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News Scan Oct 2014

Credit Card News, Economy News, Banking Industry News - Oct 2014
  • The government reported on Thursday that the nation’s economic output rose at a 3.5 percent annual rate in the third quarter, offering a strong sign that the economy’s plodding growth may be picking up speed.
  • The higher-than-expected bump in gross domestic product — a measure of all the goods and services produced — was driven in part by an unusual spurt of federal spending, concentrated in defense, combined with robust exports and investment in business equipment.
  • The performance of the economy during the summer months of July, August and September followed the second quarter’s even more impressive 4.6 percent annualized growth rate. This sustained expansion was welcomed after a bitter winter that contributed to a disappointing 2.1 percent decrease for the first three months of the year.
  • Consumer spending, though up 1.8 percent, was weaker than some economists had expected, given recent job growth, falling gas prices and profits that wealthier households reeled in from the stock market.
  • Many economists are worried about the effect of Europe’s anemic growth on the American economy, expressing fears that European policy makers and the European Central Bank are not doing enough to stimulate their sluggish economies.
  • An announcement by the European Central Bank on Monday that it was buying 1.7 billion euros’ worth of private assets was dismissed by some economists as too piddling an effort given the region’s economic problems.

Credit Cards Ride Wave of Electronic Payments

Source: WSJ Category: Credit Card News
  • Credit-card companies are riding a surging wave in electronic payments and benefiting from continued growth in consumer spending.
  • MasterCard Inc. reported better-than-expected quarterly results on Thursday, sending the company’s shares up 7.1% in recent trading.
  • The results—which came after rival Visa Inc. also reported strong results and delivered a better-than-expected revenue outlook for 2015—show that card giants are benefiting from a wave of migration away from cash and checks toward spending on credit and debit cards even as consumer-spending growth remains mixed globally.
  • Both companies’ shares enjoyed jumps that would qualify as one of their sharpest in years if the gains hold for the rest of the afternoon. Visa’s shares rose 9.6% in recent trading.
  • MasterCard reported a profit of $1.02 billion, or 87 cents a share, up from $879 million, or 73 cents a share, a year earlier. Revenue rose 13% to $2.5 billion.
  • Earnings at Visa and MasterCard will likely be helped by a continued a migration away from cash, and higher consumer spending, predicted analysts at Nomura. They expect cash and checks to decline to 22% of consumer spending in coming years from 45%.

Licensing, a Milestone in Banking Industry

Source: Nation Multimedia Category: Banking Industry News
  • Greater convenience is one thing foreign companies doing business in Myanmar can expect as nine foreign banks gradually start their operations within the first half of next year.
  • The licensing is also another milestone of the country's economic reforms, which have so far been successful in drawing foreign investment and the momentum should continue with support from political changes.
  • The nine banks, all from Asia Pacific region, on October 1 were granted preliminary approval to operate limited services in Myanmar, the first time in five decades. Considered the last frontier where foreign presence is still limited and subjected to some entry barriers, Myanmar has been a major destination for foreign investment.
  • Foreign direct investment this year is expected to reach US$5 billion, nearly doubling last year's $2.6 billion. Unsurprisingly, these banks are geared up to commence their operations as soon as possible.
  • As of June, there were 43 foreign bank representative offices in Myanmar. All representative offices are limited to providing consultation services to clients exploring business opportunities in Myanmar. There are altogether 26 local banks - four state-owned banks and 22 private banks.
  • Each of them must bring in a minimum US$75 million of capital. The license allows the nine banks to offer wholesale banking products and services to foreign companies and domestic banks. They cannot engage in retail banking and are also restricted to lending to foreign investors in foreign currencies, not the local currency, the kyat.
  • A top enforcer for the SEC says the agency is worried that banks are concealing asset risk while also discussing his strategy for uncovering wrongdoing by banks and other firms.
  • Top Securities and Exchange Commission officials who oversee Wall Street's most complex financial instruments are worried that banks may be trying to game regulators on capital rules by concealing asset risks.
  • New rules recently adopted by federal regulators are designed to prevent banks from holding large portfolios of exotic or distressed assets that would be difficult to sell in a liquidity crunch.
  • The largest and most sophisticated banks may be using synthetic structured products sold to hedge funds and other risk-takers, or to less sophisticated buyers like small banks, to shift around asset risk. Certain sales may appear to transfer risk but in actuality do not do so, resulting in assets that receive better capital treatment than they deserve. That would be a significant problem, said an enforcement chief at the SEC.
  • The SEC's enforcement actions have grown larger this year under White, and they have expanded also in scope and number. So far, the regulator has filed 755 enforcement actions, more than the 686 actions filed throughout 2013. It has extracted some $4.16 billion in penalties and so-called disgorgements year-to-date, according to public records. That is also more than last year's sum.
  • Applications for U.S. home mortgages rose last week as refinancing picked up following a sharp drop in interest rates, an industry group said
  • The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 11.6 percent in the week ending October 17.
  • The MBA's seasonally adjusted index of refinancing applications rose 23.3 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 4.8 percent.
  • Fixed 30-year mortgage rates averaged 4.10 percent in the week, the lowest level since May 2013 according to MBA data, and down 10 basis points from 4.20 percent the week before.
  • The specter of deflation in Europe and a slowdown in China and other emerging markets are threatening to hobble the U.S. economy at a time when the world could use a reliable growth engine.
  • Storms abroad have threatened to capsize the U.S. economic expansion in each of the past four years. Each time, the U.S. economy has withstood the bumps—including the Eurozone debt crisis and the Japanese nuclear disaster—continuing on its slow-but-steady growth trajectory.
  • Now, the gathering overseas shocks are coming as the Federal Reserve begins to pull back on the easy-money policies it has employed to aid the recovery. While overall job growth in the U.S. has been strong over the past several months, the housing market has been mixed and consumers have shown caution.
  • Economists doubt the U.S. can dodge all harm if the weaknesses overseas mount, creating the potential for a negative feedback loop of soft growth. Emerging economies, not the U.S., drove global growth for much of the last decade. Now, many of those markets—Brazil, Russia and South Africa, for example—are slumping and relying on the U.S. for growth. Together, they represent a global economy that isn’t firing on all cylinders.
  • Oil and gas investment accounts for around 10% of overall business investment, according to Deutsche Bank economists, and lower energy costs could ramp up business and consumer spending elsewhere. And the lower rates that are resulting from investors’ scramble to safe government bonds could help the recovering housing sector by keeping a lid on mortgage costs and stir an upturn in refinancing’s, giving consumers more disposable income.
  • If there's one thing we can take away from this week's stock market dive that sent the Dow down more than 866 points and 5 percent in five days, it's that American's are feeling a little jittery. After five years of economic uncertainty, it finally feels as if things are back on track, yet many people are wondering whether or not the terrible times are truly in the past.
  • On the surface, everything seems to be humming along nicely. TheS&P 500 is up about 30 percent over the last two years, the U.S. jobless rate is at a six-year low, housing starts have climbed 9 percent year-to-date, and other economic indicators are pointing to good times ahead.
  • A global economic slowdown would have an impact in two main ways: It could hurt exports, and it might make people nervous enough to pull their money out of the stock market.
  • People are so focused on how a rise in the Fed Funds rate will impact the economy that many aren't thinking about the bigger danger: a sharp rise in long-term yields.
  • Since the end of May, the price for West Texas Intermediate crude has fallen by about 20 percent to below $80 a barrel at press time. While that hasn't affected the American economy yet, it could cause problems if prices drop further.
  • Ideally the Federal Reserve wants to see a gradual rise in core inflation, from about 1.5 percent today to 2 percent by 2016, accompanied by a slow rise in the overnight rate. If inflation jumps, though, the Fed may have to raise rates earlier than expected.
  • While a falling stock market does not mean the country's economy is in trouble, there's never been a recession without a plummeting market.
  • The number of Americans filing new claims for jobless benefits fell to a 14-year low last week and industrial output rose sharply in September, positive signals that could help ease fears over the economic outlook.
  • Initial claims for state unemployment benefits dropped 23,000 to 264,000, the lowest level since 2000.
  • A separate report from the Federal Reserve showed production at the nation's factories, mines and utilities advanced a larger-than-expected 1.0 percent last month, the biggest gain since November 2012.
  • The data offered evidence the economy remained on solid ground, with the labor market gaining steam. Investors in recent days have come to the view that slowing growth overseas will weigh on the U.S. economy and force the Fed to delay a hike in interest rates.
  • Weak retail sales data on Wednesday shook investor confidence and helped fuel a global sell-off in stock markets that continued on Thursday. U.S. stock markets were trading sharply lower.
  • The jobless claims report nonetheless reinforced expectations that slack in the labor market was being reduced.
  • As traditional Wall Street moneymakers like stock and bond trading suffer, banks are growing increasingly willing to invest in less glamorous operations: their credit card businesses.
  • Lenders hope that in an era when consumers are conducting more of their banking online and less in branches, an increased emphasis on credit cards will help them sell more products to their customers.
  • The shift underscores how seemingly staid businesses have become increasingly attractive on Wall Street as tougher capital rules and lower trading volume have cut into profits at trading units.
  • Bank of America and Citigroup now make about 25 percent or more of their income from credit cards, after excluding businesses they are shedding. That is up from about 15 percent before the financial crisis.
  • So far, the big banks have shown no sign of seeking more subprime borrowers, industry experts say, but some expect banks will gradually ease credit standards as increased competition and the drive for higher profits pushes them to look harder for new borrowers.
  • Cash-back offers have increased from 1 percent of spending under certain conditions to 1.5 percent with no conditions. Citigroup has introduced a card that offers 2 percent cash back, 1 percent when the charge is made and 1 percent when the customer pays his or her credit card bill.

Card Interest Rates Remain at 15.07 Percent

Source: Creditcards Category: CrediCredit Card News
  • Average rates on new card offers held steady this week,
  • The national average annual percentage rate (APR) remained at 15.07 percent Wednesday after increasing the previous week to its highest point in more than two years.
  • Most issuers left credit card terms alone this week.
  • Weekly Rate Report
    Avg. APR Last week 6 months ago
    National average 15.07% 15.07% 15.02%
    Low interest 10.37% 10.37% 10.33%
    Balance transfer 12.82% 12.82% 12.66%
    Business 12.80% 12.80% 12.98%
    Student 13.24% 13.24% 13.27%
    Cash back 14.98% 14.98% 14.84%
    Airline 15.46% 15.46% 15.30%
    Reward 15.05% 15.05% 14.99%
    Instant approval 28.00% 28.00% 28.00%
    Bad credit 22.73% 22.73% 23.73%

Shadow Banking in the Spotlight

Source: USA Today Category: Banking Industry News
  • The International Monetary Fund’s newly issued Global Financial Stability Report devotes a full chapter to shadow banks — the network of money market funds, insurers, repo markets, hedge funds and pension funds that collectively provide an increasing source of lending.
  • IMF officials say shadow banking has taken on an increased share of lending risk since the global financial crisis.
  • So far, the (imperfectly) measurable contribution of shadow banking to systemic risk in the financial system is substantial in the United States but remains modest in the United Kingdom and the euro area. In the United States, the risk contributions of shadow banking activities have been rising, but remain slightly below pre-crisis levels,” the report states.
  • The Federal Reserve and Department of the Treasury halted a potentially crippling run on the multi-trillion dollar money market sector by stepping in with emergency loans and guarantees.
  • U.S. officials started some action even before the IMF report. Treasury’s Office of Financial Research on Monday announced plans to collect data on repo markets where non-banks go for overnight loans.
  • The International Monetary Fund on Tuesday raised by half a point to 2.2 percent its estimate of economic growth in the United States and stuck to its forecast of a 3.1 percent expansion next year.
  • The IMF's biannual World Economic Outlook report said the U.S. economy has strengthened after a slowdown during the first quarter of 2014.
  • Fund economists warned that the normalization of U.S. monetary policy should be gradual to sustain the expansion avoid damage to both the domestic and international economy.
  • The U.S. Federal Reserve, which has kept its benchmark interest rate below 0.25 percent since December 2008, is in the process of tapering its monthly purchases of bonds and mortgage-backed securities.
  • The IMF expects 3.1 percent growth in 2015, sustained by a stronger labor market, favorable financial conditions and a healthier real estate market.
  • Among external risks for the U.S. economic performance, the IMF cited a slowdown in emerging markets - China included - and a hike in oil prices due to geopolitical tensions.
  • As financial institutions plan for 2015, it is important to focus on ways to grow revenues and meet the needs of an increasingly demanding consumer.
  • Since the financial crisis, the focus of most bank and credit union strategic planning processes has been on managing risk, cutting costs, and meeting regulatory requirements. While these are important initiatives, most financial institutions believe it is time to shift gears, moving forward to create a new vision of revenue growth focused on an enhanced customer experience.
  • Despite continued regulatory constraints and rising costs, there was a recognition that strategic priorities need to be better aligned and that investment in technology was needed to provide a better customer experience.
  • As banks search for revenue growth, they are combining older strategies with newer opportunities. For example, increasing capital requirements have lead many of the larger banks to focus on traditional sources of revenue, such as asset and wealth management. This is a valid strategy, since asset and wealth management services provide both fee generating opportunities as well as opportunities for cross-selling of additional financial services.
  • To build a more secure revenue model in the future it is suggested to put the needs of consumers at the center of the decision making process and when launching new products and services. Leverage advanced analytics to understand the needs of different segments, developing customized products and services to meet these needs, to deploy a seamless channel approach that offers consumers a consistent and differentiated client experience across each organization touch point.
  • It is also suggested to update core platforms to enable data sharing and the elimination of internal silos that negatively impact the consumer experience, invest in a single IT platform to standardize processes, create efficiencies, lower costs, improve the flow of information, and provide a common and consistent view of data throughout the enterprise, recognize that digital technology can improve the customer experience.
  • Consumer spending bounced back strongly in August, according to new research from the Commerce Department.
  • Total consumer expenditures rose by 0.5 percent, according to the department's latest analysis of income and spending, bolstering economists' predictions that July's tepid sales were just a temporary blip.
  • The Commerce Department previously estimated that consumer spending fell in July for the first time since January, but revised estimates show that consumers were slightly more active that month. Total consumer spending rose by less than 0.1 percent in July after increasing by 0.5 percent in June.
  • Many Americans also received a raise in August, boosting their overall spending power. Personal income rose by 0.3 percent, according to the Commerce Department, after increasing by just 0.2 percent in July.
  • Consumer appetite for new cars is especially strong this year, indicating that many are feeling good enough about their personal finances that they're willing to take on a major purchase. "Purchases of motor vehicles and parts accounted for about half of the August increase," reported the Commerce Department in its latest release on income and spending.
  • Increased spending on nondurable goods is good news for retailers gearing up for the holiday season. However, consumers may not be in the mood to spend nearly as much as retailers would like.