CAST SERVICE HIGHLIGHT

Branch Optimization
Effectively manage productivity, customer service and staff resource levels

As service providers aggressively expand product and service offerings, the branch delivery channel takes on new importance. Companies, particularly banks, frequently overlook the interdependencies of appropriate skill sets, staff levels, processes and physical branch configuration. The situation is further complicated in situations where multiple companies are being merged. A holistic view is essential in optimizing branch staff levels. Organizations continue to struggle with excess cost and ineffective productivity management in their branch networks.

• Inability to effectively forecast workload and accurately schedule resources based on service delivery targets and sales opportunities
• Limited understanding of the implications of delivering new products and services
• Inefficiencies from merging disparate operations, technologies and staffing practices
• Failure to educate staff and customers on alternative processing options
• Limited understanding of the implications of newly installed technologies
• Inefficiencies resulting from recent arbitrary, across the board staff reductions
• Incomplete performance metrics

Why CAST for Branch Staffing Optimization

• Over 15 years experience reengineering branch office processes in banking, insurance and capital markets
• Superior data capture and analysis methodology
• Proven approach to developing staffing standards and performance metrics
• Comprehensive staffing models
• Demonstrated expertise in organization design
• Collaborative approach which actively involves branch personnel
• Established implementation tools and techniques
• Proven tools for monitoring and measuring benefit

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

AMERICAN BANKER - A Teachable Moment

Everyone, at one time or another, has had a friend who is clueless about managing money. He spends his cash on stuff he doesn't need, signs up for credit cards that he quickly maxes out, and doesn't pay his bills on time.

Now "that guy" is the inspiration for Fifth Third Bank's new marketing campaign aimed at high school and college students. The series of "Don't be that guy" ads - including one hilarious spoof of a ubiquitous infomercial - uses a hearty dose of humor to preach the importance of saving and the dangers of impulse buying.

Larry Magnesen, Fifth Third's chief marketing officer, said it makes sense to target young adults because the financial crisis appears to have heightened their awareness of money matters.

"Certainly they read the headlines," he says. "Money is very top of mind for them."

Still, this is a demographic that also likes a good laugh. The ads are primarily airing on Fifth Third's Web site - they will make their television debut in mid-September - and Magnesen says that if the bank hopes to attract students to its site, then the ads better be funny. "The [sites] that we're competing with for their attention are [non-financial sites] that are a lot more fun and memorable, like YouTube videos. If that's the sort of media that they're consuming, then it makes a lot more sense to produce something that's entertaining but has a message embedded in it."

John Rankins, head of Insight Advertising Agency in Bowling Green, Ohio, said the ads strike the right tone between irreverence and education. "There's a resurgence in humor advertising. We're in a bad economy right now and people need something to brighten their day, so humor has rebounded," he says. "Also, kids today are very alert as to the uncertainty of a job being there for them after they graduate. They're becoming more cognizant of their spending patterns."

The ads, created by the Olson agency in Minneapolis, feature three male college roommates. The seemingly responsible one, Jim, is clean cut and preppy. Another roommate, Kyle, is "that guy," the disheveled one who is perpetually short of money. The third, Fulton, plays the role of the house nerd.

Of the five ads, the spot that has received the most attention on the Web is the one titled, "In the dark." It begins with Kyle and Fulton watching TV, while each wearing a Snuggie - a blanket with sleeves that is hawked relentlessly through a painfully un-hip infomercial.

Jim walks in and asks why it's so cold in the house. Kyle explains: "We don't really need to heat all of this space, you know. Am I over there? No. Am I over there? No, Jim, I'm right here. We're paying a ton of money every month to heat a lot of space that we don't even use."

Jim's response: "So what you're telling me is that you spent all of our utility money on backwards bathrobes."

The ad closes with the three men watching TV, wearing Snuggies, when the power goes out. Jim says to Kyle: "Didn't pay the electric bill, either, huh?" The ad closes with the Fifth Third logo and the reminder to "always have an emergency savings fund."

Fifth Third has seen a big spike in new accounts from students, which Magnesen attributes largely to a financial outreach program it began running on campuses earlier this year. Through the first six months of the year, accounts opened by students were up 27 percent from the same period in 2008.

The bank is hoping for a surge of activity in the fall, when college students tend to open new accounts. Since the ads started running on www.53.com/students in June, clicks on the sub-site are up 30 percent over last year. The ads are also being run on sites such as Hulu and Facebook, and Magnesen says that the click-through rate on Facebook is four-times higher than other ads on the site.

"Humor is used as an attention getting device," Magnesen says. "It's not so zany, over-the-top that the whole message gets lost. If it's too crazy, people will ultimately forget the message."

AMERICAN BANKER - Citi Project Seeks Branch Harmony with New Media

Citigroup Inc. is trying to go back to the future.

Executives at its U.S. retail banking unit have huddled for seven months to conceive a "Bank of the Future" strategy that would offer Internet and cell phone portals as a complement to its branch services, people familiar with the matter said.

The effort is reminiscent of 1997, when, under then-chief executive officer John Reed, the predecessor Citicorp unveiled a short-lived plan to do away with branches wherever possible by pushing more customers to personal computers, telephones and automated teller machines (a technology that Reed helped proliferate).

However, unlike Reed, the current Citi CEO, Vikram Pandit, does not plan to get rid of the banking company's branches.

The company has hired Michelle Peluso, who helped modernize airline reservations as the chief executive officer of Travelocity.com, to lead the discussions.

Citi's strategy-planning project, which was initially known as Bank of the Future and later given the official name "Citi Forward," is overseen by Teresa Dial, a former Wells Fargo & Co. executive that was hired by Pandit in March 2008 to run the U.S. consumer division. The unit had $1.76 billion of revenue in the second quarter, down 17% from a year earlier.

In an Aug. 27 memo to staff, Dial wrote that there's a "significant and immediate opportunity to embrace a more client- and customer-centric approach across our product lines and delivery channels." Key elements of the "service model" include "technology, the Internet and mobile," she wrote.

Liza Landsman, a former International Business Machines Corp. executive who has worked at Citi for nine years, was named to head the Internet and mobile banking team, according to the memo, which was confirmed by Susan Thomson, a spokeswoman for Citi.

Peter Knitzer, a 13-year veteran who previously oversaw marketing and Citibank Online, will leave the company later this year, Dial said in a separate memo Aug. 26.

Thomson declined to discuss specific products or services being developed under Citi Forward.

A related effort, known internally as "Project Harmony," aims to consolidate Web portals for personal banking and credit cards, so customers do not have to log in separately, people familiar with the matter said.

Some other banks, including JPMorgan Chase & Co. and Bank of America Corp., already offer single sign-ons.

Earlier this year, Dial hired Peluso, who was Travelocity's top executive from 2003 through January, as a part-time consultant. Peluso previously worked at Boston Consulting Group and also served as a White House fellow in the late 1990s.

Employees picked for the project were told in February to gather for lunch in an executive dining room at Citi's headquarters, the people familiar with the matter said.

Peluso opened the meeting by saying that she had just bumped into Citi Chairman Richard Parsons, who told her that he was excited about the project and that it was important to the company's future, according to two people who attended.

Parsons did not respond to a request for comment.

Dial arrived later in the meeting and said she wanted to prove that having a smaller branch network than some of its banking rivals could be a competitive advantage, two people familiar with the matter said.

Dial was not available to comment.

The Citi Forward group has been meeting about twice a week, one person involved in the process said.

In the Aug. 27 memo, Dial wrote that she was searching for a new chief marketing officer to play a "critical role in helping us define the future for North American consumer banking and earn the right to our customers' lifetime business."

AMERICAN BANKER - Dodd Leans Toward One Agency for All Banks

WASHINGTON — Senate Banking Committee Chairman Chris Dodd is actively considering a regulatory reform bill that would create a single federal regulator for financial institutions, stripping supervisory powers away from existing agencies, according to sources on Capitol Hill.

The bill — which, sources cautioned, remains a work in progress and could be derailed by several factors — also would likely create an interagency systemic risk council rather than give such oversight to the Federal Reserve Board, as the Obama administration has advocated.

Dodd's committee is working to finish a draft soon, with the hope of passing a bill this year, sources said.

But whether this version will survive hinges on whether Dodd decides to give up his Senate Banking chairmanship in order to run the Health, Education, Labor and Pensions Committee. A new banking chairman would probably tweak the bill and could even take a new approach. Though Dodd's final chairmanship decision is unknown, speculation has grown in recent days that he would move to the health panel.

Sen. Tim Johnson — the most likely candidate to succeed to the banking panel's chairmanship — is more moderate than Dodd on many issues and could opt to start over.

Still, the discussion now underway is the best picture to date of the status of reform in the Senate Banking Committee. Capitol Hill sources said the bill under discussion would differ from the Obama administration's reform plan in several areas.

For one, though the administration has recommended eliminating the Office of Thrift Supervision and merging it with the Office of the Comptroller of the Currency, the committee's tentative plan would go much further, stripping supervisory powers from the Fed and the Federal Deposit Insurance Corp.

These powers would then be vested in a single bank supervisory agency.

Though this idea is already opposed by community banks, who fear a single agency would be biased in favor of the largest institutions, it enjoys significant support in the Senate banking panel.

Dodd most recently raised the idea of a consolidated regulator during an Aug. 4 hearing, but it was unclear then how hard he would push for it.

"Is the administration's proposal really enough, or should we be listening to previous administrations … that greater consolidation should be the next step?" Dodd asked on Aug. 4.

During the same hearing, several committee members, including Sens. Charles Schumer, Jon Tester, Mel Martinez, Mark Warner and Jack Reed, gave weight to the idea.

"Creating a new, consolidated prudential regulator would bring all such oversight under one agency, streamlining regulation and reducing duplication and gaps between regulators," said Reed, a Rhode Island Democrat who also is considered to have a shot at becoming committee chairman should Dodd step aside.

"It would also bring all large, complex holding companies and other systemically significant firms under one regulator," Reed said, "allowing supervisors to finally oversee institutions at the same level as the companies do to manage their own risks."

Though the administration did not suggest such a plan, it may embrace it.

The Treasury Department considered recommending the creation of a single bank supervisor before it unveiled its plan but decided this would be too politically difficult.

That may still prove true. The Fed and FDIC both oppose giving up their supervisory powers, arguing, respectively, that they need them in order to conduct monetary policy and as the deposit insurer. Community bankers see such a concept as the beginning of the end of the dual banking system because they see the Fed and FDIC as more community bank-oriented. State-chartered banks may see little value in maintaining a state charter if they are to be regulated by the same federal regulator as the largest institutions.

House Financial Services Committee Chairman Barney Frank also said earlier this summer that creating a single prudential supervisor would be a mistake.

Whether Johnson could support such a plan is unknown, but the South Dakota Democrat has traditionally been a community bank advocate and is likely to be much more sympathetic to their concerns.

The Senate Banking Committee's bill is also likely to differ from the Obama plan in how it tackles systemic risk oversight. For months committee members on both sides of the aisle have criticized the Fed's credibility, questioning the administration's rationale for suggesting it serve as the systemic risk regulator and repeatedly urging that an interagency council be given more teeth.

Sen. Richard Shelby, the panel's lead Republican, appears particularly opposed to giving the Fed more power — and Dodd is negotiating with Shelby in the hope of winning GOP support.

As a result, several panel members are leaning toward a bill that would create an interagency council to oversee systemic risk. The Obama plan includes such a council but would give it no real power.

The bill is likely to give the Obama administration something else it has been seeking — a consumer protection agency — but the details are still being worked out. For one, the committee's bill is highly unlikely to compel banks to offer standard or "plain-vanilla" products before more complicated products.

Though the administration has lobbied for the concept, several panel members have said it is problematic because a one-size-fits-all model does not easily translate to loan offerings based on an individual's credit and other criteria.

"Plain-vanilla seems unworkable," said a senior Democratic aide.

Less clear is what happens to preemption, or the practice of allowing national banks to ignore state laws that conflict with federal statutes. The Obama plan would eliminate preemption and force national banks to comply with state laws, as well as face enforcement from state authorities.

Any final Senate bill is unlikely to go that far. Moderate Democrats and Republicans on the committee are unlikely to support a bill that eliminates preemption, sources said.

The bill is also expected to be a comprehensive plan that includes ways to address "too-big-to-fail" institutions by expanding resolution powers to nonbanks and bank holding companies and imposing tougher capital standards on the largest and riskiest companies.

It would also incorporate executive compensation standards to better tie pay to performance, overhaul the credit rating agencies, improve insurance oversight and tighten regulation of derivatives.

AMERICAN BANKER - Is the Dollar Fading as No. 1 Reserve Currency?

Dollar bashing is a popular pastime right now. China wants a new reserve currency; the IMF thinks that its Special Drawing Rights international reserve asset would make a nice replacement; some suggest the Euro; still others promote the Chinese remnimbi. The coffers of the world's central banks are piled high with dollars, and the U.S. government is piled high with debt.

While economists disagree on the prospects or a timeline (maybe 10 years away) in a shift away from the dollar as reserve currency, it's a reality that if the dollar loses its preeminence, higher interest rates in the U.S. will discourage borrowing and hurt the domestic banking sector. But some economists say a shift away from the dollar could also make it easier for smaller and regional U.S. banks to do international business, because transaction costs would decline, leveling the playing field.

How did the dollar's top-dog status come under duress? U.S. deficits and trade surpluses didn't faze too many as U.S. consumers bought all those goods from around the world on credit. Sure German economic ministers and European Central Bank officials scolded Washington, and Chinese leaders cast worried looks at their growing pile of U.S. treasuries. But the scolding came with a wink - all that U.S. debt was employing workers around the world.

Then the housing bubble burst, spewing toxic asset-based securities in every direction. U.S. consumer can't mine their homes for credit any more, and there's a global fire sale with not enough buyers lining up at the checkout counter.

By the end of last year, China's leaders were frightened, and declared that the time had come for a new reserve currency. As 2009 progressed, they convinced Brazil, Russia, and India to sign on to a call for an undefined super-reserve-currency. Renowned economists touted the Euro; the IMF presented a paper to a meeting of the G10 extolling the virtues of the SDR. NYU professor Nouriel Roubini cheered on the Chinese remnimbi.

"A shift away from the dollar probably should happen, but it won't happen overnight," says Standard & Poor's chief economist David Wyss. He sees a 10-year process, with the dollar losing its dominant position to a basket of currencies. "You can't have a world currency before you have consistent global regulatory and fiscal policy," according to Wyss.

Others don't believe a brand new currency is likely, and doubt the remnimbi will be ready to take its place as a reserve currency anytime soon. "The remnimbi would have to be freely exchangeable and deliverable, and it's not," says Steven Pearson, head of G10 currency strategy at Bank of America Merrill Lynch. Brazil, Russia, China and India are pressing for an expanded SDR, Pearson adds, but there are few stable currencies that are broadly enough traded to merit inclusion. Today SDRs are a mix of the dollar (44 percent), the euro (34 percent), the yen (11 percent) and the pound sterling (11 percent). Instead, the most likely near-term scenario will be a rebalancing of central bank currency holdings away from the dollar.

"SDRs are an old saw raised perennially, but without a government and central bank behind them they cannot become important," observes Paul Bennett, a fellow of Columbia University's program in law and economics.

He gives the remnimbi another 20 years before it challenges the dollar. And Bennett predicts a gradual increase in the use of euros as reserve holdings, "but nothing dramatic."

Keith Leggett, senior economist at the American Bankers Association, says the dollar "will not be as preeminent but still will be a major component in these portfolios." Falling demand for the dollar will bring inflationary conditions, along with higher interest rates. Demand for credit will decline, and U.S. banks will be left competing for fewer customers at narrower margins.

A shift away from the dollar could take at least 10 years, according to Scott Anderson, vice president and senior economist at Wells Fargo. The relative decline of the dollar would raise the cost of business of U.S. big banks. "Many global bonds and commodities are priced and purchased in U.S. dollars," says Anderson, and large U.S. banks can take in low-cost dollar deposits and deploy them worldwide. And many foreign institutions must go to these U.S. banks for dollars when they want to deal in dollar-denominated markets, generating a reliable flow of fee and transaction income.

"If the U.S. dollar was no longer the global reserve currency, these advantages would quickly evaporate," Anderson says. Small domestic banks and even foreign institutions could compete on equal footing as the effective cost of funds for major U.S. banks increased, leveling the competitive playing field.

The dollar has been unrivaled in the post-World War II era. Change is in the air, and whether the dollar's dimming is gradual or sudden, it won't be easy for U.S. borrowers and lenders.

AMERICAN BANKER - Lockbox is Losing its Luster

As banks continue to push corporate clients to handle payments electronically, they are showing less interest in processing paper checks and invoices at lockbox facilities.

Bankers say that offering electronic payments services enables them to offer a variety of other for-fee features, while the arduous work of opening envelopes and sorting checks is becoming less viable, particularly as people write fewer of them. This is especially true for retail lockboxes, which process consumers' payments to billers. And Citigroup Inc.'s deal in July to sell its entire operation to First Data Corp. shows that the same trends are starting to hit the wholesale business where business-to-business transactions are handled.

Amol Gupte, the head of Citi's North American treasury and trade solutions unit, said the company agreed to sell its retail and wholesale lockbox units in order to focus on more lucrative payments services, such as receivables management and information reporting. He noted that lockbox sites typically have complicated machinery and extensive automated systems that need to be maintained, making them more like an industrial plant than a banking service. Citi concluded that lockbox "is a manufacturing business we did not want to be doing ourselves," Gupte said.

Earlier in July JPMorgan Chase & Co. sold its retail lockbox business to the payments processor Regulus Group LLC. Barry Barretta, a principal at the Chicago consulting firm Treasury Strategies Inc., said the two deals signal an inflection point in the lockbox business, as more banks exit the market. "The retail trend is almost completely played out," Barretta said. "The wholesale piece, you're just seeing that start."

Banks have been more willing to outsource their retail lockbox functions while retaining the wholesale businesses, which handle more complicated transactions and therefore carry a higher fee. But it can be a tough call. "Owning something is always better than not," said Craig T. Vaream, a managing director in the JPMorgan Treasury Services unit. "We need to be close to the client and understand how to provide that capability for them."

Retail lockbox is a straightforward job, Vaream said, processing checks for amounts that correspond to payment coupons and posting the payments to customers' accounts. The increasing use of electronic payments and credit cards eventually led JPMorgan Chase to conclude that it was a declining business. But wholesale lockbox services are more complex and more lucrative, he said, because a single check can cover multiple invoices and include a range of disputed items, partial payments or other adjustments.

Still, vendors that offer lockbox service say they are preparing for more wholesale volume.

Regulus, a unit of 3i Infotech Ltd., is the country's largest provider of outsourced lockbox services, and focuses almost exclusively on retail contracts. It is considering expanding its wholesale processing services, said Josh Wendroff, the product marketing manager at 3i Infotech. Regulus provides clients with a single file of payments information, whether through the Internet, by phone or through a lockbox to handle complex, wholesale payments.

Nancy Etheredge, a First Data spokeswoman, said it would integrate Citi's six lockbox sites into its own Remitco unit, which has seven locations and processes 48.3 million transactions a month for more than 300 clients. Remitco already does some wholesale business, and expanding its wholesale operations is "definitely a consideration," Etheredge said by e-mail.

Citi is not the first to get out of wholesale lockbox. Northern Trust Co. created a joint venture in 2001 with the vendor Fiserv Inc., and SunTrust Banks Inc. outsourced its wholesale and retail operations in April of last year to Symcor Inc., along with its check clearing and statement production.

Barretta said that while processing retail lockbox payments can be worth just pennies per item to a bank, a B-to-B payment can net up to $1 per check, largely because of the value of the imaging and data capture to the corporate client. As a result, wholesale lockbox remains an attractive business for big cash-management banks.

However, many of these banks have developed electronic payments services that are starting to take off. These enable banks to offer new types of automated cash management services, but the trade-off is that they also cut into their wholesale lockbox volume. "There's a threat to the big players" that offer wholesale services, Barretta says. They are "seeing that revenue go away."

Steve Bills is the deputy technology editor at American Banker.

AMERICAN BANKER - The Business Case for Financial Literacy

Bank tellers may spend their days counting out money, but that doesn't mean they all manage their own finances well. So, starting this fall, SunTrust Banks Inc. will kick off a company-wide financial literacy initiative in which it will train front-line employees in the basics of money management - budgeting, balancing a checkbook, paying bills on time - and educate them on the importance of saving and investing.

SunTrust officials say the workplace education program is worth the investment because studies show that financially secure workers are more productive than those with money troubles. (The threat of foreclosure or eviction can be a powerful distraction, after all.) Bank officials intend to eventually parlay the in-house program into a value-added service it can offer to its corporate customers, many of which have approached SunTrust about offering financial education to their own employees.

But perhaps the biggest payoff for SunTrust will be in the trickle-down.

J. Scott Wilfong, the president of SunTrust's greater Washington, D.C., region, says that the financial crisis was caused, in large part, "by the fact that people just don't understand finance. That included a lot of bankers that were selling financial products." The bank, which has made financial education a centerpiece of its nearly year-old "Live Solid, Bank Solid," branding campaign, wants workers who have completed training to use the knowledge they have gained to both better advise customers and steer them toward products that best meet their needs. While that approach may not produce the short-term profits the bank might have strived for in the past, it could go a long way toward improving customers' financial standing - and SunTrust's prospects for cross-selling.

"If consumers are doing better with their money, then they can afford more home loans, car loans and school loans," says Michael Gutter, a University of Florida professor who is an expert in personal financial education. "Financial institutions need to think about this from a long-term perspective."

Bankers have always believed that financial education makes good business sense, to some degree, and it's why they often take the lead in sponsoring high school literacy programs and adult money-management seminars. But some bankers admit that, in recent years, they lost focus. Most of the industry's capital was devoted to product development, not people, and the result was that many customers were steered toward "free" checking accounts that maximized overdraft fees and into loans they couldn't afford or didn't understand.

"There was no incentive to worry about the long-term financial health of the customer," says Don McGrath, the chairman of BancWest Corp. in San Francisco. "Obviously, we've all seen the problem with that set of facts."

The financial crisis has changed that. It's led to a surge in bank-sponsored programs, targeting youths and the elderly, the banked and the unbanked. Like SunTrust, many banks are also starting to incorporate financial education into their marketing. Bank of America, for example, recently started running advertisements touting its one-page, plain language mortgage disclosure form. The Washington Trust Co. in Westerly, R.I., is embedding educational videos on such topics as reverse mortgages and loans for first-time home buyers into e-mails to customers.

Part of banks' motivation, undoubtedly, is rebuilding trust. By responding to consumer demands for transparency and financial knowledge, banks can diffuse the backlash and credibly lobby against efforts to impose more regulation on them, says industry analyst Mike Moebs, whose Illinois firm collects and analyzes data about financial institutions for business, academic and government clients.

Adds Gutter: "It's good PR right now. Banks want to show they care about their customers."

It remains to be seen how well the efforts will pay off for banks, or if they will stick with their commitment to financial literacy once the economy recovers. Studies show that people with damaged credit who undergo money-management training often revert to their old habits. Moreover, banks have profited handsomely over the years from customers' missteps - repeatedly paying overdraft and bounced-check fees, for example - and recovering that lost income is likely to be an ongoing challenge if consumers become more savvy about avoiding fees.

Few bankers are as active in financial literacy efforts as McGrath. He is an officer of the Financial Services Roundtable, an industry lobbying group that is strongly encouraging its members to take a more active role in financial education. He sits on the President's Advisory Council on Financial Literacy, a panel established by President George W. Bush that is awaiting new instructions from the Obama administration - which has said financial education is a top priority. The council has issued recommendations on what the federal government could do to increase financial literacy nationwide, such as mandating financial education from kindergarten through 12th grade and offering tax incentives to employers who provide financial literacy programs in the workplace.

McGrath also is as a board member of Operation HOPE, a Los Angeles advocacy group that takes a civil rights approach to the need for financial education. For 17 years, Operation HOPE has counseled the poor and unbanked and provided financial education resources used in classrooms and communities across the country.

His company, too, is heavily involved in financial education. BancWest unit, Bank of the West, is one of more than a dozen financial institutions participating in "Bank on San Francisco," a program in which banks and credit unions offer financial literacy education and low-cost savings and checking accounts to the unbanked. (The program was founded in San Francisco three years ago and has since spread to dozens of other cities.) Bank of the West also educates senior citizens about protecting their financial assets from swindlers.

McGrath says it is simply good business for banks to educate their customers, and use their "megaphones" to encourage financial literacy training, particularly in schools.

"The ability to have a much better educated populace is good for the industry," McGrath says. "It's sad that the problem had to get so bad before we decided to deal with it."

Marshall & Ilsley Bank in Milwaukee is also a strong proponent of financial education; it recently added a second full-time staffer devoted solely to financial literacy. In one of its programs, M&I explains banking and credit basics to people seeking job training at an Arizona food. It also helps soon-to-be-released prisoners in Wisconsin learn to create and live on a budget. Since 2005, the bank has given financial literacy training to about 15,000 people throughout its nine-state service area, says Ammar Askari, the bank's vice president of retail administration.

While the unbanked and the underbanked represent a potentially profitable customer base down the road, banks also recognize the need to stay connected with existing customers. Rilla Delorier, SunTrust's chief marketing officer, says SunTrust's "Live Solid. Bank Solid" campaign is based on research that shows customers not only want reassurance that their bank is stable, but also that it cares about their financial well-being. A typical ad campaign can take about four months from inception to launch, but SunTrust rolled out the "Solid" campaign in early October, after just six weeks in development, because research showed the message would immediately resonate with consumers. "America has changed its mindset around money," Delorier says.

The campaign has included training for employees in select branches and the plan going forward is to take that initiative to a broader segment of the bank's retail workforce.

David Mancl, director of Wisconsin's Office of Financial Literacy (a division of the state Department of Financial Institutions) and also a member of the President's Advisory Council on Financial Literacy, says financial education in any workplace has been shown to reduce employee stress and increase productivity.

What's less known is whether bank employees will effectively pass on what they have learned, but Mancl intends to find out. Using a $200,000 grant from the Investor Protection Trust, a Washington, D.C., nonprofit, a research team that includes Mancl's agency will study the benefits of financial literacy training provided to 4,000 credit union employees in Wisconsin. The employees' financial knowledge will be tested before and after they receive online training. After the instruction, researchers will measure whether employees increased their participation in 401(k) plans, as the training advises, and whether customers' contributions to retirement plans increase after consulting with employees that went through the training.

"When you do financial training in the workplace of a financial institution, the employees may take steps to improve their own financial wherewithal, but maybe more important is how that will transfer to the customer," Mancl says. 

Building a savvier base of customers may help banks solve some of their problems, but it could create others. If people really do improve at managing their finances, how will banks make up for the loss of revenue that now comes from customers' money management problems?

An unavoidable reality for serious financial literacy efforts is that banks' income depends greatly on the carelessness of a small percentage of customers. U.S. banks and credit unions generate $34 billion annually in overdraft fees on checking, debit and ATM accounts, according to the FDIC, and research firm Oliver Wyman notes that 68 percent of all NSF and overdraft fees come from just 5 percent of accountholders racking up 20 or more overdrafts a year.

Those fees are likely to become even more critical to banks' bottom lines next year, when federal laws take effect limiting banks' ability to extract credit card fees. The Obama administration's plan to create a Consumer Financial Protection Agency - which the industry vehemently opposes - also threatens to further commoditize basic loan products and shrink margins that are already razor thin.

"We've seen pretty strong mortgage rules. We've seen pretty strong rules on credit cards enacted," says Rebecca Borne, policy counsel for the Center for Responsible Lending, an advocacy group based in Durham, N.C. "That leaves overdrafts wide open as an area banks can exploit."

Borne contends that for banks to gain more credibility as financial literacy advocates, they should, for example, halt the practices of charging "piled-on" overdraft fees, which often hit the poorest customers hardest. "Banks are clearing transactions from highest to lowest to clear the account earlier and charge more fees," she says.

Sue Hunt says "water-cooler conversation" at Consumer Credit Counseling Service of Greater Atlanta, a nonprofit agency that advises people on how to manage debt, often centers on how fees can push consumers trying to rehabilitate their finances even deeper into a hole. "Banks and lending institutions are going to put the fees on the people who have the most difficulty paying their loans," says Hunt, housing program manager for CCCS. "But if they don't, then the costs will trickle down to those who do pay loans on time."

Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable, says that banks haven't really come up with a game plan for replacing revenue they could lose if customers get smarter about paying overdraft fees, but says it's a problem the industry would welcome.

"That would be a good scenario to have our customers manage their money well," he says. "The benefits to the consumer, to the economy, to the industry are a positive. All are strengthened by better financial literacy."

Moebs, the analyst, says that banks have no choice but to shift their business model away from overdraft fees that are under so much scrutiny from regulators and consumer advocates. He suggests that financial institutions fully inform customers about how fees are incurred, warn customers when they are about to be charged, and - importantly - better diversify fees so that revenues are not as heavily weighted on overdrafts. Moebs' analysis indicates that nearly 45 percent of banks and credit unions have overdraft revenue greater than net income.

The solution, he says, is for banks to charge more fees, but to spread them out across product portfolios and make them transparent so that regulators don't have reason to intervene on consumers' behalf. That would be difficult in the current economic climate, Moebs acknowledges, but says it's crucial to future profits. "We have at stake a broken business model," he says, "and the only way we are going to be able to make it work is to charge more fees" on transactions, loans and deposits. 

Even with more financial know-how, some customers, of course, will keep paying for their financial mismanagement. Moebs likens financial education to speed limit signs: Drivers know how fast they should go, but some always speed.

Indeed, results from a pilot financial literacy program for college students that Gutter worked on in Wisconsin in spring 2006 showed participants immediately reduced credit card use and increased savings. But nine months later, their card use and debt levels were higher and their savings rates were lower than before the study started. One area of improvement that stuck: Before the training, 33 percent of students said they used a budget. Nine months later, about 42 percent of students were using a budget.

M&I Bank's financial literacy program, which uses the FDIC "Money Smart" financial toolkit as a framework, has shown more positive results. The bank requires most participants to take a 10-question multiple-choice financial literacy test before and after they go through a training session. The number of correct answers goes up an average of 44 percent after the training is complete.

Still, Askari says the stream of revenue from customers who cannot manage their money is unlikely to evaporate. As an example, he describes M&I Bank's Credit Builder program, which helps people improve their credit history by showing how they can improve credit scores by making regular payments. The bank funds a certificate of deposit - a simulated "loan" - for the participant, who then makes monthly payments until the total adds up to the value of the CD. At the end, the participant can cash in the CD, including the interest earned. But a considerable number of people who start the program never complete it, says Askari, who plans to research just how many people drop out of such second-chance bank accounts - and why.

"We are saying, 'Look, we want to help you, but we want evidence that now you want to help yourself,'" Askari says. "The worst of them will not rehabilitate."

But what encourages financial literacy proponents is that people are now far more interested in learning how to manage their money - and banks are far more interested in teaching them.

Since 2008, the Financial Service Roundtable has encouraged members to focus community outreach on financial literacy. A recent roundtable survey showed that 56 percent of the community service projects its members sponsored in the second quarter focused on financial literacy - up from 35 percent in the third quarter of 2008.

Hunt of Consumer Credit Counseling says two years ago many mortgage candidates who were required by their lenders to get financial counseling treated it as "a huge imposition."

"The people who are coming to the table now," she says, "are better educated about the home-buying process and want to become more educated."

Many also are in better shape financially, she notes.

Mancl says the number of people attending financial education events sponsored by Wisconsin's Office of Financial Literacy has grown by a third in the last year.

"We are getting record attendance," Mancl says. "The public is tuned into its own financial education."

AMERICAN BANKER - Thinking Ahead - Online Bill Payment Needs a Boost

Like a well-trained marathon runner, the service has had a long and steady run over a more than decade-long course, but it's beginning to hit a wall. Online banking's early-adopter set, eager to jump on the electronic bandwagon, have long ago embraced the concept of paying bills from their bank's site (or that of a bill payment consolidators like Fiserv's MyCheckFree.com).

But despite the benefits and the fact that most online bill payment services are free, there's still a healthy contingent of bank customers (even online banking customers) opting to pick up their pen and checkbook when it comes time to pay their monthly expenses. Although an August online banking survey from Javelin Strategy & Research says seven in 10 households now pay bills online on a monthly basis, recent research indictes only half of households that bank online also pay bills regularly through their bank's site.

According to Forrester Research released in June, that number is growing at 5.4 percent a year, and within five years, 63 million U.S. households will be paying bills online, either through the banks and bill consolidators or directly to billers, such as utility and credit-card companies.

Within three years, a majority of payments, for the first time, will be made through banks and consolidators like Yodlee who are supplying more of the bill payment services to bank Web sites. For banks and credit unions, their share of the pie is expected to be around 45 million households, per figures last fall from Javelin.

But today most users are still using biller sites, much to banks' frustration. And 54 million users are still expected to be regular patrons of direct billers by 2013, said Javelin. Jim Bruene, president and founder of Online Financial Innovations, says that "it's definitely true that bank bill pay has hit a plateau. Consumers are using direct bill pay at merchants for quicker turn time on payment."

Why should banks be concerned? In this market, where retail deposits are king and retention is paramount, online bill payment represents one of the best ways to keep customers from switching banks. "It's a lot harder to unwind the [online bill payment] product. If you're just banking online and not paying bills online, it's a lot easier to move to another bank," says Marie O'Neill, senior vice president for marketing and electronic banking at Union Savings Bank of Danbury, Conn.

Indeed, many banks are trying to win over those unconvinced consumers to start paying bills electronically and through their sites. Bruene points out that some banks are tweaking their systems so they are easier to use in hopes of engaging those techno-laggards, who will only adopt online bill payment when they see it as not only faster and cheaper than conventional check payment, but also simpler.

He also says that he's seen several banks working on increasing the speed of payments, so that users can be assured that their payments are going through by the next business day. That's crucial in this economy, as more and more consumers postpone paying their regular bills until the last minute.

Here are a few strategies that banks are using to capture a larger share of the online bill pay market:

Integrating e-Billing Into the Online Bill Payment Engine

According to Javelin analyst Mark Schwanhausser, one major factor working in the banking industry's favor is that more consumers say they would prefer to view and pay their bills centrally at their bank's site than a biller's or a consolidator's site. But traditionally, banks have been fighting a problem of perception as well as competition.

"One of the issues in presentment is that [banks] are competing with, but also co-operating with, billers," he says. Case in point: In August 2008, AT&T announced it was working with Fiserv's CheckFree service to launch an e-bill service for its wireless customers - of whom more than 92 million pay their monthly bill online - that will work through more than 3,000 financial institutions.

Underscoring The Availability Of Expedited Payment

Consumers are often happy to pay a moderate one-time fee for the privilege of paying a bill just before it's due. Javelin forecasts that over the next five years revenue opportunities for expedited payments would top $5 billion. But the Pleasanton, Calif., firm found that even though more than 30 percent of consumers use expedited payment at least once a year, just one-quarter of these payments are made through a bank.

It's not for a lack of available tools - many banks work with either Yodlee or Fiserv to integrate expedited payment into their online service, and Jack Henry & Associates debuted an enhanced version of its own bill pay service in October that adds an expedited payment feature set. In July, Wells Fargo struck a deal with Western Union Co. under which it will offer Western Union's same-day bill-payment services on its Web site.

Still, many consumers simply don't know that their banks offer expedited bill pay, according to Bruce Cundiff, director of payments research for Javelin. "It's more of a marketing and perception issue," he says. "I don't think financial institutions are doing a good job at [promoting] expedited payment... and they're losing out to billers on this opportunity."

Tying Bill Paying Into Personal Financial Management

With the recent rise of online personal financial management - hosted by nonbanks like Mint and Wesabe, as well as the growing availability of these more advanced tools at the sites of such banks as PNC Financial Services Group, Citigroup, and Wells Fargo & Co.-bill payment is being wrapped more naturally into the over-arching financial picture. A good example is how PNC is incorporating bill payment into its Virtual Wallet application, according to Schwanhausser.

Among other things, he says that including bill payment within the bank's financial management service provides users with a calendar that points up "danger days" letting payees know when a bill may be coming due or their account may fall short. "The bank often makes you think of your money as a subset of banking, when it should be turned inside out," Schwanhausser says. "This helps them see it all and take care of it all."

Offering Incentives

Just as they did to attract new checking account customers, several banks are sweetening the pot by offering sweepstakes, prizes, and even cash to consumers willing to commit to online bill payment.

Synovus Financial Corp.'s Bank of North Georgia last year ran a marketing campaign in which it gave iPod Nanos to anyone who opened a free checking account and sent at least three online bill payments.

Ed Kountz, senior analyst for e-business at Forrester Research, says that other banks, including JPMorgan Chase & Co., have also hosted contests as a means of winning new bill pay users.

Royal Bank of Scotland's Citizens Financial Group recently put its money where its mouth is by offering to pay customers 20 cents per electronic transaction (including automatic payment and debit card use as well as online bill payments) for 12 months, up to $20 per month. "You want to show these customers that they're worthy of the investment, not treat them like any other customer," says Schwanhausser.

Playing the "Green" Card

Environmental awareness is certainly the cause célèbre of the moment - and luckily its aims, particularly limiting the use of paper, overlap neatly with online bill payment. The Citizens Bank campaign, for example, is actually part of its broader "Green$ense" program. Banco Santander's Sovereign Bank launched a similar campaign in April. Sovereign's landing page features an applet for consumers to calculate the environmental impact of going paperless. The bank offers to plant a tree for every e-bill paid through its site.

Several large banks - including Bank of America Corp., U.S. Bancorp, and SunTrust Banks Inc. - and vendors have banded together to form the PayItGreen Alliance, in order to promote electronic payments.

In June, Harleysville National Bank in Pennsylvania launched its own GenGreen product suite - aimed at making electronic bill payment more palatable by underscoring its eco-friendly side effects, as well as its convenience. Between June 8, 2009 and April 22, 2010 (Earth Day), the bank will pay customers 10 cents for each online bill payment and check card purchase, up to a total of $50, and will make a matching donation to local environmental initiatives.

Noel Devine, the bank's senior vice president of marketing, says the campaign's goal is to have between 15 percent and 17 percent of its total customer base paying bills online. "With the introduction of this campaign, our objective is to educate, activate and reward customers for choosing paperless banking," Devine says. "Primarily, we educate them on the many positive benefits of electronic banking." So far, so good: In the first few weeks, Harleysville has seen 5 percent of its existing checking customers that were not banking online activate their electronic services.

AMERICAN BANKER - To Bottom Line Backs Value for BofA of Merrill Deal

A year later, there are signs Bank of America Corp. may be turning the corner with its much-maligned acquisition of Merrill Lynch & Co., leading some of the deal's original critics to believe it is paying off strategically.

Hurriedly arranged during the market's near-meltdown last September, the purchase has extracted its pound of flesh from the principal participants. Not all observers are ready to forgive chief executive Kenneth D. Lewis for the high price B of A paid in terms of finances and reputation. And certainly, from a legal perspective, Merrill is the nightmare that never seems to end for either the banking company or Lewis; high-profile departures and lingering issues over Merrill bonuses and disclosures to shareholders have become the norm.

Still, beyond that, on an operational basis, some people — not all — are warming up to the deal's fundamentals.

Gary Townsend, the CEO of Hill-Townsend Capital LLC, said, "Perspective has been dreadfully lacking" in the past year as people assessed the deal. "The timing of it was poor, and the amount they paid was too much," he said. "But at the end of the day, Merrill may provide over time a significant boost to Bank of America."

"Merrill Lynch is making a hell of a lot of money for the company," said D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "From a strategic perspective, it makes perfect sense for them to have a killer investment bank. The only question is, how to do it in a way that benefits the shareholders?"

Jessica Oppenheim, a spokeswoman for the $2.3 trillion-asset Charlotte company, said Tom Montag and Sallie Krawcheck, who were tapped last month to oversee the businesses most closely linked to Merrill, were unavailable to comment. But Oppenheim did say the Merrill purchase presented "a huge opportunity to deliver one of the deepest and most sophisticated portfolios of financial solutions in the industry."

Merrill contributed to investment banking revenue that rose 60% in the second quarter, from a quarter earlier, to $1.6 billion. The rebranded Bank of America Merrill Lynch topped the first-half league tables for high-yield debt, leveraged loans and mortgage-backed securities, according to Dealogic.

Richard Bove, an analyst at Rochdale Securities, estimated in a note to clients last week that business lines with ties to Merrill had given B of A's profit a net lift of $5.6 billion in the first half of 2009, compared to a year earlier. This was true for trading, investment banking and wealth management, he said.

Observers said that such results are encouraging against the backdrop of an improving operating environment.

Marshall Front, the chairman of Front Barnett Associates Inc., a Chicago investment firm, said he has yet "to make a final judgment" on the deal's success but is "aggressively" buying B of A stock. "The financial markets have begun to recover, and people will view this deal in a different light in a year or two," he said.

Bove wrote in his note that he fears B of A may be forced to sell Merrill to defuse the company's mounting legal problems. "This would be a blow to the company and its shareholders," he wrote.

Plath, the finance professor, said B of A's biggest blunder was miscalculating "the arena" around the deal. "They have been totally blown away by the animosity and heavy-handedness that occurred," he said. Though Lewis was justified in firing former Merrill CEO John Thain after the bonus issue blew up, he said, the decision hurt a seamless integration. "That's when the wheels really came off," he said.

B of A lost several high-profile Merrill executives after Thain's mid-January ouster, though the company has touted the retention and promotions of both Montag and Andrea Orcel, a top investment banker in London who last week was named executive chairman of global banking and markets.

The company has said that broker attrition stabilized in March and that it had about 15,000 at June 30; hiring in the investment bank is offsetting defections, it added. "We continue to hire advisers and have added hundreds since January," Oppenheim said. "The advisers we are gaining are, on average, twice as productive as those we are losing."

Townsend said defections should be expected with B of A. "They are doing the best they can with what was a difficult marriage," he said. "To make it work, Bank of America had to cut significant costs. Compensation will never be the same. It's what they do with every merger." The legal issues "will end," he said, adding, "They only seem endless because currently we are going through it."

Just because some observers are warming up to the deal does not mean they are ready to let Lewis off the hook for making it a year ago, however. The underlying angst that played heavily into Lewis' losing his chairman title during April's shareholder meeting persists. And some said Lewis' position remains tenuous as B of A is hit by waves of embarrassing legal battles over the lack of disclosure last winter on bonuses and the mounting fourth-quarter losses at Merrill.

"The fact that the bonuses and losses were not disclosed is troubling" and overshadows positive momentum, said Timothy Yeager, a professor at the University of Arkansas and former economist at the St. Louis Fed. "What we don't observe are the benefits of the deal going forward."

Front agreed. "There are still a lot of people who hate Ken Lewis and are betting this deal is going to fail, but every week I see a small subset relent to take a less pessimistic outlook of the company." The key, he said, will be third-quarter results, which would show whether Bank of America has sustainable momentum.

Plath said that, for him, the real determinant of success would involve seeing the merged companies' main business lines — investment banking and mortgage and retail banking — working together. Such integration has always proven challenging for big banks. "They are running their individual businesses wonderfully, but they haven't gotten them working together," he said.

B of A has acted to connect various businesses. It moved 750 bank specialists to work with Merrill financial advisers, and they are pitching products such as mortgages and home equity lines to brokerage clients. Similar moves are under way to connect brokerage with commercial banking.

"That is the next step of creating value," Plath said. "Let's wait for the world to improve … , and they will be a huge force to be reckoned with in finance."

AMERICAN BANKER - With Fund Low, FDIC Still Has Plenty in Reserves

WASHINGTON — Rumors that the Federal Deposit Insurance Corp. is close to broke — which have increasingly gained traction as the level of federal reserves has declined — appear greatly exaggerated.

Though on paper the agency had only $10 billion left at the end of the second quarter to deal with an expected rash of failures, the FDIC actually has more than $42 billion on hand — only $4 billion less than it had nine months earlier at the height of the financial crisis.

At issue is the FDIC's accounting methodology, which forces the agency to remove money from the Deposit Insurance Fund to prepare for a failure if a bank receives a poor Camels rating. As the number of troubled banks has increased, the FDIC has set aside more of its money, leaving the Deposit Insurance Fund looking depleted and increasing anxiety about the state of federal reserves.

Many observers — and the FDIC itself — have said that the news media and some analysts are overlooking loss reserves as failures mount, assuming incorrectly that each new bank collapse is at risk of exhausting the fund.

"The media loves to look at the fund balance. I think you have to look at the whole picture," said Paul Miller, a managing director at Friedman, Billings, Ramsey & Co. Inc.

The FDIC is attempting to turn that perception around. Though it seldom mentioned the set-aside for expected losses — which it calls the "contingent loss reserve" — in the past, FDIC officials emphasized during the most recent quarterly report that those funds were still available to the agency.

"We have been trying to stress recently that people need to look at both" federal reserves and the contingent loss reserves "to get a picture of what's available for us to handle the cost of bank failures," said Art Murton, the director of the FDIC's division of insurance and research, in an interview. "We entered this crisis period with slightly more than $50 billion in our fund — basically, there was very little reserve there — and now we are in the low 40s. That's not a huge decline. But because we have tried to reflect the cost of the failures we anticipate a year ahead, it looks like more has happened than actually has happened. That's really lost on people."

Though the contingent loss reserve bedeviled the industry during the savings and loan crisis, when the agency had to set aside so much that the then-two deposit insurance funds were exhausted, it has received little attention during the current crisis.

Until recently, that was likely because the figure was negligible. In March 2008 the agency's loss reserves totaled just $600 million, while the DIF held $52.8 billion. But with more banks' Camels ratings slipping, the contingent loss reserve has skyrocketed over 5,000%, to $32 billion at the end of June.

How the loss reserve is calculated is a tricky task for the agency. Under generally accepted accounting principles, the FDIC is required to designate as a liability the money it expects to lose to failures over the next four quarters.

The agency tasks a special panel, known as the Financial Risk Committee, with meeting to determine how much loss reserves are needed. The committee meets roughly twice a quarter. It begins with all of the institutions on the "Problem Bank" list, which are those with Camels ratings of 4 or 5. Last quarter there were 416 institutions on the list.

Using failure trends over the past two years as a guide, the FDIC puts banks in one of five buckets in order of failure probability. The first four buckets are: banks with Camels 4 ratings and capital ratios above 2%; 4-rated banks with capital ratios below 2%; 5-rated banks with capital above 2%; and 5-rated banks with capital below 2%.

Banks rated 5 with capital below 2% have a very high chance of failure, while those rated 4 and with higher capital have less probability. Each institution is given a rough loss estimate should it fail, but that estimate is adjusted by the failure probability of its bucket. A fifth category contains institutions that for a variety of reasons have a 100% probability of failure.

Murton said the panel is given a certain amount of discretion to adjust a bank's expected loss based on supervisory information. Typically, an institution may jump between buckets in a given quarter, and the agency will have to reserve more or less money.

When and if the institution fails, the agency pays for its resolution from that reserve, not from the DIF's balance. "Sometimes" the projections are "high, and sometimes they're low," Murton said. "Nevertheless, there's money set aside. If you forget that, you tend to have a bleaker picture of what our resources are."

The estimates are critical to the health of the fund. If the FDIC underreserves, a failure could end up drawing more than expected from the DIF. If it sets too much money aside, there is less money available in the fund to deal with unanticipated failures, potentially undermining public faith in the fund and causing banks to pay more in premiums to replenish it.

Some observers warned the loss reserves are just an estimate. "They're a guess. They can be right or wrong," said George Pennacchi, a University of Illinois at Urbana-Champaign finance professor.

For some recent failures, the agency appears to have erred on the side of caution, putting more money in the contingent loss reserve than the actual failures will cost. When the agency announced the failure of the $25 billion-asset Colonial Bank on Montgomery, Ala., on Aug. 16, it said that the estimated loss to the DIF of $2.8 billion was less than it had reserved.

Others said the contingent loss reserves also do not sufficiently account for revenue the agency is receiving.

"One of the things the loss reserve does not take into account … is future premium income," said Bert Ely, an independent bank consultant based in Alexandria, Va.

Ely argued that since the loss reserves are supposed to project failures over four quarters, they should project assessment income over the same period.

But Murton said GAAP rules bar the agency from doing that, and a more extensive accounting for premiums would have other consequences.

"I believe if we booked that future income, the banks would have to expense it," he said.

BANKINSURANCE.COM - AIG, Greenberg and Smith Agree to Binding Arbitration

BANKINSURANCE.COM - NEWS IN BRIEF - SEPTEMBER 7 - 13, 2009

New York City-based American International Group and its former Chairman and CEO Maurice (Hank) Greenberg and its former CFO Howard Smith have agreed on terms of binding arbitration to settle their legal disputes out of court.  The arbitration will begin no later than October 15, 2009, and conclude by March 31, 2010.

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

BANKINSURANCE.COM - Credit Card Issuers Held to 45-Day Notice

BANKINSURANCE.COM - NEWS IN BRIEF - SEPTEMBER 7 - 13, 2009

The most recent issue of FDIC Consumer News reminds consumers that legislation passed in May 2009 requires that credit card issuers, as of August 20, 2009, must give consumers 45-days’ advanced notice of a rate increase or other significant changes in account terms.

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

BANKINSURANCE.COM - FASB Issues Proposed Update of Fair Value Measurements ...

...and Disclosures

BANKINSURANCE.COM - NEWS IN BRIEF - SEPTEMBER 7 - 13, 2009

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update designed to improve disclosures about fair value measurements.  FASB Chairman Robert Herz said, “The Board believes that the increased transparency resulting from the proposed disclosures will benefit financial statement users.”  Comments on the proposed update are due October 12, 2009.  To read the “Update of the Fair Value Measurements and Disclosures” of the FASB Accounting Standards Codification, originally issued as FASB Statement No. 157, Fair Value Measurements, click here.  

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

BANKINSURANCE.COM - Fixed Annuity Sales Up 10%

BANKINSURANCE.COM - NEWS IN BRIEF - AUGUST 31 - SEPTEMBER 6, 2009

U.S. fixed annuity sales in the second quarter grew 10% to an estimated $27.8 billion, up from $25.3 billion in second quarter 2008, according to the Fixed Annuity Premium Study conducted by Evanston, IL-based Beacon Research.  Book value annuities dominated fixed annuity sales, increasing 10% to $14 billion.  Indexed annuities ranked second, climbing 20% to $8.2 billion.  Market value annuity sales slid 5% to $3.5 billion to rank third, and fixed income annuity sales rose 2% to rank fourth in sales volume.
     MetLife lost its leadership position among fixed annuity providers, dropping from first place to seventh.  New York Life led with $2.85 billion in total fixed annuity sales, followed by Aviva USA ($1.67 billion), Allianz Life ($1.55 billion), AEGON/Transamerica ($1.26 billion) and American Equity Investment Life ($1.14 billion), according to Beacon’s survey of 53 insurance companies, or an estimated 86% of the market.

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

BANKINSURANCE.COM - SEC Chief Reminds CEO's of Oversight Duties

BANKINSURANCE.COM - NEWS IN BRIEF - SEPTEMBER 7 - 13, 2009

U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro has sent a letter to the CEOs of broker-dealer firms reminding them of their legal supervisory responsibility to oversee broker-dealer activities, particularly with respect to sales practices.  Schapiro said, “If a registered representative is aware that he or she will receive enhanced compensation for hitting increased commission targets, the registered representative could be motivated to churn customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in investors’ best interest.”  To prevent this, Schapiro warned, each CEO must make sure its firm’s supervisory and compliance infrastructure is vigilant and “retains sufficient size and capacity” to effectively carry out its responsibilities.

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

K@W - Google Everywhere: As the Search Giant Grows

Managing Technology - How Much is Too Much?

As it expands into new markets with additional products and platforms, Google is beginning to look a bit like Microsoft in the mid-1990s: A company with big ambitions and an ever-growing list of competitors. Its latest skirmish with Apple over an integrated telephony and voicemail management application for the iPhone is just one example of what is likely to come, according to Wharton faculty and other experts. In addition, they say, as Google tries to be virtually everywhere that consumers are, it needs to avoid making the same mistakes that Microsoft made, and it should pay close attention to privacy issues.

LINK TO ARTICLE: http://knowledge.wharton.upenn.edu/article/2330.cfm 

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

K@W - Is the World Losing Faith in the U.S. Dollar?

Finance and Investment

As the global economy appears headed toward recovery, concerns are growing that the United States' addiction to massive fiscal stimulus as an economic panacea could eventually lead to an even bigger crisis -- a loss of confidence in the U.S. dollar. Prominent voices are sounding dire warnings, worried that a gradual return to normalcy could undermine the political will needed to control deficit spending and prevent a disastrous long-term decline of the world's primary reserve currency.
 
LINK TO ARTICLE: http://knowledge.wharton.upenn.edu/article/2332.cfm 

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

M&A - ING Gets Bids Near $2 Billion For Private Bank Units

By Ben Berkowitz and Saeed Azhar

AMSTERDAM/SINGAPORE (Reuters) - Dutch financial group ING (ING.AS) has up to five bids for some or all of its for-sale private bank assets, a source familiar with the process said on Thursday, with offers for the full package running close to $2 billion.

Multiple sources involved in the deal identified Swiss firm Julius Baer (BAER.VX) and Singapore's DBS (DBSM.SI) as two of the definite bidders.

The sale of ING's private banking assets is the most prominent transaction to date in the consolidation wave that is shaking up the wealth management industry after the subprime crisis.

The source familiar with the process said bids had been submitted for the Asian private banking unit, but were still coming in as of Thursday afternoon for the Swiss operations. There was also the possibility that some bids could come in after what had been a Thursday deadline, the source said.

It was not immediately clear who the additional bidders may be. A number of names have been rumored to be in or out of the process at various points over the last month, with only Julius Baer consistently seen as a front-runner.

MISCELLANEOUS - Another Financial Crisis Inevitable: Greenspan

Wed Sep 9, 2009 7:42am EDT

LONDON (Reuters) - Another global financial crisis is inevitable because human nature always reverts to "speculative excesses" during a period of sustained prosperity, former U.S. Federal Reserve Chairman Alan Greenspan said.

"The crisis will happen again but it will be different," he told BBC Two's "The Love of Money" television series.

"That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that that will continue," he said.

Greenspan, speaking to the BBC to mark the first anniversary of the fall of U.S. investment bank Lehman Brothers, said Britain will be hit worse than the U.S. by the subsequent worldwide financial crisis and global recession because it has a globally-focused economy.

Countries, smarting from the near collapse of the banking system, will struggle to match their stated desire for increased regulation with their other stated need for free global trade.

Greenspan stepped down as Fed chairman in 2006 after 18 years at the helm during which he presided over the longest uninterrupted period of economic growth in modern U.S. history from 1991 to 2001.

But his record has recently come under harsher scrutiny, with some economic watchers noting it was during Greenspan's tenure at the Fed that the seeds were sown for the housing and easy credit bubble that contributed to the financial crisis.

Greenspan, who has defended his record repeatedly, said financial crises are all different, but they have one fundamental source.

"They human beings begin to take speculative excesses with the consequences that have dotted the history of the globe basically since the beginning of the 18th and 19th century," he said.

"It's human nature: unless somebody can find a way to change human nature we will have another crisis."

(Reporting by Avril Ormsby; Editing by Chris Pizzey)

MISCELLANEOUS - AIG's Near Fall

Sends Ripples Through Industry Pricing, Underwriting, Competition

OLDWICK, N.J.--(BUSINESS WIRE)--A year after the near-fatal fall of powerhouse insurer American International Group Inc., the industry is still feeling shock waves. In the first of a two-part series, BestWeek presents The AIG Effect, a look at the impact the AIG crisis had on the industry, with ripples that have impacted pricing, underwriting, competition, risk management and regulation.

Some say a wounded AIG (NYSE: AIG), always a tough competitor when it came to pricing, became even more aggressive in an attempt to retain business, which may have prolonged the current soft market.

Edmund “Ted” Kelly, chief executive officer of Liberty Mutual, has been one of the more vocal critics of this cut-throat pricing. He said the federal money given to AIG gave it an unfair advantage, allowing the struggling enterprise to be “overly aggressive.” In November 2008, Kelly said, AIG was trying to increase or at least preserve market share by “doing some very stupid things in the market.”

Lloyd’s, with its trademark subscription market, may turn out to be the major beneficiary of AIG’s stumble, according to an article in the latest BestWeek Europe. Insureds, suddenly reawakened to the age-old wisdom of spreading risk, may be looking with fresh interest at a market that prides itself on its ability to combine expertise and assemble big policies from small pieces. Jeremy Brazil, president of Markel International Insurance Co. Ltd. in London, said he believes clients have become more interested in the subscription market. This reassessment, he added, has been influenced by the sheer size and muscle of AIG, which could easily absorb huge risks on its own. Not only are clients now more wary about giving too much business to one underwriter, Brazil said, but they fear that the banking crisis could have further, unwanted effects on the insurance sector.

Also, in BestWeek U.S./Canada, Pennsylvania Insurance Commissioner Joel Ario was hiking the Appalachian Trail when he got the news that AIG was in danger. It was a Saturday afternoon, Sept. 13, 2008. From discussions with then-New York Insurance Superintendent Eric Dinallo, Ario knew AIG was headed for ratings downgrades come Monday, but no one yet knew the extent of the problem. “I was just coming into Harpers Ferry, W.Va., and my BlackBerry rings, and it’s Eric saying, ‘Remember that e-mail last night about AIG? Well, we need to talk about it right now,’” Ario recalled. “It was literally four hours later before I got off the park bench.” One year later, Ario is still on the AIG trail. www.ambest.com

MISCELLANEOUS - Blunt Bailout Talk? AIG CEO's True Passion is Wine

AIG's new CEO develops Zinfandel in Croatia * Was determined not to miss first harvest * Wants to leave behind a viable business when he dies By Adam Tanner VIGANJ, Croatia, Sept 2 (Reuters) - AIG's (AIG.N) new CEO, Robert Benmosche, has sparked just about as many headlines as one executive can in the past few weeks -- and all while on holiday at his villa in Croatia looking over the Adriatic.

He has been unusually outspoken for the head of a major New York-based corporation that has been bailed out by the U.S. government. He recently made waves by saying that New York Attorney General Andrew Cuomo had acted like a "criminal" and also ignored concerns about corporate excess by showing a Reuters reporter around his 12-bathroom villa in Dubrovnik.

And his very presence here has upset some -- as he came to Croatia on holiday only days after taking the helm at AIG on Aug. 10.

But perhaps the context for some of this can be found in the passion the 65-year-old American has for his avocation as a vintner. When he was CEO of the largest U.S. life insurer MetLife Inc (MET.N), Benmosche dreamed of retiring here and producing wine from the nation's vineyards.

Benmosche, who first visited Dubrovnik on a corporate retreat in the 1980s and was charmed by the city and scenery, spent millions to make that dream come true. He bought and renovated a massive villa, acquiring vineyards and then after a year of seeking approvals from U.S. and Croatian authorities importing 1,500 vines from California to produce the popular American Zinfandel type of wine.

Coming out of retirement to one of the toughest jobs in corporate America had not been part of the original plan. This summer was the first harvest from these vines -- now multiplied to 6,000 plants -- a harvest Benmosche had no intention of missing. "My hope is that the vineyard becomes a source of true, high-quality wine for this region," Benmosche said last week during an interview at his Dubrovnik villa. "Because they are really not there yet. They are just struggling coming back from the war, they are still struggling with this whole idea of capitalism. If they become part of the European Union, their wine making is not going to compete unless they make a better class of wine. I want to show them."

An apparently solved mystery around the original source of the popular American Zinfandel type of wine added to the allure of investing in vineyards on the Peljesac peninsula, halfway between Croatia's ancient cities of Split and Dubrovnik. Zinfandel grapes once grew in abundance in Croatia but virtually disappeared a century ago after being hit by disease. In California, since the late 19th century fruity Zinfandel grew in popularity and is now the state's third-most popular type, according to the Wine Institute, a California trade group.

In recent years, DNA testing has linked Zinfandel back to a Croatian grape variety called Crljenak, and Benmosche wanted to reintroduce Zinfandel grapes. "I was curious to see what would happen. My original theory was if it is true, why not see if it grows?" said Benmosche, who began to dial back from some of his more colorful outbursts on Tuesday when he said he regretted comments about Cuomo. "My idea was that if Zinfandel grapes came from Croatia -- they weren't sure then, but they are now -- what I said to myself was ... when the time came to retire I had stuff going on here and I would just hit the ground running."

WINE TOURISTS

Experts say that reintroducing Zinfandel wine to Croatia makes good business sense. "Zinfandel is an established wine variety with a global market," said Carole Meredith, a grapewine geneticist whose 2001 DNA tests linked Zinfandel's origins to Croatia. "The wines from those vines can be labeled Zinfandel and can compete on the world market, assuming that the quality is going to be good," she continued. "There is almost no market for the other Croatian grapes because the names are unfamiliar."

Another plus is that the Zinfandel name could lure wine tourists to Croatia, said Meredith, who now runs her own vineyard in California's Napa Valley, a region north of San Francisco where such visitors are a significant business.

Benmosche has already created a pilgrimage site on his five-hectare vineyard of terraced hillside rising from half a kilometre (three-tenths of a mile) of seafront in Viganj, an area across the water from the medieval walled island city of Korcula. Small steps lead up the side of the hill and rocks surround three plants that he says are three original Crljenak plants dating back to the area's cultivation many decades ago. "They are absolutely original plants, they don't know why they are alive, they don't know how they survived," Benmosche said. "It's like a shrine -- we built the steps going up the shrine and there are the three plants that overlook Korcula. It's like unbelievable."

Boris Mrgudic, who manages Bemmosche's vineyards in Viganj and a second area nearby that are used to produce Dingac wines, says the first Zinfandel harvest in August went well, although it will take years to show a profit. "In 10 or 15 years this will be shown as a very good

investment," he said while showing off the vineyard land Benmosche bought starting in 2006. Although Benmosche, whose impressive villa is a two hours' drive to the south in Dubrovnik, clearly enjoys dabbling in the wine business, he says his ultimate goal is to help his children after his death. "This is about leaving something behind that I know is self-supporting," he said. "I want to make sure that the estate that I leave behind is not only of value, but is a viable business."

(Reporting by Adam Tanner, editing by Martin Howell and Matthew Lewis)

MISCELLANEOUS - Employees Question Sustainability of Corporate Efficiency Gains

Towers Perrin Analysis

Employee Engagement and Goal Clarity High, Yet Employees Perceive Organizations as Less Efficient

STAMFORD, Conn.--(BUSINESS WIRE)--While many organizations took aggressive action to reduce costs and improve efficiency during the recession, these gains may be at risk, according to Towers Perrin’s Workplace Watch, a quarterly review of employee opinions across large global organizations. A first quarter spike in positive perceptions of corporate efficiency dropped noticeably in the second quarter: Only 58% of the more than 610,000 employee responses included in the second quarter’s analysis agreed that their company’s current structure facilitates efficient operations, a decline of 16 percentage points in just three months. And the percent of those who believe their organization continually works to ensure processes are as efficient as possible dropped to 73% from a high of 81% just last quarter. www.towersperrin.com

MISCELLANEOUS - Large Majorities of Public Blame Health Insurers,...

...Drug Industry, Republicans and Business for Problems with Our Current Health Care System

NEW YORK--(BUSINESS WIRE)--Whatever the public may think about proposals for health care reform, they blame many different parties for the problems with the system we have now. The health insurance and pharmaceutical industries are the most widely blamed, with most people believing they deserve a “great deal of blame.” However, more than 60% of all adults believe that both Republicans and Democrats in Congress, business, hospitals, former President George W. Bush and doctors should all get at least some blame.

These are some of the results of The Harris Poll® of 2,498 U.S. adults surveyed online between August 10 and 18, 2009 by Harris Interactive®.

Fully 90% of all adults blame the health insurance industry, and 60% believe it deserves a “great deal” of blame. Almost as many, 84% of adults blame the pharmaceutical industry and 53% think it deserves a “great deal” of the blame.

Substantial but smaller majorities believe that all of the following are to blame: Republicans in Congress (74%), business (72%), hospitals (70%), Democrats in Congress (69%), President George W. Bush (66%), and doctors (61%). However, less than 30% believe any of these deserve a “great deal” of blame.

A 58% to 42% majority does not think President Bill Clinton is to blame.

Majority Believes Obama’s Proposals Would Create a Government-run Health Care System

This Harris Poll also tested the impact of the health care debate on public perceptions of President Obama’s proposals. This poll was conducted in August, before the President’s address to Congress on September 9th. It found that:

•A 49% to 40% plurality of adults support President Obama’s proposals, compared to a 42% to 38% plurality in July and a 50% to 20% plurality in January;

•A slender 54% to 46% majority rates Obama’s proposals as “good” but only 19% believe they are “very good”;

•However, a 54% majority rates the proposals by the Democrats in Congress as “bad” and a larger 69% majority rates the proposals of the Republicans in Congress as “bad” (it should be noted, of course, that there are, as yet, no one set of proposals coming from either the Democrats or the President – nor, of course, from the Republicans).

•A 58% to 19% majority believes that President Obama’s plans would create a “government-run health care system”;

•A 28% minority believe that President Obama’s plans would not allow anyone, “who wants to, keep the health insurance they have now.”

So What?

These poll findings illustrate the tangled nature of public opinion on health care reform. Doubts about President Obama’s proposals have increased but nobody else – certainly not the Congressional Republicans – is seen as having anything better to offer.

In general the low level of support for any proposal, and the large number who blame both the public and the private sectors provide a gloomy picture of public distrust and low expectations.

The Harris Poll® #99, September 9, 2009

By Humphrey Taylor, Chairman, The Harris Poll

MISCELLANEOUS - Obama Unveils Measures to Spur U.S. Retirement Saving

Sat Sep 5, 2009 2:49pm EDT

By Jeff Mason

WASHINGTON (Reuters) - U.S. President Barack Obama announced new measures on Saturday to encourage Americans to save more money for retirement, a move the White House said would put the economy on a stronger footing in the future.

Obama, in his weekly radio and Internet address, said the government would enact rules making it easier for small businesses to let workers automatically enroll in Individual Retirement Accounts (IRAs) and 401(k) retirement plans.

Payments for unused vacation time and sick leave could be converted into retirement savings under the new measures and Americans would be able to have tax refunds directly deposited into their retirement accounts or used to buy savings bonds.

The measures do not require congressional approval and most will take effect immediately.

"We have to revive this economy and rebuild it stronger than before," Obama said in the address. "And making sure that folks have the opportunity and incentive to save -- for a home or college, for retirement or a rainy day -- is essential to that effort."

As the Obama administration focuses on lifting the U.S. economy out of its worst crisis since the Great Depression, the president has often warned that recovery must be coupled with steps to prevent another financial fall.

Americans' widespread reliance on credit cards and failure to save are two things he has targeted as part of that effort.

"The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased," Obama said.

"We cannot continue on this course. And we certainly cannot go back to an economy based on inflated profits and maxed-out credit cards."

Obama said a drop in housing prices and fall in financial markets had caused Americans to lose some $2 trillion in retirement savings over the last two years.

MAKE IT AUTOMATIC

John Boehner, the Republican leader in the House of Representatives, called on Obama to support a Republican initiative that he said would keep the government from hindering Americans' ability to restore their savings.

"Republicans are pleased President Obama has joined us in calling for action to help Americans rebuild their lost savings," the House minority leader said in a statement.

"Millions of Americans have watched with anxiety in the past year as the value of their 401(k)s, college savings plans and other vital savings accounts have plummeted, and government should not be an impediment as they work to restore what they've lost," he said.

The House Republican bill would raise contribution and catch-up limits for retirement accounts, reduced Social Security earnings penalties, suspend capital gains taxes on newly acquired assets for two years and suspend taxes on dividend income through 2011, among other measures.

An administration official said the Net National Savings rate -- which groups personal, corporate and government savings -- was -2.8 percent in the second quarter of 2009.

The U.S. personal savings rate came in at 5 percent in the same time period after falling as low as 0.8 percent in April of last year.

"Right now the situation in national savings is unsustainable," said the official, calling the negative net national savings rate a "major macroeconomic challenge."

U.S. officials hope making saving mechanisms more automatic will spur Americans to put more money away. Automatic enrollment programs in 401(k) savings plans by big corporations have increased employee participation significantly.

"Working Americans should be able to retire with dignity and security, but nearly half of the nation's workforce has little or nothing beyond Social Security benefits to get by on in old age," Treasury Secretary Timothy Geithner said in a statement.

The initiatives announced on Saturday are meant to augment previous proposals that do require congressional approval, including a plan to automatically enroll workers in IRAs if they do not have workplace retirement plans.

Even as it urges Americans to save, the administration wants consumers to spend money to help spur economic growth. The legislative proposals on Individual Retirement Accounts would not go into effect for a few years -- until 2011 -- to account for that dual desire, the official said.

(Editing by Vicki Allen)

MISCELLANEOUS - U.S. Panel to Probe, Tell Tale of Financial Crisis

By Susan Cornwell

WASHINGTON (Reuters) - Phil Angelides thinks his commission has a tale to tell, but it's not the kind of history that should be allowed to repeat itself.

The Financial Crisis Inquiry Commission this month will begin probing how the U.S. financial system came perilously close to collapse in the fall of 2008, leading to the worst economic downturn since the Great Depression.

Congress ordered the 10-person commission to examine 22 causes of the debacle, "from A to V" as Angelides puts it. They range from things that were done, like mortgage fraud, to things mostly left undone, like over-the-counter derivatives regulation.

Armed with subpoena power to bring witnesses and spring documents, the panel is supposed to find out what caused the collapse of major financial institutions, like Lehman Brothers Holdings Inc, from August 2007 to April 2009 -- as well as those that would have failed without government aid, like American International Group Inc.

The first public meeting is set for September 17, with the group to issue a report to Congress by December 2010.

"The purpose of this report is to lay out ... what in fact occurred so that everyone can learn the lessons of this calamity," Angelides said in a recent interview.

The former California state treasurer promises a "thorough, no-holds-barred inquiry," including public hearings. But he does not want to overwhelm the public with a jumble of facts, even though he acknowledges the facts are "extraordinarily" important.

He hopes his report will include "real-life examples of the kind of practices ... that should never happen again."

(Editing by Jeffrey Benkoe)

PRODUCTS - USAA Launches USAA MemberShopTM

USAA members earn rewards for purchases at more than 500 name-brand retailers

SAN ANTONIO--(BUSINESS WIRE)--USAA today announced the launch of the USAA MemberShopTM, an online shopping network where USAA members can earn up to 20 percent in rewards* for purchases, discounts and deals at more than 500 name-brand retailers including Barnes & Noble.com, BestBuy.com, Home Depot, JCPenney.com, Overstock.com, and Staples.com.  www.usaa.com www.mallnetworks.com

REPORT - Blistering Report Faults SEC for Madoff Misses

Wed Sep 2, 2009 11:23pm EDT

By Ross Kerber and Jonathan Stempel

BOSTON/NEW YORK (Reuters) - U.S. securities regulators missed "numerous" red flags that may have led to Bernard Madoff's $65 billion Ponzi scheme and never did a "thorough and competent" probe despite complaints dating to 1992, a federal watchdog has concluded.

The U.S. Securities and Exchange Commission's inspector general said in a blistering report that despite five probes and having caught Madoff in "lies and misrepresentations," the SEC failed to follow up on inconsistencies.

"Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme," Inspector General David Kotz wrote.

Kotz said the SEC's "most egregious" lapse was its failure to verify Madoff's purported trading with any independent third parties, even after it took testimony from Madoff in May 2006.

Madoff later admitted that he thought it was "game over" after testifying to having cleared his trades through the Depository Trust Co, part of the U.S. Federal Reserve, and provided his account number. He said he was "astonished" that the SEC did not follow up.

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