Mortgage Delinquency Rates 2010: Optimistic trend forming?

At 10:00 am EST today, Federal Reserve Chairman Ben Bernanke will speak at the Fed’s annual meeting in Jackson Hole, Wyoming. And after the Dow just dipped yet again below the 10,000 mark yesterday, many investors will be tuning in to see how his perceived outlook could effect today’s market.

Among the many nightmare-ish charts Bernanke will be discussing, BankVibe.com will be closely following his interpretation of the current mortgage delinquency trends.

It seems there may be some reason for optimism according the Fed’s charts (which will be presented in the discussion). The charts show that actually as of May 2010, mortgage delinquency rates have begun to taper. Since the housing and economic collapse adjustable rate mortgages have been hit hardest with payment delinquencies. At their peak, mortgage payment delinquencies where affecting slightly over 15% of home owners with prime or near prime mortgages and a staggering 50% of all sub prime mortgages. For most of us, however, these facts are likely old news – what’s a more recent development is the beginning of a downward trend which these charts are beginning to show. Even subprime mortgage delinquency rates have begun to decline as of May.

So while rates still remain uncomfortably high, it still should be noted that there appears to be at least a faint light at the end of the tunnel.

Related: For housing trends in your area visit our new Real Estate Center.

Pre-Summit Bank Levy Proposals to Increase Cost of Banking

The turbulent month of May is behind us.  June has brought calm, but continued hand wrangling by government finance officials in Europe, the U.K. and the U.S. threatens to prolong the market uncertainty rather than deal with the real problems.  The latest round of public pronouncements suggest that bank levies are necessary to create a bail out pool of funds, ostensibly to shield such costs from having to be funded directly by taxpayers.  Since banks are merely conduits for the flow of capital, increased capital costs will eventually find their way to the retail side of banking.  Indirect funding by taxpayers must be acceptable in the latest government playbook.

Some news analysts are describing these latest antics as posturing before the G20 summit meetings this weekend in Toronto.  Officials always want to look and sound good when the cameras are rolling.  The new conservative leadership in Great Britain has been the most vocal about the levies since campaign promises hang in the balance.  The U.K. recently levied a one-time 50% tax on all discretionary bonuses paid by banks and collected £2.5 billion in the process.  According to budget papers, the new levies would start at £1.1 billion and rise in three years to £2.4 billion.

French and German banks have said they would support the levy system in their markets and bring the Eurozone along with them.  Proposals in the United States, twice the rate level in Great Britain, are currently tied up in the Senate awaiting approval.  However, not all banks are buying into the concept.  Notable exceptions are Canada, Japan, Australia and Switzerland.  Banks have already suggested that they would migrate activities, from global lending to Forex, away from taxing territories and favor exception countries with the their business.

The proposed levies would be applied to a bank’s balance sheet with a formula designed to exclude government securities and Tier 1 capital for the bank.  At this point, proposed legislation has had difficulty defining exactly what a bank is.  The intent is to include investment banks like Goldman Sachs.  Goldman paid $600 million in the one-time bonus tax and believes the new levy will approximate $100 million or about 1% of turnover.

Reactions from banking associations and their supporters were swift and predictable.  The private sector will have less access to credit and banks will be less competitive were the common themes.  One trade association executive remarked, “It is important to recognize that it is effective regulation, not taxation, that will help to prevent a future crisis. This tax is not a substitute for effective regulation.”

A more specific assessment of the economic impact was forthcoming from KPMG, a major audit firm with many banking clients, “The major UK banks will have to pay for the tax somehow and that will likely feed into a higher cost of borrowing for their clients, probably at the lower end of the scale. Mortgage borrowers, as well as retail and small corporate borrowers may be the worst hit.”

Levy proposals range from 4 to 15 basis points in some cases.  After adjusting for balance sheet exceptions, the resulting cost of capital increase may require a much higher cost allocation for new loans on the books. Banks would be prevented by contract from passing the levies down to all current borrowers.  Implementation issues cloud what the actual impacts would be on a loan-by-loan basis, but the assumption that loan costs will rise is inescapable. And this does not bode well for interest rates paid out by the bank for CDs, savings accounts, and money market accounts.

The new ruling government in the U.K. is not done with the banking sector.  Fresh from the victory of their bonus tax collections, officials admit that they are exploring additional “Finance Activity Taxes” on banking bonuses and profits.  However, they are quick to point out that they will not make these moves with agreement from their international partners.  Perhaps, these new conservatives understand competition after all, or they may be preparing their excuses in advance.

These new proposals may be nothing more than political rhetoric for the moment.  No one has mentioned the real issue in the developed economies of the world.  How do they plan to stimulate growth and employment in their respective domestic economies?  This “elephant in the room” will not go away.  Dealing with budget deficits always garners approval rating points, but conservatives have always stated that new taxes are no way to end a recovery or rebuild the labor pool.

Hopefully, some good will come from the G20 summit meetings, photo ops aside.  The United States has lost 8.8 million jobs over this recession, and it will take a long time to get those jobs back.  Banks need to be Banks again by loaning funds to small and medium size businesses to create new jobs.  New taxes only get in the way of that objective.

Bi line: Tom Cleveland is a market analyst for forex traders, and online resource for news on global markets and forex.

Florida is tied for most bank failures in United States in 2010

Out of the 68 banks that have failed this year, 10 have occurred in both Florida and Illinois according to TampaBay.com. The 104 year old Bank of Bonify, a tiny bank located between Pensacola and Tallahassee, was just sold by the FDIC to neighbor bank First Federal Bank of Florida in Lake City marking the 10th bank to go under in Florida this year.

The article on TampaBay.com’s blog, goes on to pose the question why should Floridians care? To which the author replies:

“Because tracking bank failures in Florida is a lot like taking the economic temperature of the state. We’re obviously on a much faster failure track this year than last, as suffering banks get closed more quickly as it becomes clear they cannot fix themselves in the latter days of this deep recession.”

Unfortunately for residents of the state, the author also speculates that more bank failures are going to come this year.

To get a better idea of the current state of the banking industry in Florida, tampabay.com composed a list showing the 18 Floridian banks which are still operating underecapitalized as of the end of the first quarter of 2010. This data is provided by SNL FInancial (Learn more about SNL Financial’s data here)

Bank of Florida – Southwest Naples
Peninsula Bank, Englewood
Bank of Florida – Southeast Fort Lauderdale
Wakulla Bank, Crawfordville
Sterling Bank, Lantana
Coastal Community Bank, Panama City
LandMark Bank of Florida, Sarasota
Oceanside Bank, Jacksonville Beach
Bank of Florida – Tampa Bay, Tampa
Old Harbor Bank, Clearwater
Turnberry Bank, Aventura
Putnam State Bank, Palatka
Horizon Bank, Bradenton
Olde Cypress Community Bank, Clewiston
Independent National Bank, Ocala
Haven Trust Bank Florida, Ponte Vedra Beach
Gulf State Community Bank, Carrabelle
Bayside Savings Bank, Port Saint Joe

Florida’s CD rates still remain strong compared to the national average, perhaps in an attempt to shore up more local funds.

Bank of America reports big first-quarter profit

Bank of America has proven to be amongst the winners of 2008′s bank collapse, reporting strong quarterly revenue growth yet again last week.  Although it still suffers losses from failed consumer loans it has managed to offset this with positive revenue from trading in securities including bonds, currencies and commodities.

In a recent Yahoo Finance article, Bank of America CEO, Brian Moynihan said, “the 2010 story appears to be one of continuing credit recovery, and our results reflect a gradually improving economy.”

If you happened to roll the dice with Bank of America last March (2009) by purchasing shares of their stock, you would have incurred gains of over 400% in one year’s time. Last spring B of A saw it’s shares drop to below $3.60 and at the end of the trading day Friday, they were sitting at $18.41 per share (although they dipped roughly 5.5% on that day).

Bank of America Facts:

- B of A’s earnings rose 0.7 percent to $2.83 billion from $2.81 billion a year earlier.

- They earned 28 cents per share after paying preferred dividends. That compared with 44 cents per share a year ago. Revenue totaled nearly $32 billion in the quarter.

- Bank of America set aside $9.8 billion to covered soured loans during the quarter, down 3 percent from $10.1 billion the previous quarter.

- Last Friday, Bank of America’s stock fell $1.07, or 5.5 percent, to $18.41 as the broader market also fell.

- Bank of America set aside less money for overall loan losses than in previous quarters, it increased the amount set aside for home mortgage loans, to $3.6 billion, as mortgage losses widened.

- The bank reported a $2.1 billion loss in its home mortgage business.

- It had income of $952 million for its credit card business, compared to a loss of $1.8 billion in the year-ago period.

- Bank of America reported that income from its global banking and markets business, which includes the Merrill Lynch investment banking operations, rose $709 million to $3.2 billion.

A suggestion to the banking industry: Eliminate the FDIC?

An interesting article was forwarded to us this weekend out of Yahoo’s financial section that was released last Friday. It’s titled “Five Suggestions for Banking Reform” and it’s written by Peter Atwater who spent 10 years building JPMorgan’s securitization business in the late 1980′s and early 1990′s.

As the title of his article suggests, he is lending his experience and wisdom to the banking industry by suggesting 5 major reform idea’s which he believes will help the industry grow in a healthy direction. And while all 5 of his suggestions deserve discussion, we would like to narrow in on one specific notion…

As he states, “at the risk of being bold, the time has come to eliminate FDIC insurance.” He goes on to explain that, “When the FDIC was created in the 1930s, it was intended to be a temporary solution. Today, it puts the US taxpayer on the hook for more than $7 trillion in bank liabilities. But as a consequence, depositor due diligence is non-existent. And putting Wall Street aside, this crisis has shown, even with specific oversight, hundreds of now-failed banks took excessive risk in their traditional banking businesses and their insured depositors neither cared nor were adversely impacted. Their risk was borne by the government, while they earned returns far in excess of comparable US Treasuries. If we’re truly going to eliminate “moral hazard”/”too big to fail” we must eliminate deposit insurance in the process.”

How would this effect deposit rates offered by the large banks? If Peter’s suggestion was put into action, would bank CD’s then be considered “risky” investments or would this motivate banking institutions to build a more trustworthy brand?

How much is the new Credit Card Law really helping you?

As you may or may not be aware – today, February 22, 2010, is the first day in which President Obama’s new credit card reform became active. During the past nine months of the run-up to this new law, credit card companies have been taking full advantage of their freedom. They were jacking up interest rates across the board (one card even carried any APY of 80%). They created new fees and cut credit lines from even the most established borrowers and they even closed down millions of accounts. But is the new law really going to change the way in which credit card companies do business for the better? A recent article on Yahoo Finance suggests new implementations (as well as old credit card tricks) made by the major credit card issuers may begin to become more prevelant as this new law sinks in…

Major Adjustments Made by Credit Card Issuers to Counter New Law:

(Further Reading @ Yahoo Finance)

1) Resurrected annual fees – Annual fees, common until about 10 years ago, have made a comeback. During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will start paying a $60 annual fee on April 1.

2) Created new fees and raised old ones – These include a $1 processing fee for paper statements for cards issued by stores such as Victoria’s Secret and Ann Taylor. Another example is a $19 inactivity fee Fifth Third Bank now charges customers who haven’t used their card for six months.

Other banks increased existing fees. JPMorgan Chase, for instance raised the cost of balance transfers from one card to another to 5 percent of the transfer from 3 percent.

3) Raised interest rates – The average rate offered for a new card climbed to 13.6 percent last week, from 10.7 percent during the same week a year ago, meaning cardholders are succumbing to an interest rate hike of nearly 30%.

Donate cash back from Discover credit cards to Haitian victims

Discover Bank is making a substantial effort to assist the victims of Haiti. Discover card holders may donate their cash back to the relief efforts in Haiti and Discover Bank will match every dollar donated.

Since Discover Bank started this support effort they have had plenty of support from card holders. Here is their message to those card holders who’ve donated and to those who are considering:

Discover is very grateful to Cardmembers for the compassion they’ve shown through their rapid response to relief efforts in Haiti. Thank you for helping to make a difference. In four days, you donated more than $1 million of your Cashback Bonus to the American Red Cross. Along with an initial contribution of $100,000, Discover is matching your donations dollar-for dollar, resulting in a combined donation of more than $2.1 million for Haiti relief. Those who wish to donate their cash back bonus to the American RedCross may do so without a matching contribution, or donate directly to charities supporting Haiti relief efforts.

Discover is also waiving merchant transaction fees for the following charities providing support to Haitian relief efforts.

Central Bank garners largest profit in 96-year history

This week the Federal Reserve reported astounding profit figures for 2009. According to the latest report conducted by Reuters, the Central Bank brought in an estimated $45 billion last year thanks to the aggressive purchasing of bonds, reduction of interest rates and stimulation of growth.

The Fed is funded through it’s own operations and returns it’s profits to the treasury and 2009 marks the largest profit posting year by the Central Bank in it’s 96 years of existence. The second largest return to the treasury happened in 2007, with $34.6 billion returned.

The article stated that, “By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier.” It continued on to claim that, “interest income on the investments was a major source of Fed profits.”

This news may seem contrary to our current recollection of the Central Bank’s status given the recent purchases of such failing financial institutions as Bear Sterns and AIG (American International Group), however the recent report claimed that the Fed received $4.7 billion in interest payments from the loans made to those institutions in 2009.

Monday Showdown: Obama vs. Big Banks

It appears that history is repeating itself when it comes to “wall street fat cats” and the banking industry’s exuberant bonus structure. While main street continues to suffer and unemployment remains at an insanely high 10%, big banks and financial giants are, once again, paying out outrageous sums to their corporate leaders. This time, however, President Obama hopes to do something about it.

In a recent CBS interview (shown below) the president says “people on Wall Street still don’t get it.”

Top executives from Goldman Sachs, JPMorgan Chase, Bank of America and Wells Fargo (among others) are expected to be in attendance during today’s meeting with the President. Although some executives from the banks are claiming this is simply a P.R. stunt postured by the white house, President Obama says he didn’t run for office “to be helping out a bunch of fat-cat bankers on Wall Street.”

An article released on Yahoo News today claims, “the President has real problems only the banks can help him solve. On jobs, housing and the strength of the economy, he needs bankers to change their behavior, and there’s only so much he can do to force them. So when he sits down with the financial industry Élite on Monday, he may talk tough, but he’ll also be asking for their help.”

Why does Obama need help from the banking industry?

For the economy to get back on track, the staggering unemployment figures need to dwindle. However, in order for this to happen increased lending from banks to small businesses needs to take place. And this is one of the messages Obama hopes to articulate to banking leaders today. 

“One of the main messages from this meeting is that the financial industry received extraordinary help from the government – and ultimately the taxpayer – and now the industry has an obligation to help the small-business owners,” says White House spokesperson Jen Psaki.

Will today’s meeting amount to any real change within the banking industry?

CIT Group files for chapter 11 bankruptcy

Well it officially happened on Sunday – CIT Group filed for chapter 11 in New York’s bankruptcy court in an apparent attempt to restructure it’s debt. CIT was pretty much forced into proceeding with the filing after a debt-exchange offer to bondholders failed. Along with the Leham Brothers, Washington Mutual and GM Motors this is one of the largest bankruptcy filings in US history. According to a recent Dallas News article, CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

However, while the image (above) may suggest otherwise, CIT group isn’t quite dead yet. A recent Yahoo Finance article states that the decision to proceed with the plan of reorganization will allow CIT to continue to provide funding to their small business and middle market customers, “two sectors that remain vitally important to the U.S. economy,” said Jeffrey M. Peek, chairman and CEO. Peek went on to state that he plans to step down at the end of the year.

The article also stated that CIT’s move will wipe out current holders of its common and preferred stock. This means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.

The following common stock holders stand to lose the entirety of their investment:

• FMR LLC of Boston with a 9.9 percent stake in CIT
• San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position

CIT was trading at $3.00 plus per share this summer (June), and closed last week at around $0.70 per share.