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News Scan Apr 2014

Credit Card News, Economy News, Banking Industry News - Apr 2014
  • U.S. private employer’s added 220,000 workers in April, the highest amount since November and above analysts' expectations.
  • Gains in the prior month were revised higher, to 209,000 from 191,000.
  • Economists surveyed by Reuters had forecast that the ADP National Employment Report would show a gain of 210,000 jobs in April.
  • The Federal Deposit Insurance Corp. declared that the "projected decline of the community banks is significantly overstated.
  • Absent concrete changes in the operating environment in which community banks compete, the FDIC's prediction will likely prove wrong over the next few years. Possibly profoundly wrong.
  • A combination of factors accelerated merger activity in the mid-1990s. Many of these same dynamics exist today, including disheartened bank directors, aging bank chiefs, rapidly advancing technology and increased regulatory burdens.
  • In the 1990s, many bank directors were worn out. The banking crises of the 1980s and early 1990s had stressed bank earnings and stock prices.
  • This deterioration took a toll on directors. As banks healed, many directors jumped on opportunities to sell their banks for book value or better.
  • Technology, especially the emergence of online banking, required banks to invest in next-generation delivery systems and products.
  • Rather than invest in an unfamiliar area, some banks preferred to merge with lenders that claimed to have a vision for the future.
  • If the FDIC wants to stall bank consolidation, it needs to enter into discussions about how to produce substantial legislative and regulatory changes that alter the operating environments in which smaller community banks compete.
  • The Federal Reserve maintained its course toward higher interest rates in 2015, following a bad report card on the economy's first-quarter performance.
  • Federal Open Market Committee affirmed guidance that points to a hike in interest rates around the middle of next year.
  • The federal funds rate, the Fed's main lever on short-term rates in the economy, remains set at a range between 0 percent and 0.25 percent, where it has been since late 2008 to spur the economic recovery.
  • Increases in the historically low rate will almost certainly lead to corresponding increases in credit card APRs, as the price of money resets throughout the economy.
  • Durable goods orders increased 2.6 percent as demand rose across all categories. Durable goods range from toasters to aircraft and are meant to last three years.
  • The report fit in with other data such as industrial production, retail sales and employment that have suggested the economy gained steam after a troubled first quarter.
  • Growth in the first three months of the year is forecast to have braked sharply, because of an abnormally cold winter and an inventory overhang from last year that forced businesses to place fewer orders for goods with manufacturers.
  • The durable goods report showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, and increased 2.2 percent in March after falling by a revised 1.1 percent the prior month.
  • The Target card data breach dominated headlines last year, but it was just one of hundreds of hacking incidents to hit banks and expose the personal information of their customers.
  • Verizon, with the help of 50 partners including law enforcement agencies, the Financial Services-Information Sharing and Analysis Center, government agencies, other forensic investigation companies, and research companies, tracked 1,367 confirmed data breaches and 63,437 security incidents in 95 countries.
  • More than one-quarter 27% of all security breaches at banks last year involved web app attacks, the report found. In web app attacks, cybercriminals use a variety of tactics to interfere with web applications.
  • Many start with phishing, a fake email sent to a customer that appears to be from their bank that tricks them into sharing their user name and password, or into clicking on a link that leads to the installation of malware on their machine. Brute-force password guessing can also be used in a web app attack.
  • The recently discovered Heartbleed bug has made many people rethink their website security.
  • Security scans of websites ought to be routine for banks. Another major threat is a distributed denial of service attack. Such attacks, while not technically data breaches, accounted for 26% of all bank incidents last year.
  • Risk managers at banks in Canada and the United States believe credit-line increase requests will rise.
  • Asked about the entire consumer credit market, 55 percent of those polled said they expect the requests to increase significantly or somewhat in the next six months, down from 61 percent in the fourth quarter of 2013.
  • Meanwhile, about half (51 percent) predict the number of delinquencies to stay the same, about the same percentage as in the fourth quarter of 2013. Some 37 percent expect an increase of some kind.
  • Two out of three risk managers polled predict average balances on credit cards to rise over the next six months, the highest percentage for that figure in the survey's four-year history. 
  • Moody's outlook for the US credit card industry is stable, reflecting card issuers continued strong asset quality and profitability in an improved macroeconomic environment.
  • The report covers the Big 6 card issuers: American Express, Capital One, Chase Bank, Citibank, Discover, FIA Card Services and highlights differences in profitability and performance among the cohort.
  • The net charge-off rate for the Big 6 issuers will decline approximately 10% versus a drop of around 16% in 2013.
  • Moody's expects that in 2014 Capital One will be the worst performer with net charge-offs averaging approximately 4%, mainly reflecting the 2012 acquisition of HSBC's US credit card operations which are concentrated in relatively high charge-off subprime and retail store card portfolios.
  • The rating agency highlights American Express as the best performer with an average of about 1.6% due to the company's continued emphasis on premium quality lending customers and charge cards.
  • However, growth in loan balances continued to lag purchase volume growth in 2013.
  • Aggregate balances for the Big 6 issuers declined 0.5% while purchase volume increased circa 8% as cautious consumers deliberately avoided credit card debt and issuers focused on higher credit quality borrowers and transactors, says Moody's.
  • The rating agency forecasts that 2014 overall balances will expand modestly at around low single digits, while purchase volume increases around 8% to 9% year-on-year.
  • U.S. manufacturing output rose for a second straight month in March in a sign of recovery from a long winter that had put a damper on activity.
  • Factory production increased 0.5 percent in March. Overall industrial production was up 0.7 percent, beating analysts' expectations.
  • Mining output rose 1.5 percent in March, while utilities were up 1.0 percent.
  • Capacity utilization, a measure of how intensively firms use their resources, was up to 79.2 percent from a revised 78.8 percent in February. March's capacity utilization rate was the highest since June 2008.
  • The automated teller machine a technology that dates to the 1960s is taking on new relevance in the age of digital banking.
  • Modern ATMs, which bankers now call devices, can dispense $1 and $5 bills. Some are equipped with video tellers that can connect customers to offsite financial experts.
  • Others even allow consumers to pre-stage a cash withdrawal at an ATM via a mobile app instead of inserting a card.
  • Next up: the ATM Industry Association is brainstorming ways the machines can be better used to help reach unbanked and underbanked consumers.
  • Sending money to someone, paying bills, and loading a portion of a check onto a prepaid card are among the types of transactions the group is envisioning can take place through ATMs.
  • The challenge is ATMs have not been able to provide more value than cash withdrawals.
  • To be sure, some of these ideas could face existing competition from younger companies that already cater to the unbanked and underbanked.
  • PayNearMe, for example, is a cash transaction network that helps consumers who don't have credit or debit cards make purchases online, among other things.
  • It has 17,000 retail partners, including the convenience chain 7-Eleven.
  • Then, check-cashing services located within retail shops have been in place for years and years.
  • Analysts are skeptical that bank-operated ATMs will have a role in catering to the unbanked and underbanked.
  • Still, software companies are cooking up newer features available at ATMs that are designed to be as quick as getting a $20.
  • Take Better ATM Solutions. The software vendor has pilots in place where credit unions' ATMs dispense gift cards that only activate after they come out of the machine.
  • U.S. job openings jumped to their highest in six years in February and there was a significant decline in layoffs, more signs of a steadily improving labor market.
  • Job openings, a measure of labor demand, increased 299,000 to a seasonally adjusted 4.17 million.
  • Hiring advanced 1.6 percent and layoffs tumbled 4.9 percent. Even more encouraging, more people are quitting their jobs, a sign of confidence in the labor market.
  • Job growth averaged about 195,000 per month in February and March, with the unemployment rate holding at near a five year low of 6.7 percent over that period.
  • With job openings rising and unemployment trending lower, the number of unemployed job seekers per open job tumbled to 2.50 in February, the lowest level since July 2008. This ratio was at 2.64 in January.

Card debt falls in February

Source: creditcards Category: Credit Card News
  • Debt on credit cards fell sharply in February, the Federal Reserve announced, extending January's slide for a second month despite an overall uptick in consumer spending.
  • Revolving debt, which is mostly made up of credit card balances, shrank at a seasonally adjusted annual rate of 3.4 percent to $854.2 billion. In January, card debt declined at a 0.3 percent rate.
  • Total short-term consumer debt was up, however, rising by 6.4 percent to $3.13 trillion, the Fed said in its monthly report.
  • Total consumer debt adds student loans, car loans and other installment loans to credit card debt.
  • Consumer spending was up 0.3 percent in February, a rise of $30.8 billion. Personal income also rose 0.3 percent.
  • The contribution that consumption has been making to GDP is just going down," he said. "It's coming more in durable goods -- that's not credit card stuff."
  • The spending shift is reflected in the makeup of consumers' short-term debt. In 2013, revolving debt grew 1.3 percent, compared to a 7.9 percent rise in nonrevolving debt.
  • In 2012, revolving debt was up just 0.4 percent while nonrevolving debt rose 8.7 percent.
  • U.S. consumer credit rose more than expected in February, likely reflecting a surge in demand for student and automobile loans.
  • Total consumer credit increased by $16.49 billion to $3.13 trillion. January's consumer credit figure was revised to show a $13.80 billion increase instead of the previously reported $13.70 billion gain.
  • Revolving credit, which mostly measures credit-card use, tumbled by $2.42 billion after January's $241-million drop. It was the second straight month of declines.
  • Nonrevolving credit, which includes auto loans as well as student loans made by the government, surged $18.91 billion in February.
  • That was the biggest gain in a year and followed a $14.04 billion increase in January.