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News Scan Aug 2013

Credit Card News, Economy News, Banking Industry News - Aug 2013
Aug 2013
  • Deposit balances declined for the second consecutive quarter, a new survey shows.
  • Total domestic deposit balances at institutions insured by the Federal Deposit Insurance Corp. fell by $31 billion, or 0.3%, in the second quarter.
  • The rate of withdrawals increased from the first quarter of 2013, when customers pulled out $20 billion, or 0.2%.
  • However, some types of deposits rose in the second quarter. CDs with terms of three months or less increased by $26 billion, or 9.4%, while money-market account balances rose by $50 billion, or 1.1%.
  • Financial institutions will need to start increasing interest rates on deposits in order to maintain current deposit levels and to increase liquidity ratio as mandated by Basel III.
  • The decline in deposits over the last two quarters comes after six straight years of increasing balances.
  • U.S. banks earned a total of $42.2 billion in the second quarter, up 23% from the second quarter of 2012, the FDIC. It was the second consecutive quarter of record earnings.
Aug 2013

Farm income poised for record in 2013: USDA

Source: Reuters Category: Economy News
  • The U.S. agricultural sector will enjoy record high income in 2013 as bin-busting grain harvests in the Midwest more than offset expected lower prices.
  • Net farm income in the United States will reach $120.6 billion this year, up 6 percent from 2012 but down from the $128.2 billion preliminarily forecast in February, mostly reflecting updated forecasts for cash corn receipts.
  • By contrast, net cash income was forecast to fall more than 10 percent in 2013 from the previous year, to $120.8 billion.
  • Increases in farm asset values are expected to continue to exceed increases in farm debt, netting a record high for farm equity, the government said.
  • Cash receipts are expected to fall 5.5 percent on the year for crops but rise 4.9 percent for livestock, for a 1 percent overall decline.
  • Also rising in 2013 will be farm production expenses, by 3.8 percent to a record $354 billion.
  • But feed costs, a major component of livestock production, should fall sharply in the second half of 2013 as abundant new-crop supplies reach the market.
Aug 2013
  • U.S. credit-card companies, hungry for new customers as many Americans continue to shun debt, are pumping up a popular promotion that can be risky for both lenders and consumers.
  • Financial companies that issue plastic are flooding mailboxes and email accounts with offers that allow new customers to transfer their existing credit-card balances from other institutions without paying interest for as long as two years.
  • The teasers, known as 0% balance transfers, have been used periodically since the late 1990s. Those with spotty credit histories, however, still aren't eligible for the promotions.
  • The offers are coming from the country's biggest credit-card issuers, including J.P. Morgan Chase, Discover Financial Services and Citigroup. Credit unions are also joining in.
  • Lenders are pushing the offers as they attempt to bulk up their loan portfolios, which shrank dramatically during the financial crisis while they were writing off bad loans and restricting credit.
  • The goal of the 0% teasers is to reel in new customers with the lure of not paying interest on current balances, and then get them to rack up interest-bearing charges on new purchases.
  • The lenders also make money by charging a one-time fee—usually 3% of the existing balance—for the balance transfer.
  • The strategy carries some risk for card issuers, which historically haven't done a good job of getting the customers who transfer balances to use the cards for new purchases.
  • That leaves the bank with revenue only from the balance-transfer fee, and stuck with the cost of maintaining an account.
Aug 2013

Most Americans Pay No Monthly Service Fees: Survey

Source: americanbanker Category: Banking Industry News
  • Free checking accounts may be on the wane, but a majority of Americans still pay no monthly service fees.
  • Most Americans (55%) reported paying nothing for services like automated teller machine access and checking account maintenance, according to the survey of 1,000 adults.
  • That's a slight decline from a year ago, however, when 59% of respondents said they escaped monthly fees.
  • The ABA said more people are paying fees because revenue from merchant swipe fees which help cover the cost of maintaining checking accounts has declined.
  • Ten percent of respondents said they spent $3 or less on monthly fees. At the high end of the spectrum, 14% estimated that they spent $10 or more on banking service fees each month.
Aug 2013
  • U.S. manufacturing activity hit a five-month high in August as hiring picked up and new orders increased at their fastest pace since January.
  • U.S. Manufacturing Purchasing Managers Index rose to 53.9, its best showing since March, and just below economists' forecast of 54.0. The index stood at 53.7 in July. A reading above 50 indicates expansion.
  • Overall output, however, declined to 53.4 from 54.8, its slowest rate of growth in three months.
  • New orders rose to 56.5, a seven-month high, from 55.5 in July, and firms took on new workers at their fastest pace in four months.
Aug 2013
  • Losses and delinquencies on credit cards hit “multi-year” lows in July, according to Citibank’s index of credit card performance.
  • The latest data for Citigroup’s credit card index, through July, shows charge-offs accounts written off as losses falling 2.91%, a 25% improvement over the prior year.
  • Delinquencies have fallen for 35 out of the last 41 months, hitting 1.77% in June. Payment rates hit a post crisis high of 23.73% in July, according to Citi. (Others, such as Transunion, have also reported near record lows for delinquencies.)
  • The most recent credit card data suggest that Americans could afford to pick up the pace of spending without becoming overextended—and that’s a good thing.
Aug 2013
  • As refinancing volumes plummet, lenders are trying to extend the home financing boom by pitching adjustable-rate mortgages to borrowers, harkening back to the precrisis boom years.
  • Applications for adjustable-rate loans now make up 6% of mortgage loan requests, up from 3% at the beginning of the year, though still well below the 32% peak in 2004.
  • Banks are definitely doing more ARMs because they're selling the consumer what they're asking for, which is a lower monthly payment.
  • Many borrowers with adjustable-rate mortgages were among the first to default during the downturn. When their rates adjusted after an initial teaser period, they were unable to refinance and got stuck owing sharply higher payments.
  • This time around will be different, lenders say, because underwriting standards are tougher for hybrid ARMs, so borrowers will be less likely to get squeezed when interest rates reset.
  • Moreover, regulators have all but banned the interest-only and balloon payment features that made ARMs ticking time bombs during the financial crisis.