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Market Archive

Market

News of the Competition (07/31/2012)

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MADISON, Wis. (8/1/12)

  • Some U.S. community banks are taking another serious look at closing underperforming branches as they attempt to improve their efficiency ratios amid artificially low interest rates, slack loan demand and regulatory changes that have hurt fee revenue (American Banker July 30). Healthy banks that are shutting down branches include F.N.B. in Hermitage, Pa., and Guaranty Bancorp in Denver, as well as banks losing money such as Anchor BanCorp in Madison, Wis. Also, KeyCorp, an $86.4 billion asset bank based in Cleveland, intends to shut down roughly 5% its 1,000 branches, the Banker said …
  • U.S. banks' second-quarter profits were again driven by mortgage refinancings (American Banker July 30). With interest rates hovering at record lows, the trend should continue at least through the end of 2012, most industry experts say. However, bank CEOs should be contemplating the end of the refinancing boom, the Banker said. Although margins are large now, everyone who can refinance eventually will have done so, and the boom will be over, Joe Garrett, a principal at the consulting firm of Garrett, McAuley & Co. in San Francisco, told the Banker. Most CEOs have said they will adjust for the slowdown by cutting costs, diversifying their sources of revenue, and expanding into new lending areas, the Banker said …

Market News (07/31/2012)

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MADISON, Wis. (8/1/12)

  • U.S. residential real estate prices decreased less than expected in the year ended in May, a further indication that the housing market is beginning a modest recovery (The New York Times, Bloomberg.com  and Moody's Economy.com July 31). The Standard & Poor's Case-Shiller Home Price Index released Tuesday showed gains in all 20 cities it tracks. The index dropped 0.7% from May 2011--the smallest 12-month decline since September 2010. It decreased 1.8% in the year ended in April. The largest monthly increases were seen in Chicago, Atlanta and San Francisco. Detroit, San Diego and Charlotte, N.C., had the smallest gains. A gauge of nationwide prices increased 2.2% from April to May, constituting the second consecutive monthly gain after seven months of flat or decreasing readings  …
  • In July, for the first time in five months, consumer confidence in the U.S. increased because people became more positive about their job prospects later this year, according to private research firm The Conference Board's Consumer Confidence Index (Bloomberg.com, Moody's Economy.com July 31). The index rose to 65.9 last month from 62.7 in June. Economists had forecast a 61.5 reading, according to a Bloomberg News survey. Consumer sentiment is being bolstered by a decline in fuel prices and signs of life in the housing market, Bloomberg said. However, quicker employment gains are necessary to spark consumer spending, which expanded in the second quarter at the slowest pace in a year, Bloomberg said …
  • U.S. business activity unexpectedly increased at a quicker pace in July, according to the Institute for Supply Management-Chicago Inc. index, with the economy absorbing a slowdown in household spending and hiring (Bloomberg.com and Moody's Economy.com July 31). The index rose to 53.7 last month--the highest since April--from 52.9 in June. Readings above 50 indicate growth. A Bloomberg News survey of economists had forecast the gauge would fall to 52.5. Manufacturing may be boosted by the need to restock inventories, which has been an important impetus for the economic recovery, Bloomberg said ...
  • Personal spending in the U.S. was flat in June, but personal income increased 0.5%, the Commerce Department said Tuesday (The Wall Street Journal and Moody's Economy.com July 31). Wage growth drove the rise in personal income, Moody's said. Last month's consumer spending dipped less than 0.1%--constituting the second consecutive monthly drop--compared with May. U.S. households may be hesitant to spend more if consumer confidence stays lethargic, Ellen Zentner, an economist for Nomura Securities said in a research note …

Market News (07/30/2012)

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MADISON, Wis. (7/31/12)

  • Chicago's City Council Wednesday adopted a resolution to explore using eminent domain to purchase underwater mortgages out of securitized packages of loans at a steep discount. The city would write them down to fair market value, then create a new mortgage package with a dramatic reduction in principal and monthly payment (American Banker July 30).   Similar proposals were announced last month by California's San Bernardino County and the cities of Fontana and Ontario. San Bernardino officials are seeking comment on using private funds from Mortgage Resolution Partners to buy and reconfigure the mortgages. The county plans to hold a public meeting Aug. 16. Bondholders oppose the plan, saying that homeowners are not in default and are still paying their mortgage even while owing more on their homes than the homes are worth.  Private-label mortgage-backed securities are being targeted, said the Banker
  • Business confidence for the week ended July 27 was more of the same--soft, which has changed little over the year, according to Moody's Analytics Survey of Business Confidence. Moody's attributed the softness to businesses remaining cautious about the business environment. Sales slumped to where they were in 2010, in the early stages of the economic recovery, while pricing remained weak. The results are consistent with an economy that is growing at the low end of its potential, said Moody's (Economy.com July 30). However, Moody's pointed out that there is no indication that the recovery is at risk.  Much of the survey's recent tepid results stems from fewer positive responses from businesses surveyed, not a higher number of negative responses. In fact,  the number of negative responses still remains low. Equipment and software investment and inventory investment are standing ground and layoffs remain low. Of businesses surveyed, those in manufacturing and business services were more positive, while those working in government were the most negative …
  • The bond market indicates there's less risk of deflation today than there was prior to the first two rounds of quantitative easing introduced by the Federal in 2008 and 2010 to deal with the economic recovery, according to Bloomberg.com (July 29). The anticipation of rising consumer prices as measured in a five-year, five-year forward breakeven rate, indicates that traders believe the U.S. will avoid the chronic deflation that slowed Japan's economy since 1995, said Bloomberg. The Fed's bond-market gauge of inflation expectations ended last week at 2.39%. That is above the 2% levels in 2008 and 2010 that prompted the Fed's infusion of $2.3 trillion into the economy through purchases of Treasuries and mortgage-related bond, Bloomberg said …

News of the Competition (07/30/2012)

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MADISON, Wis. (7/31/12)

  • The Federal Deposit Insurance Corp. (FDIC) announced a bank closing Friday, bringing total bank failures this year to 89. That compares with 157 for the entire year in 2010. The failed bank is Jasper Banking Company, Jasper, Ga., assumed by Stearns Bank National Association, St. Cloud, Minn. The closed bank held about $217 million in assets. The FDIC estimated the latest failure will cost its Deposit Insurance Fund roughly $58 million …
  • Credit quality has diminished at some community banks, with several instances of regression capturing the attention of regulators when most experts thought the economy was headed toward recovery (American Banker July 30). Among the banks with bottom lines affected by poor credit quality are First Financial Bankshares, Abilene, Texas; Southwest Bancorp, Stillwater, Okla.; and S.Y. Bancorp, Louisville, Ky. At First Financial, nonperforming assets increased 17% in the second quarter from a quarter earlier to $33.9 million. Bad loans jumped 13.2% at S.Y. Bancorp and 12.5% at Southwest from the first quarter …
  • Berkshire Bank alleges in a proposed class-action lawsuit in U.S. District Court in New York that it was cheated out of interest income because rates on loans tied to LIBOR were "artificially" depressed. The suit against 16 banks on the panel that sets the rate maintains that lenders were short-changed because borrowers paid less for mortgages and other loans (The Wall Street Journal July 30). LIBOR is used by financial institutions to set interest rates on a variety of financial products, including mortgages, student loans and credit cards. LIBOR for the U.S. dollar is based on information provided by 18 global financial institutions, including several U.S. banks. The Berkshire suit could be used as a template for suits by other financial institutions, including credit unions, according to experts …

CUNA to IBloombergI Liquidity trap limits Fed options

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WASHINGTON (7/30/12)--The U.S. is in a liquidity trap, which limits the options for the Federal Reserve when its policymaking group meets this week, the Credit Union National Association (CUNA) told Bloomberg Friday.

In an article entitled "Fed's Policy Options Limited by 'Liquidity Trap,' Economists Say," CUNA Chief Economist Bill Hampel is the first economist to be quoted.

"We're in a classic liquidity trap, so more liquidity doesn't solve the problem, and taking it away would be catastrophic," Hampel told the publication. "The Fed has used up all the bullets in its gun, and there's essentially not more it can do."

The article also interviewed economists from Credit Suisse, OSK-DMG, RBC, and Morgan Stanley.

The Fed's policymaking body, the Federal Open Market Committee (FOMC) will meet Tuesday and Wednesday, with unemployment stuck at above 8% and second quarter growth rate of 1.5%.

Several Fed officials, including Chairman Ben Bernanke, have indicated that, barring any improvement in the economy, the central bank would need to expand its stimulus campaign. Others suggest delaying a decision until the FOMC's September meeting when more data would be available to whether the economy has lost more momentum (The New York Times July 24).

Bernanke told Congress last week that options being considered include a continuation of its "quantitative easing," or asset purchases, focusing on Treasuries or Treasuries and mortgage- backed securities; altering communications about low-rate pledge/balance sheet; discount window lending; and cutting interest on excess reserves (Bloomberg.com July 27).

Typically, the current economic conditions would warrant a cut in the Fed's benchmark fed funds interest rate, said the Times; however, the rate has been near zero since late 2008 and there is no more to cut.

News of the Competition (07/27/2012)

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MADISON, Wis. (7/30/12)

  • To settle a three-year-old class-action lawsuit by credit card customers, JPMorgan Chase & Co. has agreed to pay $100 million (Reuters July 24). Customers accuse the biggest U.S. bank by assets of improperly raising their minimum payments as a way to produce higher fees. The settlement resolves the case arising from Chase's actions in late 2008 and into 2009 to raise the minimum monthly payments to 5% of account balances from 2% for thousands of cardholders. Also, Chase announced it has revamped some of its business units and reassigned some of its high-profile executives (The Wall Street Journal July 27). The bank said the moves were made to unify its Chase-branded businesses …
  • Growth in Visa's international business is mitigating the hit it has taken in its domestic debit-card business (American Banker July 26). The domestic fall-off is due to an amendment to the Dodd-Frank Act that requires banks to process debit-card transactions over a minimum of two networks. Also, earlier this month, Visa announced it would pay more than $4 billion to resolve a lawsuit regarding credit card swipe fees that retailers filed against the card networks and several big banks. Visa's payment volume rose 41% in Africa, Central and Eastern Europe, and the Middle East in the third quarter from a year earlier. Visa also expanded 20% in Latin America and 8% in the Asia Pacific region, while declining 1% in the U.S.--mostly due to new debit rules, the Banker said …
  • Bank of America (BofA) Thursday unveiled its mobile check-deposit product (American Banker July 26). Currently available on the iPad, Mobile Check Deposit will be available on the Google Android Smartphone or tablet, Window Phone, and the iPhone, BofA said. In Thursday's announcement, BofA also said person-to-person mobile payments will be available in the bank's mobile apps for the iPad, iPhone, Kindle Fire, Windows Phone, and Google Android Smartphone or tablet. It also will be available through a mobile browser in select states and nationwide by the middle of August …

Market News (07/27/2012)

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MADISON, Wis. (7/30/12)

  • With consumer spending slowing due to a softening job market, the U.S. economy grew in the second quarter by a lukewarm 1.5% annual rate, losing some momentum and business investment  it seemed to gain earlier this year (The New York Times, The Wall Street Journal, Bloomberg.com and Moody's Economy.com July 27). Pending U.S. tax policy changes and Europe's debt crisis are hurting consumer confidence and causing them to cut back their purchases, Bloomberg said. Several positive areas in the first quarter eroded or disappeared altogether in the second quarter. These included housing, auto production, computer sales, and large purchases such as appliances and televisions, the Times said. In a related matter, the first year of the economic recovery from the most severe recession in more than a half century was weaker than previously estimated, the Commerce Department said Friday (Bloomberg.com July 27). Gross domestic product increased 2.5% in the 12 months after the economic contraction ended in June 2009, compared with the 3.3% previously reported …
  • U.S. consumer confidence fell in July to the lowest level in 2012, with the labor market and overall economy providing scant signs of improvement, according to the Thomson Reuters/University of Michigan Consumer Sentiment Index (Bloomberg.com and Moody's Economy.com July 27). The index decreased to 72.3 this month from 73.2 in June. A second-quarter hiring slowdown is restraining the mood of consumers--whose spending constitutes roughly 70% of the U.S. economy, Bloomberg said. Also, consumer sentiment slipped lower in the most recent week, according to the Bloomberg Consumer Comfort Index. The index dipped 0.6 of a point to -38.5--a two-month low--for the week ended July 22 from -37.9 the prior week. Perceptions of the buying climate dragged the index lower, while consumers were a little more positive about their personal finances and the condition of the economy, Moody's said …
  • Orders for durable goods--those meant to last at least three years-- in the U.S increased in June because sales of aircraft and military hardware trumped a drop-off in spending for business equipment (Bloomberg.com and The Wall Street Journal July 26). Orders rose 1.6% to a seasonally adjusted $221.63 billion--the second consecutive monthly increase, the Commerce Department said Friday. Durable goods orders excluding the volatile transportation sector fell 1.1%. The Commerce Department report suggests weaker conditions and slowing business investment for manufacturers, Moody's said …

News of the Competition (07/26/2012)

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MADISON, Wis. (7/27/12)

  • Roughly 2,000 banks should be searching to find buyers, said Kamal Mustafa, chairman and CEO of Invictus Consulting Group in New York. Although the crescendo of the credit crisis has past, Mustafa--whose company specializes in stress-testing banks--is worried about banks that are acquiring credit cards, mortgage portfolios, and specialty assets to pursue growth, said the American Banker (July 25). During the next four years, those 2,000 banks won't have a financial reason to exist because they will have very low or negative returns, Mustafa told the publication. Those banks need to be assimilated into the marketplace and should sell now because it is inevitable that their market value will erode with capital losses, decreasing loan volumes and spreads, and increasing regulatory requirements, he added …
  • SunTrust Banks is replacing its old ATMs with new ones that have the capability to work with mobile devices (American Banker July 25). The bank is changing all of its dual-slot ATMs that have separate slots for depositing cash and checks to single-slot mixed-media ATMs in its 1,700 branches, the Banker said. The new ATMs can communicate with near-field-communication-enabled smartphones and accept international chip and PIN security protocols, the publication said. The project is slated for completion by December, the Banker added …

Market News (07/26/2012)

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MADISON, Wis. (7/27/12)

  • Pending U.S. home sales declined in June but marked 14 consecutive months of year-over-year gains, according to the National Association of Realtors (NAR). The Pending Home Sales Index--a forward-looking indicator based on contract signings--slipped 1.4% to 99.3 in June from a downwardly revised 100.7 in May, but it is 9.5% higher than June 2011 when it was 90.7. The data reflect contracts but not closings. Lawrence Yun, NAR chief economist, said inventory shortages are a factor. "Buyer interest remains strong, but fewer home listings mean fewer contract signing opportunities," Yun said. "We've been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors."  For the NAR index, use the link …
  • Initial claims for U.S unemployment benefits dropped more than expected last week, prolonging the typically volatile claims period seen in July (Bloomberg.com and Moody's Economy.com July 26). Claims declined 35,000--to 353,000--for the week ended July 21, the Labor Department said Thursday. Economists had forecast 380,000 claims, according to a Bloomberg News survey. Annual auto plant shutdowns that typically occur this time of year have changed, making it harder to adjust data for seasonal variations, the Labor Department has said. Worldwide demand for U.S. goods--wrought by slowing economies in China and Europe--has slowed, which may continue to curtail hiring, Bloomberg said. Businesses also may be hesitant to hire because of the pending battle over government spending and tax cuts, and the upcoming presidential election, Bloomberg added. Meanwhile, the four-week moving average fell to 367,250 from 376,000 …
  • There was a slight month-to-month decrease in the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders--an index used to set rates for some adjustable-rate mortgages (ARM), according to a report released Thursday by the Federal Housing Finance Agency (FHFA). The rate was 3.67% based on loans closed in June, a decrease of 0.11% from the prior month. Since March, the FHFA has calculated interest rates using unweighted survey data. The complete contract rate series can be found at on FHFA's web site ...

News of the Competition (07/25/2012)

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MADISON, Wis. (7/26/12)

  • If Basel III international monetary rules were in effect now, First Horizon National, Huntington Bancshares, SunTrust Banks and TCF Financial would absorb the largest capital hits if they did not implement changes to their asset mix (American Banker July 24). In recent days, many large and regional U.S. banks disclosed how Basel III would impact their capital ratios. With bigger banks, the four mentioned have the highest concentrations of risky residential mortgage and home equity loans. That means they must set aside more capital than competitors that have less exposure to home loans, the Banker said. Following last week's earnings announcements in which the four banks disclosed their estimated ratios, their share prices all fell--which is not a surprise, the Banker said …
  • Government-backed loans were given to black and Latino borrowers substantially more than white borrowers, raising worries about redlining, a new report indicated (American Banker July 24). The loans are insured by the Federal Housing Administration (FHA) or guaranteed by the Department  of Veterans Affairs (VA). The California Reinvestment Coalition Tuesday released the 29-page report, "Paying More for the American Dream," which used Home Foreclosure Act data to analyze patterns of lending in seven cities: New York City; Los Angeles; Chicago; Cleveland; Boston; Charlotte, N.C.; and Rochester, N.Y. In Cleveland, 85% of black borrowers garnered FHA or VA loans, compared with 47% of white borrowers. The report also discovered a two-tiered lending pattern where borrowers in black and Latino communities garnered more government-backed loans and disproportionately fewer conventional mortgages than their white counterparts …
  • Plans by Washington Democrats to roll back the capital gains and other Bush-era tax cuts by year-end are causing community bankers to speed up sales agreements by early September, investment bankers told American Banker (July 24). After the rollback, banks would pay more than 15% on what they would garner from the sale of their institution. The typical bank sale requires two to three months of negotiation and four to six days to close, Steven D. Hovde, president/CEO of Hovde Financial, an investment bank that handles community bank mergers, told the Banker. The terms and conditions of some deals could be swayed by the motivation to close before New Year's Day, Hovde and another investment banker told the publication ...

Market News (07/25/2012)

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MADISON, Wis.  (7/26/12)

  • Sales of new U.S. single-family homes declined in June from a two-year high in May to the lowest level in five months, indicating the housing market recovery remains sporadic (The Wall Street Journal, Bloomberg.com and Moody's Economy.com July 25). Sales fell 8.4% from May to a seasonally adjusted rate of 350,000, the Commerce Department said Wednesday. Although June's sales were the lowest since January, year-over-year sales rose 15.1%. A poor job market and high unemployment likely are holding back home purchases even though home prices and mortgage interest rates remain appealing, Bloomberg said. Months of available supply of homes remains at 4.9. Also, available new-home supply crept up for the first time in years, Moody's said ...
  • Propelled by another consecutive weekly gain in refinance applications, U.S. mortgage application volume rose 0.9% for the week ended July 20, according to the Market Composite Index released Wednesday by the Mortgage Bankers Association (Moody's Economy.com July 25). The refinance index increased 1.8%, continuing the prior week's steep rise. As a counterpoint, the purchase index fell 3.2%, revealing ongoing weak homebuyer confidence, the association said. During the past several months, the purchase index has been flat. The 30-year fixed-mortgage rate held at the previous week's record low of 3.74% …
  • Slower sales and broader losses in its problematic European operations caused Ford Motor Co.'s second-quarter profit to fall 57% (The New York Times July 25). Ford earned $1 billion in the quarter, compared with $2.4 billion in the same period last year. The U.S. automaker reported a $404 million loss in Europe, but its North American business continued its solid performance, the Times said.  As progressively worse sales in Europe dampen what is otherwise a good turnaround, Ford said it expects to lose more than $1 billion in Europe during 2012 …

News of the Competition (07/24/2012)

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MADISON, Wis. (7/25/12) 

  • Joining several other major retailers, Wal-Mart Stores Inc.--the world's largest retailer--said it opposes the planned $7 billion "swipe fee" settlement between companies that accept electronic payments and MasterCard Inc. and Visa Inc. (The Wall Street Journal July 24). Wal-Mart said Tuesday in a statement that the proposed deal "would not structurally change the broken market or prohibit credit-card networks from continually increasing hidden swipe fees, which already cost consumers tens of billions of dollar each year." Credit cards issued by MasterCard  and Visa accounted for 68% of all credit card spending seen by U.S. merchants in 2011, according  to payments-industry newsletter, the Nilson Report  …
  • Closely held (family-owned) U.S. banks can  conduct merger and acquisitions that publicly owned banks would find difficult because of their wider shareholder base (American Banker July 23). Family-owned banks can take a longer-term view than publicly owned banks in their role as buyers because publicly owned banks usually need to deliver results right away when making an acquisition, John Blaylock, an associate director at Sheshunoff in Austin, Texas, told the Banker. Family-owned banks have centralized decision-making  and can offer more  creativity and flexibility in structuring deals, and buyers often prefer to negotiate with them, he added …
  • Several large U.S. banks are considering new advertising agencies to remodel their brands and try to increase revenue and bolster their reputations (American Banker July 23). Bank of America, Fifth Third and KeyCorp have changed ad agencies during the past year for part or all of their business, the Banker said. Banks are focusing their efforts and money--with the toughest part of the financial crisis now past--on trying to raise customers' perceptions  of them in the oft-maligned banking industry, the Banker said …

Market News (07/24/2012)

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MADISON, Wis. (7/25/12)

  • For the first time since 2007, U.S. home prices increased in the second quarter from the year-ago period, according to real-estate firm Zillow, in the most recent sign the housing market is beginning to recover (The Wall Street Journal July 24). Home values went up 0.2% for the quarter from the same period in 2011, the report showed. Compared with the year-ago period, nearly one third of the 167 U.S. metropolitan areas that Zillow tracks posted annual price increases for the quarter. Cities with fewer homes for sale and stronger investor demand saw the fastest price rises, Zillow said. Phoenix's prices jumped 12% from a year ago while Miami's rose 6%. In a related matter, the U.S. Federal Housing Finance Agency (FHFA) Purchase-Only House Price Index rose 0.8% in May, and is 3.7% above its level in May 2011. Home price gains nationwide were fairly similar, with the West South Central census division the only one showing price decreases in May, FHFA said. For the FHFA report, use the link …
  • Investors are betting that the U.S. housing bust has ended, and that has led to a rally in subprime mortgage bonds--U.S. home loan securities without government backing--with bond dealers gobbling up the supply as dealers are braced by new capital rules (Bloomberg.com July 24).  For subprime mortgage bonds issued from 2005 through 2007--the years that produced the most defaults and helped cause the worst financial meltdown since the Great Depression--gains have surged 5.4% in July. That has brought returns for 2012 through last week to 21.6%, according to data compiled by Barclays Plc. Also, during the past seven months, securities backed by option adjustable-rate mortgages  went up 7% to the highest level since May 2011, Bloomberg said ...
  • The International Council of Shopping Centers (ICSC) chain store sales index increased 1% for the week ended July 21--which was the sixth consecutive week without a decrease (Moody's Economy.com July 24). Temperatures, while still hot, moderated from prior weeks, boosting back-to-school shopping--especially for apparel, ICSC said. Year-over-year growth picked up to 3.3% from 2.6% the previous week--the strongest growth in five weeks, but barely above the year-to-date average, ICSC said  …

News of the Competition (07/23/2012)

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MADISON, Wis. (7/24/12)

  • The Federal Deposit Insurance Corp. (FDIC) closed five banks Friday, for a total of 38 closures so far in 2012. There were 92 bank closures in 2011. First Cherokee State Bank, Woodstock, Ga., was assumed by Community & Southern Bank, Atlanta; Georgia Trust Bank, Buford, Ga., was assumed by Community & Southern Bank, Atlanta; The Royal Palm Bank of Florida, Naples, Fla., was assumed by First National Bank of the Gulf Coast, Naples, Fla.; Heartland Bank, Leawood, Kan., was assumed by Metcalf Bank, Lees Summit, Mo.; and Second Federal Savings and Loan Association, Chicago, was assumed by Hinsdale (Ill.) Bank & Trust Company. The failed banks had roughly $739 million in assets as of March 31. The FDIC estimates the most recent failures will cost its Deposit Insurance Fund about $151 million …
  • The five largest banks on Wall Street reported in 2012 the worst beginning of a year since 2008 and are asking investors to give them more time to improve their performances (Bloomberg.com July 20). Bank of America, CitiGroup Inc., Goldman Sachs, Group Inc. and JPMorgan Chase combined to garner first-half-of-the-year revenue of $161 billion--down 4.5% from last year and the lowest level since four year ago when first-half revenue totaled $135 billion for the five banks, Bloomberg said. The drop-off was caused by low interest rates, a decline in trading and deal-making engendered by worries about the troubled European economy and slow growth in the U.S and China, Bloomberg said. In a related matter, Morgan Stanley said Thursday that its second-quarter earnings nosedived 50% to $591 million because of across-the-board drop-offs in trading, wealth- and asset-management businesses and less client activity (The Wall Street Journal, The New York Times DealBook and Bloomberg.com July 19) …
  • U.S. banks have long-viewed selling financial services to low-income customers as unprofitable and perhaps a detriment to their reputations (American Banker July 20). Banks had a bad reputation of taking advantage of poor people through products such as subprime mortgages and credit cards that contain hidden fees, the Banker said. Although some banks traditionally have avoided those products, ongoing housing market problems and high unemployment have pushed many consumers' incomes downward into alternative financial arenas such as Wal-Mart and storefront check cashers, the Banker said. Therefore, banks are escalating their attempts to serve those customers in new profitable ways  to bolster their down-trending profits and help their tarnished reputations, the Banker said

Market News (07/23/2012)

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MADISON, Wis. (7/24/12)

  • Fears that Spain may need another formal bailout resulted in the U.S. stock market declining 101 points, or 0.79% at its close Monday, following a 149 point--or 1.2% decline before Mondays' opening for its first consecutive triple-digit loss since April 10 (MarketWatch and The Christian Science Monitor July 23). Spain's economic turmoil also sent stock prices worldwide into a tailspin and led to the euro closing at a two-year low against the dollar, the Monitor said.  European markets were significantly impacted, with the Stoxx Europe 600 down 1.9% because worries about the sovereign debt crisis escalated, MarketWatch said. Spain's 10-year borrowing rate increased 0.23 of a percentage point to 7.45 % Monday--the highest level since the euro was established in 1999. That is above the level that caused three other countries to seek international rescue, the Monitor said  …
  • Business confidence worldwide still is lax, consonant with an economy that is expanding at the low end of its potential, according to Moody's Analytics Survey of Business Confidence (Moody's Economy.com  July 23). Although the number of negative responses remains low, there have been fewer positive responses to questions, resulting in most of the weakness reflected in the survey. Businesses are the least positive about the strength of sales, pricing and hiring. Expectations about the six-month outlook also have eroded recently. Investment spending remains firm. People working in manufacturing and business services are more positive, Moody's said …
  • The Chicago Fed National Activity Index rose to -0.15 in June from -0.48 in May (Moody's Economy.com July 23). For the fourth consecutive month, the three-month moving average was negative, but it improved  to -0.2 from -0.38. The June uptick alleviates some fears of recession. However, the month's negative reading is consonant  with other indicators of slow growth below the historical trend, Moody's said  ...

News of the Competition (07/20/2012)

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MADISON, Wis. (7/23/12)

  • Several bankers are worried about the Federal Deposit Insurance Corp.'s (FDIC) instructions last week to remove the government agency's name from a deposit insurance-related cost that many times is forwarded on to business clients (American Banker July 19). For more than 10 years, some banks have charged their customers an FDIC fee, but in recent years, most started passing it on to customers in the form of insurance assessments, the Banker said. A plethora of depositors' complaints prompted the FDIC to speak out against the prevalent practice. Bankers and some clients fear that a nameless fee could cause more confusion and prove potentially more costly, the Banker said. If banks are not permitted to say "FDIC" and they call the fee by a name not clearly understood, it could lead to the assumption that the charges are hidden, Alvin Rodack, senior director of financial services at Ohio State University, told the Banker
  • Fannie Mae, Freddie Mac and the Federal Home Loan Banks could be hurt by a California proposal in San Bernardino County to invoke eminent domain to seize and restructure underwater private-label mortgages (American Banker July 19). The government-sponsored enterprises' losses likely would not be significant--especially in light of the more than $160 billion in taxpayer losses thus far. However, the key issue is that the municipalities' use of eminent domain would establish a precedent--hurting the Obama  administration's plans to lighten the government's role in the housing market by turning over as much as it can to the private sector, the Banker said …
  • American Express said the impact of a proposed settlement between retail merchants and MasterCard, Visa and several large banks will be moderated for AmEx, which was not involved in the lawsuit (American Banker July 19). If merchants start levying surcharges on credit card purchases in their stores, the effects would not be very substantial because 10 U.S. states have laws on the books prohibiting surcharges, and those states represent 50% of AmEx's U.S. billing volume, Dan Henry, AMEx chief financial officer said during a second-quarter earnings conference call Wednesday. Although AmEx does not prevent surcharging, it requires merchants to impose equal surcharges across card networks, he added …

Market News (07/20/2012)

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MADISON, Wis. (7/23/12)

  • Government officials and investors say the U.S. government is accelerating its attempts to sell billions of dollars of the remaining assets it acquired in the financial system bailout four years ago (The Wall Street Journal July 20). As a component of the final effort to pay for the aid the government meted out during the financial crisis, the Federal Reserve and Treasury plan to sell assets ranging from bank shares to troubled mortgage securities, the Journal said. Some of the most high-profile Wall Street firms, including Allianz SE's Pacific Investment Management Co.,  Blackstone Group LP,  Fortress Group LLC and Oaktree Capital Management LP are interested in purchasing some of the assets, according to sources at the firms …
  • U.S. mass layoff events--the number of layoffs involving at least 50 workers from a single establishment--declined in June, but the number of employees affected rose from May, according to the Bureau of Labor Statistics (Moody's Economy.com July 20). Mass layoffs last month dropped by 63--to 1,317. Those layoffs involved 131,406 employees--up 1,215 from May. The manufacturing sector constituted 17% of all mass layoff events and 18% of initial claims in June. In a related matter, Citigroup Inc., the third-largest U.S bank--intends to cut roughly 350 more jobs in 2012 in its securities division--about 2% of the unit's staff, according to a source familiar with the matter (Bloomberg.com July 19). The division includes investment banking and trading. Citigroup is dealing with a downturn in trading and investment banking because the European debt crisis is causing volatility in markets and resulting in customers taking fewer risks. New federal regulations also are hurting profits, Bloomberg said  …
  • The Economic Cycle Research Institute's (ECRI) Weekly Leading Indicator--which measures economic growth--dropped to 121.9 for the week ended July 13--close to its year-to-date low--from 122.9 the prior week (Moody's Economy.com July 20). The smooth, annualized growth rate's pace of decline slowed to 2.3% from 2.7%. Economic uncertainty still is a substantial drag on growth, ECRI said. The uncertainty is causing employers and investors to postpone hiring and avoid riskier higher-yielding assets, Moody's said …

News of the Competition (07/19/2012)

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MADISON, Wis. (7/20/12)

  • States with stricter regulations of payday lenders see less use of payday loans, and borrowers are not being compelled to go to online channels or out of state for their borrowing needs, according to a new report released Wednesday by the Pew Charitable Trusts (American Banker July 18). The report, "Payday Lending in America: Who Borrows, Where They Borrow, and Why" is based on a survey and focus groups with hundreds of payday borrowers nationwide. Roughly 2.9% of adults say they've used a payday loan in the past five years in states that have stringent regulations on the short-term, small-dollar payday loans. In states with more lax laws, more than 6% of adults surveyed had used payday loans, the report indicated …
  • Live Web chat is a way for financial institutions to drive traffic to their websites, according to data compiled by Keynote for its recurring list of the top-performing bank websites (American Banker July 18). However, live Web chat is not simple or inexpensive because it requires staffing with people who have developed real-time communication skills--and those people are difficult to find, Chris Musto, general manager of Keynote Competitive Research at Keynote Systems, told the Banker. Other retail habits such as shopping for clothes online has fueled consumers' desires for live Web chat, Musto explained, adding that having live Web chat is predictor of a bank performing well …
  • Google's mobile wallet has been hampered by questions about the effectiveness of its security, and in the past week, concerns about its vulnerabilities at the upcoming Olympics in London and a dispute with a big Australian bank have surfaced (American Banker July 18). Commonwealth Bank in Australia is concerned about an alleged lag in the development of near field communication (NFC) technology in Android smartphones that could harm payment security and Australian business interests, the Banker said. Security trials at the Olympics for Google's mobile wallet have attracted a lot of chatter--particularly for one type of attack known  as "fuzzing," in which hackers send corrupt or damaged data to mobile apps to find vulnerabilities, or inject NFC tags to a phone and keep track of the results, the Banker said …

Market News (07/19/2012)

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MADISON, Wis. (7/20/12)

  • U.S. sales of previously owned homes unexpectedly dropped in June to the lowest level in eight months--an indication of weakness and that the residential real estate recovery will need more time to take hold (The Wall Street Journal, Bloomberg.com and Moody's Economy.com July 19). Sales declined 5.4% to a 4.37 million annualized rate last month from 4.62 million in May, according to figures released Thursday by the National Association of Realtors. The median home sales price was $189,400--a 7.9% rise from $175,600 a year earlier. More stringent lending standards, slower job growth and competition from lower-priced distressed properties may be a drag on the housing market--even with mortgage rates at all-time lows, Bloomberg said. Also, some homeowners' ability to relocate has been limited because the decline in home values since the most recent recession has resulted in owners owing more on their mortgages than their properties are worth, Bloomberg said …
  • Initial claims for U.S. unemployment benefits surged last week--a sign that the annual auto-plant retooling period has caused volatility (Bloomberg.com and Moody's Economy.com July 19). Claims rose 34,000--to 386,000--for the week ended July 14, the Labor Department said Thursday. A reduction in the number of auto-plant layoffs that is the norm for this point of the year has skewed the Labor Department's seasonal adjustment process, so it could take several more weeks to determine the direction the labor market is heading, Bloomberg said. Meanwhile, continuing claims for unemployment benefits for the week ended July 7 inched up 1,000 from the prior week--to 3.314 million …
  • Private research firm the Conference Board's Index of Leading Economic Indicators declined more than expected in June, showing that the economic expansion is losing momentum (Bloomberg.com and Moody's Economy.com July 19). The board's measure of the economic outlook for the next three to six months fell 0.3% last month after rising 0.4% in May. Economists had forecast the gauge would decrease 0.1%, according to a Bloomberg News survey. For a third consecutive month, U.S. retail sales unexpectedly dropped, signaling that slow creation of jobs is restraining consumer spending--which constitutes  roughly 70% of the U.S. economy, Bloomberg said. In a related matter, the Bloomberg Consumer Comfort Index dipped lower for the week ended July 12 to -37.9--its lowest level in a month--from -37.5 the previous week (Moody's Economy.com July 19). Also, the Bloomberg monthly expectations gauge was -11, matching June as the lowest level since January (Bloomberg.com July 19) ...

Fed IBeige BookI Economys expansion moderate

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WASHINGTON (7/19/12)--Overall economic activity continued to expand at a "modest to moderate pace" during June and early July, according to the 12 Federal Reserve Districts reporting in the Federal Reserve's Beige Book, released Wednesday afternoon.

Atlanta, St. Louis and San Francisco districts said growth was "modest," while Boston, Chicago, Minneapolis, Kansas City and Dallas reported economic activity as "advancing moderately." The New York, Cleveland and Philadelphia districts noted activity continued to expand, but the pace was slower since the last report. Richmond said activity was "mixed."

Retail sales increased in all districts but Boston and Cleveland, where sales were "flat," and New York, where sales "softened." In the districts reporting increased sales, most noted auto sales were strong and that demand for fuel-efficient vehicles supported sales. Tourism activity remained strong in five districts.

All districts reported positive housing sales and increased construction levels, while home inventories declined. Rental markets were stronger in five districts, and commercial real estate in Atlanta, Chicago and San Francisco.

Manufacturing activity expanded slowly in most districts, with slight increases in production levels. However, several districts reported a deceleration of new orders. Philadelphia and Richmond saw declines in shipments and orders. Demand for nonfinancial services generally was stable in most districts.

In the banking and financial services area, overall loan demand "grew modestly in most districts."  Most reported an increase in mortgage lending, with Dallas noting "especially strong demand and a healthy backlog of loans," said the Fed's Beige Book. "Refinancing of mortgage loans was steady or increasing in New York, Cleveland, Richmond and Chicago, but Philadelphia noted a recent slowdown." 

Agriculture and commercial real estate lending improved in Kansas City and Dallas.  Atlanta, Chicago, Dallas, and San Francisco districts reported steady-to-increased demand for consumer credit, especially for auto loans, while Kansas City said consumer loan was weaker. Little changed in the Cleveland District.

Credit standards remained largely unchanged, said the Fed.  Cleveland reported some loosening of auto lending guidelines while San Francisco noted standards were "somewhat restrictive for business and consumer loans." Credit quality improved in Philadelphia, Kansas City, Dallas and San Francisco. New York and Cleveland reported that delinquency rates held steady or declined. 

Four districts also noted "stiff competition for quality loan customers."  Chicago reported that uncertainty over the effects of U.S. fiscal policy actions was reducing customers' demand for credit. Also, Dallas reported a "slightly more pessimistic outlook" than in the previous Beige Book, partly because of Europe's debt issues and regulatory and political uncertainty.

The report, summarized by the Atlanta Federal District,  reflects information gathered on or before July 9.  Use the link to access the full report.

News of the Competition (07/18/2012)

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MADISON, Wis. (7/19/12) 
  • The Consumer Financial Protection Bureau (CFPB) has fined Capital One for pressuring and misleading more than two million of its credit card customers (The New York Times DealBook July 18). The move constitutes CFPB's first enforcement action against the financial industry. Capital One--one of the largest credit card lenders and banks in the U.S.--agreed to make a $210 million payment to resolve the case. CFPB accused Capital One of "deceptive marketing tactics" in which it misled customers into purchasing unneeded products such as credit monitoring and payment protection, according to the agency. Capital One must reimburse customers $140 million as part of the deal with CFPB, the Times said …
  • Federal mortgage settlement monitor Joseph Smith asked for the help of housing counselors when speaking to them Tuesday at the National Consumer Law Center's summer mortgage conference in Washington, D.C. (American Banker July 17). Smith said he cannot adequately perform his job duties without information on how banks are implementing the $25 billion state-federal settlement. He needs that information to make the settlement's new servicing standards adhere, Smith added. The standards resolve allegations of robo-signing and other servicing abuses. The settlement requires Ally Financial, Bank of America, Citigroup, JPMorgan Chase & Co, and Wells Fargo to revamp their mortgage-servicing units by Oct. 4 …
  • Bank of America (BofA) reported a second-quarter profit, propelled by lower credit losses, stricter controls on expenses and fewer real estate losses, and by putting aside less money for bad loans (The New York Times DealBook, Bloomberg.com and The Wall Street Journal July 18). BofA posted a profit of $2.46 billion, or 19 cents per share, compared with a year-earlier record loss of $8.83 billion, or 90 cents per share …

Market News (07/18/2012)

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MADISON, Wis. (7/19/12)

  • The probability that the U.S. will be in recession six months from now increased in June to 35% from 32% in May, according to the risk of recession gauge issued by Moody's Economy.com (July 18). The increased risk comes as fewer economic tailwinds exist and the U.S. economy is in the middle of another summer slump, Moody's said. Last month saw the fourth consecutive monthly rise of risk and placed the probability of recession at its highest level since October 2011. The probability of recession was pushed higher by eroding consumer confidence, an increase in initial claims for unemployment and a decline in equity prices, Moody's said …
  • U.S. housing construction--measured by housing starts--increased in June to the fastest rate in nearly four years, showing evidence that the housing market is coming out of its doldrums and providing a spark to the weak economy (The Wall Street Journal, The New York Times, Bloomberg.com and Moody's Economy.com July 18). Housing starts jumped 6.9% last month to a 760,000 annualized pace following a 711,000 rate in May, the Commerce Department said Tuesday. The number of new permits to build homes dropped 3.7% last month--from May's three-and-a-half-year high--to 755,000. Builders confronting lean inventories are being encouraged to increase construction by record-low mortgage rates and more affordable properties that are attracting buyers, Bloomberg said …
  • Stoked by a big bounce-back in refinance applications, the Mortgage Bankers Association (MBA) Market Composite Index surged 16.9% for the week ended July 13 from the prior week (Moody's Economy.com and cnbc.com July 18). The Refinance index broke a three-week-long losing streak and jumped 21.6%--the largest jump in seven months. With homebuyer confidence remaining subdued, the Purchase Index slid down 0.1%, Moody's said. Across the board, mortgage interest rates declined, with the 30-year fixed-rate mortgage hitting a record low, averaging 3.74%

Bernanke strengthens economic warnings

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WASHINGTON (7/18/12)--Federal Reserve Chairman Ben S. Bernanke Tuesday outlined the Fed's monetary policy outlook, which was subdued, to Congress.

Although the U.S. economy has continued to recover, economic activity appears to have slowed during the first half of this year, he said in testimony before the Senate Committee on Banking, Housing, and Urban Affairs.

"After rising at an annual rate of 2.5% in the second half of 2011, real gross domestic product (GDP) increased at a 2% pace in the first quarter of 2012, and available indicators point to a still-smaller gain in the second quarter," Bernanke said.

"Conditions in the labor market improved during the latter part of 2011 and early this year, with the unemployment rate falling about a percentage point over that period," he added. "However, after running at nearly 200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to 75,000 per month during the second quarter. At the same time, the jobless rate has recently leveled out at just over 8%."

Bernanke emphasized two main sources of risk: the euro-area fiscal and banking crisis, and the U.S. fiscal situation.

"Europe's financial markets and economy remain under significant stress, with spillover effects on financial and economic conditions in the rest of the world, including the U.S.," he said.  "Moreover, the possibility that the situation in Europe will worsen further remains a significant risk to the outlook.

"The Federal Reserve remains in close communication with our European counterparts," Bernanke added. "Although the politics are complex, we believe that the European authorities have both strong incentives and sufficient resources to resolve the crisis. At the same time, we have been focusing on improving the resilience of our financial system to severe shocks, including those that might emanate from Europe."

The U.S. fiscal situation is the second important risk to a U.S. economic recovery, Bernanke said.

"As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority," he explained. "At the same time, fiscal decisions should take into account the fragility of the recovery. That recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken. The Congressional Budget Office has estimated that, if the full range of tax increases and spending cuts were allowed to take effect--a scenario widely referred to as the fiscal cliff--a shallow recession would occur early next year and about 1.25 million fewer jobs would be created in 2013."

The best way for Congress to help the economy now would be to address the U.S.' fiscal challenges in a manner that addresses the need for long-term sustainability and the fragile nature of the economic recovery, Bernanke said. "Doing so would help reduce uncertainty and boost household and business confidence," he added.

The Federal Open Market Committee (FOMC) decided to ease monetary policy at its June 19-20 meeting by continuing its maturity extension program through 2012 because of the weaker economic outlook, the tame projected path for inflation, and substantial downside risks to economic growth, Bernanke said.

The FOMC "made clear at its June meeting that it is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," he concluded.

News of the Competition (07/17/2012)

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MADISON, Wis. (7/18/12)

  • Unemployed Ohio residents will no longer be able to use prepaid cards--onto which their unemployment benefits are loaded--once their account balances go into negative numbers (American Banker July 16). U.S. Bancorp, which provides unemployment benefits cards for the state, said it will cease imposing a $17 charge to recipients of unemployment benefits who overdraw their accounts at ATMs or at point-of-sale terminals, according to the website of think tank Policy Matters Ohio. The move will help unemployed state residents hold onto more of their cash, Policy Matters said. Roughly 30% to 40% of Ohio's unemployed workers receive benefits on U.S. Bancorp's ReliaCard, rather than having their unemployment funds directly deposited into their bank accounts, according to an estimate by the Ohio Department of Jobs and Family Services ...
  • Goldman Sachs Group Inc.--in a paradigm shift that highlights the rough business environment confronting Wall Street firms after the financial crisis--is creating a private in-house bank for lower-margin lending to wealthy companies and customers (The Wall Street Journal July 17). The new entity will lend more directly to firms--some of which currently make investments and conduct business with Goldman, the Journal said. Goldman executives established a goal of $100 billion in loans--an increase from the $12 billion at the end of March. In a related matter, Goldman--the fifth-biggest U.S. bank by assets--has cut jobs and wages paid to employees after revenue for the first half of the year fell to its lowest level since 2005 (Bloomberg.com July 17).  Employee compensation--salaries, benefits, bonuses and the cost of deferred pay awarded in previous years--dropped 14% to $7.29 billion in the first six months of 2012, Goldman said Tuesday in a statement.  Also, Goldman announced Tuesday its second-quarter profit dropped 12%, with $927 million in earnings--down from $1.05 billion in the year-ago quarter (The New York Times DealBook July 17) …
  • Ohio is looking to join a class-action lawsuit against JPMorgan Chase for losses related to its chief investment office (American Banker July 16). State Attorney General Mike Dewine filed a motion for Ohio's pension funds to join other pension funds in the suit, the Banker said. Dewine's motion alleges JPMorgan issued false and misleading information regarding its trading activity, resulting in losses of more than $27.5 million for Ohio pension funds because of the trades  …

Market News (07/17/2012)

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MADISON, Wis. (7/18/12)

  • U.S. industrial production rose in June, spearheaded by gains from automobile and machinery makers, indicating that manufacturing is providing a lift to economic expansion (Bloomberg.com July 17). Production increased 0.4% last month after declining 0.2% in May, according to the Industrial Productions and Capacity Utilization report released by the Federal Reserve System. In the manufacturing sector, output advanced 0.7% in June and reversed a decrease of 0.7% in May. In the second quarter, manufacturing output rose at an annual rate of 1.4%-- a deceleration from its gain of 9.8% in the first quarter. The largest contribution to that increase came from motor vehicles and parts, which climbed 18.2%; excluding motor vehicles and parts, manufacturing output edged up 0.1%. Outside of manufacturing, the output of mines advanced 0.7% in June, while the output of utilities decreased 1.9%. For the quarter, however, the mines' output fell at an annual rate of 1.2%, while the output of utilities rose 14.9%. At 97.4% of its 2007 average, total industrial production in June was 4.7% above its year-earlier level. Capacity use for total industry moved up a 0.2 percentage point in June to 78.9%, a rate 1.4 percentage points below its long-run (1972--2011) average. For the Fed release, use the link …
  • In a signal that inflation may remain tame, just as Federal Reserve officials have predicted, the cost of living in the U.S., as measured by the consumer price index (CPI), remained unchanged in June  (Bloomberg.com and Moody's Economy.com July 17). The flat CPI followed a 0.3 decline in May, the Labor Department said Tuesday. The energy index dropped by 1. 4% in June--its third consecutive monthly decline. That decrease trumped another uptick in the food index, Moody's said. At the moment, inflation is not a worry, Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pa., told Bloomberg. With the Fed more concerned about economic growth, policy-makers have indicated they may be more inclined to continue quantitative easing, he added …
  • The International Council of Shopping Centers (ICSC) chain store sales index remained unchanged in the most recent week, maintaining the previous week's big advance and a series of five consecutive weeks without a decrease, as warm weather continued to buoy sales (Moody's economy.com July 17). Also, year-over-year growth slowed to 2.6% for the week ended July 14 from 3% the prior week. Back-to-school shopping already has started, although most of it will occur in August, ICSC said ...

Households cutting back on college costs

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WASHINGTON (7/17/12)--Families, hit with the growing cost of higher education at a time when resources are tighter, are taking steps to cut college costs, with students contributing more to the bill while parents contribute less, according to Sallie Mae's 2012  National Study of College Students and Parents. Many will be turning to their credit unions for help or resources.

The study, conducted by Ipsos Public Affairs, was released Monday. It has been conducted annually since 2008. Of the total costs of college for the typical family, grants and scholarships account for 29%; parent income and savings, 28%; student borrowing, 18%; student income and savings, 12%; parent borrowing, 9%; and relatives and friends, 4%.

The average amount families spent on college declined by 5% in 2012. More families reported they made college decisions based on the cost they can afford to pay. Families took cost-saving measures such as picking lower-cost colleges or those closer to home. More than half the students lived at home while attending college--a 9% increase over 2011. Families also reported cutting personal spending or working longer hours to afford college costs.

Parents funded 28% of college costs from their savings and income, an 11% decline from last year and a 32% drop from two years ago.  They reduced the amount contributed from their current income by 4% and from savings by 22% since 2011.

Also declining were scholarships offered by colleges themselves--down to 35% from 45% in 2011. In 2011, families had reported a surge of grants and scholarships, which offset the decline in parent contributions.  However, colleges are now seeing the impact of the economy, constraints on endowments and tighter budgets.  Grants and scholarships still fund a higher share of college costs than in 2009 and 2010, but the 29% share is lower than last year's 33% share.

To offset the declines in parents' contributions and the decrease in scholarships, students funded 18% of the costs themselves by borrowing and 12% from their income and savings.  The increase in borrowing comes from an increase in the use of federal loans, said Sallie Mae's study. This was the case especially in high-income families, with 27% of high-income students using the loans in 2012, up from 19% in 2011.

The shift in how families pay for college could have implications for credit unions and other lender in several areas: scholarships; student loan applications; and more need for financial education for both youth and their parents. 

Many credit unions offer scholarships for college to young members. With colleges cutting back, credit unions are already seeing an increase in the number of scholarship applications as competition for funds heat ups.

For example, this year, American Airlines FCU in Fort Worth, Texas, awarded six scholarships of $5,000 each to five high school students and one college student. The recipients were chosen from 247 applicants.  

That means that for every winner, there were 41 other students vying for that scholarship. "Every year, we have no shortage of deserving, talented young people to choose from, which makes our job of narrowing down our recipients a very difficult task," said Lori Hall, senior vice president of marketing and operations at AACU. This year scholarships went to students considering careers in engineering, chemical engineering, accounting, medicine, physical science, and respiratory care.

The Credit Union Foundation of Maryland and District of Columbia awarded 12 scholarships of $1,000 each, based on an essay contest with the topic, "How can your credit union help you and others of college age during this economic slump?" The foundation received nearly 300 essays from members of 53 participating credit unions-- the highest number tallied from participating credit unions, said Tower FCU in a recent announcement of its scholarship recipients.

Credit unions will have more opportunities to educate families and provide resources about managing the debt from college costs and to help ensure college students have a good understanding of finances before they go to college and take on heavy debts.

News of the Competition (07/16/2012)

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MADISON, Wis. (7/17/12)

  • The Federal Deposit Insurance Corp. (FDIC) closed one bank Friday, for a total of 33 closures so far in 2012. There were 92 bank closures in 2011. Glasgow (Mo.) Savings Bank was assumed by Regional Missouri Bank, Marceline, Mo. The failed bank had roughly $25 million in assets as of March 31. The FDIC estimates the most recent failure will cost its Deposit Insurance Fund about $100,000 …
  • With a strong performance in its capital markets businesses, Citigroup Inc. reported a better-than-expected second-quarter profit that offset a 12% drop in revenue (The New York Times DealBook and The Wall Street Journal July 16). The bank's earnings were $2.9 billion, or 95 cents per share, although revenue dropped 9.7% from a year earlier to $18.6 billion. The earnings include a $219 million gain from how specific debt of the company was valued--making it smaller than the loss in prior quarters, the Journal said. In a related matter, Citigroup--as part of its strategy to provide financial information to its customers worldwide--is expanding mobile alerts for commercial cards to several foreign countries (American Banker July13) …
  • In the second quarter, Wells Fargo reported its 10th consecutive quarter of earnings growth buoyed by robust growth in originating and refinancing mortgages (The New York Times DealBook July 13). The bank saw a record profit of $4.6 billion--a 17 % jump from the $3.9 billion profit it reported a year earlier. Its consumer banking business--especially its mortgage lending division that profited from record-low interest rates--has lifted Wells' financial performance, the Times said. Meanwhile, following a review of its realtor mortgage joint ventures, Wells intends to cut its operations in that area to 14 by early 2013 from roughly 80 at the beginning of 2012  (American Banker July 13) …

Market News (07/16/2012)

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MADISON, Wis. (7/17/12)

  • For a third consecutive month, U.S. retail sales fell in June, indicating that a weak job market with small employment gains is making consumers more wary and negatively impacting the largest segment of the U.S. economy (The Wall Street Journal, The New York Times and Bloomberg.com July 16). Sales declined 0.5% to a seasonally adjusted $401.52 billion, the Commerce Department said Monday. The last time retail sales dropped for three consecutive months was in 2008. Consumers appear more reluctant to spend because of high unemployment, low house prices and worldwide economic uncertainty, the Journal said. People are cutting back on spending and there isn't likely to be much of an increase in spending in the near term, Michael Carey, chief economist for North America at Credit Agriccole CIB in New York, told Bloomberg ...
  • U.S. business inventories increased more than expected in May, while sales dropped for a second consecutive month, suggesting firms may limit their factory orders (Bloomberg.com and Moody's Economy.com  July 16). Inventories rose 0.3%--following a 0.3% increase in April--beating the consensus expectation of a 0.2% gain, according to Commerce Department figures released Monday. Although business inventories are in relatively good condition, businesses--when seeing moderate demand--have been proactive and are maintaining tight inventories as well, Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, told Bloomberg. Slower spending  growth has been the direct result of slower income growth from smaller employment gains, he added …
  • The International Monetary Fund  (IMF) cut its worldwide growth forecast for 2013, calling for stronger action by policymakers to alleviate the European debt crisis and fight risks to a weak worldwide economy (The Wall Street Journal and The New York Times July 16). The worldwide economy will grow 3.5% this year, the IMF said Monday--down 0.1 of a percentage point from its forecast three months ago--and the IMF's lowest forecast since 2009--the year after the financial crisis. The projection is contingent on three large presuppositions, the Journal said: Traction is gained in emerging nations' efforts to spark  growth, the Euro-zone takes "sufficient policy action"  to stem its financial crisis, and the U.S. government takes steps to circumvent a strict tightening in fiscal policy in 2013 …

News of the Competition (07/13/2012)

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MADISON, Wis. (7/16/12)

  • Wells Fargo, which is the biggest U.S. funder of home mortgages through loan brokers, is exiting the wholesale lending channel (American Banker July 12). As of last Friday, the bank no longer will accept new applications through its wholesale channel originated by independent mortgage brokers. However, Wells still will fund loans through correspondents, a company spokeswoman told National Mortgage News. The bank's decision comes in the aftermath of its fair lending settlement with the Justice Department, but is not a part of that settlement, Wells said …
  • JPMorgan Chase said losses on its much-publicized trading blunder have reached $5.8 billion so far in 2012 (The New York Times DealBook and The Wall Street Journal July 13). Despite that loss, the bank reported a $5 billion second-quarter profit, which is an 8.7% decline from a year ago. The bank said the loss in its chief investment office has risen to $4.4 billion in the second quarter from an originally estimated loss  of $2 billion reported in May ...
  • Citigroup is looking to make money in an area most banks have yet to monetize--the identity management business (American Banker July 12).  Citi--along with other top banks--plans to  enter a profitable multi-billion dollar market--one in which banks occupy a singular position to provide a much-needed group of new products and services, the Banker said. However, despite the opportunities, identity  management also has huge risks associated with it, because fraud committed with one bank's identity mechanism likely would ripple out to other banks as well because of the prevalence of interlocking transactions , experts say ...
  • The sudden disappearance last month of Aubrey Lee Price could have an impact on small U.S. banks that are in need of capital, said American Banker (July 12).  The director of Montgomery Bank & Trust in Ailey, Ga., is charged with embezzling roughly $17 million from the bank, which failed July 6. In January 2011, PFGBI, a company that Price controlled, injected $14 million into the undercapitalized bank, after Price went through a rigorous background check conducted by state and federal regulators, the Banker said.  Although Price's subsequent alleged actions do not mean regulators did a bad job overseeing Montgomery, advisers say the investor's alleged actions provide a  cautionary tale for banks beating the bushes to raise capital, and could possibly make tough regulations even more cumbersome, the Banker said …

Market News (07/13/2012)

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MADISON, Wis. (7/16/12)

  • U.S. consumer confidence unexpectedly dropped in July to the lowest level in 2012, with the labor market showing scant indications of improving, according to the Thomson Reuters/University of Michigan Consumer Sentiment Survey index (Bloomberg.com and Moody's Economy.com July 13). The index declined to 72 from 72.3 in June. A Bloomberg News survey of 69 economists had forecast 73.5 for July. A weakening in the future outlook trumped a smaller bounce-back in perceptions of current economic conditions, Moody's said. This second consecutive monthly decline in the index takes back many of the gains this year and highlights worries about consumers' future contributions to the economic recovery, Moody's said. Stock market swings connected to Europe's fiscal crisis and the slowest quarter of corporate hiring in two years could dampen household spending, which constitutes roughly 70% of the U.S. economy, Bloomberg said …
  • LevelUp, a Boston-based loyalty and payment start-up company in the mobile payments market, says it will not charge its 3,000 merchants interchange fees to process credit card payments and instead will absorb the costs, in what it is referring to as its efforts to achieve "Interchange Zero" (gigaom.com and MarketWatch July 12). The company said it will aim to make money helping merchants bring in new and existing customers instead of passing on interchange fees. LevelUp asserts it can generate more revenue by providing offers, analytics and loyalty than by facilitating pure payments. This move could significantly alter the emerging mobile payments market, according to gigaom.com. U.S. merchants pay $50 billion annually in interchange fees to accept consumers' credit cards, MarketWatch said …
  • U.S. foreclosure activity dropped 4% in June--following a 9.1 % rise in May--and continuing a slight decline from the end of 2011, according to a compilation of foreclosure filings by RealtyTrac (Moody's Economy.com July 13). Compared with the same period a year ago, foreclosure starts are 11% lower. The decline was sparked by a 6% drop in scheduled foreclosure auctions and a small drop in bank repossessions, RealtyTrac said …

News of the Competition (07/12/2012)

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MADISON, Wis. (7/13/12)

  • U.S. regulators are worried that as more banks push into commercial lending their goals may surpass their expertise (American Banker July 11). Small banks have seen a void in their balance sheets because of the implosion of construction and development loans, the Banker said. During the first quarter, commercial and industrial (C&I) loans for financial institutions with less than $10 billion in assets were down roughly 12% to $262 billion, the Banker said. However, many small banks have left the herd and expanded their C&I portfolios from nearly nothing a few years ago, the Banker said. Subsequently, the Office of the Comptroller of the Currency (OCC) has warned the banks against stretching themselves too thin during austere times in efforts to make profits. The OCC noted that small banks are exposing themselves to more interest-rate risk by extending their securities' maturity profiles in attempts to garner yield, the Banker said …
  • By replacing nearly all of its 40 or so examiners at JPMorgan Chase in mid-2011, the Federal Reserve Bank of New York left its frontline examiners without thorough knowledge of JPMorgan's operations for a brief but crucial time, said sources with knowledge of the matter (The New York Times DealBook July 11). The move was made last year as part of the effort to overhaul supervision of the biggest U.S. banks in the aftermath of the financial crisis. However, the new examiners were forced to catch up and had a hard time comprehending the inner workings of the bank's robust investment unit, the Times said. Consequently, by the time the examiners became proficient, the bank had committed a huge trading blunder that cost it a multi-billion-dollar trading loss, the Times said …

Market News (07/12/2012)

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MADISON, Wis. (7/13/12)

  • Most indexes of U.S. home prices are rising, nearly seven years after the housing market implosion, according to S&P/Case-Shiller home Price Index (The Wall Street Journal July 11). After seven months of declines, the first monthly increase in house prices occurred in June, said the index. Also, nearly 10% more of existing homes were sold in May than in May 2011, the Journal said. Amid a lack of jobs, the housing upturn is a welcome milestone because housing has been one of the main causes of economic distress, and now has move to the plus column, the Journal said. In a related matter, the uptrend of new home construction in the U.S. in the past few months is a promising sign (washingtonpost.com July 12). That's because the increasing demand for new homes pumps cash into local economies, bolsters municipal budgets and provides work to contractors, the Post said …
  • Initial claims for U.S. unemployment benefits dropped last week to the lowest level in more than four years. The decline was attributed to some factories deciding to forego their usual summer shutdown and reflected the volatility of claims during the annual auto-plant retooling period (Bloomberg.com, The Wall Street Journal and Moody's Economy.com July 12). Claims declined 26,000--to 350,000--for the week ended July 7--the fewest since March 2008, the Labor Department said Thursday. To meet demand and restock inventories, automakers such as Chrysler Group LLC, Ford Motor Co. and Nissan Motor Co. are keeping more plants running this time of year than is usual, Bloomberg said. Therefore, it may take while to ascertain if the labor market is making  real progress, Bloomberg added.  Meanwhile, continuing claims for unemployment benefits for the week ended June 30 decreased 14,000--to 3.304 million ...
  • U.S. consumer confidence stagnated last week, with little improvement in the labor market and consumers' nervousness about the state of the economy, according to the Bloomberg Consumer Comfort Index (Bloomberg.com and Moody's Economy.com July 12). Improved outlooks on the buying climate helped mitigate those negatives, Moody's said. The index held steady at -37.5 for the week ended July 8. Of those surveyed, 86% said the economy was in poor condition, which is 21 percentage points higher than the average since 1985, Bloomberg said. In June, firms hired at the slowest pace in 10 months--culminating in the worst quarterly performance for the labor market since first quarter 2010 and dampening consumer spending, which constitutes 70% of the world's largest economy, Bloomberg said  …
  • Prices of goods imported into the U.S. in June fell more than four times what was anticipated, largely due to declining energy costs curtailed inflation (Bloomberg.com and Moody's Economy.com July 12). The 2.7% price tumble was the largest since December 2008 and followed a 1.2% decline in May, the Labor Department said Thursday. Prices excluding fuel, dropped 0.3%--the most in nearly two years …

FOMC Minutes Further policy stimulus may be needed

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WASHINGTON  7/12/12)--Further economic policy stimulus may be necessary to promote economic growth and meet the Federal Reserve's inflation rate goal, said several members of the Fed's policymaking group, the Federal Open Market Committee (FOMC), during the committee's June 19-20 meeting.

The Fed released minutes of the FOMC meeting Wednesday afternoon.

"A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the committee's goal," said the minutes.

"Several others noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the committee's longer-run objective," the minutes added. The FOMC "agreed that it was prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

The minutes noted that a few members said it "would be helpful to have a better understanding of how large the Federal Reserve's asset purchases would have to be to cause a meaningful deterioration in securities market functioning, and of the potential costs of such deterioration for the economy as a whole."

The group also discussed whether additional bond purchases would be appropriate.  Of the 12 participants whose assessments of appropriate monetary policy included additional balance sheet policies, 11 indicated that their assumptions incorporated an extension through the end of 2012 of the MEP (maturity extension program) while two members of the committee conditioned their economic forecasts on a new program of securities purchases.

Two participants indicated they would consider such bond purchases "in the event that the economy did not make satisfactory progress in improving labor market conditions or in the event of a significant deterioration in the economic outlook or a further increase in downside risks to that outlook," the minutes said. However members said the risk of such deterioriation was "low at present" or would be outweighed by measures such as extending the Operation Twist program.

The policymakers also considered one participant's suggestion that a protracted period of "very accommodative monetary policy could lead to a buildup of risks in the financial system."  Participants in the meeting noted "their assessments of the appropriate future path of the federal funds rate and the balance sheet could change if economic conditions were to evolve in an unexpected manner."

At the June 18-20 meeting, the FOMC lowered its outlook for economic growth and employment and said the unemployment rate would average 8% to 8.2% in fourth quarter. According to Bloomberg.com (July 11), the rate has been at 8.2% since February 2009.  The committee at that meeting also extended Operation Twist by swapping $267 billion of shorter-term securities with longer-term debt of the same amount, and it indicated it would likely keep the fed funds targeted interest rate near 0% through most of 2014.

For the full report, use the link.

News of the Competition (07/11/2012)

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MADISON, Wis. (7/12/12)

  • To protect their money, U.S. firms have deposited more than 50% of the cash they hold in bank accounts rather than in other types of investments, according to an annual liquidity survey released Tuesday by the Association for Financial Professionals in Bethesda, Md. (American Banker July 10). Although cash levels at banks are escalating, few depositors are applying for loans, the survey indicated. The bankers' quandary is whether to take on such big deposits without a loan connected to them to create a rate of return, the Banker said. Rather than turn down a business, many banks are reluctantly deciding to open the account, the publication said. Because excess liquidity is significantly hurting banks' margins, the slogan "cash is trash" is replacing "cash is king" in the banking industry, Gregory Mitchell, president/CEO of First PacTrust Bancorp in Irvine, Calif., told the Banker  …

Market News (07/11/2012)

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MADISON, Wis. (7/12/12)

  • U.S. mortgage loan application volume decreased 2.1% for the week ended July 6 from one week earlier, according to Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index declined 22%. The Refinance Index dropped 3%, making up 77% of total applications. The seasonally adjusted Purchase Index increased 3%. The unadjusted Purchase Index fell 17% and was 3% lower than the same week one year ago. Adjustable-rate mortgages accounted for around 4% of total applications. The average loan size of all loans for home purchase in the U.S. was $240,897 in June, down from $243,733 in May. The average loan size for a refinance was $218,619, down from $226,576 in May. The largest purchase loans were made in the Pacific region at $361,788. The largest refinance loans were also made in the Pacific region at $310,977. For the MBA report, use the link …
  • For the second consecutive month, the trade deficit in the U.S. narrowed because declining oil prices helped push down imports, exports to China and Europe rose, and domestic demand for U.S. consumer goods weakened (The Wall Street Journal, The New York Times, Bloomberg.com and Moody's Economy.com July 11). The international trade gap of goods and services fell 3.8% to $48.7 billion from $50.6 billion in April, the Commerce  Department said Wednesday. Exports increased 0.2% to $183.1 billion, while imports declined 0.7% to $231.8 billion. Slowing economic growth worldwide may result in purchases of U.S. goods waning, Bloomberg said …
  • With sales dropping the most in three years, U.S. wholesale inventories increased in May--but at a slower rate (Bloomberg .com and Moody's Economy.com July 11). A 0.3% uptick in stockpiles followed a 0.5% rise in April, the  Commerce Department said Wednesday. Sales in May fell 0.8%--the biggest decrease since March 2009. The inventory-to-sales ratio edged up to 1.18 from 1.17. Consistent with the concern about the outlook for demand, businesses are reducing inventories, Bloomberg said …

Market News (07/10/2012)

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MADISON, Wis. (7/11/12)

  • The U.S. saw an erosion of small-business confidence in June, according to the National Federation of Independent Business (NFIB) Index (Moody's Economy.com July 10). The index declined to 91.4 from 94.4 in May--constituting the third decrease in the past four months and forcing the index to its lowest level since October. The index has shown inherent weakness in June--falling for seven consecutive Junes and in eight of the past 10, NFIB said. Small businesses are more downbeat about the economy's near-term outlook, indicating softness will continue into the second half of the year, Moody's said. Worries about Europe's fiscal problems and the downturn in the worldwide economy seem to have spilled over to small businesses, Moody's said ...
  • U.S. job openings rose in May, indicating some employers saw the necessity to hire employees even as the worldwide economy weakened (Bloomberg.com and Moody's Economy.com July 10). The number of job openings inched up 195,000--to 3.64 million from 3.45 million, according to the Job Openings and Labor Turnover Survey (JOLTS), the Labor Department said Tuesday. The gains in hiring were mitigated by an increase in job cuts, the JOLTS report indicated. Hiring rose to 4.36 million from 4.21 million in April, while separations increased to 4.35 million from 4.14 million. Although the economic recovery is not crumbling, there still are obstacles to overcome, Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pa., told Bloomberg  …
  • A rebound in U.S. chain store sales last week was sparked by hot but less humid weather, according to the International Council of Shopping Centers (ICSC) Chain Store Sales Index (Moody's Economy.com July 10). The index increased 2% for the week ended July 7 from the prior week. For the first time in three weeks, year-over-year growth went up to 3%. ICSC said customer tracking data indicated that discounters and grocery stores had particularly good sales during the week …

News of the Competition (07/10/2012)

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MADISON, Wis. (7/11/12)

  • Citing weaker economic data in the U.S. and worldwide, UBS analysts downgraded MasterCard and Visa stock to "sell" ratings (American Banker July 9). The analysts--who said theirs was the only "sell" rating--indicated that ongoing economic problems in Europe and elsewhere, along with a slowdown in U.S. consumer spending, warranted the downgrade. They announced the change in a presentation to investors Monday. During the past few months, intra-quarter data from both companies show payment transactions and volumes declined from March to April and from April to May, according to an analyst's note ...
  • The search is on for the former director of a failed Georgia bank, who has been missing since June 16 after being charged with embezzling $17 million from Montgomery Bank & Trust in Bailey, Ga. (American Banker July 9). The U.S Attorney's Office for the Eastern District of New York is looking for Aubrey Lee Price. He is charged with embezzlement. Price was last seen in Key West, Fla., boarding a ferry, said the attorney's office in a press release …
  • When Wells Fargo, the fourth-biggest U.S. bank by assets, reports its quarterly earnings Friday it could capitalize on the multi-billion dollar trading mishap by JPMorgan Chase--the largest U.S. bank (American Banker July 9). Wells' simpler banking model could garner some good public relations kudos while JPMorgan still deals with the fallout from its glaring mistake, the Banker said. Wells is the safe harbor for bank stocks during stormy economic times because it faces the fewest problems--and that will be a large plus for it, Jason Ware, an analyst with Albion Financial Group in Salt Lake City, told the Banker
  • Smart Card Alliance, a nonprofit company, has unveiled a website dedicated to aiding U.S merchants, consumers and others dealing with the switch to EMV chip technology from magnetic stripe cards (American Banker July 9). The EMV Connection website provides EMV chip technology information--along with educational resources and tutorials--to stakeholders such as acquirers, consumers, issuers, merchants and payment processors, the Banker said ...

May consumer credit up 17.12B up 1.7B at CUs

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WASHINGTON (7/10/12)--U.S. consumers borrowed 8% or $17.12 billion more in May than in the previous month--the fastest pace of expansion in five months and better than forecast, according to the Federal Reserve's Consumer Credit report, released Monday afternoon.  Credit union members also increased their debt at credit unions--by $1.7 billion.

The total consumers  borrowed in May was $2.573 trillion. Of that, $870.2 billion was in revolving debt--up 11.25% from $862.2 billion borrowed in April--and $1.703 trillion in nonrevolving debt--up 6.5% from $1,694 trillion the previous month.

The expansion was the best pace since December, when debt increased 8.27%. Economists surveyed by Dow Jones Newswires had forecast a $7.8 billion increase in May (The Wall Street Journal July 9) while economists surveyed by Bloomberg forecast an $8.5 billion increase (Bloomberg July 9).

Credit union members borrowed $229.4 billion during May-- roughly $1.7 billion more than in April. That compares with a second quarter 2011 total of $220.9 billion borrowed.

Nonrevolving credit overall--including auto loans and student loans--rose by $9.10 billion, seasonally adjusted.  At credit unions, members borrowed $192.2 billion--or $1 billion more than the $191.1 billion they racked up in debt for April. It was the second month of debt reaching more than $190 billion. The last time debt was that high was in 2010.

Revolving credit overall, which includes credit card debt, rose $8.01 billion in May. At credit unions, members borrowed a total of $37.2 billion, or $600 million more than in April. That compares with $37.9 billion borrowed in fourth quarter of 2011.

The Fed's consumer credit report does not track mortgage and real-estate loan data.

News of the Competition (07/09/2012)

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MADISON, Wis. (7/10/12)

  • The Federal Deposit Insurance Corp. (FDIC) closed one bank Friday for a total of 32 closures so far in 2012. There were 92 bank closures in 2011. Montgomery Bank & Trust, Ailey, Ga., was assumed by Ameris Bank, Moultrie, Ga. The failed bank had roughly $174 million in assets as of March 31. The FDIC estimates the most recent failure will cost its Deposit Insurance Fund about $75 million …
  • With mortgage rates hitting new lows and refinancing volume continuing its ascent, U.S. banks are expected to see another huge quarter for mortgage revenues in the coming weeks (American Banker July 6). A burgeoning euro zone crisis and a series of weak U.S. employment reports has helped push the 30-year, fixed-rate mortgage below 3.9% in recent weeks, according to a survey by the Mortgage Bankers Association (MBA). The MBA forecast suggests the higher volume could linger, according to the Banker ...
  • Although some U.S. banks negatively impacted by the financial crisis have made progress in their risk-management practices, more work lies ahead, according to the most recent Ernst & Young survey of global companies (American Banker July 6). Financial institutions during the past few years have deployed stress testing, implemented measures to re-evaluate their capital structure among businesses, and implemented new models to identify potential impacts and risks on the whole organization, the Banker said …

Market News (07/09/2012)

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MADISON, Wis. (7/10/12)

  • Business sentiment worldwide again eroded last week, according to Moody's Analytics Survey of Business Confidence, forcing confidence back to the area it was in last summer during the Treasury debt-ceiling imbroglio (Moody's Economy.com July 9). The survey index dropped to 13.8 for the week ended July 6 from 17.5 the prior week. In recent weeks, positive responses to the survey have steeply dropped off, while negative responses still are relatively low, Moody's said. Questions about hiring pricing and the strength of sales have garnered the weakest responses. Those in financial services have given responses that have turned more distinctly negative, Moody's said. Although the economy is expanding at the low end of its potential, it is too early to say there has been a fundamental downward shift in economic growth, Moody's concluded …
  • Each time a customer pays with a credit card, merchants may soon start levying a surcharge--a practice that MasterCard and Visa currently prohibit (The Wall Street Journal July 9). Retailers have been advocating to impose the extra charge for customers who use cards instead of cash, saying the fees would help offset costs of accepting credit and debit cards, the Journal said. For each card swipe, merchants pay transaction fees. Although MasterCard and Visa--the biggest card-payment networks globally--currently prohibit the practice as a component of rules they require for retailers to accept their cards--it is expected that the ban will be altered or eliminated through a potential settlement of lawsuits brought by retailers against the card networks and banks that issue the cards, the Journal said  …

News of the Competition (07/06/2012)

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MADISON, Wis. (7/9/12)

  • A Maryland county is withdrawing $10 million from its main bank vendor--PNC Financial Services Group (PNC)--and disbursing the deposits among five community banks headquartered in the county (American Banker July 6). The move was made by the county council in Montgomery County, Md., a Washington D.C., suburb of roughly 972,000 people.  Each of the five community banks promises to match the deposit amount it gets from the county and use the combined deposits to issue business loans to companies in the area--in essence doubling the investment from the county, the Banker said.  Meanwhile, the Credit Union National Association (CUNA) and credit unions are urging Congress to increase credit unions' member business lending (MBL) cap to 27.5% of assets from 12.25%. Doing so would open up more opportunity to offer MBLs, inject $13 billion in business loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA said ...
  • The U.S. Court of Appeals for the Second Circuit upheld a $20.5 million arbitration award from Goldman Sachs to the creditors of hedge fund manager Bayou Group (The New York Times DealBook July 5). Goldman has been trying to overturn the award, arising from the 2005 implosion of Bayou. Bayou's creditors have accused Goldman of aiding the fund in perpetrating a Ponzi scheme. If upheld, the arbitration award could have a wider impact on Wall Street, because it may place heightened responsibility on financial firms, the Times said. That's because companies such as Goldman Sachs each year clear billions of dollars in trades and have maintained that their job is merely to clear the transactions, not to police the clients, the Times said. If the Goldman award stays in place, that could change the responsibilities of Wall Street  firms, some experts have argued  …

Market News (07/06/2012)

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MADISON, Wis. (7/9/12)

  • For the third consecutive month, the U.S. economy posted weak job growth in June, making little headway in reducing the backlog of nearly 13 million unemployed workers and stoking fears that Europe's financial troubles are impacting the American economic recovery (The New York Times, The Wall Street Journal and Bloomberg.com July 6). U.S. payrolls added 80,000 jobs last month, the Labor Department said Friday. Private employment, which excludes government agencies, rose 84,000 in June--the weakest in 10 months. The unemployment rate held steady at 8.2%. June's economic growth was disappointing but not surprising, David Resler, chief economic adviser at Nomura Securities International Inc., told Bloomberg, adding that the U.S. job market is soft. In a related matter, the U.S Monster Employment Index--a gauge of help-wanted ads placed online by U.S. employers--increased six points in June to 153--or 4.1% (Moody's Economy.com July 6) ...
  • The International Monetary Fund (IMF) will reduce its worldwide growth forecasts during the next month because of weakness in job growth, investment and manufacturing in the U.S., Europe, Brazil, China and India (The Wall Street Journal and Bloomberg.com July 6). Following an April estimate of 3.5%, the new outlook will be announced in about 10 days, Christine Lagarde, IMF managing director, said Friday. In a related matter, the European Central Bank (ECB) Thursday reduced its benchmark interest rate to the lowest level ever in attempts to loosen the flow of credit and halt further erosion of the euro zone economy (The New York Times July 5). The ECB cut its benchmark rate to 0.75% from 1%--once considered the lower boundary of the official rate …
  • The Economic Cycle Research Institute's (ECRI) U.S. future inflation gauge registered 101.2 in June, down from 102.3 in May (Moody's Economy.com July 6). So far this year, the gauge has stayed mostly unchanged at a subdued level, ECRI said. June's small decrease is consistent with ECRI's outlook for relatively minor inflation pressures for the rest of 2012 and heading into 2013 …
  • The Bloomberg Consumer Comfort Index declined in the most recent week, wiping out nearly all of the previous week's gain in advance of what is shaping up to be another mid- to late-year slump  (Moody's Economy.com July 5). The index dropped 1.4 points to -37.5 for the week ended July 1 from -36.1 the prior week. Diminished perceptions of the state of the economy prompted consumers to re-evaluate their spending, which pushed views of the buying climate and personal finances lower, Moody's said …

News of the Competition (07/05/2012)

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MADISON, Wis.  (7/6/12)

  • The National Association of  Insurance Commissioners (NAIC) will hold a hearing to review force-placed insurance, after insurance regulators in California and New York  demanded that banks reduce the premiums they charge delinquent homeowners for force-placed hazard insurance (American Banker July 3). The premise behind force-placed insurance is that mortgage borrowers are required by contract to have insurance coverage on their property to protect lenders' interests. If homeowners fail to have that coverage in place, mortgage servicers are allowed to purchase insurance on behalf of homeowners and then bill them for it, the Banker said. Although the NAIC review indicates that other state insurance commissioners may think force-placed insurance needs more oversight, others, such as the head of an NAIC committee that is handling the hearing, disagree. Pressure from consumer advocates is the reason for the hearings, Michael Chaney, Mississippi insurance commissioner and chairman of NAIC's property and casualty insurance committee, told the Banker ...
  • Bank of America (BofA) was among the top 15 most-hated companies in the U.S., according to a survey conducted by the American Customer Satisfaction Index (American Banker July 3). BofA moved up on the list, ranking 15th--up four spots from last year when it ranked 11th. BofA customers were upset by its decision last fall to charge a $5 monthly fee for using the bank's debit cards. However, the majority of the complaints were made about the large BofA mortgage division, according to Consumeraffairs.com
  • JPMorgan Chase said data belonging to business customers of its accounts-payable service were breached by an unauthorized party, but that no wrongful use of data or theft has been detected (American Banker July 30). The unauthorized users accessed the businesses' addresses, business names and tax-identification numbers, and may have  accessed bank and invoice information, according to a letter sent to customers Monday night, the Banker said ...

Market News (07/05/2012)

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MADISON, Wis. (7/6/12)

  • Initial claims for U.S. unemployment benefits dropped last week to the lowest level since mid-May, indicating that job cuts may be abating and hiring could improve (The New York Times and Moody's Economy.com July 5). Claims declined 14,000--to a seasonally adjusted 374,000--for the week ended June 30 from the prior week. It was the fewest claims since the week of May 19. Meanwhile, continuing claims for unemployment benefits for the week ended June 23 increased 4,000--to 3.306 million. Also, U.S. private-sector hiring unexpectedly surged in June, according to a report from payroll processor Automatic Data Processing Inc. and forecasting firm Macroeconomic Advisors LLC (The Wall Street Journal July 5). Companies added 176, 000 jobs last month, the report indicated. In a related matter, the June Challenger Report by Challenger, Gray and Christmas Inc. showed that planned layoffs in the U.S. fell to 37, 551--the lowest since May 2011--from 61,887 in May (Moody's Economy.com July 5) ...
  • Mortgage applications in the U.S. fell 6.7% for the week ended June 20 from one week earlier, according to the Mortgage Bankers Association (MBA) Market Composite Index (Moody's Economy.com July 5). The refinance index decreased 8.4%--similar to the rate of decline in the prior week. The drop occurred despite no significant change in interest rates, MBA said. The purchase index gained 0.6%, following a 1.4% decline the previous week. Refinance applications constituted 78% of all mortgage applications and 75% of the prospective loan volume, MBA said …
  • U.S. service industries grew in June at the slowest rate since January 2010, according to the Institute for Supply Management's (ISM) Non-Manufacturing Index. The rate indicates the largest segment of the economy is having a hard time gaining a foothold (Bloomberg.com and Moody's Economy.com July 5). The index fell to 52.1 last  month from 53.7 in May. Business activity, export orders and new orders all declined, Moody's said. In a sign that hiring improved in June from May, the employment index inched up, Moody's said. Service industry growth has been  in "fits and starts" and it hasn't been able to get into a groove of steady robust growth, Omair  Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Conn., told Bloomberg. The growth pace is not sufficient to significantly reduce unemployment, he added …

News of the Competition (07/03/2012)

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MADISON, Wis. (7/5/12)

  • Chrysler Group LLC's U.S. vehicle sales surged 20% in June--the top June performance in five years--buoyed by a record sales month for the Jeep Wrangler sports-utility vehicle and Fiat 500 small car, trumping worries that buyers would be stymied by slower hiring (The New York Times, Bloomberg.com and The Wall Street Journal July 3). June sales rose to 144,811 cars and light trucks from 120,394 a year earlier, Chrysler said in a statement. Meanwhile Ford Motor Co.'s June sales increased 7% from a year earlier. Ford said it sold 207,759 vehicles in the U.S. last month--an increase from the 194,114 a year ago and 3.9% less than the 216,267 sold in May. Ford's surge was led by a 28% increase in sales of the Ford Escape--its best month ever--and a 17% jump in sales of the Ford Fusion  …
  • Morgan Stanley received unwarranted investment grade ratings for $23 billion worth of notes backed by subprime mortgages in 2006 after urging Standard & Poor's (S&P) and Moody's Investors Service Inc. to do so, investors alleged in a lawsuit, referring to documents in federal court that were unsealed (Bloomberg.com July 3). Moody's and S&P executives failed to warn investors about risks associated with subprime-backed notes because they wanted to garner profits from doing business with Morgan Stanley, the investors alleged. The notes were issued by a unit of Cheyne Capital Management Ltd, based in London. The unsealing of the documents comes from a lawsuit filed in 2008 by Washington County, Wash., which includes Seattle and Abu Dhabi Commercial Bank, based in the United Arab Emirates, Bloomberg said. The suit is based on notes issued by Cheyne Finance PLC--a structured-investment vehicle (SIV) that imploded in 2007, Bloomberg said. SIVs issued short-term debt to provide money to buy long-term notes that provide higher yields. Those notes failed when credit dissipated during the financial crisis, triggered by investments in mortgage-backed securities, Bloomberg said …
  • Kansas is becoming one of the most active states for bank merger and acquisition (M&A) activity in 2012 (American Banker July 2). In the first half of the year, eight deals were struck in the state, tying it at second place with California. First-place is Texas with 14 deals. The three states accounted for nearly 30% of all M&A activity, the Banker said. Kansas often garners scant attention because its deals involve banks that are small--many of which are responding to worries about the economy, the Banker said …

Market News (07/03/2012)

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MADISON, Wis. (7/5/12)

  • Following two consecutive months of declines, U.S. factory orders increased more than anticipated in May, alleviating worries that manufacturing is floundering, but headwinds seem to remain (Bloomberg.com, The Wall Street Journal and Moody's Economy.com July 3). Orders increased 0.7% in May to a seasonally adjusted $469.04 billion, the Commerce Department said Tuesday. The May uptick--which follows a 0.7% decline in April--is due to increased demand for airplanes and cars, the Journal said. However, American  manufacturers still face challenges because factory orders have fallen in three of the first four months of 2012 and May's unfilled orders--a signal of future demand--were unchanged from April, the Journal said ...
  • The International Council of Shopping Centers (ICSC) chain store sales index increased 0.2% for the week ended June 30, but year-over-year growth dropped to 1.4%--the worst performance since January 2011, ICSC said (Moody's Economy.com July 3). Severe storms that struck areas of the Middle Atlantic and Midwest caused the sales weakness, ICSC said. Despite the one-time interruption by the storms and relief provided by lower gasoline prices, ICSC further cut its sales forecast for July because of concerns about Europe's debt crisis and its impact on the U.S. stock market and the economy in general  …

News of the Competition (07/02/2012)

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MADISON, Wis. (7/3/12)

  • U.S. Bancorp has agreed to settle lawsuits accusing it of levying excessive overdraft fees on customers by paying out $55 million (Reuters July 2). The settlement by the Minneapolis-based lender--one of the 10 biggest U.S. banks--was announced Monday, six days after a similar $90 million agreement was announced by PNC Financial Services Group Inc., Reuters said. The settlements are part of class action lawsuits against 35 lenders brought nationwide on behalf of millions of customers over fees that are usually imposed when customers overdraw their checking accounts through the use of debit cards, Reuters said …
  • The largest investment firms in New York City are moving jobs out of the area and expanding in other U.S. regions that have lower costs of operations (The New York Times July 1). The moves are a threat to a huge middle rank of positions that constitute the gist of Wall Street employment, the Times said. That shift is occurring while banks consider even more drastic job cuts in New York City, which could negatively impact the state and city tax base in the long term, the Times said. Consultants--who refer to the trend as "near-shoring" as opposed to offshoring abroad--have noted a steep upturn in the trend, the Times said …
  • Amid a backdrop of volatile financial markets, June was a hectic month for all-cash deals, with at least six of the 16 bank and thrift mergers announced through Thursday being paid for 100% with cash, according to data compiled by Keefe Bruyette & Woods, SNL Financial and public disclosures (American Banker June 29). In the prior two months, all-cash deals had been virtually absent--with one in May and one in April, SNL Financial said. March had the most all-cash deals so far this year, with at least seven …
  • Representing Ally Financial, attorney Robert Maddox says allegations by regulators of improper foreclosure practices is just a ruse to obtain money for defaulted borrowers and place more regulatory requirements on the five biggest U.S. mortgage servicers (American Banker June 29). Maddox told the Banker he made that case to officials from the Department of Housing and Urban Development, the Justice Department and 49 state attorneys general. Maddox referred to the matter as a "Trojan  horse" for the government to address "perceived problems in mortgage servicing," he added …

Market News (07/02/2012)

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MADISON, Wis. (7/3/12)

  • For the first time since July 2009, the U.S. manufacturing sector shrank in June while new demand plunged, according to the Institute for Supply Management's (ISM) Manufacturing Index (The Wall Street Journal, Bloomberg.com and Moody's Economy.com July 2). The ISM index nosedived to 49.7 last month from 53.5 in May. Uncertainties in the economy in China and Europe may be dampening demand for U.S. goods, according to the ISM panel, while others continue to be optimistic, the Journal said. Positives from the report were a relatively unchanged employment index and inventory gauges that indicate the overbuilding of stockpiles is not a worry at this time, Moody's said …
  • U.S. construction spending in May was 0.9% higher than in April and 7% more than in May of last year, according to the U.S. Census Bureau (Moody's Economy.com July 2). The most robust component--as in prior months--was in private residential construction spending, which went up 1.3%, and is 7.5% higher year over year. Although private nonresidential construction showed an uptick, public construction continues to fall because state and local governments are cutting total spending, Moody's said. U.S. construction continues to show a moderate recovery in the private sector, but a substantia slowdown in the public sector, which has been a drag on overall construction activity, Moody's said …
  • Business confidence worldwide hasn't substantially changed since the beginning of 2012 but is currently at the low end of the spectrum that has prevailed during this period, according to Moody's Analytics Survey of Business Confidence (Moody's Economy.com July 2). Businesses' views of general business conditions and of the outlook in six months have become less positive, Moody's said. However, layoffs remain low, and investment and sales are holding steady, Moody's said. Also, overall price pressures have abated, as have energy and commodity prices …