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News Scan Oct 2012

Credit Card News, Economy News, Banking Industry News - Oct 2012
Oct 2012
  • Hope is strong among bankers that deploying a modern IT architecture can provide them with major cost savings.
  • In a recent survey, 78% of bankers said they believe the adoption of a services-oriented architecture will result in a 25-50% reduction in banking IT costs.
  • In a services-oriented architecture, software applications are written and deployed in reusable and interoperable chunks, like Lego blocks.
  • Among vendors asked about the cost savings of such architecture, a more modest 56% said they were confident that SOA standards would help banks see cost reductions on such a scale.
  • All these numbers are a bit skewed, as all the people surveyed were members of the Banking Industry Architecture Network, a SOA standards group.
  • Twenty-four Tier 1 bank members participated in the survey. Still, the savings estimates are noteworthy and dramatic, and come from those who have been there.
  • The survey also found that 89% of the bankers and vendors have already started or finalized the process of SOA implementation.
  • All of the bankers surveyed said that SOA will be the dominant accepted IT architecture in banks in the future.
Oct 2012
  • Reloadable prepaid debit cards, a relatively new financial product, are growing fast and attracting attention from federal regulators.
  • And since you typically can’t spend more than you load onto a prepaid card, they’re attractive to people who have been burned by bank overdraft fees.
  • Some people might prefer a simple, $5 monthly fee for a prepaid card rather than risk costly overdraft fees with a traditional debit card.
  • A lot of the prepaid cards have very transparent pricing. It’s easy to know what you are going to pay.
  • Prepaid cards also appeal to parents who want to arm their kids with a “training wheels” debit card and to travelers who don’t want to carry cash.
Oct 2012
  • The home vacancy rate, which measures empty properties and those for sale, fell to the lowest level in seven years in the third quarter as demand for housing picked up and economic pressures eased.
  • The rate declined to 1.9 percent in the quarter from 2.1 percent in the previous three months, a level not seen since the third quarter of 2005.
  • U.S. single-family home prices rose 0.5 percent in August on a seasonally adjusted basis, marking the seventh straight month of increases.
  • The U.S. home ownership rate was unchanged from the second quarter, holding at 65.5 percent, but was down from 66.3 percent a year earlier.
  • Foreclosures and tight lending standards, coupled with a stubbornly high unemployment rate have pushed many would-be buyers into rental properties.
Oct 2012
  • The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in September, gained 0.3 percent to 99.5.
  • This means only minor movement is likely in near-term existing home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.
  • The housing market is steadily healing after collapsing in 2006, supported by modest job gains, increased job security and record low mortgage rates.
  • Pending home sales were up 14.5 percent in the 12 months to September.
  • Contracts were up in three of the country's four regions. They fell 5.8 percent in the Midwest to the lowest rate since January.
Oct 2012

US credit card chargeoffs at lowest since 2007

Source: Forexlive Category: Credit Card News
  • Fitch says US third quarter credit card chargeoffs at 4.5% compared to 5.2% in Q2. It’s the lowest since the first quarter of 2007.
  • It’s good news but could be more of a reflection at the lack of credit availability than anything pointing to sustainable consumer spending.
Oct 2012
  • Banks that are exploring new strategies for recovering revenue amid sluggish loan growth can expect more scrutiny at their next regulatory exam.
  • While the fallout from Basel III dominated the general assembly, bankers who attended breakout sessions were warned that regulators are closely watching how they plan to bolster the bottom line.
  • Agency officials have specifically focused on banks' relationships with outside vendors as institutions look for new revenue streams.
  • Federal Reserve examiners are focusing on how institutions, especially small banks, plan to recoup revenue lost from reduced exposure to commercial real estate.
Oct 2012
  • The U.S. consumer financial agency proposed to update an existing regulation.
  • That has been criticized for unintentionally preventing stay-at home spouses and others from obtaining credit cards.
  • The Consumer Financial Protection Bureau proposed to allow such spouses and partners to rely on shared income when applying for a credit card account.
  • The proposal addresses a provision of the Credit CARD Act, which became law in 2009 that requires companies to consider an applicant's ability to pay before issuing a credit card.
  • The Federal Reserve, which was first charged with implementing the law, interpreted the provision to mean companies could not consider total household income and would have to deny cards to applicants who did not have their own source of outside income.
  • Lawmakers have since said they did not intend that when they passed the law, but a proposed legislative fix has faced a tough road through a generally gridlocked Congress.
Oct 2012
  • Many of the problems endemic to mortgage servicing are also prevalent in the private student loan market.
  • In thousands of complaints to the agency this year, the vast majority of student borrowers said they encountered problems related to loan servicing and loan modifications.
  • Borrowers said they were often caught off guard by loan terms and conditions, had trouble resolving issues with their servicers and were unable to modify repayment terms, even when they could not afford to pay.
  • The agency has handled more than 2,900 complaints about private student loans in the past seven months, 87% of which were concentrated in seven companies: Sallie Mae, American Education Services, Citibank, Wells Fargo JPMorgan Chase, ACS Education Services and KeyBank. The number of complaints at each company is roughly proportional to its market share.
  • More than two-thirds of the complaints related to problems with repaying loans, including fees, billing issues, deferment, forbearance, fraud and credit reporting.
  • Another 30% of complaints related to problems borrowers faced when unable to pay, including default, debt collection and bankruptcy.
  • About 5% of borrowers complained about the process of obtaining the loan, from confusing advertising or marketing to high-pressure sales tactics.
Oct 2012
  • The largest 100 public pension funds have around $1.2 trillion of unfunded liabilities, about $300 billion above the nearly $900 billion they reported themselves.
  • The pension systems reported a median funding level of 75.1 percent. With the study, stepped into the debate about whether public pensions are underreporting the size of their liabilities.
  • That hot-button issue revolves around how much money public employers - and, by extension, taxpayers - will have to contribute to cover future payouts for member benefits.
  • It is a key issue at a time of dwindling revenues and tighter budgets for states and local governments.
  • Pension funds get money from the returns on their assets and from members' contributions.
  • States and cities also pay into the funds, but their contributions are discounted based on how much money they think their investments will make over time.
Oct 2012

Business inventories rise on auto restocking

Source: Reuters Category: Economy News
  • Business inventories increased 0.6 percent in August, boosted by an increase in automobile stocks.
  • Inventories rose to $1.6 trillion, the government said. Inventories in August were lifted by a 1.5 percent jump in stocks at auto dealers as sales accelerated from weak growth the previous month. Auto inventories had increased 2.7 percent in July.
  • Inventories are a key component of gross domestic product changes. Inventories excluding autos -- which go into the calculation of gross domestic product -- rose 0.2 percent after climbing 0.4 percent in July.
  • Business sales grew 0.5 percent to $1.25 trillion in August after rising 0.9 percent the prior month.
  • At August's sales pace, it would take 1.28 months for businesses to clear shelves, unchanged from July.
Oct 2012

Long shadow of financial crisis haunts banks

Source: Businessweek Category: Banking Industry News
  • Major U.S. banks start reporting third-quarter earnings. And while some of the cold fear of the scandal-filled second quarter has worn off, and revenue is expected to rise for at least two banks, there will still be ample reminders of the long shadow of the financial crisis.
  • More than four years after the crisis imploded, and banks have yet to shake its consequences.
  • In just the past two weeks, at least three major legal battles over crisis-era accusations have swirled: Bank of America settled accusations that it misled investors when it agreed to buy Merrill Lynch.
  • The federal government sued Wells Fargo, charging that the bank improperly received millions of dollars.
  • Citigroup settled accusations that it had misled investors about the depths of its subprime-related dealings.
  • Banks will get slapped with sanctions for unintentionally allowing money laundering.
  • The numbers weren't good, either: Of the six U.S. mega-banks, only Wells Fargo was able to pull in more revenue than it had the year before.
Oct 2012
  • U.S. small business sentiment weakened in September for the fourth time in five months as fewer owners expected to add staff and make capital investments.
  • The National Federation of Independent Business optimism index fell 0.1 point to 92.8 last month.
  • The drop is a sign the U.S. economy is taking a hit from uncertainty over the possibility of tax hikes and government spending cuts next year.
  • Owners are in maintenance mode spending only where necessary and not hiring, expanding or ordering more inventories until the future becomes more certain.
  • That weighed heavily on the overall index. Also holding back optimism, the share of firms planning capital investments in the next three to six months fell to 21 percent from 24 percent.
Oct 2012
  • Wal-Mart Stores is taking another leap into the banking world, offering a prepaid card and debit account with American Express that will give low-income consumers access to features like deposits by smartphone.
  • It is a surprising alliance between the discounter Wal-Mart and American Express, which until recently has been focused on high-end consumers.
  • The move is intended to strengthen both companies' positions in the market for prepaid cards which, unlike credit and debit cards, are largely unregulated and have far fewer consumer protections.
  • The account, called Bluebird, will be available next week. The companies are positioning it as an option for people turned off by bank fees.
  • The only fees consumers will ever pay are clear, transparent and within their control," like out-of-network ATM fees.
Oct 2012
  • Google said it plans to enter the credit card sector with boosts from Comenity Capital Bank in the U.S. and Barclays. The intent is to make it easier for advertisers to spend more on Google.
  • Both cards will be MasterCards backed by MasterCard and will put Google into the credit card sector for the first time.
  • Google advertisers will be eligible for monthly credits ranging from $200 to $100,000 to pay for Adwords, which are the messages that pop up next to user searches.
  • Google advertisers who take the new card will get a discount: The U.S. interest rate will be only 8.99 percent and the UK rate will be 11.9 percent, both below prevailing rates.
  • But it’s also a challenge to major banks and credit card companies seeking to take advantage of burgeoning e-commerce.
Oct 2012
  • Wal-Mart is opening its stores to multiple prepaid card reload networks giving its customers the ability to put cash into cards backed by Green Dot, InComm's Vanilla Reload Network and First Data's Money Network.
  • At the same time, the retail giant is simplifying the way prepaid card users load money onto those prepaid cards by allowing customers to hand over cash at the register rather than just at specialized areas of the store called Wal-Mart Money Centers.
  • Wal-Mart can now put money into cards such as the Russell Simmons' Rush Card and InComm's MyVanilla prepaid card.
  • Its own Wal-Mart money card has a reload fee of $3. The fee the store chain will charge customers that place cash on other cards will be $3.74 or less.
Oct 2012

U.S. companies add 162,000 jobs in September

Source: Reuters Category: Economy News
  • U.S. companies added 162,000 jobs in September, to slow improvement in the labor market.
  • Last month the Federal Reserve launched an aggressive new plan to bolster the economy, saying it will buy $40 billion in mortgage-backed securities per month until the outlook for the job market substantially improves and as long as inflation remains contained.
  • The economy grew at just 1.3 percent in the second quarter and economists believe the recovery will remain sluggish, though it should avoid another contraction.
  • In the past six months, the ADP report has exceeded the government's private payrolls numbers by an average of just over 50,000.August's initial figures from ADP overshot by 98,000.
Oct 2012
  • A company that helps companies guard against cyberattacks says the recent wave of digital disruptions at the nation's biggest banks is noteworthy for its size and sophistication.
  • Whoever is behind the attacks that have slowed websites at Bank of America JPMorgan Chase Wells Fargo Citigroup US Bank and PNC recently has exhibited knowledge of methods companies use to guard against denial of service attacks, in which hackers besiege a website with messages until it becomes overpowered and shuts down.
  • Prolexic is a provider of distributed denial of service protection and mitigation services.
  • Prolexic says the strikes launched against banks in the last two weeks have used a hacking tool known as itsoknoproblembro, which can attack multiple parts of a company's online operations simultaneously.
  • As part of the assault, attackers direct a stream of messages at a website from both legitimate and sham Internet addresses that overwhelms the company's defenses, according to Prolexic.