1: CAST SERVICE HIGHLIGHT

Service Enhancement & Capacity Creation
Identify and create workforce capacity within operations areas

Enhancing customer service delivery and identifying excess capacity within an existing work force are key challenges facing leading financial services organizations.  Too often, previous expense control initiatives have resulted in short-sighted resource ‘rightsizings’ which can no longer be rationalized.  To remain competitive, companies must identify ways in which to incorporate incremental work volumes and raise service performance without additions to staff.    

Factors influencing staff and productivity management

• Failure to fully integrate processes and systems following mergers and consolidations
• Limited understanding of the implications and capabilities of newly installed technologies, resulting in untapped automation opportunities 
• Lack of systems or tools to fully capture and analyze performance data
• Inability to identify internal best practices and optimize performance
• Inefficiencies resulting from past arbitrary, across the board staff reductions
• Lack of tools for objectively monitoring and managing productivity
• Inadequate performance metrics

Why CAST for Service Enhancement and Capacity Creation

• Extensive experience in work force management in most operational areas in banking, insurance and capital markets
• Powerful data capture and statistical analysis methodology and tools
• Proven approach to developing work force management standards and performance metrics
• Customized staffing models
• Demonstrated expertise in organizational design
• Financial services industry ‘best practices’ database
• Established implementation tools and techniques

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

2: AMERICAN BANKER - Equity-Indexed Annuities on Roll at Banks, with SEC's Help

Regulators have agreed to delay plans to treat equity-indexed annuities like securities, but many bank-affiliated brokerages are already doing so.

At First Bank in Creve Coeur, Mo., the annuities cannot be sold by licensed bankers, only by full-time financial consultants, said Bruce Stava, the director of advisory sales at First Bank Wealth Management Group. And sales at the $10.8 billion-asset bank are scrutinized much the same way securities transactions are, he said.

The Securities and Exchange Commission agreed this month to delay for two years a rule under which certain indexed annuities would be treated as securities rather than insurance products. The rule was supposed to take effect in January 2011 and had been the focus of a legal battle between the commission and certain insurance and marketing companies.

Equity-indexed annuities earn interest that is linked to a stock index such as the Standard & Poor's 500 Composite Index. These types of annuities are touted as a way to participate in stock market gains while avoiding the risk of losing money should the market fall. These products are often characterized as lying somewhere between a fixed and a variable annuity.

The SEC's plan to change how the products are regulated was challenged in a January lawsuit filed by, among others, American Equity Investment Life Insurance Co. of Des Moines. The suit argued that because the annuities offer a guaranteed return on principal, they should not be treated like securities, in which investors can lose principal.

The SEC, on the other hand, has argued that certain types of these annuities are security-like because their payouts tend to derive from the performance of a securities index.

In a Dec. 8 filing with the U.S. Court of Appeals for the District of Columbia Circuit, the SEC agreed not to put the rule into effect for another two years.

Banks' sales of equity index annuities have been surging over the past several months, from $200 million in the first quarter of 2008 to $900 million in the third quarter of this year, according to Kehrer-Limra.

The $900 million accounts for about 9% of total annuity sales through banks in the third quarter, according to Kehrer-Limra. Overall, banks accounted for 12% of equity-indexed annuity sales in the third quarter.

Kenneth Kehrer, the director of research at Kehrer-Limra, said he does not see the regulatory fight as portending much for banks, because so many of them treat equity-indexed annuities as securities anyway. By and large, banks that sell the products require a securities license to sell it, and they "run it through the same compliance review process as any security," he said.

"I don't know of a bank that lets its platform staff sell it, even if they are registered" to sell securities, Kehrer said.

Those who stand to lose the most from what the SEC wants are independent insurance agents who don't have securities licenses and have been selling equity-indexed annuities instead of the variable annuities that they are prohibited from selling, he said.

Insurance agents sell the bulk of these annuities, but the equity-indexed annuities sold at banks tend to be better to consumers than those that have caught the attention of regulators. "There are some terrible products out there," with extremely long surrender periods and enormous commissions, Kehrer said.

"Generally, the products banks are selling are priced very similarly to regular fixed annuities or to single-premium life policies," he said.

In general, underwriters of the products take some of the principal paid by customers and buy a hedge against an index. That leaves less money for current interest, but it provides protection against market dips. Properly priced, equity-indexed annuities are a fair deal, Kehrer said.

First Bank sells few equity-indexed annuities, Stava said, because they are a good fit for only a small sliver of its customers. Historically, they have been too complicated for customers to understand, and their fees and surrender penalties "weren't that beneficial to customers," he said. Within the past few years, however, carriers have responded to pressure from bank broker-dealers and produced products that address those problems, he said. "They're a vastly improved product now compared to three or four years ago," Stava said.

3: AMERICAN BANKER - Consumer Fees: The Hits Keep Coming

Banks are scrambling to find new footing as lawmakers and regulators undermine one of the industry's profit foundations: consumer fees.

Federal rules on credit card practices instituted a year ago kicked off a year in which fee income, a large and dependable source of retail banking profits, came under assault on many fronts. Lawmakers and regulators instituted a series of policies that restricted the industry's ability to charge for everything from credit card overlimit transactions to checking account overdrafts.

And the threat to consumer fees is far from over. Lawmakers are considering bills that would further restrict overdraft fees and regulate credit card issuers' interchange fees. They also have begun making noise about automated teller machine fees.

Whatever the outcome of such continuing government scrutiny, the banking industry has been shaken out of its complacent reliance on consumer fee income.

"I don't think we have one [bank] customer that's not concerned about the possibility of all these things happening, including interchange," said Brian Shniderman, a director of the banking team at Deloitte Consulting LLP. "Many didn't anticipate that some of the things that have already happened would happen and would happen so quickly. Now I think there's this [mentality of] 'anything can happen and we need to be prepared for everything,' " including the possibility of ATM fee regulation and interchange caps.

Although the industry has long faced the threat of interchange regulation, the debate intensified over the summer, as merchants capitalized on consumer rage over late fees and other cardholder charges. 7-Eleven Inc. channeled that anger into a petition to "stop unfair credit card fees," which received more than 1.66 million customer signatures.

During his confirmation hearing early this month, in response to concerns raised by Sen. Charles Schumer, D-N.Y., Federal Reserve Chairman Ben Bernanke said his agency "would definitely take a look at ATM fees."

By all accounts, the largest — and most damaging — blow has already landed, with the Fed's new rule that, as of July 1, banks must get customers' permission before enrolling them in overdraft protection programs.

According to the consulting firm Novantas LLC, the banking industry reaped $36 billion, or more than half of its revenues on checking accounts, from overdraft fees last year. By contrast, net interest margin accounted for only $13.2 billion, or 19%, of checking account revenues — slightly more than the amount generated by interchange fees on debit cards. Novantas forecast similar figures for this year. But in the coming years it projected that as much as $17.5 billion of checking account revenues could evaporate as a result of the Fed's required opt-in provision. In a "worst-case" scenario where lawmakers pass bills that would further restrict overdraft protection fees, Novantas estimated that industry revenues from checking accounts could fall by more than 40% over the next two years, to $38.6 billion in 2011.

"At some banks, as much as 40% to 50% of those fees are in jeopardy," said Rick Spitler, a managing director at Novantas. "What are you going to do, close a bunch of branches? That's scary — but they have to take huge amounts of costs out."

Aside from cost-cutting measures, banks may eventually have to rely more on net interest income to expand the top and bottom lines.

"If fees are limited, the only other sources of revenues are lower deposit rates or higher loan rates. There's no place else to go," Spitler said. "You're making the banks' revenues even more dependent on credit as a result."

Some observers would welcome such a shift. "Overdraft fees for bankers are like heroin — they know it's bad for them (particularly in building the trust relationship with customers that they want), but the revenue just feels so good," Carol Coye Benson, a managing partner in the consulting firm Glenbrook Partners LLC, wrote in a November blog post. "The Fed's new rules are detox."

Many industry members said that, at least in the short term, they expect to see financial institutions compensate for the clampdown on certain consumer fees by reinstating or resurrecting others. For example, several observers said they expect to see banks make up for reduced overdraft and other fee income by increasing up-front, or "visible," fees on checking accounts. More than one person mentioned online bill payments, which many banks currently offer for free, as one area where they expect to see banks charging.

"Nothing prevents them from raising maintenance fees — 'what used to be free now costs $10 a month, and what used to cost $10 a month will now be $20' — or having more restrictions," said Gwenn Bezard, a research director at Aite Group LLC. Such restrictions could include charging for the privilege of writing checks or requiring the checking account holder to also have a savings or credit card account with the same bank, he said.

But ironically, the overdraft fee restrictions should make it easier for banks to raise the pricing on their checking accounts.

"It was difficult for banks to do it before: the entire industry was not facing pressures, and you always have the bank that was willing to give it away for free," Bezard said. "Now, if every bank is facing tremendous pressures, it's a lot easier to move in sync, to have everyone start charging maintenance fees, to start charging for bill pay, for instance. Why not?"

Duncan Douglass, a partner at the law firm Alston & Bird LLP, agreed that "so far all the legislation and related regulations has focused on particular types of fees, so we'll see different types of fees crop up. … The same thing with annual fees with credit cards: You lose the ability to make as much on fee revenue, so you end up with new and additional types of fees."

That strategy may work only if implemented in a transparent way, especially as Congress debates the creation of a Consumer Financial Protection Agency that would have oversight of such fees.

"I think one thing that banks will do better next time around is not leave themselves in the position of being subject to the argument that they tried to deceive customers for those fees," Douglass said. "If those are disclosed up front, it's hard for the CFPA, Congress, the Fed, whomever, to enact any legislation or regulation — there's nothing inherently wrong about charging a fee." That said, "none of this will be popular," he said. "But if you're already at the bottom of the popularity scale, now is the time to do it. The challenge is sort of the gamesmanship of who's going to move first, because inevitably the first movers tend to get the most attention and therefore negative reaction."

Such reactions can only do so much damage, Douglass said. "I'm not saying that Dodd and Frank and Maloney and others will like it" when banks add fees, "but at a certain point, you're saying banks shouldn't make money, and that becomes a tough argument, even for Congress."

4: AMERICAN BANKER - Borrowers Seek Alternatives After CIT

Recent hand-wringing over small businesses' access to funding is in no small part because of the turmoil at CIT Group Inc., a major small-business lender that has undergone a swift restructuring in bankruptcy.

Since the nonbank finance company started running into trouble, customers have been looking for alternatives, either to replace their credit lines entirely or to at least help diversify their exposure. Select banks including BB&T Corp., which has an established commercial finance business, have been helping to fill the void, in many cases picking off the safest credits that have approached them. But most commercial banks are reticent right now to wade outside their comfort zones, especially to chase business that frequently is centered on pure financing as opposed to relationship banking.

Contractions in credit also have small businesses rethinking their entire position in supply chain finance.

Karl Alomar, the chief executive of China Export Finance, said distributors to the retail industry — which typically have relied on lenders like CIT to purchase and manage their invoices to merchants — have always carried the bulk of the financing burden in their business. Managing that responsibility often required flexibility to perhaps raise equity or take out mezzanine debt to cover funding needs in peak seasons or in times of credit shortages. But the financial crisis has left small businesses with far less leeway than they had before. As a result, many are now leaning on their suppliers — factories in Asia, for example — to take on some of the debt risk.

"The sellers in China are now being forced to look for credit," said Alomar, whose firm purchases receivables from Chinese suppliers of clothes, housewares, electronics and auto parts, and establishes payment terms and schedules with importers of the goods.

The dislocation in the credit markets has driven some business to alternative financing providers like China Export Finance, which was founded in 2004 and began marketing itself in China in mid-2006. "Cash is king right now, and working capital is a key source of that," Alomar said. But the firm also is dependent on banks regaining their strength — it relies on foreign bank syndicates for the bulk of its own funding.

5: AMERICAN BANKER - Cheap Price of Warrants Helps Banks

A striking holiday bargain emerged last week: government warrants in bailed-out banks.

The Treasury Department received a relatively paltry $936 million in an auction for warrants in JPMorgan Chase & Co., affirming that investors want a steep discount to take these kinds of securities off the government's hands, industry watchers said.

The sale of 88.4 million warrants at $10.75 apiece mirrored the auction a week earlier of warrants in Capital One Financial Corp., which also fetched less than industry experts had expected.

Taken together, the two auctions are setting a market price for the warrants the Treasury took in the hundreds of banks that received federal aid. The value of these warrants has been a major sticking point between the government and banks looking to exit the Troubled Asset Relief Program, and the results last week offer other banks precious intelligence for their negotiations.

"We thought they would go out north of 12 bucks. So less than 11 was lower than we thought, although not surprising in light of the Capital One warrants," said Espen Robak, the president of Pluris Valuation Advisors LLC, a research firm that specializes in valuing options.

The Treasury decided to auction its warrants in JPMorgan Chase, Capital One and TCF Financial Corp. after the parties failed to settle on a price. (TCF's warrants are expected to come to market shortly.) Critics had knocked the Treasury early on for not getting enough from banks that repurchased warrants, but these three companies — the first to see their warrants to go to auction — balked at the Treasury's asking price.

Fred Cannon, a co-director of research at KBW Inc.'s Keefe, Bruyette & Woods Inc., said these auctions should clear up some of the confusion. "What really causes negotiations to break down is uncertainty on both sides," he said. "We're moving away from a theoretical discussion to a market price."

The auctions should also make it easier for banks to decide whether they want to dole out the extra capital to buy and retire their warrants when they return their federal aid, he said. This has been a tough call for some lenders, he said, because they have not been sure what their warrants are worth.

"It makes the decision much more transparent," he said. "It gives clarity to the decision. It takes the valuation issue off the table."

Placing a valuation on options and warrants is always tricky, and traders rely on complex formulas that take into account a company's stock price and the strike price of the warrant, as well as a highly subjective projection of its future volatility.

Guessing the value of the Treasury warrants had been extremely difficult before the JPMorgan Chase and Capital One auctions because no comparable warrants had come to market in recent memory, according to Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

The Treasury warrants can be exercised until 2018. There were no options — which are similar to warrants — trading in the United States with a call date beyond 2014 two weeks ago, he said.

In the most recent auction, investors showed that they are not willing to pay as much for the longer-dated bank warrants as they are for shorter-dated options. For instance, the JPMorgan Chase warrants auctioned Thursday had an implied volatility of 23.1%. The companies options with a call date of 2012 had volatility of 31.1% that same day. Warrants that do not expire for nine years should, theoretically, have higher volatility — and thus be more valuable — than options that can be called in two years.

"These are indeed trading cheap," said Nicholas Waltner, managing principal at Kulshan Capital Management LLC, an investment adviser in Seattle. He said the JPMorgan Chase auction is a validation of sorts for the New York lender and its chief executive, Jamie Dimon, who said publicly when the company repaid its $25 billion of federal aid in June that the Treasury was seeking too much for the warrants.

Waltner said the amount Goldman Sachs paid for its warrants around the same time indicates that the Treasury was asking a lot. Goldman paid $1.1 billion, indicating an implied volatility of 43.9%.

With a better understanding of what these warrants are worth, more companies could take JPMorgan Chase's stance if the Treasury continues to drive a hard bargain, Waltner said. "You might see more auctions because people are saying Treasury is asking too much," he said. "You would think that the Treasury would start backing off to more realistic assumptions."

Bank of America Corp. said it had no intention of repurchasing its 211 million warrants from the government when it announced plans on Dec. 2 to repay its $45 billion of federal aid.

6: AMERICAN BANKER - Consumer Demand, Bank Response Lift PFM's Profile

Once a luxury, personal financial management tools are fast becoming a necessity.

Consumers and banks alike are driving the transformation, bankers and vendors say. Consumers — particularly younger ones who may never have touched a check register — are increasingly expecting a more interactive online presentation of their finances. And banks find that PFM provides vital data — a more complete view of a person's financial life — that can help them cross-sell.

In the past banks would get such insights when people went to branches to ask about new products. Today most consumers do their research online, said Alex Sion, the vice president of digital strategy and financial services for Sapient Corp., a provider of marketing technology.

"They just don't come to visit you anymore," Sion said. "You've got financial firms that need to reconnect with customers … but they're no longer seeing them."

With personal financial management tools, customers bring in financial data from other financial institutions and can manipulate their view of that data, such as by looking at their entertainment spending across multiple credit and debit cards.

Sapient hopes to fill these gaps in the data available to its marketing software by working with Geezeo Inc., a PFM provider that is reshaping itself as an online banking provider.

This trend of consumers doing more research online has also driven much of the strategy at Intuit Inc.

Intuit has been particularly bold in its PFM strategy this year, with its November purchase of the free-to-consumer PFM provider Mint Software Inc. and its continued updates to the FinanceWorks PFM service that it offers through financial institutions.

Albert Ko, the senior vice president for consumer solutions at Intuit's Digital Insight online banking unit, said that "even with the Internet, the bank has zero visibility into your financial life outside of what you choose to do with that bank or credit union." But with PFM, "that visibility is dramatically increasing," he said.

According to at least one bank, PFM and online banking are no longer distinct products.

PNC Financial Services Inc. describes its Virtual Wallet, a series of interconnected bank accounts presented in a graphical format online, as what online banking would look like had it been designed today from the ground up.

The accounts that make up Virtual Wallet cannot be opened separately, and they cannot be viewed in a conventional online banking table of accounts.

Mike Ley, a vice president in PNC's payments and e-business group, said people are "used to interfaces like iPhone, iPod, drag-and-drop — and they just expect their bank to be that way: be more visual, be more intuitive. That's why we built it this way."

Consumers in Virtual Wallet's target market of 18-to-34-year-olds don't think of their money in numeric terms, Ley said.

They think of it as "buckets" devoted to certain expenses and savings goals, and they want to money from one bucket to another as needed and to see that movement, he said.

PNC's strategy with Virtual Wallet is to provide it to young customers and then have the account grow up as those customers grow up.

"You start developing good money management skills at a young age, then those carry forward," Ley said.

"We're looking at what we can do to continue to grow with them."

Though most of Virtual Wallet was built in-house, its spend-tracking feature was built on technology from Yodlee Inc., a company that has a similar vision of "drag-and-drop" online banking.

Yodlee was an early champion of a simpler form of PFM, account data aggregation, but has long endeavored to build on that technology to create something more compelling.

As time passed, aggregation fell out of favor. Many banks that offered bare-bones aggregation shut the service down; Wells Fargo & Co., for example, tried Yodlee's aggregation and software that now belongs to Intuit before eventually deciding to offer its version of PFM without aggregation.

Joe Polverari, Yodlee's senior vice president of strategy and development, said that aggregation in and of itself is no longer compelling, but it becomes far more useful as the foundation of a more comprehensive PFM offering.

"The functions people have relative to their finances are relatively unique," Polverari said. "My financial needs are different from yours."

Yodlee has worked over the years to make its offering as customizable as possible.

Half of Yodlee's PFM clients choose to customize its offering rather than stick with a default set of features, he said.

Yodlee is working to put further levels of customization into the hands of end users.

Its FinAppStore system, which it plans to make available next year, would allow consumers to tweak which details they see in their online banking view.

Specific PFM tools would be presented as widgets that can be moved around on the screen to the end user's liking.

"You can get as fancy — or not fancy — as you like," Polverari said.

Many other PFM providers have built their businesses on the same philosophy of offering as much customization as possible.

Jwaala offers banks the source code to build PFM as they see fit, which it says appeals to banks that like to build things in-house.

Geezeo is trying to become a one-stop shop for a bank's online needs, and has already has done custom work for some clients.

For example, even though mobile banking is not part of Geezeo's standard offering, it built a mobile banking system for Stanford Federal Credit Union of Palo Alto, Calif., so that the customer experience for the credit union's PFM users would be consistent across channels.

In contrast to this trend of PFM providers doing business more like conventional online banking vendors, Wesabe Inc., which shares Geezeo's vision of becoming an online banking provider, has pushed against convention in crafting a sales process that allows banks to sign up for PFM much like consumers sign up for Netflix accounts.

Marc Hedlund, Wesabe's co-founder and chief executive, said that "because we started out as a consumer-facing Web site, we really have a consumer Web approach to how we develop things."

Whereas its typical sales cycle has been four months, in November Wesabe launched a Web site that lets bankers sign up for its service in under 48 hours.

Wesabe has also taken a different approach to mobile PFM.

Rather than consider it another channel for accessing data on the go, it is experimenting with using PFM as a communication tool.

Wesabe has long touted its social networking features as a key selling point of its software.

On its free-to-consumer site, Wesabe allows users to discuss their finances online and seek budgeting advice from one another.

Any bank that uses Wesabe's software can tap into this online community. Addison Avenue Federal Credit Union in Palo Alto uses only this feature from Wesabe; it uses Jwaala for the rest of its PFM offering.

But with mobile, Wesabe is looking at smaller communities — in particular, it plans to roll out an update to its app for Apple Inc.'s iPhone that would allow Wesabe users to instantly update family members on their spending.

"If you communicate about money more, it becomes something you have more control over," Hedlund said.

Mobile is also a major focus for Intuit.

Even though FinanceWorks is a natural fit for online banking users, Ko said, it will increasingly become a mobile application through a series of updates planned for 2010.

Many consumers are comfortable using separate online banking Web sites because the experience is fundamentally the same at each one, he said.

This is not the case with mobile, where some banks offer text-only systems, others mobile Web systems, and still others use downloadable apps.

That kind of fragmented experience could deter adoption of mobile PFM by consumers, Ko said. "They really lose the convenience and the consistency and ease of use of managing everything in one place."

PFM is uniquely suited to make sense of the mobile banking landscape, Ko said. Consumers who use a mobile PFM system would be able to tie these disparate experiences together in one interface, he said.

Intuit also plans to better integrate Mint with its other offerings. Next year Intuit will put Mint on its own aggregation system instead of Yodlee's, Ko said. (Yodlee maintains that it is in a multiyear contract with Mint for this service.)

Even though Mint has a mobile application of its own, Intuit's focus with its mobile updates is on FinanceWorks because it feels that PFM has the most potential when offered through a bank.

"This is a superior channel because people … log in to their bank or credit unions' Web site multiple times a week, if not more," Ko said. "They're already there. They're already logged in."

Though larger banks like Wells Fargo and PNC have embraced PFM, most of the activity so far has been from smaller banks, at least in the United States.

Mark Schwanhausser, a research analyst at Javelin Strategy and Research in Pleasanton, Calif., said that many banks are already acknowledging the need for PFM and are pursuing deals or working in-house to get such systems in place.

The cross-selling opportunities are strong, he stressed. If banks get it right, "you'll have financial services acting more like the 'Genius' tab in iTunes," a feature of Apple's music player that suggests new songs or playlists based on the music the software observes a user buying.

Though third parties have been successful in attracting consumers to their PFM Web sites, Schwanhausser agreed that the service is a better fit for banks that approach PFM with an open mind and a spark of creativity. "The bank, to me, has the ultimate advantage — if they don't blow it," he said.

7: AMERICAN BANKER - Fast B-to-B Payments May Spur Demand, Despite Fee

By letting businesses pay each other with card accounts, Bank of New York Mellon Corp. says it can profitably ease the inherent tension between suppliers, which want to be paid as early as possible, and buyers, which often want to hold onto the funds until the last minute.

The New York banking company is expected to announce today that it has connected its business-to-business accounts-payable service to a corporate payments network operated by MasterCard Inc.

Executives said the new service can significantly accelerate business payments — and that receivers would be willing to pay interchange fees in exchange for faster settlement. They also hope the service will encourage more companies to make payments electronically, instead of using paper checks.

"We believe, over time, this model will demonstrate its value," Laura McGortey, a managing director in Bank of New York Mellon's treasury services unit and its payments and liquidity products manager, said in an interview Friday.

The company is not the first bank to use MasterCard's Payment Gateway; at least three other financial companies have connected to the system since the Purchase, N.Y., card company introduced it in 2007. However, the B-to-B payments market remains doggedly tied to paper, and Bank of New York Mellon is the first bank to offer this detailed a look at the business case for shifting from paper checks to electronic transactions, a strategic marketing move that could bolster demand.

Shari Krikorian, the vice president of innovative platforms at MasterCard, said corporate suppliers typically want to minimize the number of days a statement is outstanding before the company receives payment; buyers, by contrast, want to retain cash in hand as long a possible.

By offering businesses a payment service built on the credit card model, Bank of New York Mellon is effectively fronting the payment; the payer can authorize the transaction quickly and settle the transaction later, while the receiver gets paid right away.

When buyers pay invoices by card, "they're preserving the" days statement is outstanding, "but the supplier gets the benefit of getting funds faster," Krikorian said.

One important change from receiving checks is that this model makes the supplier into a merchant that must pay interchange fees.

Nancy Atkinson, a senior analyst at the research and advisory firm Aite Group LLC in Boston, said this might deter some potential users. Though she acknowledged that card payments benefit both buyer and seller, and that speedy settlement is particularly appealing, she also said other electronic payment formats exist, such as the automated clearing house system, that do not charge fees to the receiver.

"That is something that's a big hurdle for suppliers to get over," she said.

Krikorian said the Payment Gateway carries interchange fees far lower than those paid by merchants for consumer transactions. Merchant interchange can run to 2% to 4% or more for purchases at the point of sale, but the rates for these business payments can be as low as 70 basis points, plus $40, for invoices exceeding $100,000.

This is lower than the discounts suppliers have long offered businesses for faster settlement; many companies offer their customers an arrangement known as 2/10/net 30, or a 2% discount for payments made within 10 days, instead of the customary 30-day window.

Krikorian said the lower rate is due, in part, to the fact that accounts-payable transactions, where both buyer and seller are known to the bank, carry less risk than point of sale transactions, where both fraud risk and credit risk are higher.

The gateway has processed some card payments larger than $100,000, she said, and the average transaction now is around $30,000, though she would give no details about the system's total volume. "Our objective is to increase the average transaction size," Krikorian said.

McGortey said corporate clients remain largely at an early stage in converting treasury operations to electronic payments and that some Bank of New York Mellon clients still make 90% of their business-to-business payments by check.

Krikorian said that one reason checks remain popular is that they can be delivered along with detailed remittance files, explaining the payment's purpose. "That data is as important as the money. If you can't get the information to reconcile the payment, you can't recognize the revenue," she said.

Janice Dowiak, a vice president at Bank of New York Mellon treasury services and a senior payment products manager, said that, even considering interchange, card payments can be an attractive option for corporate treasurers. "If you do this through the card network, as much detailed information as the corporation needs just goes along with it," she said.

Other financial companies are also promoting electronic B-to-B payments services.

JPMorgan Chase & Co. and American Express Co., for instance, both operate proprietary systems that can provide integrated processing of invoices and payments.

U.S. Bancorp and Visa Inc. announced the formation in July of a joint venture, Syncada LLC, whose primary asset was the PowerTrack payments unit that U.S. Bancorp has operated since 1999.

Bank of America Corp. agreed in August to sell its PayMode corporate e-invoicing operation to Bottomline Technologies Inc., a Portsmouth, N.H., payments technology vendor. PayMode was a legacy product from B of A's acquisition of FleetBoston Financial Corp. in 2004.

All of these are built around a single banking company, at least for now, said Paul LaRock, a principal in the corporate practice at the Chicago consulting firm Treasury Strategies Inc.

As a result, he said, MasterCard has a head start because its Payments Gateway now has four bank users, whose clients can all send each other payments. Wells Fargo & Co., Citigroup Inc. and the Citizens Financial Group Inc. unit of Royal Bank of Scotland Group PLC have all signed up with MasterCard.

LaRock said that the more users affiliated with a payments network, the more usefulit becomes to participants. "If I'm a corporate," he said, "I want to move into the biggest universe."

Bank of New York Mellon is in final testing now and plans to introduce the service commercially by yearend, initially to users of its SourceNet Solutions unit, which provides accounts payable services.

Bank of New York Mellon already offers ACH, wires and check services to those customers, and will continue to process those transactions in-house, running only card payments through MasterCard's gateway.

8: AMERICAN BANKER - IndyMac's Buyer Does Another Deal with FDIC

Seven failed banks holding a combined $14 billion in assets failed Friday in what was yet another busy night for the Federal Deposit Insurance Corp.

The failures, estimated to cost the FDIC $1.8 billion, included four banks each with more than $1 billion in assets, a Midwestern bankers' bank and two institutions that attracted no buyer.

The largest failure was $6 billion-asset First Federal Bank of California in Santa Monica. The thrift, which recorded seven straight quarterly losses, was sold to OneWest Bank of Pasadena. That failure is expected to cost $619 million.

Regulators also closed $4 billion-asset Imperial Capital Bank in La Jolla, Calif.; $585 million-asset Independent Bankers' Bank in Springfield, Ill.; $1.8 billion-asset Peoples First Community Bank in Panama City, Fla.; $1.5 billion-asset New South Federal Savings Bank in Irondale, Ala.; $294 million-asset RockBridge Commercial Bank in Atlanta; and $169 million-asset Citizens State Bank in New Baltimore, Mich.

The failure of First Federal was noteworthy not only for the collapse of another large thrift in the Golden State, but it was a key acquisition for OneWest. The institution was formed by a group of private-equity investors early this year to take over the operations of failed IndyMac Bank, one of the first large victims of the mortgage debacle.

OneWest did not pay a premium to assume all of First Federal's $4.5 billion of deposits. It also agreed to acquire roughly all of its assets and share losses with the FDIC on a $5.3 billion piece of First Federal's portfolio.

Regulators sold Imperial Capital to City National Bank in Los Angeles, which agreed to acquire just over $3 billion in assets of the failed institution.

Imperial Capital's nine branches will reopen Monday as part of City National, which paid a 0.24% premium to assume all of the failed bank's $2.8 billion in deposits. The acquirer and the FDIC agreed to a loss-sharing plan on $2.5 billion of Imperial Capital's assets. The failure is expected to cost $619 million.

Closing out the busiest failure year since the savings and loan crisis - the seven failures stretched the year's total to 140 - the FDIC not only handled big institutions Friday but also employed an array of resolution tools.

The FDIC created a bridge institution, Independent Bankers' Bridge Bank, to allow the failed Illinois institution's 450 client banks to access their correspondent services as usual. The agency said the bridge bank will allow the continuation of pre-failure efforts to sell the bank.

It was not the first failure this year of an institution specializing in correspondent services. That label belonged to $4 billion-asset Silverton Bank in Atlanta, which failed on May 1 and was also folded into a bridge bank.

"The creation of the bridge bank allows the client banks to maintain their correspondent banking relationship with the least amount of disruption," the FDIC said of Independent.

The FDIC estimated the resolution would cost $68 million.

Meanwhile, the FDIC said uninsured depositors would lose funds in the closures of RockBridge and Citizens State.

Without a buyer for Rockbridge, the agency said it would mail checks to customers for the $290 million of insured funds in the bank. (It had about $2 million of uninsured deposits). That failure is estimated to cost $124 million. It was the 25th failed bank in Georgia this year.

In a similar case with Citizens State, the FDIC set up a temporary deposit insurance national bank to house the insured retail deposits from the failed bank. Deposit Insurance National Bank of New Baltimore will stay open for just 45 days to give customers time to move their accounts to another depository, the FDIC said. The agency estimated about $800,000 of the failed bank's $157 million of deposits are uninsured.

Huntington National Bank in Columbus, Ohio, will provide operational support for the temporary charter. The resolution is estimated to cost $77 million.

Buyers were found for both Peoples First and New South Federal.

Peoples First, the 14th failed institution in Florida this year, was sold to Hancock Bank in Gulfport, Miss.

Hancock paid a 1% premium to assume all of the failed thrift's $1.7 billion in deposits, and also agreed to acquire $1.6 billion of its assets. The acquirer and the FDIC agreed to a loss-sharing agreement on $1.4 billion of those assets.

The resolution is estimated to cost $557 million.

Beal Bank in Plano, Texas, did not pay a premium to assume all of New South Federal's $1.2 billion in deposits. Beal will acquire roughly all of the failed thrift's assets, sharing losses with the FDIC on a $1.2 billion-asset piece of the portfolio. The resolution is estimated to cost $212 million.

9: AMERICAN BANKER - Investing Lessons Gained from the Crash's Pain

As investors begin to regain their confidence in the market, experts offer some guidance on building a smarter portfolio. It's time to give the old rules some new twists.

The good news is that the scorched-earth mentality that permeated the investing world last year has almost disappeared. The market rally has given investors their confidence back — though some advisers say investors are becoming a bit too confident.

Despite the upward momentum the market has experienced since last March, there are still lessons to be taken away from the darkest days of the market crash. Some of these were learned the hard way.

"I think people now realize that housing is still a market, and equities don't always go up," said Don Quigley, portfolio manager of the Artio Total Return Bond Fund.

As with any other market, housing is volatile, Quigley said. People developed "a sense of entitlement" about their home equity — the believed it would always appreciate and that they didn't need to save and invest their money.

A June report from the MetLife Mature Market Institute found that 35% of older Americans still see their homes as collateral for a loan. About 14% of these people are taking cash out of their house through a home equity loan or reverse mortgage.

Quigley also admonished investors who have gone from swearing off equities and taking all of their money out of the market during the crash, to now believing once again that equities are always going to go up because of the tremendous rally.

So instead of moving everything into cash or betting all of it on stocks, investors are looking to diversify more.

"The thing that shocked me last fall was not the market crash, but the rise in correlations — the fact that normally diversifying markets crashed too," said Robert Arnott, chairman and founder of Research Affiliates in Newport Beach, Calif.

He said broad diversification continues to be promoted as one of the "new" rules of investing after the crash — new because many investors aren't as diversified as they think they are.

"Most investors don't avail themselves of any meaningful allocations outside of mainstream stocks and bonds, and that's just dumb," Arnott said. "The typical investor has perhaps 90% or 95% of their money in them. Usually there is some alternative market that's more interesting and priced more attractively."

He cited a few examples. Convertible bonds are more interesting than stocks at current prices. High-yield and emerging-markets debt remain "mildly interesting," despite the enormous rally they have both had. A "small dose" of commodities makes sense for any investor, Arnott said, because it reduces the portfolio risk and provides some protection against the risk that the Federal Reserve tightens too late, leading to rising stagflation. Commodities are one of the few ways to make money during stagflation.

Jerry Miccolis, a senior financial adviser for Brinton Eaton Wealth Advisors in Madison, N.J., said that while the economic downturn was "severe, sudden and unexpected," it should not change the way one goes about investing. He said the biggest financial threat for investors over the rest of their lives is inflation, not short-term market fluctuations. And the best way to protect a portfolio against inflation, he said, remains a well-balanced, diversified portfolio whose asset allocation is consistent with the investor's risk tolerance.

Analysts said investors have to careful not to take on too much risk or too little.

Even those who recently retired likely need their investments to work for them for another 20 to 30 years, "so they should not jump to an ultraconservative risk-tolerance level simply because of recent market movements," said Jerry Miccolis, a senior financial adviser for Brinton Eaton.

Because interest rates have collapsed, investors are actually being paid to take on equity risk right now, said Ron Holt, the president and chief executive of Hansberger Global Investors in Fort Lauderdale, Fla.

On the other hand, there is still a lot of cash on the sidelines, which could signal investors are unwilling to take on as much risk as some believe. The amount of money on the sidelines could be as high as $3.5 trillion, according to data released in September by the Investment Company Institute.

"The time to put more risk on was nine months ago, when people were terrified," Arnott said. "The time to take risk off the table is when people feel like it's back to normal."

The stock market has gotten ahead of itself and remains "deeply vulnerable," but that vulnerability is on the growth end of the market, Arnott said. He sees a lot of interesting investments on the deep value side — "the companies and sectors that are loathed and feared."

Arnott said he is eyeing assets such as financials, industrials, and consumer discretionary.

"Nine months ago, the value side of the market was priced as if Armageddon was next door," he said. These assets "are still priced as if Armageddon is three or four doors away. If those parts of the market are right, the growth side of the market is wrong, because it is priced as if the recession is over and it's back to the races."

After such a cataclysmic market crash, which burned so many investors, it is difficult not to look at what investors should be doing after the recession through the prism of what they should not be doing. A good first rule of thumb, Miccolis said, is that there is no point trying to position one's portfolio too defensively to guard against losses that already happened or revamping it too aggressively to quickly regain lost money.

But more generally, Miccolis said, timing the market is "a loser's game."

Brinton Eaton recommended investors design their portfolio to reflect the market environment that has and will continue to be the case for over 95% of the rest of their lives. They can "insure" their portfolios against extreme market events the other 5% of the time with items such as puts or structured notes. For older investors, as we all know now, this 5% is disproportionately important.

In the run-up to the market crisis "a lot of folks set common sense aside and ignored basic arithmetic," Arnott said. People were expecting lofty returns from equities despite dividend yields that were below 2%, which is where yields have now returned, he said. They were ignoring that earnings and dividends cannot grow faster than the overall economy. Profits and payments have to grow slower, because part of the growth of the economy is the growth of existing enterprises and part is the creation of new enterprises.

The advisers agreed that investors need to be ready to invest more internationally. Arnott said that with U.S. valuations high by world standards, the more you move out of domestic investments, the better.

"Going forward I would say to investors that the U.S. government hasn't exactly been running a tight ship fiscally, and that does put risk into the U.S. bond market and currency," Quigley said.

10: AMERICAN BANKER - JPM Chase Hopes to Lure Customers to Annual Fees

As credit card issuers experiment with various ways to revive annual fees, JPMorgan Chase & Co. is betting on the subtle approach — and waiting for its customers to volunteer to pay.

In June, the banking company introduced an "Ultimate Rewards" program with both fee-based and free tiers. But over time, an executive said Wednesday, it hopes that the potential to earn better rewards will encourage fee-free cardholders to opt in to an annual fee.

"The goal is to upgrade every single one of those customers over time into the fee-paying version," Rob Rosenblatt, JPMorgan Chase's general manager of customer loyalty and innovation, told payments executives and industry members Wednesday. "We believe that the CARD act is really going to force issuers to not only create a rational set of rewards economics, but annual fee economics. So the $64,000 bet is: Can we convince customers that the value that is intrinsic in the premium version of the program is well worth the annual fee" of $85 for the Chase Sapphire Preferred card. "And I think the answer is 'yes.' "

That said, "Do I think that 100% of our customers will start paying fees? No, absolutely not," Rosenblatt added in an interview after the speech. There will always be a "balance of free and fee customers, but I think what we do believe is that the free program will serve as a natural feeder to the fee program for those who see the benefits of a richer offering on Sapphire Preferred or our premium products."

Industry members were more bluntly negative in their assessment of JPMorgan Chase's chances of tempting most customers to switch to a fee-based rewards card.

"No way in hell," said Ron Shevlin, a senior analyst at Aite Group LLC. "There are too many cardholders who won't pay for rewards. … The real success for Ultimate Rewards is going to come from no-fee Sapphire cardholders and Blueprint," the online spend-management tool that JPMorgan Chase unveiled in September.

Shevlin, who said he is in general a "very strong supporter" of JPMorgan Chase's cards strategy, called the current industry emphasis on annual fees "an act of desperation more than long-term strategy."

But Rosenblatt, a veteran of Citigroup Inc. and American Express Co., would not say whether JPMorgan Chase planned to always offer a free version of Ultimate Rewards or eventually phase it out in favor of a fee-only model.

"I'm not sure that anybody knows that answer, but if you look at the announcements some of our competitors have made, they are beginning to [introduce] fees, across the board in some cases," he said. "If you provide the right value, customers will be willing to pay, and the fee is a natural gaming mechanism to get the kinds of behaviors we're all seeking, which is high spend, high loyalty and good credit."

Citi and Bank of America Corp. have both experimented with implementing annual fees on small portions of their portfolios, and some issuers have added or revived other types of fees, like inactivity fees.

On Tuesday, B of A told American Banker that its decision to implement annual fees on 0.5% of its customers was a "test" and that it did not immediately plan a fuller rollout.

Rosenblatt's speech opened the annual Cards&Payments Loyalty Conference in midtown Manhattan, sponsored by American Banker's parent company, SourceMedia Inc. Like many speakers at the conference, Rosenblatt discussed issuer strategies to reduce the costs of offering loyalty programs without making such cuts apparent to consumers.

Industrywide, issuers are asking "How can we control costs while at the same time creating value for our brands?" he said during his speech.

For example, Ultimate Rewards is one of 130 loyalty programs at JPMorgan Chase.

"That's just not efficient," he said. In terms of "rationalizing economics, one of the most efficient things we can do is sunset 129 of those brands."

And on the consumer side, "the customer is just too good at gaming right now" — trying to get the most rewards for the least spending, such as by taking advantage of special offers. "So it's really important that we clamp down on those attempts to game and provide value" to loyal customers, he said during the speech.

In the interview, Rosenblatt argued that such a customer tendency to try to exploit rewards programs — and the willingness to switch issuers right now — is helping JPMorgan Chase's efforts to establish its new offering.

"Most of us, most issuers, haven't spent enough time building true loyalty. What they have trained customers to do is game, and to surf" from one card to another, he said. "We've tried to create a program that, I won't say it's gaming-proof, but it doesn't have a lot of game-ability yet, and it's very narrow, and it's not chock-full of the things that make customers surf."

All the same, he acknowledged that the program is young and will take time to gain traction in the market — and to justify JPMorgan Chase's investment in a 130th loyalty program.

It will be "probably a year before we start to see sustained wallet-share gains," he said. "But the early news is that customers have noticed the difference, and there are promising patterns in terms of spending and also places they're redeeming."

11: AMERICAN BANKER - Moynihan's Game Plan: Three Yards, Cloud of Dust

It would be easy to view Brian Moynihan's promotion to chief executive as a consolation prize for Bank of America Corp., but a consensus is taking root that he is the right person to manage the company right now.

Unwilling candidates thwarted Bof A's efforts to hire an outsider who would please shareholders and regulators seeking a change agent, and that led to Moynihan's ascent this week. Yet several analysts and investors argued that the company has sound underlying businesses and needs a process-minded executive like Moynihan to focus employees on the tasks at hand.

"Bank of America should not have been looking for a maverick," said William Fitzpatrick, an analyst at Optique Capital Management, which owns about 300,000 B of A shares. "A big-name guy probably isn't appropriate for them right now. Moynihan is not such a bad hire if he can get them back to blocking and tackling and keep them out of the news."

Moynihan sent a similar message in an interview Wednesday night and in a televised employee rally at the company's headquarters in Charlotte Thursday morning. He expressed support for the company's way of doing business, embraced the man he will succeed — the embattled Ken Lewis— and preached the importance of proper execution of existing strategy.

"We are all comfortable with the business model," he told American Banker. "The core businesses that we have arranged with hard work over the last five to 10 years are second to none. … The issue is, we have the best franchise, and we have been through a tough economic cycle. We just need our team to execute."

At the employee event, Moynihan made it clear that restoring the company's credibility, and his predecessor's reputation, will be at the top of his mind when he takes over Jan. 1. "Go home and enjoy the holidays, spend time with your families, and get some rest," he said. "Because when we come back, it's about executing for our leader, Ken Lewis."

Moynihan added humor to his introductory speech, vowing to keep Lewis close by if consultation is needed. "When he tries to go out and hide in Colorado and grow out his beard, I'll go find him," he said, referring to the well-circulated story about Lewis' return from his summer vacation just before he resigned.

That is not to say that it will be completely business as usual under Moynihan, 50, who advocates deepening customer relationships and in recent months has been adamant about improving the company's risk management. Since being tapped to lead the consumer and small-business banking operations in August, he has led efforts for more transparency in the company's credit card operations.

"We expect him to be very internally focused and ensure that recent acquisitions are fully integrated, customer penetration is deepened and its efficient structure is restored," Jason Goldberg, an analyst at Barclays PLC's Barclays Capital, wrote Thursday in a note to clients.

In many respects, his view of his new job could be very similar to how he assessed his role in retooling B of A's investment banking business after a management shake-up in October 2007.

"The job I have to do is to help manage and minimize volatility while keeping our focus on using the balance sheet and our capabilities in favor of our clients," he said in a June 2008 interview with American Banker.

Moynihan was given a tough task when he took over investment banking in 2007, particularly appeasing Lewis just months after the CEO angrily told investors that he had experienced "all the fun" he could stand in that business. Moynihan responded by cutting 18% of the unit's work force and exiting or downsizing businesses such as prime brokerage.

Bank of America again turned to him to oversee the integration of Merrill Lynch & Co. after the ouster of former Merrill chairman and CEO John Thain in January. On his watch, B of A was ahead of schedule on a $1 billion systems integration, stabilized attrition in the brokerage and investment banking ranks and found multiple channels for directing business between Merrill brokers and B of A's commercial bankers.

Alan Villalon, a senior research analyst at U.S. Bancorp's FAF Advisors, which owns roughly 9.5 million B of A shares, said the tasks at hand will keep Moynihan busy, though ultimately stakeholders will want to hear more about his long-term vision.

"We are more confident that he can be an executor," he said. "When you are a foot soldier, you are always carrying out someone else's vision. We will hear about his vision when he is ready to articulate it."

Moynihan declined to chart a long-term strategic course, contending that much of the company's fate rests with things outside his control. "The key for us is the economic recovery," he said in the interview. "If you look at what most people believe, the economy is getting better. And we have cleared a lot of things in the last few weeks," including last week's repayment of $45 billion in capital from the Troubled Asset Relief Program.

Retaining key personnel and winning back the trust of investors who had championed an outsider for CEO will have to be among his top priorities, some said.

"There will be some musical chairs before this thing is over, but he may be less threatening than someone from the outside," said Marshall Front, the chairman of the investment firm Front Barnett Asociates LLC, which owns 350,000 B of A shares. "I don't foresee a mass exodus."

Moynihan expressed confidence that he could keep the team intact. "We all understand the mission we're on, and I am sure they will respond to my leadership."

The facts that Moynihan wanted the job and apparently did not demand a big guaranteed salary should also prove to be strong selling points with employees and outsiders, observers said.

Lewis drove that point home before formally announcing his successor at the rally Thursday. "Another unique characteristic about him is that he wanted the job," Lewis said. "That may fall into the category of 'be careful what you wish for.' "

12: AMERICAN BANKER - Moynihan Named Bank of America CEO

Bank of America Corp. preserved the mold – and addressed its longer-term future – by tapping Brian Moynihan late Wednesday to succeed Ken Lewis as chief executive.

The Charlotte company's board announced after meeting in Charlotte that Moynihan, a company veteran who this fall became head of consumer and small business banking, would serve as CEO. He will succeed Lewis on Jan. 1.

Moynihan, 50, for months had been viewed as an obvious candidate due to his close ties to Lewis and a multifaceted role within the company that included stints as the general counsel and head of wealth management and investment banking. His appointment to run the retail bank was viewed as a way of rounding out his resume.

Anthony Polini, an analyst at Raymond James Associates, said Moynihan made for a logical choice. "He is a very capable guy," Poloni said. "It was a less disruptive selection than an outside candidate," he said.

Gary Townsend, the CEO of Hill-Townsend Capital, expressed skepticism over Moynihan's retail experience. "We need someone with instantaneous credibility who is strong in retail banking," he said. "Moynihan is in that job now but he has only been there for" a few months.

Choosing Moynihan appears to endorse the business model built over decades by Lewis and predecessor Hugh McColl Jr., including coast-to-coast retail banking and market leading positions in mortgage, credit cards, brokerage and investment banking. Moynihan was picked to run the investment bank in January following the ouster of former Merrill Lynch & Co. CEO John Thain.

"The selection says that while the economy and recession have been lousy, the board still believes that the company model is intact," Polini said. "It is a vote of confidence for the strategy."

In an interview Wednesday evening, Moynihan did not provide details of his plans but emphasized the board's support of the company's current business model and his familiarity with many of his colleagues.

"The core businesses that we have arranged with hard work over last 5-10 years are second to none," he said. "The issue is we have the best franchise, and we have been through a tough economic cycle. We just need our team to execute. We have cleared a lot of things in the last few weeks."

He also said the company "must continue to weather the recession and repair the balance sheet and [address] credit over the next 12 months. …The key is the economic recovery. If you look at what most people believe the economy is getting better. We just have to execute."

Lewis plans to step down at yearend, and choosing Moynihan over other high-level candidates runs the risk of defections, some said. Barbara Desoer, who runs mortgages and insurance, chief financial officer Joe Price, investment banking head Tom Montag, and Sallie Krawcheck, who oversees wealth management and brokerage, were also viewed at times as viable options.

"What will inevitably happen is that some percentage of folks will go away," said Thomas Watkins 3rd, a partner at recruiting firm Chartwell Partners.

Moynihan has maintained a relatively high profile at B of A since joining the $2.39 trillion-asset Charlotte company in 2004 when it bought FleetBoston Financial Corp., where he was a top lieutenant to chairman and CEO Charles Gifford. Many observers said he appeared to be a frontrunner because Gifford, along with Thomas Ryan and Thomas May, former Fleet directors, were on the committee charged with finding Lewis' successor.

Moynihan has been dealing with political baggage tied to involvement with B of A's hastily arranged and oft-criticized purchase of Merrill. Much of the attention focused on a decision last December to tap him as general counsel, which occurred shortly before B of A threatened to scrap the deal. The issue was front and center at a Nov. 17 Congressional hearing, where he was grilled over his knowledge of rising losses at the New York investment bank.

Polini said he believes B of A's board may have wanted to tap Moynihan earlier in the process but was discouraged by the Treasury Department and regulators. "I think the initial thumbs down was part of a [larger] political battle," he said.

Lewis triggered a succession crisis on Sept. 30 with his unexpected yearend retirement announcement in a move that seemed to catch the board flat-footed. Lewis reportedly encouraged the board to consider Curl or Moynihan, though he also left open the possibility of an outsider. It is unclear how much of his advice was seriously considered by the board. (Many observers thought Curl, 61, would have been tapped as an interim solution.)

The board formed a six-member committee to oversee the search. In addition to Gifford, May and Ryan, the group included chairman Walter Massey, all of whom were on a special committee to review strategic initiatives. The search committee also had former Federal Deposit Insurance Corp. chairman Donald Powell, who joined the board in June, and DuPont Co. chairman Charles Holliday, who became a director in September. Russell Reynolds was hired to assist the committee.

The search to replace Lewis had taken on a plodding and often embarrassing pace over the past two months, with two self-imposed deadlines extended and numerous candidates rejecting the company's overtures.

Powell said in an interview that the board was "committed to getting the best candidate, whether it was from the inside or outside." He said that Moynihan represented an executive who "understands the culture at B of A and how to run a complex organization," particular in dealing with investors, regulators, and customers.

Regarding outside influence, Powell said that the committee "listened to anybody who had thoughts" about the post, including regulators and investors. "At the end of the day, though, this was the board's decision," he said.

Some observers believe the board ideally would have named Curl or Moynihan to succeed Lewis after a brief search process, but had to nix that plan when the government and shareholders pushed for an outsider. "I think the entire board underestimated the amount of time it has taken to identify a suitable candidate," said D. Anthony Plath, a University of North Carolina at Charlotte finance professor who closely follows B of A's board.

B of A's repayment last week of $45 million in government capital may have given the board the ability to move forward by removing pay restrictions and giving the new CEO more freedom to chart a strategic course. It may have also given directors greater leeway to select an insider, some observers said.

13: AMERICAN BANKER - New Puzzler: Does Size of Deposit Insurance Fund (DIF) Matter?

WASHINGTON — For nearly 10 years, the top officials at the Federal Deposit Insurance Corp. warned about the danger of the declining level of federal reserves, but a funny thing happened when the Deposit Insurance Fund finally went broke in 2009: Nobody cared.

An event that once would have caused jaws to drop and cable commentators to panic was barely a blip on the radar.

The FDIC did not charge banks exorbitant fees to try and rebuild the fund or even employ its backup plan — borrowing money from the Treasury Department.

Instead, it required banks to prepay future premiums to help it ensure it had enough resources to continue to manage proliferating bank failures.

But the move raised an intriguing question: Does the Deposit Insurance Fund matter anymore?

With the fund $8 billion in the red as of Sept. 30, and the ratio of reserves to insured deposits at minus-0.16%, it appears that the answer to the question is "no" — at least for now.

"Some of us have said: 'You don't actually really need a deposit insurance fund,' " said Edward Kane, a Boston College professor and fellow at the FDIC's Center for Financial Research.

But some argue that, once the crisis subsides and the pace of failures, which at 140 so far this year is nearly six times last year's volume, returns to normal, the fund may matter again.

"Almost everyone at least would agree that we ought to have a positive reserve balance at the FDIC," said Douglas Elliott, a fellow at the Brookings Institution.

"People are more relaxed about this simply because they see this as an extraordinary event but also believe that there's enough assessment power at the FDIC that it will basically earn its way back through premiums on the banks over" the long term.

However, he said, "that's not the best way to run a railroad."

Elliott drew a parallel to consumer checking accounts.

"Ideally, you keep a significant amount in your checking account. … If you have the overdraft capability, then you do have room to go considerably negative, as long as you think there are going to be ways to bring it back to positive," he said. "But the better public policy is to try to keep that balance positive."

Some observers argue that the fund is a bellwether for banks' health.

Because everyone is aware the banking industry is in tough times, there was no panic when the fund went negative, they said; however, it will be important to restore the fund to its ordinary 1.25% ratio of reserves to insured deposits over time to prove the industry is back to normal.

"The 1.25% is important because it provides a sense of how big the problems are that can be handled without abnormal taxing of the banks by the FDIC during a normal period of time, and without overreacting and putting so much money away that you really deny the economy the capital to grow," said Don Oglivie, the independent chairman of the Deloitte Center for Banking Solutions and the former head of the American Bankers Association.

"That's why that number is critical."

But others argue that the secret is out and there is little point in focusing on the DIF anymore.

The fund's solvency is a "technical artifact of accounting, and" it will be restored "eventually," said William Longbrake, a former chief financial officer at the FDIC and now an executive in residence at the University of Maryland's Robert H. Smith School of Business.

"What's really important, and I think the FDIC has communicated this quite effectively, is [that] they have enough cash on hand to not delay failures but to resolve them on a timely basis. As long as they have cash, the fund can be deeply insolvent, and it really doesn't matter. I think that explains to a large extent why you haven't seen much public reaction, certainly not from the banking industry."

In 2010, the DIF is likely to decline further. Experts widely predict the volume of bank failures to remain at 2009 levels, and the FDIC has set aside $38.9 billion to provide for future collapses, including $21.7 billion in the third quarter alone or nearly twice as much as it set aside in the second quarter. In September, the FDIC projected that the DIF could face total failure costs of $100 billion through 2013.

The agency is not projected to return the DIF ratio to 1.15% — its statutory minimum — until 2017.

Longbrake said it may take even longer.

"The huge assumption is that they can actually return the designated reserve ratio back to the 1.15 mark by 2017," he said. "That presumes that their estimates of future losses likely to be incurred through the resolution process are on the mark. I think there's a reasonably good chance that somewhere in the next year or so that we will revisit whether [it] is enough."

Some observers said the importance of the DIF will continue to decline.

A negative DIF is not "a big deal," in part because the public is aware that the government stands behind the agency, said Kane.

"It gives a degree of comfort to" the FDIC "and perhaps to some depositors to know that there is a fund," he said. "But there is an asset that isn't booked, which is the value of the government support. … As an enterprise, it's never going to be economically insolvent."

While they differ on whether the DIF matters, most observers agree the FDIC handled the situation in a creative way that avoided the downsides of the traditional choices available to it.

The steady stream of failures that began in the fourth quarter of 2008 continued into this year, averaging nearly three a week (the agency handled as many as nine in one weekend). The 140 collapses as of Dec. 18 was the fifth-most in one year since 1980.

Though the protection of depositors and transfer of failed-bank operations has gone smoothly, the agency's resources are being stretched thin. It boosted its 2009 budget for receiverships by over 500%, to $1 billion, and has proposed another giant increase for next year, to $2.5 billion. The agency has also proposed nearly doubling its temporary staff, to 3,400 people. In May, the agency announced plans to open a temporary satellite office in Jacksonville, Fla., to handle failures in the region after a similar move last year to open an office in Irvine, Calif.

By the end of the first quarter, the DIF's ratio of reserves to insured deposits had already plummeted to 0.27% — far below the legal baseline of 1.15% — and the agency had proposed a hotly contested fee of 20 cents per $100 of deposits on top of banks' normal premiums to stop the bleeding.

After bankers and lawmakers protested, the agency revised the plan in May, saying it would instead charge 5 cents per $100 of a bank's assets, beginning June 30. The somewhat lighter charge was made possible by a legislative push to expand the agency's authority to borrow from the Treasury.

The shift to basing the assessment on assets, instead of deposits, pleased community banks but angered several large banks. The FDIC had concluded that the new method made sense because large banks had been the beneficiaries of the Troubled Asset Relief Program and other government aid.

Still, the fund's balance kept shrinking — the reserve ratio was 0.22% at midyear — and banks assumed another special assessment was inevitable.

Despite the steady failures, the FDIC appeared to shift its focus away from a quick remedy for the DIF.

As lawmakers sounded alarms, arguing that higher FDIC fees would prevent banks from lending in their communities, agency officials indicated they were considering other options, including a Treasury loan.

Though the agency may legally borrow as much as $100 billion from the Treasury, FDIC Chairman Sheila Bair was clearly reluctant to tap this line of credit. Doing so could have created the perception the FDIC was getting a government bailout and hurt the agency's credibility among consumers.

As a result, the FDIC started trying to shift attention away from the DIF, including emphasizing the billions in its loss reserves.

Under accounting rules instituted during the savings and loan crisis, the agency must withdraw money from the fund that it expects to lose in the near future. In most cases, a failure will be paid for with these funds, unless the collapse is unexpected or more expensive than initially projected.

The fund balance — a representation of the agency's net worth — for years had been the most visible measurement of its resources, a mathematical trigger to determine a year's premiums and the basis for drawn-out debates over the level of funding banks should provide the FDIC.

But with the DIF depleted, the agency highlighted its liquid resources. For example, at the end of the second quarter, the DIF had just $10 billion in it. But total resources, including cash on hand in the loss reserves, were $42 billion.

Agency officials said it was important early on to be clear about the ramifications of the fund's going negative. Press briefings began to emphasize the importance of the loss reserves more than in the past, and officials stressed that insured depositors would notice no change after the DIF deficit.

"We didn't go negative without a plan," said Diane Ellis, a deputy director in the division of insurance and research.

Ellis added that, though the negative balance has proven to be a "nonevent for depositors," it still maintains importance in representing to banks how much they have to pay in assessments.

The fund is "really an indicator of how much and when the industry was going to pay for the losses," she said. "But it really is kind of meaningless to depositors because the FDIC certainly has enough resources.

"I would think it would matter just as much to the industry as it did before," she said.

If anything, the downward spiral for the DIF indicates the agency may need to charge more in good times than it has in past booms to prevent the fund from becoming insolvent again, she said.

"It has made us question more: What is the appropriate target size to build up the fund in good times. This would seem to be clear evidence that 1.25% is not enough and that perhaps we should be revisiting what the appropriate target is for good times."

In September, the agency unveiled a new solution that avoided both a new premium and borrowing from the Treasury. Banks and thrifts would essentially give the agency a $45 billion loan in the form of a prepayment of three years' worth of premiums. The cash would give the FDIC more liquidity to deal with current failures, but the fund would be built up slowly. (Officials predicted that the fund will be solvent again in 2012.)

The solution was seen as a win-win. The FDIC gets the money, and banks can report the prepayment as a depreciating asset. Gradually, the agency will book income to the fund for the amount of the prepayment that each bank is assessed quarterly under its normal risk-based pricing schedule. The bank will report that amount as an expense. Actual premium amounts can be adjusted if the agency finds the prepayment overestimated or underestimated its funding needs.

Agency officials also emphasized that they had raised $45 billion from the industry in an effort to ensure the public saw the FDIC as well-positioned to deal with more failures.

The prepayment, in combination with the emphasis on the loss reserve and the higher Treasury credit limit, "made it look like the fund was in good shape and the FDIC was strong enough to withstand any kind of continued deterioration in bank assets," said Ogilvie. "I think that explains partly why there wasn't as much concern as you might think."

14: AMERICAN BANKER - PayPal App Advances Mobile Trend

One more person-to-person payment application for mobile devices might seem merely like incremental progress toward mobile payments, but it demonstrates the increasing pressure to make phones into financial tools, analysts said Wednesday.

PayPal Inc. announced that its mobile Send Money application is now available for BlackBerry handsets from the Canadian smart phone maker Research in Motion Ltd.

Fred Brothers, the managing partner of the technology consulting firm eCom Advisors in Dublin, Ohio, called the development significant, though not revolutionary, because PayPal already offers similar applications for Apple Inc.'s iPhone and handsets that use the Android operating system from Google Inc.

"PayPal is the leading online P-to-P money transfer capability on the planet, with more registered users domestically and globally than everyone else combined," Brothers said. "Blackberry is the dominant smart phone among businesspeople."

The iPhone is most popular with young adults, he said, and the Blackberry is used more by Generation X and baby boomers. "These are the consumers [that] payment processors and financial institutions care most about, because they have a lot more money than Gen Y," he said.

PayPal, the payment processing unit of the online auctioneer eBay Inc. in San Jose, said its BlackBerry application integrates with users' contact lists, to send money to almost anyone with a phone number or e-mail address anywhere in the world.

The Send Money application is available through the BlackBerry App World online marketplace in Canada, the United States, the United Kingdom, France, Italy, Spain, the Netherlands, Germany, Belgium, Luxembourg, Ireland, Portugal and Australia, PayPal said.

Richard K. Crone, the founder of Crone Consulting LLC in San Carlos, Calif., said that P-to-P money movement is not the most attractive market for mobile transfers.

"It's being pursued basically because it's easy to deploy, not necessarily because it's a massive market," Crone said. "The real opportunity for mobile payments is the $6.2 trillion spent at the physical point of sale."

Bank of Montreal, MasterCard Inc. and Research in Motion started a mobile pilot test this month of consumer acceptance of contactless payments at the point of sale.

In the four-month test, Canadians are to make payments with BlackBerrys that have contactless stickers and use near-field-communication radio signals to send payment information to point of sale terminals. The MasterCard network, in turn, is to send the user's phone an electronic receipt containing transaction details.

NFC has been the dominant system for contactless POS transactions, but Crone said it is not the only one. "There are lots of different ways to solve the physical point of sale-mobile device dilemma," he said, "lots of companies pursuing it."

15: AMERICAN BANKER - Prepaid vs. Checking: Fairer Fight?

If the checking account's loss has been the prepaid card's gain, new overdraft regulations could kick that trend into overdrive.

The reloadable prepaid card business has had a banner year, helped by the economy — and the industry's claim that, for a large swath of lower-income consumers, such cards can be cheaper than traditional bank accounts with overdraft protection.

But the costs that are said to make checking accounts the more expensive option for these consumers are not obvious to many of them. The federal rules on overdraft fees that go into effect July 1 could prompt banks to replace those costs with more visible ones — laying bare the cost differential with prepaid.

"It could put the checking account on par with the prepaid card. It's going to be more about competition from a marketing standpoint and a pricing standpoint: the two products will be more closely aligned in terms of how the pricing works," said Gwenn Bezard, a research director at Aite Group LLC. "I suspect that the checking account is going to become more expensive right off the bat" than it is now, as banks institute monthly fees or fees for bill payments and other types of transactions that are currently free.

The Federal Reserve Board's overdraft rules, released last month, will require banks to get customers' permission before enrolling them in such programs. The banking industry stands to lose at least part of the $25 billion to $38 billion Fed officials have estimated it makes annually from overdraft fees.

In the short term, the overdraft-regulation changes might have a downside for prepaid providers. In a much-cited February report, Bezard found that 9 million households pay more in overdraft and other checking-account fees than they would for prepaid cards, despite the high — and frequently assessed — fees those cards carry.

In this sense, overdraft fee regulation "may have a negative impact" on the prepaid industry by taking away some of the price advantage, Bezard said last week. But if banks move to compensate for the loss of overdraft fees, he said, "the checking account may be more expensive up front, instead of after the fact."

And though some companies still charge significant up-front, monthly and reload fees, the costs of prepaid cards have decreased significantly this year.

In February, Wal-Mart Stores Inc. cut the up-front, monthly, and reloading fees on its popular MoneyCard, in what was seen as a major step for the industry. Other large prepaid players, including Green Dot Corp. and nFinanSe Inc., followed suit over the summer.

Prepaid executives also professed themselves more excited than concerned about the impact of overdraft regulation on their industry.

"I have confidence that the retail banking industry will continue to not favor consumers in our demographic, people who make less than $50,000 a year," said Steve Streit, the founder and chief executive of Green Dot, which is one of the oldest and biggest prepaid marketers.

"Within that demographic, just because the law has changed doesn't mean that those consumers will be any more popular with banks. So the banks will need to find ways where they can structure their programs so they still can get similar fees, otherwise they can't be profitable — so I don't see that having a significant impact."

Even observers with slightly less of a stake in the prepaid industry's survival said that the fight to retain consumers in traditional accounts is one for banks to win or lose.

"It really primarily depends on what banks do with their new environment, and how effective they are in turning the overdraft regulations into a new opportunity. And so far they're mostly concerned with lost revenue," said Rachel Schneider, the innovation director for the Center for Financial Services Innovation, a nonprofit arm of Chicago's ShoreBank Corp.

"In that sense, prepaid has a real advantage: they're not operating in a land of uncertainty, a land where the basic pricing structure of their product is going to change dramatically by fiat. It could be an opportunity for prepaid to capitalize on some uncertainty around the checking account fee model."

Prepaid has long been the province of alternative financial services providers: the big names are well-known merchants like Wal-Mart and H&R Block Inc., along with marketers like Green Dot, NetSpend Corp. and AccountNow Inc. Such nontraditional players use banking companies as their behind-the-scenes issuers, but the largest traditional card issuers do little in prepaid, especially in terms of the general-purpose reloadable cards that could be a long-term alternative to a checking account.

Some observers expect that balance to shift as a result of the new overdraft rules.

"Financial institutions who have historically pushed DDAs to that population will now push prepaid cards, because there may be additional fee opportunities," said Duncan Douglass, a partner who specializes in payments at the law firm Alston & Bird LLP. "The fee opportunities on DDA were higher before than on prepaid, but now they may fall below even though prepaid has remained the same, so you may see more financial institutions pushing prepaid."

But the chief executive of at least one traditional financial institution sounded a little skeptical of that argument. "I guess I have trouble seeing debit card business move to prepaid because of overdraft changes," David Nelms, the CEO of Discover Financial Services, said in an interview last week as his company reported quarterly results. "I actually think that the bigger piece may be that people that can't qualify for credit cards anymore may have to use prepaid … since you can't charge as easily for risk anymore in the credit space."

Other industry members agreed that the overdraft-protection changes — as well as the effects of the economy and the other regulatory changes of the past year — are likely to cool many traditional financial institutions' interest in developing products that would primarily serve lower-income, underbanked consumers.

"If it was a long-term strategy before, it's a longer-term strategy now," said Brian Shniderman, a director of the banking team at Deloitte Consulting LLP."They're really more focused now on their prime customers than they are on trying to get the un- and underbanked served. The big issuers for many years wanted to get into the un- and underbanked space — now they're much more willing to let the second- and third-tier institutions serve those groups, the community banks and credit unions. I think they won't return to that emphasis as a group, generally speaking, before things stabilize."

And even if the banking industry does ramp up its efforts to reach underbanked consumers, that audience might not be receptive. Schneider said that a government-mandated pullback in overdraft policies will have little impact on the reputation of traditional checking accounts — or their providers — in the eyes of consumers who have previously had bad experiences with overdrafts. "It remains to be seen how effective banks will be at selling and marketing the changes that they're making to their overdraft policies," she said. "The negative consumer sentiment that's resulted from overdraft is unlikely to be magically erased by a regulatory change, or even by changes in the product structure. The customers who are using prepaid because they've had really negative experiences with banks are going to continue to act out of that emotion."

16: AMERICAN BANKER - Shrunken Boards Promise Bigger Headache for CEO

Responding to regulator and investor pressure to be more accountable in a post-crisis world, an increasing number of banking companies are shrinking their boards and asking more of them.

"The writing is on the wall that investors want accountability," said Stephen Davis, the executive director of Yale University's Millstein Center for Corporate Governance. "We're entering a new generation of board responsibility, and we're experiencing a significant change in the expectations for what boards do."

Bank boards have been slimming down and the trend will only continue, observers said. Among the nation's biggest banks, the average board has roughly 15 directors, ranging from 10 at Capital One Financial Corp. to twice as many at BB&T Corp., according to company filings. Many boards grew in the last decade as companies made acquisitions or sought out high-profile directors to raise the board's profile.

Ray Groth, co-founder of Duke University's Director's Education Institute, said he expects more boards to dwindle to as few as seven to nine members, consistent with a broader trend across corporate America.

For management, that presents a number of challenges. First, smaller boards tend to be more independent than larger ones because there is less opportunity for friction on sensitive matters, experts say. Second, trimming a board too much may leave management at a competitive disadvantage.

There is a delicate balance for right-sizing bank boards, Davis said. "Anything smaller, and you probably don't have enough eyesight into the global marketplace," he said. "Anything bigger, and the organization becomes unwieldy."

Reducing board sizes could address a concern that banking companies may find it harder to encourage people to volunteer in what has become a time-consuming and highly scrutinized role. Though Bank of America Corp., Citigroup Inc., BB&T and Fifth Third Bancorp have all hired directors this year, some believe that the banking industry as a whole is facing difficulties with recruitment.

"Bank board searches aren't easy these days," said Thomas Watkins 3rd, a partner at the recruiting firm Chartwell Partners. "There are a lot of negative incentives to serve."

Diminished interest and the rising costs involved with many directors may also lead to smaller boards, some said.

Government oversight and legal quagmires have threatened to dampen interest. Several governance experts pointed to the New York attorney general's decision in September to subpoena five B of A directors to discuss disclosures concerning Merrill Lynch & Co.

Roger Kenny, the board practice leader at the recruitment firm CTPartners, said the legal summonses can only serve to spook others. "The industry is lucky to still have a group of volunteers willing to do the job, but the pool is shrinking," he said.

Such actions are driving up the cost of insuring any individual director from liability, something that is considered a necessity to get qualified candidates to serve. Depending on the type of coverage, premiums have been rising 10%-20% this year after jumping at least that much in 2008. Banking companies also face stricter terms and conditions, lower coverage limits and higher deductibles.

"And there are claims for things such as fraud that are not" covered, said Finley Harckham, a lawyer at Anderson Kill & Olick.

That may require bigger paychecks for those who serve, Davis said, an incentive to downsize the board. "Their responsibilities are growing beyond compliance," he said. "The job now includes strategy and oversight. So there is an argument gaining ground that nonexecutive directors need more compensation for what they are doing."

As boards get smaller, their makeup is likely to age, observers said. Added duties are likely to increase time commitment, which could rule out those who are executives at other companies. The result may be an aging candidate pool of retirees who are available to serve. The average age on the biggest banks' boards is already 61, leaving less than 10 years until they reach the typical board retirement age.

"Active professionals often cannot make the time commitment necessary to be an effective board member," Groth said.

Board independence has been steadily rising in the past decade. Eighty-eight percent of directors at the 12 largest banking companies are independent. Five years ago and immediately after passage of the Sarbanes-Oxley Act, independent directors made up about 84% of the board at those companies.

Before the law was enacted, independent directors likely held about two-thirds of board seats of public companies, though the percentage tended to be a little higher at banks, Groth said.

Still, the composition of boards is likely to change, with fewer "celebrity" directors and more independent thinkers. B of A replaced retired Gen. Tommy Franks earlier this year in a shake-up that reduced the size of the board by three seats, to 15, and brought on new directors with considerable banking expertise. That could usher in more directors who are unwilling to go along with the CEO's agenda, though at most big banks that executive is still the chairman, some said.

"Boards are more willing to question and challenge the direction of management," Groth said. "Where corporate performance or strategic direction is not what the board wants, directors are going to be more willing to replace the CEO."

17: AMERICAN BANKER - Taking the Gloves Off in 529 Fee Fight

Managers of 529 college-savings plans have always competed on fees, but the latest round of the bidding war promises to be the most intense.

To attract and retain state contracts, wealth management companies — particularly Fidelity Investments and its primary rivals, Vanguard Group and TIAA-CREF — have been lowering fees on the plans basically since their invention. Fidelity fired the latest salvo on Tuesday, slashing its program management fees by a third to a half for its five state-sponsored 529 plans, including both its direct-sold and adviser-sold plans.

In devising the cuts, observers say, Fidelity had the industry's top prize in mind: the New York contract, the largest direct-sold 529 plan in the country, now run by Vanguard but seemingly up for grabs. The New York 529 plan can be rebid in September 2010, and all the companies that administer 529 plans are eyeing it.

"Fidelity didn't just lower its fees out of the goodness of its heart," said Andrea Feirstein of AKF Consulting Group. "I think there are two things going on: Fidelity is trying to encourage people to save money for college, since 529 college plans were an industry that the financial market meltdown of 2008 really hurt. By cutting fees across all their plans, Fidelity is also sending a message to their competitors that they are in this space to stay and they are not going to lose any market share."

While noting that "the only state coming up for bid is New York," Jeff Troutman, Fidelity's vice president for college planning, said that although the company is "not specifically looking at New York … over the course of the last 18 months or so, as states have launched RFPs, fees are certainly front and center."

For its direct-sold plans in New Hampshire, California, Massachusetts, Delaware and Arizona, Fidelity cut program-management fees in half, or 15 basis points, for its index portfolios, and a third, or 10 basis points, across its actively managed portfolios. Index-portfolio fees now range from 0.25% to 0.35% of plan assets. Actively managed portfolio fees now range from 0.59% to 1.04% of plan assets. In total, the Boston company has $14.3 billion of 529 plan assets under management.

Vanguard Group, which manages and administers plans for Nevada, New York, Iowa, Missouri, Colorado and Pennsylvania, had nearly $25 billion of 529 plan assets of nearly $25 billion through Sept. 30. The Malvern, Pa., company has already lowered expenses this year for four state 529 plans, in addition to the Arkansas plan, which features Vanguard investment products.

Jennifer Compton, a spokeswoman for TIAA-CREF, with 529 assets of $5.4 billion, said the company has cut fees significantly this year in Vermont, Minnesota and Kentucky.

The fee cuts reflect an industry in pain. Just as investors lost a quarter of their savings in the stock market in this recession, investors in 529 plans did, too. The difference, Feirstein said, is that 529 investors have a shorter time horizon. If 40-year-olds lose 25% of their 401(k), they still have 20 years to recoup those losses, but that isn't the case for a parent with, say, a junior in high school.

"With a 529 plan, you can't afford the market swings people can afford in retirement," Feirstein said. "Investors are more reluctant to step back into 529 plans than they were with a 401(k)."

For this reason, the pricing wars among wealth management companies are good for consumers, said Mark Kantrowitz, the founder and publisher of FinAid.org. "These fee cuts may convince people to invest in these plans," he said.

But not only are individual investors rethinking their 529 investments, states are seeking out companies with the lowest fees. Wealth management companies are still reeling from 2003, when Upromise, whose program Vanguard manages, undercut TIAA-CREF by 10 basis points. TIAA-CREF lost its contract with New York when Upromise offered a 529 program with fees of 0.55%, significantly lower than TIAA-CREF's 0.65%.

Joe Hurley of Savingforcollege.com explained that TIAA-CREF's loss of its New York contract was the beginning of the 529-plan pricing wars. "Anyone who wants to continue to compete in the 529 space has had to really sharpen their pencils. They have to preemptively think of what the other companies are doing," he said. "States don't like to go through the hassle of changing managers. So if they are happy with their managers and can get them to be competitive on their fees, they are likely to retain them."

Fidelity has taken this lesson to heart. It is cutting its fees across all its state plans after negotiating with Massachusetts this past spring in order to keep the state's business.

For Vanguard, the implication of Fidelity's move is that if it wants to keep its contract with New York, it may have to slash fees further. A New York resident gets a tax deduction for investing in the state plan, but Fidelity's lower fees far outweigh the value of the deduction.

Fidelity's fees are now 0.25% to 0.35% of plan assets, while Vanguard's fees for its New York contract are 0.49% — almost twice as high.

"Vanguard cannot continue to hold on to the New York business in a rebid if they are not at least going to match Fidelity's level," Feirstein said.

Linda Wolohan, a spokeswoman for Vanguard, said the company has a great relationship with New York. "We know it will be competitive, and we look forward to continuing our contract with the state."

18: AMERICAN BANKER - Top Banks' Chiefs to Testify in Inquiry

In its first public hearing, the Financial Crisis Inquiry Commission is to question several of the industry's top executives next month on their roles during the market turmoil, it said on Wednesday.

The bipartisan congressional panel is to hear testimony from Jamie Dimon, the chairman and chief executive of JPMorgan Chase & Co.; Lloyd Blankfein, the chairman and chief executive of Goldman Sachs & Co.; and John Mack, the chairman of Morgan Stanley. The panel said it also expects testimony from Brian Moynihan, who will become Bank of America Corp.'s chief executive on Jan. 1, but that he had not yet confirmed his appearance.

The first hearing is set for Jan. 13 and 14.

19: AMERICAN BANKER - Warts Aside, ING May Be a Princely Acquisition

For sale: Groundbreaking U.S. Internet bank with five branches, $74 billion in deposits and safe assets. Features include hipness, tendency to bid up deposits and a tepid profit margin bolstered by its parent's credit rating. Owner under pressure to sell.

ING Direct USA has always been a flashy proposition, and its sale as part of a break-up required by overseas regulators promises to be no different. As many other footholds in banking have crumbled or been sold off, this unit of the Netherlands' ING Group NV offers a leading national franchise free from a branch network's hassles.

Yet it also has its warts, ranging from high promotional costs to a blah book of assets. With pristine acquisition targets few and far between, however, these blemishes are not enough to rule out prospective suitors. ING Direct could appeal to newly minted bank holding companies seeking deposits, a private-equity group interested in a rare entrée to a national customer base or an existing bank looking to bulk up its online operations, according to analysts and merger and acquisition attorneys.

"There are very few large franchises on the selling block," said Derek Ferber, a senior analyst at SNL Financial who sees ING Direct as appealing to institutions seeking deposits as a cheap and growing source of funding. Morgan Stanley's certificate-of-deposit issuances and Goldman Sachs Group Inc.'s partnership with Toronto-Dominion's TD Bank Financial Group on an unsuccessful bid for BankUnited Financial Corp. might speak to such institutions' interest in "a quasi-traditional banking franchise," he said, adding that the allure would be similar for private equity.

To pay back a bailout from the Dutch state and satisfy the European Union's Competition Commission, ING Group agreed to sell ING Direct USA, its insurance business and some of its Dutch retail banking operations.

Though the bidding could drag on, the bank would likely sell for close to its book value of $7 billion if it is sold soon, Ferber said.

"It's a little bit sad to say that a large franchise getting purchased above book is out of the ordinary," he said, "but that's where multiples are right now."

The simplest possibility would be for an existing bank to buy ING Direct USA. For institutions like Wells Fargo & Co., PNC Financial Services Group Inc. or U.S. Bancorp, a purchase would boost Internet banking from a standard feature to a specialty.

Given ING Direct USA's history of poaching deposits from more traditional banks, such a sale would be ironic. When ING started its direct banking operation in 2000, the parent consciously steered clear of its home market to avoid cannibalizing its own deposit base.

The threat proved overrated: Online-only outfits like Wingspan Bank ran aground, leaving it to firms such as ING Direct and E-Trade Financial Corp. to be standard-bearers for the Internet model.

At the same time, however, ING has also shown the limitations of online banking. Institutional Risk Analytics' Christopher Whalen, no fan of the stand-alone Internet model, calls it an "irrational competitor" that regularly bid up deposits and sacrificed margins for expansion. Its deposit growth far outpaced its ability to build its book — 51% of its assets are parked in mortgage-backed securities or the repo market, and its unused credit lines are at 10%.

"It's a low-risk franchise, but it's not a great performer," Whalen said. Without the credit of ING or another major financial institution behind it, he said, ING Direct's margins would probably slip even further, making it even less attractive on its own.

Regulatory concerns about online deposits will mean careful scrutiny of any deal. During the financial crisis, more than a few institutions sought to compensate for yanked deposits with high online rates, and the Federal Deposit Insurance Corp. took notice in a March 3 letter headed: "The Use of Volatile or Special Funding Sources by Financial Institutions That Are in a Weakened Condition."

Written by Sandra Thompson, the agency's supervision and consumer protection director, the letter questions the stability of "high-cost brokered or Internet deposits."

"The FDIC believes [online deposits] have little value if they have to close the bank," said an adviser to a potential bidder. "They see them as closer to brokered deposits than to bricks and mortar."

In an e-mail, ING disputed that online deposits were any less reliable than their branch-collected equivalents. "To the extent that balances are smaller, consumers tend to be less active in chasing the best rates in the market," wrote Anneloes Geldermans, a representative of ING Group.

She declined to comment on possible suitors.

20: AMERICAN BANKER - Western Union to Move Further into Prepaid Transfers

Western Union Co. is making remittance as easy as buying a gift card off the rack.

Through a deal with Interactive Communications International, an Atlanta company that sells gift cards at 150,000 retail locations, Western Union hopes to make its service more mainstream by tapping into the prepaid frenzy.

"We're diving into the prepaid category fairly aggressively," Stewart A. Stockdale, a Western Union executive vice president and its president for the Americas, said in an interview Wednesday.

Western Union, of Englewood, Colo., launched a system in July called MoneyWise, which allows people to receive money on a prepaid card. The service it is introducing this month with InComm, called GoCash, provides a similar service for senders.

The Western Union prepaid card is a piece of cardboard sold in values of $50, $100 and $200. Stockdale said Western Union chose those values because they are "very much in line with the gift-giving size" most frequently purchased on gift cards.

Though the system requires senders to follow up with a phone call to complete the money transfer, GoCash is, "in essence, a prepaid money transfer product where people buy it off the rack," he said.

Western Union hopes to reach a wider audience through this marketing approach, Stockdale said. "Our primary segments in the U.S. are migrants and emergency send," he said.

GoCash should appeal to consumers who would want to use a money transfer as a gift, for example, he said.

Western Union has a substantial retail presence, with 50,000 agent locations in the U.S., but Stockdale said it could still benefit from InComm's network of grocery, pharmacy and convenience stores to make its service accessible to more people.

Although speed is typically an asset for money movement, he said a sender could choose to wait weeks before completing the transfer.

This makes GoCash more enticing as a gift-giving idea since it allows people to plan ahead and initiate a transfer at the time of their choosing, Stockdale said. "Here, what you're doing is capitalizing on the convenience of prepaid."

Stockdale said the system could be paired with MoneyWise so that both ends of the transfer are handled through a prepaid product, but it is up to the recipient to choose how the transfer is completed.

Brian Riley, a research director in the bank cards practice at TowerGroup in Needham, Mass., said Western Union's typical process for sending a transfer, though not especially complicated, is not as convenient as buying a gift card off the rack.

As such, GoCash should pay off for Western Union, Riley said. "With prepaid, the more convenient you make it, the more you sell," he said.

One drawback Riley sees is the enforcement of specific dollar values, since this could discourage people from using GoCash for international transfers. "When you start converting them into foreign currencies … they don't convert evenly," he said, and a round number in U.S. dollars could translate to an unusual amount for the recipient.

Riley likened the GoCash system to a recent move by eBay Inc.'s PayPal unit, which has begun allowing users to fund their PayPal accounts with the Green Dot Corp. MoneyPak cards that are sold in retail stores. In each case, the payment companies are addressing the same question, he said, "How do you fundamentally get money into the system?"

21: AMERICAN BANKER - With E-Transfers, Banks Target Gen-Y Payments

A new generation of person-to-person money transfer services is quickly gaining traction with banks, offering a way to regain a share of the electronic payments that was ceded long ago to nonbank rivals.

These services make it easier to send money to other people than with existing methods, and some executives say they could become a new source of revenue at a time when banks are eager to find additional ways to generate fee income.

The model is still evolving; some banks are already offering these transfer services online and many plan to make them available through mobile phones in the near future. Most payments executives agree that electronic person-to-person payments have the potential to change the way consumers interact with one another and with their banks.

Thomas S. Kunz, a senior vice president and director of payments and e-business at PNC Financial Services Group Inc., said P-to-P payments are dominated by nonbanks, but the new transfer services could make banks a more significant force.

"Banks are losing the battle as person-to-person transfers become electronic," Kunz said in an interview Thursday. "We're focused on Gen-Y, tech-savvy customers. They already have a large, nonbank alternative, called PayPal." To date, however, there has been "no good electronic alternative that the industry can get behind," he said.

PNC was one of two banks that switched on P-to-P transfer tools this past Saturday night, using CashEdge Inc.'s POPmoney service, the first to do so since the New York transfer technology provider introduced it in June. PNC and BancWest Corp.'s First Hawaiian Bank now let online banking customers send funds to a recipient's e-mail address or mobile phone number.

Kunz said that a convenient, electronic P-to-P service would make the bank more relevant to customers, especially young people who handle much of their daily activities online, including their finances. "We are trying to get the primary payment relationship with Gen-Y customers," he said. "If those balances can stay with us and those transactions can occur through us, that's what we want."

He said PNC has offered for about six months another CashEdge transfer service that requires senders to know recipients' account numbers and their banks' routing and transfer numbers. About 5% to 10% of PNC's active online banking customers use that service, but he expects about twice as many will use the new service.

Neil Platt, CashEdge's senior vice president and general manager of banking, said people can initiate POPmoney transfers online or through mobile phones, and though PNC and First Hawaiian are both offering only the online service now, both plan to add the mobile feature next year. The funds are sent across the automated clearing house network.

Including PNC and First Hawaiian, he said seven financial companies have already signed on to offer POPmoney and he expects one more contract this month. Three to four companies should go live in the first quarter, including the Seattle credit union BECU, which is expected to be the first to offer the mobile phone version. Besides PNC, another top 10 bank is expected to roll it out in the first half of next year. "Banks are really getting excited about" P-to-P transfers, he said.

One key reason is that it can generate fee income. "We do expect that some banks will charge people to use" the transfer service, Platt said.

First Hawaiian is charging users $1 for each transfer, according to its Web site; the Honolulu company declined to provide an executive for interviews. CashEdge charges its bank clients a per-transaction fee to handle the payments.

S1 Corp. has also introduced a P-to-P transfer service this year, and Mark Moore, its vice president for strategy and development said that banks could choose to impose fees strategically, offering free transactions to their best customers, for example, and charging others. "Banks are the ones that have the opportunity to charge for this service," he said. "Or they could use it as an opportunity to hook a different segment of users. They could charge some people and waive the fee for some people."

The S1 service lets people initiate payments online or through a mobile phone; the funds are drawn from the senders' bank accounts and delivered to recipients' accounts with eBay Inc.'s PayPal Inc. The technology is built into S1's mobile banking software, and the vendor does not charge clients any additional fee to handle the transactions.

Some bankers are less interested in the potential for fee income than in the chance to develop customer relationships.

"Nonbanks see this service as a business, and I think time will tell that it's not," Kunz said. "It's a way to help get a payments relationship with a household."

John Schulte, a senior vice president with Mercantile Bank of Michigan and its chief information officer, said that offering electronic transfers, even for free, can cut his expenses. The Grand Rapids company plans to roll out the S1 service toward the end of the first quarter.

"There is a cost to the bank" to offer electronic transfers, but there are costs for other payment methods as well, he said. "This is cheaper than checks, debit, credit or ACH."

22: ANNOUNCEMENT - American Express to Acquire Revolution Money ...

... to Develop Next Generation Payment Products

Deal combines state-of-the-art technology platform with leading global brand

American Express Company today announced it has agreed to acquire Revolution Money, a Revolution LLC company.

23: ANNOUNCEMENT - BNY Mellon Announces New Price Verification and ...

... Asset Validation Service for Hedge Funds

New service means more transparency for managers, partners and investors

BNY Mellon Alternative Investment Services has launched a service that independently validates a hedge fund's position records to third-parties - prime brokers, custodians, trustees and agent banks - and independently verifies the pricing of that fund's securities.

LINK TO FULL ARTICLE: http://www.prnewswire.com/news-releases/bny-mellon-alternative-investment-services-announces-new-price-verification-and-asset-validation-service-for-hedge-funds-79213012.html  

24: ANNOUNCEMENT - Wells Fargo, BB&T, Head Bank Insurance Honor Roll

Mamaroneck, NY—November 25 2009: Wells Fargo (CA), BB&T (NC), and BancorpSouth (MS) were among those named today to the Bank Insurance Market Research Group’s (BIMRG) 5-year Bank Insurance Honor Roll.

Announced on the eve of publication of the fifth annual edition of the group’s Who’s Who in Bank Insurance (WWBI), the industry’s leading bank insurance study, the awards are for top bank insurance performance sustained over a five-year period.

LINK TO FULL ARTICLE: http://www.singerpubs.com/Press-Release-5-Year-11-25-09.pdf

25: BANKINSURANCE.COM - 60 Million Americans are "Unbanked" or "Underbanked"

NEWS IN BRIEF - December 7 - 13, 2009

Almost 8% (7.7%) of U.S. households, or about 17 million adults, are unbanked, i.e., have no checking or savings account.  At least 71% of this group earn less than $30,000 annually, according to the FDIC Survey of Unbanked and Underbanked Households.  Another 18% of U.S. households, or about 43 million adults, are underbanked, i.e., have a checking or savings account but rely on money orders, non-bank check-cashing services, payday loans, rent-to-own agreements or paw shops.  This group generally earns $30,000-$50,000 annually.  Still, less than 20% of American households with less than $30,000 in annual income, or 14 million adults, are unbanked; 4.2% of those earning $30,000-$50,000 annually have no banking relationship, and less than 1% of U.S. households with $75,000 or more in annual income are unbanked, the FDIC survey shows.  Commenting on the survey, FDIC Chairman Sheila Bair said, “Access to an account at a federally-insured institution provides households with an important first step toward achieving financial security.  By better understanding the households that make up this group – who they are and their reasons for being unbanked or underbanked – we will be better positioned to help them make that first step.”  To access the survey, click here.

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

26: BANKINSURANCE.COM - Americans Worry About Meeting Daily Expenses in Retirement

NEWS IN BRIEF - December 7 - 13, 2009 

Americans aged 45 and older say meeting their daily expenses for food, shelter and other basic needs is their number one financial concern in retirement.  More than 65% of those surveyed in summer 2009 by The Hartford Financial Services Group said daily expenses dominated their concerns, up from 50% in 2008 and 25% in 2007.  More than one-third (34.4%) said they were “not at all confident” that income from their employer-sponsored pension plan would be guaranteed in retirement, and 82.7% said they were less than confident in their financial planning knowledge and abilities.  Of those who had financial plans for retirement, 40% said they relied on independent financial advisors, 19% turned to bank representatives, 16.5% favored securities firms, and 10.2% looked to their insurance agent.  Hartford Financial Senior Vice President Jamie Ohl said, “Increasingly, people fear they may face serious financial issues in retirement.  People that have taken the time to plan for their retirement are generally in a better place financially and are significantly more optimistic about the future.”

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

27: BANKINSURANCE.COM - BB&T Institutional Services "Best in Class"

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

Raleigh, NC-based BB&T Institutional Service, a unit of Winston-Salem, NC-based, $165.3 billion-asset BB&T Corp. has received nine “best in class” awards for 2009 in a national survey conducted by Plansponsor magazine.  BB&T Institutional Services Manager Ray McCulloch said, “As these positive rankings indicate, BB&T has a strong commitment to the 401(k) market and superior client service.”  He added, “Our clients value our knowledge and consistency,… and we are proud to offer quality products and services at a competitive price.”

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

28: BANKINSURANCE.COM - Bank Variable Annuity Sales Drop 38.5%

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

U.S. bank variable annuities sales dropped 38.5% in the first nine months of 2009 to $9.28 billion, down from $15.1 billion in 2008, according to Morningstar/Marc.  Wirehouses saw their variable annuity sales fall 25.7% to $10.7 billion, down from $14.4 billion, and independent firms reported a 21% drop to $33.7 billion, down from $42.6 billion.  Among these three distribution channels, variable annuity sales fell 20.0% to $57.7 billion, down from $72.1 billion, according to the Morningstar/Marc data.

29: BANKINSURANCE.COM - FDIC Hikes 2010 Budget to Handle Potential Bank Failures

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

The Federal Deposit Insurance Corporation (FDIC) has approved a $4 billion corporate operating budget for 2010 and increased its 2009 budget to $2.6 billion.  The FDIC estimates its receivership component in 2010 will almost double to $2.5 billion, up from $1.3 billion in 2009, and estimates its need for supervisory staff will boost its employees 23.4% to 8,653, up from 7,010 in 2009.  Most of the latter will be temporary hires to examine and oversee banks, assist in bank closings and sell failed bank assets.  FDIC Chairman Sheila Bair said, “The 2010 budget will ensure that we are prepared to handle an even larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions.”  As of Friday, December 18, 140 banks have failed in 2009, 4.6 times more than the 25 that failed in 2008.

30: BANKINSURANCE.COM - FINRA Survey Respondents Clueless ...

About Interest Rates & Inflation

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

Fewer than half (46%) of respondents to the 2009 National Financial Capability Survey conducted by the FINRA Investor Education Foundation were able to correctly answer two basic questions about how interest rates and inflation work.  FINRA Foundation Chairman Rick Ketchem said, “The FINRA Foundation will use this important information to help focus its efforts to address the financial education needs of underserved Americans.”  There is no indication that the survey was not a sample of all Americans.  For more information about this survey, click here.

31: BANKINSURANCE.COM - More Defined Contribution Plan Consider Annuities

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

Currently, 22% of employers offer an annuity as a distribution option in their employer-sponsored defined contribution plans, but since last year’s upset in the financial market, 10% more are considering adding one, according to a recent Watson Wyatt survey.  Watson Wyatt Retirement Consultant Robyn Credico said, “In the recent economic downturn, employees without traditional pension plans could not retire because their 401(k) balances were decimated.  With this weakness in 401(k) plans now exposed, more employers are exploring ways to minimize their employees’ exposure to risk – including the use of annuities.”

32: BANKINSURANCE.COM - Moynihan to Head Bank of America

NEWS IN BRIEF - DECEMBER 28, 2009 - JANUARY 3, 2010

Bank of America (B of A) Consumer and Small Business Banking President Brian T. Moynihan will replace Kenneth D. Lewis as Bank of America President and CEO when Lewis retires on December 31, 2009.  Moynihan joined B of A as Global Wealth and Investment Management President in 2004, when B of A acquired FleetBoston Financial.  Moynihan served in this position until 2007, when he was appointed president of B of A’s Global Corporate and Investment Management, a post he held until August 2009.  B of A Chairman Walter Massey said, “Brian’s wide range of experience, his relationships inside and outside the company and his demonstrated ability to understand business dynamics and effect constructive change made him the best person for the position.”  Moynihan said, “This company has a long tradition of operational excellence and strong execution.  My goal is to refocus our efforts and attention to those core capabilities that will make us the best financial services firm in the world.”  Moynihan is 50 years old and chairs B of A’s Global Diversity and Inclusion Council.

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

33: BANKINSURANCE.COM - Pension Plans Turning to Professional Advisors

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

Most U.S. companies are taking active steps to reduce their overall pension risk by changing the way they fund, invest and design their pension plans, according to the 2009 Global Pension Risk Survey conducted by Hewitt Associates.  Sixty-six percent have adopted funding policies designed to avoid benefit restrictions by maintaining an 80% funded level, and 83% plan to respond to the market downturn with additional contributions.  Almost 40% are reducing their equity exposure, and 56% are moving into bonds – corporates (37%) and Treasuries (19%).  While in 2008 only 4% delegated their investment policy to professional advisors, this year 20% plan to or have done the same, the survey revealed.  For more information on the Pension Risk Survey, click here.

34: BANKINSURANCE.COM - Saving & Paying Down Debt

Top Financial Resolutions for 2010

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

Adult Americans ranked their financial resolutions for 2010 in the following order, according to an Edward Jones December survey: increase savings (33%), pay down debt (30%), put money in an education fund (13%), contribute more to a 401(k) or IRA (9%), accelerate mortgage repayment (7%) and work with a financial advisor (3%).

35: BANKINSURANCE.COM - Senate Bill Threatens Gramm-Leach-Bliley

NEWS IN BRIEF - DECEMBER 21 - 27, 2009 

U.S. Senators Maria Cantwell (D-WA) and John McCain (R-AZ) introduced a bill into the Senate on December 16, 2009, that would basically repeal the Gramm-Leach-Bliley Act of 1999 and reinstate the Glass-Steagall Act of 1933.  Senate bill 2886, aka the “Banking Integrity Act,” would prohibit commercial banks from engaging in insurance activities and disallow affiliations between commercial banks and investment banks.  Banks engaged in these activities or relationships would be forced to divest themselves of the disallowed operations within one year after the passage of the bill.  To read more about this S. 2886, click here.

36: BANKINSURANCE.COM - Wells Fargo Buys Out Prudential's Interest ...

... in Wells Fargo Advisors

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

San Francisco-based, $1.2 trillion-asset Wells Fargo & Co. has agreed to pay Newark, NJ-based Prudential Financial $4.5 billion in cash to acquire Prudential’s noncontrolling interest in Wells Fargo Advisors.  The purchase price is based on the value of Wells Fargo Advisors (then known as Wachovia Securities, a 62:38 joint venture between Wachovia and Prudential) on January 1, 2008, prior to Wachovia’s purchase of A.G. Edwards, and the latter’s merger into then Wachovia Securities.  Wells Fargo & Co. CFO Howard Atkins said, “We thank Prudential for being a strong partner as we built the third largest brokerage firm in the nation.”  Prudential Financial Chairman and CEO John Strangfeld said, “The settlement will substantially enhance our capital position and financial flexibility going forward.”  The deal is expected to close no later than December 31, 2009.

37: BANKINSURANCE.COM - Wells Fargo Exits TARP

NEWS IN BRIEF - DECEMBER 21 - 27, 2009

San Francisco-based, $1.2 trillion-asset Wells Fargo & Co., has redeemed $25 billion in series D preferred stock issued to the U.S. Treasury last year under the Troubled Asset Relief Program (TARP).  In order to buy back the shares, Wells Fargo issued $10.4 billion in common stock, sold $1.5 billion in assets and raised $1.35 billion in cash by substituting stock for cash in employee benefit plans and incentive compensation.  After the repayment, Wells Fargo said, its $1.25 billion in annual preferred stock payments to the U.S. Treasury would be eliminated and estimated the company’s Tier 1 common equity would be 6.2%.  The U.S. Treasury continues to hold warrants to purchase 110 million Wells Fargo shares at an exercise price of $34.01 per share.

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

38: K@W - What Really Lies Behind the Financial Crisis?

What was the true cause of the worst financial crisis the world has seen since the Great Depression? Was it excessive greed on Wall Street? Was it mark-to-market accounting? The answer is none of the above, according to Jeremy Siegel, a professor of finance at Wharton. While these factors contributed to the crisis, they do not represent its most significant cause. Siegel provided a detailed analysis of the factors that fueled the meltdown during the inaugural lecture of a 15-session course on the financial crisis that Wharton is offering MBA and undergraduate students.

LINK TO FULL ARTICLE: http://knowledge.wharton.upenn.edu/article/2148.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 

39: K@W - Why Economists Failed to Predict the Financial Crisis

A sense that they failed to see the financial crisis brewing has led to soul searching among many economists. While some did warn that home prices were forming a bubble, others confess to a widespread failure to predict the damage the bubble would cause when it burst. Some economists are harsher, arguing that a free-market bias in the profession, coupled with outmoded and simplistic analytical tools, blinded many of their colleagues to the danger. A recent paper from a conference of economists calls for changes in the way they are trained.

LINK TO FULL ARTICLE: http://knowledge.wharton.upenn.edu/article/2234.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

40: MISCELLANEOUS - Citigroup to Repay $20 Billion in Bailout Money

Citigroup said Monday it is repaying $20 billion in public bailout money, freeing the banking giant from the close scrutiny and pay restrictions that came with the rescue program. The government will also sell its stake in the company.

LINK TO FULL ARTICLE: http://www.npr.org/templates/story/story.php?storyId=121404293&ft=1&f=1001

41: MISCELLANEOUS - Corporate Compensation Plans Releases a New White Paper

... on Threat to Retirement Plans

DANBURY, Conn.--(BUSINESS WIRE)--Corporate Compensation Plans (CCP) released its new White Paper on Health Related Events that can Devastate Retirement Plans.

"The real threat to individuals' retirement security," said Philip Davis, CCP's President, "is not market risk but disability risk – the risk of becoming disabled before retirement and the risk of being disabled after retirement and needing long term health care."

For example, when people become disabled before retirement, contributions to their qualified and nonqualified retirement plans stop. As a result, they can suffer devastating losses in their retirement benefits projected for age 65 – the time when payments from their disability insurance plans usually end.

LINK TO FULL ARTICLE: http://finance.yahoo.com/news/Corporate-Compensation-Plans-bw-2832980093.html?x=0&.v=1

42: MISCELLANEOUS - Mixed Expectations for the New Decade by Adults ...

... in the Five Largest European Countries and the U.S.

French most pessimistic while Americans and Spaniards more optimistic about what new decade will hold financially

NEW YORK--(BUSINESS WIRE)--A new Financial Times/Harris Poll in the United States and the five largest European countries looks ahead to the dawn of a new decade and examines what people think their standard of living will be. Thinking ahead ten years, pluralities of adults 64 and under in the U.S. (43%) and Spain (41%) as well as 37% of Germans are optimistic about the new decade while 44% of French adults and 36% of Britons are pessimistic. Two in five Italians (41%) are neither optimistic nor pessimistic.

LINK TO FULL ARTICLE: http://www.businesswire.com/portal/site/albany10/?ndmViewId=news_view&newsId=20091230005024&newsLang=en

43: MISCELLANEOUS - Sun Life Financial’s Unretirement Index Finds Friends and ...

... Family Trump Financial Advisors, Media and Internet When it Comes to Financial Advice

Less than Half of People Nearing Retirement Turning to Financial Advisors; Advertisements, Blogs and TV Personalities Rank Last for Financial Advice

WELLESLEY, MA (December 16, 2009) - The U.S. division of Sun Life Financial Inc. (NYSE:SLF, TSX:SLF) today released new research from the Sun Life Financial UnretirementSM Index which reveals that more working Americans seek financial advice from family members and friends over financial advisors, the media and online outlets.

LINK TO FULL ARTICLE: http://www.sunlife.com/us/v/index.jsp?vgnextoid=0abd81aab7495210VgnVCM100000abd2d09fRCRD&vgnextchannel=c5ff6c2a83454210VgnVCM100000abd2d09fRCRD&vgnLocale=en_CA

44: MISCELLANEOUS - Top 10 Financial Moves for 2010

- from Brinton Eaton Wealth Advisors

#1 – Time for a Risk Tolerance Checkup

Before the 2008 market meltdown, you may have thought you had a handle on your investment risk tolerance. Now that you’ve lived through the worst financial storm in almost a century, your views may have changed. ...

LINK TO FULL ARTICLE: http://www.brintoneaton.com/ourviews.asp?SPID=27200&LinkID=94258&Title=&preview=

45: PERSONNEL CHANGES - BofA Merrill Lynch Global Research Hires Priya Misra

as Head of U.S. Rates Strategy Research

BofA Merrill Lynch Global Research today announced the hiring of Priya Misra as head of U.S. Rates Strategy Research. In this role, Misra will be responsible for the strategy and development of our U.S. rates research product and recommendations. Misra will report to Adam Quinton, head of BofA Merrill Lynch Global Macro Research.

LINK TO FULL ARTICLE: http://www.marketwatch.com/story/bofa-merrill-lynch-global-research-hires-priya-misra-as-head-of-us-rates-strategy-research-2009-12-03

46: PERSONNEL CHANGES - BNY Mellon Asset Servicing Names James E. Cecere

as Managing Director of Global Product Management for U.S. Financial Institutions

BNY Mellon Asset Servicing, the global leader in securities servicing, has named James E. Cecere as managing director of Global Product Management for U.S. Financial Institutions.

LINK TO FULL ARTICLE: http://www.thehedgefundjournal.com/news/2009/12/07/bny-mellon-asset-servicing-appoints-james-e-cecere.php

47: PERSONNEL CHANGES - Union Bank Vice Chairman John F. Woods Appointed CFO

Succeeding David I. Matson

UnionBanCal Corporation and its primary subsidiary, Union Bank, N.A. today announced that Vice Chairman John F. Woods has officially assumed the duties of Chief Financial Officer, effective December 1, 2009. He succeeds the retiring David I. Matson, completing a transition plan announced earlier this year.

LINK TO FULL ARTICLE: https://www.unionbank.com/company_information/company_information/news/press_release_index/press_releases/john_woods_appointed_cfo.jsp

48: PRODUCT - John Hancock Launches New Small Company Fund

Firm completes latest fund adoption, rounds out product line by adding FMA Small Company Portfolio

BOSTON, Dec. 14 /PRNewswire-FirstCall/ -- John Hancock Funds has completed the adoption of Fiduciary Management Associates' FMA Small Company Portfolio, and has launched it as the new John Hancock Small Company Fund (JCSAX). The reorganization was effective on December 11. The fund is now available for sale to retail investors through their financial advisers.


LINK TO FULL ARTICLE: http://www.prnewswire.com/news-releases/john-hancock-launches-new-small-company-fund-79219957.html

49: REGULATORY - Firm Offers White Paper on Redomestication as Strategy ...

... to Reduce Premium Taxes

Cleveland, Ohio – December 2, 2009 – Firm Offers White Paper on Redomestication as Strategy to Reduce Premium Taxes.

The Lawson Firm, a law firm providing legal and compliance management services to the insurance industry, is offering a white paper examining redomestication as a strategy to reduce premium taxes.  The paper discusses the pros and cons of redomestication as well as some alternative strategies. 

LINK TO FULL ARTICLE: http://www.polsinelli.com/publications/ins_bus/resources/newsltr_spr_09.pdf

50: REGULATORY - Lifetime Income Disclosure Act ...

... Will Help Workers Prepare For Retirement

Workers will be better able to put together the pieces of the retirement income security puzzle thanks to bipartisan legislation introduced today by Sens. Jeff Bingaman (D-NM), Johnny Isakson (R-GA) and Herb Kohl (D-WI), said Frank Keating, president and CEO of the American Council of Life Insurers (ACLI).

LINK TO FULL ARTICLE: http://www.acli.com/ACLI/Newsroom/News%20Releases/NR09-083.htm

51: REPORT - Fidelity Investments® Study Finds Shift in Generation Y ...

... Attitudes Toward Finances, Employment and Benefits

One in Four Can’t Imagine Ever Being Free of Credit Card Debt

BOSTON--(BUSINESS WIRE)--Fidelity Investments® today announced the results of a new study1 of young working Americans which reveals a shift toward more conservative behavior in financial matters and employment decisions.

LINK TO FULL ARTICLE: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20091208005792&newsLang=en

52: REPORT - Economic and Market Concerns Overshadow Strong 2009 Results

OLDWICK, N.J., Dec. 14, 2009—A.M. Best Co.’s review of the Bermuda market’s results finds these companies strongly capitalized but will face significant challenges during the current phase of the insurance cycle.

A.M. Best believes that companies also must consider the opportunity costs for prematurely deploying capital, which could be grave if a catastrophe occurs or margin compression accelerates.

LINK TO FULL ARTICLE: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20091214005082&newsLang=en

53: REPORT - Community Bank Advantages Challenge Historical Assumptions

OLDWICK, N.J., Dec. 29, 2009—A bank’s size alone can have less to do  with its performance, safety and soundness than would be expected, based onA.M. Best’s analysis of data from the Federal Deposit Insurance Corp. and other, qualitative factors. Various operating models carry key advantages and disadvantages, as best delineated by a threshold of $5 billion in assets between small and large banks.

LINK TO FULL ARTICLE: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20091229005258&newsLang=en

54: REPORT- Most Americans Are Putting Their Income at Risk

Very few choose to protect their income from a disability

MILWAUKEE, Dec. 1 /PRNewswire/ -- For most working-age Americans, their greatest asset is the ability to earn an income. It is this ability to earn an income that makes it possible to not only pay today’s mortgage but also to plan and save for tomorrow’s college and retirement costs.

To view the multimedia assets associated with this release, please click http://www.prnewswire.com/news-releases/northwestern-mutual-survey-reveals-that-most-americans-are-putting-their-income-at-risk-78214037.html

LINK TO FULL ARTICLE: http://insurancenewsnet.com/article.aspx?id=148609&type=lifehealth

55: REPORT - Almost One-Third of U.S. Adult Population Plays Caregiver Role ...

... in Households Across America: 65.7 Million Caregivers

Comprehensive Report Details the Prevalence, Implications, Costs of Caregiving and Demographics of Caregivers

New York, NY - December 8, 2009 - Caregiving is still mostly a woman's job and many women are putting their career and financial futures on hold as they juggle part-time caregiving and full-time job requirements.  This is the reality reported in Caregiving in the U.S. 2009, the most comprehensive examination to date of caregiving in America.  The sweeping study of the legions of people caring for adults, the elderly and children with special needs reveals that 29% of the U.S. adult population, or 65.7 million people, are caregivers, including 31% of all households.  These caregivers provide an average of 20 hours of care per week.

LINK TO FULL ARTICLE: http://www.csrwire.com/press/press_release/28318-Almost-One-Third-of-U-S-Adult-Population-Plays-Caregiver-Role-in-Households-Across-America-65-7-Million-Caregivers

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