How Accurate is Bank Debt Info?

Story first appeared in USA Today.

Every hour, trillions of pieces of data are managed, transferred and handled by U.S. banks. Our country's financial health depends on the trust of bank customers in the accuracy of bank transactions. Federal consumer protection laws forbid the acceptance of unreliable credit data and penalize entities that provide defective credit information.

When banks sell portfolios containing thousands of accounts, it's standard practice not to warrant the accuracy of 100% of the data. Like a flowing stream, data change from moment to moment: People move, change phone numbers, make payments or file bankruptcy. This makes a strict warranty impossible.

The critical pieces — the customer's identity and payment history — are already required by law to be accurate. A warranty is not needed when the law already demands complete accuracy. As for data that change constantly, a demand that banks guarantee 100% accuracy at the instant of sale is simply unrealistic.

Debt buyers and collection agencies use sophisticated procedures and technology to ensure the accuracy of a bank's data. Ethical debt buyers and collectors work hard to have the right data every single time, not altruistically, but because they face suits and regulatory consequences when they are wrong.

State and federal laws empower consumers to require debt buyers and their collectors to validate a debt as a condition of collection. Credit reporting agencies have automated procedures to let consumers dispute inaccurate credit reports. It takes just seconds on the Internet to find one of the many consumer attorneys who are glad to sue lenders, debt buyers and other collectors who step out of line.

As long as human beings are involved, it is certain that mistakes will happen, but effective remedies exist to correct them. Just as most consumers are honest and intended to pay their bills, most of their transactions are accurately recorded by the banks. Losing faith in that proposition means losing faith in our entire credit system, with potentially incalculable impact.


For more national and worldwide related business news, visit the Peak News Room blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the  Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.

Bank Credit Card Debt Habits

Story first appeared in USA Today.

Banks are sticklers in their dealings with customers. Overdraw your bank account by even a buck, and you could get dinged with an overdraft charge. Pay a bill just minutes past 5 p.m. on the due date? Expect a hefty late fee.

But when it comes to holding themselves to exacting standards for collecting old debts from credit card customers, some major banks get all loosey-goosey.

The nation's two largest banks allegedly cut corners — using shoddy procedures and flimsy records — when moving to collect credit card debts or selling bundles of them to outside collectors known as debt buyers, according to a series in American Banker, which covers the industry.

Bank of America sold bundles of old debts "as is" to debt buyers, with the proviso that its records might be incomplete or inaccurate, that some of the debts might have been wiped out in bankruptcy or that some might even have been paid off.

Did the bank care that the buyers would set packs of debt collectors on supposedly delinquent customers despite potentially flawed records? A bank spokesman would only say the language is fairly standard in the industry … to protect the buyer and seller on changes that occur after the loans are sold.

That's probably not much comfort to customers such as a Maryland resident. After getting behind on her credit card, she paid it off in 2006 with a $1,872.70 check made out to Bank of America and sent to a debt collector. But after her "debt" was sold to a debt buyer, she spent three more years battling collection efforts. She finally hired a lawyer and counter-sued to end the harassment.

JP Morgan Chase was accused by a whistle-blower of going after delinquent customers based on similarly lax records. According to the whistle-blower, the bank sold a bundle of court judgments against credit card customers that its own lawyers had labeled "toxic waste" because the debts were so lacking in documentation, they were considered uncollectible. Chase wouldn't comment on the American Banker stories, but it said the "overwhelming majority" of credit card collections were correct.

Much of this avalanche of debt is fallout from the go-go years before the financial meltdown, when banks extended credit and granted mortgages to practically anybody with a pulse. People got in over their heads, and when the housing bubble burst and the recession hit, banks were faced with a wave of defaults.

The problems with credit card collections are reminiscent of the recent scandals in which major banks used "robo-signed" documents to push through foreclosures without proper legal review. Just weeks ago, Bank of America, JP Morgan Chase and three other financial institutions agreed to pay a $25 billion settlement.

It's unclear how widespread the abuses are with credit card collections, but the reports are yet another reason it's important to have a federal bureau protecting the interests of consumers in their dealings with financial institutions. In 2009, it took a new law to force banks to halt egregious abuses of credit card customers, who had been hit with sky-high fees and interest rate hikes for the flimsiest of reasons.

The easiest way to avoid collections is, obviously, to pay your bills. And banks have a right to collect what they're owed. But they also have a legal duty to have accurate records to back up their claims. Selling off the debts to other businesses that will chase down customers with calls, letters and lawsuits doesn't absolve banks of that responsibility.


For more national and worldwide related business news, visit the Peak News Room blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the  Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.

Pot Stores Need Banks, Too

First appeared in Associated Press

Medical marijuana is legal in 17 states, but the industry has a decidedly black-market aspect - it's mostly cash-only.

Banks won't touch pot money. The drug is illegal under federal law, and processing transactions or investments with pot money puts federally insured banks at risk of drug-racketeering charges.

In Colorado, state lawmakers are attempting an end-run around the federal ban with a bill that would create the nation's first state cooperative financial institution for dispensaries and growers to allow them to store and borrow money.

The proposal, if enacted, would be a direct challenge to the U.S. Justice Department, which warns that all financial transactions involving pot money are illegal.

But for Colorado's 600 or so medical marijuana dispensaries, and hundreds more growers and associated industry workers, the problem of not being able to bank marijuana money is big enough to make the challenge worthwhile.

"I've been kicked out of three banks," said Matthew Huron, owner of two dispensaries and an edible marijuana company in Denver. One of his shops, Good Chemistry, greets patients with a sign on the register, "CASH ONLY."

Huron pays his bills with money orders. Huron's current bank, which he won't name, doesn't know the true source of his company's deposits. But without a checking account, Huron said he wouldn't be able to pay the required payroll tax for his 15 employees.

Small business loans are also out of the question, Huron said. In order to build a warehouse to grow the marijuana he sells - a requirement under Colorado law - Huron had to grow pot during construction and sell the pot to make cash payments to finish the warehouse.

"It's very cumbersome, the banking aspect," Huron said.

Cumbersome and dangerous. Dispensary robberies are rare, but the Denver-based Medical Marijuana Industry Group, which supports the legislation, reports that its members complain of being followed home with some saying they have been victims of robberies they haven't reported..

Marijuana businesses have large amounts of cash on their premises, a fact as widely known as the price of the product they sell.

"It freaks everybody out," said James Laws, general manager at the Good Chemistry pot shop in Denver. "It's off-putting when people come in and we have to say, 'Sorry, our ATM's down so you need to go down the street and get cash or we can't help you.'"

The bill up for debate in the state Senate Finance Committee Tuesday would set up a financial institution somewhat like a credit union.

Only licensed members of Colorado's medical marijuana industry, or their patients, could join. Initially, the Medical Marijuana Financial Cooperative would simply function as a vault of sorts for pot money. Members could deposit money and take money out.

Eventually, the cooperative could decide whether to issue loans or provide other banking services.

Several Democrats in Congress, including Colorado Rep. Jared Polis, have proposed federal legislation opening financial services for medical marijuana businesses in states where they're legal. However, prospects are remote.

"The truth is, this is just not something that's going to be addressed in this Congress," said Steve Fox, director of public affairs for the Washington-based National Cannabis Association.

Without federal action, Colorado's proposal may be a big waste of time. The same reason banks won't touch pot money - the risk of federal drug-laundering charges - would confront a state cooperative, as well.

"This bill attempts to address this big problem for the industry, the lack of financial services. But what it cannot do is get around the federal money-laundering piece of this," said Sam Kamin, a law professor at the University of Denver who follows marijuana regulations.

Threat of federal intervention appears to be growing. American Express announced last May it would no longer handle medical marijuana-related transactions because of fear of federal prosecution.

A month later, U.S. Deputy Attorney General James M. Cole gave banks an explicit directive about pot.

"Those who engage in transactions involving the proceeds of such activity may also be in violation of federal money laundering statutes and other federal financing laws," Cole wrote in a memo.

Cole's memo spooked the few small banks still doing business with marijuana growers and sellers.

"You'd have one bank at a time saying, 'We're going to pull out of this.' Then everybody would go to the next bank, and the next bank, until all the banks pretty much shut down," Fox said.

The sponsors of Colorado's bill concede that a state cooperative is unlikely to solve the problem.

But in a state with the nation's most regulated pot industry, where the government oversees nearly every aspect of how the drug is grown and sold, they say a banking proposal is the logical next step. Medical marijuana in Colorado produces about $20 million a year in state and local taxes, and employs from 5,000 to 10,000 people, according to the industry group.

"It's really hard to try to figure out how to create a workable local solution here," said Democratic Sen. Pat Steadman of Denver, one of the sponsors of Colorado's bill. "We have zero confidence that Congress is going to do something. But no matter how creative you try to get, there's only so much you can do at the state level."

So why bother? Steadman has several dispensaries in his district and says he worries about their safety if something isn't done to help them bank.

"They've got bags of pot, bags of cash. It's a bad combination," Steadman said.

Teach Banks to Share and Move Your Money

First appeared in Contra Costa Times

Dozens of moms, dads and their kids protested the nation's biggest banks Friday with a stroller march that called on bank customers to switch to credit unions.

About 60 parents and their young children took part in Friday's "Teach Banks to Share" demonstration, which was organized by a group called the Colorful Mamas of the 99 Percent.

The stroller-pushing parents marched through downtown Oakland in support of the national "Move Your Money" campaign, which is urging customers of big banks to close their accounts and join credit unions by Saturday, which is being dubbed "Bank Transfer Day."

The campaign has gained momentum with the expansion of the Occupy Wall Street protests nationwide.

The protesters beat drums and chanted "Time out! You better share!" as they marched to a Wells Fargo branch. The group rallied outside while two mothers went inside and closed their accounts.

"We believe that the money needs to go from the 1 percent to all of us to pay for schools, health care, putting food on the table and our kids' future," protester Mimi Ho, carrying her baby, told the crowd after closing her Wells Fargo account.

The protesters said big banks such as Wells Fargo & Co. don't pay enough taxes or contribute enough to their communities, despite having received tens of billions of dollars in federal bailout funds and posting multibillion-dollar profits.

"We want reinvestment in our communities. We want corporations and large banks to pay their fair share of taxes," said Prishni Murillo, 33, an Oakland mother of two.

Wells Fargo spokesman Ruben Pulido said the San Francisco-based bank been an industry leader in charitable giving, modifying mortgages and lending money to small businesses.

"We're doing a lot to strengthen communities in the Bay Area and around the country," Pulido said.

Shrinking Bank Revenue Signals Dawn of `Worst' Growth Decade

Bloomberg

 

Shrinking revenue at U.S. banks, led by Goldman Sachs Group Inc. and Citigroup Inc., may continue to fall as the industry heads into what could be its slowest period of growth since the Great Depression.

After the six largest U.S. banks posted record revenue in 2009, combined net revenue fell by an average of 8 percent in the third quarter from a year earlier and 16.3 percent over the last two quarters, according to data compiled by Bloomberg. Revenue so far this year is down by 4.1 percent, driven by declines in everything from trading at Goldman Sachs to home lending at Bank of America Corp. New laws restricting account and credit-card fees, as well as derivatives and capital rules, are also squeezing lenders.

Next year will kick off a decade that will bring the “worst revenue growth” for U.S. banks in 80 years, according to Mike Mayo, a banking analyst at Credit Agricole Securities USA Inc. in New York. Net revenue at U.S. commercial lenders has expanded at a slower pace in each of the last three decades, falling to 6 percent in the last decade from 12 percent in the 1970s, according to Federal Deposit Insurance Corp. data.

“Revenues aren’t just weak for this quarter, or even for this upcoming year, but for the entire upcoming decade,” said Mayo, a former Federal Reserve analyst who has more than 20 years of industry experience. “The speed limit’s been lowered for how fast banks can drive earnings.”

The trend over the last two quarters is hitting almost every line of income statements and is spread across the sector, affecting investment banks, consumer banks and commercial lenders. It’s eating away at profits, depressing stock prices and threatening bonuses and new hiring.

BofA, JPMorgan

The 17.6 percent drop in net revenue since March 31 at Charlotte, North Carolina-based Bank of America, the largest U.S. bank by assets, came mostly from its mortgage-lending and credit-card businesses. The company reported a $7.3 billion loss in the third quarter after taking a $10.4 billion goodwill writedown against new debit-card laws.

JPMorgan Chase & Co., where revenue dropped 13.9 percent over the same time frame, has been hurt by bad credit-card loans. Revenue from credit cards at the New York-based lender, the second-largest in the U.S., fell more than 17.6 percent in the third quarter from a year earlier.

The bank’s revenue is also suffering, along with the rest of the industry, from new restrictions on the fees it can charge for credit cards, checking accounts and other consumer services. Chief Executive Officer Jamie Dimon, 54, told analysts Oct. 14 that the bank will lose about $750 million in profit as a result. He also said new derivatives rules will cost $1 billion in lost revenue.

Trading Revenue

Wells Fargo & Co.’s decline of 2.7 percent since the first quarter has come from its community-banking operations. New limits on overdraft fees trimmed revenue at the San Francisco- based lender by $380 million in the third quarter, Chief Financial Officer Howard Atkins told analysts on an Oct. 20 conference call.

Goldman Sachs and Citigroup, whose revenue fell 30 percent and 18 percent over the last two quarters, have been hampered by lower trading results. The two New York-based firms had the biggest drop of the six banks so far this year. Lucas van Praag, a Goldman Sachs spokesman, declined to comment. Shannon Bell, a spokeswoman for Citigroup, said it is “uniquely positioned to take advantage of growth opportunities in the emerging markets.”

Drawing Down Reserves

At Morgan Stanley, a fall in fixed-income and equity trading drove revenue down 25 percent over the six months. Goldman Sachs and New York-based Morgan Stanley posted declines in fixed-income trading revenue of more than 37 percent from a year earlier, while Citigroup’s investment banking revenue was down by 20 percent.

Lower credit costs and a less gloomy housing outlook allowed lenders to draw down reserves and set aside fewer provisions against consumer loan losses. That helped them to remain profitable. Net income for the first nine months was $39.6 billion for the six banks, compared with $39.5 billion for the same period last year. Still, some analysts questioned the growth prospects of an industry that made up as much as 20 percent of the profit from Standard & Poor’s 500 Index companies before the financial crisis, according to Bloomberg data.

“That five- or six-year period during the boom, that was just purchase activity created by credit,” said Christopher Whalen, a former Federal Reserve Bank of New York analyst and co-founder of Institutional Risk Analytics in Torrance, California. “The ‘new normal’ terminology, the cliche we all hate, is absolutely true. When you’ve withdrawn all of this credit from the economy, you’re also taking a component of revenue out.”

40-Year Trend

“We’ll be lucky” if revenue growth for U.S. banks is flat this decade, Whalen said.

Financial companies have trailed the broader equity market this year. The S&P 500 Financials Index is up 1 percent, while the overall S&P 500 Index has climbed 6.3 percent. Bank of America and Morgan Stanley have each fallen more than 17 percent through yesterday, while Citigroup had the only increase among the biggest six, jumping 27 percent before today.

The six largest lenders are trading at an average of 0.9 times their book value, less than half the average level over the last 10 years. Bank of America’s market value is about 53 percent of its book value, while Wells Fargo is trading at 1.2 times its book value.

Declining revenue growth rates for banks is a 40-year trend, according to FDIC data. U.S. banks had compound annual revenue growth of 12 percent from 1970 through 1979, about 10 percent during the 1980s, 8 percent in the 1990s and 6 percent over the most recent decade.

‘Not Your Friend’

“When it comes to decade-long revenue growth for banks, the trend is not your friend,” Mayo said. “Basic traditional banking is likely to remain weak. It’s a slower-growing economy, and banks can’t or shouldn’t try to overcome headwind by reaching for inappropriate risky growth.”

Gross domestic product in the U.S. is projected to grow by 2.7 percent this year, 2.4 percent next year and 3 percent in 2012, according to median estimates of 65 economists surveyed by Bloomberg.

To find growth, banks including JPMorgan are looking to expand their reach overseas, where GDP growth rates are about twice those of the U.S. The bank announced in February plans to double its 4 percent share of the Asian market over the next few years and has expanded its global commodities-trading unit through a $1.7 billion purchase of parts of RBS Sempra Commodities LLP earlier this year.

Brokerage Strategy

Citigroup, which already derives more than two-thirds of its revenue outside the U.S., is “well-aligned with the growth trends we see globally,” CEO Vikram Pandit, 53, told analysts Oct. 18.

Morgan Stanley is looking for growth from its brokerage unit after buying a controlling stake in a joint venture with Citigroup’s Smith Barney, more than doubling its brokerage ranks to about 18,000. Bank of America is also relying on its brokerage unit, Merrill Lynch, to sell investment services to existing bank customers, both in the U.S. and overseas.

Wells Fargo CEO John Stumpf told analysts Oct. 20 that his bank is making up for lost revenue growth by offering customers service across multiple platforms -- where they shop, at ATMs, online, via telephone and mobile banking.

Generating growth will be about “taking share away from other banks,” said Whalen of Institutional Risk Analytics. “At best the global economy will be a zero-sum game.”

Loan Growth

Bank revenue will benefit when loan growth returns, said Christopher Kotowski, an analyst at Oppenheimer & Co. in New York. In the savings and loan crisis of the 1990s, average annual loan volume didn’t grow until two years after the amount of new troubled assets peaked, he wrote in a July note to investors.

Consumer and commercial loans at U.S. banks climbed 0.6 percent in September to $6.8 trillion from a year earlier, the first rise in 15 months, according to data from the Federal Reserve Bank of St. Louis. That compares with an annual growth rate of 11 percent from 2005 through 2007 during the height of the housing boom. Loan volumes peaked at $7.29 trillion in 2008.

“Loan growth and job growth are always the last things to come back,” Kotowski said. “I know people are impatient because there’s a lot of pain out there, but I don’t think there’s a way to jumpstart the process. It needs to run its course.”

Appetites for Risk

William Rogers Jr., president of Atlanta-based SunTrust Banks Inc., told analysts Oct. 21 that large corporate customers are using about 17 percent of their loan capacity, compared with an average of “mid to high 20s.” For mid-size companies, the rate is in the “low 30s,” compared with an historic average in the low to mid 40s, he said. The rate of decline has abated this year, he said.

“I would hope that we’d start to see some kind of increase depending on some type of economic recovery,” he said.

Betsy Graseck, an analyst for Morgan Stanley in New York, said bank revenue will likely shrink this year and next before rebounding in 2012. Consumer loan growth and investor appetites for risk will begin to rise again late next year, she said.

“We’ve got two more years of slog and workout,” Graseck said. “We see the light at the end of the tunnel. It’s a faint glimmer, and it’s growing brighter over the course of the next two years.”

Operating Margins

Bank revenue in the first quarter surged in part because of two government programs designed to revive the U.S. housing market -- the Fed’s $1.25 trillion mortgage-bond purchase program that ended in March and a homebuyer tax credit that expired in April. Revenue has been weak since.

Expenses aren’t falling as fast as revenue at the six largest banks, which is squeezing their operating margins. Non- interest expenses, including compensation and rent, fell 3 percent in the third quarter from a year earlier. The overhead ratio for the six banks -- non-interest expenses divided by revenue -- climbed to more than 60 percent for the first time since the height of the financial crisis in 2008.

That helped lead to Bank of America and Morgan Stanley posting the first quarterly per-share losses this year among the six banks.

Dividend Impact

Slower revenue growth could hinder banks’ plans to raise dividends. The six banks currently pay quarterly dividends totaling 51 cents, down from $2.49 in 2007. JPMorgan’s Dimon told investors earlier this month that he hopes to raise his bank’s dividend in the first quarter of next year, and Wells Fargo’s Atkins said last week that an increase is a “top priority” for the bank.

Banks also may be forced to cut pay and headcount to control bank risk management if the revenue decline continues. Goldman Sachs reduced the amount it set aside for compensation in the first nine months of the year, as did the investment banking divisions at Morgan Stanley and JPMorgan. U.S. securities firms may cut as many as 80,000 jobs in the next 18 months as revenue growth slows, bank analyst Meredith Whitney, founder of New York-based Meredith Whitney Advisory Group LLC, said last month.

The size of the biggest banks places them at a disadvantage to increase revenue relative to smaller competitors.

“Size is a problem -- there are four banks that are over $1 trillion in assets, and it’s really tough for them to grow,” said Thomas Brown, CEO of Second Curve Capital LLC, a New York hedge fund that focuses on financial institutions. “The smaller banks have other issues, but their growth prospects are much better.”

Say Goodbye to free Checking as Banks seek new Revenue

USA Today

 

Free checking as we know it is ending.

The days when you could walk into a bank branch and open an account with no charges and no strings attached appear to be over. Now you have to jump through some hoops — keep a high balance, use direct deposit or swipe your debit card several times a month.

One new account at Bank of America charges $8.95 per month if you want to bank with a teller or get a paper statement.

Almost all of the largest U.S. banks are either already making free checking much more difficult to get or expected to do so soon, with fees on even basic banking services.

It's happening because a raft of new laws enacted in the past year, including the financial overhaul package, have led to an acute shrinking of revenue for the banks. So they are scraping together money however they can.

Bank of America (BAC), which does business with half the households in America, announced a dramatic shift in how it does business with customers. One key change: Free checking, a mainstay of American banking in recent years, will be nearly unheard of.

"I've seen more regulation in last 30 months than in last 30 years," said Robert Hammer, CEO of RK Hammer, a bank advisory firm. "The bottom line for banks is shifting enormously, swiftly and deeply, and they're not going to sit by twiddling their thumbs. They're going to change."

In the last year, lawmakers in Washington have passed a range of new laws aimed at protecting bank customers from harsh fees, like the $35 charged to some Bank of America customers who overdrafted their account by buying something small like a Starbucks latte.

These and other fees were extremely lucrative. According to financial services firm Sandler O'Neill, they made up 12% of Bank of America's revenue. On Tuesday, the bank took a $10.4 billion charge to its third-quarter earnings because the new regulations limit fees the bank can collect when retailers accept debit cards.

Bank of America CEO Brian Moynihan acknowledged in a conference call that overdraft fees were generating a lot of income. But the bank was also losing customers who were often taken aback by the high hidden fees.

Checking accounts were being closed at an annual rate of 18%, he said, and complaints were at an all-time high.

So Moynihan ended overdraft charges on small debit card transactions. He says the rate of account closings have since dropped 27%.

To make up for lost fees, he also started thinking of new products. In August, the bank introduced a new "eBanking" account, where customers were offered a free checking account if they banked online. The catch: If they opt for paper statements, or want access to tellers for basic transactions, they would be charged a monthly fee of $8.95.

"Customers never had free checking accounts," Bank of America spokeswoman Anne Pace said. "They always paid for it in other ways, sometimes with penalty fees."

This summer, Bank of America also started offering "emergency cash" for a $35 fee to customers who went to the ATM for withdrawals that would exceed their bank balance. Moynihan said 50% of these customers opted to go ahead with the fee.

"We are now in an era where consumers will be buying products from banks, even if it's a checking account," said Brian Riley, senior research director for bank card practice at consultant TowerGroup. He noted that several banks have started charging $7.50 for paper statements.

"Paper and print costs around $2.25, add postage to that, and if banks are losing income from other avenues, someone has to pay for it," said Riley.

Economic research firm Moebs Services says free checking usage has been steadily rising in recent years before falling this year. Last year 81.5% of U.S. banking customers had free checking, but that fell to 72.5% this year.

Large banks are also under additional pressure because of curbs from new laws on high-risk trades with complex derivatives. Their trading desks have been large revenue and profit generators for banks in recent years.

Michael Moebs, the founder of Moebs Services, said it is now up to the smaller Main Street banks to see an opening and grab customers from the big banks.

"Free checking could become a mainstay of community banks and credit unions in the future," Moebs said.

Bank Stocks Fall Again

The Washington Post

 

Bank stocks got hammered for a second straight day Friday amid concern that mortgage issuers could face a new wave of red ink related to shoddy lending and foreclosure practices.

The share price of Bank of America, the nation's largest bank, fell 9.1 percent over the past week to close at a low for the year, as analysts said it might have set aside too little money to meet coming costs.

Companies that issued and service mortgages face a triple threat.

First, their efforts to seize and liquidate real estate held by delinquent borrowers may be delayed as they review reports of forged signatures, missing paperwork and other problems plaguing the foreclosures they have initiated.

Second, they could get drawn into a costly legal morass over allegations that they did not properly transfer loan documents when they pooled mortgages into securities that were sold to investors around the world.

Third, they could be forced to buy back billions of dollars of improperly issued loans that were sold to investors, such as the government-backed Fannie Mae and Freddie Mac.

The third issue is far from new, but it became cause for more concern this week as recent disclosures about sloppy or fraudulent documentation in the foreclosure process prompted investors to reassess the potential stakes.

The loan-servicing companies also face a Monday deadline from Freddie Mac to report any problems in their foreclosure practices.

On Friday, Standard & Poor's Equity Research downgraded Bank of America stock from "strong buy" to "hold." The ratings firm said it had "a lower level of confidence" that the bank "has adequately prepared for, and reserved for, future mortgage repurchase demands . . . and for the potential administrative and legal costs of the foreclosure crisis."

In an interview, Standard & Poor's analyst Erik Oja said that the crisis "threatens to morph into something perhaps uncontrolled . . . something very difficult to quantify."

Bank of America is seen as especially vulnerable because it took over Countrywide, one of the firms most heavily criticized for its lending practices during the housing bubble. Bank of America's shares fell 4.9 percent Friday.

As of mid-year, the bank faced unresolved claims that it repurchase $11.1 billion of problem loans, according to its last quarterly report. The bank had put $3.9 billion in reserve to cover such costs.

Bank of America is scheduled to release its next quarterly report Tuesday. A bank spokesman declined to go beyond past disclosures.

Other major banks felt the sting of the foreclosure crisis Friday. Wells Fargo's stock fell 4.6 percent, JPMorgan Chase's fell 4.1 percent, and Citigroup's fell 2.7 percent. By contrast, the Standard & Poor's 500 index, a broad measure of the stock market, rose slightly.

The sharp price movements are partly a reflection of confusion and uncertainty about the scope of the problems and how they will play out. Against that backdrop, a bearish report written in August by a hedge fund called Branch Hill Capital gained widespread attention this week, contributing to the sell-off.

The Branch Hill report said Bank of America could face losses of $74 billion on loan repurchases. The hedge fund disclosed that it was betting that the bank's stock or bonds would decline, and by influencing investors' outlook the report might have helped that bet pay off.

In a rebuttal this week, Oppenheimer & Co. analyst Chris Kotowski said the report was "demonstrably exaggerated and sensational." Oppenheimer disclosed that it, too, might have a conflict because it does business with companies it analyzes.

Fannie and Freddie are threatening to penalize banks if they do not rapidly fix their foreclosure processes.

Delays in foreclosures could cause a profound cash-flow problem for Fannie and Freddie, said Karen Shaw Petrou of Federal Financial Analytics in a report.

The companies have told banks that they will have to pay for any costs the mortgage giants incur as a result of foreclosure delays and are trying to force the banks to buy back billions of dollars of mortgage investments. Goldman Sachs analysts said Friday that these expenses could total $44 billion for the banking industry.

Fannie and Freddie maintain that they were sold the disputed mortgages on deceptive grounds - and that the banks that sold them the loans should be held responsible for the resulting losses. But the industry has resisted efforts by Fannie and Freddie to obtain documents that would show whether the investments were aboveboard.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, recently subpoenaed 64 firms for loan applications, property appraisals and other documents that would show whether Fannie and Freddie or the banks ought to be liable for losses on the mortgage securities.

Wall Street Feeling some of Main Street's Woes

LA Times

Analysts have recently slashed earnings estimates for a number of big players, and several firms have quietly fired staff. Many more layoffs are expected by early next year.

 

 

For a while, Wall Street seemed impervious to the economic woes clobbering Main Street, with bank profits, bonuses and share prices rebounding sharply.

Not anymore.
 

With the country's major banks due Wednesday to start reporting third-quarter earnings, a new pessimism is taking hold on Wall Street based on the growing belief that the economy will remain weak for some time, limiting the industry's ability to make money.

Without strong economic growth, "you don't need as many financial services as we have now," banking analyst Nancy Bush said.

Wall Street analysts who follow their own industry have recently slashed earnings estimates for a number of big players. Several firms have quietly fired staff, and many more layoffs are expected by early next year. There are even predictions of a severe drop in Wall Street's notoriously generous compensation.

"We're going to see a larger increase in unemployment in the financial services than anyone had expected," said Steven Eckhaus, a lawyer who advises banks on employment matters.

Bank stocks have slid since peaking in April. Shares of Bank of America Corp. are down 31%, while JPMorgan Chase & Co. is off 15%.

JPMorgan was expected Wednesday to report sharply lower third-quarter revenue. The two remaining giant firms that are predominantly investment banks, Goldman Sachs Group Inc. and Morgan Stanley, have seen their earnings projections plunge in recent weeks and months.

Rochdale Securities analyst Richard X. Bove felt compelled to apologize recently when he reduced his earnings estimate for yet another bank. "The reasons for the reductions are not due to failures within the firms, but rather the weakness in the industry," he wrote.

Although the newly pessimistic outlook stems in part from recently tightened regulations that will limit some of Wall Street's most profitable activities, the mood largely reflects the persistent sluggishness of the economy.

"Projecting forward it seems like the profits of Wall Street and Main Street are going to be more in sync," said Michael Wong, a bank analyst at research firm Morningstar Inc. "The banks have had to readjust their expectations and to readjust their hiring practices."

Meredith Whitney, one of the most respected analysts following financial companies, recently projected that in the next year Wall Street firms could shed as many as 80,000 jobs — 10% of their combined workforces.

Bank of America, JPMorgan and the Wall Street unit of Britain's Barclays Bank have in recent weeks laid off staff such as investment bankers and traders, according to people familiar with the moves. Morgan Stanley is said to have imposed a firmwide hiring freeze.

Head counts on Wall Street remain down significantly from before the financial crisis, in part because of the collapse of some big firms. But a year ago, the talk was of hiring, not shrinking.

Now many are anticipating a big wave of layoffs early next year. And for those who remain, average compensation per employee will be down 32% in 2011 from 2009's level, industry analysts at JPMorgan forecast.

The gloom and doom has not reached every corner of the industry. Asset management services for wealthy people are doing well, for example. Fee revenue from advising companies on mergers also is up. Such work used to be the bread and butter of investment banks before it was supplanted by profits from securities trading. Last year, for example, the trading desks at Goldman Sachs brought in 76% of the company's revenue.

But among the lines of business on Wall Street, trading could take the biggest hit from the weak economy as well as from new regulatory constraints.

Trading revenues since the spring are already down from their eye-popping levels in the same months of 2009, although that was to be expected.

"You had to be stupid not to make good trading profits last year," said analyst Bush, citing the big stock market rebound that began in March 2009, coupled with the relative ease with which traders can make money in a period of rising share prices and high market volume.

The summer months were "painfully slow" for trading, Jefferies Group Inc. Chief Executive Richard Handler told analysts last month as the mid-size investment bank got a jump on reporting earnings because its fiscal third quarter ended Aug. 31.

Some of the layoffs at JPMorgan and Bank of America were in units doing so-called proprietary trading, which at banks was largely banned by the federal financial regulatory overhaul enacted during the summer. Recently adopted international rules also could reduce trading profits by limiting the amount of money a bank can have tied up in risky activities.

Until recently, banks had expressed confidence in their ability to adapt and even profit under tighter regulation. But a long period of economic weakness, which Wall Street economists now say is likely, is another matter.

If those forecasts are borne out, the industry could see little growth, said Handler of Jefferies, which was hiring furiously early this year.

"If the environment continues to be extremely slow," he said, "all investment banks are going to be slowing down their expansion plans."

Citi Discovers Security Flaw in iPhone Application

NY Times

 

After Citigroup on Monday discovered a potential security flaw in the Apple iPhone app that its customers use to access its Web site, the bank urged customers to upgrade to a newer version of the software, which it says will correct the problem.

In a statement, Citigroup said the original app accidentally saved information from a banking customer’s account into a hidden file on the iPhone. The statement from Citigroup was first reported by The Wall Street Journal.

Citigroup said the update “deletes any Citi Mobile information that may have been saved” to a customer’s iPhone or computer. The bank also said the update “eliminates the possibility that this will occur in the future.”

Although Citigroup was working with customers to fix the problem, the bank said it did not believe its customers’ personal information was affected. Citigroup also said the bug only affected iPhone users in the United States, though it did not say how many.

John Hering, co-founder of Lookout, a security company specializing in the protection of mobile phones from viruses and malware, said that the vulnerability of smartphones was a growing concern, and that Citigroup’s  announcement shows how unsafe these devices can be.

“I think this just underscores the importance of making sure these devices stay safe and this isn’t a one-time problem either,” he said. “Mobile apps are often exposing more information than people realize.”

Mr. Hering and other security experts believe that the mobile industry is on the verge of some major security problems as more people use their phones for banking and other personal information.

“At this point, it’s not a matter of if, it’s a matter of when,” he said.

Although Apple says the iPhone is a safer environment than other mobile competitors because of the company’s strict rules about approving the apps it allows on the iPhone, bugs like this show that flaws can always make it onto a system, sometimes at the fault of the application’s owner.

“I think this is going to be the beginning of more and more applications that have this kind of problem,” Mr. Hering said. “I commend Citibank for staying on top of this, but in the next scenario it could be a much different story.”

Real IRA says it will target UK bankers

Guardian UK

Republican terror group vows to resume mainland attacks with banks and bankers now potential targets

Banks and bankers are now potential targets for the Real IRA, leaders of the dissident republican terror group have warned in an exclusive interview with the Guardian. Despite having only 100 activists they also said that targets in England remained a high priority.

In an attempt to tap into the intense hostility towards the banks on both sides of the Irish border they branded bankers as "criminals" and said: "We have a track record of attacking high-profile economic targets and financial institutions such as the City of London. The role of bankers and the institutions they serve in financing Britain's colonial and capitalist system has not gone unnoticed.

"Let's not forget that the bankers are the next-door neighbours of the politicians. Most people can see the picture: the bankers grease the politicians' palms, the politicians bail out the bankers with public funds, the bankers pay themselves fat bonuses and loan the money back to the public with interest. It's essentially a crime spree that benefits a social elite at the expense of many millions of victims."

But security sources in Northern Ireland point out say the Real IRA lacks the logistical resources of the Provisional IRA to prosecute a bombing campaign similar to the ones that devastated the City of London in the early 1990s or the Canary Wharf bomb in 1996. Although the Real IRA has access to explosives it has yet to carry out large-scale bombings.

The terror group stressed in a series of written answers to the Guardian's questions that future attacks would alternate between the "military, political and economic targets". It is the first time the Real IRA has engaged in such open anti-capitalist rhetoric or focused on the role of the banking system.

The leaders also threatened to intensify the group's terror campaign on all fronts.

"Realistically, it is important to acknowledge that we have regrouped and reorganised and emerged from a turbulent period in republican history.

"We have already shown our capacity to launch attacks on the British military, judicial, and policing infrastructure. As we rebuild, we are confident that we will increase the volume and effectiveness of attacks," the organisation said.

One element in the Real IRA's recent activity has been a wave of so-called "punishment" shootings and beatings of those they deem "antisocial elements" in nationalist working class areas. In Derry alone the Real IRA and other aligned groups have shot around two dozen men over the last 18 months.

The Real IRA's leadership was unapologetic over what its critics have described as "rough justice". The group believes such attacks are popular and can garner support in areas where the communities were previously alienated from the police.

"These actions are taken as a last resort to protect the community. We are an integral part of the community and the people in them are our eyes and ears. The fact is that the British police force is rejected by republican communities and people naturally turn to us for help.

"The vast majority of issues are resolved by negotiation, a small percentage require more direct forms of intervention including punishment shootings and expulsions," they said.

On the political front they dismissed Sinn Féin's claims that its electoral strategy would ultimately yield a united Ireland despite the majority of nationalists in Northern Ireland still voting for Sinn Féin and an overwhelming majority backing the peace process.

The Real IRA insisted, however, that support for them was building and they had turned away hundreds of young disaffected nationalists because they didn't have the capacity to absorb so many members.

"From the point of view of republican communities, there is still a heavily armed British police force that casually uses plastic baton rounds, CS gas and Tasers, carry out house raids, stop and search operations and general harassment.

"There's still a 5,000-strong British army garrison, a new MI5 HQ in Belfast, and a British secretary of state. Republican communities are still subjected to sectarian parades and the right to protest is being met with intimidation and violence."

On the subject of recent reports of talks between dissident republicans and the Dublin and London governments the Real IRA said: "There are no talks with either the British government or the Free State Administration.

"The IRA is not unwilling to talk, in fact there needs to be talks … however, talks need to deal with the root cause of the conflict, namely the illegal British occupation of Ireland. We are mindful, though, that the history of such approaches from the British has been characterised by a lack of integrity, a lack of willingness to address the causes of conflict, and has been motivated by a self-serving agenda." Northern Ireland's deputy first minister and Sinn Féin MP, Martin McGuinness, also came in for strong criticism. The former chief-of-staff of the IRA and key Sinn Féin negotiator recently claimed that he had knowledge that dissidents were holding secret discussions with the two governments.

"Martin McGuinness is a British Crown minister who has a vested interest in causing mischief among republicans. His job is to administer the Queen of England's writ in Ireland ... However, if he has any evidence to back up his claims, he should make it public," the Real IRA said.

Europe Loan Growth Accelerates as Economy Recovers

Bloomberg / Business Week

 

 

Loans to households and companies in Europe grew at the fastest pace in 13 months in July after the economic recovery gathered steam.

Loans to the private sector rose 0.9 percent from a year earlier after growing an annual 0.5 percent in June, the European Central Bank in Frankfurt said today. That’s the strongest increase since June 2009. M3 money supply, which the ECB uses as a gauge of future inflation, increased an annual 0.2 percent in July, the same rate recorded in the previous month.

Strengthening global demand helped Europe’s economy expand 1 percent in the second quarter, the fastest pace in four years. Economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Orders for durable goods in the U.S. increased less than forecast in July, a sign one of the few remaining bright spots in the economy is cooling, while China’s industrial output rose the least in 11 months.

“It is encouraging that the annual growth rate of bank lending to the private sector is moving in the right direction,” said Martin van Vliet, an economist at ING Group in Amsterdam. “But overall demand for bank credit remains subdued. This highlights the fragility of domestic demand in the euro zone, and is a reminder not to get too carried away by the recent resilience of the euro-zone dataflow.”

Confidence

European confidence in the economic outlook rose to the highest in more than two years in July and business sentiment in Germany, Europe’s largest economy, unexpectedly increased to a three-year high in August, suggesting the recovery may not lose as much momentum as some economists forecast.

ECB council member Axel Weber said last week the bank is likely to raise its euro-region growth forecasts next month after the German economy expanded in the second quarter at the fastest pace since records for a reunified country began in 1991. The ECB in June predicted euro-area growth of 1 percent this year and 1.2 percent in 2011.

Still, a report today showed Italian consumer confidence fell in August to the lowest in more than a year as government austerity measures made households more pessimistic about the their ability to save.

According to the ECB’s latest Bank Lending Survey published on July 28, euro-area banks “anticipate credit standards on loans to enterprises to tighten somewhat in the third quarter.”

In the three months through June, M3 rose 0.1 percent from the same period a year earlier, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. The annual rate of M1 money-supply growth eased to 8.1 percent from 9.2 percent.

Regulators close banks in Fla., Ga., Ore., Wash.

USA Today

 

Regulators on Friday shut banks in Florida, Georgia, Oregon and Washington, lifting to 108 the number of U.S. banks to fail this year as the industry has struggled to cope with mounting loan defaults and recession.

The Federal Deposit Insurance Corp. took over the banks: Bayside Savings Bank in Port Saint Joe, Fla., with $66.1 million in assets; Coastal Community Bank, based in Panama City, Fla., with $372.9 million in assets; NorthWest Bank and Trust, based in Acworth, Ga., with assets of $167.7 million; Cowlitz Bank in Longview, Wash., assets of $529.3 million; and LibertyBank, based in Eugene, Ore., assets of $768.2 million.

Centennial Bank, a subsidiary of Home BancShares Inc. based in Conway, Ark., agreed to assume the assets and deposits of Bayside Savings Bank and Coastal Community Bank. State Bank and Trust Co., based in Macon, Ga., is assuming those of NorthWest Bank and Trust.

Florida and Georgia are among the states with the highest concentrations of bank collapses and where the meltdown in the real estate market brought an avalanche of soured mortgage loans. The failures of Bayside Savings Bank and Coastal Community Bank brought to 20 the number of Florida banks that have fallen this year. Northwest Bank and Trust was the 11th Georgia bank to fail. Also high on the list of failure-heavy states are California and Illinois.

Heritage Bank, based in Olympia, Wash., agreed to assume the deposits and $329.5 million of the assets of Cowlitz Bank. Home Federal Bank, based in Nampa, Idaho, is assuming the deposits and $419.7 million of the assets of LibertyBank. In both cases, the FDIC will retain the rest of the assets for eventual sale.

The failure of NorthWest Bank and Trust is expected to cost the deposit insurance fund $39.8 million. Estimated costs for the others are: Bayside Savings Bank, $16.2 million; Coastal Community Bank, $94.5 million; Cowlitz Bank, $68.9 million; and LibertyBank, $115.3 million.

With 108 closures nationwide so far this year, the pace of bank failures far outstrips that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 69 banks.

The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul legislation recently signed into law by President Barack Obama.