News of the Competition

MADISON, Wis. (11/9/09)

• Regulators are getting more conservative in their requirements for banks in enforcement actions to increase capital and are stressing the importance of common equity as a capital component. Hammi Financial Corp., which has $3.5 billion in assets, said Thursday the California Department of Financial Institutions (DFI) told its bank unit to increase its ratio of tangible shareholders' equity to tangible assets. According to American Banker (Nov. 6), that ratio is not one of the three standard regulatory capital ratios. Also, stress tests of the 19 largest banking companies suggest regulators want common equity to make up two-thirds of overall Tier 1 capital. Common equity was also indicated on the Federal Deposit Insurance Corp.'s (FDIC) policy on private equity's role in banks. Regulators also have weighed a company's tangible common equity when approving applications to repay investments made under the Treasury Department's Trouble Asset Relief Program ...

• When Ken Lewis retires as CEO of Bank of America at the end of the year, shareholders will watch his successor closely for indications of how BofA's participation in the Troubled Asset Relief Program (TARP) will play out on their investments. BofA wants to start making installment payments on the $45 billion in TARP funds the bank received the past year. The program cost shareholders $2.5 billion in dividends this year, and the company had to pay $402 million during third quarter to leave an unused asset guarantee tied to its purchase of Merrill Lynch & Co. The bank also suffered through negative public relations during the bailout, and some investors are concerned about what the bank would do if the government requires bailed-out companies deemed "too big to fail" to divest certain businesses. The new CEO will have to reach out to big, institutional investors, who can be crucial allies for the bank if the government requires it to raise more capital before quitting the TARP program. Shareholders are antsy about moving money out of the company's stock and into shares of rivals (American Banker Nov. 6). ...

• JPMorgan Chase & Co.'s consumer loan portfolio is likely to shrink into next year as the mortgage market continues cooling, Charlie Scharf, CEO of the company's retail financial services division, told the BancAnalysts Association of Boston conference (American Banker (Nov. 6). Home equity loans and prime mortgages originations are substantially lower, and retail loans may drop 10% to 15% in the next year, he said. He noted the company has room to do bank deals, even though banking companies are limited from amassing more than 10% of the nation's deposits through acquisitions. Foreclosed homes are improving in price in California, but Florida is not stabilizing and not likely to improve soon, he told the group. The bank offered mortgage modifications to roughly 280,000 customers, 94% of whom would see their payment decrease. Of the modifications completed, 77% made more than one payment and 51% made more than three payments so far. Scharf also noted the bank's plans for 2010 include eliminating overdrafts on debit cards, ATMs and teller transactions, and overdraft fees when an account is overdrawn by less than $5, and reducing the daily overdraft fee charged ...