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News Scan Feb 2015

Credit Card News, Economy News, Banking Industry News - Feb 2015
  • The U.S. banking industry in 2014 posted its first yearly profit decline in five years, the Federal Deposit Insurance Corp. said Tuesday, with a decline driven by reduced revenues from mortgage sales, securitization and servicing and higher litigation expenses.
  • The vast majority of the nation’s 6,509 banks reported increased earnings for 2014, the FDIC said in its quarterly report on the health of the banking industry. But seven of the 10 largest banks posted lower earnings than they did in the previous year, driving the industry total below its 2013 level.
  • A main contributor to the decline in yearly earnings was falling revenues from mortgage sales, securitization and servicing, which was down about 35% or $9.1 billion for the year. Increased litigation expenses—up $6.5 billion—also played a role, the FDIC said.
  • Industrywide, banks’ net income fell to $152.7 billion for 2014, about 1% less than the industry earned in 2013. Looking at just the fourth quarter of 2014, most banks reported increased revenues and earnings. Again, higher litigation expenses “at a few large banks” and lower noninterest income from the residential-mortgage business led the industry’s fourth-quarter profits to decline about 7.3% from a year earlier, to $36.9 billion. The nation’s four largest banks reported year-over-year drops in fourth-quarter net income of $4.1 billion, the FDIC said.
  • A measure of consumer confidence pulled back more than expected in February after jumping to a multiyear-high reading in January, according to a report released Tuesday.
  • The Conference Board, a private research group, said its index of consumer confidence dropped to 96.4 this month from a revised 103.8 in January, first reported as 102.9 which was the highest reading since August 2007.
  • Economists surveyed by The Wall Street Journal had forecast the latest index to drop but only to 99.4. The present situation index, a gauge of consumers' assessment of current economic conditions, declined to 110.2 from a revised 113.9 in January first put at 112.6.

Q4 2014 U.S. Banking Review: Net Interest Margin

Source: Forbes Category: Banking Industry
  • As a result of the prevailing low interest rate environment, shrinking net interest margin figures have put pressure on revenues across the banking sector since early 2011. The banks have had to put in a lot of effort to boost revenues from fee-based services and cut costs to offset this impact. Among the country’s largest commercial banks, Wells Fargo and U.S. Bancorp have been hit the most due to their traditional loans-and-deposits business models compared to their larger competitors JPMorgan Chase, Bank of America and Citigroup, which rely on a range of diversified financial services to generate revenues. In this article, we detail how these banks’ NIM figures have changed over recent quarters and what to expect in the coming quarters.
  • The Federal Reserve set its benchmark interest rates between 0% to 0.25% in December 2008, and has maintained them at that level since. While that helped jump-start lending and borrowing, it has also made it difficult for investors to find investment options that yield high returns. This has affected banks’ interest margins. The table below shows the NIM figures for the five largest banks for the last five quarters as well as for the last three years. The figures were reported by the banks in their respective quarterly SEC filings. The weighted average figure is arrived at by weighing each bank’s interest margin for the quarter with the average interest-earning assets it reported for the period.

  Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 FY 2012 FY 2013 FY 2014
U.S. Bancorp 3.40% 3.35% 3.27% 3.16% 3.14% 3.58% 3.44% 3.23%
Wells Fargo 3.26% 3.20% 3.15% 3.06% 3.14% 3.76% 3.39% 3.11%
Citigroup 2.88% 2.90% 2.87% 2.91% 2.92% 2.88% 2.85% 2.90%
Bank of America 2.44% 2.29% 2.22% 2.29% 2.18% 2.34% 2.37% 2.25%
JPMorgan 2.20% 2.20% 2.19% 2.19% 2.14% 2.48% 2.23% 2.18%
Weighted Avg. 2.67% 2.63% 2.59% 2.60% 2.55% 2.81% 2.68% 2.50%

  • American shoppers, adept at swiping the stripe, soon will learn to dip the chip in malls and strip centers across the land.
  • We’re talking about credit cards, specifically high-tech ones with microchips inside to make plastic money more secure. Chip cards are everywhere overseas and finally emerging here in response to massive credit card data breaches such as the one at Target in 2013.
  • Expect to find chip cards in your wallet by year-end as card issuers roll them out, if one’s not there already. Chip cards have a small gold or silver rectangle on the front of the card just above the first four digits of the card’s number. It’s not the hologram of a dove found on many stripe cards.
  • The US President administration is announcing that it will allow Cuba's small private business sector to sell goods to the United States in a potentially important loosening of the half-century trade embargo on the communist island.
  • A list published by the U.S. State Department Friday says Americans will be allowed to import anything produced by Cuban entrepreneurs with the exception of food and agricultural products, alcohol, minerals, chemicals, textiles, machinery, vehicles, arms and ammunition.
  • The imports would have to be produced by a Cuban operating in one of the dozens of categories of private business allowed by the Cuban government. Most of the categories are for services like car maintenance or watch repair, not potentially exportable goods.
  • The outgoing leader of the Federal Reserve Bank of Philadelphia doesn’t expect the U.S. to be hit by price deflation, and argued again that the U.S. central bank needs to consider interest rate increases soon.
  • “I don’t see deflation as a risk in the U.S. economy,” Philadelphia Fed President told the Fox Business Network television channel in an interview Monday. He said weakening price pressures as measured by headline inflation gauges largely reflect the huge drop in oil prices, and aren’t a sign of broader economic problems. “We have to look through” the drop in oil prices and its impact on inflation, he said.
  • The U.S. central bank is currently caught between the cross currents of decent growth, strong job gains and inflation readings that are falling ever farther short of its 2% price target. While the growth and hiring news argues in favor of rate increases, price pressures are tilting the other way. Indeed, many economists believe negative price readings could prevail for much of this year. Raising rates in the face of such weak inflation numbers would be unprecedented.
  • With oil prices deep in bear market territory, its impact on virtually every sector has been a focus of recent earnings results. The U.S. banking space is no exception, as conference calls were dominated by energy-related questions.
  • Most banks expect minimal near-term losses, and many have done extensive stress tests on their energy portfolios for oil in the US$40-to-US$50 per barrel range for an extended period.
  • But RBC Capital Markets analyst noted that the full impact of plunging oil prices has yet to materialize. He anticipates slower growth and higher loan-loss provisions for the group if energy prices remain in the current range.
  • Credit card balances were on the rise once again in December, the Federal Reserve said Friday.
  • Revolving debt increased at a 7.9 percent annual pace in December -- the biggest monthly increase since April 2014 -- up from a 1.3 percent decrease in November, according to the Federal Reserve's preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.
  • Total consumer debt rose 5.4 percent in December to approximately $3.31 trillion. Total consumer debt includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected fluctuations that may occur, such as back-to-school or holiday seasons.
  • Average student loan debt is approximately $1.32 trillion, according to the Fed report, a $10.8 billion increase since September, the last time these debt figures were measured. Outstanding auto loan debt totals about $955.5 billion, an increase of $11.7 billion since September.
  • Shares of Bank of America (NYSE: BAC ) , the second-largest banking and financial products company in the United States, sank by 15% in January, according to data from S&P Capital IQ, after reporting fourth-quarter results that weren't up to par with Wall Street's estimates.
  • For the quarter, Bank of America generated $3.1 billion in net income, or $0.25 per share, on $18.96 billion in revenue. Although Bank of America's adjusted profits of $0.32 topped Wall Street's estimates by a penny, its revenue fell well short of the $21.08 billion that had been forecast. What really shook investors is that legal expenses were not the culprit this time. Instead, ongoing weakness in its real estate and mortgage business, as well as a $788 million "negative swing" in market-related adjustments to its debt securities, led to its disappointing results.
  • There were bright spots as well. For example, Bank of America's legal fees were minimal compared to previous quarters and its non-interest expenses fell by about 20% year over year (that's more than $3 billion in lowered costs).

A new way to credit score: Aire

Source: Finextra Category: Credit Card News
  • When a successful entrepreneur, came to this country from the United States eight years ago he landed on British soil with zero financial credibility. Banks wouldn't give him the time of day so securing a loan or credit card was impossible.
  • The entrepreneur, who's moved from country to country growing up, knows first-hand the effects of credit agencies not co-operating over borders - 'your financial passport doesn't move with you - it's a reset button,' he says. In credit-bureau terms he was considered a 'thin file'.
  • The tipping point was three years ago - I realised nobody was going to do anything about this - and so you've got to be the change you want to see in the world he says.
  • After the successful exit of a previous startup - he found himself with the time, experience and capital to start Aire; credit scoring built from the ground-up with consumers as first priority.

Weak global economy worries US officials

Source: Economy News Category: Banking Industry
  • For decades, Texas-based Air Tractor has built agricultural planes to battle forest fires and spray crops, selling many of them to Mediterranean countries such as Italy and Spain. But in recent months, the aircraft company has battled fires of a different kind, as sales to Europe have stalled.
  • “A combination of the euro weakening against the dollar and the European economy being weak: both of those are definite headwinds,” said the vice-president for finance at the company, which employs 250 people and was founded in 1972.
  • Air Tractor is not alone in their concern about the global economy. Even as the domestic US economy strengthens, American officials are nervously casting their eyes overseas — as a policy statement by the Federal Reserve indicated last week. Friday’s gross domestic product data in the US also highlighted the risks. While US consumer spending rose by the most since 2006, poor net exports knocked a percentage point off America’s gross domestic product growth, leading to a deceleration from the third quarter.