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News of the Competition (04/30/2010)

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MADISON, Wis. (5/3/10)
* If specific elements of the federal government’s financial overhaul package are passed, large U.S. banks could be confronting an $85 billion capital deficit, according to an initial report from Wall Street analysts on the bill’s impact (The Wall Street Journal April 29). One of the proposals in the package requiring banks that receive federal aid to spin off their derivative trading operations could be particularly harmful--resulting in an $85 billion capital deficit among investment banks worldwide--said Kian Abouhossein, an analyst with JPMorgan Chase, in a report Thursday. The loss would occur because if the capital–intensive derivative businesses were separated from banks, the banks would have to raise more capital to make the spin-offs economically viable, Abouhossein said in the report. As a result, those banks may decide to close their derivatives-trading operations--which are a major source of revenue for banks, he added … * Deals announced last week to bolster the balance sheets of two companies involved in the Troubled Asset Relief Program (TARP) recapitalizations and who have warned of their possible failure indicate that “banks can only win if taxpayers lose,” reported American Banker (April 30). The common element in the deals is that the recapitalizations are predicated on the Treasury Department converting its preferred share into common equity at a sharp discount, the publication said. The $10.5 billion asset, Spokane, Wash.-based Sterling Financial announced Thursday that the Treasury agreed to take a 75% cut on its $303 million TARP investment and accepted $75.8 million of common equity. Also, the $7.3 billion asset, Santa Barbara, Calif.-based Pacific Capital Bancorp announced Thursday that a unit of Ford Financial Fund LP had agreed to infuse $500 million into the troubled company … * The 12 Federal Home Loan banks are attempting to get U.S. Senators to obtain an exemption from the regulatory reform bill that would establish limits on the amount of money systemically important institutions could lend to a single borrower (American Banker April 30). The banks claim this move would severely limit their core business of lending to banks. The banks argue that the limits would cut their advances to major financial institutions nationwide--reducing liquidity and their lending capacity, the publication said … * Federal prosecutors, working through the Manhattan U.S. Attorney’s Office, are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in relation to its mortgage trading, said sources familiar with the matter (The Wall Street Journal April 30). The investigation is at a preliminary stage and stems from a referral from the Securities and Exchange Commission, the sources said …

Market News (04/30/2010)

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MADISON, Wis. (5/3/10)
* Gross domestic product in first quarter 2010 grew 3.2% at an annualized pace--slowing from a rapid 5.6% pace the previous quarter, the Commerce Department said Friday. Private inventories accounted for about half the growth (Moody’s Economy.com April 30). Consumer spending also added to growth. During the next few quarters, the economy will expand, but growth will diminish as the spark from inventories slows. However, late this year and throughout 2011, growth will accelerate as the labor market experiences substantial improvement, Moody’s said. Many economists have been reluctant to acknowledge the steady economic recovery because of a job market that still is weak, said Robert Barbera, chief economist at ITG (The New York Times April 30). “It’s been a case of, when will they stop worrying and learn to love the boom?” Barbera added. Strengthening consumer demand also has been fueled by the lowest core inflation number in 51 years (The Wall Street Journal April 30) … * The U.S. economy grew at a 3.2% annual rate in the first quarter because households spent more, which engendered gains in employment that could help widen and accelerate the economic recovery (Bloomberg.com April 30). “It was a very strong quarter for the consumer,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “The important thing in the coming months is seeing employment starting to come back to give some income support.” In a related matter, the Institute for Supply Management (ISM)-Chicago said Friday its business barometer rose to 63.8 in April from 58.8 in March. The improvement puts the index at its highest level since 2005, and indicates that the business-led recovery is well underway (Moody’s Economy.com April 30). “The manufacturing recovery continues in earnest,” Tom Porcelli, a senior economist a RBC Capital Markets Corp. told Bloomberg. “Things obviously are turning and that is a benefit for the manufacturing sector” … * The University of Michigan consumer sentiment index fell to 72.2 in April from 73.6 in March because consumers say they remain depressed, despite increasing their spending at a healthy pace, analysts said. Both components of the index dropped 1.4 points from March. The expectations component was revised upward 4.2 points, while the current conditions component was revised up by 0.3 of a point. One-year inflation expectations rose to 2.9% from 2.7% in March. Five-year inflation expectations remain unchanged at 2.7%--below their 10-year average of 2.9%. Consumers appear to remain worried about many things--from the job market, to lost wealth, to all the government policy changes taking place, analysts said. However, consumer spending suggests they know the worst is in the past economically, and they want to reverse some of the extreme cutbacks they made during the recession, analysts added (Moody's Economy.com April 30)...

News of the Competition (04/29/2010)

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MADISON, Wis. (4/30/10)
* U.S. bankers are looking to implement a new payment format that would bypass paper completely, now that converting paper checks into electronic transactions has garnered widespread acceptance, reported American Banker (April 29). The idea is gaining momentum in the payments sector and has been endorsed by the Federal Reserve banks--even though there is no consensus on how an all-digital check would function or if it is really needed, the publication said. “With the tremendous amount of success that the industry's had over the last five years in implementing image exchange,” [the question remains], “what’s left for the industry to use to make the process more efficient,” David Walker, president/CEO of the Electronic Check Clearing House Organization in Dallas, told the publication … * Visa Inc. Wednesday reported increases in second-quarter purchase volume and in second-quarter earnings. Purchase volume on the company’s debit and credit cards jumped 20.8% to $745 billion in the quarter, Visa said. Volume grew 12.7% in the U.S. from a year-ago to $427 billion. Net income jumped 33% to $713 billion. The robust results led Visa to repeat its strong revenue projection for 11% to 15% growth for the fiscal year (American Banker April 29). Also, Visa reported a 33% increase in second-quarter earnings---beating Wall Street expectations--due to a rebound in consumer spending (The New York Times April 29). The company said its optimism about the economy is on the rise; however, “We remain watchful of the longer-term sustainability of growth in the world economy,” said Joseph Saunders, Visa CEO. He noted he is “not betting on a continued recovery that just goes through the roof”... * JPMorgan Chase & Co. Wednesday announced it will open roughly 90 branches in California this year. The additions mean the New York-based bank would have more than 800 branches statewide. California is an “important, growing market” for JPMorgan, it said in a press release. In 2008, JPMorgan made its initial move into California with the purchase of Washington Mutual Inc. (American Banker April 29) …

Market News (04/29/2010)

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MADISON, Wis. (4/30/10)
* Initial U.S. claims for unemployment benefits declined by 11,000 to 448,000 for the week ended April 24--in line with expectations for a decrease, according to Labor Department figures released Thursday. Although still elevated, initial claims dropped in the two consecutive weeks following a bump up related to the Easter holiday (Moody’s Economy.com April 29). Continuing claims fell by 18,000 to nearly 4.65 million for the week ended April 17. Firings are abating, and companies such as Caterpillar Inc. are adding staff because their sales are improving in China (Bloomberg.com April 29). Gains in employment will bolster consumer spending, making the economic expansion that began in the middle of last year more sustainable, Bloomberg said. “The labor market continues to heal slowly,” said Sal Guatieri, a senior economist at BMO Capital Markets. “We should see another gain in private-sector payrolls for April. Renewed hiring will help sustain consumer spending this year.” The four-week moving average, which attempts to smooth data volatility and provides a better picture of the underlying trend, rose for the week ended April 17 (The Wall Street Journal April 29). The four-week average increased by 1,500 to 462,500 from the previous week’s revised average of 461,000 … * Homeowners who walk away from mortgages they can afford are accounting for more defaults, said Morgan Stanley (Bloomberg.com April 29). These “strategic” mortgage defaults constituted 12% of all defaults in February--up from 4% in the middle of 2007, wrote Morgan Stanley analysts in a report issued Thursday. Borrowers who take out bigger loans and have higher credit scores are more inclined to stop paying their mortgages--even though they stay current on other consumer debt of at least $10,000, the analysts wrote. Strategic defaults also rise, predicated on how much more borrowers owe in housing debt compared with the value of their homes, the analysts added ... * Debt-ratings agencies are exacerbating the plight of financially burdened governments--such as Greece--struggling with heavy debt loads, according to some Europeans (The Wall Street Journal April 29). After it downgraded Spain one level to AA from AA-plus, Standard & Poor’s (S&P) was criticized by European analysts. The downgrade came one day after S&P cut the ratings of Greece and Portugal--prompting a sell-off in worldwide financial markets, the Journal said. Greece became the first of the 16 nations that use the euro to have its debt rated as “junk.” Ratings firms’ actions have reacted to prior steep drops in government-bond markets, and now are causing more bond-market declines, said Sylvain Broyer, an economist with French Bank Natixis. “We have a vicious circle in the last few days with Greek debt,” he said. “The behavior of the rating agencies is entirely pro-cyclical,” Broyer added ...

Fed keeps same rate-policy course good news for CUs

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WASHINGTON (4/29/10)--Wednesday's decision by the Federal Reserve's policymakers, the Federal Open Market Committee (FOMC), to continue its course with low interest rates for an extended period is good news for credit unions, according to Steve Rick, Credit Union National Association (CUNA) senior economist. As expected, the FOMC made no changes in the targeted funds 0% to 0.25% interest rate or in the language of its "extended period" policy, and it closed all but one of its special liquidity facilities that had been created during the financial crisis. "The Federal Reserve put out a rather sanguine FOMC statement today, pointing out that the economy continues to strengthen and the labor market has turned the corner and is starting to improve," Rick told News Now Wednesday. "This is good news for credit unions as job growth portends rising loan demand and a shift in credit union assets from low-yielding investments to higher-yielding loans. He noted the Fed's policymakers "will keep the fed funds interest rate target range at 0% to 0.25% for an extended period of time. They believe the extraordinarily low interest rates are warranted because of low rates of resource utilization--high unemployment rates and low capacity utilization rates--subdued inflation trends and stable inflation expectations," Rick said. "This means credit unions will not raise their deposit interest rates until late 2010 or early 2011. This is when the Federal Reserve is expected to raise the fed funds rate according to players in the fed funds futures market," he added. "Many economists presume the Federal Reserve policymakers will start selling off some of its $1.25 trillion mortgage-backed-security portfolio before they move on interest rates. This could push mortgage interest rates higher if the additional supply overwhelms additional demand," Rick said. "The Fed also mentioned that high unemployment rates, modest income growth, lower housing wealth and tight credit have cast a pall over household spending. The key to any self-reinforcing economic recovery is job growth. Job creation will lead to higher consumer confidence and then higher rates of spending. This produces a feedback effect, creating more jobs and more spending. Therefore, a significant downward move in the unemployment rate will presage any rise in the fed funds interest rate," Rick explained. In a statement after its meeting, the FOMC noted that while bank lending continues to contract, financial market conditions remain supportive of economic growth, the Fed said. "Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability," the Fed said, adding that inflation is likely to be subdued for some time. Also, the improved functioning of the financial markets led the Fed to close all but one of its special liquidity facilities--the Term Asset-Backed Securities Loan Facility, the statement said. The facility is scheduled to close June 30 for loans backed by new-issue commercial mortgage-backed securities; it already closed on March 31 for loans backed by all other types of collateral. Voting against the policy action was Thomas M. Hoenig, who reiterated his belief that continuing to express the expectation of exceptionally low levels of the federal funds rate "for an extended period" was no longer warranted. He said it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates modestly, said the Fed's statement. The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

News of the Competition (04/28/2010)

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MADISON, Wis. (4/29/10)
* Six former brokers at Citigroup Inc.’s Smith Barney unit must repay their bonuses after losing a lawsuit Friday. The suit was filed against Citigroup so the brokers would not have to repay the remainder of their signing bonuses--which totaled $1.51 million (Dow Jones Newswires via American Banker April 28). U.S. District Judge Lewis Kaplan in the Southern District of New York dismissed the suit, ruling it was “baseless” and “quite plainly was a studied effort to prevent collections of the debts they owed.” The brokers argued that their contracts with the banking company to pay back their signing bonuses were void because Citigroup was “mismanaging its company to the point that it could no longer provide the security required by [brokers’] clients and [was] penalizing [brokers] with reduced compensation because of its own failures” … * To reduce its assets connected to the declining U.S. housing market, Goldman Sachs Group Inc. told its sales force to sell those products to clients in 2006 and 2007, according to newly released internal e-mails (Bloomberg.com April 28). Included in the e-mails were communications from Goldman CEO Lloyd Blankfein, indicating employees talked about how to “arm” sales people to rid themselves of bonds the company deemed too risky to hold. U.S. Sen. Carl Levin (D-Mich.) released the e-mails Tuesday in connection with a hearing where current and former Goldman managers testified about the company’s role in the financial crisis …

Market News (04/28/2010)

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MADISON, Wis. (4/29/10)
* Mortgage loan application volume dropped 2.9%, seasonally adjusted, for the week ended April 23 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 decreased 1.9%. The Refinance Index fell 8.8% from the previous week, while the seasonally adjusted Purchase Index increased 7.4% to reach its highest level since October. The increase in the purchase index was driven largely by the government Purchase Index, which rose 11.9% from last week seasonally adjusted, while the conventional Purchase Index increased 3.5%. The unadjusted Purchase Index jumped 8.5% and was 2.4% higher than the same week one year ago. “Purchase activity continues to increase as we approach the end of the homebuyer tax credit program,” said Michael Fratantoni, MBA vice president of research and economics. “Purchase applications were up almost 9% from a month ago, with a disproportionate share of the increase due to government purchase applications. Government applications for purchasing a home accounted for almost 49% of all purchase applications last week.” For the MBA report, use the link … * The biggest equity-market decrease since February is not prompting sales by U.S. money managers--who say losses are just temporary because gains in earnings will make stocks too cheap to pass up (Bloomberg.com April 28). Nearly $1 trillion of global equity value was wiped out because of concerns that escalating public debt would cause defaults, throwing off the global economy, according to Bloomberg data. “It’s like yelling fire in a movie theatre--it doesn’t mean the place is going to burn down,” said Kenneth Fisher, chairman of Fisher Investments. “The quality of earnings is exceptional. Earnings are coming in overwhelmingly above expectations. I don’t see any signs that will stop” … * Investors are becoming more concerned about the fate of Greece and other economies that use the euro (The New York Times April 28). While Greece is on the precipice of financial collapse, investors also are worried that Portugal, Spain and perhaps Ireland may not be able to borrow the billions of dollars they require to pay for their government spending, the Times said. Investors are waiting for guidance from financial leaders gathered in Berlin …

News of the Competition (04/27/2010)

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MADISON, Wis. (4/ 28/10)
* Although the Federal Deposit Insurance Corp.’s (FDIC) 80% guarantee of potential losses on assets at failed U.S. banks has been routine during the financial crisis, and is likely for the near term, that may change, reported American Banker (April 27). In its most recent dealing, the FDIC agreed to cover only half the losses of TD Bank’s purchase of three Florida banks on April 16, the publication said. “We would expect that as the market continues to improve, the terms of the loss-share transactions will change and that the amount of risk an acquirer will be willing to assume will increase,” James Wigand, deputy director in the FDIC’s division of resolutions and receiverships, told the publication … * Fabrice Tourre, a vice president at Goldman Sachs, testified Tuesday before the Senate Permanent Subcommittee on Investigations and denied that he failed to disclose key information to investors. Senate investigators are working on a case started last week by the Securities and Exchange Commission (SEC), which has accused Goldman of defrauding investors in a transaction known as Abacus 2007-AC1. The subcommittee is extending the SEC case, claiming Goldman had devised not just one of the deals, but a series of deals designed to profit from the implosion of home mortgage markets. Goldman CEO Lloyd C. Blankfein also was expected to testify that Goldman has no substantial, consistent short position in the market (The New York Times April 27) ... * HSBC Holdings PLC is looking to garner support for a plan that would connect banks’ capital requirements to the systemic risk the industry and individual countries confront at specific times, said sources familiar with the matter (Dow Jones Newswires via American Banker April 27). Although not against regulatory reforms, HSBC opposes the idea that all banks should raise their capital buffers now--at a time when money should be infused into the system to spark the tenuous economy, said the sources. Instead, HSBC said regulators should match capital requirements to the level of systemic risk ...

Market News (04/27/2010)

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MADISON, Wis. (4/28/10)
* Indicating the housing recovery will need time to develop, U.S. home prices for February in 20 U.S. cities increased less than forecast (Bloomberg.com April 27). Property values in 20 cities rose 0.6% from February 2009--the first gain since December 2006--according to the S&P/Case-Shiller home-price index. Economists had projected a 1.3% increase, according to a Bloomberg News survey. Employment gains are necessary to help stop damage from increasing foreclosures, which are hampering a further uptick in property values, Bloomberg said. “The big plunge is over, but significant strength is unlikely,” said Jim O’Sullivan, chief economist at MF Global Ltd. “There is still a huge excess of vacant houses.” Prices in 10 major metropolitan areas rose 1.4% in February from a year earlier (The Wall Street Journal April 27). The best way to measure housing’s strength is on an annual basis--to avoid seasonal distortion--said the Case-Shiller Home Price Index Committee (The New York Times April 27) … * U.S. consumer confidence in April rose to its highest level since September 2008 because Americans turned more positive about the labor market (Bloomberg.com April 27). The Conference Board’s confidence increased more than forecast to 57.9 from 52.3 in the March index, according to the private research firm. Economists surveyed by Bloomberg News had predicted a rise to 53.5. “Consumers are feeling better about the labor market,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “If they are to spend more, they need to have jobs.” The index had plunged in February to 46.4 because of bad weather (Moody’s Economy.com April 27). April’s present situation component increased to 28.6 from 25.2 (previously 26) in March. Widespread improvement occurred across survey questions, although the income outlook still is weak, Moody’s said … * Ford Motor Corp. Tuesday posted its fourth consecutive quarterly profit, and said an increased sales volume created it biggest pretax operating profit in six years. In the first quarter, Ford said it earned a net profit of $2.1 billion, or 50 cents per share. Revenue increased to $28.1 billion. The automaker also said it anticipates “solid profits” and positive cash flow from its automotive operations in 2010--a year earlier than forecast (The New York Times April 27). Ford lost $1.4 billion, or 60 cents per share, in the previous quarter. “The basic engine that drives our business results --products, market share, revenue and cost structure--is performing stronger each quarter, even as the economy and vehicle demand remain relatively soft,” said Alan R. Mulally, Ford CEO. “While we are pleased with our progress we do not underestimate the challenges ahead. Even as we see positive signs in the global economy, the recovery is fragile” …

News of the Competition (04/26/2010)

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MADISON, Wis. (4/27/10)
* In its most recent move to gear down the support it provided large U.S. banks during the financial crisis, the Treasury Department Monday said it intends to sell up to 1.5 billion shares of Citigroup stock. However, it did not say when the sale would commence or how long it would last. The sale would constitute roughly 20% of the 7.7 billion shares of Citigroup common stock that the federal government owns (The New York Times April 26). The Treasury said it will give its agent Morgan Stanley “discretionary authority” to sell the amount and anticipates allowing sales of additional shares afterward (Bloomberg.com April 26). “Treasury will begin selling its common shares in the market in an orderly fashion under a pre-arranged written trading plan,” the department said in a statement … * Bank United Financial Corp., a bank holding company and parent of Bank United, has countersued the Federal Deposit Insurance Corp. (FDIC) in the aftermath of the implosion of Florida’s Bank United FSB--one of the costliest financial crisis failures (Dow Jones Newswires via American Banker April 26). Bank United challenged the $4.9 billion claim the FDIC filed in the company’s bankruptcy case, saying federal regulators were in control when Bank United collapsed. The Office of Thrift Supervision took over the banking company May 21 and turned it over to the FDIC, which then sold it. The holding company filed for Chapter 11 bankruptcy protection and was the subject of claims from the FDIC for unpaid capital maintenance obligations, tax refunds and other alleged debts … * In attempts to end a European Union antitrust probe, Visa Europe Monday agreed to lower some of its fees for debit-card transactions. Visa Europe said it would cut cross-border multilateral interchange fees to a maximum of 0.2% on debit-card purchases. European Commission anti-trust investigators have been examining the fees embedded in Visa’s and MasterCard’s system for several years (The Wall Street Journal April 26) …

Market News (04/26/2010)

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MADISON, Wis. (4/27/10)
* Federal Reserve policymakers will begin a two-day meeting today and economists expect them to keep the federal fund target rates low "for an extended period" (The Wall Street Journal April 16). The Federal Open Market Committee will make its announcement on rates and policy on Wednesday. Economists surveyed by the Journal pushed back their expectations that the Fed might start raising rates. On average, 56 analysts surveyed earlier this month said they didn't expect the Fed to move the rates until November; that compares with predictions of September from economists surveyed two months ago. On average they believe the federal funds rate--an overnight bank-lending rate that the Fed is holding at about 0.20%--will rise to 0.75% by December. The "for an extended period" language has been used by the Fed at each meeting since March 2009 to encourage investors to buy long-term bonds. Some FOMC members argue for dropping the phrase, saying that "extended period" is interpreted as keeping rates low an additional six months and would "handcuff" the Fed. Dropping the phrase, however, could be misinterpreted as a signal a rate increase is imminent. The Fed's officials are looking for ways to underscore that their plans are conditional, depending on the economy's performance ... * Worldwide business confidence ebbed last week, although the four-week moving average increased to its highest level since 2007, according to Moody’s Economy.com Survey of Business Confidence. For the week ended April 23, the business confidence index dropped to 21.3 from 28.3 the prior week. Consumer sentiment now is consonant with self-sustaining global economic growth, Moody’s said. Businesses and business and financial services companies in South America are the most positive. Business-outlook expectations remain strong. Although hiring intentions are improving, they still are soft and portend only weak job growth, Moody’s said. Businesses also maintain a cautious outlook regarding inventories and office-space demand (Moody’s Economy.com April 26) ... * About 57% of respondents reported increasing demand for their goods and services in the first quarter--the third consecutive quarter of rises--while 6% said demand dropped, according to the National Association of Business Economics’ (NABE) most recent industry survey. The April survey also indicated job creation rose for the first time in two years--with 22% of firms adding workers compared with 13% in January’s survey. Companies cutting jobs dropped to 13% from 28% in January, NABE added. One of the key changes in the most recent survey results is a stronger consumer demand, NABE said. The results also are partly impacted by robust financial sector sales and earnings, NABE added (The Wall Street Journal April 26) … * With the federal government’s first-time homebuyer tax credit expiring Friday, analysts believe the housing market could provide good evidence as to what extent the economic recovery is dependent on government support (The Wall Street Journal April 26). Already, the Federal Reserve has ceased buying mortgage bonds. Also, the pace of new trial modifications under the Treasury’s Home Affordable Modification Program has started to abate, the Journal said. Whether the housing market can thrive on its own will provide insight into the broader economic recovery and its ability to maintain momentum when the federal government’s stimulus package dissipates by the end of the year, the Journal said. “That’s the nagging question right now,” said Yale University economist Robert Shiller. “How much of the strength in the housing market is just perception of government support? I do have concern about a double dip” …

News of the Competition (04/23/2010)

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MADISON, Wis. (4/26/10)
* Bank and credit card issuer Capital One Financial Corp. Thursday posted a first-quarter profit that was stronger than expected--due in part its setting aside less money to cover credit losses (Reuters April 22). Net income was $636.3 million, or $1.40 a share, compared with a loss of $108.1 million, or 44 cents, in the year-earlier period, Capital One said Friday in a statement. The average estimate of 24 analysts surveyed by Bloomberg was for 58 cents (Bloomberg Businessweek April 23). “We’ve demonstrated our resilience through the most challenging economic cycle we’ve seen in generations, and we believe that charge-offs in our consumer-lending businesses likely peaked in the first quarter,” CEO Richard Fairbank said in the statement … * A niche credit bureau that specializes in preparing reports for casinos will pay a $150,000 settlement because of allegations it violated the Fair Credit Reporting Act, the Federal Trade Commission (FTC) said Thursday. Central Credit LLC--a unit of Global Cash Access Inc.--didn’t inform casinos that use its credit reports of their obligations under the act, the FTC said. The obligations include providing adverse-action notices to consumers when their credit is declined or a check is not cashed. Central Credit LLC also allegedly failed to tell companies that provide information for credit reports of their obligations to give out accurate information about consumers (Collectionscreditrisk.com April 23) ...

Market News (04/23/2010)

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MADISON, Wis. (4/26/10)
* Sales of new U.S. homes jumped in March by the most in nearly five decades due to milder weather and because homebuyers rushed to qualify for a first-time homebuyer tax credit (Bloomberg.com April 23). Sales surged 27%--the most since April 1963--to an annual pace of 411,000--exceeding forecasts of economists surveyed by Bloomberg News, according to Commerce Department figures released Friday. “The housing-market bottom is likely now one year in the rear-view mirror,” said Richard DeKaser, chief economist at Woodley Park Research. “There is increasing evidence the housing market has found its feet.” The March median sales price was $214,000--up more than 4% from a year earlier but down more than 3% from February (The New York Times April 23). The new-home sales report indicates signed contracts to purchase homes--rather than completed sales--which provides economists with a feel for the number of buyers shopping for new homes in a specific month, the Times said. Months of supply of homes on the market dropped to 6.7 in March from 8.6 in February (Moody’s Economy.com April 23) … * The amount of mass layoffs--those involving at least 50 workers from a single establishment--rose to 1,628 in March from 1,570 in February, according to the Bureau of Labor Statistics. The March figure involves 150,864 workers, compared with 155,718 in February. Long-term layoff trends are positive for labor markets, because payroll employment is rising for the first time since the beginning of the recession, the bureau said. The sharpest turnaround has occurred in housing-related industries (Moody’s Economy.com April 23) … * U.S. orders for durable goods--excluding transportation--rose in March by the most since the recession started in December 2007--a sign that the U.S economic recovery is widening and gaining strength (Bloomberg.com April 23). The 2.8% increase in bookings for goods designed to last at least three years--excluding aircraft and cars--was four times bigger than the median forecast of economists surveyed by Bloomberg News, according to Commerce Department figures released Friday. Total orders unexpectedly fell 1.3%--driven by a 67% nosedive in often-volatile commercial aircraft demand Bloomberg said. “The capital spending rebound we saw take place in the second half of last year continues to looks pretty healthy into the first half of this year,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “The manufacturing sector continues to perform well” … * The Economic Cycle Research Institute (ECRI) weekly leading index rose to 133.3 for the week ended April 16 from a revised 131.3 (previously 131.2) the prior week. The smooth annualized rate fell to 12.5% from an unrevised 12.6%. The index for the most recent week ends two consecutive drops, and continues to be consistent with the expectation of a continued recovery through the rest of 2010, ECRI said. Movement in the labor market remains an important indicator of the economic recovery, and progress is gradually mounting, ECRI said (Moody’s Economy.com April 23) …

News of the Competition (04/22/2010)

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MADISON, Wis. (4/23/10)
* A large jump in fixed-income trading that propelled its overall financial results above Wall Street expectations drove Morgan Stanley’s first-quarter earnings (Dow Jones Newswires via American Banker April 22). The firm’s sales and trading revenue was $4.1 billion for the quarter--a sharp rise from $1.4 billion a year earlier. Morgan Stanley reported a profit of $1.85 billion, or 99 cents per share, for first quarter 2010, compared with a reported loss of $17 million, or 57 cents per share, a year earlier. Because of a Morgan Stanley/Smith Barney joint venture, revenue more than tripled to $9.08 billion in first quarter 2010 … * Wells Fargo & Co. said Wednesday it would start to modify second mortgages under a new provision in the federal government’s Home Affordable Modification Program. When a corresponding first mortgage is modified, Wells said it would also modify second liens (National Mortgage News via American Banker April 22). “We expect to begin offering the second-lien program to customers who have both a Wells Fargo first and second lien in the next couple of weeks,” said Howard Atkins, Wells chief financial officer. The company will offer the program to “other customers later in the second quarter,” he added …

Market News (04/22/2010)

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MADISON, Wis. (4/23/10)
* Buyers responding to the homebuyer tax credit and favorable affordability conditions boosted existing-home sales in March, marking the start of an expected spring surge, according to the National Association of Realtors (NAR). Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 6.8% to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1% above the 4.61 million-unit level in March 2009. Lawrence Yun, NAR chief economist, said it is encouraging to see a broad home sales recovery in nearly every part of the U.S., with two important underlying trends. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” he said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.” For the NAR report, use the link … * Initial U.S. claims for unemployment benefits dropped 24,000 to 456,000 for the week ended April 17, according to the Employment and Training Administration. The decline was consistent with expectations (Moody’s Economy.com April 22). In the prior week, initial claims numbers had been inflated because of Easter holiday-related volatility, and the decrease for the week ending April 17 is a move toward unemployment’s generally downward trend, Moody’s said. Conditions in the labor market are slowly edging toward stability, Moody’s added. Meanwhile, continuing claims declined by 40,000 to nearly 4.65 million for the week ended April 10. Slow hiring is a continuing trend, which has prolonged the time needed to absorb the large number of unemployed Americans, Moody’s said … * U.S. producer prices for finished goods increased 0.7% in March--caused to some extent by stabilizing food prices which rose 2.4%, according to the Bureau of Labor Statistics. On a year-ago basis, producer prices are at a higher level. Excluding food and energy prices, core prices for finished goods were slightly up by 0.1%. Core prices for intermediate goods and crude goods also went up in March--which could wield pressure on finished-goods prices for some time, according to Moody’s Economy.com (April 22) …

News of the Competition (04/21/2010)

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MADISON, Wis. (4/22/10)
* Goldman Sachs Group Inc. reported Tuesday that its first-quarter profit rocketed up 91% to $3.46 billion. Strong bond writing and trading results drove the gain (Dow Jones via American Banker April 21). The robust results came as Goldman is embroiled in controversy after the government filed civil fraud charges over the company’s business practices. Goldman reported a profit of $5.59 per share--up from $3.39 per share. Revenue leapt 36% to $12.78 billion. The most recent earnings forecast was for $4.01 per share on $11.07 billion in revenue, according to analysts surveyed by Thomson Reuters. Goldman’s principal investments and total trading--which generate most if its revenue--increased 43% to $10.25 billion … * Since emerging from bankruptcy protection nearly one year ago, Chrysler said Wednesday it had lost $4 billion--marking the first look at the U.S. automaker’s finances since it came out of bankruptcy June 10 under the auspices of Fiat--an Italian automaker. Sergio Marchionne, the CEO of both companies, said Chrysler is set to meet it 2010 targets--which include a break-even-or-better performance, excluding one-time charges. Based on those parameters, Chrysler earned $143 million in the first quarter on revenue of $9.7 billion. Factoring in one-time charges, Chrysler lost $197 million in the first quarter--mainly due to interest payments--compared with a $2.5 billion fourth-quarter 2009 loss (The New York Times April 21) … * Wells Fargo & Co.--the largest U.S. home lender--recorded a fifth consecutive quarterly profit. With the economy working toward recovery, Wells said its credit costs have “turned the corner” (Bloomberg.com April 21). Net income in the first quarter dropped 16% to $2.55 billion, or 45 cents per share, compared with $3.05 billion, or 56 cents per share in the same period a year earlier, Wells said in a Wednesday statement. First-quarter results beat the 43-cent average estimate of analysts surveyed by Bloomberg. Also, revenue increased 2%--less than most analysts’ predictions …

Market News (04/21/2010)

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MADISON, Wis. (4/22/10)
* Mortgage loan application volume rose 13.6% on a seasonally adjusted basis for the week ended April 16 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the Index increased 13.9% compared with the previous week. “Treasury rates fell last week, causing a decline in mortgage rates,” said Michael Fratantoni, MBA vice president of research and economics. “As a result, refinance applications picked up over the week, as some borrowers took advantage of this recent rate volatility to lock in a low fixed-rate loan. Purchase applications continued to increase coming out of the Easter holiday, as we approach the end of the homebuyer tax credit, and are up modestly over last month.” The Refinance Index increased 15.8% from the previous week, and the seasonally adjusted Purchase Index rose 10.1% from one week earlier. The unadjusted Purchase Index went up 11% compared with the previous week and was 5.2% lower than the same week one year ago. For the MBA report, use the link ... * The International Monetary Fund (IMF) raised its growth forecast for 2010, but warned that nations’ failure to mitigate rampant public debt could have “severe” consequences for the global economy (Bloomberg.com April 21). The economy will expand 4.2% in 2010--the fastest pace since 2007, compared with a January forecast of 3.9%--the IMF said Wednesday. “The global recovery has evolved better than expected, but in many economies the strength of the rebound has been moderate, given the severity of the recession,” the IMF said in its report. “Activity remains dependent on highly accommodative macroeconomic policies and is subject to downside risks, as fiscal fragilities have come to the fore.” China and India are leading the world out of its worst recession since World War II, the IMF said in its World Economic Outlook. Also, Europe and Japan are trailing the U.S. among advanced economies, the IMF added. China is projected to grow the most--by 10% in 2010 (The Washington Post April 21). The U.S. is projected to grow 3.1%--better than the 2.3% average growth for advanced economies, according to IMF projections. Major European nations are projected to grow by a combined 1%, the IMF added …

News of the Competition (04/20/2010)

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MADISON, Wis. (4/21/10)
* Connecticut Attorney General Richard Blumenthal, citing a charge of “effectively aiding and abetting” a fraud by the convicted Ponzi scheme leader Bernard Madoff, Monday sued Westport National Bank and a Wilton, Conn., money manager. The attorney general’s office and the Connecticut Department of Banking are aiming to recover for investors $16.2 million in fees paid to Westport National and Robert Silverman, a Connecticut investment adviser and actuary. Blumenthal recommends a $100,000 fine for each violation of state banking laws, in addition to legal costs (Dow Jones Newswires via American Banker April 20) …. * The Office of the Comptroller of the Currency (OCC) said Monday it attained a settlement with T Bank of Dallas. As part of the agreement, T Bank will pay a $100,000 civil money penalty to the Treasury Department. OCC also is directing the bank to pay back $5.1 million to more than 60,000 customers adversely impacted by T Bank’s relationship with a third-party processor and several telemarketers. T Bank engaged in unsafe and unsound practices during its relationship with the third party, OCC said. The practices involved the use of remotely created checks by telemarketers and payment processors that allegedly took money from customers’ accounts without their knowledge or promised them services they did not obtain (American Banker April 20) …

Market News (04/20/2010)

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MADISON, Wis. (4/21/10)
* U.S. chain store sales rose 0.2% for the week ended April 17 because consumers are continuing to spend, according to the International Council of Shopping Centers (ICSC). The year-ago change still is robust--improving to 4.6%--close to its cyclical high. The continuing-warm weather boosted sales for the week, while high gasoline prices still are a drag, ICSC said. Consumers are spending at a faster pace than consumer fundamentals would indicate, ICSC added. Although consumer fundamentals remain weak, they are gradually improving. The largest and most important drag is high unemployment--which will result in only mild growth in wage income and put a damper on consumer confidence, ICSC said (Moody's Economy.com April 20) … * The U.S. economic recovery is widening--which mitigates the risk that it will falter as support from the federal fiscal stimulus fades, according to Moody’s Economy.com (April 20). In March, the probability that the U.S. will be in recession six months hence decreased to 26% from 32% in February. Some of the gain is related to the weather, with February’s lost economic activity flowing into March, Moody’s said. The economy grew at a 3% annualized rate in the first quarter, according to Moody’s expectations--a third consecutive quarterly increase. As support from inventory and the fiscal stimulus diminishes, growth will moderate--with real gross domestic product rising 2.4% in the second quarter and 2.2% in the third quarter, Moody’s said …

News of the Competition (04/19/2010)

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MADISON, Wis. (4/20/10)
* Seven failed banks closed Friday by regulators have entered into purchase-and-assumption agreements with other banks, according to the Federal Deposit Insurance Corp (FDIC). The failures bring the 2010 total to 49, following 140 failures last year. Friday’s failed banks include: Butler Bank, Lowell, Mass., assumed by Peoples’ United Bank, Bridgeport, Conn.; Innovative Bank, Oakland, Calif., assumed by Center Bank, Los Angeles; Tamalpais Bank, San Rafael, Calif., assumed by Union Bank, National Association, San Francisco; City Bank, Lynwood, Wash., assumed by Whidbey Island Bank, Coupeville, Wash.; and AmericanFirst Bank, Clermont, Fla., First Federal Bank of North Florida, Palatka, Fla., and Riverside National Bank of Florida, Fort Pierce, Fla., all assumed by TD Bank, National Association, Wilmington, Del. The seven closed institutions held roughly $6.08 billion in aggregate assets as of Dec. 31. The FDIC estimated that the banks’ failures will cost the Deposit Insurance Fund about $974 million … * Citigroup Inc. reported first-quarter profit of $4.4 billion--a robust sign that the troubled bank is starting to recover (The New York Times April 19). Improvements in the economy--especial overseas--and a resurgence in the bond market engendered Citigroup’s earnings gain, the Times said. The first-quarter gain followed a loss of $7.58 billion in the fourth quarter, and a profit of $1.59 billion in first quarter 2009, Citi said in a statement Monday (Bloomberg.com April 19). “They are now feeling themselves to be sufficiently reserved and they’re beginning to reduce credit expenses,” said Gary Townsend, president of Hill-Townsend Capital LLC. “That falls directly to the bottom line” … * Toyota has agreed to pay a $16.4 million fine--the biggest government penalty ever levied against an automaker--for hiding information related to its recall of a sticking pedal, Transportation Secretary Ray Lahood said Monday. The penalty is related to the “sticky pedal” and “slow to return pedal” defects that triggered Toyota’s recall of roughly 2.3 million vehicles in the U.S. in late January. Worldwide, there were about eight million cars recalled. “Toyota has accepted responsibility for violating its legal obligations to report any defects promptly,” LaHood said in a statement. The fine levied by the National Highway Transportation Safety Administration does not prevent Toyota from being served with civil or criminal actions. Toyota has not admitted any wrongdoing (The New York Times April 19) … * Commercial and industrial loans for U.S. banks increased $2.9 billion to roughly $1.27 trillion for the week ended April 7--the latest week for which data is available, the Federal Reserve said Friday. The week’s gain followed a $23.5 billion increase the prior week (Dow Jones Newswires via American Banker April 19) …

Market News (04/19/2010)

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MADISON, Wis. (4/20/10)
* The index of U.S. leading economic indicators rose 1.4% in March--the biggest gain in 10 months, according to the gauge from the Conference Board, a New York-based private research firm. The month’s index is a sign the economy will continue to grow into the second half of 2010 (Bloomberg.com April 19). The March rise was more than expected and followed a revised 0.4% gain in February. Because companies are rebuilding inventories and shipping more goods abroad, U.S. manufacturers are gearing up production and factory workers are working longer hours, Bloomberg said. “It’s one of the indicators signaling a very rapid pace of expansion,” said Zach Pandl, an economist at Nomura Securities International Inc. “[The figure] certainly offers hope that the recovery may be more swift.” The coincident indicator--a key marker for determining peaks and troughs--increased another 0.1% in March, suggesting that the recovery remains firmly in place, the Conference Board said (Moody’s Economy.com April 19) … * Global business confidence last week strongly increased to it highest level since spring 2007, according to Moody’s Economy.com (April 19) Survey of Business Confidence. The confidence index rose to 28.3 for the week ended April 16 from 22.8 for the week ended April 9. Sentiment now is consonant with a self-sustaining worldwide economic expansion, Moody’s said. South American businesses--and financial and business services firms--are especially positive. Business-outlook expectations for later this year also jumped to a new record high. Although hiring intentions are improving, they remain soft and continue to indicate weak job growth, Moody’s said. Also businesses still are cautious about their inventories and demand for office space …

CUNA to IReutersI Housing starts better than expected

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NEW YORK (4/19/10)--Friday's report that housing starts rose more than expected in March is "good news" that indicates "the bottom is behind us," Credit Union National Association Chief Economist Bill Hampel told Reuters after the announcement. Hampel provided an "instant view" commentary that noted the good news and that was displayed prominently in Friday's story. "We now have three months in a row of over an annualized rate of 600,000 housing starts, and we've been looking to get there since two years ago. We bottomed out in the low 500,000s. The bottom is behind us," he said. However, he said, its not known "how much of this was driven by the second round of home buyer tax credits. So some of this may be borrowing against future sales. But coupled with the home builders' index that came out [Thursday] that showed a lot less pessimism on the part of home builders than we've seen in quite some time, that suggests they are seeing something more than just the effect of the tax credit. "While this is better news than we expected, on the other hand there still is hanging over the new-home construction market very strong competition from the supply of homes for sale through foreclosure," Hampel said. ""New home construction is likely to grow modestly this year, but we don't expect significant construction until next year when we work off the supply of foreclosed homes. Many of those foreclosed homes are fairly new, too, and therefore they compete with new construction. There are a lot of really good deals on homes that were built two and three and four years ago. And those homes compete with the ones that are being built now." He noted that housing starts bottomed at an annualized rate of 500,000 and the current reading is 600,000. "But the peak before the bubble burst was two million. We're still way, way below where we were. Healthy territory is 1.2 million to 1.5 million starts." Housing starts rose 1.6% in March to their highest level since November 2008, and permits to build new homes hit a 17-month high. See related brief in News Now's Market News briefs.

News of the Competition (04/16/2010)

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MADISON, Wis. (4/19/10)
* By 2012, U.S. banks will return to normalized earnings with loan losses slipping back to pre-recession levels, according to an emerging consensus among those who monitor the industry (American Banker April 16). That view was supported last week when JPMorgan Chase & Co. said it saw distinct indications in the first quarter of improvement in its troubled credit card and mortgage portfolios, the publication added. Although analysts differ in their calculations of why and when banks will return to normalcy, they point to 2012 because of evidence that the amounts of money banks earmarked to cover bad loans has reached its zenith, the publication said ... * Bank of America Corp. (BofA) recorded a first-quarter profit for the first time in the past three quarters, with net income of $3.18 billion, or 28 cents per share. That compares with $4.25 billion, or 44 cents per share, in the same period a year earlier, the biggest U.S. lender said. The results exceeded by 10 cents the average estimate of 23 analysts surveyed by Bloomberg. BofA benefited from gains from Merrill Lynch & Co.’s investment banking and reigning in losses on credit cards (Bloomberg.com April 19) … * Capital is beginning to flow for community banks in Florida and Georgia--some of the toughest markets in the U.S. (American Banker April 16). The $1.7 billion asset TIB Financial Corp. in Naples, Fla., said Wednesday it had made a deal with Philadelphia private-equity firm Patriot Financial partners to invest up to $25 million, the publication said. And Georgia Ameris Bancorp, based in Moultrie, Ga., announced its intentions to raise nearly $74 million in new capital through a public offering. Also, Gwinnett (Ga.) Community Bank said it raised $5 million from its community members. Although banks in both states still have difficulties, their ability to raise capital demonstrates that commercial and residential real estate troubles--primarily in metropolitan areas--are subsiding, the publication said ... * Fannie Mae announced a policy change Wednesday in which specific distressed borrowers who give up their homes as an alternative to foreclosure would garner a second chance for homeownership, reported American Banker (April 16). The move aims to reward borrowers for cooperating with their loan servicer and for helping out the housing market, the publication said. Credit experts said the change is an avowal that borrowers who work with their lenders are better risks than those who simply turn over their keys …

Market News (04/16/2010)

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MADISON, Wis. (4/19/10)
* The University of Michigan consumer sentiment index decreased to 69.5 in April from 73.6 in March--a sign that the economic recovery is broadening, although it appears many consumers don’t believe financial conditions are becoming much better, analysts said. The index is at its lowest point since November--at odds with recent spending data, analysts added. The April decline was led by expectations, which fell to 62.3 from 67.9. Inflation expectations were not a factor. The consumer confidence decline is somewhat puzzling, analysts said. Improvements in the labor market and high equity prices were not enough to bolster sentiment in April, they added (Moody’s Economy.com April 16) … * U.S. housing starts in March rose 1.6% from February to a seasonally adjusted rate of 626,000, the Commerce Department said Friday--the third consecutive month of increases and a sign that housing is in recovery mode (Moody’s Economy.com April 16). Also, building permits, which signal future construction, rose to their highest level since October 2008 (Bloomberg.com April 16). In the aftermath of February blizzards, builders took advantage of milder weather to make properties available to buyers looking to qualify for the first-time homebuyer tax credit, which expires at the end of June, Bloomberg said. “Permits, which are not significantly affected by weather, have been on a strong uptrend, and I think that tells us we are unambiguously seeing an improving trend in housing,” said Peter DeKaser, president of Woodley Park Economics. The month’s report was generally upbeat for a depressed housing industry (The Wall Street Journal April 16). Despite lower mortgage rates and home prices, the housing sector has been a weak link in an economy that is recovering from a steep recession, the Journal said … * Fannie Mae’s and Freddie Mac’s loan modifications--trial and permanent--both under the Obama Administration’s Home Affordable Modification Program (HAMP) rose by nearly 75% during the fourth quarter of 2009. Trial and permanent modifications increased to more than 485,000, up from 278,000 in the third quarter. The data were released by Edward J. DeMarco, acting director of the Federal Housing Finance Agency, as part of the agency’s Foreclosure Prevention and Refinance Report. The report also was submitted to Congress as the Federal Property Manager’s Report per Section 110 of the Emergency Economic Stabilization Act of 2008. For The FHA report, use the link …

Big foreclosure increases unlikely to be so big at CUs

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MADISON, Wis. (4/16/10)--The nation saw a 35% spike in home foreclosures in first quarter compared with first quarter 2009. While credit unions likely will see foreclosure increases, their general asset quality remains relatively high--which may be a good omen, said Credit Union National Association (CUNA) Senior Economist Mike Schenk. Households facing foreclosures grew 16% for the quarter and 7% from the last three months of 2009. It's the biggest jump in foreclosures since January 2005, said Irvine, Calif.-based Realty Trac, which tracks notices of defaults, scheduled auctions and home repossessions (msnbc.com April 15). More than 900,000 households--one in every 138 homes--received a foreclosure notice during first quarter, said the firm. How do the first quarter national numbers compare to credit union experience? "We really don't know because we don't have any first-quarter credit union operating results yet, and even if we did, credit unions don't report foreclosures on their call reports," said Schenk, who is vice president of CUNA's economics and statistics department. "Nevertheless, it would be difficult to argue that credit union trends won't mirror--to some extent--the trends of the broader market. Credit unions likely will see foreclosures increase. But asset quality at credit unions is generally much higher compared to what we see in the for-profit sector," Schenk told News Now. For example, at the end of 2009, credit unions' delinquency rate for all mortgages was 1.97%. In contrast, the mortgage delinquency rate in the banking industry was three-and-a-half times higher at 7.1%. It's important to note that banks report delinquencies on a 90-plus day basis, while credit unions report on a 60-plus day basis. "The bank delinquencies are much higher in spite of their having one extra month to collect," Schenk said. Schenk also noted that the delinquency rate on credit union mortgages has been declining over the past two quarters. "That's further evidence that the foreclosure trends will be more muteed in the credit union sector." Credit union mortgage loan net chargeoffs averaged 0.55% in 2009--about one-quarter the banks' 2.20% net chargeoff rate in the year. Moreover, credit unions' mortgage chargeoff rate is the lowest of all the major loan categories--including business loan and consumer loans, Schenk noted. The numbers indicate that "if the aggregate mortgage loans continue to deteriorate, it's likely that credit union portfolios will continue to be further stressed, but not at the magnitude expereicned in other sectors of the industry," he said. "Credit unions were much more careful in their lending activities and didn't originate toxic mortgages. However, their members do reside in declining markets," he said.

News of the Competition (04/15/2010)

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MADISON, Wis. (4/16/10)
* The number of U.S. homeowners who defaulted on their mortgages nearly doubled in March. This happened even after many homeowners obtained better financing terms through the federal government’s loan modification program--an ongoing trend that could undercut the whole program (The New York Times April 14). About 2,879 modified loans have ended since the program’s inception this past fall--up from 1,499 in February and 1,005 in January, according to data released Wednesday by the Treasury Department. The department said it could not explain the mounting number of “cancellations”--nearly all of which seemed to be triggered by the borrower’s inability to make the new payment. Roughly seven million households are behind on their mortgage payment, the department said … * The largest U.S. commercial banks said they would join the Federal Reserve in defending a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News which seeks records related to four Fed lending programs (Bloomberg News via American Banker April 15). The Clearing House Association LLC--a group that includes Bank of America Corp. and JPMorgan Chase & Co.--joined the Fed in the case. The central bank must release the documents, the Second U.S. Circuit Court of Appeals ruled March 19. The three-judge panel rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking help in an emergency, Bloomberg said. “Our members are very concerned about real-time disclosure information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel. “We’re not going to let the Second Circuit opinion stand without seeking a review” …

Market News (04/15/2010)

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MADISON, Wis. (4/16/10)
* Initial U.S. claims for unemployment benefits unexpectedly increased last week, a sign that labor market improvement will need time to take hold (Bloomberg.com April 15). Claims rose by 24,000 to 484,000 for the week ended April 10--the highest level since Feb. 20, the Labor Department said Thursday. The uptick in claims was caused more by administrative factors indicating volatility around the Easter holiday than economic reasons, according to a Labor Department spokesman. Economists had forecast claims would drop to 440,000 from a previously reported 460,000 the previous week, according to a Bloomberg News survey. Joel Naroff, an economist and president of Naroff Economic Advisors, said he was disappointed with the most recent figures because he had expected them to be significantly lower--in the 400,000 to 425,000 range (The New York Times April 15). “What this tells me is that the labor market isn’t necessarily deteriorating further, but it is not improving at the pace we hoped it would,” Naroff said. Meanwhile, continuing claims increased by 73,000 to nearly 4.64 million (Moody’s Economy.com April 15) … * U.S. industrial production crept up 0.1% in March, falling short of expectations, despite growth in the important manufacturing sector and highlighting the uneven character of the growing economic recovery (The New York Times April 15). Industrial production increased at an annual rate of 7.8% in the first quarter, according to the Federal Reserve. Manufacturing output rose 0.9% in March, led by widespread gains among durable goods industries. Factory production was likely held down in February by the winter storms but nonetheless rose at an annual rate of 6.6% for the first quarter as a whole. For The Federal Reserve report, use the link. “Manufacturing is doing pretty well--it is still very much in the lead,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “The momentum is carrying on into the second quarter as well. Capital spending, which was already strong at the end of 2009, is continuing into this year, and that’ll support the recovery” (Bloomberg.com April 15) …

Egan tells IReutersI jobs needed to sustain recovery

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MADISON, Wis. (4/16/10)--The Federal Reserve’s release of its Beige Book report and Fed Chairman Ben Bernanke’s statements before Congress this week indicate the economy is stalling because of unemployment, Dan Egan, president of the Massachusetts Credit Union League, told Reuters Wednesday. “It all comes back to jobs,” Egan told the new agency. “We’re trying to replace eight million lost jobs and until we can get some kind of sustained job growth, we’re not going to be able to get a sustained recovery.” The Beige Book is an informal compilation of the activities in the districts. Districts reported increases in retail sales and vehicle sales, and in tourism. However, reports on the service sector were generally mixed (News Now April 15). Bernanke told Congress that policymakers anticipate maintaining low interest rates for a long time and are not ruling out the possibility of the economy lapsing back into recession, Reuters said. Egan is president of the Massachusetts league, the New Hampshire Credit Union League and the Credit Union Association of Rhode Island. To read the article, use the link.

Fed Beige Book Housing labor activity picks up

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WASHINGTON (4/15/10)--Overall economic activity increased somewhat for 11 of 12 Federal Districts, based on information each district collected before April 5. The exception was the St. Louis District, which reported "softened" economic conditions, according to the Federal Reserve's Beige Book report released Wednesday. The report is an informal compilation of the activities in the districts. Districts reported increases in retail sales and vehicle sale, with tourism up in several districts. However, reports on the service sector were generally mixed. Among the activities reported:
* Manufacturing activity rose in all districts but St. Louis, with an increase in new orders. * Housing market activity increased from low levels in many districts. However, commercial real estate activity remained very week in most districts. * Activity in the banking and finance sector was mixed in several districts, with the decrease of loan volumes and credit quality. Atlanta, St. Louis and Kansas City saw weaker loan demand across categories while San Francisco's activities were flat at low levels, and Dallas reported that demand appears to be stabilizing. Demand for consumer credit declined in New York and rose slightly in Philadelphia. Cleveland reported weak consumer loan demand. Business and industrial loan volumes dropped in Philadelphia, Cleveland and Chicago, were flat in New York, and continued modest gains in San Francisco. * Agricultural conditions also were mixed, with positive conditions reported in the central and western U.S. and negative conditions reported in the mid- and Southern Atlantic districts. * While labor markets stayed weak, the districts reported some hiring, especially in temporary positions. They characterized wage pressures as minimal or contained. Retail prices remained level but some input prices rose, said the report.
Use the link to access the Fed's full report.

Market News (04/14/2010)

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MADISON, Wis. (4/15/10)
* U.S. consumer prices rose a seasonally adjusted 0.1% in March--with prices excluding food and energy unexpectedly unchanged--a sign that slight inflation is part of the economic recovery (Bloomberg.com April 14). “Inflation as a concern is relegated to the distant future,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC. “It gives the Fed flexibility to keep rates low for awhile.” The 0.1% rise in the consumer price index matched expectations and followed no change in February, the Commerce Department said Wednesday. Most of the uptick was because of a sharp increase in fruit and vegetable prices (Moody’s Economy.com April 14). Even though the U.S. economy appears to be recovering, there still are downward forces on consumer prices, Moody’s said … * Mortgage loan application volume dropped 9.6% on a seasonally adjusted basis for the week ended April 9, 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 decreased 9.5%, compared with applications the previous week. This is the third lowest Market Index recorded since the end of June 2009, MBA said. “Applications for government mortgages dropped substantially last week, following the implementation of an increase in Federal Housing Administration mortgage insurance premiums,” said Mike Fratantoni, MBA vice president of research and economics. Applications for conventional mortgages also declined last week, with refinance application volume continuing to drop. The Refinance Index fell 9% from the previous week, marking the index’s fifth consecutive decline. The seasonally adjusted Purchase Index decreased 10.5% from one week earlier. The unadjusted Purchase Index dropped 10% compared with the previous week and was 17.5% lower than the same week one year ago. The decline in purchase applications was driven by government purchase applications, which declined 19.1% from last week, compared with a decrease of 2% in conventional purchase applications, MBA said. For the MBA report, use the link … * U.S. retail sales rose 1.6% in March, led by auto sales but also buoyed by widespread growth because consumers are spending, the Commerce Department said Wednesday. Sales--excluding autos--were up 0.6%, and core sales--excluding autos and gas stations--increased 0.7%. Also, February sales were revised upward, placing them a substantial 7.6% above their year-ago level (Moody’s Economy.com April 14). The March sales increase is a sign consumers will play a bigger role in the widening economic recovery (Bloomberg.com April 14). “Consumers are gradually finding their way back to the stores,” said Ken Mayland, president of Clearview Economics LLC. “The talk about the ‘new consumer’ turns out to be a lot of rubbish. We’re seeing vestiges of the ‘old consumer.’” The report provides the most recent evidence that consumers are starting to spend again, despite big debt burdens and dim job prospects (The New York Times April 14) … * Total U.S. business inventories were up 0.5% in February--matching expectations. The gain was widespread with inventory builds experienced among manufacturers, retailers and wholesalers (Moody’s Economy.com April 14). The aggregate inventory-to-sales ratio was unchanged at 1.27--down from 1.46 a year ago. Because inventories are low, businesses need to add to stockpiles to keep pace with sales--making the inventory cycle a near-term support for growth, Moody’s said ...

News of the Competition (04/14/2010)

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MADISON, Wis. (4/15/10)
* In a sign it remains concerned about the health of community banks, the Federal Deposit Insurance Corp’s (FDIC) board voted Tuesday to extend by six months its program offering unlimited deposit insurance for business accounts, reported American Banker (April 14). Industry groups and bankers applauded the extension, saying the move helps banks circumvent a liquidity problem while the economy continues to stabilize. The extension also provides businesses with assurances that their deposits are safe with smaller banks, they added … * Morgan Stanley told investors that because of bad property investments in its $8.8 billion real estate fund, the company could lose nearly two-thirds of its money (The Wall Street Journal April 14). If that should happen, it would constitute the largest dollar loss--$5.4 billion--in the history of private-equity real estate financing, the newspaper said. The losses stem from investments in properties such as Intercontinental hotels throughout Europe, a large development project in Tokyo, and the European Central Bank’s Frankfurt, Germany, headquarters--among others. During the past 20 years, Morgan Stanley’s real estate unit was one of the biggest buyers of property worldwide, completing roughly $174 million in deals since 1991 ... * JPMorgan Chase & Co.’s first-quarter earnings were bolstered by the improving economy, as the company’s delinquencies continue to decrease and it had to earmark less money for bad loans (The Wall Street Journal April 14). The second largest U.S. bank saw its market capitalization increase 55% from a year earlier to $3.3 billion, while its provision of credit losses for all loans it manages dropped 30% to $7 billion, helping several lines of business, the Journal said. “There is a clear and broad-based improvement in the economic statements in the U.S. and around the world,” said Jamie Dimon, JPMorgan Chase CEO. “This could be the makings of a good recovery,” he said (The New York Times April 14) …

News of the Competition (04/13/2010)

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MADISON, Wis. (4/14/10)
* The Federal Trade Commission (FTC) is providing an additional $4 million in restitution to victims of an old billing scam. The additional payments raise the total to more than $16 million that the FTC has mailed out since June for a credit card billing scam operated by J.K. Publications (CollectionsCredit Risk.com April 13). J.K. Publications placed charges on consumers’ credit and debit cards for Internet entertainment services they hadn’t wanted or ordered, the FTC said. Most of the illegal billing dates back to 1998. The FTC filed a lawsuit in 1999. An estimated 145,000 redress checks started going in the mail Friday, bringing the total to nearly 550,000 mailed since June … * JPMorgan Chase & Co.’s losses from home lending and credit cards could impact its first-quarter earnings (Bloomberg.com April 13). The second-largest U.S. bank by assets will file its earnings report today. JPMorgan’s profit likely was about $2.93 billion, or 64 cents per share, according to the average estimate of analysts surveyed by Bloomberg. That compares with net income of $3.28 billion, or 74 cents per share, in the fourth quarter and $2.14 billion, or 40 cents per share, a year ago during the nadir of the financial crisis. “The key factor for banks this quarter will be to say reserve builds are largely behind us and the outlook for lower problem loans and loan losses have improved for the second half of the year,” said Anthony Polini, an analyst at Raymond James & Associates. “It’s the outlook that matters” … * Washington Mutual (WaMU) was heavily involved in fraudulent and risky lending, according to new documents released by a U.S. Senate panel this week. The documents also indicated that WaMu’s top executives were given rewards as their company was imploding in the largest collapse in American banking history (The New York Times April 12). The company’s tribulations were well-known to WaMu executives, evidenced by excerpts from e-mail messages and other internal documents released Monday by the Senate permanent subcommittee on investigations. “Using a toxic mix of high-risk lending, lax controls and compensation policies [that] rewarded quantity over quality, Washington Mutual flooded the market with shoddy loans that went bad,” said U.S. Sen. Carl Levin (D-Mich.), the panel’s chairman … * Lehman Brothers deployed a small “alter ego” company to shift investments off its books in the years prior to its collapse (The New York Times April 12). The firm--called Hudson Castle--performed a behind-the-scenes role and allowed billions of dollars to flow through Lehman Brothers, according to interviews with former employees and an internal Lehman document, the Times said. The surfacing of the relationship brings new questions about the extent to which Lehman hid its financial conditions before nosediving into bankruptcy, the paper said …

Market News (04/13/2010)

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MADISON, Wis. (4/14/10)
* The U.S. trade deficit widened more than expected in February because imports rose--mounting proof of a recovery in economic growth (Bloomberg.com April 13). The trade deficit--the gap in value between imports and exports--jumped 7.4% to $39.7 billion, the Commerce Department said Tuesday. The deficit was higher than the $39 billion deficit Wall Street had anticipated (The Wall Street Journal April 13). Imports increased 1.7% because Americans purchased more computers and televisions manufactured overseas. Exports did not keep pace, rising 0.2% in February--but that was the highest level since October 2008. Businesses bought imports as they aimed to restock inventories and replace aging equipment. Most of the growth was fueled by purchases of industrial supplies and capital goods such as machinery and tools. “With most businesses looking to stabilize or modestly boost inventories, underlying demand for imports has picked up substantially,” Joshua Shapiro, chief U.S. economist for consulting firm MFR, wrote in a research note. “Exports will continue to be supported by better economic conditions abroad” (The New York Times April 13) ... * Chain store sales in the U.S. grew slightly by 0.1% in the week ended April 10, according to the International Council of Shopping Centers (ICSC) sales index. Although the Easter holiday that bolstered sales the previous week was a drag this week--the effect was less than expected, ICSC said. The year-ago change remained robust, despite dropping to 4% from 4.7%. Continuing warm weather reportedly boosted sales for the week, ICSC said. While consumer fundamentals still are weak, they are slowly improving. The largest and most salient drag is high unemployment, which will engender only modest wage growth and will place a damper on confidence, ICSC said (Moody’s Economy.com April 13) … * With its U.S. April vehicle sales ahead of the year-ago level, Ford Motor Co. is “encouraged,” said Mark Fields, president of Ford’s Americas division. “We’re starting to see the economic metrics start to go in the right direction,” Fields said. “I’m cautiously optimistic on consumer confidence.” While he didn’t provide specifics on Ford’s sales performance, the automaker’s U.S. deliveries tallied 133,979 in April 2009, according to Autodata Corp., an industry researcher. Deliveries industrywide increased 24% in March, Autodata added. Overall U.S. auto market sales fell to a 27-year low in 2009 (Bloomberg.com April 13) …

News of the Competition (04/12/2010)

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MADISON, Wis. (4/13/10)
* One U.S. bank failed Friday and entered into a purchase-and-assumption agreement with another bank, according to the Federal Deposit Insurance Corp. (FDIC). The failure brings the 2010 total to 42, following 140 failures last year. Beach First National Bank, Myrtle, S.C., was assumed by Bank of North Carolina, Thomasville, N.C. Beach First National held $585.1 million in assets as of Dec. 31. The FDIC estimated the bank’s failure will cost the Deposit Insurance Fund about $130 million (mybanktracker.com April 12) … * U.S. regulators failed for years to adequately oversee Washington Mutual (WaMu)--a huge savings and loan--even when the company struggled with risky subprime mortgages, according to a report slated for release this week by the inspectors general for the Federal Deposit Insurance Corp. (FDIC) and Treasury Department. The report found that WaMu failed mainly “because of management’s pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls.” The report also indicated that the two agencies--the FDIC and the Office of Thrift Supervision--supervising WAMU feuded to such an extent that they could not agree that the company was “unsafe and unsound “ until Sept. 18, 2008, at which time it was too late (The New York Times April 11) … * Three large U.S. banks--Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.--might have to earmark an additional $30 billion--to account for possible losses on home equity loans. That amount is nearly equal to analysts’ estimates of profit at the three banks this year (Bloomberg.com April 12). CreditSights Inc.--a New York-based research firm--tabulated the cost of the reserves. Potential writedowns on the loans are threatening earnings, and analysts are trying to determine how much and how quickly loan-loss expenses will decrease from their June 2009 zenith, Bloomberg said. “While a lot of people are looking for dramatic improvement in the short term, one area that still has to be worked through in a material way is home equity,” said Baylor Lancaster, CreditSights senior bank analyst. The process will take several months and won’t impact financial statements until later this year, he added … * The projected cost of the federal government’s bailout of unstable companies and financial markets is declining to just a fraction of previous estimates, said The Wall Street Journal (April 12). The reason is that companies that looked lifeless a few months ago now are increasingly repaying taxpayers for the aid they received during the financial crisis, the Journal said. The overall cost to the government--which includes capital infusions into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and the Troubled Asset Relief Program--is likely to reach $89 billion, the Journal said …

Market News (04/12/2010)

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MADISON, Wis. (4/13/10)
* It’s “premature” to declare an end to the current recession that started in December 2007, said the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee Monday. “Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature,” the committee said in a statement on its website. The committee defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.” It uses a few select economic metrics, including employment, gross domestic product (GDP) and income to mark the beginning and end of recessions (The Wall Street Journal April 12). The NBER committee defines a recession as a “significant” decline in economic activity during a sustained period of time. The decrease would be manifest in GDP, industrial production, payrolls, and sales and incomes (Bloomberg.com April 12) … * Three major U.S. credit bureaus--Equifax Inc., Experian PLC and TransUnion LLC--are broadening the types of personal data they can provide financial institutions in attempts to bolster banks’ capacity to accurately assess loan candidates (American Banker April 12). The assets and income of borrowers are “going to be more of an indication of their ability to repay than just the credit report,” said A.R. Smith, the president of American Home Bank in Mountville, Pa. During the past decade, underwriting and marketing processes mostly overlooked borrowers’ capital and capacity to pay, focusing more on a borrower’s character, the publication said. The three credit bureaus and credit score provider Fair Isaac Corp. are creating services that provide lenders with a “more holistic view of the customer,” which will include a consumer’s income and overall worth, the publication said …

News of the Competition (04/09/2010)

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MADISON, Wis. (4/12/10)
* Because federally assisted deals continue to dominate the deal arena, 2010 will likely be a repeat of last year for bank mergers and acquisitions, said PricewaterhouseCoopers LLP (PWC) (American Banker April 9). Deal volume increased nearly 11% last year because multiple banks closed and were sold by the Federal Deposit Insurance Corp. However, there essentially were no big mergers, so the overall dollar value of bank deals nosedived to $6.4 billion from $116.1 billion in 2008, the publication said. “Such deals provide downside protection through loss-sharing agreements at a time when there is still significant uncertainty about credit costs,” PWC said Thursday in an annual outlook statement. The trend could continue, because the FDIC has said it anticipates more banks will fail in 2010 than last year, PWC said … * During the past five quarters, major U.S. banks have hidden their risk levels by temporarily lessening their debt level right before reporting it to the public, according to the Federal Reserve Bank of New York. A group of 18 banks understated debt levels used to fund securities trades by lowering them by an average of 42% at the end of each of the past five quarters, the bank said. The group of banks includes Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley. After publicly releasing debt at the end of each quarter, the banks then elevated the debt levels in the middle of successive quarters (The Wall Street Journal April 8) … * Many mortgage loan originators have voiced displeasure at perceived practices of big U.S. banks underpaying them for mortgages, therefore driving up mortgage rates for consumers, reported American Banker (April 9). Large banks service roughly 70% of U.S. home mortgages--with their margins now about four times the 25 basis points during the boom years, the publication said. The big mortgage aggregators “know their customers hate what they're doing,” Ken Richey, partner of Richey May, a national accounting firm for mortgage companies, told the publication. “But they're going to milk it as long as they can. … There’s concern as to whether there's a movement, if you will, for the big to squish the small” … * MasterCard is slated to unveil a new online shopping mall--dubbed MasterCard Marketplace--today, which it claims can accurately predict what its cardholders likely will buy (The New York Times April 9). The site operates on technology developed by Next Jump. The company monitors customer behavior at thousands of retailers and then uses the gathered data to help merchants customize product offerings, the newspaper said. However, some privacy advocates raised concerns that the technology makes them uncomfortable because consumers will have no control over their own data, the paper added …

Market News (04/09/2010)

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MADISON, Wis. (4/12/10)
* U.S. retailers reported Thursday that during March they experienced their strongest monthly sales growth in a decade, with large gains in every merchandise category and every store type. Collectively, the industry recorded a 9.1% sales increase at stores in business for at least a year--the most robust result since the group began tracking data in 2000--according to Thomson Reuters. “This really seems to herald the end of the consumer slowdown,” said Bill Dreher, senior research analyst at Deutsche Bank Securities. “Consumers across the entire spectrum are spending. It’s department stores, it’s discount stores, warehouse clubs--it’s in all subcategories in retailing, which is new” (The New York Times April 8). In a related matter, Wal-Mart Stores Inc. is reducing prices on thousands of items in a strong push to bolster its reputation as a discount leader as it aims to reverse months of diminishing U.S. sales (The Wall Street Journal April 9). “We felt the need to increase the intensity and excitement with our customer, especially the feeling that Wal-Mart has great deals,” said Stephen Quinn, Wal-Mart chief marketing officer … * U.S. wholesalers’ inventories increased 0.6% in February--a sign that companies are gearing up orders because sales are rising to their highest level in more than a year (Bloomberg.com April 9). The advance in the value of stockpiles was larger than expected and followed a revised 0.1% increase the previous month, the Commerce Department said Friday. Wholesale inventories were forecast to rise 0.4%, according to economists surveyed by Bloomberg News. “Wholesalers will start building inventories over the next few months as the inventory drawdown comes to an end,” said Kim Whelan, an economist at Wells Fargo Securities LLC. “An inventory build is imminent and once demand is there, production will ramp up.” The roughly $393 billion inventory rise in February is the largest uptick since November 2009 (The Wall Street Journal April 9) …

News of the Competition (04/08/2010)

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MADISON, Wis. (4/9/10)
* Roughly two-thirds of customers at failed U.S. banks switched to a different bank or were likely to change banks in the months after a takeover by the Federal Deposit Insurance Corp., according to a Deloitte Center for Banking Solutions survey slated for release this week (American Banker April 8). The results bring up key questions about assumptions acquirers make when they price failed-bank deals, and what actions they should take to reduce customer attrition, analysts said. “I think it presents both a risk and an opportunity for the banks that acquire failed institutions,” Mark Fitzgibbon, an analyst with Sandler O'Neill, told the publication. “If you're buying a failed company, it's incumbent upon you to commit a lot of energy to communicate with the customers of the bank, and make sure that they’re comfortable with the new institution, and that they know what's happening.” Customers many times depart a failed bank for emotional reasons--they don’t have loyalty to the new bank--or competitors pursue them with offers, the publication said ... * Three Puerto Rican banks with more than $20 billion in combined assets are facing challenges, which the Federal Deposit Insurance Corp. must solve without creating problems for the seven other financial institutions in Puerto Rico’s market, reported American Banker (April 8). The banks are: $12 billion-asset Westernbank Puerto Rico, $6 billion-asset R-G Premier Bank of Puerto Rico and $2.6 billion-asset Eurobank. They account for nearly 25% of the assets in Puerto Rico and experienced extreme damage from real estate problems and a local recession, the publication said. All three were subject to federal enforcement actions, and two signaled they may not survive. “The best solution would be to do this in a way that the healthy [institutions in Puerto Rico] all have a part in it, because that way you would end up with a consolidated industry, but also an industry that’s not overly weighted in any one [institution],” said Bain Slack, an analyst at KBW Inc.’s Keefe, Bruyette & Woods Inc., who follows Puerto Rico banks ... * In the first two months of this year, originations of single-family mortgages backed by the Federal Housing Administration (FHA) dwindled. Loan production dropped to $22.3 billion in February--down 25% since December, according to FHA’s monthly activity report released Tuesday. The February decline could be due to severe weather, FHA said. Lenders originated $30.1 billion of FHA-insured loans in December and $26 billion in January (National Mortgage News via American Banker April 8) …

Market News (04/08/2010)

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MADISON, Wis. (4/9/10)
* Automated Clearing House (ACH) payment volume rose by more than 475 million transactions in 2009, bringing year-end total transaction volume to 18.76 billion, a 2.6% increase over 2008 activity, according to NACHA--The Electronic Payments Association. Year-over-year comparisons demonstrated strong volume increases in ACH native electronic payments--direct deposit, consumer Internet transactions, and business-to-business transactions--and in back-office check conversion. Also, NACHA is reporting a continued positive trend in risk mitigation, manifested by the ongoing decrease in the unauthorized debit volume. For the NACHA report, use the link … * Roughly 1.2 million U.S. households were lost from 2005 to 2008, despite a population increase of 3.4 million in the study area, as Americans experienced one of the worst recessions in decades, according to a study released Wednesday by the Mortgage Bankers Association (MBA). The decline in households is likely what contributed to an excess supply of apartments and single family homes on the market. The report entitled, “What Happens to Household Formation in a Recession,” was written by Gary Painter, associate professor in the School of Policy, Planning and Development at the University of Southern California, and sponsored by the Research Institute for Housing America (RIHA). It analyzes the impact of economic and housing conditions on household formation and how the recent recession affected Americans’ propensity to form new households, mobility trends, and changes in the rate of overcrowding. “With such a significant drop in households nationwide, it is clear the most recent recession impacted individuals’ decisions to move out on their own and caused many Americans to join already formed households,” Painter said. The analysis focused on household formation as of 2008. “Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all,” he added. For the MBA report, use the link … * Initial U.S. claims for unemployment benefits unexpectedly rose last week--a development partly attributed to the Easter holiday and other seasonal factors by some analysts, and seen by others as a sign that jobs remain scant, even as the economy recovers (The Wall Street Journal and The New York Times April 8). Claims rose by 18,000 to 460,000 in the week ended April, the Labor Department said Thursday. Economists had expected claims to fall by 1,000, according to a Dow Jones Newswires survey. The prior week’s level was revised upward to 442,000 from 439,000. Because the week before Easter and the two following weeks are usually a volatile time for claims, it is difficult to calculate the underlying claims trend, said a Labor Department analyst. “The trend is still down,” said Jonathan Basile, an economist at Credit Suisse in New York. “I would look for continued gradual improvement as we go forward” (Bloomberg.com April 8) … * U.S. mortgage rates for the week ended April 8 leapt to the highest level in nearly eight months--a development that increases buyers’ borrowing costs and poses a threat to the recovery of the housing market during a time when government efforts to spark demand are ending (Bloomberg.com April 8). By the week’s end, rates for 30-year fixed loans increased to 5.21% from 5.08%--the highest level since the week ended Aug. 13--said mortgage company Freddie Mac. The average 15-year rate was 4.52%, Freddie added. “There’s a big supply out there and a lot of the federal-type programs are kind of ending,” said George Mokrzan, senior economist at Huntington National Bank. “There are still weak markets out there” (Bloomberg.com April 8) …

News of the Competition (04/07/2010)

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MADISON, Wis. (4/8/10)
* The Treasury Department’s bailout of financial firms to date has resulted in an 8.5% return, or $10.5 billion profit, according to private analysis by financial research firm SNL Financial. The report, issued this month, tabulates money the government earned on the sale of preferred stock and warrants held through the Troubled Asset Relief Program (TARP). The profit resulted from $118.3 billion in aid the 49 firms that “fully exited” TARP returned to the Treasury, said Dow Jones Newswires via American Banker (April 7). “The outlook for the U.S. financial system has improved, taxpayers are being repaid, the expected cost of resolving the financial crisis has fallen dramatically, and Treasury is winding down many programs that were put in place to address the crisis,” said Meg Reilly, a Treasury spokeswoman … * U.S. regional bank shares rose Tuesday, with investors remaining confident in the sector amid improvement in credit quality and ahead of earnings, which allowed the stocks to outperform the broader market (Dow Jones Newswires via American Banker April 7). Investors have been buying regional banking stocks since the start of the year, helping the stocks to outperform, said Oppenheimer analyst Terry McEvoy. Interest in the sector has continued because earnings reports are only a couple of weeks away, he added. “Usually at the end of a quarter, if there’s bad news to report from an individual bank, it’s disclosed,” McEvoy said, adding he has not seen any major negative pre-announcements. “That has also given investors confidence in first-quarter results” … * In the six months after emerging from bankruptcy protection, General Motors (GM) said Wednesday in its first earnings report since its bankruptcy that it had sustained $4.3 billion in losses. However, during that period, it also experienced positive cash flow of $1 billion. GM said it had $22.8 billion in cash reserves as of Dec. 31. The $3.9 billion of the $4.3 billion it lost between July 10 and Dec. 31 was due to a settlement with the United Automobile Workers union concerning retiree health care liabilities and to a “foreign currency re-measurement loss,” GM said. The automaker should “have a chance of achieving profitability in 2010,” said Christopher P. Liddell, GM chief financial officer (The New York Times April 7) …

Market News (04/07/2010)

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MADISON, Wis. (4/8/10)
* Mortgage loan application volume for the week ended April 2 declined 11% on a seasonally adjusted basis 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 decreased 10.5%, from the previous week. Mortgage rates jumped last week as the Federal Reserve completed its purchases of mortgage-backed securities, said Michael Fratantoni, MBA vice president of research and economics. “Refinance application volume dropped as mortgage rates reached their highest level since August 2009. Purchase volume was essentially unchanged relative to the prior week going into the Easter weekend,” he said. The Refinance Index dropped 16.9% from the previous week and the seasonally adjusted Purchase Index increased 0.2%. The unadjusted Purchase Index rose 0.5%, compared with the previous week, and was 18.1% lower than the same week one year ago. For the MBA report, use the link … * U.S. CEOs turned more optimistic as sales grew in the first quarter, bolstering the possibility that employment and spending will rise, according to a survey. For the first three months of the year, the Business Roundtable’s economic outlook index increased to 88.9--the highest level since second quarter 2006. Readings above 50 are consonant with economic growth. Of the CEOs surveyed, 73% said they anticipate sales will grow in the next six months--up from 68% in the fourth quarter. Also, 47% said they intend to invest in capital equipment. And 29% indicate they will increase payrolls--a 10-point rise from the prior three months. “As the economy recovers and demand returns, we are seeing across-the-board increases in sales, resulting in increased capital expenditures, less job reduction and some employment stabilization,” said Ivan G. Seidenberg, chairman of the Business Roundtable and CEO of Verizon Communications Inc. The Business Roundtable is an association of CEOs of corporations with 12 million employees combined and nearly $6 trillion in annual revenue. “The survey shows each category of economic measurement moving in the right direction” (Bloomberg.com April 7) … * Optimism about a U.S. retail sales recovery has not yet yielded gains for shopping center owners, according to real estate research company Reis Inc. During the first quarter, average lease rates at shopping malls were $38.79 per square foot annually--down 3% from a year earlier and the sixth consecutive quarterly decline, Reis said. Lease rates at shopping centers--which are smaller than malls--fell to $16.62 in the first quarter, down 1% from the previous quarter and down 3.4% from a year earlier. The drop was the seventh consecutive quarterly decline in shopping center lease rates, Reis said. Meanwhile, vacancy rates continued to rise by 8.9% in the first quarter at malls in the top 77 U.S. markets. “The stress might be lessening and rent declines moderating,” said Victor Calanog, Reis director of research. “But we don’t see positive rent growth resuming until the middle of next year at the earliest, just because of the typical lag” (The Wall Street Journal April 7) …

Fed minutes Extended-period pledge not tied to time

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WASHINGTON (4/7/10)--Federal Reserve policymakers debated over the language for their March 16 decision to leave the fed target interest rates unchanged for an "extended period." The minutes for the Federal Open Market Committee's (FOMC) meeting that day indicate that "extended period" is based not on time but on the evolution of the economy. Many economists have interpreted the "extended period" language to mean six months. However, the FOMC meeting minutes say otherwise. "A number of members noted that the Committee's expectation for policy was explicitly contingent on the evolution of the economy rather than on the passage of any fixed amount of calendar time," said the minutes, which were released Tuesday. "Consequently, such forward guidance would not limit the Committee's ability to commence monetary policy tightening promptly if evidence suggested that economic activity was accelerating markedly or underlying inflation was rising notably; conversely, the duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further." Some Fed officials have suggested that "extended period" might be six months to 12 months. However, one committee member, Thomas M. Hoenig, suggested changing the language to conditions might warrant "a low level of the federal funds rate for some time." In discussing the outlook for inflation, "participants took note of signs that inflation expectations were reasonably well-anchored, and most agreed that substantial resource slack was continuing to restrain cost pressures," the minutes said. Use the link to access the full minutes of the meeting.

News of the Competition (04/06/2010)

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MADISON, Wis. (4/7/10)
* Independent Bank Corp., an Ionia, Mich.-based holding company of Independent Bank, announced Monday it has signed an agreement with the Treasury Department as part of the corporation’s capital restoration plan under the Troubled Asset Relief Program. The $3 billion asset bank’s deal will eventually allow it to convert preferred shares held by the Treasury into common stock (American Banker April 6). The conversion is an element of the firm’s capital restoration plan, said Robert Shuster, Independent’s chief financial officer. Although not operating under a regulatory order requiring the conversion or addition of capital, Independent’s board of directors adopted a capital plan that will require increased capital ratios--8% leverage and 11% total risk capital--and moving a larger portion of capital into common ownership, Shuster told the publication … * Three automakers--Daimler, Nissan and Renault--are expected to announce an alliance this week in which they would share technology and obtain an ownership stake in each other. The move is the most recent sign of industry consolidation, reported The New York Times (April 6). Nissan and Renault already are tightly aligned, sharing ownership stakes and a CEO, Carlos Ghosn, the newspaper said. Negotiations began with the companies searching for ways to share development costs for Renault’s Twingo line and Daimler’s Smart cars. The talks have been expanded to include collaboration on light commercial vehicles and development of smaller engines, said a source familiar with the situation. Also, Daimler could supply its new partners with larger engines, the source added … * In the aftermath of a $16.4 million federal fine, Toyota Motor Corp. could face a rough road in defending itself in U.S. lawsuits for flaws in its vehicles (Bloomberg.com April 6). Saying Toyota “knowingly hid a dangerous defect,” U.S. Transportation Secretary Ray LaHood fined the automaker. On Monday, the National Highway Traffic Safety Administration proposed the record civil penalty related to Toyota’s January recall of 2.3 million U.S. autos for accelerator pads that allegedly stick. After being cognizant of the problem since at least September, Toyota failed to act in a timely manner, LaHood said. The fine constitutes less than 2% of Toyota’s projected net profits for the year ending March 31, Bloomberg said … * Although many Wall Street CEOs agreed to large pay cuts last year, their traders experienced the largest collective payday on record, according to The Wall Street Journal (April 6). Top financial firms paid $140 billion in compensations and benefits--the highest amount in history, based on a computation of pay disclosures at 38 financial services firms, the Journal said. The figure represents an increase from $123 billion in 2008 and $137 billion in 2007, the paper said …

Market News (04/06/2010)

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MADISON, Wis. (4/7/10)
* The quickest growth in global currency reserves since the credit crisis began is slowing a rise in Treasury yields, even with growing concerns about record U.S. borrowing to finance an unparalleled budget crisis (Bloomberg.com April 6). For the 12 months ended in March, global reserve assets rose 18% to $7.8 trillion--the largest jump since the collapse of Bear Stearns Cos. in March 2008--according to data culled by Bloomberg. “If you go into Treasuries, you’ll be winning because of the rising dollar, even if yields rise,” said Christoph Kind, head of asset allocation at Frankfurt Trust in Frankfurt, Germany. “There was a lot of speculation about Asia diversifying away from the dollar, but I think there is a bit of frustration from what happened to the euro after the Greek crisis” … * Gross hiring in February dropped to 3.96 million from 4.09 million in January--perhaps partly due to severe winter weather, according to data from the Job Openings and Labor Turnover Survey (JOLTS). However, February separations also fell to 3.96 million from 4.16 million in January. The most unease was caused by a decrease in job openings to 2.72 million in February from 2.85 million in January, analysts said. JOLTS is still indicative of a labor market that is in transition. Despite the February retreat, hard-hit industries such as construction and manufacturing are beginning to seek new workers, offering signs of improvement, analysts added (Moody’s Economy.com April 6) … * Ending five consecutive quarters of declines, U.S. apartment rents climbed during the first quarter--a sign that the hard-hit sector could be turning the corner, according to The Wall Street Journal (April 6). The apartment vacancy rate remained flat at 8%--the highest level since 1980, when New York-based research firm Reis Inc. began compiling data, the paper said. Rents rose in 60 of the top 79 U.S. markets that Reis tracks, led by Miami, Seattle and New York--all cities that have experienced big rental decreases in the past year, the Journal said. “Deterioration seems not to have just been arrested, but reversed,” said Victor Calanog, Reis director or research. “Several markets have bottomed and may be on track to recovery,” he added … * Core inflation should fall further this year to about 0.3% in the U.S. and 0.2% in the euro area, said Goldman Sachs Group economists (Bloomberg.com April 6). The projection is based on core consumer prices--which exclude volatile food and energy costs. Core-consumer prices rose a record low 1.5% in February from a year earlier in the 30 countries that constitute the Organization for Economic Cooperation and Development (OECD). Slack that was built up during the global economic slump is driving the disinflationary trend, Bloomberg said. The 1.9% growth in OECD economies forecast for 2010 by the Paris-based organization will leave the countries’ total output for the year 4.1% below potential, Bloomberg added …

News of the Competition (04/05/2010)

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MADISON, Wis. (4/6/10)
* Some community banks say they aren't likely to follow Bank of America's (BofA) lead and drop their overdraft protection programs even as the Fed's Regulation E changes bear down (American Banker April 5). Reg E requires banks to obtain permission by July 1 from new customers for automatic overdraft protection on nonrecurring debit card transactions and ATM withdrawals, and requires banks to obtain opt-in approval from existing customers by Aug. 15. Glaciar Bancorp of Kalispell, Mont., said it considered dropping overdraft protection but noted the fees generate considerable income. Offering protection was better for customers than going without, it said. TCF Financial Corp., Wayzata, Minn., noted overdraft fees account for about 40% of its net income and it doesn't plan to change. Consumer advocates have urged banks to follow BofA's lead ...

Market News (04/05/2010)

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MADISON, Wis. (4/6/10)
* Pending home sales rose in February--by 8.2% to 97.6, according to the National Association of Realtors (The Wall Street Journal April 5). Economists surveyed by Dow Jones Newswires predicted that home sales would drop in February by 0.5%. January’s pending home sales were revised down to 90.2 from an originally reported 90.4, the newspaper said. The Midwest experienced the strongest month-to-month gain--at an increase of roughly 22%, said Moody’s Economy.com (April 5). The West had fewer pending sales compared with January. The overall increase signals that a second surge in sales may be ahead with the expiration of an expanded homebuyer tax credit this month ... * White House economic adviser Lawrence Summers and Former Federal Reserve Board Chairman Alan Greenspan expressed confidence that the economy is recovering. The process of job creation has started and the Obama administration expects it to “accelerate,” Summers told ABC during an interview for “This Week.” Greenspan said he was also optimistic about jobs and the economy, as companies are becoming more confident and investing in new equipment and new inventories. The chances that the economy will fall back after recovering have “fallen very significantly in the last two months,” Greenspan said. Last week, the Labor Department reported that payrolls increased by 162,000--the biggest increase in three years (Bloomberg.com April 5) ... * The nonmanufacturing Institute for Supply Management (ISM) index rose 2.4 points to 55.4 points in March--an encouraging sign because the index has been depressed relative to its manufacturing counterpart because the economic recovery has been so narrow, said Moody’s Economy.com (April 5). The index was 53 in February. March’s increase suggests that growth is broadening from the goods sector. Other encouraging details that Moody’s noted: new orders rose 7.3 points to 62.3, business activity rose 5.2 points to 60 and employment rose 1.2 points to 49.8. New export orders jumped to 57.5 from 47, the biggest increase since June 2007 ...

News of the Competition (04/02/2010)

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MADISON, Wis. (4/5/10)
* U.S. District Court Judge Jed Rakoff in Manhattan dismissed a class-action lawsuit in which Moody’s Investors Service and Standard & Poor’s were accused of defrauding investors about the safety of $63.4 billion of mortgage debt, said The New York Times (April 1). Rakoff also dismissed claims against Bank of America Corp., the ABN Amro unit of Royal Bank of Scotland Group and JPMorgan Chase and Co. He also dismissed a claim against Credit-Based Asset Servicing and Securitization, or C-Bass, which packaged the debt that the banks underwrote. Rakoff said he would explain his reasoning for the dismissals in a later opinion. Plaintiffs had accused the agencies and banks of misleading them about the safety of 84 investment-grade offerings of residential mortgage-backed securities, the newspaper said ... * Auto sales in the U.S. increased by 24% in March to more than one million cars and light trucks. Toyota Motor Corp. saw its sales go up 41% after offering 0% financing and other incentives to counter its widespread recalls February. General Motors said sales of Chevrolet, Cadillac and GMC rose 41%, 42% and 45% respectively. Buick sales jumped 76% (The New York Times April 1 and The Wall Street Journal April 2). Ford Motor Co. sold 183,425 cars and trucks, up 40%. Last month was just the third time since August 2008 that U.S. light vehicle sales topped one million. The rate was the highest since the government’s rebate program, Cash for Clunkers, boosted selling to 14 million vehicles in August ...

Market News (04/02/2010)

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MADISON, Wis. (4/5/10)
* U.S. consumers planned to spend up to $14 billion on candy, lamb dinners and eggs for Easter, signaling that non-essential purchases are rebounding, said Bloomberg.com (April 1). The boost in Easter spending--projected at 1.8%--would be the first uptick in three years, said IBISWorld, a research firm. Spending for the same period decreased last year by 8.3% and 1% in 2008. Easter, which took place Sunday, usually ranks fourth for spending after Christmas, Valentine’s Day and Mother’s Day, said the National Retail Federation ... * The U.S. future inflation gauge increased to 102.1 in March, from 99.4 in February, according to the Economic Cycle Research Institute (Moody’s Economy.com April 2). The annualized growth rate increased to 28.9% from 26.9%. The gauge has been steadily increasing the past year, though inflation pressures are not expected to pose a problem in the near term, Moody’s said. Similar to the U.S., Canada’s gauge has been on a steady increase for much of the past year. Bank of Canada’s core consumer price index jumped to 2.1% from 2% prior, but inflation is still not expected to be a concern until the economy is on stronger footing, Moody’s added ... * Vacation home sales recovered in 2009 but investment home sales fell, according to the National Association of Realtors. Vacation home sales increased 7.9% to 553,000 last year from 513,000 in 2009. Investment home sales dropped 15.9% to 940,000 in 2009 from 1.12 million in 2008. The Case-Shiller Home Price Indexes posted gains in the fourth quarter of last year for the third consecutive quarter--the longest streak in three years (Moody’s Economy.com April 2). The national index increased quarter over quarter by 1.4%, a drop from the gains of the last two quarters. The national price index is 2.5%, down from a year ago ...

Payrolls first significant step to health--Hampel to IForbesI

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NEW YORK (4/5/10)--Employment increased in March, but it will take years to recover the jobs that were lost, let alone produce meaningful expansion in the labor market, according to Bill Hampel, Credit Union National Association chief economist. “We lost almost 8.5 million jobs in just over two years,” Hampel told Forbes Friday. The job market report released Friday by the Labor Department indicated expansion--employment increased by 162,000 in March. Hampel said it is the “first significant step back toward health.” Hampel advised looking back at how far the labor market has come and how far it has to go. In late 2008 and early 2009, there were five consecutive months with more than 600,000 jobs lost. In January 2009, nonfarm payrolls shed more than 750,000 jobs, Forbes said. Payrolls in March increased after a revised 14,000 dip in February that was smaller than originally estimated, according to the Labor Department’s report (Bloomberg.com April 2). The increase included 48,000 temporary workers hired to conduct the 2010 U.S. Census. The report also indicated that state and local governments reduced employment by 9,000 in March while the federal government added 48,000 workers. The average work week for all workers also increased to 34 hours in March from 33.9 hours the previous month. There was an increase in long-term unemployment--the number of people unemployed for 27 weeks or more reached a record 44.1%.

News of the Competition (04/01/2010)

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MADISON, Wis. (4/2/10)
* Privately held companies that received funds from the Troubled Asset Relief Program (TARP) are concerned about how they will pay it back. So far, four such companies have repaid TARP funds. Roughly 707 companies participated in the program, including 289 companies that are privately held, according to Carson Medlin Co. About $152.2 billion has been repaid by 64 institutions and of that amount, $30.8 million was from private companies. Privately held companies can’t raise capital through public stock offerings, so their options are few, said American Banker (April 1). The companies that repaid TARP funds are: United Labor Bank, Oakland, Calif., which paid $4.9 million; Centra Financial Holdings Inc., Morgantown, W.Va., $15 million; Midland States Bancorp Inc., Effingham, Ill., $10 million; and Midwest Regional Bancorp, Festus, Mo., $700,000 ... * The Federal Reserve Board released details of securities it purchased via Maiden Lane, an investment vehicle, regarding Bear Stearns’s takeover by JPMorgan Chase and Co. (Bloomberg.com April 1). Bloomberg sued the Fed for the information. The Fed has securities guaranteed by Washington Mutual Inc. and Countrywide Financial Corp. The loans were made with limited borrower documentation. Roughly $1 billion of the loans are backed by jumbo mortgages written by Thornburg Mortgage Inc. and which have the lower investment-grade rating. The jumbo loans were bigger than government-sponsored mortgage buyers could finance then--$417,000. The Fed said some of Maiden Lane’s assets were parts of commercial loans for hotels, and securities backed by residential mortgages. The Fed absorbed the risk on its balance sheet and now holds the assets perceived as problematic, said Vincent Reinhart, American Enterprise Institute resident scholar ... * The Treasury Department has selected two individuals--Don Layton, retired CEO of E*Trade Financial Corp., and Ron Rittenmeyer, former CEO of Electronic Data Systems Corp.--to be appointed as directors of American International Group (The Wall Street Journal April 1). Treasury received the authority to elect directors to AIG’s board after the insurer missed four quarterly dividends on shares it issued to the department under the Troubled Asset Relief Program. AIG board members interviewed the Treasury’s picks and other candidates. The directors can be appointed by Treasury without a shareholder vote, the newspaper said ...

Market News (04/01/2010)

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MADISON, Wis. (4/2/10)
* Initial claims for unemployment insurance dropped by 6,000 to 439,000 for the week ended March 27, according to the Labor Department (Moody’s Economy.com April 1). This was the second straight drop in claims. Continuing claims remain high, though they decreased by 6,000 to 4.66 million for the week ended March 20. The number of workers affected by job cut announcements increased to 67,611 in March, said a report from Challenger, Gray and Christmas. “The March number is not appreciably higher than the six-month average of 55,000 cuts,” Moody’s said. About three-quarters of the cuts were in government, divided between cuts in the postal service and state and local government. Hiring will pick up slowly, the report said. Industries such as industrial goods, food, financial, computers, entertainment and autos are adding the most jobs, Moody’s said ... * Construction spending fell 1.3% in February to a seasonally adjusted annual rate of $846 billion, 12.8% below the year-ago level, according to Moody’s Economy.com and The New York Times (April 1). The drop followed a 1.4% decline in January--the fourth consecutive month that construction spending fell. Economists predicted builders would cut down spending by 1%, the Times said. “Spending fell for home building, commercial ventures, including hotels and motels, and big government public works projects, like highways and streets,” the newspaper added. February was a “poor month for construction as flagging public finances and reduced homebuilder confidence started to take their toll,” Moody’s said ... * Manufacturing is expanding as U.S. factories saw their best month of activity in nearly six years in March. The index of manufacturing activity for the month was 59.6, compared with 56.5 the month before, according to the Institute for Supply Management’s index. March’s level also exceeded economists’ expectations, and was the highest reading since July 2004 (The Wall Street Journal April 1). The factory sector report signals continued forward momentum in the economy’s recovery, the newspaper said. Rising demand in the U.S. and Asia is boosting companies including Boeing Co. to Honeywell International, said Bloomberg.com (April 1). A factory rebound could help boost employment gains, the newspaper added. In other news, inflation rose, with the price index at 75 for March, compared with 67 for February (Moody’s) ...