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News of the Competition (11/30/2009)

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MADISON, Wis. (12/1/09)
* The Federal Deposit Insurance Corp. (FDIC) is having problems dealing with a growing number of seriously ill U.S. banks, analysts said. Some banks are in such poor condition that potential buyers will not purchase the banks at any price, even if the government agrees to absorb the losses on the failed banks’ bad loans, analysts added. Along with the burden of depleted capital, many banks seized by the U.S. government are small, operate in areas with sketchy growth prospects, and are full of expensive deposits gathered through brokers that are likely to be taken away when the acquiring bank reduces interest rates, some bankers have said. FDIC officials may need to bundle a few banks together to entice potential buyers, said Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky & Walker LLP (The Wall Street Journal Nov. 30) … * Bank of America (BofA) and its Merrill Lynch & Co. unit have asked a federal judge to throw out shareholders’ complaints about inadequate disclosures concerning the investment bank’s financial condition and its plans to pay out billions of dollars in bonuses before the closing of their merger. BofA and its Merrill investment banking unit asked U.S. District Judge Denise Cote to dismiss several consolidated shareholder lawsuits, claiming that shareholders are attempting to improperly “second-guess” their boards’ business judgment, analysts said. “The profound and widespread consequences of the recent financial crisis have led to opportunistic, hyperbolic, hindsight attacks on disclosures that the bank made to investors,” BofA said (Dow Jones Newswires via American Banker Nov. 30 …

Market News (11/30/2009)

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MADISON, Wis. (12/1/09)
* Although U.S. shoppers showed up in force over Thanksgiving weekend, they were looking for bargains, and the average amount spent by each shopper decreased from last year, according to the National Retail Federation. Roughly 195 million consumers went to stores and websites during the weekend--up from 172 million last year, the federation said as it reported sales results Sunday afternoon. However, average spending for the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending remained roughly the same as a year ago at $41.2 billion, the federation said. “While retailers are encouraged by the number of Americans who shopped over Black Friday weekend, they know they have their work cut out for them to keep people coming back through Christmas,” said Tracy Mullin, federation president/CEO. “Shoppers can continue to expect retailers to focus on low prices and bargains through the end of December” (The New York Times Nov. 30) … * Some Wall Street traders and investment bankers are spending money as if the financial crisis never occurred, analysts said. In the past four to eight weeks, there has been a significant increase in demand for extravagant purchases because Wall Street employees are becoming more confident that the market’s sharp rebound so far this year will soon garner them hefty bonuses, said David Arnold, senior vice president at Robb Report--a magazine geared to the very wealthy. Because the spending rebound is so recent, most of the evidence is anecdotal, analysts said. However, some widely cited gauges of Wall Street consumption--such as Manhattan luxury apartment sales prices and increases in auction house sales--suggest consumer confidence could be returning, analysts said (The Wall Street Journal Nov. 30) ... * For the first time in five months, inflation in Europe moved above zero in November because energy prices pushed the inflation index higher, analysts said. Consumer prices in the euro area increased 0.6% in November from the same month a year earlier, according to Eurostat, the European Union’s statistical agency. The rate was 0.1% in October. The November increase was due to crude oil prices increasing since the end of summer, economists said. This trend is likely to continue and push the inflation rate up in coming months. However, further down the road, inflation prospects for the area remained subdued, economists said (The New York Times Nov. 30) … * In a sign the economic recovery will continue into 2010, U.S. business activity unexpectedly accelerated in November as orders rose, according to the Institute for Supply Management-Chicago. The institute said Monday its business barometer increased to 56.1--the highest level since August 2008--from 54.2 in October. Readings above 50 indicate expansion, analysts said. Growing foreign demand for U.S. goods, and rising domestic sales sparked in part by government incentives have caused a reduction in inventories that will enhance production and nurture the recovery in coming months, economists said. However, rising job losses increase the potential for spending to retreat--a reason why Federal Reserve policymakers have promised to keep borrowing costs low “for an extended period,” analysts said (Bloomberg.com Dec. 1) …

News of the Competition (11/29/2009)

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MADISON, Wis. (11/30/09)
* Posting its first quarterly profit in two years, the thrift industry earned $1.3 billion in the third quarter, the Office of Thrift Supervision (OTS) said Tuesday. However, OTS cited trouble for savings and loan institutions in the form of high amounts of troubled assets, a surge in problem thrifts and a record of noncurrent residential loans. Even though thrifts reported a 0.49% return on average assets in the third quarter, a portion of that was due to one thrift, OTS said. Excluding the one thrift, the industry’s return on assets would have equaled 0.07%, OTS said (American Banker Nov. 25) … * Bank of Montreal (BMO) has agreed to buy Citigroup Inc.’s credit card unit, Diners Club North America, for an undisclosed price, analysts said. When the sale is finalized, Citigroup will end its 28-year-old ties to the world’s first charge card, and reduce Citigroup’s assets by roughly $1 billion--which represent about 0.05% of the lender’s total worldwide assets of $1.89 trillion, analysts said. However, Citigroup said its net income and capital ratios will not be materially impacted by the sale. In a separate statement, BMO said the acquisition would more than double its corporate credit card business--adding $7.8 billion in card transactions and $1 billion in net receivables (The New York Times Nov. 25) …

Market News (11/29/2009)

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MADISON, Wis. (11/30/09)
* For the first time since January, the number of first-time claims for unemployment benefits dropped below 500,000. For the week ended Nov. 21, unemployment benefits fell to a seasonally adjusted 466,000--compared with a revised 501,000 initial claims for the week ended Nov. 14, the Labor Department reported Wednesday. The latest number breaks a string going back a little more than a year in which first-time claims exceeded the 500,000 mark. It was the fewest since the week of Sept. 13, 2008, analysts said. Although an encouraging sign, claims need to drop near 400,000 for several weeks to signal real growth in unemployment, analysts added. Some economists have voiced concerns that steep improvements in jobless claims and consumer spending--which drives 70% of the economy--will be temporary because of a still-struggling economy (MarketWatch and The New York Times Nov. 25) … * Following September’s steep decline, U.S. consumer spending rose more than anticipated in October, the Commerce Department said Wednesday. Spending in October rose 0.7% after it fell 0.6% in September--after the government’s “Cash for Clunkers” auto rebate program ended, the department said. October’s gain was the most since a 1.3% jump in August when the “clunkers” program motivated consumers to buy cars, analysts said. In a related matter, personal income--the fuel for future spending--rose 0.2% in October, marking a second consecutive month of gains. The spending rebound indicates that consumers are able to persevere despite strong negative forces on them, analysts said. Consumer spending fuels 70% of national economic activity (MarketWatch, The New York Times and Moody’s Economy.com Nov. 25) … * The University of Michigan consumer sentiment survey index dropped in November in the aftermath of the unemployment rate’s rise to more than 10%, according to survey data. The index fell to 67.4--up from a preliminary 66--in November from 70.6 in October. The November decrease was larger in the current conditions component of the index, which fell nearly five points after a downward revision of 0.8 points. The expectations component dropped a little more than two points, after a 2.8-point upward revision. Inflation expectations were mixed, analysts said. Despite the end of the recession, consumer fundamentals and confidence remain weak, analysts said (Moody’s Economy.com Nov. 25) … * For the week ending Nov. 20, the Market Composite Index--a measure of mortgage loan application volume--dropped 4.5% on a seasonally adjusted basis from one week earlier, according to the weekly mortgage applications survey released Wednesday by the Mortgage Bankers Association (MBA). The Refinance Index dropped 9.5% from the previous week. The seasonally adjusted Purchase Index rose 9.6% from one week earlier. The unadjusted Purchase Index increased 4.9% compared with the prior week and was 13.7% lower than the same week one year ago. For the MBA Survey, use the link. In a related matter, October sales of new homes rose 6.2% above the September level--a move deemed “surprising” by analysts (Moody’s Economy.com Nov. 25) …

2 growth thru 2010 Schenk to IInvestors Biz DailyI

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WASHINGTON (11/30/09)--The economy grew at a 2.8% annual rate during third quarter, and that means credit unions and others can expect a 2% growth rate during fourth quarter and throughout 2010, a Credit Union National Association (CUNA) economist told Investor's Business Daily (Nov. 24). The third quarter growth is below the initially expected 3.5%, according to Commerce Department figures. "My recollection is that you'd see quarterly growth in the neighborhood of 5% or higher" exiting a recession," said Mike Schenk, vice president of economics and statistics and senior economist at CUNA. "This is substantially lower," he told the publication. He sees 2% growth in fourth quarter and for all of 2010, but "that all hinges on the health of the U.S. consumer," who faces high debt, rising unemployment and depressed stock and home values, Schenk indicated. The Federal Reserve, which upgraded its view on the U.S. economy last week, says this year's contraction won't be as steep as previously thought and that growth next year may be better than expected. However, it noted the recovery will be sluggish and will keep the unemployment rate high over the next several years. The Fed said the economy would shrink 0.1% to 0.4% this year. That compares with a 1%-1.5% contraction it predicted in June.

Third-quarter bankruptcy filings are up

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WASHINGTON (11/30/09)--The recession and weak labor market have damaged both consumer and business finances, with bankruptcy filings for third quarter 2009 continuing to surge, especially for personal bankruptcies. Total personal bankruptcy filings reached 373,308 during the quarter--a 33% increase over third quarter 2008 filings, according to statistics from U.S. Bankruptcy Courts (Moody's Economy.com Nov. 25). Filings are only 3% above the average level of filings from 2001 through 2004, the period before bankruptcy reform legislation took effect. Those filings occurred in a better credit environment. Chapter 7 filings increased 41.9%, the sixth consecutive quarter that these filings were above 40%. Chapter 11 filings rose 96%, and Chapter 13 filings were up 14.8% from third quarter 2008. Consumer filings on an annual basis indicate that there were 12.98 filings per 1,000 households in third quarter 2009, compared with 12.72 in second quarter and a low of 4.04 in first quarter of 2006. The American Bankruptcy Institute predicted that personal bankruptcies could reach an estimated 1.4 million nationwide by the end of the year (Pittsburgh Post-Gazette Nov. 24). That would be a 23% increase from 1.07 million Americans who filed last year. Business bankruptcy filings for third quarter 2009 were moderate, totaling 15,177 or a 31.9% increase over the same period last year. That compares with a 60.5% increase for the period a year earlier and 64.4% increase--the largest on record--during second quarter of 2009. Business filings have nearly doubled from the last quarter of 2007, before the recession began, said Moody's. It attributed the increase in tightened lending standards that make reorganization more difficult.

News of the Competition (11/24/2009)

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MADISON, Wis. (11/25/09)
* The number of distressed U.S. banks rose to 552 at the end of September--the highest level in 16 years, according to a Federal Deposit Insurance Corp. (FDIC) report released Tuesday. The tally is up from 416 at the end of June and 305 at the end of March. The September mark is the largest number of banks on FDIC’s “problem list” since the end of 1993. The FDIC said its Deposit Insurance Fund has sustained an $8.2 billion loss, which the agency said it hopes will be covered by advance payments of $45 billion in deposit insurance premium fees (MarketWatch Nov. 24) … * Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $2.8 billion in the third quarter, but loan balances declined by the largest percentage since quarterly reporting began in 1984, the FDIC said in a press release. Quarterly earnings were more than three times the $879 million the industry earned a year earlier and an improvement over the industry's $4.3 billion net loss in the second quarter. More than 26% of all insured institutions reported a net loss in the latest quarter, up from nearly 25% a year earlier. “Today’s report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” said FDIC Chairman Sheila Bair. Regarding the decline in loan balances, Bair said: “There is no question that credit availability is an important issue for the economic recovery. We need to see banks make more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60% of the credit they use” … * Roughly half of bank losses from the global financial crisis have yet to be revealed, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), told a Confederation of British Industry’s conference Monday in London. In many advanced economies, banking systems “remain undercapitalized” with “far from normal” financial conditions, she said. In September, the IMF said banks may have roughly $1.4 trillion of toxic debt, which could damage the credit markets and halt the global economic recovery (Bloomberg News via American Banker Nov. 24) ... * Two successive commercial mortgage bonds issued with little or no support from the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) portends the possibility that there could be a self-started rejuvenation of the Commercial Mortgage-Backed Securities (CMBS) market, analysts said. While TALF originally was fashioned to aid securities backed by consumer loans, the Fed extended the program in May to the commercial mortgage market to spark activity, analysts said. In the first few months, investors used the program to buy exiting commercial mortgage bonds, but no new issuance was on the horizon. That changed last week when Developers Diversified Realty Corp., a real estate investment trust, priced a $400 million deal--the first CMBS issue in more than a year, analysts said. The deal’s success drove home the dual points that investors were willing to purchase well-structured conservatively underwritten bonds, and they were willing to do so with scant government support, analysts said (Dow Jones Newswires via American Banker Nov. 24) …

Market News (11/24/2009)

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MADISON, Wis. (11/25/09)
* Nearly one in four U.S. homeowners are underwater--meaning they owe more on their mortgages than their properties are worth. That could hurt prospects for a sustained housing recovery, analysts said. Nearly 10.7 million households--or 23% of homeowners--had negative equity in their homes in the third quarter, according to real estate information company First American CoreLogic. Underwater properties are prone to foreclosure and therefore they pose a hurdle to a housing recovery, analysts said. Because of prospects of oversupply, U.S. home prices aren’t expected to bottom out until early 2011, J.P. Morgan Chase & Co. economists said Monday. Home prices have declined to the extent that 5.3 million U.S. households are connected to mortgages that are at least 20% higher than their home value--with 520,000 of those borrowers receiving a notice of default, said First American (The Wall Street Journal Nov. 24) ... * The government’s Bureau of Economic Analysis (BEA) downwardly revised U.S. gross domestic product growth (GDP) in the third quarter. GDP increased at a 2.8% seasonally adjusted annual rate in the quarter, according to BEA’s revised estimate. In the October advance release, the reported increase was 3.5% (Moody’s Economy.com Nov. 24). The major elements behind the downgrade included: consumers did not spend as much as expected, commercial construction was weaker than anticipated, and the U.S. trade deficit was more of an impediment to growth, analysts said. The new GDP reading is slightly lower than the 2.9% growth rate forecast by economists in a Thomson Reuters survey (The New York Times Nov. 25) …. * Consumer confidence increased slightly in November but still remained low, indicating consumers remained depressed, according to an index of consumer confidence tabulated by The Conference Board--a private research firm. The index increased to 49.5 from an upwardly revised 48.7--previously 47.7. Assessments of current labor market conditions eroded slightly--with the number of those viewing jobs as difficult to obtain reaching a new cyclical high. Consumers viewing jobs as plentiful dropped to the lowest level since 1983. Opinions about future labor market conditions were more mixed, analysts said (Moody’s Economy.com Nov. 24) … * In September, the monthly Federal Housing Finance Agency (FHFA) purchase-only house price index was down 3%, compared with September 2008, but stayed fairly level compared with August. Housing price increases in the East North Central and South Atlantic census divisions were countered by substantial decreases in the East South Central, Mountain and Middle Atlantic divisions. The 2009 data suggest the U.S. house price index is stabilizing, but has not yet started a stable recovery, analysts said (Moody’s Economy.com Nov. 24). In a related matter, U.S. home prices rose for the fifth consecutive month and posted the second quarterly increase, according to Standard & Poor’s/Case-Shiller indexes released Tuesday. However, September’s pace of appreciation slowed and was lower than expected, analysts said (The New York Times Nov. 25) …

News of the Competition (11/23/2009)

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MADISON, Wis. (11/24/09)
* Commerce Bank of Southwest Florida, Fort Myers, Fla., was closed Friday by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, FDIC said in a press release. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Central Bank, Stillwater, Minn., to assume all of the deposits of Commerce Bank of Southwest Florida. The sole branch of Commerce Bank of Southwest Florida will reopen on Monday as a branch of Central Bank. Depositors of Commerce Bank of Southwest Florida will automatically become depositors of Central Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage, FDIC said. Customers will continue to use their existing branch until Central Bank can fully integrate the deposit records of Commerce Bank of Southwest Florida. The bank’s failure was the 124th failure in the industry this year … * In 2009, borrowers have sold a record $1.171 trillion in U.S. corporate bonds, exceeding the $1.167 trillion sold in 2007, according to data compiled by Bloomberg. Issuance of investment-grade and high-yield, high-risk debt surged as companies that couldn’t sell debt after the implosion of Lehman Brothers Holdings in September 2008 pursued opportunities to enter the market as it opened this year, said Brian Yelvington, director of fixed-income research and strategy at Knight Libertas LLC. “Many corporations were forced to rethink dependence on short-term funding markets,” he said, adding that treasurers “locked up financing when they could” (Bloomberg.com Nov. 23) …

Market News (11/23/2009)

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MADISON, Wis. (11/24/09)
* Existing home sales posted another big gain in October, boosted by the first-time homebuyer tax credit, according to the National Association of Realtors (NAR). Over the past seven months, a strong uptrend has been established, and inventories continue to decrease, NAR said. Existing-home sales--including single-family, townhomes, condominiums and co-ops--jumped 10.1% to a seasonally adjusted annual rate of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5% above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million, NAR said. Lawrence Yun, NAR chief economist, said he was surprised at the size of the gain. “Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.” For The NAR Report, use the link … * The U.S. dollar--the world’s reserve currency--will continue to see its value slide, even when the Federal Reserve starts to raise interest rates, a move that is an “extended period” away, the top dollar forecasters said. Alletti Gestielle SGR, HSBC Holdings Plc, Scotia Capital Inc. and Standard Chartered Plc all say the dollar will depreciate by as much as 6.4% versus the euro. The dollar will experience downward pressures due to about $12 trillion of fiscal and monetary stimulus, the lowest borrowing costs in the world, and a record $4 trillion worth of government bond sales between 2009 and 2010, analysts said. The dollar also will be impacted by the national 10.2% unemployment rate and any signs that the economic recovery may falter, analysts added. “History tells us the dollar shouldn’t start rising on a sustained basis until 12 months after the Fed starts to lift rates,” said Callum Henderson, global head of foreign-exchange strategy for Standard Chartered (Bloomberg.com Nov. 23) …

News of the Competition (11/20/2009)

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MADISON, Wis. (11/23/09)
* Federal Reserve officials are heightening their monitoring of U.S. banks to make sure lenders can weather a reversal of skyrocketing global-asset prices, said sources familiar with the matter. The Fed is checking to see if banks such as Goldman Sachs Group, JPMorgan Chase & Co. and Morgan Stanley have sufficient capital to manage the risks they take on, the amount of knowledge they possess about their counterparties’ strength, and whether risk managers have the authority to impact bank polices and practices, analysts said. The fed has been criticized by lawmakers for failing to prevent a drop in lending standards that lawmakers said contributed to the credit crisis (Bloomberg.com Nov. 20) … * Regulators have closed United Commercial Bank in San Francisco, citing inadequate capital and other material weaknesses, the California Department of Financial Institutions (DFI) announced last week. As of Oct. 29, the bank had total assets of roughly $10.9 billion and total deposits of about $7.5 billion. DFI has been scrutinizing the bank and ordered it to bolster its capital reserves to a safe and sound level, analysts said. However, the bank’s efforts to so failed, analysts said. DFI named the Federal Deposit Insurance Corp. as receiver of the bank immediately following its closure (Investment Weekly News Nov. 28) …

Market News (11/20/2009)

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MADISON, Wis. (11/23/09)
* In October, unemployment increased in 29 states, rising to record levels in California, Delaware, South Carolina and Florida, the Labor Department said Friday. Michigan registered the highest unemployment rate with 15.1%, followed by Nevada (13%) and Rhode Island (12.9%). The 29 states reporting an increase in unemployment in October is up from the 22 that did in September. Last month, the national unemployment rate reached 10.2%--a 26-year high. “We’re still going to see the unemployment rate in many metro areas and many states rise for quite some time, going into next year,” said Marisa Di Natale, a director at Moody’s Economy.com. “Employers won’t start hiring again until they’re confident the economy has really started to turn around, and they’re convinced there’s work for them to do” (Bloomberg.com Nov. 20) … * The Commercial Leading Indicator for Brokerage Activity rose 0.9% to an index reading of 102.4 in the third quarter from 101.5 in the second quarter, but is 11.1% below a reading of 115.3 in the third quarter of 2008. The index in the second quarter was at the lowest level since the first quarter of 1994. The National Association of Realtors (NAR) track of the commercial leading indicator dates back to 1990. The recent steep economic downturn has had a significant impact on commercial real estate sectors, but credit availability is the big unknown that will determine how soon commercial markets recover, according to NAR. Lawrence Yun, NAR chief economist, said some initial movements earlier this week in commercial mortgage-backed securities are encouraging. “The first commercial mortgage bond deal in over a year shows the Federal Reserve’s efforts to sell securities through the TALF program can be fruitful, but the level of activity is well below what is required to resuscitate the commercial market,” Yun said. “Credit availability needs to significantly rebound for any hope of a meaningful commercial recovery in 2010” For Commercial Real Estate Forecast Uncertain, use the link …

News of the Competition (11/19/2009)

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MADISON, Wis. (11/20/09)
* The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64% of all loans outstanding at the end of the third quarter of 2009--up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points to 9.94% this quarter from 8.86% in the second quarter of 2009. The delinquency rate breaks the record set in the third quarter. The records are based on MBA data dating back to 1972. For Delinquencies Continue to Climb in Latest MBA National Delinquency Survey, use the link … * Wells Fargo & Co. will pay $1.9 billion in penalties and buy back $1.4 billion in illiquid auction-rate securities (ARS) after reaching settlements in principle with state securities regulators. The settlements culminate litigation filed in April by California Attorney General Jerry Brown, and an investigation led by the Washington State Department of Financial Institutions Securities Division on behalf of the North American Administrators Association that allege Wells misled clients. Wells’ deception was manifest in falsely assuring that ARS were a safe and liquid alternative to cash, certificates of deposit or money market funds, analysts said (The Bond Buyer via American Banker Nov. 19) ...

Market News (11/19/2009)

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MADISON, Wis. (11/20/09)
* For the third consecutive week, U.S. mortgage rates for 30-year fixed-rate loans decreased, providing an incentive to potential homebuyers who may use a government tax credit to purchase homes, analysts said. The 30-year rate fell to 4.83% from 4.91%--the lowest level since May, Freddie Mac said Thursday. Also, the average 15-year rate dropped to 4.32%--the lowest mark since record-keeping began in 1991. Low mortgage rates and a first-time homebuyer tax credit have boosted demand for property this year, analysts said. President Barack Obama signed legislation earlier this month to extend the credit and broaden it to include some current homeowners. The move may lead to increased home sales, analysts said (Bloomberg.com Nov. 19) ... * For the seventh consecutive month, the index of U.S. leading economic indicators, a signal that the economy will continue to grow into 2010, analysts said. The Conference Board’s gauge of the outlook for the next three to six months increased 0.3%--less than predicted--following a 1% rise in September. Economists predicted the leading indicators index would increase 0.4%, according to a Bloomberg News survey’s median of 58 estimates. Claims for unemployment benefits remained at a 10-month low of 505,000 last week, separate reports indicated. A growth spurt for the economy is dependent on hiring gains, which have yet to materialize, analysts said. This is a big reason Federal Reserve Chairman Ben Bernanke said earlier this week that the U.S. economy must confront “headwinds,” analysts added (Bloomberg.com Nov. 19) …

News of the Competition (11/18/2009)

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MADISON, Wis. (11/19/09)
* For the week ended Friday, the Market Composite Index--a measure of mortgage loan application volume--decreased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 3.3% compared with the previous week. The Refinance Index decreased 1.4% from the previous week and the seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The seasonally adjusted Purchase Index has declined for six consecutive weeks and is at its lowest level since November 1997. The unadjusted Purchase Index decreased 7.9% compared with the previous week and was 14.7% lower than the same week one year ago. For Mortgage Applications Decrease in Latest MBA Weekly Survey, use the link … * Small regional banks, such as New York City’s Amalgamated Bank, are taking a growing role in funding the mergers and acquisitions of small and middle-market companies, analysts said. Amalgamated--located in Manhattan’s once-world-leading garment district--is joining ranks with an increasing number of small banks aiming to finance transactions in a market that has long been dominated by behemoths such as Wells Fargo & Co. and Bank of America Corp. Private equity investors are welcoming the new sources of funding because traditional sources have seized up during the credit crisis, analysts said (American Banker Nov. 18) ...

Market News (11/18/2009)

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MADISON, Wis. (11/19/09)
* U.S housing starts unexpectedly swooned in October because of mounting unemployment and the expiration of a government first-time homebuyer tax credit, analysts said. Starts plunged 11% to an annual rate of 529,000--the lowest level since April, following a 592,000 pace in September, the Commerce Department said Wednesday. Building permits, which indicate future construction, also declined. “The numbers are shocking,” said Patrick Newport, an economist at IHS Global Insight. “[The decline] represents a payback for the tax credit, which induced builders to build earlier.” Some analysts said the market may have frozen because builders were waiting to see if the Obama administration would extend the first-time homebuyer credit, which had boosted home sales (Bloomberg.com Nov. 18) … * With Americans paying more for fuel, the cost of living in the U.S. rose more than anticipated in October, analysts said. The 0.3% increase in the consumer price index followed a 0.2% rise in September, the Labor Department said Wednesday. The core index--excluding food and energy costs--increased 0.2% for a second consecutive month. Some companies, such as Wal-Mart Stores Inc., have little room to raise prices because unemployment is at a 26-year high of 10.2% and wages were down 5.2% in September from a year earlier, analysts said. The consumer price index was predicted to increase 0.2%, according to the median of 78 economists’ projections in a Bloomberg News survey. The core index was predicted to rise 0.1%, the Bloomberg survey indicated. “I don’t see anything in the report that suggests there’s any real inflation flare-up,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. “The fed is comfortably on hold” (Bloomberg.com Nov. 18) …

News of the Competition (11/17/2009)

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MADISON, Wis. (11/18/09)
* With his public diagnosis of a weak U.S. economy and labor market, Federal Reserve Chairman Ben Bernanke sent a signal that the Fed’s extended period of low borrowing costs may continue, analysts said. Speaking in New York City Monday, Bernanke said “significant economic challenges remain” because lending is limited and the unemployment rate has risen over 10%. U.S. asset prices are in line with underlying values, and the Fed will make sure that the “dollar is strong,” he added. On Monday, Bernanke reiterated the Fed’s Nov. 4 pledge to keep rates low for an “extended period.” He also said forecasters expect “moderate” growth in the fourth quarter, following the 3.5% pace of growth in the third quarter (Bloomberg.com Nov. 17) … * To procure more government aid, Bank of America (BofA) threatened to drop its acquisition of Merrill Lynch & Co., new documents suggest, according to analysts. One day before telling federal officials that BofA was contemplating abandoning the deal for Merrill, BofA officials discussed the pending benefit of a government rescue, according to e-mails and handwritten notes subpoenaed by a congressional committee. The notes and e-mails appear to countervail BofA’s repeated assertions that it believed it had a reasonable basis to quit the Merrill deal, according to sources familiar with the matter. The written evidence also provides validity to the investigators’ theory that the threat to abandon the Merrill deal was a ploy to get more aid from the government, the sources said (Dow Jones Newswires via American Banker Nov. 17) …

Market News (11/17/2009)

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MADISON, Wis. (11/18/09)
* U.S. wholesale prices only slightly increased in October, allaying fears that inflation could soon become a threat to economic recovery in a milieu of extremely low interest rates, analysts said. Higher food and energy costs contributed to a seasonally adjusted 0.3% increase in the October producer price index--a measurement of the cost of goods to companies. October’s mark was less than the 0.5% that economists forecasted. The index accounts for the cost of food, gasoline and construction materials for businesses. Because the index monitors price changes before products arrive on store shelves, it often is considered a leading indicator of the state of inflation, analysts said (The New York Times Nov. 18) … * Business confidence worldwide is gradually improving, according to Moody’s Economy.com Survey of Business Confidence. Although businesses are remaining cautious, sentiment is substantially improved from the beginning of the year and is consistent with a tentative global economic recovery, analysts said. Last week, businesses were more upbeat about their sales and hiring than the previous week. Also, for the first time since the summer of 2008, there were more positive than negative responses to the survey questions, analysts said. Respondents were optimistic about the economy’s potential next spring. However, pricing remains weak, and respondents said they are continuing to reduce inventories. South American businesses are the most optimistic, while North American businesses are the most pessimistic, analysts said (Moody’s Economy.com Nov. 16) …

News of the Competition (11/16/2009)

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MADISON, Wis. (11/17/09)
* A complex structured financial product that helped fuel the leveraged buyout boom--collateralized loan obligations (CLOs)--will not be issued much in the near future, said analysts at Barclay’s Capital in a Friday report. CLOs are created when high-risk loans are sold by junk-rated companies and then cut into various tranches of risk and return, analysts said. In the first half of 2007, CLOs contained nearly two-thirds of the debt financed by leveraged buyouts. By the middle of last year, their share had decreased to about 20% (Dow Jones Newswires via American Banker Nov. 16) … * For the week ended Nov. 4--the most recent period for which data is available--U.S. banks commercial and industrial loans dropped $1.8 billion to roughly $1.37 trillion, the Federal Reserve said Friday. The decrease follows a $2 billion increase the previous week (Dow Jones via American Banker Nov. 16). Also, commercial real estate loans fell to $1.66 trillion from $1.72 trillion, and consumer loans dropped to $847 billion from $857 billion at the end of 2008 (latimes.com Nov. 10) …

Market News (11/16/2009)

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MADISON, Wis. (11/17/09)
* U.S. retail sales rebounded in October from the largest decline of the year in September because demand for autos rose, mitigating concerns that households will pull back on spending after government incentives ended, analysts said. The 1.4% October increase followed a 2.3% drop in September--which was larger than the previously estimated 1.5% drop, the Commerce Department said Monday. Also, purchases excluding autos increased less than predicted--0.2%--which is half the expected increase, analysts said. The October increase was largely due to a 7.4% rise in automobile sales, analysts said. When the federal government ended its “Cash for Clunkers” program in September, auto sales dropped 14.3% (The New York Times and Bloomberg.com Nov. 17) … * In September, inventories at U.S. businesses dropped to their lowest level in nearly four years. This is a sign that orders will increase as spending rises in coming months, analysts said. The 0.4% stockpiles decrease was smaller than expected and took the value of goods on hand down to $1.3 trillion--the least amount since November 2005, the Commerce Department said Monday. In the first half of this year, companies depleted their inventories at a record rate, paving the way for economic growth in the second half because consumers and businesses are resuming their spending again, analysts said. Slim stockpiles at manufacturers such as carmakers, and rising U.S. exports will spark a factory rebound that will fuel the economic expansion into 2010, analysts added. “Businesses aren’t going to be comfortable increasing production and making hiring decisions until they’re comfortable with their levels of inventories,” said Kim Whelan, an economist at Wells Fargo Securities LLC. “Once inventories are rebalanced with sales levels, we’ll see strength once again in production” (Bloomberg.com Nov. 16) …

Market News (11/13/2009)

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MADISON, Wis. (11/16/09)
* For the second consecutive month, U.S. consumer confidence unexpectedly fell sharply in November because rising unemployment rocked households, analysts said. The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 66 from 70.6 in October. The measure was predicted to increase, according to a median forecast in a survey of economists conducted by Bloomberg News. The holiday shopping season is being dampened by a jobless rate that leapt to a 26-year high last month and is projected to remain above 10% through the first half of 2010, which is giving consumers pause, analysts said. “It’ll be a lackluster holiday season as consumers are staying cautious,” said Guy Lebas, chief fixed income strategist and economist at Janney Montgomery Scott LLC. “The labor market is really problematic. It’s going to cap confidence and limit opportunities for growth in pending.” Inflation expectations were mixed, according to the index (Bloomberg.com and Moody’s Economy.com Nov. 13) … * In September, the U.S trade deficit widened by the most it has in a decade because of escalating demand for imported oil and automobiles as the economy bounces back from the worst recession since the 1930s, analysts said. The trade gap increased to the highest level since January, posting a larger-than-expected 18% jump to $36.5 billion, from a revised $30.8 billion in August, the Commerce Department said Friday. Imports swelled the most in 16 years, overwhelming a gain in imports, analysts said. Demand for imported products likely will continue to elevate in the next few months as business and consumer spending becomes more robust, and companies strive to keep inventories from falling even more, analysts said. However, exports also may rise as foreign economies expanding in Asia and Europe combine with a weak dollar to increase the demand for U.S. goods and give domestic manufacturers a boost, analysts said (Bloomberg.com Nov. 13). Although the U.S. economy remains weak, the rise in U.S. imports can be seen as positive because it shows that U.S. manufacturers are building up inventories in anticipation of increased domestic demand, said Nariman Behravesh, chief economist at HIS Global Insight. “It’s a very strong signal that the domestic economy is recovering,” he added (The New York Times Nov. 13) … * About 29% of recent buyers purchased a home in foreclosure or through a short sale, according to the most recent Realtors Confidence Index (RCI), released by the National Association of Realtors (NAR). Survey respondents also are worried about an increase in home foreclosures and the hurdles buyers confront in short sales, according to the RCI. “Realtors are on the front lines with buyers and sellers in today’s market and have valuable insights into real estate trends,” said NAR President Charles McMillan. “The volume of distressed sales that our members are reporting underscores the importance of the recent tax credit extension. By putting cash in the hands of financially healthy home buyers, the credit will continue to help draw down inventory and stabilize home prices to encourage a strong and sustainable housing recovery.” The RCI is a key indicator of housing market strength based on a monthly survey of more than 50,000 realtors. In a typical month, there are more than 3,000 usable responses, NAR said. For The Realtors Confidence Index, use the link …

News of the Competition (11/13/2009)

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MADISON, Wis. (11/16/09)
* Three major U.S. banks will stop insuring checking accounts above the standard $250,000 limit--a year after the federal government set up the program to allay worries about runs on deposits, analysts said. CitiGroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. will leave the Federal Deposit Insurance Corp.’s Transaction Account Guarantee Program Dec. 31., said spokesmen Thursday for the three firms. The program was one of several emergency measures implemented in October 2008 to bolster confidence in the banking system and avoid a collapse of the financial markets, analysts said. Bank of America announced on Oct. 16 it would opt out of the program (Bloomberg.com Nov. 12) … * BankUnited, based in Coral Gables, Fla., is embarking on a brash campaign to recruit bankers from its rivals throughout Florida. The thrift’s CEO, John Kansas, is running full- page newspaper ads beseeching “unhappy Florida bankers” to defect to BankUnited. Six months ago, BankUnited was seized by federal regulators and then sold to Kansas’ investor group. Kansas said that within two days he garnered 3,000 responses to the ads--which feature a form resignation letter that recruits can clip out and submit to their bosses, with a postscript, “I am sure you realize my customers will follow me.” Analysts says the tactics are similar to ones Kansas deployed when he operated North Fork Bancorp, a Melville, N.Y., company he sold in 2006 to Capital One Financial Corp. BankUnited’s new emphasis is on commercial loans for small and mid-sized businesses, which was North Fork’s forte, analysts said (American Banker Nov. 13) … * Because discount window borrowing fell in the latest week, the Federal Reserve’s balance sheet shrunk, analysts said. In the week ended Nov. 11, the Fed’s asset holdings fell to $2.14 trillion from $2.17 trillion the prior week, the central bank said Thursday in its weekly report. On Wednesday, total discount window borrowing dropped to $107.77 billion from $109.97 billion a week earlier. Also, commercial banks’ borrowing through the Fed’s discount window dropped to $19.98 billion from $22.48 billion (Dow Jones Newswires via American Banker Nov. 13) …

News of the Competition (11/12/2009)

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MADISON, Wis. (11/13/09)
* Although Wal-Mart posted earnings Thursday that beat expectations, sales at stores open at least a year (same-store sales--a key indicator) fell slightly in a tough economy, analysts said. For the three months ended Oct. 31, Wal-Mart, the largest U.S. retailer and a barometer for the entire retail industry, posted net income of $3.24 billion or 84 cents per share--up from $3.14 billion or 80 cents per share, a year ago. Revenue increased to $99.4 million from $98.3 million. Earnings of 81 cents per share on $99.9 billion were expected by analysts surveyed by Thomson Reuters. However, Wal-Mart same-store sales dropped 0.4%, not including the impact of fuel. For the same period a year ago, same-store sales rose 2.5%. Wal-Mart attributed the decrease solely to falling prices, analysts said (The New York Times Nov. 13) … * American International Group Inc. (AIG) has found itself to be dependent on the U.S. government’s commercial paper program that matures in January, analysts said. AIG owes $5.8 billion--more than half of the $10 billion in debt outstanding in the Commercial Paper Funding Facility, the insurer said in regulatory filing last week. With companies finding private-sector alternatives or cutting back short-term borrowing, lending through the Federal Reserve program dropped as much as $350 billion in January, an analyst said. “AIG remains more dependent on government financing than we would like them to be,” said Clark Troy, a senior analyst for research firm Aite Group. “It is more money to repay, and I don’t know that the taxpayer will be made entirely whole” (Bloomberg.com Nov .12) … * Bank of America Corp. (BofA) ought to pick an internal candidate to succeed CEO Kenneth Lewis rather than an outsider with a limited perspective on the largest U.S. bank, said Temple Sloan, former BofA lead director. Sloan said he would prefer Brian Moyniahn, BofA consumer banking head, or Barbara Desoer, head of home loans and insurance, to be selected because they excelled at the company. “I get tired of hearing we don’t have a succession plan,” said Sloan, now chairman of General Parts Co.--owner of the Carquest auto parts brand. “I had the list and we discussed it every month. There has always been a succession plan. You can’t run a company the size of BofA without a succession plan” (Bloomberg.com Nov. 11) …

Market News (11/12/2009)

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MADISON, Wis. (11/13/09)
* In a sign the troubled U.S. labor market may be improving, the number of new claims for unemployment benefits dropped last week to the lowest level since January, the Labor Department said Thursday. For the week ended Nov. 7, claims fell to 502,000 from a revised 514,000 the previous week. A Reuters poll indicated that analysts expected claims to slip to 510,000 from an initially reported 512,000 (The New York Times Nov. 12). Firings may diminish because the loss of 7.3 million jobs since the recession started in December 2007 likely means many companies already have trimmed their work force to the minimum, analysts said. “[The drop in claims] is reassuring, but these levels are still consistent with job losses,” said Jonathan Basile, an economist at Credit Suisse in New York. “We’re not getting a strong enough vote of confidence yet from claims to say companies have stepped up their hiring and greatly reduced their pace of layoffs” (Bloomberg.com Nov. 12) … * Laid-off workers returning to the U.S. work force are facing significant pay cuts, and the diminished wages are threatening to slow the economic recovery, analysts said. For the year ended September 2009, wages and benefits adjusted for inflation and paid by private companies rose 1.2%--the smallest change since such measurement began in the U.S, the government reported last week. That figure could continue its downward trend in coming months and may even turn negative for the first time since record-keeping began, said some economists. “These losses can become permanent because you have to start again and work your way up,” said Till von Wachter, an economics professor at Columbia University. People returning to the work force are taking--on average--a 40% pay cut from their old jobs, according to estimates based on past recessions made by Kenneth Couch, an economics professor at the University of Connecticut (The Wall Street Journal Nov. 12) … * For the first time in U.S. history, women are positioned to become the majority of the work force. This unprecedented benchmark is partly due to the steep layoffs of men from the labor market, analysts said. As of September, women held 49.9% of U.S. jobs--excluding farm workers and the self-employed. This constitutes a 1.2% rise from women’s 47.8% share when the recession began in December 2007, analysts said. In 1970, women held 35% of jobs. As of October, employment for men age 16 and older was at 11.4% due to steep reductions in male-dominated professions such as construction and manufacturing, analysts said. The unemployment rate for women is lower at 8.8% because they are employed in areas such as education and health care, which have steadier employment conditions, analysts added. Since the beginning of the recession, the number of women age 16 and older in the work force has expanded by 300,000 to 71.7 million, according to the Department of Labor. The number of men working dropped by 123,000 to 82.28 million (The Wall Street Journal Nov. 12) …

Market News (11/11/2009)

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MADISON, Wis. (11/12/09)
* The U.S. dollar fell Wednesday to a 15-month low against the currencies of principal U.S. trading partners. The drop was triggered by signals of a worldwide economic recovery and the belief that the Federal Reserve would keep borrowing costs at low levels to spark demand for higher-yielding assets, analysts said. The dollar index, which tracks the dollar against the euro, pound, Canadian dollar, Swiss franc and Swedish krona, dropped as far down as 74.774--the lowest level since August 2008. So far this year, the gauge has decreased 7.9% (Bloomberg.com Nov. 11). The expectation that the Federal Reserve will maintain the key U.S. interest rate near zero has put downward pressure on the dollar, analysts said. Investors are more attracted to currencies with higher interest rates because bets made in that currency can earn higher returns, analysts added (The New York Times Nov. 11). U.S. Treasury Secretary Timothy Geithner said Wednesday that maintaining a strong dollar is “very important” to the U.S. economy. “We bear special responsibility for trying to make sure that we are implementing policy in the U.S. that will sustain confidence, not just among American investors and savers, but investors around the world” (The Wall Street Journal Nov. 11) … * Global economic confidence slipped in November because central banks’ actions to pull back some stimulus measures caused concern about the strength of the economic recovery, according to a Bloomberg survey of users on six continents. The Bloomberg Professional Global Confidence Index dropped to 60.3 from 61.7 in October. November’s reading was the highest level since the measure was implemented two years ago. For a fourth consecutive month, the index exceeded 50--which indicates there were more optimists than pessimists, analysts said. “Confidence hinges almost entirely on the level of stability produced by extraordinary monetary support,” said Lena Komileva, an economist at London-based Tullet Prevon Plc, who participated in the survey. “As the effect of fiscal stimulus peaks, the future path of growth figures will become more volatile and that will affect confidence,” she added (Bloomberg.com Nov. 11) … * For the second consecutive week, the Mortgage Bankers Association Market Index gained 3.2% in the week ended Nov. 12, finishing at 627.5--up from 608.3 the previous week. The Refinance Index rose 11.3%, ending at 2,998.2. The Purchase Index experienced another week of losses, dropping 11.7% to 220.9. The two consecutive weekly gains in the composite index are deceptive, because the U.S. housing market is still suffering, analysts said. The loss of two key housing supports--the original expiration of the first-time homebuyer tax credit, and the Federal Reserve’s September announcement that it will stop purchasing mortgage-backed securities--which keeps interest rates low--by March have hurt, analysts said. However, even with these negative headwinds, Moody’s Economy.com said that home sales have reached the bottom and will slowly trend upward (Moody’s Economy.com Nov. 11) …

News of the Competition (11/11/2009)

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MADISON, Wis. (11/12/09)
* Robert Benmosche, CEO of American International Group Inc. (AIG), told the insurer’s board of directors that he may leave the company because of government limits on what AIG can pay employees, said a source familiar with the matter. Benmosche’s remarks are an indication of his frustration and he has not taken any active steps to leave the company, the source said. Benmosche came out of retirement in August to lead AIG. “[The comment] after just three months on the job seems to underline the difficulties and frustrations of being a manager assigned to implement [salary caps],” said Ed Rogers, CEO of Rogers Investment Advisors Y.K. “Implementation of government compensations controls will seem to be an almost certain death knell for companies with salary caps who are competing to retain staff against companies with no caps,” Rogers said (Bloomberg.com Nov. 11) … * A Brooklyn, N.Y., jury Tuesday acquitted two former Bear Stearns hedge-fund managers of securities fraud, after finding no evidence beyond a reasonable doubt that the defendants had criminal intent and conspired to mislead their investors. One jurist said the prosecution did not provide “enough information” and that there “was nothing clear and convincing.” Some prosecutors had viewed the case as a template for future charges against Wall Street executives, analysts said. The two defendants--Ralph Cioffi and Matthew Tannin--were accused of lying to investors--telling them they were optimistic about the hedge funds while being privately concerned that the funds were nearly dead, analysts said (The Wall Street Journal Nov. 11) … * Green Bancshares Inc., the Greenville, Tenn.-based holding company for Green Bank, said Monday that it rejected an Oct. 26 unsolicited proposal from major stockholder Scott Niswonger to inject more capital into the company. The holding company’s board of directors decided the proposal, its timing and other factors relating to the business operations of Green Bankshares, were not in the best interests of the company and its shareholders, analysts said. GreenBank’s estimated regulatory capital levels as of Sept. 20 with Tier 1 Leverage were at 10.49%; Tier 1 Risk-Based Capital at 13.17%; and Total Risk-Based Capital at 14.43%, exceeding regulatory requirements, analysts said (Trading Markets.com Nov. 10) … * The national economic downturn has created an opportunity for the North American division of HSBC Holdings PLC’s international banking strategy, said the division’s CEO Brendan McDonagh. Big U.S. banking firms seem to have lost some of their competency in the cross-border market as they deal with tough domestic problems, he added. Because some U.S. banks are directing their energies toward domestic capabilities, HSBC Holdings has worked to take advantage of the opportunity by opening 20 branches this year in U.S. cities with a substantial number of immigrants and international businesses, analysts said. The company intends to open five or six more branches next year, he added (American Banker Nov. 11) …

News of the Competition (11/10/2009)

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MADISON, Wis. (11/11/09)
* Because banks are carrying more short-term debt than they have in the past 30 years, they are more exposed to rising borrowing costs that could destabilize their profits, according to Moody’s Investors Service. Between now and 2015, about $10 trillion of bank debt will come due--with $7 trillion maturing by 2012, wrote Moody’s analysts. Borrowing costs could increase because lenders are issuing longer-term debt to replace maturing securities, and due to the Federal Reserve raising its target interest rate from a near-zero level it has maintained for nearly a year, the analysts wrote. Banks holding high levels of short-term debt could be more susceptible to quick increases in interest rates or “swings in investor confidence” that cause capital costs to rise, the analysts added (Bloomberg.com Nov. 10) … * Citigroup Inc. and JPMorgan Chase & Co. are the nationwide leaders for Treasury mortgage modifications, in which large U.S. banks modify home loans for financially challenged borrowers under the Obama administration’s primary foreclosure prevention plan, the Treasury said Tuesday. Through the government’s Making Home Affordable program begun this year, Citigroup began 88,968 mortgage modifications--or 40% of its eligible loans, according to Treasury data through October. JPMorgan has started 133,988 modifications--or 32% of its eligible loans. More than 650,994 modifications were made through the program by the end of October--up from about 487,081 at the end of September, the Treasury said (Bloomberg.com Nov. 10) … * UCBH Holdings Inc. in San Francisco is the first of the government’s investments under the Capital Purchase Program to be shuttered because of a bank failure. The Friday seizure of banking company UCBH’s $13 billion-asset United Commercial Bank portends that even financial institutions that the Treasury Department had faith in a year ago are not all going to be successful or even survive in the current economic downturn, analysts said. The significance of United Commercial’s collapse depends on whether other Troubled Asset Relief Program recipients fail, said Andy Laperriere, managing director of International Strategy and Investment Group’s policy research team (American Banker Nov. 10) …

Market News (11/10/2009)

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MADISON, Wis. (11/11/09)
* Third-quarter existing home sales continued to rise in most states, with home prices moderating in several metropolitan areas, according to the most recent survey by the National Association of Realtors (NAR). Total existing home sales, including single- family and condo, rose 11.4% to a seasonally adjusted annual rate of 5.30 million units in the third quarter from 4.76 million units in the second quarter, and now are 5.9% above the 5.01 million-unit pace set in the third quarter of 2008, NAR said. Sales increased from the second quarter in 45 states and the District of Columbia; 28 states and D.C. saw double-digit gains. Year-over-year sales were higher in 32 states and D.C. The federal tax credit is a significant factor, said Lawrence Yun, NAR chief economist. “We can’t underestimate just how powerful a catalyst the first-time home buyer tax credit has been for the housing sector,” he said. “It’s given buyers the confidence they needed to get off the fence and take advantage of extremely affordable housing conditions. The buying conditions this year are the most favorable on record dating back to 1970, but the tax credit is allowing buyers to set aside any reservations about waiting for a better deal.” For The NAR report, use the link … * The September Job Openings and Labor Turnover Survey (JOLTS) report indicated minimal change in its main indicators from the previous month, according to the Bureau of Labor Statistics. In recent months, most measures have stabilized at low rates. The job openings rate increased slightly in September to 1.9% from 1.8%, and the hire rate dipped to 3.1% from 3.2%. The separation rate declined to 3.2% from 3.4%. In September, four million people found new jobs in the U.S., while 4.3 million left their jobs (Moody’s Economy.com Nov. 10) … * Ending a string of six consecutive weekly gains, U.S. chain store sales dropped 0.1% for the week ending Saturday, according to the International Council of Shopping Centers (ICSC) sale index. Year-ago growth increased 2.9% due to “easier comparisons”--the strongest growth since August 2008, prior to the financial market implosion, analysts said. The ISCS maintained its forecast for sales growth in November to be in the 5% to 8% range. Growth will be strong, but uncertainty looms large because sales dropped by an unprecedented 7.7% in November 2008, creating very easy comparisons, ICSC said (Moody’s Economy.com Nov. 10) … * By the end of next year, hedge fund assets may top a previous $2 trillion high because of double-digit average returns enticing investors, said Barry Bausano, global co-head of prime finance for Deutsche Bank AG. The bank’s hedge fund assets have increased recently, and global investors intend to allocate new capital next year, Bausano said. “We fully expect to see material inflow into 2010 and beyond,” Bausano said. “The expected growth is reflective of continuing institutional demand for increased risk-adjusted returns in the face of low bond yields and disappointing passive equity performance” (Bloomberg.com Nov. 10) …

Fewer banks still tightening loan standards

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WASHINGTON (11/10/09)--Banks continued to tighten standards and terms over the past three months on all major types of loans to businesses and households, according to the Federal Reserve's October 2009 survey of senior loan officers. However, fewer banks tightened these for most loan categories, declining from peaks reached late last year. Exceptions were prime residential mortgages and revolving home equity lines of credit. Demand for most major categories of loans continued to weaken during the period, but the weakening was less widespread than in a previous survey in July for commercial and industrial (C&I), commercial real estate (CRE) loans and nontraditional mortgages. However, banks reported stronger demand, on net, for prime residential real estate loans. Banks cited two sources as important in C&I lending's decline: decreased originations of term loans and decreased draws on revolving credit lines. Of the CRE loans on their books scheduled to mature by September 2009, more loans had been extended than refinanced. Banks that tightened C&I loan standards for firms of all sizes totaled 15%--roughly half of those doing so in July and well below the 80% peak in October 2008. Those reporting tightening of selected terms on these loans continued to drop from the late 2008 highs. Some reported easing a few loan terms. More than 40% said they increased spreads of loan rates over their cost of funds for firms of all sizes--a decline of about 20 percentage points from the July survey. In contrast, 5% to 20% of banks said they decreased the maximum maturity of loans or credit lines, decreased the maximum size of credit lines and tightened terms on loan covenants for loans to firms of all sizes. The key reasons for tightening credit were the same as the previous three surveys: reduced tolerance for risk, a less-than-favorable or more uncertain economic outlook, and worse industry-specific problems. Domestic banks also cited more aggressive competition from other banks or nonbank lenders as the most important reason. Demand for C&I loans was weaker from firms of all sizes, although the weakening was less widespread than in July. About 25% of banks surveyed said they had tightened standards on prime residential real estate loans--slightly higher than in the July survey but significantly below the 75% peak reported in July 2008. Roughly 15% tightened standards for credit card loans to individual and households, down from 35% in the previous survey and the smallest reported since April 2008. About 15% reported tighter standards for consumer loans other than credit cards--down from 35% in July and the smallest percentage since January 2008. Nearly 35% said they widened interest rate spreads. A majority of banks surveyed also reported that they had yet to fully comply with the new Credit Card Accountability Responsibility and Disclosure (CARD) legislation. They indicated they expected to tighten many of the terms and conditions of credit card loans as a result of the legislation, with the exception of penalty fees and length of the payment grace period. For more detail, use the link.

News of the Competition (11/09/2009)

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MADISON, Wis. (11/10/09)
* Five more U.S. banks failed Friday and were shut down by U.S. regulators. The Federal Deposit Insurance Corp. took over United Commercial Bank in San Francisco with $11 billion is assets; Gateway Bank in St. Louis with $27.7 million in assets; Detroit-based Home Federal Savings Bank with $14.9 million in assets; Prosperan Bank in Oakdale, Minn., with $199.5 million in assets; and United Security Bank n Sparta, Ga., with $157 million in assets. So far this year, 120 banks have failed … * Wells Fargo & Co.’s handling of at-risk, underwater mortgages helps bolster U.S housing prices and also affords borrowers a better deal than they would have with large lenders, Wells CEO John Stumpf told investors at a Boston conference Friday. The company’s efforts to lower borrowers’ monthly payments helps people stay in their homes, Stumpf said. By helping borrowers circumvent foreclosures or short sales it stabilizes the falling home prices by maintaining inventories of for-sale homes at lower levels, he added. At mid-year, Wells was foreclosing on 7.5% of mortgages it services--compared with an average of 11.2% for large-mortgage servicers, Stumpf said. Wells has been criticized for reducing mortgage payments for troubled borrowers by deferring principal payments for as long as a decade. This would result in Wells holding for years billions of dollars in underwater mortgage debt connected to the most depressed U.S. housing markets, critics said. Stumpf said the criticism is misdirected because Wells’ modification policy aims to lower borrowers’ monthly costs, rather than immediately handle negative home equity (Dow Jones Newswires via American Banker Nov. 9) ... * A Bank of America (BofA) executive has agreed to testify before Congress about his role in the Merrill Lynch takeover, said sources familiar with the matter. Brian Moynihan, 50, now head of consumer banking at BofA, is scheduled to appear at a House Oversight Committee hearing Nov. 17, the sources said. Moynihan is a candidate to become the next BofA CEO, analysts said. In December, Moynihan succeeded Timothy Mayopoulos as general counsel when the deal for BofA to take over Merrill nearly unraveled, analysts said. “We would hope the hearing would relate to events surrounding the departure of Timothy Mayopoulos from BofA,” said Jonathan Finger, a BofA shareholder who pushed to oust Ken Lewis as chairman last spring. “Another important area for the committee to look at is the legal advice that Mr. Moynihan gave to Ken Lewis for a talking-points memo prior to meeting with the bank’s board of directors later in December,” Finger said (Bloomberg News via American Banker Nov. 9) …

Market News (11/09/2009)

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MADISON, Wis. (11/10/09)
* The U.S. Treasury blocked Fannie Mae’s sale Friday of nearly $3 billion in low-income housing tax credits to Berkshire Hathaway Inc. and Goldman Sachs Group Inc. Treasury made the move after deciding the deal was too expensive for taxpayers, officials said. Originally, Fannie had agreed to sell about half of its $5.2 billion of its tax-credit portfolio and had been given approval by its federal regulator--the Federal Housing Finance agency--to proceed with the sale. The credits are essentially worth nothing to Fannie because the government–sponsored enterprise doesn’t have any taxable income to offset. Therefore, it is forced to write down the value of the credits on a quarterly basis as the value decreases, analysts said. The Treasury’s action is the most recent sign of tension within the Obama administration over how to balance financial and political pressures arising from the housing crisis, analysts added (The Wall Street Journal Nov. 7) … * Economists are looking to fix a data-reporting defect that is distorting the reports on the economic health of the U.S. The gap between data and reality is overstating productivity and growth in ways that could impact the political discussion on issues of job creation, trade and wages, analysts said. At a meeting last week of government officials with economists from academia to develop a more accurate statistical scenario, the shortcomings of the current data gathering system were clear, analysts said. The primary fault in the current system is how to account for imports. For example, a carburetor bought in China for $50 as component of an American-made car often will show up in statistics as if it were the American-made version valued at $100. The failure to properly distinguish between what is made in the U.S. and what is made abroad is falsely inflating the gross domestic product, which is measuring the total value added within the country, analysts said. “We don’t have the data collection structure to capture what is happening in a real- time way, or what is being traded and how it is affecting workers,” said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research. “We have no idea how to measure the occupations being off-shored or what is being in-shored,” she added (The New York Times Nov. 9) … * Global businesses remain extremely cautious, according to the Moody’s Economy.com Survey of Business Confidence. However, this constitutes progress from earlier in the year when worldwide businesses could be characterized as panicked, analysts said. Although business sentiment remains unexcited about the present conditions, businesses remain upbeat about the prospects for the economy next spring, and are investing in equipment and software, analysts added. On the negative side, current sales and pricing remain weak, and businesses will continue to cut inventories and payrolls, analysts said. North American businesses generally are the most negative, and South American businesses are the most positive, the survey indicated (Moody’s Economy.com Nov. 9) …

Consumer credit drops 6 in 3Q credit at CUs is up

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WASHINGTON (11/9/09)--Overall consumer credit decreased at an annual rate of 6% during third-quarter 2009, to $2.455 trillion, according to statistics released Friday by the Federal Reserve. Credit unions turned out to be a bright spot in the report, seeing increases in both revolving and nonrevolving credit while commercial banks and finance companies experienced decreases. Overall revolving credit during third quarter dropped 10% (at an annual rate) to $889 billion, while nonrevolving credit was down 3.8% to nearly $1.566 trillion. For the month of September, consumer credit dropped 7.25% (not seasonally adjusted), while revolving credit plunged 13.3 % and non-revolving credit slipped 3.7%. On a non-seasonally adjusted basis, third quarter consumer credit totaled $2,465.4 billion. Of that, credit unions accounted for $240.5 billion, which was an increase from the $236.1 billion they loaned in third-quarter 2008. Banks lost ground during the year, registering $831.5 billion loaned for third-quarter 2009 compared with $844.1 billion a year earlier. Finance companies also saw decreases--to $522.8 billion for third-quarter 2009 versus $596.3 billion in third-quarter 2008. Credit unions' revolving credit totaled $34.2 billion for third quarter 2009, up from $32.2 billion during the period in 2008. Their non-revolving loans totaled $206 billion for third quarter this year, an increase over $203.9 billion loaned in the same period last year. For more details, use the resource link.

News of the Competition (11/06/2009)

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MADISON, Wis. (11/9/09)
* Regulators are getting more conservative in their requirements for banks in enforcement actions to increase capital and are stressing the importance of common equity as a capital component. Hammi Financial Corp., which has $3.5 billion in assets, said Thursday the California Department of Financial Institutions (DFI) told its bank unit to increase its ratio of tangible shareholders' equity to tangible assets. According to American Banker (Nov. 6), that ratio is not one of the three standard regulatory capital ratios. Also, stress tests of the 19 largest banking companies suggest regulators want common equity to make up two-thirds of overall Tier 1 capital. Common equity was also indicated on the Federal Deposit Insurance Corp.'s (FDIC) policy on private equity's role in banks. Regulators also have weighed a company's tangible common equity when approving applications to repay investments made under the Treasury Department's Trouble Asset Relief Program … * When Ken Lewis retires as CEO of Bank of America at the end of the year, shareholders will watch his successor closely for indications of how BofA's participation in the Troubled Asset Relief Program (TARP) will play out on their investments. BofA wants to start making installment payments on the $45 billion in TARP funds the bank received the past year. The program cost shareholders $2.5 billion in dividends this year, and the company had to pay $402 million during third quarter to leave an unused asset guarantee tied to its purchase of Merrill Lynch & Co. The bank also suffered through negative public relations during the bailout, and some investors are concerned about what the bank would do if the government requires bailed-out companies deemed "too big to fail" to divest certain businesses. The new CEO will have to reach out to big, institutional investors, who can be crucial allies for the bank if the government requires it to raise more capital before quitting the TARP program. Shareholders are antsy about moving money out of the company's stock and into shares of rivals (American Banker Nov. 6). … * JPMorgan Chase & Co.'s consumer loan portfolio is likely to shrink into next year as the mortgage market continues cooling, Charlie Scharf, CEO of the company's retail financial services division, told the BancAnalysts Association of Boston conference (American Banker (Nov. 6). Home equity loans and prime mortgages originations are substantially lower, and retail loans may drop 10% to 15% in the next year, he said. He noted the company has room to do bank deals, even though banking companies are limited from amassing more than 10% of the nation's deposits through acquisitions. Foreclosed homes are improving in price in California, but Florida is not stabilizing and not likely to improve soon, he told the group. The bank offered mortgage modifications to roughly 280,000 customers, 94% of whom would see their payment decrease. Of the modifications completed, 77% made more than one payment and 51% made more than three payments so far. Scharf also noted the bank's plans for 2010 include eliminating overdrafts on debit cards, ATMs and teller transactions, and overdraft fees when an account is overdrawn by less than $5, and reducing the daily overdraft fee charged …

Market News (11/06/2009)

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MADISON, Wis. (11/9/09)
* The unemployment rate in the U.S. broke the 10% benchmark earlier than expected and soared to a 16-year high of 10.2% during October. Economists surveyed by Bloomberg News last month had projected the rate would exceed 10% by early next year and average 9.9% for all of 2010 with the economy expanding 2.4% next year. But employers cut more jobs in October than forecast. Payrolls dropped by 190,000 workers last month, reported the Labor Department Friday. That compares with 175,000 drop anticipated by the economists. The jobless rate grew from 9.8% in September. The last time the jobless rate exceeded 10% was in 1983. The underemployment rate--which includes part-time workers who would rather have full-time position and people who want to work but have given up the job search--hit a record 17.5%, up from 17% in September. According to Bloomberg.com (Nov. 6), the high unemployment rate underscores why the Federal Reserve policymakers last week kept interest rates near zero … * The future inflation gauge for the U.S. increased to 91.7 in October, up from September's 91 reading, indicating little inflation pressure in the U.S., according to the ECRI Future Inflation Gauge (FIG) for North America (Moody's Economy.com Nov. 6). Although the reading has been increasing in recent months, it remains low by historical standards. The U.S. FIG remains well under its last high of 125.1, which occurred in October 2005. The gauge's smooth annualized growth rate increased to 17.3% for the month, from 12.9% in September. With the ongoing weak recovery of the U.S. economy and the hike in joblessness, there is little concern renewed wage gains nurturing price increases, said Moody's …

Market News (11/05/2009)

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MADISON, Wis. (11/6/09)
* Initial claims for unemployment benefits fell by 20,000 to 512,000 for the week ended Oct. 31--the lowest level since Jan. 3. In the meantime, continuing claims decreased by 68,000 to 5.749 million for the week ending Oct. 24. Because businesses are slowly cutting back on layoffs, the latest data indicate that the labor market is gradually improving, analysts said. Fewer jobless claims were filed last week than economists had expected, the Labor Department said Thursday in its weekly report. Economists surveyed by Dow Jones had expected a decrease of only 5,000 claims. Because initial claims still remain relatively high, the implication is that the job market has a long road to recovery, analysts said. Also, the Monster Employment index gained one point between September and October to finish at 120--a mark that is consistent with a lack of improvement in job availability, according to Monster Worldwide Inc. The index is down 20% from the same period last year (Moody’s Economy.comand The Wall Street Journal Nov. 5) … * U.S. chain store sales increased 2.1% in October from a year ago. However, this is not a sign of resurgence in consumer spending, but rather “easier year-ago comparisons,” analysts said. The month’s sales were helped by cooler weather and early holiday shopping, they added. Although consumer fundamentals are not as bad as earlier in the year, they remain restrictive for sustainable growth in spending, analysts said (Moody’s Economy.com Nov. 5). Although teen-focused retail chains posted lower-than-expected results in October, a handful of retailers--including Stage Stores Inc., Stein Mart Inc. and Gap Inc.--reported better-than-expected results, analysts said. Usually, October is not a strong retail sales month, but rather a lull between back-to-school shopping and the holiday season in its final two months, analysts said (The Wall Street Journal Nov. 5) ... * In the third quarter, nonfarm business productivity increased at a 9.5% annualized rate--the biggest gain in six years, according to the Bureau of Labor Statistics. Also, unit labor costs decreased 5.2%. The productivity gain was due to a sharp drop-off in hours worked, while output increased. The significant and larger-than-expected decline in labor costs will result in improved profitability. However, productivity gains will temper the need for hiring, analysts said. In the longer term, the better balance between labor and output is necessary for higher profitability and eventually increased hiring as aggregate demand turns around, analysts said (Moody’s Economy.com Nov. 5) … * More than half of U.S. consumers intend to pay cash for this year’s holiday purchases, said two surveys released this week. Opinion Research Corp. conducted a telephone survey this month of 1,005 adults in which 85% of respondents said they plan to use cash for their holiday purchases this year. Also, 62% of respondents plan to use cash more often, the survey indicated, while 55% said they do not plan to use credit or charge cards for holiday purchases this year. Concurring with the Opinion Research poll was a separate online survey of 3,880 adults conducted in November by the nonprofit group National Foundation for Credit Counseling. It found that 68% of respondents intended to use cash for holiday purchases (Cardline via American Banker Nov. 5) ...

News of the Competition (11/05/2009)

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MADISON, Wis. (11/6/09)
* GMAC Inc.--which is 35% owned by the government--is cutting back on disclosures about its embattled mortgage unit. The finance company said Wednesday it no longer would provide separate quarterly or annual reports for Residential Capital LLC (ResCap). The Securities and Exchange Commission does not require the reports because only 300 investors hold ResCap’s $4 billion of debt, analysts said. The change will result in saving a “tremendous” sum of money, said Robert Hull, GMAC chief financial officer, although he did not specify the amount. Several banking industry observers are upset by the move, which follows controversy over GMAC’s negative advertising and its online bank’s high deposit rates, analysts said (American Banker Nov. 5) … * MasterCard Inc. Tuesday reported a third-quarter profit, compared with a loss in the year-ago period. Results in the quarter were aided by cost-cutting measures, a higher volume of transactions processed, and lower litigation settlement charges compared with the year-ago period, analysts said. Third-quarter adjusted earnings per share jumped 41% from last year. The company’s gains come despite general negative impacts from a global slowdown in consumer spending and a high worldwide unemployment rate, analysts said (www.rttnews.com Nov. 3) …

Fed rate action impacts CUs

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WASHINGTON (11/5/09)--Wednesday's decision by the Federal Open Market Committee (FOMC) to stay the course and keep the fed funds target interest rate between 0%-0.25% will maintain a steep yield curve for a while longer, and that will impact credit unions, says a Credit Union National Association (CUNA) economist. "For those credit unions with strong loan demand, this should increase net interest margins as low-rate short-term deposits are used to fund longer-term higher-rate loans," said Steve Rick, senior economist at CUNA. "The higher net-interest margins should help financial institutions cover loan chargeoffs and earn their way out of the current financial crisis," he said. The FOMC has held the benchmark lending rate close to zero since December, while using asset purchases as its main policy tool. The Fed's last monetary stimulus helped fuel 3.5% growth during the third quarter (Bloomberg.com. "Credit unions have responded to the historically low short-term market interest rates by slashing their deposit interest rates," Rick told News Now. "The average interest rate paid on credit union regular share accounts was 0.54% in September, down from 0.93% in September of 2008. Money market account interest rates fell to 1% from 2%, while share certificate rates fell from 3% in September 2008 to 2% today. "Low interest rates on savings have not discouraged credit union members from increasing their deposit balances. During the first nine months of 2009, credit union savings balances rose 8.6%, faster than the 4.8% reported for the similar period last year. This has increased credit union liquidity and credit union investment portfolios," he said. "This change in the distribution of assets from loans to investments is putting significant downward pressure on asset yields for those credit unions with weak loan demand," Rick said. In addition to keeping the federal target bank lending funds rate at 0% to 0.25%--as expected--FOMC said the Fed would inject nearly $2 trillion in the economy through purchasing agency mortgage-backed securities (MBS) and agency debt. In its announcement, the FOMC noted that economic activity has continued to pick up and that conditions in financial markets were roughly unchanged with household spending remaining constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit. "Although economic activity is likely to remain weak for a time, the committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability," the FOMC said after the meeting. "With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. The Fed "will continue to employ a wide range of tools to promote economic recovery and to preserve price stability," it said, noting that the target rate is "likely to warrant exceptionally low levels of the federal funds rate for an extended period." FOMC also announced the Federal Reserve will purchase a total of $1.25 trillion of agency MBS and about $175 billion of agency debt. The amount of the agency debt purchases "is consistent with the recent path of purchases and reflects the limited availability of agency debt," said the FOMC. It "will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. "The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted," said the announcement.

News of the Competition (11/04/2009)

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MADISON, Wis. (11/5/09)
* Executives at financial services companies do not expect hiring and pay conditions to improve at their firms, despite the improvement in the economy. Roughly 20% of banking executives said their companies will ramp up hiring in the next six months, according to a survey released Tuesday by Grant Thornton LLP--the U.S. arm of Grant Thornton International LLP. However, nearly 25% of executives surveyed expect job cuts. The online survey of 846 chief financial officers and senior comptrollers--conducted Sept. 21 through Oct. 2--included 42 executives at financial institutions who were marginally more pessimistic about job cuts and hiring at their companies than respondents in other industries, analysts said (American Banker Nov. 4) … * A U.S. bankruptcy judge set a Dec. 8 hearing to fast-track the approval of CIT Group’s Inc.’s financial reorganization. Judge Allen Gropper said Tuesday in a Manhattan bankruptcy court that he is trying to help the large commercial lender emerge from bankruptcy by the end of the year. A quick reorganization is essential for CIT to retain the majority of its customers and remain a strong supporter of its banking unit, which did not file for bankruptcy protection, analysts said. Also affected by the proceedings will be several hundreds of thousands small- and mid-sized businesses--such as operators of Dunkin’ Donuts stores--that are dependent on CIT for financing, analysts added. Small businesses employ roughly half the U.S. labor force (Reuters Nov. 3) … * The Treasury Department announced plans to sell a record $81 billion in its quarterly auctions of long-term debt next week. The Treasury also said it replaced its inflation-protected 20-year bond with a reintroduced 30-year security. The agency will auction $40 billion in three-year notes on Monday, $25 billion in 10-year notes on Tuesday, and $16 billion in 30-year bonds on Thursday. The government will conduct another year of debt sales, ranging from $1.5 trillion to $2 trillion because the U.S. is headed for a second straight year of budget deficits, analysts said. “Treasury debt managers will continue to remain aggressive in managing financing needs while minimizing potential market implications,” the Treasury said in a statement Wednesday (Blooomberg.com Nov. 4) …

Market News (11/04/2009)

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MADISON, Wis. (11/5/09)
* For the third consecutive month, the number of announced job cuts dropped in October to 55,679 from 66,404 in September, according to a report by Challenger, Gray and Christmas Inc. The October job cut tally is the lowest level reported by Challenger since March 2008. October’s job cuts were one-half the total announced a year earlier. The highest number of cuts last month was in the automotive, electronics and computer industries. The decline in cuts is consonant with other labor market measures, analysts said. However, there is scant evidence that hiring is picking up, they added (Moody’s Economy.com Nov. 4). Also, U.S. private sector jobs declined by 203,000 in October, compared with a revised drop of 227,000 in September, according to a report by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers (The Wall Street Journal Nov. 4) ... * For the week ending Oct. 30, the Market Composite Index--a measure of mortgage loan application volume--rose 8.2% on a seasonally adjusted basis from one week earlier, according to the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association. The index rose 7.9% on an unadjusted basis compared with the previous week. The Refinance Index rose 14.5% from the prior week, and the seasonally adjusted Purchase Index decreased 1.8% from one week earlier. The unadjusted Purchase Index declined 3% compared with the previous week’s and was 3.4% lower than the same week one year ago. For Mortgage Refinance Applications Increase in Latest MBA Weekly Survey, use the link … * Service industries in the U.S. grew at slower-than-anticipated pace in October, signaling that rising unemployment may curtail consumer spending, analysts said. The Institute for Supply Management’s (ISM) index of non-manufacturing businesses dropped to 50.6 after rising above the zero-growth 50 mark in September at 50.9. ISM said the survey is generally consistent with its forecast that growth in the nation’s gross domestic product will tally about 3% in the fourth quarter. Increased employment may mean consumer spending will grow only with government assistance--an indication that the nascent recovery may lose steam as the government stimulus fades, analysts said (Moody’s Economy.com and Bloomberg.com Nov. 4) …

Market News (11/03/2009)

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MADISON, Wis. (11/4/09)
* U.S. chain store sales posted a slight 0.1% gain in the week ending Saturday, marking the sixth consecutive weekly gain, according to the International Council of Shopping Centers sales index. All the weekly gains have been modest, analysts said. Warm, wet weather hurt sales last week, they added. Year-ago growth fell to 1.9% but stayed strong by standards of the past 14 months due to “easier comparisons,” analysts said. Consumer fundamentals are mostly weak and unfavorable to spending--although they are not as negative as they were several months ago. Job losses are the biggest and most important drag on sales, analysts said (Moody’s Economy.com Nov. 3) … * For the fifth time in six months, U.S. factory orders increased in September, signaling that manufacturing likely will fuel the economic recovery, analysts said. For the month, bookings rose 0.9%--exceeding the median forecast of economists surveyed by Bloomberg News. The September gain follows a 0.8% decline in August, according to figures released Tuesday by the Commerce Department. Excluding demand for usually volatile transportation equipment, orders rose 0.8% after a 0.3% August gain. Inventories fell in September, and the inventory-to-sales ratio slid to 1.36 months from 1.38 months. U.S. companies will gear up production because of a record drop in stockpiles and a boost to exports due in part to about $2 trillion in global stimulus, analysts said. Growth in manufacturing will help the boost the economy in the fourth quarter, they added. “Manufacturing is in recovery,” said David Sloan, a senior economist at 4Cast Inc. “There’s a need to rebuild inventories, and exports are getting stronger. The economy does seem to be in a sustainable recovery now” (Bloomberg.com and Moody’s Economy.com Nov. 3) ...

News of the Competition (11/03/2009)

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MADISON, Wis. (11/4/09)
* Private equity investors are looking to invest in struggling banks, analysts said. Last week, two Oregon banks--Cascade Bancorp in Bend and West Cost Bancorp in Lake Oswego--announced recapitalization deals in which private equity firms were participating. After injecting $40 million into Cascade, Donald Marron, head of Lightyear Capital LLC, said his group has met with management teams at about 150 mid-size community banks in the past year. Now is a prime time to invest in banks because the principals in the banking industry are more amenable to restructuring units that are economically sound for future gains, than has been the case previously, Marron said. Also, all the new business being conducted is good business, he added. While private equity investors have been reluctant to return to the banking industry because of regulatory obstacles and uncertainty about when the market would bottom out, they now are more comfortable making investments alongside public capital raises, such as stock sales, analysts said (American Banker Nov. 3) … * Some large financial firms--such as Citigroup Inc. and JPMorgan Chase & Co.-- are stockpiling cash as if they are expecting another financial crisis to hit, analysts said. CitiGroup has nearly doubled its cash in the past year, amassing $244.2 billion. The four biggest U.S. banks by assets--Bank of America Corp., Citigroup, JPMorgan Chase and Wells Fargo & Co.--have bolstered their combined liquidity by 67% to $1.53 trillion as of Sept. 30 from $914.2 billion in June 2008--before the bankruptcy of Lehman Brothers Holdings, according to the companies’ third-quarter reports. The amount is 21% of banks’ assets--up from 15%. In addition to cash, liquidity encompasses deposits at other banks and debt securities that can be pledged as collateral in exchange for overnight borrowings from the Federal Reserve or other banks, analysts said (Bloomberg News via American Banker Nov. 3) ... * Roughly $6 billion in consumer loan-backed deals were expected to be sold before the loan application deadline Tuesday for the consumer loan-backed portion of the Term Asset-Backed Securities Loan Facility (TALF), which is designed to reinvigorate the asset-backed market, analysts said. Bank of America Auto Trust’s $2.03 billion deal is the largest bond eligible for the TALF--through which the Fed offers non-recourse loans at low rates. Among the other deals being sold are auto-sector deals from GMAC’s Ally Bank with an $884.9 million bond and Americredit Corp. with a $227 million deal (Dow Jones via American Banker Nov. 3) … * U.S. banks face risks of significant new loan losses--especially in the commercial loan market--and some banks may not have enough capital to insulate themselves against setbacks, a Federal Reserve official said Monday. “Two years into a substantial economic downturn, loan quality is poor across many asset classes and … continues to deteriorate,” said Jon Greenlee, an associate director of the Fed’s division of banking supervision and regulation. Some of the large regional and community banks that have accumulated unusually high levels of commercial real estate loans will be “particularly affected” by conditions in those markets, Greenlee said (Reuters Nov. 2 and Dow Jones via American Banker Nov. 3) …

News of the Competition (11/02/2009)

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MADISON, Wis. (11/3/09)
* Independent U.S. mortgage bankers and subsidiaries made an average profit of $1,358 on each loan they originated in the second quarter of 2009--up from an average profit of $1,088 per loan, according to the Mortgage Bankers Association’s (MBA) most recent Quarterly Mortgage Bankers Performance Report. The report provides performance measures for independent mortgage banks, and subsidiaries of banks, thrifts and hedge funds. “The refinance boom continued in the second quarter of 2009,” said Marina Walsh, MBA’s associate vice president of industry analysis. “The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits. At the same time, purchases picked up as homebuyers with good credit took advantage of low interest rates. Not only do we see an uptick in average borrower FICO, but we see pull-through rates at close to 73% in the second quarter from about 67% in the first quarter. These factors contributed to the further drop in production operating expenses per loan.” For MBA Study Shows Continued Profits For Independent Mortgage Bankers and Subsidiaries, use the link … * Federal bank regulators closed nine more U.S. banks Friday and appointed the Federal Deposit Insurance Corp. (FDIC) as receiver. U.S. Bank of Minneapolis would assume the banks’ deposits, FDIC said. The nine banks are owned by parent company FBOP Corp. of Oak Park, Ill. The most recent closures bring the tally of failed U.S. banks this year to 115. As of Sept. 30, the nine banks had combined assets of $19.4 billion and deposits of $15.4 billion, FDIC said. The closures will cost the deposit insurance fund an estimated $2.5 billion, FDIC added (Triangle Business Journal Nov. 2 and MarketWatch Oct. 30) … * In a final move to restructure and keep its doors open, CIT Group Inc. Sunday filed for bankruptcy protection. CIT needs to maintain its customer base as it tries to rehabilitate itself under finance Chapter 11 protection, analysts said. The lender to nearly one million small and midsize businesses obtained support from roughly 90% of voting debt holders for a prepackaged reorganization plan. The plan could allow CIT to move rapidly through Chapter 11 and emerge with a new business model by the end of 2009, analysts said. The plan is designed to allow bondholders to exchange their debt for new debt that matures later--and almost all the equity--in a reorganized CIT, analysts said (The Wall Street Journal Nov. 2) …

Market News (11/02/2009)

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MADISON, Wis. (11/3/09)
* Buoyed by the biggest jump in housing construction in more than six years, U.S. construction spending unexpectedly rose in September. The September increase was largely due to residential home builders pushing to finish projects before the possible end of the first-time home-buyers’ $8,000 tax credit, analysts said. The 0.8% increase--the largest since September 2008--followed a revised 0.1% drop in August previously reported as a 0.8% gain, according to Commerce Department figures released Monday. Spending on government and residential projects rose, while outlays for private commercial construction fell for a fifth consecutive month, the department said. Total construction spending for September tallied $940.3 billion compared with the revised figure of $933 billion in August (The New York Times, Bloomberg.com and Moody’s Economy.com Nov. 2) … * For the eighth consecutive month, pending U.S. home sales increased, marking the longest streak of gains since the measurement began in 2001, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, rose 6.1% to 110.1 from 103.8 in August, and is 21.2% higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8. Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.” For Pending Home Sales Rise for Record Eight Straight Months, use the link … * Ford Motor Co. posted a third-quarter profit of nearly $1 billion--the first profitable quarter in its North American unit in more than four years. The quarterly gain was due to cost cutting, higher pricing and increased market share, the automaker said. On Monday, Ford posted a profit of $997 million--or 29 cents per share--compared with a year-ago loss of $161 million--or seven cents per share. However, Ford is warning that a stronger North American operation will not be able to mitigate the European market--which is anticipated to be steeply down for the quarter and into 2010 (The Wall Street Journal and The New York Times Nov. 2) … * The federal deficit is too high, according to Treasury Secretary Timothy Geithner, who appeared Sunday on NBC’s “Meet the Press” (The Associated Press Nov. 2). Geithner said President Barack Obama wants to deal with the deficit in a way that does not add to the tax burdens of those making less than $250,000 a year. He also noted that the administration is focused on economic recovery, job creation and helping small businesses. Despite the fact that 115 banks failed this year, Geithner said he thinks there is a dramatic improvement in confidence with private capital in the financial system. However, he warned that if banks “overcorrect” and don’t take on enough risk, the economy may not recovery as quickly. “We need them to take a chance again on the American economy,” he said ...