AMERICAN BANKER - ABA Economists: Recession to End in 3Q

WASHINGTON -- A three-year downturn in housing is ending and the U.S. economic recession will end in the third quarter, according to a forecast issued Tuesday by economic advisers to the American Bankers Association.

The group projected that inflation-adjusted gross domestic product will rebound, picking up to a pace in excess of 3% in the second half of the year, spurred in part by a recovery in the battered housing sector. It forecast a rise in home starts this year with home prices moving "modestly higher" next year.

However, the ABA's economic advisory committee predicted that credit would remain tight and warned that unemployment will continue to rise, peaking at a 10% rate in 2010.

"The economy will return to growth but not to health," said Bruce Kasman, chairman of the advisory committee and chief economist for JPMorgan Chase & Co.

On inflation, Kasman said the group sees core inflation moving down, falling to as low as 1% this year, which he said should keep the Federal Reserve from raising interest rates "for at least a year here."

"In our view, the Fed is not even thinking about making a move toward tightening," Kasman said at a press conference to discuss the forecast. The group said it doesn't expect a Fed rate hike until the third quarter of 2010.

Asked about a recent rise in long-term U.S. Treasury bond rates, Kasman said the movement has been severe but that the economic advisors think it isn't likely to continue. He attributed the rise to signs of an economic recovery, reducing the demand for government-backed debt.

"Our judgment is that real interest rates will stay low in this environment" though not as low as they have been, said Kasman.

AMERICAN BANKER - Banks Making a Science Out of Deposit-Gathering

As they fight harder for core deposits, many banks are honing their methods for targeting deposit-rich customers and jazzing up products to retain them.

Consultants and bankers alike say identifying the most profitable prospects has become even more necessary in an era of increasingly limited resources. Finding the most attractive customers, retail and commercial, is becoming more science than art, as banks go beyond traditional demographics such as age and socioeconomic status to identify the best marketing prospects.

"The focus is not doing a 'spray and pray' approach to deposit-gathering, but really having a targeted approach, so the results are much better," Betty Rengifo Tucker, an executive vice president at Comerica Inc., said this week during Retail Strategies: Deposit Growth, an American Banker online forum.

Seeking to lower funding costs and increase profits, banks are rediscovering old-fashioned research and face time. Comerica, for example, is going online to find cash-rich businesses that haven't been crippled by the economic downturn. The search engines help the Dallas company identify local trends at the same time it is training its bankers to sharpen their communication with clients and to get involved in civic activities, Tucker said.

More sophisticated prospecting methods are also in the mix. Bankers are looking beyond demographic data such as age or wealth, said David Tetenbaum, a managing vice president at First Manhattan Consulting Group in New York, in an interview. Some older people may not have saved a cent, and lot of wealthy people prefer to keep their cash in brokerage accounts versus checking accounts -- meaning mass marketing efforts to each of those demographic groups probably would be wasted.

Consequently, First Manhattan periodically conducts consumer research and combines its results with data provided by the credit bureau Experian Information Solutions Inc. to develop profiles. The firm identified the two that are most desirable for banks.

One is "self-directed diversifiers," those who prefer to use online banking, mobile banking or other alternative delivery channels, and who have high balances in checking accounts in addition to off-site brokerage accounts. The other is "conservative branch" customers, people with high deposit balances who prefer to use branches.

In both cases, typical household balances are more than $35,000, compared with typical balances of $5,000 for the other personality types, such as "insecure debt dependents," those who might use alternative channels but tend to have low balances in their accounts and rely on credit more.

Tad LeBlond, another First Manhattan managing vice president, said banks can market products suited to those personalities, such as premium checking for the self-directed diversified, certificates of deposit for the conservative branch customer and free checking to the insecure debt dependent.

Other products -- such as budgeting tools and reward programs for retail customers and online cash flow forecasting tools for businesses -- are getting spruced up to grab prospects' attention.

Dave DeFazio, a StrategyCorps LLC partner who spoke at the deposit growth forum, said banks are linking their checking account offerings to savings accounts, such as the "Way-2-Save" program that Wells Fargo & Co. inherited from Wachovia Corp.

Banks are using online budget tools, such as PNC Financial Services Group Inc.'s "Virtual Wallet,", which allows customers to funnel their money into buckets labeled spend, reserve and grow.Banks have also enhanced reward programs to prompt behavior that makes or saves money for the bank, such as increased debit card use or banking online, DeFazio said.

National City Corp. developed its "Points from National City" before PNC bought the Cleveland company last year. The reward program is not only intended to attract new customers, but also to get existing customers more "engaged," said Bill Stamp, a senior vice president who outlined the program at Tuesday's forum.

"The value of an engaged checking customer comes in the form of greater cross-sell, greater share of wallet, and a stickier relationship, which gives us a chance to pass the critical 'one-year hump,' " Stamp said.

To get the primary deposit relationship of a commercial customer, banks need strong cash management offerings, said Stephen Baird, a director at Novantas in New York.

Many banks have developed enhanced features for businesses, such as Bank of America Corp.'s "CashPro Accelerate," an online product to help its business customers better forecast their cash flows, Baird said.

And to bring in more deposits from retail and business customers, banks have to keep developing new products to catch their eye, said Aaron Fine, a partner in the retail and business banking practice at Oliver Wyman Group, a New York management consulting unit of Marsh & McLennan Cos.

"If they really want to accelerate deposit growth, banks have to innovate and deliver something that differentiates them."

He said many banks are focusing advertising on the most profitable 15% to 20% of potential customers.

AMERICAN BANKER - Consumer Protection Debate Pits Theory Against Record

WASHINGTON -- The drive to create a new consumer protection agency -- a key component of the Obama administration's regulatory restructuring plan -- will get its first test in a House hearing this week and has already sparked fierce debate.

The banking industry and its federal regulators oppose the plan, which would strip current agencies of their power to write and enforce rules related to consumer protection. They argue that safety and soundness and consumer protection are closely related and that separating them would be needlessly burdensome and expensive and could even threaten the industry's health.

"It'd be a disaster" to create a new consumer protection agency, said Nicholas J. Ketcha Jr., a managing director at FinPro and a former director of supervision for the Federal Deposit Insurance Corp. "When they separated the consumer compliance division from the bank supervision division, it just set up a dichotomy of examiners working against the interests of what's being done on either side."

But consumer advocates claim regulators have failed to adequately enforce consumer laws because compliance too often takes a back seat to safety and soundness concerns.

Even some former examiners agreed that safety and soundness and consumer protection could be handled by different people at different agencies.

"They are different skill sets," said Carmina Hughes, a former special counsel for enforcement and special investigations at the Federal Reserve Board and now an executive director of Daylight Forensic and Advisory LLC in Washington. "Consumer protection issues are much more bound by regulations; they're very specific programs. Whereas safety and soundness is a very broad concept."

Though the witness list was not public on Monday, the House Financial Services Committee is expected to collect testimony from both sides on Wednesday. None of the banking agencies would answer questions about the Obama proposal on the record for this story.

Emphasis on consumer compliance has waxed and waned depending on which political party was in charge of Congress and the White House, and how the banking industry was performing.

At the beginning of this decade, all four banking agencies had consumer protection and supervision divisions.

But shortly after President Bush took office, the FDIC and Office of Thrift Supervision combined those departments and began conducting joint examinations. The two agencies also adopted a "risk-based model" of supervision for compliance examinations. Previously, the agencies had randomly pulled loan files and tested them for compliance violations. Under the new system, the agencies interviewed senior bank officials to determine an institution's overall consumer protection strategy.

The move was popular with banks and was soon adopted by the Office of the Comptroller of the Currency. Only the Federal Reserve Board continued to keep supervision separate from consumer protection. Ironically, it is the Fed that has been the focus of criticism because it chose not to exercise its authority over unregulated mortgage players.

Some former regulators said the jobs should be separate but equal parts of the exam process.

"I favor carving consumer compliance out as a separate discipline but working hand-in-glove with the prudential examiners under the same supervisor," said Wayne Rushton, former chief national bank examiner at the OCC and now working at Promontory Financial Group.

Rushton said it would be a mistake, however, to create a new agency, calling it "a massive duplication of effort.

"I have seen it tried both ways, and when it is done right, it is always best to integrate it," he said.

Ellen Seidman, OTS director during the Clinton administration and now the director of the Financial Services and Education Project at the New America Foundation, argued for a compromise approach. She favored the creation of a separate consumer protection agency to set the rules and enforce them against nonbank lenders and mortgage brokers while leaving enforcement at financial institutions to the banking regulators.

Lawmakers could also require the banking agencies to pay more attention to consumer protection, she said, rather than just giving enforcement powers to the new agency.

She also advocates a safety-valve -- giving a consumer protection agency the power to step in at a bank if it feels the agencies are not adequately policing the issues.

"If this new regulator doesn't think the problem is dealt with by the other supervisor, then it can take action," said Seidman, who said she is scheduled to testify Wednesday.

If Obama prevails, and consumer protection and safety and soundness supervision are split up, questions remain about how conflicts between the banking agencies and a consumer regulator would be resolved.

Bert Ely, an independent analyst in Alexandria, Va., argued that such a situation could arise if the consumer protection agency is the primary enforcer of the Community Reinvestment Act, which many conservatives argue contributed to the financial crisis by encouraging lenders to make poor loans (a theory most regulators dispute).

"My concern is that serious conflicts could develop between the consumer protection agency and the safety and soundness regulators between the conflicting objectives of expanding credit availability on one hand and preserving safe banking practices on the other," said Ely. "You worry about the consumer protection regulator taking some sort of enforcement action against a bank even though the safety and soundness regulator would be opposed to the enforcement action."

Seidman agreed CRA enforcement should be left with the banking agencies.

"The CRA says the service must be consistent with safe and sound operations -- that's a reason to keep the CRA exam authority with the same entity that examines for safety and soundness," she said.

John Bley, a lawyer at Foster Pepper in Seattle and a former Washington state banking commissioner, said existing regulators remain better positioned to detect problems at banks. "Financial regulators with a safety and soundness background have an intimate knowledge of the operations of those organizations they regulate and the impact that over-aggressive regulation could have on that organization," he said.

Consumer advocates, however, argue that the financial crisis has demonstrated the need to be a separate agency with sufficient enforcement authority.

Safety and soundness examiners "are captured and that contributes to bad enforcement," said Ed Mierzwinksi, the director of the Public Interest Research Group. "By taking away the consumer job that they have not done, we're going to put it in an agency that will do it better."

AMERICAN BANKER - In B of A Gains Plan B Should Lewis Leave

Bank of America Corp. has a ready-made escape plan in case the board decides to discard Kenneth D. Lewis sooner rather than later.

Walter Massey, who became B of A's chairman after April's annual meeting, has been busy reconstituting the company's board, announcing six departures since the meeting and adding four experienced directors. Along the way, he has managed to recruit several directors who are capable of being the interim CEO in a pinch, observers said.

"Bank of America for the first time in years has a viable plan B," said D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "If they need to jettison Ken due to the political fallout, there is now a new course of action they could take."

That could put more pressure on Lewis, who has said publicly that he would like to remain CEO until either the financial crisis subsides or Bank of America integrates its purchases of Merrill Lynch & Co. Inc. and Countrywide Financial Corp. Many believe this time frame would put off his expected retirement until 2011.

Some observers have wondered what the company would do if Lewis left before then, either on his own or at the behest of institutional investors or regulators. Succession has been a concern at the company for years but may be less worrisome with the additions of D. Paul Jones Jr., William Boardman and Donald Powell to the board.

Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said the new directors "are all proven executives who could very well step in" on an interim basis. "There wouldn't be any permanency, but it gives them a decent fallback … so [that] Bank of America could further groom a permanent successor."

A spokesman for the $2.3 trillion-asset Charlotte company said he would not comment, and efforts to reach Massey were unsuccessful.

Succession speculation in recent years at Bank of America has involved a handful of Lewis lieutenants who have been placed in key managerial roles. Brian Moynihan has oversight of global corporate and investment banking, thus taking an integral role in the integration of Merrill. Barbara Desoer, who oversees insurance and mortgages, is doing the same with Countrywide.

Liam McGee, who has oversight of consumer and small-business banking, and chief financial officer Joe Price have also been mentioned as possible CEO candidates. Most believe that Lewis has been hesitant to make his intentions known until these candidates become more seasoned or one accomplishes something to stand out from the pack.

Jones, Boardman and Powell all offer an option should the board not want to wait for the internal candidates to be fully prepared, some observers said. Each has experience in running a financial company, though none has run a bank of B of A's size or complexity. Observers said the directors may make up for that with close ties to institutional investors, years of managerial experience and the luxury of having executives within B of A who can manage business lines for a short period.

Jones was the chairman and CEO of Compass Bancshares Inc. for 17 years before selling the Birmingham, Ala., company to Banco Bilbao Vizcaya Argentaria SA and retiring in 2007. Powell, a former chairman of the Federal Deposit Insurance Corp., also was president and CEO of First National Bank of Amarillo, Texas. Boardman retired as a vice chairman at the former Bank One Corp. in 2001 and stepped in as interim CEO at Visa International in 2004.

Control over the decision could be slipping away from Lewis with every major change in the board, notably shareholders' decision in April to strip him of the chairmanship. At that time the board "unanimously expressed its support" for Lewis' leadership, though observers said this may be less certain given the wave of director resignations that included last week's departures of retired General Tommy Franks and retired Admiral Joseph Prueher.

Paul Miller Jr., an analyst at Friedman, Billings, Ramsey & Co. Inc., said boards "are very unpredictable and the more new people that come on means less control for the CEO."

Though reluctant to forecast an imminent departure for Lewis, Miller said, "it should be difficult for him to stay around for three more years like he has wanted to. Everything has to work now, and he can't produce another hiccup" like the fourth quarter's large loss.

Observers also said they would pay rapt attention to Federal Reserve Board Chairman Ben Bernanke's testimony on Capitol Hill this week for any hints on where regulators stand on Lewis. The executive's relationship with regulators has been turned inside out by testimony he gave to New York Attorney General Anthony Cuomo, asserting that federal officials had threatened to remove him if he walked away from the Merrill acquisition. A House panel heard Lewis' version of the story last week and is scheduled to quiz Bernanke on Thursday.

"It seems to me that there are people in Washington that are still after Ken's head," said Gary Townsend, the CEO of Hill-Townsend Capital LLC. "That doesn't seem to change. He needs the support of his board, but the new members will need to get to know him first and hold off immediate judgment."

Not everyone is sold on the idea of pulling an interim successor from the board, noting that a director would have to willingly accept such a daunting role.

Betsy Graseck, an analyst at Morgan Stanley, said she doubts any of the new directors are eager to occupy the corporate suite. "They have people coming in with a rich amount of experience in banking and financial markets, but I don't think a managerial role is what they are signing up for by agreeing to join the board."

Townsend agreed that persuading Powell, Jones or Boardman to become CEO, even for a short term, could be a hard sell for Massey and the board. "The additions do create new options," but "is that what they really want to do?"

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AMERICAN BANKER - Lawmakers' Revamp Plan Getting Clear

WASHINGTON -- The future shape of the financial regulatory system became clearer Thursday as top Democrats outlined their priorities and Republicans united behind their own reform plan.

In an interview, House Financial Services Committee Chairman Barney Frank said he agreed with his GOP colleagues on three crucial measures: eliminating the Office of Thrift Supervision, limiting the emergency powers of the Federal Reserve Board and restricting the role of the credit rating agencies.

"Weakening the statutory power given to the rating agencies, I very much agree with that," Frank said in response to a Republican plan unveiled Thursday. "That is, various statutes say that various [entities] can't do things unless they hit certain ratings, and they want to repeal all that. I agree with that. The other thing we seem to agree on is abolishing the OTS."

Frank's comments came as Senate Banking Committee Chairman Chris Dodd said he was committed to creating an independent consumer protection agency that would be charged with regulating credit and bank products and guarding against predatory lending. In an unexpected twist, Dodd said the consumer regulator should be part of a proposed systemic risk council dedicated to evaluating potential problems at the largest institutions.

"I am committed to making this agency the centerpiece of my efforts as I work with President Obama and my colleagues to rebuild our financial architecture from the bottom up," Dodd said in a statement.

Though Dodd has indicated support for a systemic risk council and a consumer protection agency, he had not officially embraced either position until Thursday nor had he said they should be combined.

Frank has also endorsed the creation of a risk council and the new regulator, but both lawmakers left it unclear how a systemic risk council or consumer protection agency would work with existing agencies. The Obama administration is expected to unveil its regulatory revamping plan on June 17, and both a risk council and consumer protection agency are expected to be parts of it.

Republicans, meanwhile, were trying to get ahead of the issue by unveiling their proposal Thursday.

The Republican plan would strip much of the Fed's current authority, place all bank oversight under one regulator and preserve a bankruptcy process for nonbank institutions.

Instead of a systemic risk council, the GOP wants a less powerful "market stability and capital adequacy board." This board -- including the Treasury secretary, other federal agencies that regulate large companies and "outside experts" -- would report findings to regulators and other policymakers but lack enforcement authority over any company.

The Republicans warned that a powerful systemic-risk council would only produce more bailouts. "The Democrats' solution, as they've talked about, is to guarantee -- guarantee -- more bailouts through a systemic regulator," said Rep. Tom Price, R-Ga. "Their plan would establish a permanent bailout agency. The American people are sick and tired of bailouts, and so are we."

Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, said the plan has the backing of all House GOP members. In an effort to prevent further government interventions, the plan called for removing the Fed's power to provide aid, without Treasury approval, under its current "unusual and exigent" authority -- and giving Congress a chance to veto any intervention. The Republican plan would also block the central bank from using its emergency powers for a single institution.

"No more bailouts," Bachus said. "Has anyone missed that? No more bailouts."

The Fed could not "use its emergency authority to intervene on behalf of a specific institution," and "the powers [could] only be used to create liquidity facilities that would be broadly available to a market sector," according to GOP language about the plan circulating on Capitol Hill.

With little power to affect legislation in the House, the Republican plan's potential impact was unclear. Frank was explicit that much of the Republican plan was dead on arrival.

"It's basically a nonproposal. … On consumer protection they've got a 1-800 number," said the Massachusetts Democrat in the interview. "They don't do anything about systemic risk. They don't do anything about derivatives. They don't do anything about hedge funds. … And I don't agree with taking away the supervisory powers of the FDIC and the Federal Reserve."

Still, he agreed that the OTS is unnecessary, and he favored some limits on the Fed's emergency powers, granted under section 13-3 of the Federal Reserve Act.

"I do agree with some restraints of the 13-3 part," Frank said. "That is one where there is some common ground as well."

Unlike Republicans, however, the Democrats are committed to creating a resolution process for systemically important institutions, including nonbank companies. The Treasury has suggested giving such power to the FDIC. Frank said the unwinding or operation of a failed company would lie with the FDIC but said any decision would likely involve other regulators.

"What I think you are going to see is, the FDIC will be the shock troops, the ones who actually do it because they are the ones that have experience," he said. "The primary regulator would be involved with triggering it."

The creation of a federal insurance charter remains on the table, Frank said, but perhaps in a separate bill.

"The question now on the federal charter for insurance is a very important consideration," he said, "but it may not necessarily be a part of this."

Frank spent much of his day dealing with how executive compensation would be handled as part of regulatory restructuring. At a hearing on the topic, however, the same partisan lines evident in the reform debate overshadowed much of the compensation discussion.

Though Frank said he is committed to legislation giving shareholders a nonbinding vote on pay packages as well as a ensuring that compensation does not create an incentive for excessive risk-taking, Republicans said the government should not be setting such standards. "The solution to any concerns regarding executive compensation practices is for the shareholders to vote for a change in management or take their investment dollars elsewhere," said Rep. Jeb Hensarling, R-Texas.

Frank was supported by Gene Sperling, a top adviser to Treasury Secretary Tim Geithner, and representatives from the Securities and Exchange Commission and the Fed who said the goal is to ensure that compensation does not reward risks that harm the company.

AMERICAN BANKER - Payments Companies Seek Elusive Teen Purchases

Online payments systems providers are finding the lucrative teenage demographic harder than expected to crack.

IdeaEdge Inc. and ModaSolutions Corp. are two companies that have set their sights on teen spending, only to find that their online security approaches were, in effect, working too well and needed fine-tuning.

IdeaEdge introduced its BillMyParents service last month; using it, children select products online and send the bills to their parents for approval. But the company found out the hard way that some of its safeguards designed to ensure that children were actually billing their own parents alienated the kids themselves.

"Things have to be easy. Things have to be intuitive. Things have to work well," said Jim Collas, the San Diego company's president and chief executive.

Online merchants are watching, executives say. A viable payments system could generate significant sales gains beyond the current primary payment method, prepaid cards, as online socializing and general interactions rocket among youths.

Give teens money and they will spend it, Collas says. Research cited by IdeaEdge says the youth market accounted for more than $132 billion of spending in 2007, of which $40 billion was for products researched online and then bought in stores. About 40% of teens said that the lack of a credit card is the main reason they do not shop online.

ModaSolutions, an Ottawa provider, also had to adjust the security measures when it adapted its eBillme system to support online purchases by children. EBillme was designed to let online shoppers pay for purchases through their banks' online bill payment systems, but the system governing risk decisions required that the person initiating the purchase also control the associated bank account, according to Marwan Forzley, Moda's president and CEO.

"We had to adjust the risk management so that it does not throw this capability into exception," he said.

On the eBillme Teens service Moda introduced last month, the company's systems make separate risk assessments of the child and the adult. Even if the last names and addresses do not match, the system will approve the transaction if the child and adult are independently confirmed to be low risks, Forzley said.

The payoff, he said, is well worth the effort it took to rewrite the technology underlying eBillme. "Teenagers are incredibly good at lobbying their parents," he said, and online merchants are eager to gain a larger share of their allowance money.

Research cited by IdeaEdge says that the youth market accounted for more than $132 billion of spending in 2007, of which $40 billion was for products researched online and then bought at stores. About 40% of teens said that the lack of a credit card is the main reason they do not shop online.

Collas said that IdeaEdge has already adopted 30 tweaks of BillMyParents to make it more appealing to teens.

Among the most important adjustments were security procedures that could block a transaction. Children initiate purchases at e-commerce sites, generating a notification to their parents to log in to a BillMyParents account to review the items their child wants and fund the purchase with a payment card or by entering their own bank account details.

As part of this, children had to validate their own e-mail addresses, which they use to sign up for the BillMyParents system.

This turned out to be more than children were willing to do.

"Validating their e-mail address by going to their account and clicking on a link is something that they procrastinate on," Collas said. "We had a lot of pent-up requests to parents that weren't getting there."

Children still must validate their e-mail addresses at a later point, but procrastinating on doing so no longer puts the brakes on the transaction, he said.

Another security feature was a secret word that users would share with their parents to verify that the child, rather than imposters, had initiated the transaction. The system generated multiple-choice questions with five answers.

"Even though the process worked extremely well and was extremely safe, the perception with parents was: If there's only five words, how safe can it be?" Collas said.

Some parents would abandon the process at this point out of security concerns. "We ended up adding something that we thought would make them feel safer and made them feel less safe," he said. BillMyParents removed the secret word system, though it plans to reintroduce it.

Bruce Cundiff, a director of payments research and consulting at Javelin Strategy and Research in Pleasanton, Calif., said that young people already have access to prepaid cards, which are easily available and widely accepted.

IdeaEdge and ModaSolutions both say that their products let teens take the reins in the transaction, Cundiff said, but "you can get to that with prepaid."

However, he said, these new systems could gain ground online if they can help merchants streamline the payment process for teens.

The adjustments the providers are making are signs that they are "figuring it out as they go along," he said, but this is not a bad thing. "Obviously there are hiccups along the way," he said, "but I think that's the case with every payment method."

Several companies offer prepaid cards designed for children, including Visa Inc.'s Buxx product, which can be used online or in stores.

However, Hyung Choi, a senior business leader in Visa's prepaid division, said the Buxx card is "primarily used in the face-to-face environment" and the rising presence of the Internet in teens' lives has not changed this. This mirrors the spending habits of grown-ups, who also transact primarily offline, he said.

Clare Morgan, the vice president of marketing for the prepaid card company nFinanSe Inc., said, though most youth prepaid spending takes place offline, teens are still interested in using the cards online.

If her teenage son and his friends are any example, "they love having plastic in their wallet," she said. "It makes them feel so grown-up."

AMERICAN BANKER - Prescribing Simplicity in Regulatory Reform

WASHINGTON -- With the regulatory reform debate taking a leap forward this week, Thomas Hoenig, the president and chief executive of the Federal Reserve Bank of Kansas City, is advocating a more clear-cut world for financial services and those who supervise it.

"If I were heading regulatory reform, it would be under rules that are simple, understandable and enforceable," he said in an interview last week. "I don't like to think of it as going back to the good old days. I think of it as going back to prudence."

An example: strict loan-to-value ratios, enforced by examiners.

"If an examiner goes into an institution, whether it's the largest institution in this country or the smallest institution, and they have underwriting standards that have loan-to-value ratios at 100% or 90% or 125%, they are written up," he said.

"There is no negotiation."

Another: a ceiling on leverage.

"If I look to the past, prudence tells me that a leverage ratio that is 34 to 1, or actually 20 to 1 is too high, that the margin of error is so slim against the capital available to absorb the losses, that it is unacceptable," he said. "We have standards that were long based on a maximum of 12 to 1 or 13 to 1. Let's put that out there."

The Obama administration plans to roll out its prescription for revamping oversight on Wednesday. In addition to establishing the Fed as a systemic risk regulator and tightening supervision of nonbank institutions, the White House is also likely to broaden the Federal Deposit Insurance Corp.'s authority to take over and unwind troubled companies.

Hoenig agrees the resolution process is due for an overhaul. Reforms should minimize the risk of government intervention by putting shareholders on the hook for both current and future losses. The whole point is to prevent shareholders from being rewarded if the stock price rises after a government rescue, as it did in the case of Citigroup Inc., where shares now top $3.30 but were barely over $1 in March.

Under Hoenig's plan, if losses on writedowns and loan workouts prove greater than total equity, all shareholders would be wiped out. But, importantly, if losses did not overwhelm total equity, shareholders would still take a hit, because the government would exercise warrants. For instance, if a firm has $100 in total equity and experiences a $90 loss, the government would exercise 90% of its warrants, leaving shareholders with just 10% of their investment.

"We need to develop an orderly resolution process that allows these institutions to be accountable for their errors in judgment so the economy itself can renew," he said. Otherwise, "you create an oligarchy of financial power that is not good for an economy."

In an era where so many firms -- ranging from American International Group Inc. to Citi -- have been saved because they are considered vital to the overall economy, Hoenig looks back with envy at how regulators managed the failure of Continental Illinois in 1984 and says shareholders should shoulder some of the resolution costs.

"It was the seventh-largest institution in the country, had international influence and in a sense, I wish we'd have used that as a guide and modified or even improved it," he said. "You didn't just wipe out the stockholders at once. You put them in a position that all future losses as you put them into receivership were charged against them."

Hoenig envisions selling off the bad assets and private investors stepping up with capital.

"All bank holding companies would be subject to this approach," he said. "Then you could have a mechanism where the Treasury, the Federal Reserve and the FDIC come together on any other financial institution and make a judgment as to whether this is an institution that is systemically important but needs to fail and you take this bankruptcy approach to those institutions."

Hoenig is not opposed to returning to the days before the Gramm-Leach-Bliley Act of 1999 and a wall between commercial and investment banking.

"There would be some value in that," he said. The issue is "the amount of risk you can take on when you have a role in the payment system."

Still, he knows repealing Gramm-Leach-Bliley is politically unfeasible, and even colleagues at the Fed say resurrecting old barriers is not helpful.

As Fed Gov. Daniel Tarullo said in a speech last week, "Reform by nostalgia is not usually an effective approach, since it tends to forget the problems of the past and deny how much has changed."

Since the financial crisis emerged in August 2007, the Fed has introduced nearly a dozen separate lending programs to help financial institutions with liquidity. Hoenig is increasingly eager to phase out those programs.

"We really do need to think about how we would wind down, what the time frame is," he said.

Though Hoenig is not a voting member of the Fed's policymaking committee, which meets next week, he is worried the liquidity programs could fuel inflation.

"You have all this stimulus coming forward and a great deal of liquidity, and therefore, unless we are sensitive to that and think about withdrawing it in a timely fashion, we can be fairly confident that inflation will be the outcome."

Hoenig acknowledged the central bank will face political pressure to not take away the proverbial punch bowl too soon.

"I've always encountered resistance to a rate increase," he said. "There will be a lot of hesitancy to withdraw this when the time comes to do so. That's why you have an independent central bank."

Hoenig applauded early signs of optimism in the industry but said challenges remain, including exposure to commercial real estate.

"There's a greater degree of calmness. I think that's good … but we are hardly out of the woods yet, and I think we shouldn't forget that as we plan for the future."

AMERICAN BANKER - UnionBanCal Sends More Managers into Retail Trenches

In the latest makeover of its retail banking business, UnionBanCal Corp. of San Francisco has been putting managers much closer to the rank and file.

Under Tim Wennes, the former Countrywide Financial Corp. executive whom UnionBanCal hired in July of last year to head the retail business, the $68.7 billion-asset company has increased its roster of market presidents from three to five. Each president runs 70 branches, rather than 110 previously.

In addition, 30 regional managers now oversee a dozen branches each; a year ago 16 managers oversaw as many as 30 branches each.

"There's a huge change in the way we're managing the retail bank," said Philip Flynn, the vice chairman and chief operating officer of UnionBanCal and its Union Bank. "The big focus is to grow deposits," which rose 8% in the first quarter from a year earlier, to $48.9 billion.

Wennes was previously the president and chief operating officer at Countrywide's thrift, which eschewed traditional branch banking by offering high-interest deposits through low-cost channels like the Internet and the company's mortgage offices.

But before he joined Countrywide, Wennes worked for 14 years at Wells Fargo & Co., so his current job is a return to retail roots.

Increasing the number of top managers will create "more focus on the customer experience and the sales and service activities in our branches," Wennes said. "Our regional managers are able to be out in the branches more regularly and be closer to our bankers, our customers."

Dave Martin, a retail banking consultant at NCBS, a unit of SunTrust Banks Inc., said doubling the number of regional managers will mean "front-line folks who work with customers on a day-to-day basis are going to be heard more."

"You get less surprises that way," Martin said. "That being said, there is no magic about just having more people."

Flynn said UnionBanCal, a unit of Mitsubishi UFJ Financial Group Inc., has long been viewed as a business and commercial bank rather than a retail bank.

It has been trying to change that perception for years, and has fine-tuned its strategy a few times.

In 2004, UnionBanCal tested some elements of the model pioneered by Commerce Bancorp Inc. of Cherry Hill, N.J., by extending hours and adding televisions and coin counters in 26 branches in the Fresno market.

Three years later, UnionBanCal decided to narrow its retail efforts to focus on high-end customers and small businesses.

Today, UnionBanCal is "focused on serving everybody in the retail footprint, with an emphasis on areas where we can add value," Flynn said.

There is still "a lot of focus on the mass affluent … but with 350 branches, we do everything," he said.

The new retail management team, led by Wennes, is "bringing a much heavier emphasis on execution, the nuts and bolts of servicing customers well and cross-selling products," Flynn said.

In addition to Wennes, Union Bank also hired Pierre P. Habis, as head of branch banking and small-business banking in September 2008. He had been Countrywide's managing director of retail and commercial banking.

According to Flynn, Union Bank is the third-largest commercial bank in California by deposit share, behind Bank of America Corp. (which acquired Countrywide last year) and Wells Fargo.

Union Bank's commercial deposit business specializes in niche markets. It is the largest depository for title companies and has a large share of deposits from municipal and state governments, broker-dealers, grocery store chains and labor unions.

The real estate slump has hurt the title firms, and hence pinched Union Bank's commercial deposits.

In the first quarter its average no-interest deposits declined 1% from a year earlier, to $12.5 billion, as a drop in property sales reduced title and escrow deposits. However, average interest-bearing deposits climbed 10%, to $34 billion.

Union Bank is struggling with a ballooning portfolio of nonperforming commercial and industrial loans that analysts said resulted from a bad economy in the states where the bank operates: California, Oregon and Washington.

UnionBanCal lost $9.8 million last quarter after making $122.4 million a year earlier. The company's commercial and industrial nonperforming assets jumped fivefold in the first quarter, to $835 million, or 1.21% of total assets. Its commercial real estate and commercial and industrial nonperformers are evenly split.

"We and everybody are feeling the impact, because commercial real estate tends to be highly correlated to what's going on in unemployment," Flynn said. "It started 18 months ago with loans to real estate developers, but now the real estate downturn encompasses all classes, including real estate, office and industrial."

Analysts said that they have been surprised by the surge in problem loans given Union Bank's conservative underwriting guidelines, but that it has been aggressive in taking charges for nonperforming loans.

Net chargeoffs rose nearly tenfold in the first quarter, to $116 million, while the bank's provision for credit losses rose 243%, to $275 million.

"We've been significantly increasing our loan-loss reserves, but we haven't had a huge rise in losses," Flynn said. "Chargeoffs and losses are always at the tail end of these things."

AMERICAN BANKER - Who Will Be Hiring, Who Will Be Hired

No one doubts that banks will eventually start hiring once the industry climbs out of crisis and returns to sustained profitability.

But as with profits, hiring expectations are being scaled back.

Consultants predict staffing will not ramp up as quickly as in earlier rebounds, in large part because banks will still be watching expenses closely.

The hesitancy may be most noticeable on the front lines, in branches and in call centers, experts say. What short-term hiring that will occur will be in specialized positions such as business relationship managers or compliance officers.

Though relationship managers can usually pay for themselves in fairly short order after bringing over their books of business, a new army of tellers and call center employees may not result in higher revenues for a bank for some time, said Andrew Frisbie, a vice president at First Manhattan Consulting Group.

"Banks will be paying the expenses of putting folks back on incrementally, before actually enjoying the benefits of better sales, customer service experience and overall customer growth," Frisbie said. "There will be challenges for institutions to see if they can make staffing increases work while still fulfilling their capital requirements."

Right now most banking companies are not hiring, but nor are most of them laying off by the thousands as in the last 18 months. Nearly three-fourths (74%) of financial services providers expect their ranks to remain static next quarter, according to Manpower Inc.'s April poll of 2,006 banks, insurance companies, investment firms, credit agencies and other financial firms.

About 12% of respondents expect to hire in the quarter, and 10% expect staff reductions.

Robert Voth, a partner with the financial services practice at the executive search firm CTPartners, "you do want to run thin and mean for the next four to six quarters" to promote return on equity and efficiency, Voth said. "But that being said, it's a delicate dance between keeping the right level of staff and maintaining quality performance."

However, the trends need to be seen in a larger labor context, one economist said.

Brian J. Fabbri, the chief economist for North America at Paribas Corp., the U.S. unit of BNP Paribas, said in the longer term hiring in the bank sector still will seem brisk compared with the rest of corporate America, partly because of hires in specialty banking areas.

"Usually it takes a year or two after a recession to see any significant hiring, but we've seen nothing like this one," Fabbri said. "Businesses can only be cost-cutters with deflation because you can't raise prices. I don't think businesses are likely to hire permanent employees until 2011."

First Manhattan's Frisbie said one type of banking employee that might be in demand now as the economy shows signs of recovering is a business relationship manager. "A good business relationship manager, as they bring their book of business from other banks, can generally pay for themselves in a little over a year," Frisbie said.

Alan Mattei, a managing director at Novantas LLC, a New York consulting firm, said banks will also have to beef up their staff to resume many projects that were put on hold during the downturn, such as information technology professionals for system upgrades. They will also have to make sure they have enough staff for new priorities, such as compliance officers to handle a variety of new regulatory requirements, risk management professionals to develop updated models and marketing professionals to launch new products.

Ironically, some expertise may be hard to find. For example, there are not enough qualified compliance officers in the job market, according to executives at 2,000 companies polled last month by eFinancialCareers.

ANNOUNCEMENTS - KBW Announces Changes to Index

KBW Announces Changes to KBW Bank Index (BKX), KBW Insurance Index (KIX), and KBW Regional Banking Index (KRX)

NEW YORK--(BUSINESS WIRE)--Keefe, Bruyette & Woods, Inc., a full service investment bank that specializes in the financial services sector, and a wholly owned subsidiary of KBW, Inc. (NYSE: KBW), announced upcoming changes to the KBW Bank Index (BKXSM, ETF Symbol: KBESM), KBW Insurance Index (KIXSM, ETF Symbol: KIESM), and KBW Regional Banking Index (Index Symbol: KRXSM, ETF Symbol: KRESM).

Effective prior to the opening of business on Tuesday, June 30, 2009, the following companies will undergo a share increase to account for the successful completion of secondary stock offerings.

BKX/KBE

Marshall & Ilsley Corporation – MI 

KIX/KIE

Ameriprise Financial Inc. – AMP 

KRX/KRE

F.N.B. Corporation – FNB 
Pinnacle Financial Partners, Inc. – PNFP 

ANNOUNCEMENTS - Statement from Michael Calhoun, Center for Responsible Lending

"Today the Supreme Court announced a decision that will play a major role in how and whether consumer protection laws are enforced.  In Andrew Cuomo vs. the Clearing House Association and the Office of the Comptroller of the Currency (OCC), the court overturned lower court decisions, determining that states can enforce their own civil rights laws, including pursuing claims against national banks, when necessary, to ensure that banks follow the law.

This Supreme Court decision is a victory for taxpayers, who have suffered enormously as a result of abusive business practices in all types of lending.  This decision will help to restore confidence in the financial services industry and the national economy. 

Today's decision addressed only whether states could enforce their valid laws.  As Congress considers how to overhaul the federal regulation of financial products, it must determine whether Washington can override, and thereby nullify, state civil rights and consumer protection law.

One of the key lessons of today's financial crisis is that federal efforts to prevent abusive financial practices should complement, rather than supplant, state consumer protection and civil rights laws. Previously, many states tried to address dangerous lending practices by passing laws to address some of the most egregious abuses. But their efforts were thwarted by federal regulators, who argued that state consumer protection laws don't apply to federally-supervised banks. 

Any plan passed by Congress to fix our broken financial system should not strip the states' authority to address local issues and protect their own citizens, especially since lending practices are constantly evolving and can vary considerably by location.  Federal law should be a floor, not a ceiling, for preventing the type of discriminatory and reckless lending that triggered today's financial crisis."

BANKINSURANCE.COM - Banks' BOLI Assets Climb To $126.1 Billion

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 29 - JULY 5, 2009

Bank-owned life insurance (BOLI) assets held by U.S. bank holding companies (BHCs) and U.S. stand-alone banks rose 5% in 2008 to $126.1 billion, up from $120.4 billion in 2007 as BHC holdings increased 5.2% to $123.7 billion, enough to overcome a 5.3% slide in stand-alone bank holdings to $2.38 billion, according to the Michael White-Meyer-Chatfield BOLI Holdings Report.  Over 80% (81.2%) of large top-tier BHCs reported BOLI, while less than 30% (28.6%) of stand-alone banks reported BOLI holdings, the report shows.

The mean of BOLI assets as a percent of total capital at U.S. BHCs slipped to 13.37%, down from 13.74% in 2007, with BHCs with over $10 billion in assets recording the highest mean (18.8%).  The numbers meet federal regulators "prudent" assessment that depository institutions' BOLI assets (cash surrender values of life insurance) not exceed 25% of total capital, i.e., Tier 1 capital or the sum of Tier 1 capital and the allowance for loan and lease losses, according to the Michael White-Meyer-Chatfield BOLI Holdings Report. 

For more on the report, click here.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Conning Forecasts Net Statutory Operating Gain ...

...For Insurers In 2009

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 29 - JULY 5, 2009

Life insurers achieved an estimated statutory net loss of $51 billion in 2008, as their surplus and Asset Valuation Reserve (AVR) combined fell 13% to $273 billion, according to Hartford, CT-based Conning Research and Consulting.  The firm forecasts that realized and unrealized capital losses will continue to plague the life-annuity industry but expects insurers to show a net statutory operating gain in 2009, as they adjust to changing regulations and work to rebuild capital.  Conning projects that by 2011 consumer demand for estate planning, stable investments and protection will drive premium growth.  By then, Conning Research Director Stephen Christiansen said, "We project that surplus plus AVR will increase 23% to $337 billion."  To access Conning's "Life-Annuity Forecast & Analysis: Midyear 2009," click here.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - FDIC Slams AL Amerilife LLC With Fine...

…And Cease & Desist Order

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 22 - 28, 2009

The Federal Deposit Insurance Corporation (FDIC) has ordered Clearwater, FL-based AL Amerilife LLC, parent of Amerilife First Financial, to pay the FDIC a $100,000 civil penalty and cease and desist using FDIC symbols, misrepresenting its financial products as FDIC insured.  The FDIC said Amerilife, an insurance company, advertised with the FDIC logo above-market-rate certificates of deposits (CDs) in 80 newspapers nationwide, then attempted to sell uninsured annuities to respondents.  Customers who insisted on CDs were helped by Amerilife representatives to sign up for those products at a bank's website.  Then, Amerilife forwarded the consumer's check to the bank and added a bonus payment to produce the rate of return Amerilife had advertised for the CD.  The ads, however, misrepresented the actual terms and conditions under which the bank offered the FDIC-insured CD.  FDIC Board member Thomas Curry said, "The FDIC will pursue and stop these deceptive and damaging marketing practices."

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Lincoln Financial Group Plans Substantial Stock Offering

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 22 - 28, 2009

Philadelphia-based Lincoln Financial Group plans to offer $600 million in common shares and $500 million in senior debt on the open market and plans to sell $950 million in preferred stock to the U.S. Treasury under the Troubled Asset Relief Program (TARP).  (The U.S. Treasury earlier agreed to purchase up to $2.5 billion of Lincoln Financial's preferred shares.)  Lincoln said it will contribute about $1 billion of the proceeds to Lincoln National Life Insurance Co. and use the other $1 billion to repay debt and invest in its core businesses.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Lincoln National Vindicated:

Court Upholds Patent Infringement Ruling Against AEGON

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 29 - JULY 5, 2009

Philadelphia-based Lincoln National Life Insurance Company was upheld by the Federal District Court in Iowa in its patent infringement lawsuit against three AEGON U.S.A. companies: Transamerica Life Insurance Co., Transamerica Financial Life Insurance Co., and Western Reserve Life Assurance Co. of Ohio.  A jury had earlier (February 2009) decided that Lincoln National's patent for a computerized method for administering variable annuity products that combined guaranteed minimum payment features with systematic withdrawal programs was valid.  The Federal District Court agreed that the AEGON companies had infringed on Lincoln National's patent and that $13.1 million in damages was appropriate.  In addition, the judge entered an injunction against the companies enjoining them from using a computer to administer new or existing riders in any infringing manner.  The AEGON USA companies have initiated an appeal to the Federal Circuit Court of Appeals.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Obama Lays Out Plans For Reforming Regulation…

… Of U.S. Financial System

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 22 - 28, 2009

President Obama laid out his plans for regulatory reform of the U.S. financial system last week, including a proposal to eliminate thrift charters and the Office of Thrift Supervision (OTS) with a National Bank Supervisor assuming the current functions of the OTS and Office of the Comptroller of the Currency (OCC).  The Federal Reserve would supervise large, interconnected financial institutions, and a Financial Services Oversight Council chaired by the Treasury Secretary and including heads of the Federal Reserve, National Bank Supervisor, the to-be-formed Consumer Financial Protection Agency, Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), and the Federal Housing Finance Agency, would replace the President's Working Group on Financial Markets. 

For more on the plan, visit these sites:

White Paper: Financial Regulatory Reform

Fact sheets:

Requiring Strong Supervision And Appropriate Regulation Of All Financial Firms

Strengthening Regulation Of Core Markets And Market Infrastructure

Strengthening Consumer Protection

Providing The Government With Tools To Effectively Manage Failing Institutions

Providing The Government With Tools To Effectively Manage Failing Institutions

Improving International Regulatory Standards And Cooperation

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Prudential Will Sell Back Its Stake In Wells Fargo Advisors…

…To Wells Fargo

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 29 - JULY 5, 2009

Newark, NJ-based Prudential Financial announced it will exercise its "look-back" option and will sell its stake in Wells Fargo Advisors to Wells Fargo.  The cash, stock or cash and stock price will be based on the appraised value of the joint venture Prudential formed with Wachovia in 2003 and will not include the value of the AG Edwards business, which Wachovia purchased and merged into Wachovia Securities on January 1, 2008.  The appraised value will be based on the worth of the joint venture on that date.  Wells Fargo acquired the securities brokerage when it purchased Wachovia Corporation on December 31, 2008.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Sun Life Financial To Acquire Lincoln National UK

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 22 - 28, 2009

Toronto, Canada-based Sun Life Financial, through London-based SLF of Canada UK Limited, has agreed to acquire London-based Lincoln National UK from Philadelphia-based Lincoln Financial Group.  Both companies offer life insurance, pensions and annuities, but Lincoln UK's distribution relationship with Independent Financial Advisors is expected to expand Sun Life's opportunity to sell additional products.  SLF of Canada UK is expected to double its policies in force to 1.1 million and increase its assets under management by 60% to £10.6 billion ($17.39 billion), when the £195 million ($320 million) deal closes in the third quarter, pending regulatory approvals.

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

BANKINSURANCE.COM - Survey Reveals Global Dearth In Retirement Planning

BANKINSURANCE.COM - NEWS IN BRIEF - JUNE 22 - 28, 2009

Just over 10% (13%) of 15,000 people surveyed in 15 countries worldwide believe they are fully prepared for retirement, while an almost equal number (14%) say they had done no retirement planning at all, and 29% say they feel "fairly" unprepared for retirement.  Just over a quarter (27%) say they fully understand their long-term finances, but 86% say they do not know what income they will receive in retirement.  Not surprisingly, 47% say they have never received professional financial advice and 43% say they have never had any form of financial education, the Future of Retirement study conducted by HSBC Insurance shows.  HSBC Insurance Group Managing Director Clive Bannister said, "The report reveals a need for people to have access to more and better financial advice and guidance."

BankInsurance.com News in Brief' is provided each Thursday courtesy of Michael White Associates @ www.BankInsurance.com.

K@W - Obama's Regulatory Plan: Too Hot, Too Cold, or Just Right?

Five months into his administration, President Barack Obama on June 17 unveiled his complex, sweeping financial proposals to create a "21st century regulatory framework" for the U.S. The proposed regulations give the Federal Reserve more power to watch over Wall Street and also create a new agency to curb abuses by mortgage and credit card lenders. Wharton professors and other experts say that while the new framework does not hamper financial innovation, it is also "too timid" and fails to address serious problems.

LINK TO ARTICLE: http://knowledge.wharton.upenn.edu/article/2274.cfm

Reproduced with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania. All materials copyright of the Wharton School of the University of Pennsylvania. http://knowledge.wharton.upenn.edu

K@W - The New Role of Risk Management: Rebuilding the Model

Risk managers armed with the most sophisticated quantitative tools available did not foresee the biggest development in a generation -- the systematic breakdown and global contagion of financial markets. In an interview with Knowledge@Wharton, John Drzik, president and CEO of the Oliver Wyman Group, Richard J. Herring, a finance professor at Wharton, and Francis X. Diebold, a Wharton professor of economics, finance and statistics, discussed how to build a more informed risk management model. All three took part in the recent Wharton Financial Institutions Center and Oliver Wyman Institute 12th Annual Financial Risk Roundtable 2009.

LINK TO ARTICLE: http://knowledge.wharton.upenn.edu/article/2268.cfm

Reproduced with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania. All materials copyright of the Wharton School of the University of Pennsylvania. http://knowledge.wharton.upenn.edu

M&A - B of A and First Data Form Next-Generation Payment Solutions Company

Bank of America N.A. and First Data Corp. announced today the formation of a new company that will deliver next-generation payments solutions to merchants ranging from small business to commercial and corporate clients worldwide.

Banc of America Merchant Services, LLC will provide clients with the most comprehensive suite of innovative payments solutions including credit, debit and prepaid cards to merchant loyalty, check and eCommerce payments, the companies said.

LINK TO ARTICLE: http://news.moneycentral.msn.com/category/industryarticle.aspx?feed=PR&Date=20090629&ID=10084531&industry=IND_BANKING&isub=

MISCELLANEOUS - Bank Economists See Economy Returning to Growth

...but with Elevated Unemployment

The country's economic recession will end during the third quarter, but high unemployment and large federal deficits will linger, according to the Economic Advisory Committee (EAC) of the American Bankers Association.

"The economy will return to growth but not to health," said Bruce Kasman, committee chairman and chief economist for JP Morgan Chase, New York. "Growth in the coming quarters is likely to gather momentum but will not prove sufficiently robust to undo much of the severe damage done to our labor markets and public finances," he said.

LINK TO ARTICLE: http://www.aba.com/Pressrss/061609EACForecast.htm

REGULATORY - Legislation Addressing Retirement Income Needs Introduced In Senate

The American Council of Life Insurers (ACLI) applauds Sens. Kent Conrad (D-ND) and Pat Roberts (R-KS) for introducing on June 18 legislation that would help all Americans manage their retirement savings to last a lifetime.  

The Retirement Security for Life Act (S. 1297) would create tax incentives to encourage people to invest a portion of their retirement assets in an individual lifetime annuity, the only financial product that promises a lifetime income.

LINK TO ARTICLE: http://www.acli.com/ACLI/Newsroom/News+Releases/NR09-056.htm

RESEARCH - As Boomer Retirement Looms, the Need to Leverage Home Equity Grows

Report from MetLife Mature Market Institute® and National Council on Aging Recommends More Education for Using Home Equity and Reverse Mortgages in Retirement

WESTPORT, Conn.--(BUSINESS WIRE)--As today’s economic environment puts pressure on older homeowners to find new sources of retirement income and stretch their savings, growing numbers are starting to tap their housing wealth, using home-equity loans or reverse mortgages. However, with little guidance, they are often unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort. Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, issued today by the MetLife Mature Market Institute (MMI) and the National Council on Aging (NCOA), calls for a more comprehensive approach to ensure that this asset is used appropriately and effectively to deal with the growing uncertainties of retirement.

“There is no doubt that Americans should be more strategic about using home equity,” said Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute. “Retirees need a new framework for thinking about how home equity can help assure their financial security and enable them to age in place without fear of running out of money.”  

The full study, Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, and The Essentials: Reverse Mortgages, are available at www.maturemarketinstitute.com under “What’s New.” For more information about the MetLife Mature Market Institute, visit: www.maturemarketinstitute.com. 

RESEARCH - Bank BOLI Assets Exceed $126 Billion in 2008

According to Report Issed By Michael White and Meyer-Chatfield

FOR IMMEDIATE RELEASE – Radnor, PA, and Jenkintown, PA, June 23, 2009 – Large bank holding companies (BHCs) and stand-alone banks reported bank-owned life insurance (BOLI) assets of $126.1 billion in 2008, reflecting a 5.0% increase from $120.4 billion in 2007, according to the 2009 edition of the Michael White-Meyer-Chatfield BOLI Holdings Report™.  BOLI is used to recover the cost of supplemental employee health insurance benefits and to offset the liabilities of retirement benefits.

Compiled by Michael White Associates, LLC (MWA) and sponsored by Meyer-Chatfield, the Michael White-Meyer-Chatfield BOLI Holdings Report™ measures and benchmarks the cash surrender values (CSV) of life insurance held by BHCs and banks and the ratios of CSV to capital. The data in this report are submitted to regulators by 880 large top-tier BHCs with assets greater than $500 million and all 7,495 commercial banks and FDIC-supervised savings banks operating on December 31, 2008.

LINK TO ARTICLE: http://www.insurancenewsnet.com/article.asp?a=top_news&id=107342

RESEARCH - BIS Annual Report: Rescue, Recovery, Reform

– the narrow path ahead

In its 79th Annual Report, released today, the Bank for International Settlements (BIS) looks at the narrow path ahead leading out of the financial crisis. The Report underlines the need to focus clearly on the medium term and on sustainability when designing both macroeconomic and financial policy responses.

The crisis had both macroeconomic and microeconomic causes: large global imbalances; a protracted period of low real interest rates; distorted incentives; and an underappreciation of risk. There were market failures, and regulation failed to prevent the build-up of excessive leverage.

LINK TO ARTICLE: http://www.bis.org/press/p090629.htm

RESEARCH - Impact of Financial Crisis Poses Greatest Threat...

...To Insurance Industry - Ernst & Young Report Highlights Top 10 Risks For Insurers

NEW YORK, 23 JUNE 2009 - The impact of the financial crisis is the most significant risk facing the insurance industry, according to a new report by Ernst & Young. In the Second annual business risk report - insurance 2009, model risk and regulatory intervention rank second and third among the top ten risks.

"As a result of the current economic conditions, there have been significant changes in the risks since the release of our 2008 report," says Peter R. Porrino, Global Director of Insurance in Ernst & Young's Global Insurance Center. "As insurance companies continue to navigate their way through this downturn, they should be focusing on changing their approach to risk management, regulatory analysis and the communication of risk information."

The report identifies the top 10 business risks faced by the industry as ranked by more than 100 leading sector analysts.

LINK TO ARTICLE: http://www.insurancejournal.com/news/national/2009/06/23/101637.htm

RESEARCH - Study of Market Participants Shows Provider Stability…

…is key to outsourcing success, according to The Bank of New York Mellon

The Bank of New York Mellon, a global leader in asset management and securities servicing, surveyed over 200 participants at the Annual Global ABS Conference in London during June 2-3 2009, on the future and out look for the securitization markets, and the factors for future success of the market.

The survey, which encompassed nearly one tenth of the approximately 2,500 delegates at the conference, showed a number of interesting results, including that the role of the trustee has become more relevant to 83% of respondents.

LINK TO ARTICLE: http://bnymellon.mediaroom.com/index.php?s=43&item=770

STATS - Survey Reveals Long-Term Implications Of Mortgage Meltdown

Results May Indicate Reshaping of Americans’ Attitudes Toward Homeownership

Silver Spring, MD – In recognition of June as National Housing Month, the National Foundation for Credit Counseling (NFCC) has released the results of a recent housing survey which revealed that almost half of all American adults, more than 100 million people, no longer believe that homeownership is a realistic way to build wealth.  This is counter to the long-held belief that buying a home and building equity should be a major component of a person’s financial strategy.

Other findings from the survey were equally reflective of this new attitude toward homeownership:

•   Almost one-third of those surveyed, or roughly 72 million people, do not think they will ever be able to afford to buy a home;

•   Forty-two percent of those who once purchased a home, but no longer own it, do not thing they’ll ever be able to afford to buy another one;

•   Of those who still own a home, 31 percent do not think they’ll ever be able to buy another home (upgrade existing home, buy a vacation home, etc.); and

•   Seventy-four percent of those who have never purchased a home felt that they could benefit from first-time homebuyer education from a professional.

LINK TO ARTICLE: http://www.realestaterama.com/2009/06/23/survey-reveals-long-term-implications-of-mortgage-crisis-ID05578.html

STATS - Total Cost of Risk Plummeted in 2008

According to 2009 RIMS Benchmark Survey™ Book

Annual publication results help insurance buyers compare premiums, limits and retentions

NEW YORK (June 18, 2009) — Economic turmoil and the second worst year on record for insured natural catastrophe losses did not deter falling commercial insurance prices in 2008, according to the 2009 RIMS Benchmark Survey™ book, the annual guide to the cost of risk for commercial insureds in North America. Lower average premiums in almost every line of business contributed to a 9.4 percent drop in average total cost of risk (TCOR) per $1,000 of revenue.

The 2009 RIMS Benchmark Survey™ book enables risk managers to compare their TCOR to similar organizations and benchmark their insurance program limits and retentions based on data collected on more than 1,300 companies in the U.S. and Canada. The book is the annual print summary of the online RIMS Benchmark Survey™ that is updated daily. Data for the book was compiled and analyzed by Advisen Ltd. for the Risk and Insurance Management Society, Inc. (RIMS). The book is available for a fee of $750 and the online program for a fee of $2,500. Purchase orders are available at www.RIMS.org/book. RIMS members and survey data contributors receive special discounts.

LINK TO ARTICLE: http://www.rims.org/aboutRIMS/Newsroom/PressReleases/Pages/06_09BenchBook09.aspx

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