U.S. consumer sentiment fell in early November amid a grim outlook for future job prospects, although separate data showing rising imports in September raised some hopes of renewed U.S. economic growth.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for November fell to 66.0, the lowest level since August, from 70.6 in October. This was well below economists’ median expectation of a reading of 71.0, according to a Reuters poll.
“Importantly, the decline in confidence was already in place before the announced increase in the unemployment rate to 10.2 percent on November 6,” the Reuters/University of Michigan Surveys of Consumers said in a statement, adding “the likelihood that the sentiment index would drift even lower in the months ahead cannot be easily dismissed.”
Within the survey, the 12-month economic outlook fell to its lowest since April.
Separately, the government reported the U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the biggest monthly rise in 10 years, as oil prices rose for the seventh straight month and imports from China increased.
Adding urgency to talks President Barack Obama will have with Chinese leaders in coming days, the monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the U.S. Commerce Department said on Friday.
Wall Street analysts had expected the shortfall to grow modestly in September to around $31.65 billion.
Both U no credit check payday loan.S. exports and imports had their best month since December 2008. But in a sign of renewed U.S. economic growth, imports grew 5.8 percent in September, the biggest monthly gain since March 1993, while exports rose 2.9 percent.
Some analysts had expected more of an export boost because the drop in the value of the U.S. dollar against other major currencies makes American goods more competitive overseas.
But “the overall upturn in U.S. demand is trumping the fall of the dollar,” said Craig Peckham, an equity trading strategist with Jefferies and Company in New York.
Imports of industrial supplies and materials showed the biggest gain in September, suggesting that U.S. manufacturers are ramping up for production.
The average price for imported oil leapt to $68.17 per barrel and imports from the Organization of Petroleum Export Countries increased to $11.9 billion in September, both the highest since November 2008.
Another report showed U.S. import prices rose for the third straight month in October, pushed up by a jump in the cost of fuel imports and the depreciating dollar.
Import prices advanced 0.7 percent after a revised 0.2 percent increase in September, the Labor Department said.
The weak U.S. dollar is helping to lift U.S. exports, but at the same time, analysts cite it as a factor pushing up the price of oil and other commodities.
Efforts by US regulators to move privately traded derivatives to central clearing houses are unlikely to be a cure-all for the industry, and may increase systemic risk if exposures are dispersed among too many counterparties.
Regulators around the world are pushing for the majority of contracts in the $450 trillion over-the-counter derivatives markets to be cleared through central counterparties, as futures and options contracts have been for years, in order to reduce the systemic risk posed by the web of connections between large financial institutions.
If there are too many clearing houses though, regulators run the risk of increasing the systemic risk posed by OTC derivatives trading, said Darrell Duffie, professor of finance at Stanford University.
“A clearing house through its opportunity to net across many asset classes and dealers can lead to a very substantial reduction in risk and also a very big increase in efficiency,” Duffie said.
“However, that only works if you have very few clearing houses,” he said. “Many clearing houses could be very bad. You would have increased counterparty exposure and excessive use of collateral, with multiple points of failure. This could add systemic risk.”
Clearing the majority of derivatives through one counterparty is advantageous as market participants can offset all contracts in which they owe or are owed money against each other, a process known as netting.
The amount of collateral needed to back their exposures would also be radically reduced in this scenario.
Creating too many clearing houses, however, increases the amount of exposure a participant could have to a failed dealer, as it would be spread across several entities payday cash loans.
There are currently at least five clearing houses in the U.S. and Europe that clear or plan to clear credit default swaps, contracts that are used to insure against a borrower defaulting on their debt.
Other clearing houses clear, or plan to clear, other derivatives, including contracts in the $414 trillion OTC interest rate derivatives market.
REDUCING RISKS
Debate has increased recently over whether central clearing will successfully reduce risk posed by OTC derivatives, as some participants fret that difficulties in determining appropriate capital requirements for certain contracts could make concentrating exposures in clearing houses risky.
To some, CDS contracts are too risky in or outside of central counterparties.
David Einhorn, president of Greenlight Capital, said at a recent investment conference that CDSs cannot be made safer and should be banned, citing the “anti-social” incentives to let companies fail that may motivate protection holders who also own corporate debt.
“The reform proposal to create a CDS clearing house does nothing more than maintain private profits and socialized risks by moving the counterparty risk from the private sector to a newly created too-big-to-fail entity,” he said.
Five banks failed late Friday, bringing the 2009 tally to 120.
The biggest to fall was United Commercial Bank of San Francisco, which had 63 U.S. branches as well as operations in Hong Kong and Shanghai. The bank held deposits totaling $7.5 billion.
East West Bank of Pasadena, Calif., agreed to assume all of United Commercial’s domestic branches, as well as its international subsidiaries.
United Security Bank of Sparta, Ga., closed its doors for the last time on Friday. Moultrie, Ga.-based Ameris Bank will assume control of all United Security’s deposits.
Home Federal Savings Bank of Detroit also failed late friday. New Orleans-based Liberty Bank and Trust Co. will assume control of its deposits.
Prosperan Bank of Oakdale, Minn., failed and will be taken over by Grand Forks, N.D.-based Alerus Financial.
Gateway Bank of St. Louis, Mo., also failed. Central Bank of Kansas City will take over its deposits.
Customers of the failed banks are protected, however. The FDIC., which has insured bank deposits since the Great Depression, currently covers customer accounts up to $250,000.
Customers can access their money over the weekend by writing checks or using ATMs or debit cards. Checks will continue to be processed, and borrowers should make mortgage and loan payments as usual.
What happens to the banks. United Commercial’s failure will cost the FDIC’s Deposit Insurance Fund an estimated $1.4 billion. East West Bank paid the FDIC a premium of 1.1% for the right to assume United Commercial’s deposits, and the two organizations agreed to share losses on around $7.7 billion of the failed bank’s assets.
An average of 11 banks have failed per month this year, and the federal coffer is thinning under the massive strain. The fund now stands below $10 billion, down significantly from $45 billion a year ago bad credit payday advance.
When the FDIC factors in expected closures, the agency says the fund is in the red and will likely remain there through 2012. Bank failure costs are expected to total $100 billion over the next four years.
So far 2009 has seen more than four times the number that were closed in 2008. It’s the highest total since 1992, when 181 banks failed.
Ameris Bank will pay the FDIC a premium of 0.36% to take control of American United’s $150 million in deposits.
United Security had $157 million in assets, and the FDIC and Ameris entered into a loss-share transaction on $123 million of those assets. The agreement means Ameris will share in the losses on the assets covered.
The failure is expected to cost the Deposit Insurance Fund an estimated $58 million. The two branches of United Security will reopen Saturday as branches of Ameris.
Liberty Bank and Trust will assume Home Federal Savings Bank’s $14.9 million in assets and $12.8 million in deposits. The failure cost the FDIC fund $5.4 million. The two branches of Home Federal will reopen Saturday as branches of Liberty.
Alerus Financial will pay the FDIC a premium of 1.02% to take control of Prosperan’s $175.6 million in deposits. Prosperan had $199.5 million in assets, and the FDIC and Alerus entered into a loss-share transaction on $173.9 million of those assets.
The failure will cost the FDIC $60.1 million. The three branches of Prosperan will reopen Saturday as branches of Alerus.
Central Bank will assume Gateway Bank’s $27.7 million in assets and $27.9 million in deposits. The failure cost the FDIC fund $9.2 million. The single branch of Gateway will reopen Saturday as a branch of Central.
Opel’s top German labor leader said on Sunday he was willing to hold negotiations over a restructuring of the European carmaker under its parent General Motors so long as it gains greater independence.
Klaus Franz was shocked last week when GM’s board abruptly dropped plans to sell a 55 percent stake in Opel to auto parts maker Magna and its Russian bank partner Sberbank.
“GM does not enjoy any credibility or faith in the eyes of the public or the (German) government, so they have to consider whether they now want to seek confrontation or cooperation by finding a common solution,” Franz told Reuters on Sunday.
“To see whether they are interested in cooperation, we need to know whether they are willing to start off where we last stopped — namely, the degree of autonomy and freedom that was set in the contract with Magna and accepted by General Motors,” he said.
He said this was a clear condition for any talks. GM’s chief executive, Fritz Henderson, is due to travel to Opel’s headquarters in Ruesselsheim this week and is expected to discuss the decision with local management on Monday.
Following the sudden decision last week to drop the sale management scared unions by threatening Opel’s bankruptcy and its German boss Carl-Peter Forster left the company after attacking the board’s decision.
A newspaper report said on Sunday that Forster, a former BMW executive and son of a German diplomat who grew up in London, is now slated to take over as head of Indian group Tata Motors’ British carmaker Jaguar Land Rover.
Briton Nick Reilly, currently head of GM’s international operations, is now set to lead the reorganization of Opel, a person briefed on the plan told Reuters on Friday, with GM’s global marketing chief Bob Lutz to be Opel’s new chairman.
Lutz was quoted as saying on Sunday that GM would probably stick to a plan to slash fixed costs at Opel by nearly a third. “The restructuring plan developed at the end of last year is still the basis for a profitable business model. The plan foresees a 30 percent cut in structural costs,” he told Swiss newspaper Sonntag.
Meanwhile Magna’s top European executive, Siegfried Wolf, advised GM to give more freedom to Opel and tread carefully with regard to the brand.
“GM must now smooth things out and win back trust. That requires a lot of sensitivity and tact,” he was quoted as telling German newspaper Bild am Sonntag.
(Reporting by Christiaan Hetzner, additional reporting by Emma Thomasson in Zurich; Editing by Greg Mahlich)
Dow Chemical Co and Shenhua Group, China’s largest coal miner, will reportedly move ahead with their planned $10 billion coal-to-chemical project in Shaanxi province after a delay of at least one year.
Top executives from the companies, senior officials in Shaanxi province and representatives from the U.S. Embassy in China attended a cornerstone laying ceremony on November 3, the China Chemical Industry News reported on Thursday.
The Yulin project in northern Shaanxi aimed to install 23 units that include a 3.32 million tonne-per-year methanol facility for ethylene and propylene, which are used for making various plastics and chemical products.
“The feasibility study of the project has entered the stage of applying for an approval from the central government,” the newspaper said, citing an unnamed local government official advanced payday loan.
The feasibility study was previously planned to be completed in 2008.
An assistant president with Shenhua who is based in Beijing declined any knowledge of the project, and officials at Dow Chemical in China could not immediately be reached.
Dow sold off $3.4 billion in assets this year to boost its bottom line and reduce debt. The chemical firm also cut costs by laying off thousands of workers and shutting several plants.
Shenhua is the parent of Hong Kong-listed China Shenhua Energy.
(Reporting by Jim Bai and Chen Aizhu; Editing by Ken Wills)
Looks can be deceiving, especially in the credit card business.
Major card issuers Capital One (COF, Fortune 500) and American Express (AXP, Fortune 500) recently reported some of their best numbers in months and their stocks have soared. But analysts worry there are a whole host of problems that promise to fester for some time.
Experts argue that banks with big credit card businesses continue to face severe losses as the U.S. unemployment rate climbs towards 10%. And with more and more consumers falling behind on payments, there are concerns that losses for card issuers could worsen from here.
Recent projections published by Moody’s suggest that losses for the credit card industry will not peak until midway through next year, somewhere just north of 12%. (A good rule of thumb is that the level of credit card losses is usually about 1% higher than the unemployment rate.)
At the same time, consumers have increasingly shifted away from credit cards, instead opting to use debit cards for their everyday payments, notes Ted Landis, a senior executive in Accenture’s financial services industry group.
There is also the fast-approaching Credit CARD Act, a sweeping set of new government regulations for the industry that is poised to take effect in February.
Among other things, the new law would restrict the way credit card issuers raise fees and assess credit risk. Banks, as a result, would be left fighting over the most creditworthy of customers, notes John Stilmar, director of financial services equity research for SunTrust Robinson Humphrey.
Fighting back
Credit card companies have not taken any of this lying down, however.
To mitigate some of their losses, lenders have tried both individual and collective forbearance programs. Earlier this year, for example, a group of card issuers — including Citigroup (C, Fortune 500), Discover (DFS, Fortune 500) and Capital One (COF, Fortune 500) — launched a program called "Help With My Credit" for consumers struggling with their credit card payments.
Some banks have also looked to their debit card business for revenue growth or rolled out new offerings altogether. JPMorgan Chase, for example, recently introduced a whole new suite of credit cards targeted at wealthier customers.
But the most visible — and controversial — way that card companies have tried to counter rising losses is by raising rates on cardholders.
Between last December and July of this year, the 12 biggest credit card companies have raised the median annual rate by two percentage points or more, according to a recent study published by the Pew Charitable Trusts.
Those efforts have only intensified in recent months. Capital One, for example, swung to its first profit in a year last month, helped in large part by a massive "repricing" program of its cardholders.
Other issuers have tried cutting corners by either scaling back on rewards programs or instituting additional charges. Citigroup has already imposed annual fees on some of its existing cardholders, while Bank of America (BAC, Fortune 500) is planning on testing a similar program on a select group of customers starting next year, charging between $29 to $99 annually.
Little relief
Some analysts are arguing that those aggressive initiatives are doing more harm than good though.
With Americans up in arms, lawmakers have considered moving up the implementation of the CARD Act to December 1 or implementing a rate freeze until the new legislation takes effect.
At the same time, experts contend that sweeping interest rate increases are putting greater strain on the same consumers that are struggling to stay current on their bills — and hurting card issuers as a result.
"For all intensive purposes, some of those borrowers are getting pushed over the edge," said Stilmar.
Lenders could get a much-needed dose of good news later this week if the latest employment figures reveal a continued slowdown in the number of job losses. That could bolster the widespread view among analysts that credit card losses will peak sometime in 2010.
Still, that may do little to help ailing firms, especially if job growth doesn’t recover quickly, said Mike Taiano, an analyst with Sandler O’Neill.
"The question becomes how quickly can it [the unemployment rate] start to decline," he said. "And I think the jury is still out there."
Until an economic recovery seems sustainable, credit card companies will have little choice but to continue coping with life in a less-profitable, more highly regulated world.
The Securities and Exchange Commission is in settlement talks with several large financial institutions to resolve investigations into the awarding of municipal investment contracts, the Wall Street Journal reported on Saturday.
UBS and Bank of America Corp are among a few firms negotiating settlements with the SEC, the Journal said, citing people familiar with the matter.
The report comes after the three-year investigation led to indictments on Thursday against CDR Financial Products Inc and some of its current and former executives, for bid-rigging and fraud related to municipal bond contracts.
The charges were the first to be filed in the U.S. Justice Department’s ongoing investigation into bid-rigging in the municipal bond industry fast payday loan no faxing.
The SEC had no immediate comment on Saturday. Officials at the Justice Department, Bank of America and UBS could not immediately be reached for comment.
Bank of America entered into a leniency agreement with the Justice Department in connection with a probe into bidding practices, the bank said in February 2007. In a leniency agreement, the Justice Department promises not to bring criminal charges in exchange for the company’s information about wrongdoing.
(Reporting by Tiffany Wu and Rachelle Younglai; Editing by Eric Beech)
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