consumer inflation was muted, with consumer prices rising 2.7%, following a 0.1% increase in 2008--the smallest gain in more than a half-century, analysts said (The Wall Street Journal, Moody’s Economy.com and The New York Times Jan. 15) … * In a sign that a lack of hiring will restrain spending, U.S. consumer confidence rose less than forecast in January, according to the Reuters/University of Michigan Consumer Sentiment Survey. The sentiment index increased to 72.8 from 72.5 in December. The index was less than a point below September’s 73.5--its recent high. The gain was due to the current conditions component of the index. The expectations component weakened. Inflation expectations rose, the survey revealed. The overall gauge averaged 66.3 in 2009 after reaching a 28-year low of 55.3 in November 2008, analysts said (Moody’s Economy.com and Bloomberg.com Jan. 15) … * Industrial production increased 0.6% in December, according to a report from the Federal Reserve Board. The gain primarily resulted from an increase of 5.9% in electric and gas utilities due to unseasonably cold weather. Manufacturing production edged down 0.1% while the output of mines rose 0.2%. The change in the overall index was revised upward in October but revised downward in November. For the fourth quarter as a whole, total industrial production increased at an annual rate of 7%. At 100.3% of its 2002 average, output in December was 2% below its year-earlier level. Capacity use for total industry edged up to 72% in December, a rate 8.9 percentage points below its average for the period from 1972 to 2008. For the Federal Reserve report, use the link …

Market News (01/14/2010)

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MADISON, Wis. (1/15/10)
* First-time U.S. claims for unemployment benefits during the past four weeks fell to the lowest level since August 2008, which signals that companies are cutting fewer jobs as the economy improves, analysts said. The four-week moving average of initial claims dropped to 440,750 last week from 449,750, the Labor Department said Thursday. However, initial claims for the latest week--the week ended Jan. 9--increased by 11,000 to 444,000. Weekly jobless claims are more volatile, analysts said. Meanwhile, continuing unemployment claims declined by 211,000 to nearly 4.6 million for the week ending Jan. 2. As the economy rebounds from the worst recession since the 1930s, factories are increasing production, and companies are reducing the pace of firings, analysts said. “The most critical issue is the labor market, and the trend in jobless claims has been down,” said James O’Sullivan, chief economist at MF Global Ltd. “[It] implies the labor market is improving” (Bloomberg.com and Moody’s Economy.com Jan. 14) … * U.S. retail sales unexpectedly fell in December because of broad-based weakness, which suggests holiday spending did not rise to the level expected from early reports, according to the Commerce Department. In total, sales dropped 0.3% from November--0.2% excluding autos and 0.3% excluding gas stations. Economists attributed the decline to a continuing reluctance by Americans to spend. Encouraged by an improving labor market and signs that consumer confidence was rising, analysts had expected sales to increase 0.5% in December. Sales performance varied greatly across segments, with steep gains at sporting goods and hobby stores, nonstore retailers, gas stations and drug stores. The gains were offset by declines in most other segments, analysts said. Electronic and appliance retailers experienced the largest declines. The December report is a “modest setback,” said Julia Coronado, senior U.S. economist at BNP Pariba. “This is consumers taking a little bit of a breather after some of that pent-up demand had come forward,” she said. “Consumers are still spending, it’s just that they’re doing so in a judicious manner” (Moody’s Economy.com and The New York Times Jan. 14) … * Total U.S. business inventories rose 0.4% in November--above general expectations for a modest gain, according to the Census Bureau. November saw a second consecutive monthly gain. Inventories previously had not experienced an increase since August 2008. Because economic recovery is underway and inventories have drawn down substantially, businesses are gradually beginning to rebuild stockpiles, analysts said. The month’s gain was led by wholesalers, followed by manufacturers. Retail inventories declined. The aggregate inventory-to-sales ratio declined further to 1.28, compared with 1.3 previously; the high was 1.46 in January 2009, analysts said (Moody’s Economy.com Jan. 14) …

News of the Competition (01/14/2010)

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MADISON, Wis. (1/15/10)
* For the second consecutive week, U.S. mortgage rates declined, which lowered consumers’ borrowing costs and made homes more affordable, analysts said. The rate for 30-year fixed-rate home loans fell to 5.06% for the week ended Thursday from 5.09% the previous week, Freddie Mac said Thursday. In December, rates reached a record-low 4.71%. This week’s average 15-year rate was 4.45%, Freddie said. Declining mortgage rates make it less expensive for consumers to borrow and may help the U.S. housing market, analysts said (Bloomberg.com Jan 14) … * The European Central Bank Thursday left its benchmark interest rate unchanged at a historic low. The bank, which sets monetary policy for the 16 countries that use the euro, left its rate at 1%, where it has been since May. The bank is not expected to begin raising rates until late 2010 or early 2011, analysts said. European economic growth is recovering, but remains spotty, they added (The New York Times Jan. 15) …

Fed Beige Book report Recovery is modest broader

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WASHINGTON (1/14/10)--Reports Wednesday from the 12 Federal Reserve Districts, based on information on or before Jan. 4, indicate that economic conditions, while still at low levels, have improved modestly and that they have improved over a broader region than their last reports. The informal district reports are compiled into the Beige Book report by the Federal Reserve Bank of Philadelphia. It summarizes comments from businesses and other contacts outside the Federal Reserve and is not a formal commentary on the views of Fed officials. Ten districts reported increased activity or improvement in conditions, while the Philadephia and Richmond, Va., districts reported mixed conditions. That compares with eight districts with increased activity or improved conditions and four districts with little change or mixed conditions noted in the last Beige Book report. Most districts reported consumer spending for the 2009 holiday season as slightly greater than in 2008 but far below 2007 holiday spending levels. Retail inventories remained lean in nearly all districts. Auto sales held steady or rose in most districts since the last report. Manufacturing activity increased or held steady in most districts. Of those reporting on near-term expectations, the manufacturing outlook was optimistic. However, spending plans remained cautious. As 2009 ended, home sales rose--especially for lower-priced homes--in most districts, said the report. Home prices changed little since the last report, and residential construction remained at low levels in most districts. Commercial real estate was still weak in nearly all districts, with rising vacancy rates and falling rents. Loan demand continued to decline or remained weak in most districts, and credit quality continued deteriorating, said the Beige Book. Hiring was reported in a few districts but labor market conditions overall remained generally weak with modest wage increases in a few districts. Price pressures stayed subdued in nearly all districts, although increases in metal prices were reported and agricultural prices were mixed. To access the summary and reports from each district, use the resource link.

News of the Competition (01/13/2010)

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MADISON, Wis. (1/14/10)
* Fourth-quarter investment banking earnings experienced a substantial “early Christmas” slowdown from falling fixed-income revenues that could result in a revenue slump at banks, analysts said. They estimated that investment banking revenues languished in the final three months of 2009, according to reports at JPMorganChase and Morgan Stanley. The reports were issued days after analysts at Barclay Capital and Citigroup said that investment banking revenues would likely drop. The reports are just ahead of the bank reporting season, which will begin Friday with JPMorgan. The drop is attributed to a continued decline in market volatility, which reduced the profitability of credit and rates spreads, analysts said (The Wall Street Journal Jan. 13) … * Banks in the United Kingdom decided they will pay a one-time 50% tax on bonuses levied by the U.S. Treasury instead of reducing compensation, according to some accountants and lawyers who advise financial institutions (Bloomberg.com Jan. 13). However, bankers who confront rising income taxes on those payouts may not be so accommodating, analysts said. Attention is now focused on how to minimize the effects of a 10% increase in personal income tax to 50%. The new rate takes effect in April. A key strategy is to obtain more compensation in deferred stock--a form of pay classified as a capital gain and taxed at 18% in the U.K., analysts said … * North Asia Investment Corp., a $50 million special-purpose acquisition company spearheaded by a group of South Korean investors and based out of the Cayman Islands, announced Tuesday it has agreed to acquire Pacific City Financial Corp.--a Los Angeles-based holding company that conducts operations through Pacific City Bank and caters to Korean-Americans. The $50 million in cash would almost double Pacific City’s equity and strengthen its position in the U.S.’s $15.5 billion Korean-American banking market, analysts said (TransWorldNews Jan. 12 and American Banker Jan. 13) …

Market News (01/13/2010)

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MADISON, Wis. (1/14/10)
* For the week ended Jan. 8, mortgage loan application volume rose 14.3% on a seasonally adjusted basis from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey issued Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 66% compared with the previous week, which was shortened because of the New Year’s holiday. The Refinance Index was up 21.8% from last week’s holiday-adjusted index and up 73.9% from last week’s unadjusted index. The seasonally adjusted Purchase Index increased 0.8% from one week earlier. The unadjusted Purchase Index rose 48.8% compared with the previous week and was 24.9% lower than the same week one year ago. For the MBA report, use the link … * U.S. consumer confidence nosedived for the week ended Jan. 10, negating gains of the prior months, according to the ABC News/Washington Post consumer confidence index. For the week, sentiment dropped six points to -47. The prior week, consumer confidence had reached a 15-month high before retrenching, analysts said. The drop placed the index back in the middle of its range maintained since early 2009. The report details were mixed. Despite the big decline in the overall index, consumer assessments of the economy (-82) held steady. The decline was led by falling personal finances (-8) and buying climate (-52) components--down by 10 points and eight points respectively. The economic recovery that began last summer has not yet boosted consumer confidence, analysts said. Although spending has grown in recent months, many consumers are still very skeptical of the state of the economy and are concerned about their own economic situation eroding, analysts added (Moody’s Economy.com Jan 12) …

News of the Competition (01/12/2010)

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MADISON, Wis. (1/13/10)
* The Securities and Exchange Commission (SEC) Monday took steps to file new charges saying that Bank of America (BofA) allegedly lied to investigators during the 2008 fall financial crisis. The SEC originally accused BofA of hiding from its investors the bank’s plans to pay billions of dollars in bonuses to employees of Merrill Lynch before shareholders were asked to approve of a merger of the two firms, analysts said. The SEC now alleges BofA also withheld information about rising losses at Merrill (The Washington Post Jan. 12). In a separate state case, BofA is negotiating with staff of New York Attorney General Andrew Cuomo to settle claims that the bank failed to adequately disclose the risks of its takeover of Merrill Lynch to its shareholders, said sources familiar with the matter (The New York Times Jan. 12) ... * The Federal Reserve Board on Tuesday announced preliminary unaudited results indicating the Reserve Banks paid about $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. This represents a $14.4 billion increase over 2008 ($31.7 billion of $35.5 billion of net income). The increase was primarily due to greater earnings on securities holdings during 2009. The Federal Reserve Banks' 2009 net earnings were derived primarily from $46.1 billion in earnings on securities acquired through open market operations. These include U.S. Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities. Net earnings also were derived from $5.5 billion from consolidated limited liability companies, which were created in response to the financial crisis; and $2.9 billion on loans extended to depository institutions, primary dealers, and others. Under the board’s policy, the Reserve Banks are required to transfer their net income to the U.S. Treasury after providing for the payment of statutory dividends to member banks and equating surplus to paid-in capital. For the Federal Reserve press release, use the link …

Market News (01/12/2010)

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MADISON, Wis. (1/13/10)
* The U.S. trade deficit widened more than forecast in November because imports rose faster than exports, which portends a bounce-back in global demand that is stimulating growth, analysts said. The U.S. deficit in international trade of goods and services grew 9.7% to $36.40 billion--greater than Wall Street expectations of a $34.7 billion shortfall and Moody’s Economy.com expectation of $34.5 billion. The increase compares with $33.19 billion the prior month, the Commerce Department said Tuesday. Originally, the October trade gap was reported as $32.94 billion. Although exports have recorded seven consecutive months of gains with the return of economic growth, the rise in oil prices has caused the trade deficit to go back up, analysts said. U.S. oil imports grew in November after a temporary dip in October. Spending increases by American consumers and businesses indicate purchases of foreign goods will keep increasing in coming months, analysts said. However, a 12% decline in the U.S. dollar and growing foreign economies mean U.S. sales abroad may also improve, giving a boost to factories and the U.S. economy, analysts said. “There’s continued strong export growth ahead,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “On the import side, it’s logical that if U.S. companies are no longer running down their inventories, they’re going to need to import more” (Bloomberg.com, The Wall Street Journal and Moody’s Economy.com Jan. 12) … * Although the number of U.S. job openings decreased further in November, the labor market showed some signs of stabilization, according to the Bureau of Labor Statistics. Job openings dropped to 2.4 million and the rate fell to 1.8% from 1.9% in October. However, hiring did improve to 4.2 million in November from four million the previous month. Also, the separations rate of 3.3% exceeds the hires rate of 3.2% (Moody’s Economy.com Jan. 12). When the U.S. labor market does start to add more workers than it loses, many unemployed people will discover that the types of jobs they once had don’t exist anymore, analysts said. In particular, finance may not offer as many high-paying jobs for more highly educated workers as it has in the past, economists said. The financial sector’s share of the economy was nearly 20% larger than it should have been, said Thomas Philippon, an economist at New York University’s Stern School of Business. Since the start of the recession, the financial sector has lost 548,000 jobs--or 6.6% of its work force (The Wall Street Journal Jan. 12) … * Small businesses in the U.S. have not become more positive, even with a resumption of growth and improvement in consumer demand, according to the National Federation of Independent Business’s Small Business Economic Trends report. Small-business optimism was mostly unchanged at 88 for December compared with November’s 88.3 level. Since May, the index has not improved and is up just 2.8 points on a year-ago basis. For the first half of 2010, the forecast calls for a downturn in growth with low business confidence, lethargic consumer spending, a diminishing fiscal stimulus and a small inventory boost, said Moody’s Economy.com (Jan. 12) …

News of the Competition (01/11/2010)

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MADISON, Wis. (1/12/10)
* The first two U.S. financial institution failures of the year resulted in regulators seizing a small bank and a small credit union Friday. The economic downturn is expected to result in the collapse of many more financial institutions in 2010, analysts said. The Washington State Department of Financial Institutions closed the $1.3 billion asset, Bellingham, Wash.-based Horizon Bank. Nearly all of the bank’s assets and $1.1 billion in deposits were assumed by Washington Federal Savings and Loan Association of Seattle. Separately, regulators seized the $8.4 million asset, Bakersfield, Calif.-based Kern Central CU. Self-Help CU of Durham, N.C., assumed Kern’s assets and all its liabilities (The Wall Street Journal Jan. 11) … * The boards of directors of Chemical Financial Corp. (Chemical)--the $4.3 billion asset Midland, Mich., holding company for Chemical Bank--and O.A.K. Financial Corporation (OAK), the holding company for Byron Banks, have signed an agreement for Chemical to acquire OAK in an all-stock transaction. The transaction announced Friday is valued at about $83.9 million as of the end of 2009, analysts said. The acquisition of OAK and its 14 branches in Ottawa, Allegan and Kent counties is expected to increase Chemical Bank’s core deposit base by roughly $438 million. Chemical Bank is expected to rise from the 14th largest institution (ranked by deposit market share as of June 30) in the Grand Rapids, Mich., region to the sixth largest. On Sept. 30, OAK had $840 million in total assets, $693 million in total loans and $701 million in total deposits. On a pro forma basis, as of Sept 30, the combined organization had about $5.1 billion in assets, $3.6 billion in loans and $4.1 billion in deposits in 143 banking offices across 31 counties in Michigan’s lower peninsula (Globe Newswire Jan. 8) …

Market News (01/11/2010)

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MADISON, Wis. (1/12/10)
* Fourth-quarter earnings at U.S. financial companies increased 120%--accounting for all the income increase in the Standard & Poor’s 500 Index, and rising four times as fast as the market, analysts said. They estimated earnings would triple by 2011. If the estimates turn out to be correct, the shares would be trading at a 15% discount to the index, indicate data compiled by Bloomberg. The fourth quarter likely will mark the end of the earnings recession. It also would be the first time since the second quarter 2007 that earnings were higher than the same quarter a year earlier, analysts said. It is the longest period of declines since S&P began tracking operating earnings in 1991, they added. Consumer discretionary, materials and financial companies are expected to experience the largest rebound, analysts said (Bloomberg.com and The Wall Street Journal Jan. 11) … * Worldwide business sentiment has stayed mostly unchanged since summer--which is consistent with a global economic recovery that is remaining steady but not gaining significant traction, according to Moody’s Economy.com Survey of Business Confidence. Generally, confidence is stronger in South America and among business-services firms, and weakest in North America and among those who work in real estate, Moody’s added. Businesses are most positive when responding to broad questions about current conditions and expectations through mid-2010. However, businesses remain cautious when answering specific questions about hiring, inventories, pricing and sales, the survey indicated (Moody’s Economy.com Jan. 11) …

Consumer credit down 8.5 CUs up in revolving credit

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WASHINGTON (1/11/10)--Consumer credit during November dropped a record $17.5 billion or 8.5%--nearly three times what economists expected--to $2.465 trillion, announced the Federal Reserve Friday. Consumers especially cut back their card debt. Revolving credit dropped 18.5% to $874 billion, and nonrevolving credit fell 3% to $1.590 trillion. For credit unions, consumer credit outstanding totaled $237.4 billion, non-seasonally adjusted, in November. That is down $3.6 billion or 1% from October's $240.6 billion and down $3.5 billion from third quarter 2009's credit total of $240.5 billion. However, November's reading is still more than previous quarters in 2009 and 2008. Last year at this time, credit unions accounted for $236.1 billion in overall credit. Consumers' revolving credit at credit unions was at record levels--$34.5 billion in November, compared with $34.2 billion the previous two months. Commercial banks lost $2.6 billion in revolving credit during the month, indicating that consumers looked for better rates and found them at credit unions. Nonrevolving credit at credit unions declined to $202.9 billion from $206.4 billion in October--the highest month in years. That type of credit at credit unions stood just above what it was during second quarter 2009.

News of the Competition (01/08/2010)

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MADISON, Wis. (1/11/10)
* Lawsuits are being filed against big banks for violating Fair Housing laws and causing neighborhood blight, reported American Banker (Jan. 8). Cleveland officials accused some of the biggest U.S. banks of creating a public nuisance through blight. The cities of Baltimore and Birmingham, Ala., filed suits alleging banks created a glut of foreclosures by violating the Fair Housing Act. However, the suits failed to produce results. Last year, the Cleveland and Birmingham cases were dismissed, and on Wednesday, a U.S. District Court judge in Baltimore dismissed the city’s case, the publication reported. Howard Cayne, a partner in Arnold & Porter’s Washington office who represents banks, said that municipalities, even if they cannot win in court, could still “hope that the imposition of legal costs will force banks to settle.” Anything other than a united front by banks would be a disaster because any significant settlement would invite further litigation, he told American Banker … * Although third-quarter consumer loan delinquencies for bankers--excluding first mortgages--decreased in several categories, according to the American Bankers Association, many market experts don’t see a clear trend in the data and are unsure whether delinquencies have peaked (American Banker Jan. 8). The ratio of delinquencies to total accounts in eight categories, including auto and personal loans, fell to 3.23% from 3.35% in the second quarter. Delinquencies on credit card loans dropped to 4.77% from 5.01%, the publication reported. Credit unions’ loan delinquencies for total loans were 1.69% in the third quarter--up from 1.59% in the second quarter, according to the U.S. Credit Union Profile from the Credit Union National Association. Also, credit union credit card delinquencies rose to 2.03% from 1.98%. For U.S. Credit Union Profile, use the link … * Wells Fargo Securities downgraded MasterCard Inc. Thursday to “market perform” from “outperform” on valuation, but said the card company’s fundamentals and competitive positioning are among the strongest in its industry. “MasterCard’s strong competitive positioning in the attractive global payments industry should result in sustainable earnings per share and net free cash growth that is well above its transaction processing peers and the market as a whole,” Wells Fargo said in a note to clients (Reuters Jan. 7) …

Market News (01/08/2010)

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MADISON, Wis. (1/11/10)
* The U.S. lost 85,000 jobs--deeper than expected--in December and hopes for a quick and prolonged recovery for the U.S. economy took a hit, analysts said. Economists surveyed by Dow Jones Newswires had expected a payroll decrease of just 10,000. Despite the job losses, the unemployment rate held steady at 10%, according to Labor Department figures released Friday. However, in a surprise development, the department reported revised figures that indicate 4,000 jobs were created in November---rather than the 1,000 lost that the department had originally projected. It was the first gain in nearly two years. “There is still a lot of caution about the recovery because of lingering credit-crunch efforts,” said Jim O’Sullivan, chief economist at MF Global Inc. “It’s just a matter of time, probably a month or two, before the trend in payrolls turns positive on a sustained basis” (Bloomberg.com, The New York Times and The Wall Street Journal Jan. 8) … * In December, the U.S. future inflation gauge (FIG) increased to 98.2 from 95.6 the previous month, continuing its gradual upward trend during the past nine months, according to the Economic Cycle Research Institute (ECRI). The smoothed annualized rate growth rate rose to 31.8% from 27.3%. A recent sustained uptick in the FIG suggests deflation is not a near-term concern, ECRI said. In a separate matter, the ECRI Weekly Leading Index (WLI) rose to 131.5 for the week ending Jan. 1 from a revised 130.7--previously 131.2--the prior week. The smoothed annualized growth rate declined to 23.6% from a revised 24%--previously 24.2%. Although gains in the WLI have slowed in recent months, its general trajectory is consonant with continued recovery through much of 2010, ECRI said (Moody’s Economy.com Jan. 8) …

News of the Competition (01/07/2010)

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MADISON, Wis. (1/8/10)
* During the nadir of the U.S. financial crisis in 2008, the Federal Reserve Bank of New York--then led by Timothy Geithner--told American International Group Inc. (AIG) to withhold details from the public regarding the bailed-out insurer’s payments to banks, according to e-mails between AIG and its regulator (Bloomberg.com and The New York Times Jan. 7). AIG said in a draft of a regulatory filing that it paid banks--including Goldman Sachs Group Inc.--100 cents on the dollar for credit-default swaps they purchased from AIG. The New York Fed crossed out the reference, said the e-mails. Also, AIG excluded the language when the filing was made public on Dec. 24, 2008. The messages were first obtained by U.S. Rep. Darrell Issa (R-Calif.), a ranking member of the House Oversight and Governmental Reform Committee. “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the [Securities and Exchange Commission],” Issa said in a statement ... * With loan defaults rising, big U.S. banks--including Bank of America, Citigroup Inc. and JPMorgan Chase & Co.--turned to fixed-income and equity trading in 2009 to offset credit-related losses, reported American Banker (Jan. 7). However, there is mounting concern that those sources of income will be less robust this year--placing more pressure on corporate finance to take up the slack, the publication said. Such a gamble on a sustained U.S economic recovery, along with the potential for increased governmental oversight, could foreshadow a rough year ahead, according to some banking industry watchers, American Banker said … * Wells Fargo & Co., the largest U.S. home lender, began requiring its correspondents to use the Mortgage Electronic Registration System (MERS) to electronically register all their loans headed for sale to Wells, reported American Banker (Jan. 7). Wells said it is moving in the direction of automation and that the MERS mandate would create a smoother transition, the publication said. However, Wells said it has not mandated that those loans be electronic notes, and it did not specify when it would begin large-scale acceptance of such notes from correspondents …

Market News (01/07/2010)

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MADISON, Wis. (1/8/10)
* For the week ending Jan. 2, initial U.S. claims for unemployment benefits increased by 1,000--less than forecast--to 434,000 from a 16-week low of 433,000 the prior week, according to the Labor Department. This indicates job cuts are diminishing because companies are becoming more confident the economy is recovering, analysts said. Economists predicted a median increase to 439,000. The four-week average of new claims, which attempts to smooth volatility in data--dropped for the 18th consecutive week. Average claims decreased by 10,250 to 450,250--the lowest level since Sept. 13, 2008. The number of continuing claims--those filed by workers for more than one week--fell 179,000 to roughly 4.8 million in the week ended Dec. 26--the smallest amount since the end of January 2008. In a related mater, the Monster employment index--issued by Monster Worldwide Inc.--dropped by four points between November and December to a level of 115. The decline was likely due to a seasonal slowdown in hiring, with only three industries tracked by the index showing an increase in ads for the month, analysts said (Moody’s Economy.com, Bloomberg.com and The Wall Street Journal Jan. 7) … * U.S. retail stores reported small gains in December that exceeded Wall Street expectations, largely because shopping was better in Christmas 2009 than in Christmas 2008. Last year was the worst holiday shopping season in decades, analysts said. The industry reported a 2.9% increase in December sales compared with the same period a year ago, according to Thomson Reuters. Also, retailing groups calculated that combined sales for November and December increased 1% to 2% from a year ago, analysts said. The December results prompted numerous companies to boost their sales forecasts for the fiscal fourth quarter, an action analysts had anticipated. Because holiday promotions in 2009 were more limited and inventory planning more orderly than during the panicked discount pricing in 2008, better earnings were expected, even if traffic and purchases remained lethargic, analysts said (The New York Times and The Wall Street Journal Jan. 7) …

Market News (01/06/2010)

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MADISON, Wis. (1/7/10)
* U.S. companies cut an estimated 84,000 private-sector jobs in December--the smallest decline since March 2008, according to a private report based on data conducted by payroll company Automatic Data Processing Inc (ADP), and consultancy Macroeconomic Advisers. However, the job loss was more than the median of estimates of economists surveyed by ADP, who predicted 73,000 private sector jobs would be lost last month. The decline compares with a revised 145,000 decline in November--down from an originally reported 169,000. “We’re clearly moving in the right direction,” said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the survey for ADP. In first quarter 2010, payrolls should turn positive and gain strength in the second half of the year, Prakken added (The Wall Street Journal, Bloomberg.com and The New York Times Jan. 6). In a related matter, the December Challenger Report issued by Challenger, Gray and Christmas Inc. indicates announced job cuts declined significantly to 45,094 in December, compared with 240,000 at the beginning of 2009. The November number was 50,350. Jobs cuts have diminished to a pace consistent with an expanding labor market, Challenger said (Moody’s Economy.com Jan. 6) … * For the weeks ended Dec. 25 and Jan. 1, mortgage loan application volume dropped 22.8% on a seasonally adjusted basis from the prior week, according to the Market Composite Index, which is part of the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey. The index increased 0.5% on a seasonally adjusted basis for the week ending Jan. 1. Results for both weeks include an adjustment to account for the Christmas and New Year’s Day holidays. On an unadjusted basis, the index declined 46.9% the week before Christmas and increased 0.4% the week after. For the MBA report, use the link …

News of the Competition (01/06/2010)

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MADISON, Wis. (1/7/10)
* With U.S. sales rising about 15% in December, the auto industry finished one of its worst years in history on a positive note, analysts said. Many industry executives are predicting a gradual recovery in 2010. Ford Motor Co., Honda Motor Co. and Toyota Motor Co. reported significant sales increases in December, they added. In December, the seasonally adjusted annualized selling rate for all carmakers was 11.25 million cars and light trucks--a significant jump over the December 2008 rate of 10.34 million, according to Autodata Corp. analysts. Overall, carmakers sold nearly 1.3 million cars and light trucks in December--a 15.1% rise from December 2008, Autodata said (The Wall Street Journal Jan. 5). In a related matter, GMAC Inc.--the auto and home lender that became majority owned by the federal government last week after its third bailout, said it may post a loss of more than $10 billion for 2009 because of increasing numbers of borrowers defaulting on mortgages, analysts said (Bloomberg.com Jan. 6) … * Morgan Stanley won a legal battle over nearly $800 million it claims is owed by former credit card subsidiary Discover Financial Services Inc. On Monday, New York State Supreme Court Justice Barbara Kapnick ruled that Discover is obligated to pay the amount as a special dividend to Morgan Stanley. Discover said it intends to appeal the ruling and added that it has no effect on the damage claims Discover is seeking from Morgan Stanley for its “breach of contract and tortious interference in settlement negotiations among Discover, Visa and MasterCard.” Discover claims Morgan Stanley “engaged in unauthorized negotiations” and “negatively affected the outcome of our final settlement.” Morgan Stanley disputes the claims, analysts said (The Wall Street Journal Jan. 6) …

Market News (01/05/2010)

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MADISON, Wis. (1/6/10)
* Pending sales of U.S. existing homes fell in November because Americans were waiting for a first-time homebuyer credit to be extended, analysts said (Bloomberg.com Jan. 5). The National Association of Realtors (NAR) Pending Home Sale Index--a forward-looking indicator based on contracts signed in November--dropped 16% to 96 from an upwardly revised 114.3 in October, but is 15.5% higher than the November 2008 level of 83.1. The drop was expected, according to Lawrence Yun, NAR chief economist. “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” Yun said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.” For the NAR report, use the link … * In November, U.S. factory orders rose more than twice what economists anticipated, spearheaded by gains in demand for business equipment, chemicals, steel and industrial machinery. This indicates companies are increasing their spending and production, analysts said. Orders rose 1.1% in November--more than the 0.5% increase economists had forecast. With the exception of aircraft and autos, which posted declines, the increases were widespread, analysts said. Demand rose in an environment of record inventory reduction during the first nine months of 2009--which sparked production at U.S. factories, and could lead to increased hiring and corporate investment, they added. Reports from Asia and Europe also indicate manufacturing expanded last month and added to growing evidence of a global manufacturing rebound, analysts said. “It’s looking very good, and not just in the U.S.,” said Zach Pandl, an economist with Nomura Securities. “The economy has a lot of momentum right now--it’s a good sign that we’re turning a corner” (Bloomberg.com, The New York Times and The Wall Street Journal Jan. 5) … * U.S. chain store sales increased 1.5% in the week ended Jan. 2, according to the International Council of Shopping Centers (ICSC). While the rise was the fourth consecutive weekly gain, it was a seasonally typical one, ICSC said. Therefore, year-ago growth was hardly changed--going up 2.5%. Reports indicated that gift card redemption helped drive the biggest week-to-week gain since June and a small increase in the ICSC’s forecast for December (Moody’s Economy.com Jan. 5) … * Home-loan delinquencies continued to rise in November, including subprime and prime-rated jumbo mortgages, made from 2004 through 2007, according to Standard & Poor’s (S&P) Ratings Service. However, in the past three months, rates of increase in both total and serious delinquencies seem to have leveled off, S&P said. Second-mortgage delinquencies saw a small decline. For prime-rated jumbo loans originated from 2004 to 2007, delinquencies rose an average of 3.5% from October. Subprime loan delinquencies increased an average of 1.28% from October (Dow Jones Newswires via American Banker Jan. 5) …

News of the Competition (01/05/2010)

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MADISON, Wis. (1/6/10)
* Brian Moynihan, CEO of Bank of America (BofA), used his first public address after assuming leadership at BofA to make the case that more regulation is not necessary to prevent bankers from engaging in overly aggressive lending again. While acknowledging that unrestrained growth helped cause the current economic crisis, Moynihan said a proper balance can be struck in the banking industry between being too cautious and reckless. “I think the industry can and should do [regulation] on its own,” he said. Moynihan succeeded Kenneth Lewis Jan. 1 as CEO of the biggest U.S. bank. “The surge of growth in the financial services industry over the past decade obviously went too far,” Moynihan said. “The broad industry overlent, and consumers and companies overborrowed.” In addition to pursuing a proper balance in lending, BofA is introducing clearer and simpler products, and is working with borrowers to modify troubled mortgages, analysts said (The Boston Globe via Boston.com Jan. 5) … * Webster Financial Corp., the Waterbury, Conn.-based parent company of Webster Bank, said Monday it aims to more than double its lending to small and mid-size businesses, lifting its goal to more than $850 million this year from $450 million in 2009. The move indicates Webster senses a strengthening in the economy, analysts said. “We believe we are at an inflection point and that the economy is poised to resume growth,” said James C. Smith, CEO of Webster Financial Corp. (The Hartford Courant Jan. 5) …

Market News (01/04/2010)

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MADISON, Wis. (1/5/10)
* In December, U.S. manufacturing grew at the fastest pace in more than three years, helping pull the country out the worst recession since the 1930s, according to the Institute for Supply Management (ISM). In December, the ISM factory index rose to 55.9--the highest level since April 2006. Readings above 50 signal expansion. The overall December survey portends sturdy growth in manufacturing industrial production--which is forecast to have increased 1.2% at an annual rate in the fourth quarter, ISM said. The ISM’s new orders index rose to 65.5 in December from 60.3 in November, while the production index increased to 61.8 from 59.9. Both indexes indicate orders and output were significantly increasing in December, analysts said. “These are good numbers for the economy,” said Joe Lavorgna, chief U.S. economist at Deutsche Bank Securities Inc. “What we’re seeing is a turn in the global production cycle” (Bloomberg.com, The Wall Street Journal and Moody’s Economy.com Jan. 4) … * In November, U.S. construction spending fell for the seventh consecutive month because of a larger-than-expected decline in residential construction and a slight decline in public construction, according to the Census Bureau. Lingering construction troubles will be a drag on the economy going forward, analysts said. November construction spending fell by 0.6% from the revised October total and also dropped by 13.2% compared with November 2008 levels. Private construction declined by 0.7% from October, with private residential construction falling 1.6% from the previous month. Private nonresidential construction stayed roughly the same from October to November. Public construction dropped 0.4% from its revised October level (The New York Times and Moody’s Economy.com Jan. 4) ... * In the third quarter, the Case-Shiller Home Price (CSI) Indexes posted their second consecutive quarter of gains and their strongest showing since the end of 2005. The national index rose quarter-over-quarter by an annualized rate of 7.7%--which is reflected in regional indices, analysts said. The CSI increased in all nine U.S. Census divisions quarter-over-quarter. However, on a year-ago basis, prices are still substantially down, analysts said. Although the turnaround in house price trends is good news, the sustainability of the reversal remains fragile, analysts said (Moody’s Economy.com Jan. 4) … * Consistent with tentative global economic recovery, worldwide business sentiment remains generally where it has been since summer, according to the January Moody’s Economy.com Survey of Business Confidence. Businesses are most positive when responding to broad questions about current conditions and expectations through the middle of 2010. Conversely, they remain cautious when responding to specific questions about hiring, inventories, pricing and sales, Moody’s said. Survey results indicate that global recovery is holding steady, but provide no indication that the recovery is taking hold in a significant manner, Moody’s said (Moody’s Economy.com Jan. 4) …

News of the Competition (01/04/2010)

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MADISON, Wis. (1/5/10)
* Seven bank CEOs--members of the Community Bankers Council of the American Bankers Association--all lambasted legislative plans to tighten regulations of banks, and offered alternative fixes to overdraft programs in a roundtable interview with U.S. Banker in Washington, D.C. The CEOs also said that small banks’ antipathy toward large banks is overblown and the perception undermines the interests of both groups. Some community bankers said they are concerned about the public perception that a division exists between small and large banks. The CEOs said they don’t think that is the case. There is a place for large banks and small banks, and they need each other to a certain extent, said Robert T. Braswell, president/CEO of Carolina Bank in Greensboro, N.C. (American Banker Jan. 4) … * As part of a range of options to withdraw record monetary stimulus, Federal Reserve officials are examining a proposal to schedule limited sales of bonds from the central bank’s $2.2 trillion balance sheet, analysts said. At its November meeting, the Federal Open Market Committee discussed sales--with some members in favor and others saying it could cause “sharp increases” in longer-term interest rates. A middle route under consideration would allow small amounts of bonds to be sold at announced times, analysts said (Bloomberg News via American Banker Jan. 4)

News of the Competition (01/03/2010)

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MADISON, Wis. (1/4/10)
* Several retailers are testing no-checks policies. Whole Foods Market Inc. is piloting a "no-checks" policy in California and Arizona, while another grocery chain, the Fresh & Easy Neighborhood Market, says it will stop accepting checks, according to CardLine via American Banker (Dec. 31). Financial consultant James Neckopoulos of Hitachi Consulting predicted paper checks could be a thing of the past as early as five years from now and most certainly within 10 years. He said debit cards and other payment types are replacing the checks. During the 2008 holiday season, consumers wrote checks for 4.3% of payments at retailers, said the National Retail Federation. That was down from 5.5% in 2007 and 6.2% in 2006 ... * Expect the number of contactless smart cards to surge to the one billion mark by 2014, says IMS Research, a British research company (Cellular-News via NFC News Dec. 22). The contactless card market is expected to nearly double from 2008 to 2014. That's because several large sectors--government and health-care identification, transportation, and payment and banking cards--are gaining traction, the company said. Health care is the largest sector, but transportation also is booming. Don Tait, an IMS Research analyst, expects the bank and payment sector to move the fastest toward contactless cards, although few shipments have been made so far to the financial sector. The lack of a common certification standard has so far kept the mobile sector from using the cards. Also a problem: lack of agreements among stakeholders. IMS said major shipments to the mobile sector won't begin until 2012 ... * Visa Inc.'s new advertising campaign, Currency of Progress, is distancing itself from the troubled banking industry to recast the public's perception of Visa as a company that is "not part of the problem but part of the solution," Doug Michelman, Visa's global head of corporate relations, told American Banker (Dec. 31). The campaign, which kicked off in October in the Washington, D.C., market, has a website in which it says Visa "is not a bank, and doesn't issue cards, extend credit or set rates and fees for consumers." Visa CEO Joseph Saunders said the campaign is part of a broader initiative to frame the interchange debate as a business-to-business issue, "not the consumer issue that the merchants' lobby has attempted to portray it as." The ads include a definitional message with one about corporate good, and have aired on Washington stations, CNN, and political talk shows, as well as appeared in the Washington Post, The New York Times, The Wall Street Journal, Roll Call, and The Huffington Post. One media analyst said the campaign is "preparing the battlefield" by including talking points out there so that lawmakers are familiar with the points by the time they meet with Visa lobbyists ...

Market News (01/03/2010)

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MADISON, Wis. (1/4/10)
* The number of people filing new claims for unemployment benefits dropped unexpectedly last week, indicating the labor market may be starting to heal during a slowly recovering economy. Initial jobless claims fell by 22,000 to a seasonally adjusted 432,000 for the week ended Dec. 26. It is the lowest level since July 19, 2008 (The New York Times and The Wall Street Journal (Dec. 31). That was much better than the 460,000 increase that economists had expected, according to a survey by Bloomberg News (Bloomberg.com Dec. 31). The four-week average of new claims, which smoothes fluctuations in the data, dropped for the 17th consecutive week to 460,250--the lowest level since Sept. 20, 2008. The Labor Department said the data are consistent with recent trends and were not influenced by unusual factors such as the holidays. (Moody's Economy.com Dec. 31). The number of continuing claims also dropped, by 57,000, to 4.9 million, also better than predicted. It does not include the millions of people who have used up their 26 weeks of benefits from their states and are receiving extended benefits for up to 73 additional weeks from the federal government, said the Times. Roughly 4.8 million people received extended benefits during the week ended Dec. 12, a 200,000 person increase over the previous week ... * Mortgage rates increased for the fourth consecutive week, ending the year above 5%, said Freddie Mac Thursday. The average fixed rate on a 30-year mortgage was 5.14% last week, up from 5.05% the previous week. The rates are tied closely to yields on long-term government debt. The average 30-year, fixed-rate mortgage has risen steadily since its low of 4.71% the week of Dec. 3. The Federal Reserve is pouring $1.25 trillion into mortgage-backed securities to keep rates low, but it plans to end the program in the spring. The average rate for a 15-year fixed-rate mortgage last week rose to 4.54% from 4.45% the previous week (The New York Times Dec. 31) ... * While the U.S. sold record amounts of debt, including $118 billions of notes last week, U.S. securities were headed for the worst year in at least three decades, with 10-year yields at the highest level since June, said analysts. Treasuries fell the most of any of the currencies in the G-7 countries. U.S. debt has dropped 3.5% since last December, the biggest drop since 1978, according to indexes from Bank of America Merrill Lynch (Bloomberg.com Dec. 31). The yield on the benchmark 10-year note rose nine basis points to 3.88% on Thursday, and analysts expected Treasury yields to increase 30 to 40 basis points across the curve in the first half of 2010, said Bloomberg ... * Auto sales in the U.S. increased during December--the second monthly gain-- to the seasonally adjusted annual rate of 11.1 million cars and light trucks, according to the average estimate of eight analysts surveyed by Bloomberg.com (Dec. 31). The estimate is up from 10.3 million vehicles sold in December 2008 and 10.9 million in November. According to the Center for Automotive Research, based in Ann Arbor, Mich., 42 new vehicles were sold per 1,000 adults in 2009, compared with 59 per 1,000 in 1982, when the U.S. had 36% fewer driving age adults. The center's chief economist, Sean McAlinder, noted the sales mean this recession was worse than the recession in 1980-1982. Because of significant pent-up demand, sales in 2010 may rise 19% to 12.4 million, he said. Chrysler expects industry sales to be roughly 10.8 million this year, while Ford predicts 12.3 million in sales. In 2008, U.S. sales totaled 132 million, fewer than the 16.8 million average sales during the decade before 2007 (Bloomberg.com Dec. 31) ...