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Market

Market News (02/28/2011)

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MADISON, Wis. (3/1/11)
* Despite government tax cuts implemented to spark the economy, U.S. consumer spending increased less than expected in January because rising food and fuel prices caused consumers to make do with less of other goods and services (The Wall Street Journal and Bloomberg.com Feb. 28). Consumer purchases rose 0.2%--the smallest gain since June and half the median forecast by economists in a Bloomberg News> survey, according to Commerce Department figures released Monday. While increasing confidence in the economic recovery along with tax savings portend that households should continue shopping, those purchases could be mitigated by the highest gasoline costs in two years and an unemployment rate at 9%, Bloomberg said. “The consumer has become slightly more cautious,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, N.C. “The extra money for gas prices is coming out consumers’ pocket. Spending will be positive, but modest” … * Pending home sales eased moderately in January for the second consecutive month, but remained 20.6% above the cyclical low of last June, according to the National Association of Realtors (NAR). The Pending Home Sales Index--a forward-looking indicator--declined 2.8% to 88.9, based on contracts signed in January, from a downwardly revised 91.5 in December. The index is 1.5% below the 90.3 level in January 2010 when a tax credit stimulus was in place. The data reflect contracts and not closings, which normally occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, pointed to the broader trend. “The housing market is healing with sales fluctuating at times, depending on the flow of distressed properties coming on the market,” he said. “While home buyers over the past two years have been exceptionally successful with historically low default rates, there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system. We should not expect the recovery to be in a straight upward path--it will zig-zag at times.” For the NAR report, use the link … * As pent-up demand from businesses, consumers and other countries kicks in, U.S. companies expect the economy to grow more quickly than previously estimated, according to a National Association for Business Economics (NABE) survey (Bloomberg.com Feb. 28). Gross domestic product in the U.S.--the world’s largest economy--will grow at a 3.3% pace in 2011, up from the 2.6% rate forecast in November, NABE said Monday. Also, business investment, consumer spending and exports will rise more than previously predicted. “Pretty much across the board there has been a better view with regard to the economic recovery,” Bill Strauss, a senior economist at the Federal Reserve Bank of Chicago, told Bloomberg. “The consumer is coming back, and we’re still looking at pretty good numbers coming from the business sector.” In a related matter, U.S. businesses unexpectedly expanded in February at the fastest pace in two decades--a sign that manufacturing still leads the economic recovery, according to the Institute for Supply Management-Chicago Inc. (Bloomberg.com Feb. 28). The institute said Monday its business barometer increased to 71.2 this month--the highest level since July 1988--from 68.8 in January …

News of the Competition (02/28/2011)

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MADISON, Wis. (3/1/11)
* One bank was taken over Friday by regulators and has entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the total bank failures for 2011 to 23. That compares with 157 for all of 2010. The bank is Valley Community Bank, St. Charles, Ill., assumed by First State Bank, Mendota, Ill. The closed institution held roughly $124 million in assets as of Dec. 31. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $23 million. Bank failures so far this year have cost the fund about $1.06 billion ... * Since the financial crisis began, some credit card issuers have started dispensing credit cards that reward consumers for more responsible financial behavior as card issuers attempt to bring back potentially credit-wary customers with risk-hedging strategies on both sides (American Banker Feb. 25). One card, issued by TD Bank, rewards customers for paying on time by reducing in the interest rates for carried balances. Banks are trying to determine how to increase their pool of customers, Judy Cohen, vice president at EMI Strategic Marketing, told the Banker. However, they don’t want to abandon near-prime credit score customers or students, so they are creating products that reward customers for doing the right thing--such as making payments on time or paying specific percentages of outstanding balances, she added … * Ratings agencies such as Fitch, Moody’s and Standard & Poor’s are being criticized for being too lenient in their ratings of mortgage servicers, said the American Banker (Feb. 28). A ratings system in which nearly every servicer scores average or better is problematic because it is not consonant with basic math or the past three years of the servicing industry’s performance, Larry White, a professor at New York University’ Stern School of Business, told the publication. However, the mostly average or better ratings of its clients indicate that only bigger and better-established servicers tend to commission ratings, Moody’s Vice President Bill Fricke told the Banker

News of the Competition (02/25/2011)

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MADISON, Wis. (2/28/11)
* With credit-loss provisions declining, Freddie Mac saw a $113 million loss in the fourth quarter--down steeply from the year-earlier period, which had been beset by large charges (Dow Jones via American Banker Feb. 26). For 2010, Freddie’s loss was $14 billion--a tapering from a $21.6 billion loss in 2009. The government-sponsored enterprise’s continuing financial troubles remain as mortgage delinquencies nationwide have--for the most part--stopped worsening, Dow said. Freddie’s single-family delinquency rate in the quarter was 3.84%--down from 3.87% a year earlier, but up from 3.8% in the third quarter ... * Ending a streak of 13 consecutive quarterly losses, Fannie Mae veered to a fourth-quarter profit because the huge mortgage-finance company significantly reduced its credit-related provisions (Dow Jones via American Banker Feb. 25). Fannie’s serious delinquency rate--loans at least three months past due or awaiting foreclosure--dropped to 4.48% from 4.56% in the third quarter and from 5.38% one year ago. Fannie posted a fourth-quarter profit of $73 million, compared with a year-earlier loss of $15.2 billion …

Market News (02/25/2011)

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MADISON, Wis. (2/28/11)
* With state and local governments making deeper than expected cuts in spending, the U.S. economy grew at a 2.8% annual rate in the fourth quarter (Bloomberg.com Feb. 25). That revised increase in real gross domestic product (GDP) compares with a 3.2% estimate issued last month and a 2.6% rise in third quarter, according to figures issued Friday by the Commerce Department. Excluding inventories, the economy expanded at a 6.7% annual pace--the most since 1998. “Consumer spending and inventories will be the biggest contributors to growth in the current quarter,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “Consumption looks more self-sustaining than it was a year ago.” In a related matter, the Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 130.5 for the week ended Feb. 18 from an unrevised 129.5 the prior week (Moody’s Economy.com Feb. 25). The smoothed, annualized growth rate increased to 6.1% from an unrevised 4.9% ... * U.S. consumer confidence rose more than expected in February to its highest level in three years because a decline in unemployment trumped worries about rising food and fuel costs (Bloomberg.com Feb. 25). The Thomson Reuters/University of Michigan consumer sentiment index for the month increased to 77.5 from 74.2 in January. Economists had forecast a rise to 75.5, according to a Bloomberg News survey. “We’ve clearly seen a bounce in the confidence numbers coincide with the gains in financial markets and the pickup in the economy, particularly the improving labor market,” said Jim O’Sullivan, global chief economist at MF Global Inc. in New York. The gain was somewhat unexpected in light political tensions worldwide, he added ...

News of the Competition (02/24/2011)

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MADISON, Wis. (2/25/11)
* Total advances issued by the Federal Home Loan Bank System were lower in 2010 because of lethargic demand from credit unions, banks and other members (American Banker Feb. 24). Total advances by the system’s 12 regional banks fell 24% to $478.6 billion, the system’s Office of Finance said Wednesday. Advances have decreased to their lowest level in 10 years--after peaking during the financial crisis--because members continue to hold high levels of deposits and are turning to alternative funding sources, the Banker said. The decline is a concern, said some industry observers. Home Loan banks’ main line of business is advances, Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. told the publication. Strategic pressure ensues when business is down, she added ... * To help borrowers avoid foreclosure, Fannie Mae said it will provide mortgage servicers more financial incentives to comply with its policies (American Banker Feb. 24). Fannie intends to measure and evaluate the performance of mortgage servicers and link their performance “to homeowners the servicer had helped, and the customer’s experience with their servicer,” the government-sponsored enterprise said Wednesday. Fannie did not specify how it would measure borrower experiences or how big the monetary awards given to servicers would be …

Market News (02/24/2011)

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MADISON, Wis. (2/25/11)
* Initial U.S. claims for unemployment benefits fell more than anticipated last week, reflecting an improving labor market as the economy gains momentum (The Wall Street Journal and Bloomberg.com Feb. 24). Claims decreased 22,000--to 391,000--for the week ended Feb. 18, according to Labor Department figures released Thursday. Economists had forecast claims would decline 5,000--to 405,000--last week, according to survey by Dow Jones Newswires and Bloomberg.com. “The labor market has been on an upswing,” Millan Mulraine, a senior U.S. strategist at TD Securities Inc. in New York, told Bloomberg. “As the pace of layoffs continues to decline, it is an indication that not only are businesses not firing as fast as they used to, but they may in fact begin hiring.” Meanwhile, continuing claims for unemployment benefits decreased 145,000 to 3.79 million for the week ended Feb. 12 (Moody’s Economy.com). However, there are millions more people receiving extended and emergency benefits who are not calculated in that figure … * With consumers becoming less pessimistic about their finances, U.S. consumer confidence rose last week to the highest level since April 2008 (Bloomberg.com Feb. 24). The Bloomberg Consumer Comfort Index was minus 39.2 in the period leading up to Feb. 20, compared with minus 43.4 the previous week, according to a report issued Thursday. Also 49%--the most in a year--of those surveyed had positive views of their financial situation. The largest two-month drop in the unemployment rate since 1958 could be helping to buoy household sentiment, bolstering chances that spending --70% of the U.S. economy--will continue to rise, Bloomberg said. “[Improving sentiment] may give consumers the shot in the arm they need to step up spending,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Rising gasoline prices will impact the index with a lag. Consumers will be forced to adjust spending patterns” … * Reflecting a halting housing recovery, purchases of new U.S. homes declined more than predicted in January (Moody’s Economy.com and Bloomberg.com Feb. 24). Sales decreased 13% to a 284,000 annualized pace--18.6% below the level one year ago--according to Commerce Department figures released Thursday. Economists surveyed by Bloomberg News had predicted a decrease to a 305,000 rate. “This is still a very weak demand picture,” Jonathan Basile, a senior economist at Credit Suisse in New York, told Bloomberg. “There has been no recovery in housing starts, permits or new-home sales. We’re in a period where demand and supply will run well below average” …

News of the Competition (02/23/2011)

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MADISON, Wis. (2/24/11)
* Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $21.7 billion in the fourth quarter 2010--a $23.5 billion improvement from the $1.8 billion net loss the industry reported in the fourth quarter of 2009. This is the sixth consecutive quarter that earnings registered a year-over-year increase. “Overall, 2010 was a turnaround year with four straight quarters of positive earnings,” said FDIC Chairman Sheila C. Bair. “We are encouraged not only by the rising trend in total industry net income, but also by the fact that a substantial majority of insured institutions are participating in this trend.” Nearly two-thirds of all institutions (62%) reported improvements in their quarterly net income from a year ago. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.65%, from a negative 0.06% a year ago. Although community banks’ aggregate ROA lags the ROA for larger institutions, as a group they are recovering, with most community banks reporting higher earnings than a year ago. For the complete FDIC Quarterly Banking Profile, use the link … * For the first time in 15 years, more U.S. bank branches closed than opened in 2010 (The New York Times Feb. 22). However, a Times analysis of government data indicates that although banks shuttered branches in poorer areas, they continued to expand the number of branches in wealthier locales. This was in spite of government regulations, which have been in place for decades, mandating financial institutions to meet the credit needs of poor and middle-class neighborhoods. In 2010, the number of U.S. bank branches declined to 98,517 from 99,550 the prior year--a loss of nearly 1,000 locations, according to data from the Federal Deposit Insurance Corp. “In a competitive environment, banks are cutting costs and closing branches, but there are social costs to that decision,” Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve, told the Times. “When a branch gets pulled out of a low- or moderate-income neighborhood, it’s not as if those needs go away” …

Market News (02/23/2011)

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MADISON, Wis. (2/24/11)
* U.S. mortgage loan application volume increased 13.2% on a seasonally adjusted basis for the week ended Feb. 18 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 14.8%. The Refinance Index jumped 17.8%. The seasonally adjusted Purchase Index went up 5.1%. The unadjusted Purchase Index increased 9.6% and was 6.9% lower than the same week one year ago. “Ongoing turmoil in the Middle East brought interest rates lower last week,” said Michael Fratantoni, MBA vice president of research and economics. “Borrowers took advantage of these lower rates, bringing application activity back near levels from two weeks ago, following sharp declines last week,” For the MBA report, use the link … * Rising demand for lower-priced distressed properties caused sales of previously owned U.S. homes to unexpectedly rise in January to the highest level in eight months (Bloomberg.com Feb. 23). Purchases increased 2.7% to a 5.36 million annualized rate, surpassing the 5.22 million median forecast by economists in a Bloomberg News survey, and which was the annualized rate in December, according to figures the National Association of Realtors released Wednesday. January’s sales pace is still well below the six million homes per year that economists say constitute a healthy housing market (The New York Times Feb. 23). Also, the number of first-time home buyers contracted to 29% of the market. A healthy level of first-time buyers is roughly 40%, NAR said. “It is really a foreclosure-driven market,” Ethan Harris, head of developed markets at Bank of America Lynch Global Research in New York, told Bloomberg.“I don’t think it is a sign of the market returning to health” … * Mass layoffs--the number of layoffs involving at least 50 workers from a single establishment--rose to 1,534 in January from 1,483 in December, according to the Bureau of Labor Statistics (Moody’s Economy.com Feb. 23). Last month’s layoffs involved 149,799, compared with 137,991 in December. The small rise in the total number of events and employees impacted indicates a lull in labor market improvement, which is consonant with other trends in the data, Moody’s said. Stability in the manufacturing sector augers well for the near-term forecast for the labor market--even though the sector no longer is showing the measureable improvement it had previously. Service sector mass layoffs are not indicating a clear trajectory, but have shown some signs of weakness, Moody’s said …

News of the Competition (02/22/2011)

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MADISON, Wis. (2/23/11)
* Four banks were taken over Friday by regulators and have entered into a purchase-and-assumption agreement with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the total bank failures for 2011 to 22. That compares with 157 for all of 2010. The banks include Habersham Bank, Clarkesville, Ga., assumed by SCBT N.A., Orangeburg, S.C.; Citizens Bank of Effingham, Springfield, Ga., assumed by HeritageBank of the South, Albany, Ga.; Charter Oak Bank, Napa, Calif., assumed by Bank of Marin, Novato, Calif.; and San Luis Bank, FSB, San Luis Obispo, Calif., assumed by First California Bank, Westlake Village, Calif. The closed institutions held roughly $810.7 million in assets as of Dec. 31. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $268 million. Bank failures so far this year have cost the fund nearly $1.06 billion ... * The Federal Housing Administration (FHA) has convinced two unidentified large lenders to take on its principal-reduction program, which helps homeowners who are underwater with their mortgages to refinance into FHA-insured loans (American Banker Feb. 22). Housing and Urban Development Secretary Shaun Donovan and Treasury Secretary Tim Geithner have urged CEOs of some of the biggest mortgage banking companies to adopt the FHA’s “short” refinancing programs, the Banker said. About 27% of U.S. homeowners with a mortgage are underwater, and more lenders are needed to participate in the program for it to have a significant effect, according to FHA chief David Stevens. The largest funders of FHA loans are Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. …

Market News (02/22/2011)

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MADISON, Wis. (2/23/11)
* U.S consumer confidence in February jumped to its highest level in three years because more Americans became optimistic about their incomes, the economy and the future (Bloomberg.comand MarketWatch Feb. 22). Private research firm The Conference Board’s index of consumer sentiment rose to 70.4 from 64.8 in January. Growing optimism about the short-term future is the main drive of consumer confidence, said Lynn Franco, director of the Conference Board Consumer Research Center (The Wall Street Journal Feb. 22). “Looking ahead, consumers are more positive about the economy and their income prospects, but feel somewhat mixed about employment conditions,” she said. A gain in consumer optimism and employment could encourage people to increase purchases, which would strengthen consumer spending--the largest part of the U.S. economy, Bloomberg said. However, high unemployment around 9% the past two years and escalating home foreclosures are a damper on households and spending … * In an indication the U.S. housing market is depressed, even as the rest of the economy recovers, residential real estate prices fell in the 12 months leading up to December by the most in a year, according to the Case-Shiller index of home value in 20 cities (Bloomberg.com Feb. 22). The index dropped 2.4%--the largest year-over-year decline since December 2009. The 10-city composite index decreased 1.2% on a year-ago basis, and the quarterly U.S. national index in the fourth quarter of 2010 was down 3.9% from year ago levels--nearly double the 1.9% decline in the third quarter (Moody’s Economy.com Feb. 22). “Home prices are still declining amid excess supply,” Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York, told Bloomberg. “Although transactions are starting to pick up, buyers are looking for very low prices.” A backlog of distressed properties will come into the housing market in 2011 and is expected to lower prices, she added …

News of the Competition (02/21/2011)

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MADISON, Wis. (2/22/11)
* The Federal Reserve ordered the 19 biggest U.S. banks to test their capital levels against a recession in a scenario with an unemployment level above 11%, said two sources familiar with the matter (Bloomberg News via American Banker Feb. 18). The banks were required to stress-test the performance of their capital, earnings, loans and securities against a minimum of three economic outcomes. “They’re essentially saying, 'Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’” Jonathan Hatcher, a credit strategist at Jefferies Group Inc., told Bloomberg News. The banks submitted their plans last months to the Fed. The central bank said it will complete its review in March …

News of the Competition (02/21/2011)

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MADISON, Wis. (2/22/11)
* The Federal Reserve ordered the 19 biggest U.S. banks to test their capital levels against a recession in a scenario with an unemployment level above 11%, said two sources familiar with the matter (Bloomberg News via American Banker Feb. 18). The banks were required to stress-test the performance of their capital, earnings, loans and securities against a minimum of three economic outcomes. “They’re essentially saying, 'Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’” Jonathan Hatcher, a credit strategist at Jefferies Group Inc., told Bloomberg News. The banks submitted their plans last months to the Fed. The central bank said it will complete its review in March …

Market News (02/21/2011)

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MADISON, Wis. (2/22/11)
*The risk of the U.S. economy falling back into recession is receding because businesses are investing, consumers are spending more freely and confidence is being restored, according to a gauge used by Moody’s Economy.com (Feb 18). The probability that the U.S. would be in recession in six months declined to 21% in January from 24% in December. For five consecutive months, the probability of recession has fallen. The measure is at its lowest level since 2007. Although hiring, industrial production and retail sales in January had mixed results, some weakness is weather related, Moody’s said. Any lost economic activity in January will be mitigated by an uptick in February and March, Moody’s said. In a related matter, the Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--decreased to 129.5 for the week ended Feb. 11, from an unrevised 130.2 the prior week. Since mid-2010, the general trend remains consonant with continued recovery, Moody’s said ... * In January, for a seventh consecutive month, the index of U.S. leading economic indicators rose, a sign that economic growth will continue into 2011, according to the private research group, the Conference Board (Bloomberg.com Feb. 17). The board’s measure of the outlook for the next three to six months rose 0.1% after increasing 0.8% in December. Rising business investments, consumer spending and exports are helping the economy continue to grow in the face of a weak housing industry, Bloomberg said. “Things have gotten better in the economy,” said Tom Porcell, chief U.S. economist at RBC Capital Markets Corp. in New York. “We’ll see fairly decent consumptions through this year. The recovery is moving in the right direction” … * U.S consumer confidence stayed near a two-month low for the week ended Feb. 11, while more citizens became pessimistic about the economic outlook, as gasoline prices increased, according to the Bloomberg Comfort Index (Bloomberg.com Feb. 17). The index registered -43.4 in the week ended Feb. 13, compared with a -46 the prior week. About 29% of consumers surveyed said the economy will get worse. That is the most since November and a rise from 23% in early January. “Sentiment remains quite fragile,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Rising food and fuel costs are likely offsetting improvements elsewhere in the economy for households on fixed incomes and those whose wages are not sufficient to keep up with the increase in the cost of necessities” …

Market News (02/21/2011)

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MADISON, Wis. (2/22/11)
*The risk of the U.S. economy falling back into recession is receding because businesses are investing, consumers are spending more freely and confidence is being restored, according to a gauge used by Moody’s Economy.com (Feb 18). The probability that the U.S. would be in recession in six months declined to 21% in January from 24% in December. For five consecutive months, the probability of recession has fallen. The measure is at its lowest level since 2007. Although hiring, industrial production and retail sales in January had mixed results, some weakness is weather related, Moody’s said. Any lost economic activity in January will be mitigated by an uptick in February and March, Moody’s said. In a related matter, the Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--decreased to 129.5 for the week ended Feb. 11, from an unrevised 130.2 the prior week. Since mid-2010, the general trend remains consonant with continued recovery, Moody’s said ... * In January, for a seventh consecutive month, the index of U.S. leading economic indicators rose, a sign that economic growth will continue into 2011, according to the private research group, the Conference Board (Bloomberg.com Feb. 17). The board’s measure of the outlook for the next three to six months rose 0.1% after increasing 0.8% in December. Rising business investments, consumer spending and exports are helping the economy continue to grow in the face of a weak housing industry, Bloomberg said. “Things have gotten better in the economy,” said Tom Porcell, chief U.S. economist at RBC Capital Markets Corp. in New York. “We’ll see fairly decent consumptions through this year. The recovery is moving in the right direction” … * U.S consumer confidence stayed near a two-month low for the week ended Feb. 11, while more citizens became pessimistic about the economic outlook, as gasoline prices increased, according to the Bloomberg Comfort Index (Bloomberg.com Feb. 17). The index registered -43.4 in the week ended Feb. 13, compared with a -46 the prior week. About 29% of consumers surveyed said the economy will get worse. That is the most since November and a rise from 23% in early January. “Sentiment remains quite fragile,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Rising food and fuel costs are likely offsetting improvements elsewhere in the economy for households on fixed incomes and those whose wages are not sufficient to keep up with the increase in the cost of necessities” …

Market News (02/17/2011)

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MADISON, Wis. (2/18/11)
* Although short-term delinquencies fell to pre-recession levels in fourth quarter 2010, loans in foreclosure tied an all-time record, according to the most recent Mortgage Bankers Association (MBA) National Delinquency Survey. The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 8.22% of loans outstanding as of the end of the fourth quarter--a decrease of 91 basis points from the third quarter 2010, and a decrease of 125 basis points from one year ago. The non-seasonally adjusted delinquency rate dropped 46 basis points to 8.93% this quarter from 9.39% last quarter. The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.27%, down seven basis points from last quarter and up seven basis points from one year ago. The percentage of loans in the foreclosure process at the end of the fourth quarter was 4.63%, up 24 basis points from the third quarter of 2010 and up five basis points from one year ago. Mike Fratantoni, MBA vice president for single family research said: “The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October.” For the MBA report, use the link … * Initial U.S claims for unemployment benefits increased more than anticipated last week, indicating that the healing of the labor market will need time to take hold (Bloomberg.com Feb. 17). Claims rose 25,000 to 410,000 for the week ended Feb. 12, according to Labor Department figures released Thursday. Economists surveyed by Bloomberg News had forecast a rise to 400,000. “Conditions in the labor market will continue to be tenuous as firms look for sustained pickup in sales,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York. “Claims should remain at an elevated level for some time but should continue along a gradual downward path in the months to come.” Meanwhile, continuing claims for unemployment benefits increased 1,000 to roughly 3.91 million for the week ended Feb. 5. Millions more are on extended and emergency benefits and are not counted in that figure (Moody’s Economy.com Feb. 17) …

News of the Competition (02/17/2011)

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MADISON, Wis. (2/18/11)
* As it aggressively expands into California and Florida, JPMorgan Chase & Co. intends to add up to 225 branches in 2011 to its 5,280-store network, Charlie Scharf, CEO of the company’s retail financial services, said Tuesday (American Banker Feb. 16). The New York-based company could add as many as 2,000 branches during the next five years, to capitalize on momentum from its 2008 purchase of Washington Mutual--which allowed JPMorgan to move into California and Florida, Scharf added. Last year, the company opened 154 branches. JPMorgan also plans to open 50 more private-client offices during 2011 in Chicago, Los Angeles, New York and Florida, the Banker said …

Fed projects 3.4-3.9 for 2011 GDP growth

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WASHINGTON (2/17/11)--Federal Reserve's policymakers hiked their core projections for the economy, predicting that Gross Domestic Product (GDP) would grow in 2011 from 3.4% to 3.9%, according to the minutes of the Federal Open Market Committee's (FOMC) Jan. 25-26 meeting. That is somewhat higher than the projection of 3% to 3.6% the Fed made in November. The policymakers said that "the economic information received since November indicated that consumer spending, business investment and net exports increased more strongly at the end of 2010 than expected earlier; industrial production also expanded more rapidly than they previously anticipated." Also, Congress approved fiscal stimulus measures for household and business spending in 2011. However, participants in the meeting also recognized that "the expansion remained uneven across sectors of the economy, and they expected the pace of economic activity would continue to be moderated by the weakness in residential and nonresidential construction, the still relatively tight credit conditions in some sectors, an ongoing desire by households to repair their balance sheets, business caution about hiring, and the budget difficulties faced by state and local governments." The minutes indicated that the committee expected the economic expansion would strengthen further in 2012 and 2013. The participants projected that growth in the real GDP would move up to 3.5% to 4.4% in 2012 and then to 3.7% to 4.6% in 2013. FOMC members continued their expectation that inflation would be "relatively subdued over the next three years and kept their longer-run projections of inflation unchanged. Persistence of large margins of slack in resource use "should contribute to relatively low rates of inflation over the forecast horizon," said the minutes. The minutes were released Wednesday afternoon. To review them, use the link.

News of the Competition (02/16/2011)

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MADISON, Wis. (2/17/11)
* Wells Fargo has found a creative solution about what to do with billions of dollars in complex instruments called hybrid securities--which were created to provide a capital cushion but no longer will qualify to do so--in light of changing capital requirements under the Dodd-Frank regulatory overhaul act passed in 2010 (The Wall Street Journal Feb. 16). Wells Fargo sold $2.5 billion of hybrids in 2006 through a trust, and last week the trust sold the hybrids to Credit Suisse Group and Morgan Stanley. Wells Fargo then issued a new $2.5 billion senior debt offering that was underwritten by Morgan Stanley and Credit Suisse, and exchanged that debt with the two banks for the hybrid notes. Wells then terminated the hybrid issuance, eliminating the hybrid notes from its balance sheet, the Journal said … * In his first public interview about his Ponzi scheme, Bernard Madoff said that hedge funds and unidentified banks were “complicit’ in his complex fraudulent scheme, a polar-opposite change from his earlier claims that he was the sole person involved (The New York Times Feb. 15). Madoff still alleges that banks and hedge funds he dealt with exhibited “willful blindness” and a failure to examine differences between his regulatory filings and other information available to them, the Times said. He is serving a 150-year prison sentence …

Market News (02/16/2011)

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MADISON, Wis. (2/17/11)
* U.S. housing starts in January surged 15% to a 596,000 annual rate--driven by a jump in multifamily units, according to Commerce Department figures released Wednesday (Bloomberg.com Feb. 16). Although starts rose, both building completions and permits declined. Therefore, there still are scant signs of sustained improvement in residential construction, even though single-family construction is mostly stable (Moody’s Economy.com Feb. 16). “Housing activity is going to remain at depressed levels this year,” Ellen Zentner, a senior macro economist at Bank of Tokyo-Mitsubishi UFJ Ltd. New York, told Bloomberg. “We’ve got home prices that have taken another leg down and will probably stay down through midyear” … * Mortgage loan application volume decreased 9.5% on a seasonally adjusted basis during the week ended Feb 11, from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey, released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 7.9%. The Refinance Index dropped 11.4 % and is the lowest Refinance Index recorded in the survey since the week ending July 3, 2009. The seasonally adjusted Purchase Index fell 5.9% from one week earlier. The unadjusted Purchase Index dropped 0.9% and was 18.2% lower than the same week one year ago. “Mortgage rates remained above 5% last week, up almost a full percentage point from their October lows, and refinance volume continued to drop,” said Michael Fratantoni, MBA vice president of research and economics. “Applications for home purchases also declined on a seasonally adjusted basis. Buyers have not returned to the market as rising rates have reduced affordability, to some extent.” For the MBA report, use the link … * Industrial production decreased 0.1% in January 2011 after rising 1.2% in December. In the manufacturing sector, output increased 0.3% after an upwardly revised gain of 0.9% in December, according to a Federal Reserve statistical release. Excluding motor vehicles and parts, factory production rose 0.1% in January. The output of utilities fell 1.6% in January, as temperatures moved closer to normal after unseasonably cold weather boosted the demand for heating in December. The output of utilities advanced 4.1% in December. At 95.1% of its 2007 average, total industrial production in January was 5.2% above its level of a year earlier. The capacity utilization rate for total industry edged down to 76.1%, a rate 4.4 percentage points below its average from 1972 to 2010. For the Fed release, use the link …

News of the Competition (02/15/2011)

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MADISON, Wis. (2/16/11)
* The biggest U.S. banks that benefited from the federal government’s bailout should still be taxed so the government can recoup its costs, according to the Obama administration’s 2012 fiscal budget (American Banker Feb. 15). This comes despite the fact that estimated costs of the Troubled Asset Relief Program (TARP) have dropped significantly the past year, the Banker said. “The administration’s financial crisis responsibility fee aligns with the congressional intent of the TARP legislation that requires the president to propose a way for the financial sector to pay back taxpayers so that not one penny of the government’s TARP-related debt is passed on to the next generation,” the budget said. The tax requires legislation to be enacted, and would be designed according to principles agreed to by the G-20 leaders and similar fees proposed by other countries, the administration said ... * The Federal Deposit Insurance Corp. (FDIC) announced Tuesday a new Chairman’s Award for Excellence to recognize and honor the work of individuals or small groups at FDIC-insured financial institutions who are instrumental in creating and promoting programs that meet the credit and deposit needs of low- and moderate-income consumers. There will be up to six non-monetary awards presented for programs that demonstrate excellence in providing economic products for these consumers. Individuals or small groups of employees at FDIC-insured institutions who are responsible for developing and/or implementing the relevant program at their financial institution may nominate themselves, or be nominated by someone at their institution or by a third party, including consumers who benefit from the programs. Winners will be announced in the spring. The deadline to submit the nominations with supporting documentation is March 31 …

Market News (02/15/2011)

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MADISON, Wis. (2/16/11)
* Worldwide demand for U.S. stocks, bonds and other financial assets declined in December from November, the Treasury Department said Tuesday (Bloomberg.com Feb. 15). During the month, net buying of long-term securities, notes and bonds tallied $65.9 billion, compared with $85.1 billion in November. “Treasury yields in the U.S. went up tremendously in December spurring big losses for foreign bondholders,” Chris Rupkey, chief financial economist at Bank of Tokyo-UFJ in New York, told Bloomberg. “The rise in yields curbed global investor enthusiasm.” In a related matter, U.S. import prices rose 1.5% in January, compared with a revised 1.2% gain, previously 1.1%, in December, according to the Bureau of Labor Statistics (Moody’s Economy.com Feb. 15). The 0.8 % gain in nonfuel import prices, which was double expectations, was the big surprise for the month, Moody’s said. Energy prices also provided a marked increase to import prices in December, Moody’s said … * For the seventh consecutive month, U.S. retail sales increased in January, in the most recent indication that consumer spending can continue to buoy the economy (The Wall Street Journal Feb. 15). Purchases rose 0.3% from December to $381.57 billion, following a 0.5% gain in December, the Commerce Department said Tuesday. The January gain was less than the 0.5% increase forecast by economists, according to a Bloomberg News Survey (Feb. 15) “The weather kept people shoveling snow rather than heading to the mall,” said Russell Price, a senior economist at Ameriprise Financial in Detroit. “The consumer’s role in the recovery will take greater prominence in coming months. We definitely need to see further improvement in the labor market to have continued increases in spending.” Also, U. S. chain store sales recorded their fifth decline in the past six weeks, falling 1.4% for the week ended Feb. 11, according to the International Council of Shopping Centers (Moody’s Economy.com Feb. 15) … * Indicating a still-depressed housing market, U.S. homebuilder confidence remained stuck in neutral in February, according to the National Association of Homebuilders (NAHB) Wells Fargo sentiment index (Bloomberg.com Feb. 15). The index had a reading of 16 for the fourth consecutive month. “While builders are starting to see more interest among potential home buyers, we also are dealing with a multitude of challenges, including competition from foreclosure properties and inaccurate appraisals of new homes, which are limiting our ability to sell,” said NAHB Chairman Bob Nielsen. “On top of that, an extremely tight lending environment continues to make it almost impossible to obtain credit for viable new and existing projects” …

3.7 trillion budget brings deficit to record 1.6 trillion

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WASHINGTON (2/15/11)--President Barack Obama sent a $3.7 trillion budget to Congress Monday, outlining a projected federal deficit of a record $1.6 trillion, or 10.9% of gross domestic product (GDP). It includes several areas of interest to credit unions. The deficit is up from the administration's previous estimate of $1.4 trillion, but it is projected to decline in 2012 to $1.1 trillion or 7% of GDP. By 2015, it is expected to decline to $607 billion or 3.2% of GDP, said the administration. Credit unions should remember that the budget, released for the fiscal year that begins Oct. 1, is a work in progress, and that much of it will change before it becomes final, said the Credit Union National Association (CUNA). Republicans will want their own budget priorities included in the final version, and they will work to make that so. Of particular interest to credit unions would be:
* A proposal for a 45% cut in funding to $985 million for the Small Business Administration (SBA), which offers the SBA 7 (a) business loans that many credit unions use to finance member business loans, and a proposal supporting $27 billion in loan guarantees for small businesses to enable them to invest, expand and create jobs; * A proposal to cut fund for the Community Development Financial Institutions (CDFI) program by $20 million to $227 million from the enacted level in 2010; and * The possibility that credit unions' tax exemption could end up on the table if budget shortfalls continue and the government delves deeper into tax reform.
Stating that "small businesses are the engine of economic growth and job creation," the administration's budget includes "steps to improve the access for capital for small businesses." One step includes supporting $16.5 billion in SBA's 7 (a) loan guarantees, which will help small businesses operate and expand. This proposal includes an estimated $14.5 billion in term loans and $2 billion in revolving lines of credit; the latter are expected to support $48 billion in total economic activity through draws and repayments over the life of the guarantee. Two other initiatives--the Small Loan Advantage and Community Advantage programs--will increase the number of SBA 7 (a) loans going to small businesses and entrepreneurs in underserved communities. As for the CDFI investments, a program of the Treasury Department that has made a number of grants to community development credit unions, the administration said it continues to support "robust CDFI investments within a more constrained budget, through activities that improve the ability of local financial institutions to provide affordable credit in underserved and lower-income communities. In particular, the administration targets initiatives that will increase the availability of healthy foods in areas now lacking them and improve the financial literacy of disadvantaged populations. The budget was already being criticized by Republicans such as House Budget Committee Chairman Paul Ryan of Wisconsin, who said it "failed to tackle the urgent fiscal and economic threats before us" (Bloomberg.com Feb. 14).

News of the Competition (02/14/2011)

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* Four banks were taken over Friday by regulators and have entered into a purchase-and-assumption agreement with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the total bank failures for 2011 to 18. That compares with 157 for all of 2010. The banks include Sunshine State Community Bank, Port Orange, Fla., assumed by Premier American Bank, N.A., Miami; Peoples State Bank, Hamtramck, Mich., assumed by First Michigan Bank, Troy, Mich.; Canyon National Bank, Palm Springs, Calif., assumed by Pacific Premier Bank, Costa Mesa, Calif.; and Badger State Bank, Cassville, Wis., assumed by Royal Bank, Elroy, Wis. The closed institutions held roughly $810.7 million in assets as of Dec. 31. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $144.9 million. Bank failures so far this year have cost the fund nearly $1.46 billion ...

CUNA weighs inflation for IBloomberg TVI

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WASHINGTON (2/14/11)--Soaring commodity costs that will lead to rising food prices worldwide will not have much effect on consumers, Bill Hampel, chief economist for the Credit Union National Association (CUNA), told Bloomberg TV Thursday on a “Fast Forward” segment addressing the world food crisis. “For the U.S. consumer, the run-up in food commodity prices we’ve seen in last six months will not have much effect,” Hampel said. “Starting last June, world commodity prices were rising at a 70% annual rate, but in the U.S. the annual rate last year was only 1.5%--same as the rate of inflation, which itself is low.” “There’s not much food inflation yet in the U.S., and even if food commodity price increases flow through to the consumer, the effects will be fairly small,” he added.

There are two reasons for this, Hampel explained. First, food is a fairly small proportion--only about 13%--of the total budget of a typical U.S. household. For low-income households that percentage rises to 15% to 20%. “That’s still a fairly small bite in this country for total spending,” he added. The second reason is that not very much of the price consumers pay for food in the U.S. is the pure basic commodity price. Most of what happens to food prices occurs after food leaves the farm and before it gets to the table. “So even if farmers’ prices go up, prices consumers see will only go up moderately,” Hampel said. The U.S. Department of Agriculture expects food inflation to be 2% to 3% this year after being about 1.5% last year, Hampel said. “At credit unions, we see members worried about a lot of other things such as their jobs and high-debt levels, Hampel said. “I don’t think we’ll see food prices rise to that level of concern this year.”

News of the Competition (02/11/2011)

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MADISON, Wis. (2/14/11)
* Last year, U.S. regulatory enforcement actions set a record for a second year in a row, climbing 21% to 2,724--an increase that banking industry executives said was engendered by an increased focus on capital and safety soundness standards in the aftermath of the financial crisis (American Banker Feb. 11). However, regulators seemed more inclined last year toward informal nonpublic actions. Informal actions jumped 34%, to 1,668, while formal enforcement actions fell nearly 8% from their record level a year earlier, the Banker said. The figures are proof to some of what community bankers have claimed for two years: Regulators are being too stringent, the publication said. “The clear message here is, in an era when exams have become far more stringent, regulators are more apt to reach for enforcement solutions as a first line of action rather than a last recourse,” V. Gerard Comizio, a partner in Paul, Hastings, Janofsky & Walker LLP, told the Banker. “Yesterday’s exam criticisms requiring board attention often today turn into some type of formal or informal action” … * The Office of the Comptroller of the Currency announced Friday the assessment of an $8 million civil money penalty against Zions First National Bank, Salt Lake City, Utah, for violations of the Bank Secrecy Act and the USA Patriot Act as part of a coordinated action with the Financial Crimes Enforcement Network. Concurrent with the OCC’s penalty, FinCEN assessed an $8 million penalty against Zions. Both penalties will be satisfied by a single $8 million payment to the U.S. Department of the Treasury. The OCC commenced an investigation into the bank’s former foreign correspondent business and identified deficiencies in its Bank Secrecy Act and anti-money laundering controls, which resulted in violations of law. In particular, the bank had developed a remote deposit capture product that enabled customers to deposit imaged items electronically from remote locations and marketed the product to high risk customers in 2006 and 2007 without sufficient regard to Bank Secrecy Act/Anti-Money Laundering compliance implications. The bank exited the foreign correspondent line of business in early 2008, promptly conducted a voluntary look back, and reported suspicious activity …

Market News (02/11/2011)

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MADISON, Wis. (2/14/11)
* For a second consecutive month, the U.S. trade deficit widened in December--this time to its highest level in four months--as the cost of imported oil rose to its highest level in two years (The New York Times and Bloomberg.com Feb. 11). The trade gap increased 5.9% to $40.6 billion, according to Commerce Department data released Friday. Excluding oil, the shortfall shrank to $15.3 billion--the smallest since March. In a sign that consumers and businesses are spending more as the economy gains momentum, overall imports of goods and services were their highest since October 2008, the Times said. “The world has still got strong demand for American manufactured goods, with robust growth in countries like China,” David Semmens, an economist at Standard Chartered Bank in New York, told Bloomberg. “American consumers are coming back, which means imports will keep rising” … * U.S. consumer confidence climbed in February to its highest level in eight months, indicating escalating stock prices and declining unemployment could be soothing households (Bloomberg.com Feb. 11). The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 75.1 from 74.2 in January. “We’re starting to see consumers reacting to the better news,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Conn. He noted “a pretty nice jump in assessments of job conditions over the last couple months.” The February gain is entirely because of an improvement in consumers’ view of current conditions. Expectations dipped and inflation concerns remained the same (Moody’s Economy.com Feb. 11) ... * The Economic Cycle Research Institute (ECRI) weekly leading index--which measures economic growth--rose to 130.2 for the week ended Feb. 4 from a revised 128.8, previously 128.9 for the week ended Jan. 28 (Moody’s Economy.com Feb. 11). The smoothed, annualized growth rate increased to 4.5% from 3.6%, revised from 3.7%. Prior to the gain for the week ended Feb. 4, the index had mostly been flat since late December. However, the overall trend since the middle of last year has been positive, which portends a sustained economic recovery through 2011, ECRI said ...

News of the Competition (02/10/2011)

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MADISON, Wis. (2/11/11)
* JPMorgan Chase & Co. Wednesday told legislators that it didn’t adequately enforce laws that protect military personnel from home foreclosure, although its defense portends that the problem could be widespread throughout the banking sector (American Banker Feb. 10). It is against the law to foreclose on active-duty members of the military or to charge them more than a 6% interest rate--including fees on any consumer debt incurred before military service, per the Service Members Civil Relief Act. Chase admitted--at a House Veterans Affairs Committee hearing--that it had unintentionally violated the law, and added it had discovered the same type of problems in other banks it had acquired. Chase said it is repaying about $1.8 million it overcharged military personnel--roughly $70 per person--to correct the problems ... * Bank of America (BofA) said it will close some retail branches in 2011 and attempt to bolster revenue from remaining locations through offering investment advice via videoconference (Bloomberg.com Feb. 10). Usually the bank shutters underperforming branches and it will be “more conservative” about opening new ones, said Walter Elcock, the executive responsible for BofA branches. “We’ve reduced the opening number, and the closure number has been fairly constant, so over time I think the number will keep going down,” Elcock said. Beyond economic changes, leases on buildings will expire that aren’t worth the cost anymore, and BofA would leave those sites, he added … * Visa Inc. will ease compliance for merchants outside the U.S. by no longer requiring them to annually validate their compliance with the Payment Card Industry Data Security Standard, as long as 75% of the foreign transactions come from EMV chip-and-PIN cards (American Banker Feb. 10). EMV terminals provide additional layers of authentication and fraud protection, Visa said. “It is not feasible or appropriate to drive the market toward major infrastructure investments, especially in an environment where financial institutions could lose billions in revenue as a result of the [debit interchange] regulations,” Bill Sheedy, Visa group executive for the Americas, said Wednesday in a press release ...

Market News (02/10/2011)

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MADISON, Wis. (2/11/11)
* Signaling continued improvement in the jobs market as the economy gains steam, initial claims for U.S. unemployment benefits last week dropped to the lowest level since July 20 (The Wall Street Journal and Bloomberg.com Feb. 10). Also, the unemployment rate fell to a 21-month low. Claims declined 36,000--to 383,000--for the week ended Feb. 4, according to Labor Department figures released Thursday. A slowdown in job cuts means U.S. companies may begin generating sufficient jobs to maintain the downward trend in unemployment, following the jobless rate’s largest two-month decline since 1958, Bloomberg said. “The labor market is improving,” said Brian Jones, an economist at Societe Generale in New York. “Fingers crossed, if the weather can hold off this week, we should get a pretty decent snap back in nonfarm payrolls and maybe another drop in the jobless rate.” Meanwhile, continuing claims for unemployment benefits fell by 47,000 to roughly 3.89 million for the week ended Jan. 29. Millions more are on extended and emergency benefits and are not tallied in that figure (Moody’s Economy.com Feb. 10) … * The number of U.S. homes underwater--that is, homes worth less than their outstanding mortgage--spiked in the fourth quarter because prices fell, but lenders took fewer homes from delinquent borrowers, according to Zillow Inc. (Bloomberg.com Feb. 9). At the end of 2010, roughly 15.7 million homeowners had negative equity--up from 13.9 million in the third quarter, said the Seattle-based real estate information company. The fourth-quarter figure constitutes 27% of mortgaged single family homes--which is the highest percentage in Zillow data going back to first quarter 2009. “These seem like fairly grim numbers,” said Stan Humphries, Zillow chief economist. “We’re still expecting a bottom in home values later this year. And this, if anything, makes me a bit more confident because I’m seeing very large corrections now, which means the market can start to repair itself” …

News of the Competition (02/09/2011)

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MADISON, Wis. (2/10/11)
* American International Group Inc. (AIG) said its fourth-quarter profit was reduced by $4.1 billion because the insurer’s number of claims were higher than predicted (Bloomberg.com Feb. 9). Also, $2 billion previously earmarked to repay AIG’s bailout will be used to strengthen the company’s property casualty unit. AIG will be allowed to keep $2 billion of proceeds from the sale of Edison Life Insurance Co. and Star Life Insurance Co., per an agreement reached with the U.S. Treasury Department, Bloomberg said. Those funds will be used by Chartis, a property-casualty and general insurance organization, to cover losses tied to coverage that included asbestos liability and worker compensation, Bloomberg said … * JPMorgan Chase & Co. is trying to move a $6.4 billion lawsuit out of bankruptcy court, reasoning that the suit is an “enormous backdoor class action” (The Wall Street Journal Feb. 9). The suit was filed--originally in December but unveiled earlier this month--by a trustee seeking to recover assets for victims of Bernard Madoff's fraud. Irving Picard, the Madoff trustee, alleged that JPMorgan ignored or dismissed evidence about Madoff’s Ponzi scheme, while collecting fees worth hundreds of millions of dollars. The bank asked that the case be moved to a federal district court. Also, JPMorgan has a right to demand that the case be heard by a jury, the Journal said ... * With many CEOs retiring, U.S. banks are facing difficult challenges to find their successors (American Banker Feb. 8). There are “not enough trained, experienced executives” to fill the shoes of retiring CEOs, Rod Taylor of executive recruiting firm Taylor and Co., told the publication. One cause of the dilemma stems from the early 1990s when many banks cut training programs to save money, which led to a generation of bankers with less expertise, Taylor said. Also, banks did not snare an adequate percentage in the early 1990s of the 41 million people in Generation X, who found opportunity elsewhere, the publication said. “Banks could easily find somebody at a larger bank with a lesser title,” Rick Rummage, managing partner of executive search firm Rummage Group, told the Banker. “[The promotion] would be a big step up” …

Market News (02/09/2011)

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MADISON, Wis. (2/10/11)
* Mortgage loan application volume decreased 5.5% on a seasonally adjusted basis for the week ended Feb. 4 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 3.9%. The Refinance Index dropped 7.7%. The seasonally adjusted Purchase Index fell 1.4 %. The unadjusted Purchase Index increased 4.8% and was 16.6% lower than the same week one year ago. “Mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated,” said Michael Fratantoni, MBA vice president of research and economics.” Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance. We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis.” For the MBA report, use the link … * With price declines laying the groundwork for a housing recovery, U.S. home affordability has bounced back to pre-bubble levels in an increasing number of domestic housing markets during the past year (The Wall Street Journal Feb. 9). At the end of September, housing affordability had returned to or surpassed the average reached between 1989 and 2003 in 47 U.S. housing markets, according to Moody’s Analytics, which tracks the ratio of median home prices to annual household incomes in 74 markets. The housing boom went into high gear in 2003, according to most economists. “Based on incomes, this is as affordable as it gets,” Mark Zandi, chief economist at Moody’s Analytics, told the Journal. “If you can get a loan, these are pretty good times to buy.” However, on the downside, price declines are pushing more borrowers underwater--or in homes worth less than the amount owed on them, the Journal said …

News of the Competition (02/08/2011)

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MADISON, Wis. (2/9/11)
* Bank of America (BofA) has agreed to pay $410 million to settle lawsuits--in a settlement dated Jan. 27--that alleged deceptive practices in managing customer accounts that resulted in excessive fees for overdrafts (Bloomberg.com Feb. 5). “The bank actively provides false or misleading information to these customers, including [the] plaintiff, that in turn deceives these customers into making additional transactions that, in turn, will generate even more overdraft fees for the bank,” wrote lawyers for plaintiff Ralph Torres in the complaint. Torres’ suit alleged the largest U.S lender by assets deceived him into believing he had more money in his account than was actually there, and debited his funds in his checking account in a manner that made it more likely he would incur overdraft fees, Bloomberg said. Financial Institutions that were named in related lawsuits include Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo … * Citigroup Inc., the third-biggest U.S. bank, settled or lost at least five fraud cases in which borrowers accused Citi of filing fraudulent mortgage documents provided by Orion Financial Group Inc., a Southlake, Texas, firm that provides document services to lenders (Bloomberg.com Feb. 8). The most recent settlement in December involved a bankrupt homeowner who contested Citi’s use of a mortgage “assignment,” which shows the transfer of mortgage ownership, signed by Orion. The document was of “fraudulent nature and questionable origin,” wrote Linda Tirelli, the borrower’s attorney, in an August objection to the bank’s claim as a creditor in U.S. Bankruptcy Court in New York. Citi denied the allegations and didn’t admit liability in the settlement, Bloomberg said …

Market News (02/08/2011)

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MADISON, Wis. (2/9/11)
* There is good potential for a home sales comeback in the spring--normally the strongest sales season for homebuilders--said CEOs of six of the 10 largest U.S. homebuilders during conference calls in recent weeks (Bloomberg.com Feb. 8). The homebuilding industry in 2011 will make its first positive contribution to gross domestic product (GDP) since 2005, Richard Dekaser, an economist at Parthenon Group in Boston, told Bloomberg. “This spring market is going to be the first test of the proposition that there’s an underlying improvement in new-home fundamentals,” Dekaser added. “If we don’t see the needle move, it will be very discouraging.” New-home sales likely will increase 20% to 385,000 this year, David Crow, chief economist for the Nation Association of Homebuilders, told Bloomberg. The world’s biggest mortgage broker Fannie Mae forecast an 18% rise, and the Mortgage Bankers Association predicts a 10% increase. Residential construction is an important element in GDP because it involves the manufacturing of home components such as cement, furnaces, stoves and tile, Bloomberg said … * The Job Openings and Labor Turnover Survey (JOLTS) for December indicated scant progress for the U.S. labor market (Moody’s Economy.com Feb. 8). The number of job openings slid lower--to roughly 3.1 million on the last day of December--extending November’s slight dip to 3.2 million from roughly 3.33 million the prior month. The number of hires also receded slightly, although the hires rate remained at 3.2%. An uptick in layoffs and increasing numbers of employees who quit pushed the separations number higher, Moody’s said. The separations rate stayed at 3.2%. Although private sector hiring remains slightly above separations, hiring is not robust enough at this point to propel strong job growth, Moody’s said …

News of the Competition (02/07/2011)

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MADISON, Wis. (2/8/11)
* Three banks were taken over Friday by regulators and have entered into a purchase-and-assumption agreement with other banks, according to the Federal Deposit Insurance Corp. (FDIC). The failures bring the total bank failures for 2011 to 14. That compares with 157 for all of 2010. The banks include American Trust Bank, Roswell, Ga., assumed by Renasant Bank, Tupelo, Miss.; North Georgia Bank, Watkinsville, Ga., assumed by BankSouth, Greensboro, Ga.; and Community First Bank-Chicago, Chicago, assumed by Northbrook Bank and Trust Company, Northbrook, Ill. The closed institutions held roughly $443 million in assets as of Dec. 31. The FDIC estimated that the failure will cost the Deposit Insurance Fund about $118 million. Bank failures so far this year have cost the fund about $1.31 billion ... * Bank of America Corp. (BofA) has created a problem home-loan unit--Legacy Asset Servicing--to administer the servicing of all defaulted residential mortgage loans and discontinued lending products (American Banker Feb. 7). Terry Laughlin will handle the unit, which will oversee all of BofA’s modification and foreclosure programs and be in charge of resolving repurchase claims. Also, BofA said it will exit the reverse mortgage business, which it entered in 2006. The new structural changes will create “greater focus on resolving legacy mortgage issues,” said Brian Moynihan, president/CEO, in a press release. “We believe this will best serve customers--both those seeking homeownership and those who face mortgage challenges” …

Market News (02/07/2011)

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MADISON, Wis. (2/8/11)
* The worldwide economy has begun 2011 with strong steps, according to a Moody’s Analytics Survey of Business Confidence (Moody’s Economy.com Feb. 7). Global sentiment is at a level that it has not reached since summer 2006--prior to the financial crisis and recession. In recent weeks, equipment investing, hiring and sales have all improved, Moody’s said. Responses were especially positive about current conditions and the outlook through midyear. Globally, businesses are more upbeat with the exception of those in Japan, Moody’s said. Pricing power still is constrained and doesn’t lead to any concerns about inflation substantially accelerating. Companies in business and financial services are the most optimistic, while those in the government sector are the most pessimistic, Moody’s said … * Prices of U.S. commercial properties sold by institutional investors jumped 19% in 2010--the second-largest gain on record--according to an index created by the MIT Center for Real Estate (Bloomberg.com Feb. 4). Office property investment--the biggest segment of the market--more than doubled last year to $41.6 billion, according to Real Capital Analytics Inc., which monitors commercial property sales worldwide. Near-record low interest rates are creating the prospects of cheaper financing and higher returns, which are enticing buyers into the market, Bloomberg said. Lenders are starting to sell distressed properties and loans because rising earnings are providing them a buffer to absorb losses. Investors have pushed prices on commercial mortgage-bank bonds to the highest level in two years because they are convinced the worst is past, Moody’s said … * The Federal Reserve’s Treasury purchases of government bonds it bought in January for its quantitative easing were auctioned off, with more than 40% being sold in the previous 90 days--up from 20% in December and 15% in November, according to Bank of America Merrill Lynch (Bloomberg.com Feb. 6). By focusing on benchmark government securities, policymakers are helping contain rising yields that set rates on everything from mortgages to corporate debt, Bloomberg said. The Fed is focusing on new securities as its $600 billion quantitative easing program depletes primary dealers’ holdings of Treasuries to the lowest level since November 2009, Bloomberg said ...

Consumer credit up 3 in December but just steady at CUs

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MADISON, Wis. (2/8/11)--Total U.S. consumer credit increased at an annual rate of 2.5% in fourth quarter 2010, according to the most recent Federal Reserve statistical release on consumer credit. Consumer credit at credit unions held steady. Total revolving credit decreased at annualized rate of 2.75%, and total nonrevolving credit rose at an annual rate of 5.5%. In December, total consumer credit went up at a 3% annual rate over November’s rate. The total amount consumers borrowed in December was $2.410 trillion, an increase over $2.404 trillion in November. Revolving credit was $800.5 billion, compared with $798.2 billion in November. Nonrevolving credit totaled $1.609 trillion, compared with $1.606 trillion in November. At credit unions, members borrowed in December $227.5 billion, the same as in November but down from $237.2 billion a year ago. Revolving credit at credit unions increased to $36.3 billion from $35.8 billion in November and was up from $35.4 billion a year ago. Nonrevolving credit at credit unions decreased to $191.1 billion from $191.8 billion in November and down from $201.7 billion a year ago, said the Fed’s report. To read the release, use the link.

News of the Competition (02/04/2011)

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MADISON, Wis. (2/7/11)
* Many large and midsize U.S. banks are receiving stronger payments on troubled business mortgages and are realizing gains through selling troubled assets (American Banker Feb. 4). “[Recoveries are] very common to see in the industry, particularly at this stage in the cycle, where you have a couple of years of heavier charge-offs,” Stephen D. Steinour, chairman and CEO of Huntington Bancshares Inc. in Columbus, Ohio, told the Banker. Recoveries--which can only result from asset sales gains or interest payments--tend to be roughly 5% to 15% of charge-offs in normal times, he added … * More than 18 months before Bernard Madoff’s Ponzi scheme imploded, senior executives at JPMorgan Chase expressed doubts regarding the legitimacy of Madoff’s investment business, but they continued to do business with him, according to internal bank documents made public Thursday in a lawsuit (The New York Times Feb. 3). A Chase executive in a June 15, 2007, e-mail wrote that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.” Despite this and many other suspicions, the bank permitted Madoff to move billions of dollars of investors’ cash in and out of his Chase accounts until the day of his arrest in December 2008, the Times said … * Bank of America (BofA) is exiting the market for coverage of foreclosed homes and those with distressed buyers by selling its Balboa unit (Bloomberg.com Feb. 4). In the process, BofA--the biggest U.S. bank by assets--will get a minimum of $700 million from QBE Insurance Group Ltd. for the unit. QBE, the largest insurer in Australia, also will make unspecified future payments for the unit, BofA said in a statement. The two companies agreed to a 10-year distribution deal in which QBE will cover properties for BofA, the Australian company said in separate statement Friday …

Market News (02/04/2011)

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MADISON, Wis. (2/7/11)
* The U.S. unemployment rate unexpectedly declined in January to 9%--the lowest level since April 2009--from 9.4% in December, the Labor Department said Friday (Bloomberg.com Feb. 4). Also, U.S. employers added 36,000 workers to their payrolls--the smallest gain in four months--following an increase of 121,000 in December. Payrolls were forecast to rise 146,000 in December, according to a survey of analysts by Bloomberg News. “Snow suppressed payrolls, but look past it and the labor market is clearly improving,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. In a related matter, the U.S. Monster employment index--which measures help-wanted ads placed online by U.S. employers--increased 7% in January from a year ago (Moody’s Economy.com Feb. 4). Hiring showed indications of expanding in the month, with 12 of 20 industries tracked by the index posting an increase in recruitment. On a monthly basis, the index fell eight points from December because employers reduced hiring following the holiday season, Moody’s said … * Continuing its upward trend since July, the U.S. future inflation gauge rose to 101.6 in January from 100.5 the prior month, according to the Economic Cycle Research Institute (ECRI) (Moody’s Economy.com Feb. 4). The smooth annualized growth rate increased to 4.4% from 2.7 %. The ECRI future inflation gauge has been consistently moving higher in recent months, portending that inflation pressures are beginning to take hold, ECRI said. Also, the ECRI weekly leading index--which measures economic growth--rose to 128.9 for the week ended Jan. 28 from a revised 127.4 (previously 127.5) a week earlier. The smoothed annualized growth rate increased to 3.7% from an unrevised 3.5%. Although the index has moderated since late December, the general trend since mid-2010 has been positive, which indicates a continued economic recovery through 2011, ECRI said …

Market News (02/03/2011)

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MADISON, Wis. (2/4/11)
* Fourth-quarter U.S. worker productivity unexpectedly accelerated because companies sought to contain costs (Bloomberg.com Feb. 4). A gauge of employee output per hour increased at a 2.6% annual rate, compared with a revised 2.4% gain in the previous quarter, according to Labor Department figures released Thursday. Economists had forecast a 2% rise in the fourth quarter, according to a survey by Bloomberg News. “There is a good chance that productivity will slow further this year, as firms are increasingly forced to hire more workers to expand output,” Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, said in a note to clients. “That is good news for the unemployed.” In a related matter, U.S. service industries grew in January at the fastest pace since 2005--indicating the largest global economy picked up steam as the year began (Bloomberg.com Feb. 4). The Institute for Supply Management’s index of non-manufacturing businesses increased to 59.4 in January, following a reading of 57.1 in December. Readings above 50 indicate expansion ... * Major U.S. retailers reported strong revenue gains in January despite snow storms that analysts thought could reduce spending (The New York Times Feb. 3). “The early going looks good, despite the multiple snowstorms,” Ken Perkins, president of RetailMetrics, a retail research firm, told the Times. “It’s encouraging, and you’re seeing other economic signs that things are turning around.” While consumers were not daunted by bad weather, store location also played a role (The Wall Street Journal Feb. 3). For example, Costco Wholesale Corp.--which has a larger presence in the lesser-impacted western part of the U.S. and substantial international operations--recorded a 9% increase in comparable store sales, or sales at stores open at least a year. “Sales in January were restrained by a series of snowstorms that caused widespread store closings along the East Coast and in the Southeast,” Terry J. Lundgren, Macy’s chairman and president/CEO, told the Journal about Macy’s January sales … * Mortgage loan application volume increased 11.3% on a seasonally adjusted basis for the week ended Jan. 28 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey, released Thursday by the Mortgage Bankers Association (MBA). The previous week did not include a holiday adjustment for Martin Luther King, Jr. Day. The Refinance Index increased 11.7%. The seasonally adjusted Purchase Index went up 9.5%. The unadjusted Purchase Index rose 16.7% and was 21.4% lower than the same week one year ago. “Applications increased this week relative to the holiday week,” said Michael Fratantoni, MBA vice president of research and economics. “Looking over the past two weeks, purchase applications are flat, and refinance applications are down about 5%.” For the MBA report, use the link … * Initial U.S. claims for unemployment benefits declined last week, spearheaded by southern states that were impacted by storms in prior weeks (Bloomberg.com Feb. 3). Claims fell 42,000 to 415,000 for the week ended Jan. 29, according to Labor Department figures released Thursday. Also, the total number of people receiving unemployment benefits and those collecting extended payment benefits declined. “Job growth has certainly improved from where it was a year ago,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. “Now we’re waiting to see significant acceleration in job growth. But it will take time” …

News of the Competition (02/03/2011)

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MADISON, Wis. (2/4/11)
* Mortgage giants Fannie Mae and Freddie Mac are increasing--for the first time since 2009--risk fees they charge lenders on loans they purchase for resale to investors (usatoday.com Feb. 2). The two government-sponsored enterprises also are adding risk fees to more loans provided to consumers with top-notch credit. Most borrowers will need FICO scores of 740 or better and 25%-or-more down payments to sidestep a fee or obtain a discount … * The global migration to electronic payments and a surge in U.S. consumer spending sparked a fourth-quarter profit jump of 41% for MasterCard Inc.--the world’s second-largest bank-card network (Bloomberg.com Feb. 3). Net income rose to $415 million, or $3.16 per share, from $294 million, or $2.24 per share, in the same period a year earlier, the company said Thursday in a statement. Also, Visa Inc. said its revenue and income rose in its first fiscal quarter because its transaction and payment volume increased (American Banker Feb. 3). Visa said its income from the period ended Dec. 31 increased 15.8% from a year earlier to $884 million. The company’s revenue jumped 14% to $2.2 billion … * Visa Canada is defending its no-surcharge policies, asserting that legal challenges brought against those policies by the Canadian Competition Bureau--if successful--would hurt consumers (American Bankers Feb. 3). Visa Inc. and MasterCard do not allow Canadian merchants to apply a surcharge to a purchase made with a high-cost card. The bureau is asking Canada’s Competition Tribunal to lift the ban, alleging that Visa and MasterCard levy restrictive and anticompetitive rules on merchants who accept their credit cards, the Banker said …

Market News (02/02/2011)

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MADISON, Wis. (2/3/11)
* During second quarter 2010, the U.S. job market improved measurably, but it is unlikely the pace of job creation was sustained through the end of the year, according to the second-quarter release of Business Employment Dynamics (BED) by the Bureau of Labor Statistics (Moody’s Economy.com Feb. 1). Second-quarter private sector job gains rose to 6.9 million--the strongest job-creation pace since mid-2008--from a pace of 6.1 million in the first quarter. Also, second-quarter job separations fell to 6.2 million--the slowest pace since the survey started in the early 1990s. Second-quarter gains were the result of a housing market correction running full force and manufacturing climbing out of a deep depression, according to BED data …

News of the Competition (02/01/2011)

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MADISON, Wis. (2/2/11)
* Paul Thome Monday was named president of Sallie Mae Bank, a retail bank subsidiary of student loan provider SLM Corp. (American Banker Feb. 1). He takes over for Mark Howard who resigned from the company. Most recently, Thome was SLM senior vice president of business finance and procurement. There have been several personnel changes at Sallie Mae--one of which involved Chief Financial Officer John F. “Jack” Remondi being named in January to the newly created position of president/chief operating officer, the Banker said … * Bank of America (BofA) awarded its investment banking chief a larger bonus than BofA gave to its CEO or Goldman Sachs Group Inc. gave to its CEO (Bloomberg.com Feb. 1). Thomas K. Montag received a $15.2 million bonus from BofA, which is 68% larger than that of his BofA boss Brian T. Moynihan. Montag received $14.3 million in restricted stock and $900,000 in performance-linked cash in 2010, compared with a $9.05 million stock bonus for Moynihan, and $12.6 million in shares awarded to Goldman CEO and Chairman Lloyd Blankenfein. “He’s being paid as if he should be looked at as equivalent to someone who leads companies,” said Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd. in New York. “They are saying that investment banking was responsible for most of the company’s profit, and therefore this person deserves more money than anyone else” …

Market News (02/01/2011)

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MADISON, Wis. (2/2/11)
* U.S. manufacturing activity in January saw robust growth--speeding up to the fastest pace since May 2004--amid gains in employment and inflation (Bloomberg.com and The Wall Street Journal Feb. 1). Private research group Institute for Supply Management (ISM) said Tuesday its factory index of manufacturing activity for January rose to 60.8 from 58.5 in December. Readings above 50 indicate growth. “The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector,” Norbert Ore, who directs the survey for ISM, told the Journal. “New orders and production continue to be strong,” he said, adding “global demand is driving commodity prices higher, particularly for energy, metals and chemicals. The details of the ISM survey were strong: new orders increased 5.8 points, and the employment index gained 2.8 points (Moody’s Economy.com Feb. 1). New orders have risen for the past two months in excess of five points--which is a positive indication for future production, Moody’s said … * In an indication the construction industry will continue to lag behind the economic recovery, U.S. construction spending unexpectedly dropped in December to the lowest level in a decade (Bloomberg.com Feb. 1). Total December construction spending declined 2.5% from its revised level in November and was 6.4% below its level in December 2009. Although nonresidential construction spending saw a slight decrease, residential construction spending had a much bigger decline, while public construction spending also fell significantly (Moody’s Economy.com Feb. 1). “Housing will remain lackluster for at least another year,” Harm Bandholz , chief U.S. economist at UniCredit Group in New York, told Bloomberg. “The imbalances aren’t fully corrected yet” … * Rising interest rates are causing investors to flood the deal world with cash, but it is having an unintended consequence--the money is being recycled into corporate buyouts (The Wall Street Journal Feb. 1). Investors are selling bonds--which usually lose money when interest rates rise--and are shifting their cash to funds that invest in loans that finance corporate buyouts, the Journal said. Because the loans have floating interest rates, the interests paid to investors increases as rates go up. Institutions and individuals infused roughly $6 billion into these funds in the fourth quarter 2010--nearly doubling the previous quarterly record set in 2004, according to Lipper Inc. …