CAST SERVICE HIGHLIGHT

Non-Earning Asset Reduction

• Incomplete understanding of customer behavior related to various types of fees
• Misaligned product structures and incentives
• Insufficient tools for measuring and monitoring performance
• Limited understanding of competitive practices
• Inappropriate product structures and features
• Lack of product alignment across organizational silos
• Failure to actively manage the timing of fund inflows and outflows
• Ineffective procedures and policies

Why CAST for Non-Earning Asset Improvement 

• Extensive experience in Cash Management, Operations, Finance
• 15 year successful track record in non-earning asset optimization
• Proven tools for monitoring and measuring performance
• Database of non-earning asset best practices
• Knowledge of the inter-relationships of various insurance and financial service products
• Proven, fact-based approach to analysis and implementation
• Cross industry experience in non-earning asset improvement

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If you would like additional information, please contact Tom Vleisides at (213) 614-8066 ext. 244 or email tvleisides@castconsultants.com.

AMERICAN BANKER - Balancing Act: Need to Reserve, Need to Grow

Eventually banking companies will be able to ease off on reserving and send more of their revenue to the bottom line.

However, the challenge facing bankers in the second half of 2009 and early 2010 will be pinpointing the right time, balancing the expectations of investors and regulators.

Bankers face pressure to maintain reserves while charging off bad credits aggressively but also to press forward on restoring robust profitability.

"While issues in residential housing are declining, we still don”t know what will happen in commercial real estate and consumer portfolios," said Robert Patten, an analyst at Regions Financial Corp.”s Morgan Keegan & Co. Inc.

"So the emphasis is still on banks” building reserves to deal with issues, until the economy and job losses begin to stabilize," he said.

At the same time, observers are anticipating a peak in loss provisioning, said Gary Townsend, the chief executive of Hill-Townsend Capital LLC. "The burning issue from the standpoint of profitability and growth of earnings is whether provision expense will decline from here."

Experts debate how high reserving will go.

The median ratio of loan-loss reserves to total loans for the top 50 banking companies by assets was 2.26% in the second quarter, according to Patten. This was up from 1.83% in the first quarter and 1.34% a year earlier.

Reserve ratios were healthy, he said, but as nonperformers continue to rise, banks will probably increase their provisions to cover additional losses as they charge off more loans.

The median ratio of nonperformers plus 90-day delinquencies to total loans for the top 50 banking companies was 2.24% in the second quarter, Patten said, and the median ratio of chargeoffs to average loans was 1.84%.

Christopher Whalen, the managing director at Lord, Whalen LLC”s Institutional Risk Analytics, said that all of the large banking companies are trying to raise their loan-loss reserve ratios to at least 3% of total loans and that most should consider reserving even more as losses peak in coming quarters.

"Loss rates by the end of the year will hopefully peak," he said, "but they”ll be quite amazing."

Whalen estimated that chargeoffs could average 4.5% of total loans, well above the peak of about 3% during the downturn in 1991.

"Because loss rates are going to be so much higher than in past cycles, you”re going to have to see" reserve levels "pulled up to accommodate that," he said.

However, Patten contended that most banks really do not need to reserve much more than 3% of total loans because their pre-provision earning power is strong enough to handle increased costs.

"Margins are improving, deposit growth is robust, the cost of funds is low, the yield curve is steep -- and banks” improved earnings can help them cover the expense of their distorted credit costs," Patten said.

Bank of America Corp.”s second-quarter reserve and chargeoff ratios were 3.59% and 3.44%, respectively.

B of A”s chief executive, Kenneth Lewis, said in the company”s July 17 earnings call that chargeoffs would continue to trend upward for the remainder of the year, as late-stage delinquencies build up and economic pressures continue.

However, the pace should be slower than in the second quarter, so B of A will continue to reserve but probably not at the same levels as in the year”s first six months.

Likewise, Doyle Arnold, the chief financial officer at Zions Bancorp., said that provision and chargeoff levels at the Salt Lake City company would remain elevated in the third quarter, though probably less than the second-quarter reserve and chargeoff ratios of 3.01% and 3.3%, respectively.

"I know you would like me to be more precise than that," Arnold told analysts in the company”s July 20 earnings call.

"But quite frankly, we have countervailing indicators in the credit quality. It is very difficult to predict how it is going to model out in the next couple of quarters," he said.

AMERICAN BANKER - Bank of America Weaves New CEO Race

Even as Bank of America”s latest executive shuffle raised more questions about an already puzzling company, one thing did become clear: the hiring of former Citigroup Inc. executive Sallie Krawcheck and the abrupt departure of veteran Liam McGee has kicked off a five-candidate race to succeed president and chief executive Kenneth D. Lewis.

Brian Moynihan, who is replacing McGee as the head of consumer banking, is viewed by outsiders as the favorite to replace Lewis, due to the wide range of posts he has held since joining the company via its 2004 purchase of FleetBoston Financial Corp.

A source close to the company, meanwhile, said Krawcheck, who takes over Moynihan”s oversight of global wealth and investment management, will be considered, as will Thomas Montag, who will oversee corporate and investment banking. The other contenders are chief financial officer Joe Price, and Barbara Desoer, who runs insurance and mortgage banking.

Outsiders viewed the moves as an effort by the $2.3 trillion-asset Charlotte company”s board to move the company beyond the tumultuous period that followed its Jan. 1 purchase of Merrill Lynch & Co. The changes are not without risk and may leave investors wondering in the short term where the company is headed strategically.

"They”re trying to put the past behind them," said Nancy Bush of NAB Research LLC. "This is a transition to a new and improved Bank of America but we don”t really know what that means yet."

Bush said she has two reservations. She said Moynihan has never managed a retail bank, leaving her to wonder what changes he might make. Secondly, she noted that Krawcheck had long been associated with Citi and its Smith Barney unit, which could create friction between her and the brokerage ranks at the former Merrill.

Krawcheck, whose hiring B of A announced Monday, stepped down late last year as the head of Citigroup Inc.”s wealth management unit. While at Citi, she had stints running Smith Barney and serving as Citi”s chief financial officer.

Lewis has repeatedly expressed a desire to remain at the helm for at least two years to shepherd the company through recovery. Some analysts are becoming convinced that Lewis” departure is drawing near and a few, who asked not to be named, said it could be as soon as year-end.

Robert Stickler, a Bank of America spokesman, said the shake-up in the corporate suite followed a review of management led by Lewis and the board. "We”re looking forward to post-recession and our opportunity there," Sticker added. Though scant on details, he said Moynihan may look at ways to "reengineer" businesses such as credit cards and deposit gathering. Moynihan has never run a consumer operation, but "he is great at looking at businesses and finding out what makes them tick."

Stickler said none of the executives were available for comment.

A source close to the company said McGee, once viewed as vying for Lewis” job, decided to leave after realizing he would have a better chance of running a company by leaving Bank of America.

B of A has gone through four chief financial officers in the last five years. The company this year named a new general counsel and chief risk officer. It also moved Moynihan and Neil Cotty to new posts only to return them to their previous jobs a few months later.

In another sign Bank of America wants to quickly put the past behind it, the company agreed on Monday to pay $33 million to settle charges that it made false and misleading statements to investors about bonuses at Merrill.

The Securities and Exchange Commission said that it had charged the company for claiming in proxy materials that Merrill had agreed not to pay performance bonuses before the deal was completed. The SEC claimed that B of A had "already contractually authorized" Merrill to pay up to $5.8 billion in discretionary bonuses. Merrill eventually paid $3.6 billion in bonuses.

AMERICAN BANKER - Bankers Split on an FDIC Guarantee Extension

Non-interest bearing deposit account coverage set to expire at yearend

WASHINGTON -- Whether a banker wants the Federal Deposit Insurance Corp. to extend its blanket guarantee for non-interest-bearing deposits turns mainly on his view of the economy.

JPMorgan Chase & Co., Wells Fargo & Co. and BB&T Corp. all oppose an extension beyond yearend, arguing the need for the Transaction Account Guarantee Program has faded.

"Conditions in the financial industry have improved significantly since the introduction of the" program last October, Donna Goodrich, a senior executive vice president at BB&T told the FDIC in a letter. "Financial institutions are now able to access the capital markets to issue both debt and equity. These are positive signs that public confidence in the financial services has been restored."

But other institutions, particularly banks in areas hard hit by failures, warned that depositors remain nervous and TAG is still needed.

"The client-base sensitivity to insured deposits is extreme," Chad Bense, a vice president at $165 million-asset Minnesota National Bank, wrote in a letter. "The environment created warrants the continuation of the program beyond 2009."

Chris Cole, a senior regulatory counsel for the Independent Community Bankers of America, urged the FDIC to go beyond the six-month extension it proposed.

"Particularly in those areas of the country like Georgia, Florida, California and the Southwest, it is very important that this program continue an additional 12 months to allow additional time for those areas to stabilize," Cole wrote.

The American Bankers Association did not go that far. It supported a six-month extension, and noted that many banks will not view opting out as an option. "Many banks chose to participate originally because they were concerned that to opt out would put them at a competitive disadvantage," wrote Robert W. Strand, a senior economist with the ABA. "This pressure does not disappear, and at 25 basis points would represent a high cost for some institutions."

The TAG program, launched in October 2008, provides unlimited deposit insurance for certain transaction accounts that do not bear interest. The coverage has been widely popular; as of May, only about 1,100 institutions had opted out. The benefit is intended mostly for accounts that business customers use to pay their employees and other expenses.

In June, the agency proposed two options: let the program expire at yearend or extend it for six months and raise the premium rates charged for the insurance to 25 basis points from 10.

"Twenty-five basis points is a nonstarter for most institutions," James Chessen, the ABA”s chief economist, said in an interview. "Something closer to 10 -- perhaps even 15 -- might draw broader participation."

A related program that allows institutions to pay the FDIC to guarantee their senior debt has already been extended for four months, until Oct. 31. But it has not imposed any costs on the agency; in June the FDIC reported that it had paid out $840 million to honor the deposit guarantees, while collecting only $700 million in fees.

Some banks are arguing for a longer extension than six months.

"I am writing to … request that the TAG Program be extended indefinitely under its current structure," wrote Ronald D. Paul, the chairman of $1.5 billion-asset EagleBank in Bethesda, Md., in a July 13 letter.

SunTrust Banks Inc., meanwhile, suggested a more gradual wind-down.

"The concern with either of the FDIC”s proposed alternatives is that they each create a potential “cliff event” for both financial institutions and depositors of relatively large balances," Mark A. Chancy, SunTrust”s chief financial officer, wrote in a July 24 letter. For those depositors, he said, "a graduated scale back is needed to provide them assurance that their deposits are safe."

Chancy proposed that the amount of the guarantee drop by intervals every year starting Jan. 1. At the beginning of 2010, the FDIC would guarantee balances up to $5 million. It would then step down to $2.5 million in 2011, $1 million in 2012 and between $250,000 and $999,999 in 2013. No extra coverage would be available in 2014.

But other bankers said the sooner the program ends, the better.

"Weaker banks that may urge extension of the TAG program in order to shore up customer deposit balances, do so at the expense of safer, more risk-averse financial institutions," wrote James E. Shreiner, senior executive vice president at Fulton Financial Corp. in Lancaster, Pa., which owns community institutions in the Middle Atlantic region and the $8 billion-asset Fulton Bank.

Some opponents suggested that maintaining the program posed a competitive problem if their rivals, who may be in a weaker liquidity position, chose to stay in the program. (Under the FDIC plan, if the agency chose to extend the coverage, banks now participating in the program would have a one-time window to opt out.)

"The overriding theme to our opposition is that our participation in the TAG program came, not from need, but from competitive pressure," wrote Jeff Asher, a senior vice president at $9.7 billion-asset FirstBank Holding Co. in Lakewood, Colo., which owns institutions throughout the state.

The "increased fees" with an extension "are particularly distasteful in this light," he added.

While the 85 comment letters filed on the question did not break down cleanly as big versus small banks, Frank Bonaventure Jr., a principal at the Ober Kaler law firm in Baltimore, said many small institutions are arguing for an extension of this program as an offset to the perception that large banks are viewed as safer because of their size.

"The smaller banks are feeling that they need whatever protections they can get to maintain public confidence," Bonaventure, a former senior counsel at the Office of the Comptroller of the Currency, said in an interview. "The larger banks probably feel: We”re over that hump. We”ve gone though the stress analysis, and we”re fine. … Why have extra costs, which is what this is all about?"

Large banks that favor an extension include SunTrust, Regions Financial Corp. and U.S. Bancorp.

"We are supportive of the extension of the program to June 30, 2010, but suggest a declaration that this will be the last extension," wrote Kenneth D. Nelson, executive vice president and treasurer for U.S. Bank.

"It really has nothing to do with big versus small," said a large-bank source. "It more has to do with: Where are we in this crisis?"

AMERICAN BANKER - Big-Bank Cutbacks Hit Tech Vendors

Don”t expect to see too many major technology projects at big banks until sometime next year.

The top three financial tech vendors all say that big-bank spending remains largely on hold, unless the investment is absolutely necessary or can generate an immediate return. And though Fiserv Inc., Fidelity National Information Services Inc. and Metavante Technologies Inc. all reported solid earnings in the past week, the gains came largely from cost-cutting efforts rather than new business.

Banks "are not spending a lot right now," Lee Kennedy, Fidelity”s president and chief executive, said during a conference call Tuesday to discuss the vendor”s second-quarter results. "Everything we have seen in our conversations with our top-tier banks is that sometime toward the end of the year, as we roll into next year, we will see an improvement."

Michael D. Hayford, Metavante”s president and chief operating officer, said technology is still a low priority at many companies. "Banks are very, very focused on capital right now and capital preservation," with many spending only where they are confident of a significant return on their investments, Hayford told analysts last week.

Jeffery W. Yabuki, Fiserv”s president and CEO, said that bankers have begun talking more about future plans but these conversations are still very preliminary. "Although there is a sense that the sector outlook has started to stabilize, we do not yet see that headline turning into any material change in current-year buying behaviors," he told analysts Wednesday. "We are not planning for the economy to get materially better until the end of 2010."

Big banks sharply cut their spending last year as the financial crisis took hold, prompting all three vendors to tighten their belts this year.

John Kraft, an analyst at D.A. Davidson & Co., said that strategy paid off in the second quarter. "Cost discipline for all these guys was really the story," he said. "Nobody is claiming business is improving. We”re just bouncing along the bottom. Things don”t seem to be getting worse."

Revenue dropped at Fiserv and Fidelity and rose only slightly at Metavante.

David Koning, an analyst at Robert W. Baird & Co., said that all three derive much of their top line from ongoing contracts to provide core processing and payments services to small and midsize banks. Those deals continue to deliver a steady stream of service fees, which is important, but the dearth of software deals with big banks held back revenue growth.

"Even struggling banks that are undergoing regulatory actions are still paying their bills to Fiserv, Fidelity and Metavante because they have to, to survive," Koning said. "Even after the FDIC takes over a bank, they still have to maintain their operations."

To be sure, tech spending has not dried up completely. Small banks, especially those that managed to keep their balance sheets relatively clean and have escaped the worst of the meltdown, have continued to invest in new technology. In past quarters the top vendors have taken pains to note that they were continuing to land new contracts from this group.

Kraft said that remains the pattern. "It”s becoming more clear that generally speaking, it”s the bigger banks that are delaying their spending decisions," Kraft said. "They still seem to be signing deals with the smaller banks."

He also said that the vendors might have additional growth in the next few quarters as more banks decide to outsource more of their operations. "There”s an increasing propensity for banks to want to outsource rather than to do things internally, and that is being accelerated because of the current environment," he said. "They”ve got other priorities right now."

The vendors have managed to close a few major deals in recent months.

Fiserv, of Brookfield, Wis., used its earnings report to announce that PNC Financial Services Group Inc. had agreed to convert National City Corp.”s online bill-payment service to Fiserv”s, making the Pittsburgh banking company one of Fiserv”s top five bill-pay customers. Yabuki said the conversion should start before the end of the year. PNC acquired National City, of Cleveland, last year.

Overall, Yabuki said, the bill-payment service that the company acquired with CheckFree Corp. signed 102 new clients in the quarter, 40% of which were competitive takeaways.

Fiserv said its net income in the second quarter jumped 40%, to $140 million, or 90 cents a share, from the year-earlier quarter. Revenue fell 20%, to $1.03 billion, partly as a result of the April 2008 sale of Fiserv”s insurance division.

Fiserv”s adjusted earnings from continuing operations, also 90 cents, topped the 88 cents per share that analysts had expected, but revenue missed their $1.04 average estimate.

Hayford said that Metavante, of Milwaukee, also had some key wins as banks tried to improve their competitive position.

"Image is a great example where we actually had a couple of deals that moved this year that hadn”t moved last year, simply because the ROI is so compelling that they were able to get it through their committee."

Other banks are making investments to position themselves for the economic upturn, he said.

"So I”d say those are the two predominant things -- it”s using those dollars wisely and getting quick returns, or looking on at a more strategic investment and looking at how they can come out of this economic climate and take advantage of it," he said.

Metavante said its net income grew 41% from a year earlier, to $51.9 million, or 43 cents a share. Revenue grew 4%, to $440.3 million.

Cash earnings, its preferred measure of operating results, were 48 cents a share; Wall Street analysts had expected 40 cents a share on revenue of $432.9 million.

It also raised its guidance for the rest of the year, though it is not likely to report full-year results before its sale to Fidelity closes.

Fidelity, of Jacksonville, said its net earnings fell 18% year over year, to $59.6 million. Revenue dropped 4%, to $834.8 million.

But its adjusted net earnings, the number that Wall Street watches, grew 24%, to 42 cents a share. Analysts, on average, had anticipated earnings of 36 cents a share on revenue of $838.3 million.

Fidelity also raised its guidance and said the Metavante deal is on track to close in the fourth quarter. It now expects net earnings of $1.71 to $1.75 a share this year

AMERICAN BANKER - Dark-Horse Prospect Adds Twist To Fed Race

WASHINGTON -- While Lawrence Summers, the director of the National Economic Council, is the most visible potential successor to Federal Reserve Board Chairman Ben Bernanke, observers are increasingly looking west and finding a dark-horse candidate in Janet Yellen.

The president of the Federal Reserve Bank of San Francisco, Yellen is a well-respected economist who has served as a governor of the central bank, head of the Council of Economic Advisors under President Clinton, and would be the first woman to chair the Fed. Though it is unclear if President Obama will choose to keep Bernanke, Yellen”s name is gaining traction as a possible alternative.

"If President Obama elects to choose someone else, I think Janet Yellen would be a very good candidate," said Sung Won Sohn, a lecturer in business and economics at California State University Channel Islands. "She would definitely be less controversial than Larry Summers. It”s no secret that he has some what you might call detractors, especially on Capitol Hill."

The San Francisco Fed declined to make Yellen available for an interview, but in conversations with numerous former colleagues and associates, many of whom requested anonymity because of the sensitivity of the topic, Yellen was invariably described as "articulate" and "not in your face."

In other words, the exact opposite of Summers, who has a history of alienating colleagues, most notably when he had to resign the presidency of Harvard University after making comments perceived as disparaging to women. Beyond Summers and Yellen, other potential candidates to lead the Fed include Alan Blinder, the former vice chairman of the central bank, who is well regarded in Democratic circles.

But Yellen is a unique figure inside the central bank. She is the only current president of a regional Fed bank who has also worked as a Fed governor in Washington (from 1994 through 1997). She left the central bank to become the chairman of the Council of Economic Advisers under President Clinton. Yellen has also been on the faculty of the University of California at Berkeley since 1980, teaching economics.

"Just looking at her background, she”s a top-notch economist," said Mary Pugh, the president and chief investment officer of Pugh Capital Management Inc. and a former board member of the Seattle branch of the San Francisco Fed. "I don”t know anyone that has better credentials."

Bernanke”s term as chairman is set to expire on Jan. 31, 2010, and whether Obama will seek to replace him remains unknown. Obama has praised the Fed chief”s handling of the financial crisis but remains mum on whether he would reappoint him to another four-year term.

Some have viewed the Fed”s recent hiring of Linda Robertson, a close associate to Summers during his Treasury days, to run the central bank”s congressional relations, as a sign that Obama may replace Bernanke. But with initial signs of improvement in the economy, Bernanke”s shot at reappointment is looking better, according to some Fed watchers.

"I would put the odds at somewhere close to 75%," said Chris Low, the chief economist at First Horizon National Corp.”s FTN Financial.

Still, he added that those odds are rather low compared with previous renominations.

"At this point, when [former Fed Chairman Alan] Greenspan was there, first under Clinton and then under Bush, we already knew he would be reappointed," Low said. The odds "should be higher, at least by the standards of the past 20 years."

As the San Francisco Fed president since 2004, Yellen has focused mostly on macroeconomics. But she addressed banking issues in a speech last month to the Idaho Bankers Association, where she urged financial institutions to conduct tougher stress tests and noted the pressures faced by community banks.

She also said that consumer protection is an "area where our current system failed."

"Given what we”ve learned about the pernicious effects of consumer loan defaults on the banking sector and the economy, it”s critical that we strengthen our regulation and supervision in this area for both bank and nonbank financial players," she said.

Those who have worked with Yellen say she is more favorable to regulation than most other Fed officials, who traditionally are reluctant to interfere with the markets.

"The philosophical hurdles you”d have to pass are lower with her than others," a former Fed staffer said. "She was a standard Democrat. She said “sometimes markets aren”t always right. Sometimes you have to regulate.” "

The same staffer remembered at least two occasions when Yellen expressed a stronger desire to regulate than her counterparts. The first instance came in 2005 and 2006 when federal regulators issued guidance seeking to tighten the reins on banks” management of their commercial real estate exposure, a move the industry fought.

"Of the presidents, she was the most vocal in saying we should put this policy in place," the staffer said. "She clearly saw the need for some supervisory guidance. She said, “Hasn”t this been a big problem in the past?” "

She was also supportive during the same period as the banking agencies prepared guidance to restrict the use of nontraditional mortgages.

"Janet, to her credit, was very supportive, whereas some folks in the Fed were quite skeptical," the staffer said.

Richard Decker, the chairman of Belvedere Capital Partners, who was on the search committee that brought Yellen to the San Francisco Fed, said she pushed for the central bank to look beyond its traditional bailiwick.

"It seemed that Janet thought there should be more understanding of the things outside the Fed”s purview, whether it be mortgages, derivatives or private equity," Decker said. "She didn”t voice an opinion on it, but it seemed that she felt that the regulators should have a knowledge of those types of areas as they make monetary policy."

That stance often put her at odds with Greenspan, who led the Fed during her time as a governor, and often questioned the need for regulation.

Yellen "gravitated toward issues like [the Community Reinvestment Act] and consumer protection," said Eugene Ludwig, the chief executive of Promontory Financial Group, whose tenure as Comptroller of the Currency overlapped with Yellen”s years as a governor. "She was also one who believed that markets work better with some degree of regulation. That skepticism put her in contrast to Alan Greenspan, who was the quintessential free marketeer."

Given that background, consumer advocates, who have long criticized the Fed for its regulatory laxity, expressed enthusiasm for Yellen”s candidacy.

"She would use her bully pulpit more to incent positive corporate behavior," said Robert Gnaizda, of counsel for the Black Economic Council. "Greenspan was unwilling to do so."

Yellen”s potential move to Washington comes as Congress has grown increasingly perplexed at the sometimes bizarre structure of the 12 regional Fed banks. Lawmakers, including House Financial Services Committee Chairman Barney Frank, have questioned whether conflicts of interest arise at the regional Fed banks, which supervise financial institutions in their districts but include financial services leaders on their boards of directors.

The San Francisco Fed counts the chief executives of SVB Financial Group, Alta Alliance Bank and Chino Commercial Bank as members of its board.

Observers said Yellen would likely mount a strong defense against efforts to dismantle that system.

"If you look at the Federal Reserve, it”s a gigantic bureaucracy," Sohn said. "Like any bureaucracy, they”re interested in perpetuating the existing system. … I can”t imagine she would do anything other than perpetuate the current system."

Others said Yellen”s experience in various parts of the Fed arena would make her well positioned to articulate the strengths of the central bank”s structure.

"She has a full understanding of the delineation as it is set forth in the Federal Reserve Act -- both very important but nevertheless distinct -- no doubt as a result of her unique experiences as both governor and Reserve Bank president," another former Fed official said.

The San Francisco Fed”s district is the largest in the nation and is seen as the central bank”s eye on Asian economies. The district also includes states such as Arizona and Nevada that have been hardest hit by the housing bust.

Though that background gives Yellen a unique perspective, some wonder whether she would be too far removed from Wall Street, which remains in tatters and will no doubt continue to preoccupy the Fed.

"She doesn”t have close contact with Wall Street," Sohn said. "She doesn”t have that background."

That could be a positive, some said, given the public anger directed at big banks.

"I don”t know that it”s an advantage to be well networked with any of the big Wall Street firms right now," Low said.

Several observers said they were confident that Yellen has the contacts and wherewithal to quickly shore up any perceived gap in her resume.

"I wouldn”t say she”s not connected," Decker said. "She just hasn”t spent years on Wall Street. She can be connected quickly because she has the Rolodex, networks and contacts."

AMERICAN BANKER - How Wells Keeps Them Satisfied

By using ethnography, which in Wells Fargo”s case means visiting messy living rooms to see how customers handle their financial lives, the bank is able to see the real-life role the Web can potentially play in its customers” lives and businesses before making site upgrades or redesigns.

The approach has worked wonders. Wells frequently lands high on lists of Web functionality and consumer satisfaction, recently outranking Google, AT&T, Federal Express and Microsoft on a Brookings Institute ranking of 68 corporate Web sites - the latest in multi-year string of top rankings on lists put out by Gomez, MSN and a host of technology magazines.

BTN: What do you think drives Wells” good performance on Web rankings?

We research what the customers are interested in doing on the Internet in regards to banking, their unmet needs online, their frustrations, etc. and use those findings to drive how we design the customer”s experience online and what products we decide to develop or add. It”s a mix of quantitative and qualitative research, and it”s done in a lot of different mediums. We do a lot of onsite visits, email and more traditional methods of customer research like focus groups and usability studies.

How do you think that”s different from other online retailers?

We use a method called ethnography, which comes from anthropology [in science, ethnography is the accumulation of data though direct observation via immersion in a community]. We decided to “live” in the culture to understand the culture and its needs before we enhance our site. The bank sends researchers out to customers” homes and businesses to get an understanding of issues such as how they manage their finances. It”s not about how they interact with the Web necessarily, but more about how our customers manage their lives, their business and their finances overall. These findings provide us with a broader context in determining how the Web can be used to make an impact on people”s lives.

How has this strategy identified consumer trends?

By doing this research, we were able to discover, for example, the way customers were storing personal and financial documents and their overall concerns over document storage. There was a sense of frustration and unease among many consumers over how they were storing traditional financial and other important paper documents. This storage was often happening physically in accordion folders, which people would gradually fill up with important documents over a period of time. The consumers mostly figured that by the time the folder got filled up, the documents that got filed first were probably old enough to get rid off, so they would dump that part of the folder and start to fill it again with new documents. We also found people who were storing a lot of their important documents in boxes. People were worried about how long they should hold onto some documents, and in how safe it was to hang onto or store paper documents in one location.

Was Wells Fargo able to spin a product off of these findings?

In response to those concerns we developed a program that allows customers to automatically store all of their Wells Fargo documents, and also upload other documents that aren”t necessarily related to Wells Fargo - anything from wedding photos to a will or other personal papers. So it”s not necessarily a traditional bank product that we placed on our site in response to our research into personal document storage habits, but it is a product that”s important for a lot of our customers.

Has your research strategy yielded ideas about other areas in which customers need education?

We have developed [Web] initiatives that educate customers around security issues and privacy, for example. We have also run programs that provide information on how customers can keep computers safe from viruses.

Is Wells Fargo using social media as part of this educational effort?

The bank does some blogging, and we”ve done some other social media pilots. We have also introduced Stagecoach Island, which is an online interactive experience [that allows users to visit a virtual island online, connect with other users, earn virtual money and learn lessons about money management], We”ve also done some experimenting on Facebook and Twitter.

 How is your research strategy being used to guide mobile banking?

The bank has spent and is actively spending time with customers to determine how they generally use various modalities, such as text messaging and other mobile devices. It”s an attempt to identify what mobile devices and features customers are adopting and what format they are using and to make those findings a part of our mobile strategy, which is currently to leverage a mix of devices to match the mobile technology tastes of our customers.

What trends or tendencies in mobile modes have you discovered?

We found that text messaging functionality, for example, is more often used by customers with less advanced mobile phones. But iPhone and Blackberry users are doing much more advanced tasks. Eventually, we do think the mobile channel is going to be a major mode for all customers. The phones are getting more advanced and the prices are coming down.

AMERICAN BANKER - P2P Transfers Become a Bank Reality

After years of setbacks related mainly to technology and risk management, the person-to-person payments business is finally taking off for banks.

Believing banks are now eager to offer tools that let people pay each other electronically, CashEdge introduced a P-to-P transfer service earlier this summer. The announcement came at the same time as MasterCard”s introduction of a mobile phone transfer service to its issuers. In addition, three Canadian telecom providers also recently introduced a similar mobile P-to-P payment service, and said all major Canadian are considering offering it to consumers.

"Banks have been interested in this for a long time," says Neil Platt, CashEdge”s svp and general manager of banking. But they "haven”t found the right way to implement it."

Marc DeCastro, a research manager at IDC Financial Insights, says P-to-P transfers could help bank” customer acquisition and retention efforts.

"Banks are saying, “This isn”t just a fad, this is something we need to be prepared for,”" DeCastro says. "Just because it didn”t take off the first time around doesn”t mean it was a bad idea."

He compared P-to-P transfers to bill-payment services, which took off slowly at first but eventually became a must-have feature.

CashEdge is one of the largest providers of account-to-account transfer services, which let people move money between their own accounts at various financial companies. The company”s customers include nearly a quarter of the top 100 banking companies, such as Bank of America and Citigroup.

CashEdge plans to offer the new POPmoney service initially to existing customers. A handful of banks have agreed to offer POPmoney, though Platt would not name them. Though none of the deals have been finalized, he said he expects some of the banks to introduce the service this year.

CashEdge has been testing an earlier version of POPmoney with a regional bank it would not name, and that P-to-P payments have grown to half of that bank”s online transfer volume. The earlier version required the sender to know the recipient”s bank account number; POPmoney requires only that the sender know the recipient”s mobile phone number or e-mail address.

Several banks have tried to launch P-to-P payment services in past years, but many of these early efforts - including Citigroup”s c2it, BankOne”s eMoneyMail and Wells Fargo and eBay”s BillPoint - fared poorly.

Bruce Cundiff, a director of payments research and consulting for Javelin Strategy and Research, says while fraud as a problem with earlier P-to-P systems, many of them "failed because they were very single-bank focused, and you need the network to survive."

CashEdge”s system can address this issue, he said. "CashEdge has a lot of large-bank clients and may be able to be the connection - the network creator."

CashEdge, too, has had some misfires in the P-to-P field. It introduced a service in 2002. "At that point our architecture wasn”t really built to support it," Platt says. Usage was low, and there were risk issues that CashEdge had to resolve before it could move forward with its new product.

AMERICAN BANKER - Regional Banks Beefing Up on Seasoned Talent

As chief executive of Signature Bank in New York, DePaolo recently gave himself all year to recruit four teams of veteran bankers from large rivals.

It”s only August, and DePaolo has already landed 10 teams.

Bankers and consultants alike report a quiet and continuing migration of seasoned talent away from the nation”s major banks and into the calmer offices of smaller regional lenders. DePaolo”s recent hirings were from the likes of Toronto-Dominion Bank, and even crosstown giants Citigroup Inc. and JPMorgan Chase & Co.

The growing attraction of small-bank employment points to the continuing strife at the largest U.S. financial firms, many of which are beset by failing business models, soaring losses from bad loans and intense government scrutiny that continues to shift on the fly.

The trend also mirrors the growing exodus of disaffected top-tier investment bankers to boutique firms. "Taking jobs at small to midsize banks has become the hot thing to do," said Jeanne Branthover, a managing director with Boyden Global Executive Search. "Regional banks can finally … attract talent that would never have looked at them before."

The strategy gives smaller firms a crack at picking off large rivals” clients, said Jeff Davis, senior analyst at FTN Financial, a unit of First Horizon National Corp. Business customers are notoriously loyal to their bankers.

Signature, which has 22 offices in the New York area, has also raided the ranks of what was once North Fork Bank. More than 80 North Fork alumni have moved to Signature since Capital One Financial Corp. bought it last year. Other, smaller regional banks have landed big-bank talent, including Pinnacle Financial Partners Inc. in Nashville, which has $5 billion of assets and 33 offices across its home state.

Terry Turner, Pinnacle“s CEO, said it often takes years to woo recruits but that the industry”s turmoil "has shaken them loose."

In July, Pinnacle hired Harvey White, a 28-year veteran of Regions Financial Corp., to be chairman of the bank”s Knoxville business unit. Regions, which has 1,900 branches in 16 states, has been rocked by troubled commercial loans tied to overheated housing markets.

"He was thrilled to come to work at a company of our size," said Turner. (White had briefly retired from Regions before joining Pinnacle.)

The poach-and-grow strategy has driven impressive growth at both Signature and Pinnacle, even as most big banks have shrunk in size and written fewer loans. Signature”s loan book grew 42% during the last year, and Pinnacle”s grew by almost 17%. Pinnacle recently posted a loss from souring residential construction loans, which are hammering large regional lenders. But most analysts expect Pinnacle to work through these issues efficiently.

Unlike many big-bank rivals, Pinnacle and Signature can boast that they are virtually clean of the Troubled Asset Relief Program. Signature quickly repaid $120 million in public support it accepted last year, and DePaolo said he was the first bank CEO to call Tarp funding a "scarlet letter" for banks. (JPMorgan Chase CEO James Dimon is widely credited as inventing the label.) Pinnacle plans to return its $95 million in taxpayer funding shortly.

Small banks” cultures offer other departures from Wall Street-style banking. Signature”s main office is in the heart of New York”s Fifth Avenue shopping district. But it is nestled in an office tower, several floors above the children”s store Build-A-Bear Workshop and its steady flow of tourists and toddlers. "The Build-A-Bear," said DePaolo, "is paying all the rent."

AMERICAN BANKER - The New Generals

While banking digs out of an abyss largely considered to be self created, the executives in charge of abyss-avoidance are feeling the heat of the spotlight, and seeing many aspects of their jobs re-imagined as the industry is remade. And that”s just the risk officers that have survived - many haven”t. "As a former chief risk officer myself, I think that as a risk profession, we need to do a soul search as to what went wrong, and what changes need to be made," says James Lam, a risk management consultant and former chief risk officer at Fidelity Investments who”s regarded as one of financial services” first CROs.

That strategic soul-searching is going on in bank boardrooms and executive suites, but it”s the chief risk officers that must carry out the emerging marching orders to accurately asses all forms of risk, and ensure that risk posture is in line with the institution”s appetite. CROs are being charged with a broader swath of IT-related risk management, including deeper vendor due diligence and supervision, reconciliations of financial risk reporting among disparate and sometimes feuding bank departments, cross-enterprise data management, and merger conversions that in some cases involve target institutions with troubled risk profiles.

"The job should go beyond technical risk management skills, and also include much broader risk management and strategy, change management, and technology risks," Lam says. "The job has really become a broader executive role."

Since identifying a proper level of fiscal restraint across the enterprise is now in vogue, the CRO also increasingly has the ears of the bank”s top executives and board members. "During the boom period, with a lot of focus on pursuing revenue, the authority of the CRO was not as strong," says Ed Hida, a partner with Deloitte, who says that”s obviously changed. The seniority of risk managers is increasing - the percentage of CROs at banks reporting to the board of directors approached 80 percent in Deloitte”s latest risk management survey. "The authority of the CRO to influence risk decisions has increased significantly."

Shane McGriff, a vp of enterprise risk service for CapGemini”s financial services business information unit, categorizes this mashup of management, IT, communication, legal and financial skills as a movement towards an "enterprise risk office." "You need the ability to master the information it takes to monitor risk at the top of the house," he says. "It”s a big integration challenge, and the CRO is more active today than ever before in shaping IT strategy."

 Cross-Enterprise Collaboration is the New Black

For John Ericksen, chief operating risk officer at PNC, a dose of humility is helpful for the CRO trying to navigate today”s complex stew of IT, credit, governance and operational risk.

"If you don”t understand something, you better understand that you don”t understand," says Ericksen, a 16-year PNC veteran who”s been in his current position for the past six years. "You have to be focused on not only the risk/reward ratio, but focused on understanding what that means in aggregate for your company."

Ericksen wears a closetful of hats in his job - he”s responsible for overseeing risks as varied as operational risk governance, data analysis, external events, strategic risk elements, information security, privacy, business resilience, and financial intelligence. What”s changed dramatically in the past 16 months, Ericksen says, is the responsibility to forge a view of these risks that transcends the bank”s individual departments to enable quick decisions based on an enterprise-wide view of exposures.

The magic clay to meld these enhanced responsibilities together is understanding data: how it”s collected, its integrity, what it”s being used for, its accuracy and making sure the right data management systems and technology are in place to make informed decisions based on portfolio, geographic and customer views. "Are you able to add the right nuances to the information so you can have a thoughtful conversation about it with other staff?" he says, adding the pressures to accumulate more accurate data are enhanced by the need for information that”s more regularly updated.

The data-focused strategy has led the bank to invest in advanced enterprise information architecture to bolster financial and risk reporting. "This capability is driven by the requirement to provide more timely access to current and accurate information, supporting immediate decision-making as well as serving as a foundation for risk management analysis," Ericksen says, adding the architecture also plays a role in PNC”s BASEL II compliance by enabling risk assessments, scenario planning and analytic requirements.

In an environment with heavy IT collaboration, Ericksen says it”s not necessarily vital to know how service oriented architecture (SOA), cloud computing, virtualization and other data management and general tech tools work on a nuts-and-bolts level - but it is important to know why this innovation is necessary, and how a broader set of operational, credit and security risks are served by open architectures and other advancements. "You have to understand what [the CIO] needs and understand the requirements of the business line as well," Ericksen says. "There”s a lot of benefits to that; not only the risk profile but the ability to develop products based off of customer behaviors, reactions and experiences."

 Wringing the Risk from Counterparties

Many of the risks banks miscalculated in recent years originated in quantitative mistakes and lax oversight in assessing counterparties. That includes outsourcers and other service providers, which expose banks to third party risk.

The risk will only increase in the future, since outsourcing is getting more complicated: new deals include responsibilities up to and including rudimentary decision-making for tech projects, a far cry from the traditional labor-intensive outsourcing model. "In the past risk management of outsourcing was involved only at the time that a supplier was being onboarded," says Atul Vashistha, chairman and CEO of NeoGroup, an outsourcing consultant, who says vetting outsourcers will require emerging risk management tools and techniques outside the traditional job duties of most CIOs and CROs. "Now risk management for outsourced projects is an ongoing activity because the work is more complex. You want domain expertise, and people who have global experience...who know how work gets done in places like China. You have to know the legal environment in various locales."

It”s not just outsourcing partners that are gaining renewed scrutiny, vendor partners of all stripes are under the magnifying glass. Dave Kling”s a 42-year veteran of the banking industry, but his first year in the CRO”s chair at UMB Financial Corp. in Kansas City has brought a few surprises when it comes to partner risk.

"What many of us didn”t envision in the past year was the impact of the economy on service providers, and the fact that these providers also have providers that can run into trouble," says Kling, who previously worked in the bank”s control audit and operations units. "So we now have to look at change that”s happening downstream and how that can affect us."

Like many banks, UMB is placing a special emphasis on managing the operational and financial risks of its IT counterparties, and is focusing on all links of the supply chain. Beyond yearly inspections of suppliers, UMB will also enhance cross-department policies to track contracts, monitor project performance and inspect the financial viability of all third-party suppliers.

"We want to make sure we know of the risks that are arising as a project is underway, and where we might have issues," says Kling, whose bank has deployed Archer, Emtoris Contracts Management and SAP general ledger platform as part of its strategy to categorize and control hardware and software. "By working with the tech team closely, we can determine whether to change vendors or add new software...to an initiative."

Career Risk, Reward

CROs are stepping into a brighter spotlight, but they won”t have to do it on the cheap: Most analysts interviewed said risk management budgets, staffing and technology at banks was holding steady or actually being expanded rather than downsized in the recession - a recent Aite Group survey of 700 community banks found that 57 percent of respondents said operations risk and related tech investment was a "strong consideration" or a "strong priority" for 2009, says Christine Barry, research director at Aite.

But a higher profile and budget means more probability for blame, and less opportunity for CROs to claim they weren”t being listened to; or that there wasn”t adequate independence between the risk management function and business line objectives - both common sanctuaries for risk departments to skirt blame for the current crisis.

"I know of places where the risk managers warned of issues before the crisis. But in those organizations, the risk department is being seen as playing a game of “It was not my fault,”" says Jadev Iyer, managing director at the Global Association or Risk Professionals (GARP). "And on the other side, the risk management department is being told “You guys in risk management had the resources and technology and the investment in people, and you didn”t play a meaningful enough role in stopping the crisis.”"

What should happen, Iyer says, is an evolution toward subjectivity in risk management. He says risk management strategy and related technology projects should be used to provide a business case to upper management to move beyond the reliance on quarterly financial statements that has dominated bank strategy for years.

"Most risk managers understand that we need to get away form a blind reliance on models, for example, with a better use of stress testing," Iyer says. "An enlightened risk manger will make the case that it”s time to go beyond return on equity and short-term earnings focus to a focus in which returns are adjusted for risk."

Jack of All Trades

The new paradigm”s apparent to John Blakeney, who”s responsible for managing IT risks at Missouri”s Commerce Bank, a post that now includes tasks that on the surface have little to do with technology, such as managing regulatory risks tied to healthcare payments. Even some of the more ubiquitous bank IT plays, such as automating payments, come with a complex array of new risks as regulations rapidly change - necessitating cooperation with other departments and more sophisticated information gathering. "With HIPAA as an example, there”s a lot of new regulatory risk that we have to manage," says Blakeney, who has been in his position for five years.

Even in Blakeney”s more traditional role managing security risks, the game has also changed rapidly. Blakeney says he”s been learning more about social networking tools as a means to fight against security risks that include deft attacks against databases by increasingly skilled criminals. Blakeney suggests that identifying and controlling these risks requires growing beyond proprietary protective measures. "It”s become more important to have contacts with other banks and security companies to know what”s going on in terms of Internet crime and what”s being done," he says.

Given the myriad and disparate job responsibilities CROs face, it”s not surprising that there”s no current background or specific skills regarded as the standard "CRO toolkit." But there are some general skills that should be on any CRO”s resume. Deloitte”s Hida says to handle broader job scope, organizations are looking for seasoned executives that have risk management experience and broader management skills, such as previously running a business line, or making decisions on staffing, delegation and allocation of resources.

"It”s critical to have experience in the business of the company, so we”re seeing situations where people who have business management experience and a good understanding of risk and being brought into the risk function because of their business experience, Hida says.

And like a commander drawing intelligence from different departments in order to make decisions that ensure the safety and soundness of those departments, a CRO will require at least a working knowledge of almost all business units.

Says CapGemini”s McGriff, "[The current environment] puts a higher burden on CROs to have a much stronger business outlook in order to really engage with line of business leaders at a level that”s far beyond the “regulatory” outlook that we”ve seen in the past."

The Age of ERM

Deloitte”s sixth annual Global Risk Survey demonstrates the expanding role of the chief risk officer, but it also reveals there”s still lots of room for growth when it comes to enterprise-wide risk assessment programs.

The firm, which polled 111 international financial institutions with combined assets totaling more than $79 billion, found that 78 percent of CROs report to the board of directors and/or the bank”s CEO. In 2006, only 42 percent reported to the CEO, while 37 percent reported to the Board of Directors. And 63 percent of institutions have adopted a formal statement of risk appetite. "With the magnitude of the credit crisis and the ultimate losses, boards (of directors) are questioning a number of areas for responsibility - the senior management, finance and risk functions," says Deloitte”s Ed Hida. "At the same time the focus has been to strengthen the risk function."

However, the research firm found that only 36 percent of the institutions had an enterprise risk management program, although 23 percent were in the process of creating one. There”s incentive to create an ERM program - 85 percent of the institutions that have adopted ERM programs reported the total value derived from the program exceeded the cost.

AMERICAN BANKER - To Grow B-to-B Pay Networks, Banks are Ceding Control

Banks are taking a new approach to automating business-to-business payments, handing off long-held proprietary systems to third parties that can potentially attract more corporate users -- and more transaction fees.

In two recent deals, Bank of America Corp. and U.S. Bancorp both agreed to transfer their in-house payments systems to third parties. The strategy reverses what has been the dominant model, in which financial companies acquired vendor platforms to offer exclusively as their own.

Observers say the deals show revived interest in electronic business-to-business payments. But they also warn that, over the long term, a gaggle of incompatible B-to-B systems could actually hobble the "network effect" that makes these systems valuable by making them available to more users.

Bank of America agreed last week to sell its PayMode corporate e-invoicing operation to Bottomline Technologies Inc., a Portsmouth, N.H., payments technology vendor.

Dub Newman, a global product management executive at Bank of America, said Bottomline would be able to market the PayMode system to more business clients than the Charlotte banking company could reach on its own.

"Ultimately, you”ve got to hook up with somebody who has the breadth of clients you can supply solutions to," he said.

Robert A. Eberle, Bottomline”s president and chief executive officer, said the company plans to offer PayMode to other banks, an approach that would have been unthinkable if B of A were pitching the system. The goal, he said, is to create a single, widely used network that can link as many corporate users as possible.

Though other financial companies operate similar payments networks, Eberle said they often operate as isolated islands that do not connect to each other. "Our ultimate ambition is to connect those."

Bottomline paid $17 million for the PayMode facility in Portland, Maine, and gave B of A warrants to buy 1 million shares of its stock at $8.50, Eberle said; Bottomline shares were trading at $11.85 Wednesday and there were 24 million shares outstanding at its fiscal yearend on June 30.

The option to take a stake in the vendor gives B of A a strong incentive to promote wider use of electronic B-to-B payments. "We”ve got significant upside opportunity for the management of payables and the movement of payment from paper to electronic," Newman said.

Observers say that handling these payments electronically is a largely untouched market. The typical organization made 74% of its B-to-B payments by check in 2007, according to the Association for Financial Professionals, a trade group for corporate treasurers, based on its most recent survey. Three years earlier, checks made up 81% of such payments.

The consulting firm Treasury Strategies Inc. said businesses spend about $1 trillion per year on their payments needs, but Dan Miner, a principal, said banks garner only about 10% of that.

"Clearly, electronic invoice presentment and payment is the future," Miner said. "There”s high growth potential in that business, and especially the bigger banks want to be seen as experts."

Though he expects more banks to jump into this market, newcomers are more likely to join existing networks than build their own.

These could include Bottomline”s system or Syncada LLC, a joint venture announced two weeks ago between U.S. Bancorp and Visa Inc.

Rob Abele, the president of U.S. Bancorp”s corporate payment systems unit, said Syncada would extend the reach of the Minneapolis banking company”s PowerTrack platform into new markets.

"Creating this network and doing so on a global scale and inviting other banks into the network is the greatest opportunity to create a gold standard and expand the network," Abele said. "We can more rapidly expand the network by allowing other banks on a global scale to offer it."

Syncada also gives Visa a way to compete with the MasterCard Payment Gateway, introduced by MasterCard Inc. in 2007, which now counts users such as Wells Fargo & Co. and Citizens Financial Group Inc.

Scott Coffing, the chief operating officer of the AvantGard unit of SunGard Data Systems Inc., said that banks have had trouble developing corporate payments networks on their own. "Nobody has been successful because no one player can be," he said.

"In my dealings with bankers, a lot of what they try to do is to make the customer as sticky as possible," he said. "That”s why you see a lot of these islands develop."

But corporations want the flexibility to do business with a variety of banks, he said, and the trick is to find a way to connect them all. Coffing said SunGard is developing a "meta-network" that he said would begin carrying transactions in the first half of 2010.

"I think there”s a critical mass of players," Coffing said. "There”s no way one bank, technology vendor or network can do it all."

B of A”s and U.S. Bancorp”s deals to hand off their payments services stand in contrast to the pattern seen just two years ago, when financial companies bought payments vendors to offer their systems as their own; JPMorgan Chase & Co., for example, bought the payment-automation vendor Xign Corp. in 2007, just a few months after American Express Co.”s 2006 acquisition of Harbor Payments Inc.

Miner said the new approach could lead to the establishment of fewer but larger payments networks, simplifying the process of suppliers” connecting to their buyers.

"Because there are so many solutions out there, sellers have to integrate potentially with several different EIPP solutions to meet the needs of their customers."

Aaron McPherson, the research manager of payments at the research firm IDC Financial Insights, said the uptake of B-to-B e-payments is at least a year slower than he expected.

He said part of this can be attributed to the financial crunch. "Banks are looking to get leaner. Who can they partner with to get rid of that expense?"

But part of the slow growth could also reflect the limited reach that the individual networks have, McPherson said. "It”s a sign of how slowly these networks are growing that they haven”t touched yet."

"It”s a classic network externality problem," he said. "If you”re going to get the benefit of adopting a system, all your trading partners have to do the same."

AMERICAN BANKER - Banks Retain Trust, Lose Wallet Share

It takes more than a few doubts about safety and soundness for banks to lose retail customers these days — or at least more than it used to.

Last fall, a bank ranking in the 70th percentile from a financial soundness perspective might have seen more than 20% of its customers reducing the balances in their primary accounts. By May, a bank in similar condition would have prompted only 5% to 10% of customers to trim balances, according to a survey by retail banking consulting firm Mercatus LLC.

But lest bankers start feeling comfortable again, a new front is opening up in the battle for wallet share.

Transparency on fees and quality of customer service figure greatly into customer perceptions of trust, and banks that fail to provide either will find it harder to recover the share of wallet that consumers entrust to their primary bank.

Anxious consumers have been reducing the share of deposits and other household assets entrusted to their primary banking institution, from an average of 44% in May 2008 to 36% in May 2009, according to Bob Hedges, managing partner at Boston-based Mercatus.

"Consumers' dispersion of deposits across several financial institutions is directly linked to levels of trust with a particular provider and their perceptions of financial soundness," Hedges said. "Consumers are particularly sensitive to the unanticipated charges and fees they experience, and this ultimately destroys trust in the banking institution."

Trust levels vary greatly by industry sector, according to the survey, which asked 1,050 consumers about their primary banks.

As of May, nearly 90% of consumers who kept checking accounts with community banks and credit unions said they trusted their primary bank, up from 84% a year earlier.

But trust scores dropped for large banks, from 79% to 75%; regional banks, from 72% to 71%; midsize banks, from 69% to 67%, and investment firms, which showed the most dramatic slide, from 72% to 56%.

But wallet share declined for banks in the past year regardless of where they ranked on the trust scale, the survey said.

AMERICAN BANKER - BB&T Wants to Become S.E.'s Top Regional, But Hurdles Remain

By absorbing Colonial Bank, BB&T Corp. is staking a claim to be the Southeast's dominant regional bank, but it will face challenges maximizing the value of the purchase.

Analysts largely expressed confidence in BB&T's ability to take on such a large bank, though it is the biggest acquisition in the company's history. BB&T is buying 346 branches, $22 billion in assets, and $20 billion in deposits. BB&T agreed to a loss-sharing agreement with the Federal Deposit Insurance Corp. on $15 billion in assets.

BB&T's last big bank purchase, First Virginia Banks Inc. in 2003, was criticized by analysts and investors upset over what they believed was a hefty price tag and an integration that impeded earnings growth. First Virginia involved 220 branches after closings, $11 billion of assets and $9 billion in deposits. Soon afterward BB&T said it needed a break, implementing a self-imposed three-year ban on such deals.

BB&T has not taken on a large-scale bank acquisition since, sparking some worries that rustiness could keep the $152.4 billion-asset Winston-Salem, N.C., company from fully taking advantage. Analysts also expressed concern over retaining high-quality deposits, the costs of running a much-larger branch network, and the challenge of keeping focus while the recession continues.

"From a long-term perspective there isn't much to find wrong with it," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. "But this is far from risk free."

BB&T would be the fifth-biggest depository institution in Florida (3.7% market share) with the purchase, according to the June 2008 data from the FDIC, the latest available. It also gains branches in Alabama, Georgia, Nevada and Texas.

BB&T should benefit from its June exit from the Troubled Asset Relief Program, which gives it an advantage over remaining Tarp participants that may be interested in stealing Colonial customers, analysts said. The company is likely to take its time integrating branches, with analysts prediciting that the company will remain idle with other acquisitions for up to two years.

Over that time, BB&T will focus heavily on deposits, deciding which accounts to compete for and which ones it would prefer to see run off, analysts said. Nearly half of Colonial's deposits are certificates of deposit, and analysts said those are most susceptible to competitors, particularly if BB&T sticks to its historic practice to not compete on price.

Kelly King, who became BB&T's CEO Jan. 1, expressed concerns earlier this year about an ability to keep deposits from failed institutions. Drawing from the company's December takeover of Haven Trust in Georgia, he complained during a quarterly conference call in April that the small bank's deposits were "as sticky as clean water."

Paul Miller Jr., an analyst at Friedman, Billings, Ramsey Group Inc., said it is likely that BB&T could lose up to $2 billion in CD deposits from Colonial "out of the gate," but such runoff isn't enough to tarnish a deal. "I think they can handle it," he said. "BB&T is a well-run shop."

Analysts said deposits are most vulnerable in Florida, and perhaps in Alabama. Several big competitors such as Bank of America Corp. and SunTrust Banks Inc. are likely to covet deposits that could yield strong long-term client relationships in those states, they said.

Still, analysts said BB&T isn't going to feel the urge to keep all the deposits as long as loan growth remains tepid.

Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc., said BB&T should also still benefit from offering former Colonial customers improved systems, products, and management.

"This is nothing but good news for Colonial employees," Patten said. BB&T will then retrain those workers. "You'll immediately see transplanted BB&T management in Florida" followed by a lengthy, deliberate effort, he said. "They have never been the fastest integrator."

Fitzsimmons said there is concern that BB&T may be rusty as an integrator, particularly a bank with Colonial's scale and geographic reach. "They haven't done a lot of big deals," he said. "It is hard to argue that they have a core competency for large, complex deals."

Since 2004, the company has only purchased four small banks with a total of 68 branches and $3.66 billion in deposits. Over that time, many key posts have turned over due to retirements, including CEO, chief financial officer, chief risk officer, and the head of mergers and acquisitions.

Patten said the break from large purchases should not hurt BB&T, and he believes King will approach the integration in much the same was as predecessor John Allison, who remains the company's chairman. "This isn't about rust," he said. "It is about rest, which should make them stronger and better. They are well rested, well capitalized, and well-positioned."

A final concern is the immediate costs of operating a much-larger branch network. The deal increases BB&T's existing 1,500-branch count by 23%. (BB&T had $102.2 billion in deposits at June 30.) Observers estimate that it can cost a bank up to $1 million annually to run a branch.

BB&T may have paid $3.1 billion to exit Tarp, but it still is battling deteriorating credit quality as the recession drags on. In the second quarter, nonperforming assets made of 2.19% of total assets at June 30, compared to 1.92% a quarter earlier.

AMERICAN BANKER - In Fed Survey: No Return to Normal in Near Term

WASHINGTON; Despite some encouraging economic signs, a clear majority of bankers surveyed by the Federal Reserve Board do not expect underwriting standards for residential real estate, commercial mortgages or credit cards to normalize before 2011.

In the central bank's survey of 55 senior loan officers at domestic institutions, some said it could take even longer for standards to return to the levels that prevailed before the crisis hit. Four in 10 bankers told the Fed that underwriting standards for even investment-grade commercial mortgages would not normalize for "the foreseeable future." Another 20% said that such a recovery would not happen for at least two years.

Such pessimism was evident across loan categories. A little more than 41% of respondents could not predict when standards for prime borrowers seeking residential mortgages would return to normal, and 32% said the same for credit card borrowers. More than 12% of officers said it would take until 2011 for residential mortgage standards to normalize; 25% said the same about credit card loans.

Despite talk of a recovery already underway on Wall Street, Monday's survey results crystallized warnings from Fed Chairman Ben Bernanke that a return to normal levels of growth will take several years to achieve.

Fed policymakers "generally expect that, after declining in the first half of this year, output will increase slightly over the remainder of 2009," he told Congress last month. "The recovery is expected to be gradual in 2010, with some acceleration in activity in 2011."

For companies with below investment-grade ratings, the situation is more grim. More than half of the loan officers — 53.1% — said their benchmarks for approving commercial mortgages for these companies would remain unusually stringent in coming years. And 28.6% said this lending would return to normal by 2011.

On the consumer front, 18.8% of lenders said their standards for home loans to prime borrowers would ease by 2011, and another quarter said it would take longer.

For nonprime borrowers seeking home loans, 57.7% of the bank officers said they did not see a return to normal standards for the foreseeable future, and 15.4% said some recovery could occur in two years. Weaker borrowers will also face an uphill battle in coming years to get a credit card, according to two-thirds of the respondents; 11.1% said standards could ease by 2011.

Banks continue to tighten standards across the board as they clamp down on risk. In commercial and industrial lending, 35.2% of respondents said they had tightened standards for large and middle-market companies. Most financial institutions said they did this by widening the spread between the loan rate and their company's cost of funds or charging premiums on loans perceived as riskier. The situation was much the same at companies with annual sales of less than $50 million. More than one-third — 35.8% — of the bank officers said they tightened standards on these businesses during the past three months, mostly by widening spreads and charging premiums.

Half of the respondents said they toughened their stance on C&I loans because of the economic outlook. None of the banks said they curbed lending because of their capital position, and just one, unidentified institution said its liquidity problems were "very important" to its decision to pull back.

With such turmoil in the C&I sector, more than half of the loan officers said demand for loans weakened in the past three months from large- and middle-market companies. More than 60% said demand was weaker from smaller companies, and an additional 7.5% said it was "substantially weaker." Most of the bankers said the drop in demand stemmed from lower funding needs for commercial and industrial businesses or deteriorating credit quality at those companies.

Commercial real estate continues to suffer, with 46.3% of lenders saying they tightened standards on applications for such loans in the preceding three months. Demand for CRE loans is also off, according to 70.3% of the loan officers.

Credit standards on prime residential mortgages were stricter during the past three months, according to 21.5% of respondents, and a majority — 78.4% — said standards have basically flat-lined.

Still, with low interest rates prevailing, demand for prime mortgages strengthened in the past three months, according to 39.2% of officers. Another 37.3% said demand had not changed dramatically, and 23.5% said interest in such loans is declining.

Approvals of nontraditional residential mortgages are predictably tougher, with 45.8% of loan officers reporting a tightening. Not a single banker reported easing the rules on these loans, and demand was off, according to 29.2% of the respondents.

Revolving home equity lines of credit, which consumers used to fuel the recent boom, continue to be shunned by banks. Nearly 36% said standards for approving home equity lines have strengthened. Demand for these loans was off, according to 28.3% of the officers. Another 15.1% said it was rebounding.

Most bankers — 86% — said their willingness to make consumer installment loans had not changed in recent months, though 10% said they were less interested in making such loans.

The story differs when it comes to credit cards. More than 35% of the bankers said they tightened these standards, and 64.7% said they went untouched over the past three months.

Most of the cards that do exist have seen some form of change, largely when it comes to credit limits, according to half of the respondents. Others said they continued to widen spreads or increase the minimum credit score needed to keep a card. Just one banker said his institution was forcing credit card customers to repay more of their outstanding balance each month.

On consumer loans other than credit cards, many respondents (34%) said they were increasing the minimum required credit score, and 30% increased the minimum down payment. Nearly 31% said demand for all consumer loans was down.

AMERICAN BANKER - Wal-Mart's Bill Pay Sets Stage for a Finance Push

Wal-Mart Stores Inc. says it plans to step up the marketing of its financial services offerings as it rounds out its suite of services.

"We believe awareness among our own customers is still low," Jane Thompson, the president of Wal-Mart Financial Services, said Tuesday after the financial technology company Fiserv Inc. announced that the Bentonville, Ark., merchant, the nation's largest retailer, is offering Fiserv's CheckFreePay walk-in bill service in all 3,755 of its U.S. stores.

"People know we have a pharmacy and a deli and optical services," Thompson said. "Financial services are among our least recognized offerings."

Wal-Mart has offered money orders to its customers since 1988 and money transfers since 2003 through the Minneapolis remittance company MoneyGram International Inc., emphasizing underserved financial consumers, Thompson said. MoneyGram will continue to offer same-day, expedited bill payments, she said, but with the addition of CheckFreePay for less-urgent payments, "we now have a full range of services to help our customers pay their bills."

Paul Harrison, the senior vice president and general manager of Fiserv's walk-in solutions unit, said the Brookfield, Wis., financial technology company worked with Wal-Mart for nearly two years to introduce the service, which it rolled out first at MoneyCenter sites and made available Tuesday throughout the chain.

"It needed to be convenient," he said. "It needed to save money from what they were paying."

The basic price for three-day payment is 88 cents per bill, which compares favorably to a money order and a stamp, Harrison said.

Wal-Mart charges $1.88 for next-day payments of household bills, and it said CheckFreePay reaches more than 2,500 billers. The retailer said consumers can pay using cash or a PIN debit card but that it does not accept signature debit or checks, which Scott Sandlin, the senior director of its money services unit, attributed to a higher risk of payment fraud. Wal-Mart also has famously battled the financial industry over interchange, which is higher for signature debit compared with transactions that require a personal identification number.

Neither Thompson nor Harrison would discuss the relationship's financial parameters, for example, whether Wal-Mart used its legendary buying power to demand a lower price from Fiserv than other merchants get. However, Harrison said, "Anyone who delivers the type of volume that Wal-Mart would deliver to us would get the same pricing."

The agreement will have a significant impact on the CheckFreePay business, which had 10,000 to 11,000 walk-in sites before adding Wal-Mart's 3,700-plus, and others. Today, CheckFreePay has 16,000 sites nationwide, Harrison said, many in small convenience stores, mom-and-pop shops, and storefront check-cashers and payday lenders. "The foot traffic Wal-Mart has is tremendous," he said. "It means great potential for us."

On other topics, Thompson said Wal-Mart has 2 million Wal-Mart MoneyCards in force, doubling since June 2008.

"We continue to get increasing customers, we continue to get increasing loads" on the reloadable card, she said. "People are using it as an alternative to other financial tools, not just one-and-done."

The MoneyCard is a Visa Inc.-branded card issued by GE Money, a Stamford, Conn., unit of General Electric Co. Thompson called it a "leading co-brand card."

Asked about financial services plans such as a renewed effort to obtain a bank charter, which roiled the industry the last time Wal-Mart applied in 2005, Thompson said, "we don't have plans for anything relative to a bank."

Gwenn Bezard, a research director at the research and advisory firm Aite Group LLC in Boston, said that in CheckFreePay Wal-Mart has allied itself with the leading walk-in payment service, having a market share that far outstrips any rival's.

"Overnight, they're able to have the best bill payment solution that is available out there," he said.

AMERICAN BANKER - Wells Aims to Be One-Stop Shop

Perry Pelos is revving it up a notch.

Tapped this year to lead Wells Fargo & Co.'s commercial banking group in the West, Pelos plans to capitalize on Wells' reputation as an aggressive cross-seller. In the wake of last year's Wachovia Corp. acquisition, he plans to widen Wells' product offering to include bond issuances and more trade finance services.

Pelos is aiming this broader menu at business customers with revenues between $20 million and $750 million.

"The merger has enhanced our ability to provide all of the services that a middle-market company needs … because we can now give them solutions" that before "they'd have to go somewhere else to get," said Pelos, whose broad territory encompasses all but the Eastern time zone.

In an interview, Pelos outlined both the opportunities and the challenges for the company's entire middle-market business unit in the weakened economy. He acknowledged looming competitive threats and credit quality problems among those challenges.

But in that characteristic zeal associated with Wells executives, Pelos dwelled on sales potential.

The $1.3 trillion-asset Wells in San Francisco inherited the ability to conduct bond issuances and other offerings through the capital markets unit it inherited from Wachovia in Charlotte, N.C. Wells can also now offer more international trade finance services, such as referring international correspondent banking services to the overseas customers of U.S. importers and exporters. Those complemented Wells' expertise in areas such as agricultural and technology lending.

Wells already offers an average of 7.8 products per middle-market business customer, compared to the typical industry ratio of 4 or 5 products per customer for that market, analysts said.

Pelos said the company's strategy is first offering competitive rates on loans, particularly if customers sign up for other products, at a time when many other banks may be pulling back on lending due to the economy.

"No. 1, you have to have a commitment to use your balance sheet in the middle market — we don't see our role as anything other than a primary source of capital to our customers," Pelos said.

Wells can also cross-sell more products such as treasury and cash management services than its competitors because its bankers typically spend more face time with customers, which usually generates more loyalty, he said.

As more banking companies try to beef up their commercial and industrial lending to offset woes in commercial real estate, Pelos admitted that Wells will increasingly bump up against more competitors. In its Western markets particularly, Wells has a new giant competitor, JPMorgan Chase & Co., which last year bought the banking operations of Washington Mutual Inc.

Pelos believes Wells can withstand the challenge because of its broad presence within its territories. For example, Pelos asserts that Wells is the only big bank that has offices dedicated to middle-market customers in many smaller markets, such as Fresno, Calif., Green Bay, Wis., and Cedar Rapids, Iowa.

The commercial banking group is continuing to open more offices, such as another one in Orange County, south of Los Angeles.

"Quite frankly, it's a higher cost of doing business because we're adding people and renting space, but we really look at that as an investment," Pelos said.

Anthony Polini, an analyst at Raymond James & Associates, said that Wells can compete by increasing its reach at the lower end of the middle-market spectrum, by courting customers who are typically overlooked by the large banks.

Though there might be higher losses in lending to less-established businesses, Wells is "one of the best" at risk-based pricing, Polini said. "If you price it right, that's all that matters at the end of the day."

But like most other banking companies, credit deterioration has eaten into Wells' revenues from middle-market customers.

In the second quarter, revenues from wholesale banking (which includes additional business lines to middle-market customers such as capital markets and insurance services) rose 6.7% from the first quarter, to $5.24 billion. However, a 35% increase in the provision for credit losses within the business line, to $738 million, and a rise in expenses due to higher deposit insurance assessments caused wholesale banking's net income to fall 9.6%, to $1.07 billion.

Wells' nonperforming C&I loans are still increasing. Nonaccruals within the segment rose 74.5% from the first quarter, to $2.9 billion, or 1.57% of total loans.

Pelos said that C&I nonperformers will likely remain elevated, but he could not predict when they would likely peak.

AMERICAN BANKER - Complicated Future for 'Free' Checking

It never hurts to have a backup plan.

Federal lawmakers and regulators are threatening severe limits on how much banks may charge in overdraft fees, which heavily subsidize free checking.

Bankers have already started developing makeover plans for the highly popular product in case overdraft revenues are reduced. Among the options are imposing new limits on free checking that reduce costs or raise revenue or charging monthly fees on accounts that include more bells and whistles.

The marketing challenges promise to be dicey.

"Americans love 'free' or the perception thereof, and so banks will try to keep the free checking product if it helps them," or seek palatable alternatives, said Hank Israel, a director at Novantas LLC.

The Federal Reserve Board is considering whether to require banking companies to get customers' permission before charging overdraft fees. Under a proposal issued late last year, the Fed said it was considering whether overdraft protection should be an opt-in or opt-out feature.

Separately, lawmakers such as Senate Banking Committee Chairman Chris Dodd are calling for the creation of a new Consumer Financial Protection Agency whose duties would include reining in overdraft fees. Congress may also enact legislation to crack down on how much, and when, banks may charge for overdrafts.

If any of this were to occur, banks' revenues from overdraft fees would be severely reduced, substantially hurting many industry players, consultants said. A November 2008 study of 462 banks by the Federal Deposit Insurance Corp. said that 74% of their total deposit service charges came from overdraft fees. Applying that proportion to the entire industry's $39 billion in deposit service charges indicates that overdraft fees total about $30 billion a year.

To keep checking free, bankers would have to find other ways to garner income or cut expenses, Israel said.

One way would be to require that customers who have such accounts do a certain amount of point of sale transactions a month using their bank-issued debit cards so that the bank would get interchange income, Israel said. JPMorgan Chase & Co. already offers customers this option to get free checking.

Cost-saving moves could include requiring customers to sign up for direct deposit. JPMorgan Chase, as many other banking companies do, offers this among its free checking options.

Banks could also trim expenses by requiring customers with free checking accounts to do all their banking online, at automated teller machines or at kiosks in the branches.

As part of this strategy, banks may offset reduced overdraft revenues by cutting branch hours and number of tellers or at least differentiating service levels available to customers with free checking accounts and those holding premium accounts, 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.

"Banks might offer better service levels for high-balanced customers, sort of like a 'first-class' line similar to what the airlines offer," Fine said.

Citigroup Inc. has dedicated tellers in some branches for Citigold checking account customers. The account is free to customers who deposit or invest a total of more than $100,000 at Citi; otherwise, customers pay a $25 monthly fee. The account features special services like an exclusive telephone customer service line.

Banks could also reinstate monthly fees. Fifth Third Bancorp in Cincinnati recently introduced several checking account products with either a $7.50 or $15 monthly fee, in addition to its free checking product.

For $7.50 a month, customers get free identity theft alerts, a 50% discount on safety deposit box rentals and a choice of one of two savings accounts that charge no monthly fee.

Most banks are not eager to discuss changes in free checking publicly. A Citigroup spokeswoman answered questions about the Citigold account but not on broader issues, and representatives of JPMorgan Chase and Fifth Third declined to comment.

But Fine said that many banks are taking a hard look at how they could tweak their free checking products or introduce new ones.

Many banks are looking at checking account products that come with more "value-added" offerings, he said. Banks in other countries have offered products that include features such as traveler's insurance or car rental supplemental insurance.

"Banks can think about how they can actually provide more value for the customer and, as a result, justify the monthly fee," Fine said.

In fact, one such "value-added" offering could be "overdraft insurance," said Andrew Frisbie, a vice president at First Manhattan Consulting Group.

For example, a monthly up-front fee could be charged that lets customers make a certain number of overdrafts that would be covered by the bank, Frisbie said.

Israel said that limits on overdraft revenues may also "energize" banks to consider other deposit product offerings to generate fee income, such as offering back-office capabilities to landlords to let them accept payments from renters on the landlords' Web sites (competing with existing sites like renttopay.com).

Banks may also create "hybrid" debit cards, which would let customers pay off all the charges debited to their accounts monthly, Israel said.

ANNOUNCEMENTS - DTCC Collaborating with Delta Data

to Expand Technology Capabilities of Its Mutual Fund Profile Service

NEW YORK--(BUSINESS WIRE)--The Depository Trust & Clearing Corporation (DTCC) today announced an agreement with Delta Data Software, Inc., to deliver ongoing enhancements to DTCC’s Mutual Fund Profile Service (Profile). This service is a multi-dimensional, central data source for comprehensive fund prospectus information and rules governing funds’ operations. The first step will be the introduction in early 2010 of a new Web portal that will enhance a fund company’s ability to enter data by providing front-end edits and access to help tools and a standard data dictionary.

“The availability of reliable, timely information continues to be a high priority for fund distributors,” said Ann Bergin, managing director and general manager, DTCC Wealth Management Services. “Profile gives affordable access to data on more than 19,000 individual funds, and our collaboration with Delta Data will help ensure that the service continues to meet the evolving needs of our participants.”

Partnership Began with Pilot Program Last Year

DTCC began working with Delta Data in 2008, offering its FUNDViewsTM data validation service as a free pilot to fund companies entering fund security information into Profile. The Delta Data service allowed funds to check and validate their data by providing various reports that highlighted possible data discrepancies.

Building on the success of this validation tool – some 140 fund groups have now provided more than 120 distribution firms with four million data points and an accuracy rate of 99.9% – DTCC made a decision to take the partnership to a higher level. In addition to the new portal, Delta Data will provide technical support for the database and implement ongoing enhancements based on DTCC’s business requirements. These enhancements will be developed in collaboration with the fund industry and the Investment Company Institute’s (ICI) Profile Steering Committee.

The announcement has been broadly welcomed by the mutual fund industry. Laura Stanley, vice president, Invesco Aim Investment Services, Inc., and chair of the ICI Profile Steering Committee, said, “We’re delighted that DTCC and Delta Data have come together to further support the need for funds to provide accurate fund data and improve operational processing efficiencies. We see this as good for both the industry and for fund shareholders.”

“We are pleased to play a role in the future modifications to Profile that will continue to enhance its usability for the industry,” said Don Beck, chief executive officer, Delta Data. “We applaud DTCC’s commitment to this initiative, the work of the Committee, and strong participation by the industry. We look forward to continuing the process of making Profile the de facto standard repository it was designed to be, and being part of DTCC’s rich tradition of delivering efficiencies to the industry.”

ANNOUNCEMENTS - Fiserve Study Links Electronic Billing and Payments to

More Loyal Customers

E-bill and recurring online payment usage impact customer retention, profitability and on-time bill payments

August 13, 2009 09:00 AM Eastern Daylight Time  

BROOKFIELD, Wis.--(BUSINESS WIRE)--Fiserv, Inc. (NASDAQ: FISV), the leading global provider of financial services technology solutions, today announced a new study that confirms the positive impact of electronic billing and payment on customer satisfaction, retention and profitability. This comprehensive study is the first to quantify the impact of different billing and payment channels on an organization’s customer relationships and key business drivers.

Conducted by Aspen Marketing Services on behalf of Fiserv, the study evaluated data from 8 million Qwest Communications residential customers over an 18-month period, with analysis concluded in April 2009. The analysis found the most significant linkage between billing and business benefits among early tenure customers—those who had been customers for less than 28 months. For the full study methodology and findings, visit www.checkfree.fiserv.com/whitepapers.

The study also revealed that customers who receive paperless electronic bills at a company website or at a financial institution website, or who use recurring payments, are more profitable for the billing organization. Among early-tenure customers:

Electronic bill (e-bill) users are 12.5 percent less likely to leave, are 35 percent more likely to pay their bills on time, and purchase 20 percent more products than paper bill users.

Automatic, recurring payment users are 14 percent less likely to leave and 86 percent more likely to pay their bills on time.

Users who combine e-bill with recurring payment are more loyal and more profitable than other customer segments.

From a cost perspective, the study validates the importance of delivering e-bills not only via an organization’s own website, but also via financial institution sites, because where a bill is received impacts payment method. For example, among the customers studied:

74 percent of customers who receive an e-bill at a bank site pay using a deduction from their bank account, a low-cost form of payment.

40 percent of customers who receive bills at the company site pay using a card-funded payment, a higher cost method of payment.

Billing organizations can leverage the study findings to actively guide customers to high-benefit, low-cost billing and payment channels. Simple tactics are clearly outlined in the Bill Presentment and Payment whitepaper.

“This study clearly demonstrates that the benefits of viewing and paying bills online extend beyond cost reduction,” said Jardon Bouska, division president, Biller Solutions, Fiserv. “Billing and payment channels can be leveraged as valuable touch points that strengthen customer relationships and promote on-time payment. Fiserv is committed to working with industry leaders to not only provide consumers with the ability to receive and pay bills through a variety of channels, but also to help encourage customers to utilize preferred transaction methods such as recurring online payments and e-bills. These preferred methods have been shown to benefit both parties.”

Billing and Payments Industry Leadership

Fiserv is a leader in leveraging data analytics to promote the benefits of electronic billing and payment, as demonstrated by their participation in NACHA’s Council for Electronic Billing and Payments (CEBP) and the PayitGreen™ Alliance. This alliance promotes reducing paper use by encouraging customers to use electronic billing and automatic payments.

Fiserv is dedicated to educating consumers about how electronic billing and payment helps save time, money, the environment and secure one’s identity. To view a Fiserv consumer-education video, go to http://www.ebillplace.com/cda/ebillplace/tools/areyouapartofitvideo.html. 

Fiserv offers a complete portfolio for optimizing bill pay touch points to maximize profitability, including electronic and paper bill production and distribution, on-demand and recurring bill payment (via agent, web, IVR and walk-in channels) as well as e-lockbox and remittance processing. Biller Solutions from Fiserv exemplifies Fiserv's Customer & Channel Management core competency by providing clients with technology products and payment options that can help deepen the customer relationship.

ANNOUNCEMENTS - More Than 1,300 Funds Link to DTCC's Reconciliation Service

Service helps to automate the global syndicated loan market

NEW YORK & LONDON--(BUSINESS WIRE)--The Depository Trust & Clearing Corporation (DTCC) today announced that more than 1,300 investment funds participating in the syndicated loan market and administered by more than 80 leading fund managers are now linked to its Loan/SERV Reconciliation Service.

DTCC’s Loan/SERV Reconciliation Service, one of an evolving suite of services that helps automate and streamline the processing of syndicated commercial loans, enables agent banks and lenders – in this case, funds – to track, view and reconcile loan positions on a daily basis. The service, already in full production with leading global banks such as J.P. Morgan, Citi and Deutsche Bank, provides information on more than 75,000 loan positions.

In recent weeks, leading investment firms that have linked their funds to the Loan/SERV Reconciliation Service include PIMCO, Oak Hill Advisors, Highland Capital Management and KKR.

“Leading global investment management firms realize they need to make sure their loan positions are on the same page as the agent banks to ensure the accurate and timely servicing of these loans,” said Chris Childs, DTCC vice president, Global Loans Product Management. “Loan/SERV provides this data access in real time. By linking to Loan/SERV, these fund managers are introducing cost savings, boosting efficiencies and providing greater transparency in the syndicated loan market.

“More and more investment firms realize the benefits that come with this automation, and it’s why we’ve seen such a dramatic jump in the number of funds linking to the Reconciliation Service. In the past month alone, more than 25 fund managers signed up for the service,” Childs said.

Cash Settlement Capabilities Will Help Reduce Risk

In June, DTCC announced that its Loan/SERV advisory committee endorsed plans to add cash settlement capabilities, including Delivery versus Payment (DVP), to its Loan/SERV suite of services. A timetable for testing and production will be issued shortly. The advisory committee includes the Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank, J.P. Morgan, and the Royal Bank of Scotland, all agent banks serving the syndicated loan market.

“Our multi-currency DVP service, coupled with the Loan/SERV Reconciliation Service, will dramatically reduce risk and provide greater certainty in the syndicated loan market,” said Childs. “DVP will provide certainty to loan traders that cash settles simultaneously with changes to asset ownership recorded by agent banks.”

Along with its Reconciliation Service, DTCC introduced its Loan/SERV Messaging Service in 2008, which provides a safe and automated network for the transmission, receipt and online storage of industry-standard loan messages.

Loan/SERV is a service of DTCC Loan/SERV LLC, a subsidiary of DTCC.

ANNOUNCEMENTS - U.S. Bank First to Feature Visa payWave

on Unembossed Instant Issue Debit Cards

SALT LAKE CITY & DENVER--(BUSINESS WIRE)--U.S. Bank is the first card issuer in the United States to add Visa® payWave® technology to an unembossed debit card that is issued instantly to an account holder upon opening an account. The instant-issue Visa payWave pilot is being tested at select U.S. Bank branches in Denver and Salt Lake City as part of U.S. Bank’s on-going innovation in payments.

“Exploring smart and convenient ways to streamline payments is one of our top priorities,” said Dominic Venturo, chief innovation officer at U.S. Bank Retail Payment Solutions. “Our customers have demonstrated great interest in any development that makes their lives easier, whether it’s by giving them a debit card the minute they open their account, or speeding up their time in a check out line. Our goal is to continue to innovate and provide them with proven payment tools now and in years to come.”

The pilot allows U.S. Bank and its customers to explore the benefits of combining three new technologies into one card – instant issuance, unembossed personalization and contactless payment. The instant issue debit card provides many benefits to the customer because the permanent debit card can be issued in the branch at the time the customer opens a checking account, rather than that same customer getting an initial temporary card, then waiting for the permanent one to arrive days later in the mail. Unembossed personalization provides greater security and customer satisfaction and Visa payWave allows the customer to pay for purchases by simply waving the card in front of a reader instead of swiping it, speeding up the payment process.

U.S. Bank chose the metropolitan areas of Denver and Salt Lake City for its strong U.S. Bank presence in both cities and because customers there are familiar with contactless payment. Many merchants currently offer Visa payWave readers as a payment option.

Visa provides the Visa payWave feature in this program, while Dynamic Card Solutions (www.instantissuance.com) is providing the software and hardware necessary to personalize and issue the debit cards instantly at the branches.

The U.S. Bank branches participating in the pilot in Utah are located at 4135 South Redwood Road, 170 South Main Street and 888 East 4500 South in Salt Lake City, as well as 1884 North University Parkway in Provo and 7080 South Redwood Road in West Jordan. In Colorado, U.S. Bank branches at 950 17th Street in Denver and 8441 West Bowels Avenue in Littleton are participating.

U.S. Bancorp (NYSE: USB), with $266 billion in assets, is the parent company of U.S. Bank, the 6th largest commercial bank in the United States. The company operates 2,850 banking offices and 5,173 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at www.usbank.com. 

Contacts
U.S. Bank Media Relations
Teri Charest, 612-303-0732
teri.charest@usbank.com  

MISCELLANEOUS - AIG's NEW CEO Reaches Out to Greenberg

By Adam Tanner

DUBROVNIK, Croatia (Reuters) - AIG to Hank: All is forgiven, we need your help!

That is the message from Robert Benmosche, the new CEO of American International Group Inc (AIG.N), to Maurice "Hank" Greenberg -- the man who built the company into what was the largest insurer in the world but was then ousted, and has since been embroiled with the company in a bitter legal struggle.

Benmosche, 65, who was installed as head of the company on August 10, said he has been talking with Greenberg for months about AIG, which had to be rescued in a massive U.S. government bailout last year.

Benmosche said he contacted Greenberg as a sounding board when he was first approached about the job and after accepting it has turned to him for help and support.

The overture may lead to an extraordinary reconciliation between AIG and Greenberg, who has been a thorn in the insurer's side since he was forced out in 2005. Shares of AIG rose 4.2 percent in after hours trading to $39.29, after closing up nearly 11 percent, in a sign that investors may regard the news as positive.

"The world may choose to vilify him. I think of him as having had some problems, but he can help us with the solutions," said Benmosche in an interview at his villa overlooking the Adriatic.

"I have enormous respect for him. He has built an incredible business," added Benmosche, who was previously the CEO of MetLife Inc (MET.N), the largest U.S. life insurer. "I want him to know about the things we are doing; I want to share with him my ideas; I want to get the benefit of his criticisms or his support."

Greenberg, in a separate interview by phone in New York, said he had known Benmosche for many years and held him in high regard.

"He is a very able man, who did a very good job at MetLife. If Bob Benmosche seeks any assistance, whatever he needs me to do, I'll be glad to give him."

He added that he hoped to be able to reach an agreement to settle a string of lawsuits that remain outstanding between AIG and himself.

Greenberg, 84, was ousted from AIG because he refused to cooperate with an internal investigation into the insurer's accounting practices. Until the government stepped in to prop up AIG last year, Greenberg was the insurer's largest shareholder.

Greenberg had also taken to publicly bashing those who succeeded him at AIG, rebuking his successor Martin Sullivan for working too hard to please regulators. More recently, he was scornful of Benmosche's predecessor Ed Liddy, saying the former CEO of home and auto insurer Allstate Corp (ALL.N) had too little experience for the job.

OF LIKE MIND

Benmosche is the fifth CEO at AIG since 2005, and in Greenberg's opinion has the best chance to succeed.

"Some, who had been there before, shouldn't have been put in that spot. In my judgment, they did not have the breadth, intellect or experience necessary. Bob has all of that."

Greenberg, on a visit to the Adriatic coast two years ago, stopped by Benmosche's coastal villa in Dubrovnik for drinks and went out to dinner.

Benmosche said he wanted to regularly call on Greenberg for advice as he tries to rebuild AIG, a process he estimated that would take more than a year and possibly as long as three years.

He said he does not favor a quick sale of company assets at any price.

"You are building value, then you begin to look at how you right-size the company," Benmosche said. "It is going to take more than six months or 12 months to do this. Whether it is going to take 36 months, I don't know.

"But it's got to be done in a careful, prudent way so that at the end of the day, there is something left that is called AIG," said Benmosche, dressed in flip-flops, khaki shorts and a green polo shirt on his terrace overlooking the Adriatic.

"Just selling this company and getting whatever you can get for it and hope that it covers whatever debts you have, it's not for me. I don't think that's the way to go," he said.

Last September, AIG was on the verge of collapse from massive losses on derivatives linked to the subprime mortgage crisis until the U.S. government stepped in.

The new CEO is charged with leading AIG in repaying more than $80 billion in U.S. bailout loans while keeping the insurance company stable.

SEEKS TO GROW FROM STRONG CORE

As AIG shrinks in the future, Benmosche said he wants to keep a core group of diversified entities.

"You don't want to have all of your risks in the market in variable annuities, you don't want all of your risks in the fixed income markets and fixed annuities, you don't want all of your risks in life insurance, which is mortality, or all of it in property casualty.

"So we're are going to look to be retaining a large enough core of balanced risks so that we have a business that can grow going forward and has a chance to make it," the CEO said.

Since taking over, Benmosche has stopped the sale of the broker dealer group.

He said he had not yet decided what to do with the company's asset management business. "I'm concerned about its value in the marketplace right now," he said.

The fate of the airplane leasing company also was under review. "I am looking at ways we can structure this so we can get more value for what that business is today. Remember that we own more than 1,000 commercial aircraft," he said.

"We have to look at ways of financing the debt on those planes as we continue to take very good, healthy lease income."

The company is still planning initial public offerings for two large life insurance units, AIA and Alico, but some question marks remain, Benmosche said.

"We are continuing to go down the path of preparing them for eventual sale, but the issue becomes their performance and the issue becomes the price, if in fact we sell them," he said. "We are going to continue to look at those, but only when the time is right."

(Reporting by Adam Tanner in Dubrovnik, Croatia; Additional reporting by Lilla Zuill in New York; Editing by Leslie Gevirtz, Phil Berlowitz and Carol Bishopric)

© Thomson Reuters 2009 All rights reserved

MISCELLANEOUS - AIG CEO Defends Holiday

By Adam Tanner

DUBROVNIK, Croatia (Reuters) - Wearing flip-flops, khaki shorts and a green polo shirt, the new chief executive of bailed-out insurer American International Group Inc says he's getting a lot of work done from his massive villa overlooking the Adriatic.

"People criticize me for being on vacation. I actually started work a week before I was actually supposed to," Robert Benmosche told Reuters in an interview. "I do have conference calls every day, I have all my information sent here. I can work here as well as in the office in New York."

Benmosche, 65, previously the CEO of MetLife Inc, the largest U.S. life insurer, came out of retirement to become AIG's CEO on August 10.

His holiday, which started only a few days after he took up the job at AIG, has raised some eyebrows in the United States, where financial executives have faced unrelenting criticism over high compensation and anything that smacks of a privileged lifestyle during the economic crisis.

Executives at companies bailed out by the government, like AIG, have had to be particularly careful.

Benmosche said that he regularly keeps up with AIG business via telephone and the Internet, helped by the villa's array of satellite technology, and had three conference calls scheduled for Wednesday.

He had returned to the villa in a city famed for its medieval walls and crystal clear waters because he said he wanted to oversee the harvest of his vineyards to the north and spend time with his children and grandchildren.

He plans to return to work at AIG's offices in New York after Labor Day on September 7.

PASSION FOR CROATIA

He makes no apologies for his passion for Croatia, including his palatial villa with 12 bathrooms and his vineyards on the Peljesac Peninsula about a two hours drive north of Dubrovnik. Benmosche has no previous family links to Croatia; his ancestors hail from Lithuania and Poland.

"When you come here, all of a sudden you appreciate the world you live in," he said.

He bought the stone house (then a "complete wreck" in his words) in 2001 for about $1 million, and has since spent several times that amount in rebuilding the house and gardens. He used many imported materials, including Italian tiles, and added Viking stoves, an 18th century French tapestry, a well-stocked wine cellar and a huge 1922 Persian rug.

The terraces stretch across 160 or 170 feet of sea front, where he keeps a 135 horsepower boat parked in front.

"Every bathroom is like a piece of art," he said while showing off his master bathroom with his wife Denise. "Women go wild when they walk in here."

The room had an oversize wall-to-wall mirror, Jacuzzi, large glass-enclosed shower and plenty of natural light.

The Brooklyn-born Benmosche goes for a four-mile (6 kilometer) walk every day, frequently checks mail and stock prices on the Internet, and gets an in-house massage several times a week.

He rents rooms in the villa when he is not there -- 400 euros ($568) a night is the going rate.

He also hopes that his purchase of vineyards -- including in the well-regarded Dingac region, and another area where he has reintroduced once indigenous Zinfandel grapes -- will eventually yield good income for his family.

"My children worry about how do they reach my level," he said in a wide-ranging conversation over three hours. "I suspect my son has a better chance because he is in real estate. My daughter is going to be a rabbi, so as a rabbi I don't think she will ever make the kind of money CEOs make. But they were worried about how do they afford this."

"So everything I'm doing, whether it is in New York or here, you will see, provides income. I want to make sure the estate I leave behind not only provides value but is a viable business."

As much as he was looking forward to retiring to Croatia for a large part of every year, he said the economic crisis requires executives with experience to return to action.

"Some of us need to come out of retirement -- who have done this before -- to help deal with the crisis," Benmosche said. "If I sit here, I just felt that there are going to be continuing problems. I felt I had some of the skills necessary to fix the problems of AIG in particular and it made sense to come back."

"I do know that if AIG fails, it is going to have devastating impact on the U.S. and other countries as well. They operate in over 100 countries," he continued. "My sense is it has got to be fixed or it will affect me or other people around me because sooner or later what happens here will trickle down to all other businesses including MetLife."

Benmosche still owns about 500,000 MetLife shares, and options to buy another 2.1 million shares, and continues to receive retirement payments from his former company.

MILLIONS, BUT ON 'LOW END'

The new AIG CEO is being paid more than his predecessor, Ed Liddy, who made just $1 a year. AIG said it will pay Benmosche $3 million in cash and $4 million in fully-vested stock. He also could receive a bonus valued as high as $3.5 million.

"It's the bottom end of a competitive range," he said, adding that he earned more previously and would be judged ultimately on his performance. "You still need to pay people competitively."

Benmosche said he sees staying in the AIG job for two to three years. His predecessor left after 11 months.

Although very relaxed at his vacation home, Benmosche said he could be very tough on the job.

"I believe in people more than anything but I also believe in performance," he said. "You also hear me referred to as the bull in the china shop. And I can be, I can break things. But what is important is that when I show up, I get everybody's attention. And at the end of the day none of us are entitled to anything. It is what we earn."

He showed one flash of wrath on a sunny summer day when he discussed the bitter public criticism of AIG over the past year.

"We have the ability. I know that I am telling people we are allowed to," he said. "What I don't know is if people (employees) are willing to. A lot of them feel hurt, embarrassed, a lot of people have lived in fear because of what I call lynch mobs with pitchforks."

Benmosche was referring to severe criticism of the bonuses paid to some AIG staff at the financial products unit at the center of its meltdown. The verbal assaults by politicians and in the media led to several demonstrations, including a bus tour of employee homes near the unit's Wilton, Connecticut headquarters, and threats to others.

"People think it is funny but it is not when it is your children," he continued, his voice rising in anger. "It is not when you come home and you find people in front of your home and you had to sneak your children out in the middle of the night so that they are not attacked in a country called America."

"It was wrong. I think that when you do that, when you incite that kind of feeling in people, it makes it difficult to come to work the next day and say 'I'm going to work hard.'"

"It was a horrible period of time and I am hopeful that it is over."

A year from now, Benmosche said he hopes to wow people with AIG's performance.

"I think we will be clear as to what the vision is, what the reality of that vision is. We'll have a better sense of what our strategic companies will be worth, and what the marketplace will be worth, and people will say, wow, AIG is performing well," he said.

(Reporting by Adam Tanner in Dubrovnik, Croatia; Additional reporting by Lilla Zuill in New York; Editing by Phil Berlowitz)

MISCELLANEOUS - How to Smell a Rat: The Five Signs of Financial Fraud

Ken Fisher’s Latest Book for Fisher Investments Press

HOBOKEN, N.J.--(BUSINESS WIRE)--As Fisher Investments’ CEO Ken Fisher watched the news coverage of Bernard Madoff’s unraveling Ponzi scheme, he was struck by what the media seemed to always miss when reporting on such scams. Ken Fisher, who’s been managing money for individuals and institutions for over 30 years, has identified key traits shared by perpetrators of virtually every major financial fraud through history—from Charles Ponzi to Bernard Madoff. Had the embezzled clients known the traits and how to look for them, they could have avoided falling victim to Madoff and any similar con artist. Ken Fisher, a New York Times bestselling author and writer of one of Forbes’ longest-running columns, “Portfolio Strategy,” knew then there was a book to be written – a book he would write -- to help investors protect themselves from financial predators.

Some financial advisers start with the intention to embezzle. Others evolve to it—as Bernard Madoff claims. Either way, it’s structurally the same. In How to Smell a Rat: The Five Signs of Financial Fraud (Wiley; August 2009; $24.95; Hardcover), trusted financial expert Ken Fisher provides readers with an insider’s view on how to spot potential financial disasters before committing money to a scam.

The book takes an engaging look at both recent and historic examples of fraudsters, how they operated, and how they could have been easily avoided. Ken Fisher then shows readers quick, identifiable features of potential financial frauds and arms readers with questions to ask when assessing money managers.

How to Smell a Rat can enable readers to be better prepared to identify and avoid financial scams that could instantly destroy the wealth they’ve worked so hard to build.

Ken Fisher is best-known for his prestigious “Portfolio Strategy” column in Forbes magazine and as the founder, Chairman and CEO of Fisher Investments, an independent global money management firm. He is the award-winning author of numerous scholarly articles and has published five previous books, including New York Times bestsellers The Only Three Questions That Count and The Ten Roads to Riches.  http://www.fisher-investments-press.com

MISCELLANEOUS - Judge Won't Approve Bank of America: SEC Settlement

By Jonathan Stempel

NEW YORK (Reuters) - A U.S. federal judge has refused to approve Monday's settlement between the U.S. Securities and Exchange Commission and Bank of America Corp related to the acquisition of Merrill Lynch & Co.

In an order on Wednesday, Judge Jed Rakoff of the federal district court in Manhattan said it may be unfair to the public to accept the settlement, which would resolve SEC allegations that Bank of America made false and misleading statements to shareholders about bonuses promised to Merrill employees.

Bank of America had agreed to pay $33 million to settle the civil lawsuit and, along with the SEC, had sought the judge's approval for the settlement. Rakoff set a hearing on the matter for the afternoon of August 10.

In its complaint, the SEC had alleged that Bank of America told investors in proxy documents for the Merrill merger that Merrill had agreed it would not award year-end performance bonuses or incentive pay before the merger closed.

In fact, the SEC alleged that Bank of America had already authorized Merrill to pay up to $5.8 billion in bonuses. Merrill would ultimately pay $3.6 billion, according to regulators.

The merger closed on January 1, 2009. Two weeks later, Bank of America accepted $20 billion from the federal Troubled Asset Relief Program to help it absorb Merrill.

"Despite the public importance of this case, the proposed consent judgment would leave uncertain the truth of the very serious allegations made in the complaint," Rakoff wrote in his two-page order.

"The proposed consent judgment in no way specifies the basis for the $33 million figure or whether any of this money is derived directly or indirectly from the $20 billion in public funds previously advanced to Bank of America as part of its 'bailout,'" the judge added.

SEC spokesman John Nester declined immediate comment.

"We look forward to appearing before the judge and answering what questions he may have about the settlement," said Bank of America spokesman Scott Silvestri.

The Wall Street Journal, citing company emails and people familiar with the situation, added that the Charlotte, North Carolina bank's loss projections for Merrill bulged by nearly $2 billion two days before the takeover was approved by shareholders.

The bank's executives, however, decided that the losses were not severe enough to be disclosed publicly before the vote, the paper said.

Bank of America spokesman Robert Stickler was quoted by the paper as saying that the internal documents it reviewed "support what we have said all along."

The case is SEC v. Bank of America Corp, U.S. District Court, Southern District of New York (Manhattan), No. 09-6829.

(Reporting by Jonathan Stempel with additional reporting by Ajay Kamalakaran in Bangalore and Elinor Comlay in New York; Editing by Valerie Lee and Simon Jessop)

MISCELLANEOUS - New AIG CEO Says Expects to Repay Taxpayers

Thu Aug 20, 2009 10:40am EDT

NEW YORK (Reuters) - Robert Benmosche, the newly appointed chief executive officer of AIG (AIG.N), says he expects the bailed-out insurer to be able to repay its federal debts and boost value for shareholders, according to a report by Bloomberg News.

"At the end of the day, we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well," Benmosche said in an interview with Bloomberg while on holiday in Croatia.

"My first charge is to get the company to operate at the level it used to operate, being the world's best," he said, according to the report. "The fact is we owe the U.S. government a lot of money and we are not going to be able to pay it back just by our profits, so we will sell some of the company off but only at the right time at the right price."

Benmosche, 65, took up the CEO post on August 10. He had previously been CEO of MetLife Inc (MET.N), the largest U.S. life insurer. He came out of retirement to take AIG's helm.

AIG, once the world's biggest insurer, was saved from bankruptcy by a federal bailout last September. The company was on the verge of collapse from massive losses on derivatives linked to the subprime mortgage crisis.

Amid its financial problems, the value of AIG shares sank, and the bailout resulted in taxpayers getting a nearly 80 percent stake, heavily diluting shareholders.

Benmosche's task is to repay more than $80 billion in loans from the U.S. Federal Reserve and Treasury while keeping AIG stable.

AIG shares were up 13.9 percent at $30.34 in morning trading, their highest level since a 20-to-1 reverse stock split on July 1, according to Reuters data.

(Reporting by Lilla Zuill; Editing by Lisa Von Ahn)

MISCELLANEOUS - U.S. Pay Czar Says He Can "Claw Back" Exec Compensation

By Steve Eder

MARTHA'S VINEYARD, MASSACHUSETTS (Reuters) - Kenneth Feinberg, the Obama administration's pay czar, said on Sunday he has broad and "binding" authority over executive compensation, including the ability to "claw back" money already paid, and he is weighing how and whether to use that power.

Feinberg told Reuters that Citigroup Inc included the contract of energy trader Andrew Hall in submissions due Friday by seven major companies still locked in the federal government's TARP Program.

Feinberg said he hasn't looked at Hall's contract, which reports have said could pay him as much as $100 million this year.

"Whether I have jurisdiction to decide his compensation or not, we will take a look and decide over the next few weeks," Feinberg said after speaking at a public forum in Martha's Vineyard, Massachusetts, part of a newsmaker series hosted by the Martha's Vineyard Times newspaper.

Feinberg has been consulting with seven companies that have yet to pay back money they borrowed from the government, including Citi, American International Group Inc, Bank of America Corp, Chrysler Financial, Chrysler Group LLC, General Motors Co and GMAC Inc.

Those companies faced a deadline of Friday of submitted proposals to Feinberg for their top 25 employees.

Feinberg said on Sunday that decisions he makes will be "binding," but the law limits his power over contracts signed before February 11, 2009.

He also said he has the authority to use a "clawback" provision to go after compensation for executives from any company that received money from the U.S. Treasury's Troubled Asset Relief Progr.am (TARP).

"I have the discretion, conferred upon by Congress, to attempt to recover compensation that has already been paid to executives not only in these companies, but in any company that received federal assistance," Feinberg said during his remarks.

Asked by Reuters if he could use that ability to target a firm like Goldman Sachs Group Inc, which paid back $10 billion in bailout money, Feinberg said: "Anything is possible under the law."

"I can claw back, but we haven't focused on that at all," he said.

"TOUGH DISAGREEMENTS"

Feinberg said he has been advising the seven firms under his jurisdiction on a daily basis, characterizing the meetings as "very amicable."

"There have been some tough disagreements, but everyone is trying to get to an end place in compensation that makes sense in a post-TARP world," Feinberg said.

Citigroup, in particular, has concerns about pay restrictions causing its top employees to leave, Feinberg said.

"Citibank says if you don't pay us x or y, the going rate for our senior officials, they will leave," Feinberg said. "They will go to Goldman Sachs. They will go to JPMorgan Chase & Co. Worse, they'll go to UBS or the Royal Bank of Scotland, or foreign banks."

Feinberg said the law requires him to take market forces into account, but also to consider performance and past deals between a company and an employee.

"The statute provides these guideposts, but the statute ultimately says I have discretion to decide what it is that these people should make and that my determination will be final," Feinberg said.

"The officials can't run to the Secretary of Treasury. The officials can't run to the court house or a local court. My decision is final on those individuals," Feinberg added.

Feinberg told Reuters he hasn't spoken with President Obama about his role as the administration's watchdog on pay, although he has been in touch with Treasury Secretary Timothy Geithner.

Feinberg, who also served as the special master over the Federal September 11th Victim Compensation Fund and the Virginia Tech shooting fund, said compensation was an "emotional issue, but it doesn't rise to the level of those cases."

(Reporting by Steve Eder in Martha's Vineyard. Additional reporting by Anupreeta Das in New York. Editing by Ian Geoghegan and Valerie Lee)

© Thomson Reuters 2009 All rights reserved

MISCELLANEOUS - Wall Street Pay Disclosure Looms As Flash Point

Mon Aug 24, 2009 9:56am EDT

By Steve Eder and Karey Wutkowski - Analysis

NEW YORK/WASHINGTON (Reuters) - Wall Street salaries have become everybody's business lately, but the Obama administration's pay czar may try to keep under wraps a large portion of the compensation plans he is reviewing.

Kenneth Feinberg has said he is uncertain how much information will be made public. Privacy laws and fears that highly compensated executives will become targets for populist anger argue for limiting such disclosure.

Feinberg, speaking on Martha's Vineyard on August 16 in his only public remarks since becoming President Obama's point-man on executive pay, called the issue of disclosure "a serious problem."

"There is a tension between not wanting to put on the front page of every newspaper in the country the specific compensation packages of these individuals ... versus the public's right to know," he said.

Seven major companies still entangled in the government's Troubled Asset Relief Program -- including Citigroup Inc (C.N), American International Group Inc (AIG.N), Bank of America Corp (BAC.N) and General Motors Co GM.UL -- have submitted proposed compensation plans for their 25 highest-paid employees. Feinberg is reviewing the proposals.

As of now, the Treasury Department does not expect to make public information that would identify individual employees. It has said it will publish final determinations on pay packages in compliance with the Privacy Act, a federal law limiting disclosure of personal information.

Reuters last Wednesday submitted a request under freedom-of-information laws to review the pay proposals submitted by the seven companies. The Treasury has yet to respond.

"THESE ARE PEOPLE"

Steven Eckhaus, a New York executive compensation attorney who represents executives on the lists submitted to the pay czar, said his clients have concerns about disclosure.

"One of my clients makes $25 million a year and drives a Honda," said Eckhaus, of Katten Muchin Rosenman LLP. "He tries to lead a fairly modest life and he would be horrified if what he makes appeared in the paper. Not only would his neighbors know, but his kids would know, and it would affect his ability to raise his kids. These are people, not a circus sideshow."

Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution think tank in Washington, said releasing names and salaries of top executives could be intrusive and would not serve a public good.

"When you turn it into specific names, it's kind of voyeurism," Elliott said. "It's not the principles anymore, and I think it does violate their privacy."

He also said too much disclosure could prompt top executives to resign, harming companies as they try to recover and repay the government.

An intense emotional response to pay was on full display in March, when the public balked at $165 million in bonuses being paid to employees at the AIG unit largely responsible for the firm's needing more than $180 billion from the government.

The issue sparked criticism of Treasury Secretary Timothy Geithner and prompted left-leaning groups to organize bus tours to visit the homes of AIG employees.

Democratic Representative Alan Grayson hammered Edward Liddy, AIG's chief executive at the time, demanding the names of employees receiving the bonuses. Liddy demurred, saying releasing the names could provide ammunition to "individuals who want to do damage to them."

Grayson told Reuters he is unsympathetic to the argument that the pay czar should not name names.

"If this is the same top talent that caused their firms to be destroyed and put the entire U.S. economy at risk, I wish they would leave the firms and leave the country," he said.

As Feinberg handles the hot-potato pay issue, he'll continue to face both a drum beat of public pressure in favor of wide disclosure and pleas for privacy.

"We are going to come up with a way, which we will, that will balance some of those conflicting objectives," he said.

 (Reporting by Steve Eder in New York and Karey Wutkowski in Washington; editing by John Wallace)

© Thomson Reuters 2009 All rights reserved

PRODUCTS - Chase Introduces First-Ever Proprietary Rewards Credit Card

Chase SapphireSM Combines Rewards, Benefits, and Premium Service to meet the Modern-Day Needs of Affluent Customers

Chase will Launch National Advertising and Marketing Campaign on August 20th

WILMINGTON, Del.--(BUSINESS WIRE)--Chase Card Services, a division of JPMorgan Chase & Co. (NYSE:JPM), today announced the launch of Chase SapphireSM, the next generation rewards card designed for the affluent market. Chase Sapphire has been built from the ground up to address the needs of the top 15 percent of U.S. households by income who expect premium rewards, outstanding value, and exceptional service. Chase Sapphire consists of two product offerings - Chase Sapphire and Chase Sapphire Preferred.

Both Chase Sapphire and Chase Sapphire Preferred include premium travel services, a wide variety of rewards delivered through Chase’s Ultimate RewardsSM program, and direct access to a specially trained, dedicated customer service team, 24 hours a day, seven days a week, with all benefits and services backed by the stability and protection of Chase.

“While other credit card companies are scaling back on rewards or lowering the value of their points, Chase is improving the rewards experience by increasing the value of our points for our cardmembers,” said Eileen Serra, president, Affluent/High Net Worth business, Chase Card Services. “We designed Chase Sapphire to meet the needs of affluent consumers who seek rewards programs offering value, flexibility and meaning. Chase Sapphire addresses these needs by allowing cardmembers to use their points anytime, anywhere, for just about anything, without any restrictions.”

When a Chase Sapphire cardmember contacts Chase, a specially trained advisor picks up the phone – with no need to navigate a voice-response system. The primary customer call center is in Columbus, Ohio, with other centers in San Antonio, Texas, Springfield, Mo., and Orlando, Fla., providing service 24 hours a day, seven days a week, with the goal of resolving the customer’s need on the first call. In addition, Chase Sapphire provides access to online account information, online bill payment, email and mobile alerts, and the Ultimate Rewards program through www.chase.com.

Chase Sapphire Benefits:

“Chase Sapphire has been built from the ground up to provide affluent customers with the rewards, service, and acceptance they expect from a card,” said Sean O’Reilly, general manager, Chase Card Services. “This product delivers world-class customer service, an outstanding points redemption experience, and provides a package of benefits to protect their purchases and transactions.”

Premier Travel Benefits

• Unrestricted benefits, including no annual spending caps, points that never expire and no travel restrictions or blackout dates on travel reward redemptions.
• Premier travel benefits such as trip cancellation insurance, lost luggage protection, rental car insurance, emergency service assistance, and an interactive online travel concierge.
• Premium Cardmember Service
• Direct access to specially trained advisors – dedicated cardmember service 24 hours a day, seven days a week – guaranteed.

Ultimate Rewards Program

• Meaningful and easily accessible rewards, to include travel, special experiences, merchandise and cash back. Customers can earn points and redeem for what they actually want.
• Cash-back option starting at 5,000 points=$50.
• “Pay Yourself Back” feature allows card members to purchase items on their own and simply use their points to pay for the purchase, starting at 2,500=$25.
• Free access to dining recommendations through Zagat® and booking with Open Table®.
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All Backed by the Power of Chase

Simple Earning Structure