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News Scan Dec 2014

Credit Card News, Economy News, Banking Industry News - Dec 2014
  • Several economists at investment banks have predicted strong and improving economic growth in 2015, leading to growing confidence in higher interest rates for U.S. bonds.
  • Goldman Sachs has published its forecasts for 2015, which predict global GDP growth of 3.4%, above 3% growth in 2014 as both developed and emerging markets see growth acceleration from the prior year. Developed markets expect to grow 2.2% and emerging markets 4.9%, both higher than the 1.9% and 4.6% rates of 2014.
  • At the same time, Goldman Sachs expects U.S. growth acceleration to outpace that of any other region, as year-over-year growth goes from 2.2% predicted in 2014 to 3.1% in 2015. Meanwhile, Japan expects to see a trebling of its growth rate, from 0.3% to 0.9% while the Eurozone grows at 0.9% in 2015. China expects to see slower growth at 7%, down 0.3% from 2014.
  • While many economists see a recession taking hold in Russia, Goldman Sachs economists see a turnaround, with the economy rising 1% in 2015. India and Brazil will also see growth.
  • Meanwhile, asset management firm BlackRock sees a growing divergence between different economic regions. Like Goldman, BlackRock expects the U.S. to see stronger growth. “The U.S. economy is in a cyclical upswing—and is one of the world’s few major economies expected to accelerate in 2015,” noting that employment, housing, and capital expenditure growth “all point to a sustainable recovery.”
  • While disagreement about monetary policy keeps expectations mixed for 2015, most investment banks remain confident that both equities and bonds, particularly in the United States, will see better performance in 2015 than in 2014, when the S&P 500 rose more than 13% and 10-year U.S. Treasury yields fell 78 basis points to 2.2%.
  • In the U.S., about 1.7% of credit card accounts are more than 30 days past due (this includes people who have let their bills go unpaid for more than 60 and 90 days, as well), according to 2014 third-quarter data from Experian Intelliview.
  • In some states, the average delinquency rate is much worse. The states with the 10 highest credit card delinquency rates in the third quarter are all in the South or Southwest regions of the country.
  • 10. Nevada Q3 credit card delinquency rate: 1.96% of credit card accounts more than 30 days past due 9. Oklahoma Delinquency rate: 2% 8. Tennessee Delinquency rate: 2.03% 7. Kentucky Delinquency rate: 2.04% 6. Georgia Delinquency rate: 2.13% 5. West Virginia Delinquency rate: 2.15% 4. Alabama Delinquency rate: 2.23% 3. Arkansas Delinquency rate: 2.24% 2. Louisiana Delinquency rate: 2.27% 1. Mississippi Delinquency rate: 2.82%
  • Delinquency can indicate a cardholder faces one or several financial issues. In the best-case scenario, cardholders who are 30 or more days past due on their credit card bills simply forgot to make the payment — perhaps they weren't paying attention, missed the statement in the mail or didn't realize they weren't set up to make automatic payments. Whatever the reason, most credit card delinquencies involve consumers who are only a bit more than 30 days past due, anyway.
  • A surge in U.S. economic growth lifted stocks Tuesday to record highs and showed that the United States is putting distance between itself and struggling economies around the world.
  • Fueled by hiring gains, cheaper gas and rising confidence, consumers and businesses drove growth to a sizzling 5 percent annual rate last quarter. Though the economy is likely cooling a bit, its solid pace is brightening hopes for 2015.
  • The government's third and final estimate of growth for the July-September period was the strongest for any quarter in 11 years. The result cheered investors. The Dow Jones industrial average ended the day up about 64 points to 18,024, the first time it's surpassed 18,000.
  • In its report Tuesday, the government sharply upgraded third-quarter growth from its previous 3.9 percent estimate. Much of the increase came from consumer spending on health care and business spending on structures and software.
  • Unexpectedly strong expansion, though, could escalate pressure on the Fed to raise rates, even though inflation remains well below its 2 percent target. One reason the Fed has kept its benchmark short-term rate near zero since 2008 has been to try to lift inflation from excessively low levels.
  • Business investment spending rose at a 7.2 percent annual rate, 2.1 percentage points above the government's previous estimate. Much of the new strength came from investment in structures and computer software.
  • Yesterday's update of the Federal Reserve's quarterly economic forecast is a minor triumph for optimism.
  • The central bank still expects that US GDP in 2015 will increase in the range of 2.6% to 3.0%, unchanged from its previous estimate in September. That's a mild expansion, but it's a step up from the Fed's 2.3%-to-2.4% GDP outlook for this year. In a word, progress.
  • Forecasting year-ahead GDP is subject to any number of risks, of course, and so it's best to take the Fed's prediction with a grain of salt. Yet it's clear that the bank's policymakers are becoming more confident that the US economic expansion will strengthen a bit in the year ahead.
  • Events abroad may intervene and render the current outlook null and void, but based on what we know today the US macro trend is on track to start the new year with a moderately improving tailwind.
  • The market reacted accordingly. The yield on the 2-year Treasury — widely viewed as the most sensitive spot on the yield curve with regards to rate expectations – rose moderately to 0.62% yesterday, which is close to a three-year high. The 10-year yield also rose, suggesting that the year-long slide for this influential benchmark rate may have bottomed out.
  • The world's major central banks are scrambling to work through the implications of the near halving of the price of oil in the second half of 2014, and they are coming up with very different conclusions.
  • Perhaps unsurprisingly, policymakers looking at robust economic recoveries such as in the United States and Britain are focused on the likely boost to growth and consumption from markedly lower energy prices and the later upward impact that should have on inflation.
  • As a result, low oil prices will likely widen the gap in monetary policy stances around the world, with the Federal Reserve mulling over the timing of a first interest rate rise while the ECB gets close to making the leap into bond-buying with new money, something the Fed stopped doing two months ago.
  • Fed officials acknowledged on Wednesday that inflation was likely to slow next year due to the oil impact but chose to look beyond that and gave a strong signal they were on track to raise interest rates sometime next year.
  • The U.S. central bank said it would take a "patient" approach in deciding when to raise borrowing costs. Fed Chair Janet Yellen said that meant a rate hike was unlikely for "at least a couple of meetings," meaning April 2015 at the earliest.

Economic Forces Press Cuba Trade

Source: The Denver Post Category: Economy News
  • After 53 years of hostility between the United States and Cuba, the timing to make amends was perfect for both governments.
  • The breakthrough in US-Cuban relations came with the release of American Alan Gross and an unnamed U.S. intelligence agent, and the freeing of three jailed Cuban agents. The longtime enemies announced they would move toward full diplomatic relations, and Washington said it would ease economic and travel restrictions.
  • Cuba's moribund economy grew by just 1.4 percent this year, according to the government's own estimates, and many private businesses that opened to fanfare in the last couple of years have closed. A recent foreign investment law so far has failed to attract much capital.
  • Meanwhile, the dramatic slide in global oil prices has hurt the economy of Cuba's main benefactor, Venezuela, which supplies the island with about $3 billion a year in heavily subsidized oil. Another key ally, Russia, also is in economic turmoil.
  • For his part, Castro has made clear that his country remains committed to the Communist ideals of the revolution, meaning a multi-party political democracy, free press and full-blown capitalism are not in the cards anytime soon.

Apple Pay Gets More Support From Banks

Source: Post Category: Banking Industry
  • The electronic payment system Apple Pay, which allows the new iPhone to make payments in stores, has the backing of banks that dominate 90 percent of all credit cards transactions from the US, the company has announced.
  • The technology giant introduced the new system in September, coinciding with the launch of the iPhone 6 and the announcement of its first smart watch, the Apple Watch.
  • Apple said Tuesday that 10 new banks, including Commerce Bank, support its electronic payments system and institutions that support the system account for 90 percent of all card transactions, compared with 83 percent in September.
  • The company has said that the electronic payment system will also work with Apple Watch, which will debut on the market next year.
  • Apple Pay is still in its initial stage, but it has generated great interest over the possibility of it replacing wallets.

College Credit Card Agreements Drop 70%

Source: CU Times Category: Credit Card News
  • College credit card agreements have dropped almost 70% since Congress passed new disclosure rules in 2009, according a Consumer Financial Protection Bureau annual report released Monday.
  • In 2009 there were 1,045 agreements in effect compared to 336 agreements at the end of 2013, the CFPB said.
  • Credit card issuers paid more than $84 million to colleges and universities in royalties and bonuses for agreements in 2009, which has declined to approximately $43 million in 2013, the report revealed.
  • “Today, financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure,” CFPB Director Richard Cordray said. “Schools and financial institutions should be up front on their website with students and their families about whether or not the school is being compensated to encourage students to use a specific account or card product.”
  • After reviewing 35 college and university websites, the CFPB claimed to have found 80% do not post their agreements or information about how to request them on their websites.
  • Under the Credit Card Accountability, Responsibility, and Disclosure Act, issuers are required to disclose the terms and conditions of any college credit card agreement to the CFPB as well as the number of new credit card accounts, and the amount issuers paid colleges in the prior year.
  • There’s something of an intractable problem we’ve got in trying to understand the US economy and we can use the case of WalMart to illuminate it. That problem is that the US has very much lower rates of new and small business formation than most other countries.
  • According to the standard line of thinking this should mean that the US economy is less innovative than many others. Yet even casual observation of the world we actually live in, that one outside the ivory towers of economic academe, tells us that this simply isn’t so.
  • So how do we reconcile this? We really are pretty sure that productivity advances, that innovation progresses, more through the entry into the market of new firms than by old ones using new methods. So, a place with less of that new entry should not be, as the US so obviously is, more innovative than places with more.
  • One previous explanation for the US low new firm creation, low small business formation, rates was provided by Dean Baker and his colleagues. They pointed out that the tight tying of health care insurance to employment made striking out on one’s own less attractive than in countries with tax funded systems. Larger VC backed adventures did not have this problem. But that still doesn’t explain why, even though I think I agree with the idea, the US is so obviously more innovative while having that low new firm creation rate.
  • Given the paucity of small business formation in the US it ought to be, by the standard explanations, a not very innovative place. Yet it clearly is highly innovative. The solution to the conundrum being that the US has a higher portion of innovative new businesses among its start ups and also that successfully innovative companies do, in and of themselves, reduce both the number of small businesses and also their creation rate. That is, the explanation accounts for what we can actually see.
  • The charter which autho¬rized the existence of Ex¬port – Import Bank of the United States (U.S. Ex-Im) was due for renewal at the end of September this year. Its re-au¬thorisation required congressio¬nal approval. But, the renewal of the charter seemed to have fallen due at the wrong time.
  • Bipartisan consensus on virtually anything has been difficult to come by for some time now, for reasons that could very easily be linked to the mid-term election in November 2014. This had made the U.S. Ex-Im to teeter on the brink of dis¬solution until its charter was ex¬tended for nine months pending long-term re-authorization.
  • The U.S. Ex-Im Bank is a Devel¬opment Finance Institution (DFI) which was chartered to act as the Export Credit Agency (ECA) of the United States. The objective of the Bank is to help U.S. businesses access foreign markets. There are a few tools that have been developed to achieve this objective. They in¬clude provision of guarantee, ex¬port insurance and buyer credit. Together, they help make U.S. prod¬ucts to be competitive abroad, since exports of other countries are simi¬larly incentivized, if not subsidized, by their governments. It is this same objective that informs the creation of the ECOWAS Trade Support Fa-cility by NEXIM Bank to assist Ni¬gerian exporters gain more access to the West African market. ECAs help to mitigate the risk of entry into a foreign market.
  • The allusion to giving loans to some beneficiary big U.S. compa¬nies to establish cronyism accusa¬tion is not well-founded. Between 2007 and 2014, loans to SMEs ac¬counted for 68% of the total port¬folio of the U.S. Ex-Im. While a few organisations have dominated the list of beneficiary big firms, it is not without justification. Compa¬nies like Boeing and Caterpillar are manufacturers of expensive heavy duty equipment and machines.
  • The equipment and machines are very much needed in the delivery of public works and infrastructure projects in Africa and in other de-veloping regions that are witness¬ing an economic renaissance. Ac-cordingly, these firms are bound to generate big-ticket transactions. The same argument more or less holds for the involvement of Gen¬eral Electric which, in recent times, has shown interest in the invest¬ment opportunities of sub Saharan Africa’s infrastructure and electric power.
  • To be fair, the U.S. Ex-Im Bank has discharged its mandate credit¬ably. The institution has inspired establishment of similar export credit agencies around the world. The Bank seems to have entered a new phase whereby it would play a more active role in boosting trade between the U.S. and Africa in general, and U.S. and Nigeria in particular. NEXIM Bank is in a collaborative relationship with U.S. Ex-Im and several other ECAs with the aim of sharing knowledge and capacities. This will require strengthening the U.S. institution after its charter has been renewed for a long term.
  • Average rates on new card offers declined slightly this week
  • The national average annual percentage rate (APR) decreased to 14.95 percent Wednesday
  • The Chase Sapphire card, which is no longer available online, was replaced with the Amex EveryDay Credit Card, which has a variable purchase APR of 12.99-21.99 percent.

Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.95% 14.98% 15.01%
Low interest 10.37% 10.37% 10.37%
Balance transfer 12.73% 12.73% 12.64%
Business 12.85% 12.85% 12.80%
Student 13.14% 13.14% 13.27%
Cash back 14.94% 14.94% 14.91%
Airline 15.46% 15.46% 15.30%
Reward 14.89% 14.93% 14.97%
Instant approval 23.33% 23.33% 28.00%
Bad credit 22.73% 22.73% 23.73%

  • CEOs from major US companies do not expect strong economic growth in 2015, according to a survey released Tuesday. The outlook comes from the Business Roundtable, an association of CEOs that represent US companies with $7.4 trillion in annual revenues.
  • The Business Roundtable's fourth-quarter CEO Economic Outlook Index, a composite index of CEO expectations, fell slightly from the third quarter with declines concentrated in capital spending. The index declined to 85.1 for the fourth quarter, compared with 86.4 in the third quarter. A reading of 50 or above indicates economic expansion and below 50, an economic contraction. The long-term forecast is at 80.3.
  • Gross domestic product in 2015 is expected to grow 2.4 percent, consistent with the CEOs' 2014 forecast.
  • An increase in consumer spending was a key driver for the sustained GDP growth. Consumer spending accounts for about 70 percent of the US economy, according to Bloomberg, and it grew at a 2.2 percent annualized rate in the third quarter, compared with the previously estimated 1.8 percent.

High Litigation Costs: The New Cost of Banking

Source: WSJ Category: Banking Industry
  • The list of alleged financial crimes perpetrated by financial institutions grows longer every year, and banks’ legal bills have also swelled with them.
  • Since the financial crisis, banks on both sides of the Atlantic have paid out a total of $178 billion in litigation costs, according to a new report from Boston Consulting Group.
  • These litigation costs have grown four years in a row, the consulting firm says in its report. “Litigation is the new cost of doing business,” the firm’s analysts wrote.
  • Banks in the U.S. and E.U. paid out $60 billion to settle legal claims during in just the first nine months of this year. That was up from $46 billion in 2013, $44 billion in 2012 and $22 billion in 2011, the report said.
  • To become profitable, banks need to spend time and money now to set up codes of conduct to “prevent future episodes of misconduct” that will costs banks more down the road in legal bills.
  • Two other areas that banks must address is proving their financial stability, or complying with regulations on how much risky capital they can hold and what the ratio of the bank’s capital to its total assets should be. Overall, banks have made strides here, Boston Consulting Group wrote. “This is because investors increasingly require additional cushions above and beyond the regulatory minimums.”