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News Scan Oct 2011

Credit Card News, Economy News, Banking Industry News - Oct 2011
Oct 2011

U.S. Economy: Disparity of Wealth Widens

Source: wallstcheatsheet Category: Economy Card News
  • Inequality in America is greater than it has been in almost a century.Those fortunate enough to belong to the 1 percent, made up of the super-rich, stand on one side of the divide; the remaining 99 percent on the other.
  • The 400 wealthiest Americans now own more than the “lower” 150 million Americans put together.
  • Nearly two-thirds of net private assets are concentrated in the hands of 5 percent of Americans.
Oct 2011

Bank Failures Climb to 85

Source: Mybanktracker Category: Banking Card News
  • One more FDIC-insured bank failed this week, bringing the total of insured bank failures in 2011 to 85.All American Bank of Des Plaines, IL was shut down last Friday by the FDIC and the Illinois Department of Financial and Professional Regulation. It was the ninth bank to fail in Illinois this year.
  • The International Bank of Chicago, based in Chicago, IL, will be purchasing All American Bank and assuming all of their deposits, in order to protect depositors.
  • All American Bank was a small business, with only one branch in the suburban Chicago land town of Des Plaines. It has only about $37.8 million in assets and $33.4 million in deposits.
Oct 2011

Using Credit Cards to Target Web Ads

Source: Wsj Category: Credit Card News
  • The two largest credit-card networks, Visa Inc. and MasterCard Inc., are pushing into a new business: using what they know about people's credit-card purchases for targeting them with ads online.
  • Their plans, if implemented, would represent not only a technological feat—tying people's Internet lives with shopping activities—but also an erosion of the idea of anonymity on the Web.
  • It's an effort by the two companies to profit by selling access to the insights they gather about people with every credit-card transaction. The technology is still evolving.
Oct 2011

Unpaid Student Loans to Top $1 Trillion

Source: Afro Category: Banking Industry News
  • For the first time, the amount of unpaid student loans will exceed $1 trillion this year, according to a report by the Federal Reserve Bank of New York. Last year, $100 billion in school loans were taken out, the most ever.
  • Americans now owe more on student loans than on credit cards. But lenders and taxpayers are unlikely to lose money on students loans, because unlike subprime mortgages made during the real estate bubble, Congress may have given broader "collection powers" to school lenders.
  • For young people, the debt could hinder a large group of people from purchasing basic, but essential items.
  • Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children.
Oct 2011
  • Any bank stuck in an old-school Black-Scholes mode of credit risk modeling or relying on credit ratings had better change its ways before Basel III gets adopted in the U.S.
  • Outdated or inaccurate modeling could hinder a bank's efforts to set aside the right levels of capital reserves under the Basel recommendations.
  • And credit ratings don't change that often and therefore are not the best measure of probability of default.
Oct 2011
  • American Express has reported financial results for the third quarter 2011. Net income was $1.2 billion, up 13% from $1.1 billion a year ago.
  • Card member spending was strong during the period, growing 16 percent to record levels and again outpacing most of the major bank card issuers.
  • Credit quality continued to be excellent, with key lending metrics improving from the historically strong levels we achieved earlier in the year.
  • The growth in operating expenses moderated this quarter, as planned, and we expect to further slow that growth towards the end of this year and into next.
Oct 2011
  • Senior citizens are expected to get their first raise in two years. Social Security recipients should get a cost of living adjustment of about 3.5% to 3.7% starting in January.
  • Because inflation has been very low in recent years, beneficiaries have not seen a COLA increase since 2009, when they received a 5.8% boost.
  • However, most seniors are not likely to receive the full amount of the COLA increase because the expected hike in Medicare premiums could eat up part of the raise.
  • The change in Medicare premiums, which could increase by a double-digit rate, should be announced next month.
  • Nearly 55 million Americans receive benefits, with an average monthly check coming in at nearly $1,200. The COLA increase would translate to a roughly $41 increase.
Oct 2011

Producer prices rise strongly in September

Source: Reuters Category: Economy News
  • U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged.
  • The seasonal adjustment for that in the September PPI report was actually positive so it probably did not point to a new trend to higher inflation. It was more just a one-time aberration.
  • It is really surprising to see this sort of strength, especially in the environment that we expect to develop through the course of the year. Looking at this number it does seem there is a big upside from energy, which there are seasonal adjustment factors.
Oct 2011
  • Known as predictive analytics, this number-crunching technology works by taking the data a company collects on a segment of customers and entering this information into a predictive model.
  • This model is comprised of sophisticated computer algorithms that then analyze the data to predict future events.
  • For some consumers, predictive analytics spells good news. For example, many financial institutions use predictive analytics technology to create "attrition models” formulas based on purchase activity that flag customers on the verge of canceling their cards and taking their business elsewhere.
  • In turn, these customers are more likely to receive special offers and targeted promotions that may or may not entice them to stay.
  • On the other hand, predictive analytics can alert a card issuer to when a cardholder is headed for trouble and can step in to either lend a helping hand or take more drastic measures such as cutting credit limits or canceling cards.
  • More personalized customer service is another positive byproduct of predictive analytics. For instance, Premier Bankcard uses predictive analytics to create a "good customer score" -- a figure based on data such as a customer's outstanding balance, the number of times a customer exceeds his or her credit limit and the longevity of an account.
  • By inserting these numbers into a predictive model, Premier Bankcard can forecast which customers are most likely to default on their loans, and conversely, which qualify for customer-focused programs such as special promotions and interest rate cuts.
Oct 2011

Bank Failures Zoom to 80

Source: Yahoo Category: Banking Industry News
  • U.S. regulators closed down four more banks in Georgia, North Carolina, New Jersey and Illinois. This brings the total number of U.S. bank failures to 80 so far in 2011.
  • The failed banks are: Gray, Georgia-based Piedmont Community Bank, with total assets of about $201.7 million and total deposits of about $181.4 million as of June 30, 2011.Asheville, North Carolina-based Blue Ridge Savings Bank, Inc., with about $161.0 million in total assets and $158.7 million in total deposits as of June 30, 2011.
  • Cranford, New Jersey-based First State Bank, with about $204.4 million in total assets and $201.2 million in total deposits as of June 30, 2011.
  • Aledo, Illinois-based Country Bank, with about $190.6 million in total assets and $167.5 million in total deposits as of June 30, 2011.
  • The failure of Piedmont Community Bank is expected to deal a blow of about $71.6 millionto the FDIC, while Blue Ridge Savings Bank, First State Bankand Country Bank will cost about $38.0 million, $45.8 million and $66.3 million, respectively.
Oct 2011

Big banks get into the payday loan business

Source: Creditcards Category: Banking Industry News
  • Several major national banks have entered a lending arena that once had been monopolized by "payday loan" shops -- small businesses that offer short-term advances on a customer's next paycheck when funds run out.
  • This spring it joined Wells Fargo, Fifth Third and U.S. Bank in offering the loans. The banks distance their services from the term payday loans, which critics say prey on the poor. They go by names such as direct-deposit advance, checking-account advance, ready advance or early access.
  • But, like payday loans, they often have short pay-back periods and charge hefty fees. With these bank loans, borrowers who can't pay their bills before the next paycheck or deposit typically borrow a few hundred and when the paycheck lands, the amount due and fees are automatically subtracted from their account.
  • Terms are very similar among the four banks. Three of the banks charge $10 for every $100 borrowed (Wells Fargo charges $7.50 per $100). And all four will allow only half of the customer's paycheck or $500, whichever is less -- to be advanced. The banks that report Annual Percentage Rates (APRs) list them at 120 percent. But that assumes money is lent for a 30-day cycle (10 percent times 12 months).
Oct 2011

PayPal Blankets Banking with New Services

Source: Americanbanker Category: Banking Industry News
  • PayPal Inc. is putting itself at nearly every possible point of a consumer's banking relationship – from account-opening to payments and even reward-redemption – through a series of new partnerships.
  • Company is working with multiple bank technology providers to make it easier for banks to add PayPal even if their existing vendor relationships would not normally allow them to do so.
  • PayPal, a unit of eBay Inc., is also continuing to work directly with any large banks that want to integrate its payments system into custom software.
  • Perhaps PayPal's most unconventional partnership is with ezRez Software Inc., which manages miles redemption for airlines.
  • Next year, PayPal will display within its account view how many miles a customer has and how much cash that converts to. Issuers of airline cards can promote this system as a way to keep their cards top-of-wallet.
Oct 2011
  • The four biggest U.S. banks are encouraging their most creditworthy customers to take on more debt, mailing credit-card balance-transfer offers with rates as low as zero percent even as they add fees for other services.
  • Bank of America Corp, U.S. bank, is offering some customers a teaser rate of zero percent plus transaction fees through June 2012.
  • Customers who receive the promotions with balance-transfer checks may deposit the checks to use like a short-term loan, rather than paying off a balance at another financial institution.
  • There is a one-time fee of $10 or 4 percent, whichever is greater, per transfer. JPMorgan Chase, Citigroup and Wells Fargo are sending similar promotions.
Oct 2011

U.S. deficit at $1.3 trillion in fiscal 2011

Source: Reuters Category: Economy News
  • The U.S. government's budget deficit in the fiscal year that ended on September 30 was $1.3 trillion, equal to 8.6 percent of gross domestic product.
  • Receipts from corporate income taxes fell by $11 billion in September, adding that the drop may reflect filing and payment delays due to Hurricane Irene and other natural disasters.
  • Payments for interest costs rose by 17 percent in fiscal 2011, a $38 billion increase over 2010, largely because of the big increase in government debt over the past year.
  • Federal spending for unemployment benefits fell by 24 percent, or $39 billion, in 2011 because fewer people filed for benefits and because Congress allowed a $25 boost in weekly unemployment benefits to expire.
Oct 2011
  • State regulators seized The Riverbank, a $417 million-asset Wyoming, Minn., institution, and the $356 million-asset Sun Security Bank of Ellington, Mo. The two closures brought the industry's total this year to 76.
  • The Federal Deposit Insurance Corp., which was appointed receiver for both failed institutions, sold all of The RiverBank's $379 million of deposits and roughly all of its assets to Central Bank of Stillwater, Minn. The FDIC agreed to share losses with the buyer on $339 million of The RiverBank's assets. The failure, the second in Minnesota this year, was estimated to cost the FDIC about $71 million.
  • Meanwhile, the FDIC brokered a deal with Great Southern Bank of Springfield, Mo., for the operations of Sun Security, which was the state's first failure of 2011. Great Southern agreed to assume all of the failed bank's $290 million of deposits and acquire essentially all of its assets.
  • A loss-sharing deal between the FDIC and Great Southern will cover nearly $352 million of Sun Security's assets. The failure's cost to the insurance fund was estimated at $118 million.
Oct 2011

Holiday hiring expected to be ho-hum this year

Source: Cnn Category: Economy News
  • The holiday season is barely underway, and retailers are already expressing a ho-hum attitude towards hiring.
  • Retailers are expected to hire just 480,000 to 500,000 seasonal workers this year,
  • That's in line with the 495,000 seasonal employees they hired last year, but still far from pre-recession highs.
  • It is predicted that seasonal hiring will be about the same or lower than a year ago, when employment grew by 627,600 from October through December.
  • Holiday retail sales are expected to increase by 2.8% to $465.6 billion, while it's a step in the right direction that growth is far lower than the 5.2% increase retailers experienced last year.
Oct 2011
  • Overall delinquencies across eight loan categories rose to 2.88 percent of all accounts in the three months ending June 30, from 2.71 percent in the prior quarter.
  • Home equity loan delinquencies rose to 4.38 percent, from 4.12 percent, marking the largest jump in more than a year.
  • There were "encouraging trends" in the second quarter in credit card delinquencies, where overdue payments fell by 18 basis points, to 3.22 percent, to reach the lowest level in a decade.
Oct 2011

Service firms cut jobs in September

Source: yahoo Category: Economy News
  • Service companies cut workers last month for the first time in 13 months. The pessimistic sign on the hiring front came two days before the government issues its September jobs report.
  • Service companies grew in September at a slower pace than August, according to the Institute for Supply Management. Those businesses employ 90 percent of the U.S. work force. They include everything from hotels and restaurants to retailers and construction companies.
  • New orders rose to their highest level since May. Order backlogs grew for the first time in four months.
Oct 2011

Banks losing ground on card security

Source: Reuters Category: Credit Card News
  • Globally, security is improving in the payment industry, according to data released this week by The Nilson Report, a California trade publication.
  • Meanwhile, U.S. banks and merchants have balked at the expense of conversion. As a result, fraud in the United States accounted for 47 percent of global fraud losses last year -- up from about 46.5 percent in 2009 and 44 percent in the middle of the last decade.
  • U.S. merchants and banks will only spend the millions of dollars on such upgrades once it becomes worth their while.