1: CAST SERVICE HIGHLIGHT

Channel Migration
Optimize channel usage and strengthen customer relationships

In recent years, financial institutions have invested significant resources to develop lower cost delivery capabilities for many of their products and services. However, the benefits expected by shareholders are often not obtained, as many channel adoption issues were not anticipated and have not been addressed. 

Common Channel Usage Issues
       Inconsistent customer experience across channels discourages usage
       Explosion of new services and offerings lacks effective sales support and incentives
       Channels are managed in isolated organizational silos
       Product features and pricing are inconsistent with delivery channel objectives
       Migration is typically slow, and channel performance and usage are not effectively monitored so that migration strategies can be modified
       Channel and related transaction profitability are unknown
       Implications of new channel technology on existing services and other channels are unknown

Why CAST for Channel Migration
       Extensive experience in channel optimization in retail and commercial financial services
       Hands-on experience with Call Center, Internet, Branch, Direct and Indirect sales force processes
       Demonstrated experience with migration implementation
       Understanding of detail channel operational support processes
       Proven tools to support measurement and monitoring of activities and capacity
       Fact-based approach to quantification of existing practices and the impact of changes

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

2: AMERICAN BANKER - Bank of New York Mellon Chief: U.S. Should Not Own the GSEs

WASHINGTON — Robert P. Kelly, Bank of New York Mellon Corp.'s chairman and chief executive, said the government should end its ownership of Fannie Mae and Freddie Mac and called for increased resolution authority to dismantle large banks.

Speaking at the National Press Club, Kelly questioned the need for the government-sponsored enterprises and said the government should play no role in the mortgage market.

"The federal government … really has to come to the realization that it needs to get out of the business," Kelly said. "Government involved in the residential business creates too many distortions and potentially bad behavior. And it's really the only lending asset class the government owns."

Lawmakers will begin to debate the future of the housing finance system at a hearing on March 23.

Though the Obama administration had promised to develop a plan by last month, Treasury Secretary Tim Geithner has said it does not intend to release a concrete proposal until 2011. Instead, the administration will release questions for the industry and public to weigh in on.

Kelly opted to voice his opinions early, saying other countries that do not have enterprises like Fannie and Freddie have a higher homeownership rate.

"On the mortgage front there are multiple ways you can do it, but in the end I don't think the federal government should or needs to own the GSEs," he said. "The question would be is there a role for the GSEs in the future, and that's still an open question."

Kelly made it clear, however, that he still supports a secondary market for mortgages, just not one dominated by government entities.

"I don't bank balance sheets are large enough in America to fund the entire residential mortgage market, so we are going to need to get the securitization market going again," he said. "And that's the debate we have to have, and what is the best model? Do you merge the GSEs together? Do you make them a public utility of the banking system? Do you even need them at all? And that's an open question in my mind. [C]ertainly most countries around the world don't have them."

Kelly also said he supported regulatory reform proposals to beef up the government's resolution powers.

"Of all the many, many proposals you've been reading about, by far the most important one we have to deliver on is a wind-up authority," he said. "That is to say, we can never allow ourselves as a country to go into a situation where we have a collapse like Lehman Brothers."

He objected to a House provision, however, that would assess a fee on large companies before a systemic failure. The House reform bill passed in December would create a $200 billion fund, and Senate lawmakers are weighing the creation of a $50 billion fund.

"In the end I think it's a bad policy idea and the question is whether … by creating a fund … that would imply that there are banks that are 'too big to fail,' " Kelly said.

"I think that's a bad policy mistake.

"The second thing is I think it actually increases creates risk to the system. If you create the fund to basically pre-fund a future failure, I think other companies and financial institutions will take more risk with those companies because they know this big fund exists to bail them out."

3: AMERICAN BANKER - Cruel 'Joke': Consumer Protection to the Fed?

WASHINGTON — A tentative deal struck between Senate Banking Committee Chairman Chris Dodd and Sen. Bob Corker, R-Tenn., to entrust consumer protection to the Federal Reserve Board left observers, including fellow lawmakers, more confused than enlightened, and raised critical questions.

The most discussed was why Dodd, who has assailed the Fed repeatedly for its failure to protect consumers, would reverse course. House Financial Services Committee Chairman Barney Frank called the idea a "bad joke."

But the more important question was whether the Fed would really be in charge.

Sen. Richard Shelby, the No. 1 Republican on the Senate Banking Committee, told reporters Tuesday that he feared the new consumer protection division would operate with little to no input from the central bank.

"If the consumer protection unit or bureau is put at the Fed, FDIC or anywhere else … a prudential regulator should have a say in any rule that could affect the safety and soundness of the banking system," the Alabama lawmaker said.

Shelby added that prudential regulators should "absolutely" have power to veto consumer protection proposals. The Dodd-Corker plan would allow regulators to appeal consumer protection rules to a new systemic-risk council, which could override them with a two-thirds vote, but Shelby said that idea "would be silly."

"I think they should have to have some power there, otherwise you are just creating something that runs amok," he said. "We are looking at it now. We will probably make some suggestions. … If you house something at the Federal Reserve you've got the board of governors and the chairman. The board of governors ought to have the control, or the chairman or the board of the FDIC if that's where it were housed."

The latest version of the Dodd-Corker proposal would let the president appoint a Senate-confirmed director of a consumer protection division that would have the power to independently write rules for all banks and nonbanks. Under the plan, the division could only enforce those rules against banks with assets of more than $10 billion and large nonbank mortgage lenders. Banks with assets of less than $10 billion would still be examined by their primary regulator, with some type of backstop authority given to the consumer division.

Though the other banking agencies would have to be consulted before the division promulgated new consumer rules, they would not have the power to block them unless there was a two-thirds vote of the systemic-risk council. The head of the consumer division would be placed within the Fed's office of the chairman. These details were not final and may change.

Confronted by reporters Tuesday, Corker would only say that "talks are continuing to go well."

But other Republicans echoed Shelby's concerns over how much autonomy any new consumer protection regulator will have.

Sen. Judd Gregg of New Hampshire, who is one of the strongest Fed supporters on the Banking Committee, sounded the most supportive, saying that he preferred the idea of a division within the Fed to a stand-alone agency but that the central bank should have some power over the division.

Sen. Mike Crapo, R-Idaho, said he hadn't seen any details but was surprised that the Fed was being considered. Sen. Mike Johanns of Nebraska said he is more concerned about giving a consumer division too much power than where it is housed.

"For me it is the scope and extent of their powers," Johanns said. "There has to be a limitation here on what this group does, otherwise you just have a growing bureaucracy — I don't want to go there. I don't think that's the right approach."

Democrats, meanwhile, sounded even less enthusiastic about the idea.

Many were appalled at the idea of giving consumer protection duties to the Fed. Frank and Dodd have both denounced the central bank for failing to use its authority to protect consumers prior to the crisis.

"I was incredulous," Frank told Politico on Tuesday. "After all the Fed bashing we've heard? The Fed's such a weak engine, so let's give them consumer protection? It's almost a bad joke. I was very disappointed."

Frank added that, "I wouldn't ask the House to pass that."

Sen. Chuck Schumer, meanwhile, didn't flat-out reject the idea, but he didn't sound pleased by it either. "In my 20 years of trying to get the Federal Reserve to properly protect consumers, it has been an uphill, and very often unsuccessful, battle," the New York Democrat said. "I am very leery of any consumer regulator being placed inside the Fed."

Sen. Jeff Merkley, D-Ore., a member of the Senate Banking Committee, also said he was "very concerned about it being in the Fed."

"Monetary policy has had the penthouse of the Fed; safety and soundness had the upper floors; consumer protection has been stuck in the basement," he said. "The question I would raise is why the Fed when it has been so woefully neglected."

Sen. Jack Reed, D-R.I., appeared willing to give a new division to the Fed, but rejected Republican arguments that the central bank — or any regulator — should be able to veto new consumer rules.

"That's prepared to repeat what happened in the past," Reed said. "To essentially have the consumer agency as a subset of the regulators, that's what we've had for the last several decades."

It was a point echoed by outside observers, who noted that the Fed already has a consumer protection division that is substantially separate from safety and soundness oversight. Other than giving the division a presidentially appointed director, it wasn't clear if there was any substantive difference.

"Call me crazy, but I already thought there was a consumer division at the Fed," said Cornelius Hurley, the director of the Morin Center on Banking and Financial Law at the Boston University School of Law. "I've been struggling to find out what would change other than the fact the president would appoint it."

To others, the proposal smacked of desperation. "They're looking for politically easy solutions," said William Isaac, a former FDIC chairman who is now chairman of LECG Global Financial Services.

Still, it was clear some lawmakers were at least willing to bite.

Sen. Evan Bayh, D-Ind., said he hadn't seen the details but that the potential for a compromise could be Democrats' best bet for enacting legislation.

"It may represent the best hope of actually getting something done," he said. "I disagree with those who say we would be in a better position in January or February to get a stronger bill. If you look at the upcoming elections the more likely outcome would be a weaker bill."

Sen. Jon Tester, D-Mont., said it didn't matter where the consumer protection division was, as long as it had adequate powers.

"If we can make consumer protection work, I don't care if it's in the Fed or wherever it might be, then let's see if we can do it and do it," he said.

Sen. Richard Durbin, the No. 2 Democrat in the Senate and an original co-sponsor of the stand-alone consumer agency idea, said he was willing to hear Dodd out.

"I'm open to what he comes up with," the Illinois lawmaker said. "We need a strong consumer protection agency. I'm open to what Chris has to say. I'm not going to rule it out, but at the end of the day it has to be strong."

4: AMERICAN BANKER - Diversifying Channels to Tread Water

PHH Corp., best known for originating mortgages behind the scenes for household names like Charles Schwab Corp. and Merrill Lynch, plans to expand other home lending channels as industrywide volume tanks.

The Mt. Laurel, N.J., company said Monday that this year it is looking to do more business through mortgage brokers, correspondents and its partnership with Realogy Corp., which owns the Century 21 and Coldwell Banker real estate brokerage franchises.

Doing so would enable PHH, a top-10 lender, to maintain revenue at 2009 levels this year and increase its market share by a percentage point, to 3%, despite an expected 32% decline in industrywide originations, to $1.3 trillion, the company said.

Many big lenders have quit or scaled back from the wholesale mortgage market in recent years. This means PHH faces less competition for brokered loans, which have made up a minuscule portion of the company's business. But there are also fewer brokers around, so achieving growth will be a challenge.

"The problem is, brokers are leaving the channel in droves," said David Olson, the president of Access Mortgage Research and Consulting Inc. "We see a big shift going in to retail."

The number of mortgage brokers has dropped 56% from a peak of 148,200 in April 2006, to 65,400 last November, Olson said, citing the Bureau of Labor Statistics. According to National Mortgage News, brokers now account for 13% of all loans funded in the U.S. Three years ago, brokers arranged about one in every three home loans.

Brokers traditionally have specialized in two areas: refinancings, which are considered an unreliable source of volume, dependent on low interest rates, and subprime and other high-risk loan types that led to a wave of losses in the industry and that most lenders have discontinued.

But Jerome Selitto, PHH's president and chief executive, contended in an interview that the broker market is an "opportunity that was too large for us to ignore."

"Looking at price competitiveness and the types of products that were in the channel, we did not feel historically that was our sweet spot," he said. "But that has changed now. A lot of players are out of the market completely. It's not as price competitive as it once was, and the mix of products is different."

Bose George, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he expects the wholesale business to contribute modestly to PHH's volume in 2010.

"Given their historic conservative stance on credit, I don't see them moving here very aggressively," he said. "It sounds like there are some opportunities given the pullback from some of the bigger players."

Selitto said he continues to see strong demand for PHH's outsourcing services, especially among smaller regional banks and credit unions.

Last year, about 35% of the company's production volume came from Realogy brokers, Selitto said. He would not specify his target for expanding that figure.

PHH, which also has a unit that leases fleets of cars to a variety of companies, said solid results in its mortgage business helped it swing to a profit in the fourth quarter.

Net income attributable to common shareholders totaled $97 million, or $1.74 per share, compared with a loss of $216 million, or $3.98 per share, a year earlier.

Revenue more than tripled, to $744 million.

Amid a broad market rally, PHH's stock jumped 11.6% Monday, to $20.66 a share.

The mortgage business, comprising production and servicing units, made $151 million, after losing $382 million a year earlier. That loss was due primarily to a hefty charge related to a change in valuation of the company's mortgage servicing rights.

Excluding gains and losses from mortgage servicing rights, core earnings in the mortgage business were $80 million.

The mortgage production unit posted its fourth straight quarterly profit, earning $65 million. In the fourth quarter of 2008, the unit broke even.

Delinquencies on the loans the company services as a percentage of unpaid balances rose to 4.68% at Dec. 31, from 4.54% in the previous quarter and 3.67% the year earlier.

Selitto joined PHH in October after a proxy fight led to a shake-up of the board and the departure of CEO Terry Edwards. Last month, Selitto outlined a plan to cut costs this year by $100 million to $120 million through streamlining and consolidations of back-office operations. Fourth-quarter expenses declined 3.5% from a year earlier, to $575 million.

"This is really now largely a story of executing on this plan that they put into place," said KBW's George.

5: AMERICAN BANKER - FDIC Asset Plan Danger to Markets, Bankers Say

Critics claim it will hurt securitizations, limit flow of credit

WASHINGTON — A Federal Deposit Insurance Corp. plan to restrict securitizations is drawing intense opposition from bankers, who claim it would damage the secondary market.

In a December proposal, the agency said it was considering imposing conditions to protect securitized assets from FDIC seizure after a bank failure, including a “skin in the game” requirement, a minimum hold period for underlying loans and limits on the number of tranches.

But banks — including Bank of America Corp., Capital One Financial Corp., JPMorgan Chase & Co. and Wells Fargo & Co. — oppose the FDIC plan, arguing those conditions would harm the securitization market, which in turn would curb risk management and narrow credit availability.

“It is foreseeable that if the” proposals “were adopted without adjustment it could discourage appropriate risk transfer transactions and reduce credit availability,” Greg Baer, deputy general counsel at B of A, wrote in a Feb. 22 comment letter to the agency. “The alternative to securitization is a banking market funded, to a larger degree, by deposits and wholesale funding — an outcome that may not be practical or feasible.”

Trade groups, law firms and rating agencies have also expressed concerns, while consumer groups for the most part lauded the plan. “Imposing these changes risks an adverse impact that most significantly could be the elimination of securitization in some sectors,” Tom Deutsch, the executive director of the American Securitization Forum, wrote in a Feb. 22 comment letter to the agency.

The FDIC received 34 comment letters, many from banks and their trade groups, which largely said the proposed reforms could scare off investors and give nonbanks a competitive advantage.

Some said that banks would not have enough time to adopt the plan if it were enacted and said any effort to restrict securitization should be coordinated with Congress and other federal regulatory agencies.

The proposal was sparked by new accounting requirements that force banks to report securitized assets on their balance sheets. The FDIC has long had a hands-off policy for securitized assets, but the accounting change essentially forced the agency’s hand.

So in November, the FDIC said it would continue its existing policy through March, but warned that longer-term conditions for receiving the safe harbor would be needed.

The FDIC initially planned to propose enhanced disclosures, compensation limits and a requirement that originators retain a 5% piece of securitized assets. For mortgage assets, only loans kept on the books for a year could be securitized, and securitizations would be restricted to six tranches.

But amid objections from two FDIC board members — Comptroller of the Currency John Dugan and acting Office of Thrift Supervision Director John Bowman — the agency pulled back from proposing such specifics, and in December issued a less direct “advance notice of proposed rulemaking” that merely asked for comments on the possible restrictions and included the earlier proposal as sample text.

That pullback did not allay the industry’s concerns.

Several commenters said the safe harbor was intended to reassure investors that they would be paid despite the condition of the originating bank, but the proposal would leave them wary about participating in the securitization market.

“By their very nature, the conditions contained in the ANPR are inconsistent with providing an effective safe harbor,” Wells Fargo deputy general counsel David Moskowitz wrote in a Feb. 22 letter.

Bankers questioned the use of the FDIC safe harbor as a means for curbing the securitization market, which the FDIC has said contributed to the financial crisis. Regulatory reform legislation being debated in Congress is a better venue for addressing those changes, they said.

“Preconditions addressing capital structure, disclosures, documentations and record keeping, compensation, origination and retention requirements should not be tied to the determination of whether financial assets will be treated as having been legally isolated from the” insured bank, wrote Adam Gilbert, a managing director for corporate risk management with the JPMorgan Chase. “Delinking securitization reform from the legal isolation safe harbor would allow greater clarity in the construction of the safe harbor.”

Stephen Linehan, Capital One’s treasurer, agreed a broader approach is needed.

“While we recognize the importance of many of these proposed requirements in the wake of the financial crisis, such as the need for better underwriting and greater transparency, we believe they are more effectively developed and implemented as part of an interagency effort,” Linehan wrote in a Feb. 22 letter.

Critics also said that since the rules would apply just to FDIC-insured institutions, the restrictions may shift securitization activity to nonbanks.

“Bank sponsors will be at a competitive disadvantage with domestic nonbank and foreign” institutions “that would not have to comply with new restrictions on the manner in which they structure securitization transactions,” wrote Cristeena Naser, an associate general counsel with the American Bankers Association-affiliated ABA Securities Association. “Each of the specific requirements set forth in the sample regulatory text come with costs in terms of dollars and personnel. As these costs mount for bank sponsors, banks are likely to pass the increased costs on to their customers or diminish their securitization activities or exit the business altogether.”

Echoing concerns that Dugan and Bowman aired at the FDIC’s Dec. 15 meeting, several bankers urged the participation of other agencies in a more comprehensive effort to reform the securitization process.

“The unilateral approach taken by the FDIC … could further supervisory disparity and regulatory burden among various sectors of the financial services industry,” wrote John Courson, the Mortgage Bankers Association’s chief executive. “We also note that federal legislation addressing many of the sweeping policy changes addressed in the ANPR is progressing through Congress. In order to avoid conflicting simultaneous regulatory and legislative mandates, we further request that any action by the FDIC other than withdrawing the ANPR should be deferred until these issues are settled at the statutory level.”

In responses to the agency’s 35 questions for comment, respondents took issue with the specific proposals. Bankers said rigorous underwriting requirements for loans backing the securitizations would be a better solution than requiring issuers to retain 5%.

“Mandatory originator retention of a share of the credit risk is based on the assumption that to avoid losing the amount retained, the originator will maintain good underwriting practices,” wrote Rich Whiting, the executive director of the Financial Services Roundtable, and John Dalton, the president of the Roundtable’s Housing Policy Council. “If that is the case, why not bypass the secondary source (i.e., risk retention) and go directly to the primary source — good underwriting practices.”

Meanwhile, the one-year-hold requirement for originators may hinder loans from being made, Baer said.

“This rule would arbitrarily restrict liquidity for mortgage assets … and may prevent extensions of credit to borrowers during the holding period,” he said.

6: AMERICAN BANKER - Failure to Cover Nonbanks Seen as Key Flaw

WASHINGTON - The original goal of providing uniform protections for all consumer credit is getting lost to lawmakers' preoccupation over where to place a new regulator.

Consumer group advocates, analysts, lawmakers and some bank representatives said that recent Senate proposals would leave glaring holes in consumer protection and set up an uneven playing field that could leave banks at a competitive disadvantage.

Though the details are in flux, the latest proposal would create a new division inside the Federal Reserve Board that would write new rules for all lenders but have little to no enforcement powers against nonbanks, including check cashers, payday lenders and title insurers.

"How could you possibly create a CFPA to regulate bank and nonbank products but not give it authority to examine and enforce its rules against predatory nonbank products?" said Ed Mierzwinski, the consumer program director for the U.S. Public Interest Research Group.

Though such a plan would hurt banks, the industry has been more focused on killing the consumer division outright or carving out an exception for smaller institutions than ensuring parity with nonbanks.

"We know that the banks will be regulated. If there isn't effective regulation of the others, then it creates a competitive problem," said Douglas Elliott, a fellow with the Brookings Institution and a former investment banker with JPMorgan Chase & Co. "They are instinctively looking for a relatively weak agency here, but if it ends up being a weak agency that allows a lot of nonbanks to compete through fraudulent or near-fraudulent behavior, that's not good for the banking system."

To be sure, the proposal being debated by Senate Banking Committee Chairman Chris Dodd and Sen. Bob Corker, R-Tenn., is still being hammered out. But the consensus among consumer groups, bank industry representatives and other sources is that the proposed consumer division's focus is primarily on rulewriting, with only limited enforcement capability.

Though the standards would theoretically apply to all consumer credit providers, including banks and nonbanks, it would keep in place the current enforcement mechanism for virtually everyone — a system many observers believe failed in the lead-up to the financial crisis.

Banks with assets of up to $10 billion would be examined by their primary federal regulators, while most nonbank lenders would keep their sporadic state enforcement and remain subject to the Federal Trade Commission, which primarily responds to complaints and does not examine lenders routinely.

Based on what is known, the proposed consumer division would have enforcement authority for nonbank mortgage lenders and financial institutions whose assets top $10 billion.

Lawmakers are primarily fighting over where to house the division, and how much power it should have relative to the agency in which it is housed. That debate has clouded the basic tenets of reform, observers said.

Calling it "a bunch of drama," Mierzwinski said all the versions he has seen put consumer protection "under failed regulators, don't cover payday lenders and others of its ilk, which I find unacceptable."

Consumer groups, many of whom met Wednesday with Treasury Secretary Tim Geithner, said the consumer division must have power over all parties that issue credit, including check cashers, payday lenders, rent-to-own stores and title insurers.

"A crucial lesson of the crisis is that the bottom feeders in the financial services industry are attracted to regulatory gaps, and if we don't cover both banks and nonbanks uniformly the same problems will rise again," said Travis Plunkett, the legislative director for the Consumer Federation of America. "What's interesting is that some members of Congress have pointed fingers at the nonbanks, but now refuse to give a consumer regulator the authority it needs to either write rules or enforce them against nonbanks."

Rep. Brad Miller, D-N.C., and a House Financial Services Committee member, said the exemptions in the Senate proposals go too far.

"I'm as much concerned about the lack of necessary powers for the agency as I am about where it's put," he said.

7: AMERICAN BANKER - Field of Failed-Bank Suitors Getting Crowded

The creation of another high-profile investment group intent on buying failed banks is leading some to wonder if there are too many sharks circling the Federal Deposit Insurance Corp.

William Isaac, a former FDIC chairman, is leading a group that includes former U.S. Bancorp Vice Chairman David Moffett and Ray Christman, the former head of the Federal Home Loan Bank of Atlanta.

Their firm, BSE Management LLC, said that creating a $2 billion fund would allow it "to be highly selective" buying failed banks, according to an offering sheet obtained by American Banker.

BSE is the latest in a wave of dream teams looking to time the recovery, which raises concerns about the economic viability of future FDIC-assisted deals.

"These types of transactions are attracting a lot of attention now, and it remains to be seen whether investors will do well with them all," said John Kanas, the former chairman and chief executive of North Fork Bancorp, who joined the trend last year with WL Ross & Co., which completed a private-equity deal for BankUnited Corp. in Florida.

An emerging concern is that as more bidders chase failures, the FDIC gains a greater advantage when it comes to dictating pricing and terms, making future takeovers less attractive from a financial perspective.

Observers compared OneWest Bank's purchase of IndyMac Bank in July 2008, which had a 23% discount to face value, with the group's December purchase of First Federal Bank of California, which came at a 6.1% premium.

H. Rodgin Cohen, a partner and the chairman at Sullivan & Cromwell, noted that the various investor groups that have formed are targeting different geographic areas, but he agreed there will be "scarcity value" if multiple groups converge on a market.

"At some point there is no question that you will get too many" suitors, he said, "but I'm not sure we're at that overload point yet."

BSE's focus on the Southeast makes sense given the background of its principals, including Christman and John Ryan, a veteran regulator in Atlanta with both the Office of Thrift Supervision and the Federal Reserve. Bloomberg News first reported the group's formation on Thursday. Isaac declined to comment for this story.

The group has also recruited numerous bankers with experience in the Southeast, including George Koehn, a retired CEO of SunTrust Banks Inc.'s Florida bank in 2005 who would run the bank. Robert Helms, who at one point oversaw Wachovia Corp.'s Florida bank, and Cecil Sewell, a former chairman of RBC Centura Banks Inc., would serve on the board. BSE plans to sell the bank it creates within five to seven years.

Georgia and Florida are full of struggling banks.

In Georgia, 33 banks have failed over the last two years, and the state has anywhere from 70 to 100 banks on the FDIC's list of problem banks. Nineteen banks failed in Florida over the some period, and Foresight Analytics LLC, a market research firm in Oakland, Calif., estimates the state has another 83 troubled banks.

Aspiring bank investors who are stymied in their efforts to gain attractive deals in targeted markets could also face pressure to redeploy funds elsewhere, perhaps preempting FDIC involvement by jumping in to rescue and recapitalize struggling banks.

"If they wait for failure there is heavy competition," said Ken Thomas, an independent consultant and economist based in Miami. "There are people out there trying to make deals with people before the FDIC steps in. They are trying to find distressed banks that they think they can deal with."

That could lead to bad decisions, said a private-equity investor who asked not to be named. "When all this capital starts to build up, people can do some dumb things," the investor said. Though Cohen acknowledged there may be temptation for some groups to force a deal, he said "that is one of the reasons for having the right people in charge of these firms."

In the last 18 months, several ventures similar to BSE and Kanas' venture have sprouted up.

In December the New York private-equity firm Crestview Partners led a $550 million equity raise in North American Financial Holdings Inc., a group that focuses on FDIC-assisted transactions and is led by former Bank of America Corp. Vice Chairman Gene Taylor.

In January the private-equity firm Bond Street Holdings LLC, which is headed by former North Fork Chief Financial Officer Daniel Healy, bought the $350 million-asset Premier America Bank in Miami from the FDIC. The firm struck again in January when it picked up the $875 million-asset Florida Community Bank.

Former Wachovia Corp. CEO Ken Thompson is working with Aquiline Capital Partners LLC, which raised $1.1 billion in capital commitments last March and is planning to invest in companies across the financial services sector.

J. Herbert Boydstun, former CEO of Hibernia National Bank, led a $400 million infusion in First Southern Bancorp Inc. in Boca Raton, Fla., in February.

Kanas, reviewing the lengthy list of competitors, said patient and skillful investors can still find bargains among the ruins of the recession. "We're being cautious," he said. "We think there will be a steady flow of properties to bid on, but we're not bidding highly aggressively, because there are lots of funds raised and lots of money out there."

8: AMERICAN BANKER - HSBC USA Slows Branch Growth, Caters to Niches

HSBC Holdings PLC's North American arm is taking a breather from expanding its modest U.S. branch network after adding 125 branches in the past five years.

The $390 billion-asset lender said it is focusing more on increasing deposits through its online banking offerings and by drumming up new business from people who live in international hubs like Seattle and San Diego. It has also stopped offering free checking accounts.

"We have a very niche branch strategy — we are not opening our branches just to cover" the country, Brendan McDonagh, chief executive of HSBC North America Holdings Inc., said in a call with reporters on Monday. "We have no aspirations to compete on every street corner, in every state."

HSBC North America is somewhat of an anomaly in the U.S. banking market.

It is the fifth-largest U.S. banking company by assets, but it has a lower profile than most regional banks because it has relatively few branches. Its U.S. division is essentially a national consumer lending business combined with a New York-area regional bank that has branches scattered around the country.

It hasn't necessarily been a winning formula.

The bulk of the consumer lending arm, HSBC Finance Corp., is winding down after booking massive losses on subprime mortgages and auto loans. That division, which the parent acquired in 2003, continues to bleed money, losing $7.5 billion in 2009 after losing $2.8 billion a year earlier. HSBC Holdings essentially threw in the towel on HSBC Finance last year, announcing that it would stop making new consumer loans and close all of its locations while focusing on the U.S. retail arm, HSBC USA Inc.

That division includes the 479-branch retail bank, parts of its U.S. credit card business as well as its private banking and commercial banking businesses.

HSBC USA has had a hard slog through the recession as well, racking up mounting home mortgage and business loan losses. Still, its loss narrowed to $142 million in 2009 from $1.7 billion in 2008, mostly on the strength of its profitable credit card and commercial banking businesses. HSBC Holdings continued to invest in the retail side through the recession by opening branches while increasing deposits through high-end and online savings accounts. Its checking accounts for affluent customers, for instance, grew by 60% in 2009 while online savings accounts rose nearly 8%.

McDonagh said HSBC now plans to open just six more U.S. branches this year after adding 18 last year and about 125 in the past five years. There are no more branch openings in the works.

HSBC has no desire to be a national retail banking powerhouse, McDonagh said. Its U.S. strategy has been to use its international reach to attract business from U.S. customers that live in port cities and have family or business interests overseas.

For the moment, McDonagh said, the company is comfortable with the size of its U.S. branch network — with about 374 in New York state, 33 in California, 22 in Florida and others in New Jersey, Connecticut, Virginia, Maryland and Washington. It wants to see "strong growth" in deposits and cross-sales at its newest branches before opening any more, McDonagh said.

And it does not plan on making any acquisitions, he said.

On the deposit-gathering front, last year the company largely did away with its free-checking program, though customers who use direct deposit still don't have to pay for checking.

Company officials said the change was intended to improve efficiency and better disclose what customers are paying for. McDonagh said it had nothing to do with the regulatory backlash against overdraft fees.

Suzanne Moot, an banking consult with M&M Associates, said it makes sense for HSBC to take a break from opening new branches, as it enables it to take stock of whether its expansion strategy is working or not. She said taking away free checking could be risky, though.

"I am kind of surprised that they would go back to existing customers and change those account agreements," she said. "It is potentially very disruptive."

9: AMERICAN BANKER - Kinder, Gentler: In Lower Fees, Banks Find an Alternate Path

Tack a $35 overdraft fee on to a $5 debit purchase at Starbucks enough times, and the cost really starts to add up — and not just for the unsuspecting caffeine addict stuck with the tab.

Banks, too, pay a heavy price for the practice, eroding good will and customer trust to the point that the bottom line is endangered, as both common sense and sophisticated market research suggest would happen.

A recent survey by the consulting firm Mercatus LLC showed that banks winning high trust scores from customers capture an average 38% of their clients' business, while the average "share of wallet" for firms with low trust scores is just 27%. Not surprisingly, the share of wallet captured by the largest banks has fallen from an average of 40% to 33% since the start of the financial crisis, and now ranks the lowest among financial services segments.

That's why Bank of America Corp.'s plan to stop authorizing purchases made against debit accounts lacking sufficient funds, instead of allowing the transactions to go through and surprising customers at the end with an overdraft charge, is exactly the type of decision that big banks should be making more of, said Bob Hedges, managing partner with Mercatus. (See related story.)

"The idea is to give up the fee revenue but increase trust," Hedges said. "You make it up in the long run with increased business from your customers."

Overdraft fees are just one area where banks are rethinking policies and service offerings as they try to win back trust.

"Anything that consumers view as nickel-and-diming kinds of fees, banks should be looking at," Hedges said. Consumers are still clamoring for clarity in product descriptions, account statements and bank processes such as check posting, he said.

With B of A upping the ante, "what we're going to have to watch," he said, "is whether other competitors similarly believe that by making decisions that improve their standing with customers, they'll be able to capture more business from them."

Susan Faulkner, the B of A executive overseeing deposits and card products, said the Charlotte company's announcement was a direct response to the three needs customers expressed most in market research conducted over the past 18 months: control, choice and clarity.

"The $40 cup of latte is gone," she said on a conference call with reporters. The policy represents a "straightforward, simple way in which we're going to help our customers with their daily finances."

Citigroup Inc. already has a similar debit policy. Consumer advocates expect more banks to feel pressure to follow suit.

"Hopefully this is leading in a direction where banks are going to have to create viable, safe products that consumers can trust, so consumers will feel like they're not being tricked and know what they're buying into when they open a bank account or a credit card," said Lauren Bowne, a staff attorney in the San Francisco office of Consumers Union.

She called the B of A move a "great step forward" that speaks to the regulatory issues being debated in Washington.

"This is exactly why we need the consumer financial protection agency," Bowne said. "B of A may be doing this for the benefit of consumers now, but they were one of the worst practitioners on these kinds of charges over the years. It took a lot for them to admit that their customers don't want overdrafts for point of sale debit transactions. We've been saying that for years."

What finally convinced B of A that the fee revenue was no longer worth the costs associated with aggravating customers and fighting an unwinnable public relations battle?

Speaking Tuesday at a Citigroup financial services investor conference, B of A Chief Executive Brian Moynihan indicated that the recession had changed customer behavior in ways that called for a response from a bank tied to hard-hit, middle-income consumers.

"Last year what we started to see happening was that as people became more paycheck-to-paycheck," they started overdrawing their accounts, Moynihan said. The accumulation of overdraft fees "was blowing them up."

New regulations going into effect this year will bar banks from authorizing purchases that cannot be covered with available balances, unless the customer has opted to pay for overdraft protection. But even that would not clear up trust-eroding disputes with customers, Moynihan said.

"They'll say they want to do it, and then when they do it, they're very upset," he said. In the inevitable follow-up call to customer service, "they would come back and say, 'I didn't mean to do it,' and that's a terrible position to put the customer in," Moynihan said.

10: AMERICAN BANKER - More Transparency Sought for 12b-1 Mutual Fund Fees

Ask a broker why 12b-1 fees exist and there will be a variety of answers: they cover marketing and distribution costs; processing and record-keeping costs in a 401(k) plan; payment for brokers; and sale of fund shares.

The word brokers often leave out is: profit.

"The purpose of these fees is to offset the marketing and distribution costs incurred by mutual fund companies," said William T. Baldwin, the chairman of the National Association of Personal Financial Advisors, a professional association of fee-only financial advisers, in a press release. "However, when you peel back the layers, you see that some mutual fund companies are making a profit on 12b-1 fees. Fees associated with investments must be treated like an 'open book' that is easily understood by all potential investors. Without clearer disclosure, consumers may not be able to make the most educated decision possible."

"Distribution fees," the regulatory term used to describe 12b-1 fees, "actually pay for a grab bag of services — not just distribution," said Mercer Bullard, the president and founder of the mutual fund shareholder advocacy organization Fund Democracy, and senior adviser for the financial planning firm Plancorp Inc., in a recent commentary for Morningstar.

Another issue that has arisen, Bullard said, is that funds that are closed to new investors are still being charged distribution fees even though no new shares are being distributed.

This is partly because there are administrative services on funds even after a fund is closed. In addition, 12b-1 fees are "service fees," which pay brokers for their ongoing relationship with shareholders.

Critics of 12b-1 fees say the reasons for the fees should be clearly stated, and it should also be clear whether or not fees are being charged. As it stands now, some no-transaction fee, or NTF, funds are misleading. "Schwab, Fidelity and other supermarket sponsors advertise fund options as no-transaction fee funds, in contrast with funds available through their supermarkets that trigger a charge with every purchase of fund shares," Bullard said.

The reason supermarket investors do not pay transaction fees on these no-fee funds, though, is because Schwab and Fidelity are paid by the funds through 12b-1 fees.

"These fees are paid by fund shareholders, of course, so they are ultimately paying the same fees as shareholders who buy transaction-fee funds," said Bullard, who once was assistant chief counsel at the Securities and Exchange Commission.

"An NTF fund is actually a transaction-fee fund whose transaction fees are buried in the fund's 12b-1 fees. Nonetheless, the SEC allows supermarkets to use the NTF label and the confusion of 12b-1 fees to persist."

Supporters of 12b-1 fees say these charges, like the annual fees of registered investment advisers, prevent abuse in the industry.

"The brokerage industry needs 12b-1 fees just as RIAs need their annual fees," said Richard Bryant, the president of Capital Investment Cos. of Raleigh, in a recent phone interview.

"If brokers don't get paid through 12b-1 fees, I have a feeling that a broker will figure out a way to get paid."

Bryant said that 12b-1 fees allow the broker to get paid for his supervision and constant advice. If 12b-1 fees are eliminated, there would be a lot more churning, he said, referring to the practice of charging per transaction, which encourages moving clients' money even when it's not best for the client.

"Churning can breed an unhealthy environment," Bryant said. "I think the 12b-1 fees helped curtail this practice."

Those pushing for greater transparency might soon be helped by a key player in Washington.

For months SEC Chairman Mary Schapiro has been talking about tackling 12b-1 fees. In a February speech in Washington, Schapiro said there should be more transparency around what the fees, which can be as high as 1%, are actually being used for. NAPFA agrees.

11: AMERICAN BANKER - Platform Move Poses Issues for B of A Clients, Advisers

What seems like a minor back-office move could make a world of difference to Bank of America clients and wealth advisers.

Letters are now going out to B of A investment clients explaining that in a couple of months their accounts will move from Fidelity's National Financial trade clearing and processing platform to the Merrill Lynch Pierce Fenner & Smith clearing platform, according to former B of A advisers.

Bank of America Investments advisers officially became Merrill Lynch advisers in October, according to Bank of America spokesman Matthew Card. He said all new accounts that have been opened since then are already on Merrill's platform.

But questions surround what will happen to BAI clients when Merrill transitions their accounts from National Financial. Merrill will likely impose its account minimums on advisers, according to advisers and a former Merrill manager who declined to comment but corroborated the details of this story. This might work in the high-net-worth world of the traditional brokerage, but bank-brokerage clients won't necessarily meet Merrill's $250,000 minimum to work with an adviser.

B of A clients who don't make the grade at Merrill will be shunted to a call center, according to a former B of A adviser turned independent. Card said that clients of any account size get to choose whether they want to work with an adviser or a call center, although "our direct investment division will generally serve clients with a combined banking and investment relationship of less than $250,000."

Carl Cafaro, a legacy BAI adviser and team-leading $2 million producer in Newton, Mass., said he doesn't think Merrill is likely to enforce its minimums.

"Everything I've seen in writing is that advisers can run their books as we want and that there will be no mandatory movement of clients," he said. "As an adviser, you could look at your practice and focus on clients with more money, but nobody's making you do it."

The former B of A adviser, who requested anonymity, disagreed with Cafaro. "Before I left, they gave us our runs of all our clients earmarked for the call center," he said. "Wave one was for clients under $75,000, wave two was clients under $100,000 and wave three, which was after I left, was for clients under $250,000."

At legacy B of A, clients could sit down and talk to an adviser regardless of their asset level.

"You've got to have personal service — a lot of B of A clients are under $100,000," the independent adviser said. "They deserve being able to visit a broker in a branch."

Card, who concedes most sub-$250,000 clients will choose to work with a call center rather than in person with a Merrill adviser, said that there will soon be Merrill advisers in B of A branches. The bank rolled out an in-branch program late last year in Boston, Chicago and Seattle, in which advisers "offer clients access to face-to-face assistance (within their local branch) with organizing their finances and developing a financial plan using Merrill Lynch's world-class analytical tools and technology."

Card said that these advisers help "ensure that [clients] are introduced to the appropriate Merrill Lynch service channels that best meet their needs." The program, which Card said has met with success, will soon be rolled out in other areas of the country.

"We have been successful in our efforts to thoughtfully and rapidly integrate our banking and brokerage businesses," Card said, but other accounts suggest B of A advisers' transition to Merrill Lynch management has not been a happy one so far.

Rick Rummage, a managing partner of Rummage Group, a recruiting firm in Reston, Va., said that out of 2,500 reps before the bank bought Merrill, roughly 1,000 have already left, and he predicts as many as half of the B of A advisers still there will quit within the next 12 months.

"Merrill doesn't care," Rummage said. "It wants the accounts, not the brokers. It doesn't have any respect for bank reps at all. [B of A reps] are making the best of it, but they're fish out of water."

Card said that while a few advisers may have left the firm, many of their clients have remained. "Among the small population of financial advisers who have chosen to leave the firm, more than 60% of their clients have chosen stay with us; this is a testament to the strength of our platform and the confidence our clients have that this is the best place to do business," he said.

Things are bound to get worse, the independent adviser said, and it isn't all the fault of Merrill's notoriously cocky culture and sky-high production goals, anathema to the average bank rep. "It's total confusion, and B of A is beginning more and more to push product, which is not good for anyone," advisers or clients, he said.

Managers of what was BAI are allegedly pushing advisers to sell managed accounts, though the independent adviser said there isn't much active management going on. "Clients are being moved to a fee-based structure, but into portfolios that are completely static, when what they're paying for is economic guidance built around their individual needs," he said.

B of A clients would have more options for fee-based accounts on Merrill's platform, but only if they meet Merrill's account minimums — and many don't. The bank's plan is to charge the sub-$250,000 minimum brokerage clients a fee wherever possible for their accounts at call centers, the independent adviser said. Card denied this.

Moving many of B of A advisers' clients to the call center will hurt advisers, too. "It's a huge problem," the independent adviser said. "There may be thousands of accounts under Merrill's minimums, which will mean a massive drop in production for B of A reps when they join the Merrill platform in a couple of months" and are forced to ditch their smaller clients.

That'll make life even more unpleasant for B of A reps who have below-average production. "Merrill is playing real nice right now, no heavy sales pressure. But where a broker has a $250 million book and isn't producing $3 million, it makes more sense to Merrill to lose the broker and split up his book," the independent adviser said. "A lot of B of A guys at Merrill right now are thinking it isn't that bad. But once their assets are on the Pierce system, Merrill is famous for flicking the switch. The guys still there will end up walking away with nothing."

12: ANNOUNCEMENTS - Bank of America to Combine Global Card Services and Deposits

Susan Faulkner to Lead New Deposits and Card Product Organization

Bank of America today announced that it is combining the leadership of Global Card Services and Deposits under Susan Faulkner. The combined business will report to Joe Price, president, Bank of America Consumer, Small Business & Card Banking.

"This structure continues the evolution of our Consumer businesses toward a more nimble, responsive customer-focused organization," Price said. "This enhancement strengthens our operating model and organizes it around our customer segments, how we deliver our capabilities to customers, the service we provide them, and the products we develop for them."

13: ANNOUNCEMENTS - Bank of America Will Help Customers Avoid Overdrawing Accounts

Changes Enhance Control, Choice and Clarity for Customers

As part of its commitment to provide more control, choice and clarity for its customers, Bank of America today announced that beginning this summer it will only authorize single debit card transactions at the point of sale if a customer has enough money in their account at the time.

This change will help customers by reducing the likelihood they may inadvertently overdraw their account and thus eliminate unexpected overdraft fees on these transactions. Customers will still have the choice to link their checking account to another account through Overdraft Protection to cover these types of transactions.  

14: ANNOUNCEMENTS - Washington Mutual, Inc. Announces Global Settlement Agreement

...with J.P. Morgan Chase and FDIC

Washington Mutual, Inc. today announced that it has reached a Global Settlement Agreement with J.P. Morgan Chase and the Federal Deposit Insurance Corporation (FDIC).  The significant terms of the settlement have been read into the record of the United States Bankruptcy Court for the District of Delaware, the court overseeing Washington Mutual, Inc.'s chapter 11 bankruptcy case.  

WMI today issued the following statement:

WMI is pleased to have reached this Global Settlement Agreement.  WMI is confident that this agreement will provide substantial recoveries for the company's creditors and that it is consistent with WMI's efforts over the last 18 months to maximize the value of its bankruptcy estate.  WMI is also pleased that this agreement vindicates the positions it took in court, as the company believes that its court positions created the pressure necessary to move this agreement forward.

Peter Calamari and David Elsberg of Quinn Emanuel Urquhart Oliver & Hedges, LLP served as legal counsel to WMI with responsibility for the litigation.  Brian Rosen of Weil, Gotshal & Manges LLP served as legal counsel to WMI with responsibility for the chapter 11 case.

15: BANKINSURANCE.COM - 20% Jump in 4th Quarter Variable Annuity Premiums…

…Contrasts with 19.2% Drop for the Year

NEWS IN BRIEF - MARCH 1 - 7, 2010  

U.S. variable annuity sales in the fourth quarter jumped 20.2% to $31.9 billion, up from $26.5 billion in fourth quarter 2008, with qualified sales comprising $21.9 billion of those premiums and non-qualified comprising $10 billion, according to Washington, DC-based Insured Retirement Institute (IRI).  For the year, however, variable annuity sales fell 19.2% to $125.1 billion, down from $154.8 billion in 2008.  IRI President and CEO Cathy Weatherford said, “The [fourth quarter] surge in variable annuity assets is a clear indicator that we are indeed on solid road to recovery.”

16: BANKINSURANCE.COM - American Savings Rate Rises to 4.6%

NEWS IN BRIEF - MARCH 1 - 7, 2010

The week of February 21-28 was “America Saves Week,” and Americans appear to have harkened to the annual call.  The savings rate grew to 4.6% in 2009, up from 2.7% in 2008, according to the Department of Commerce.  FDIC Chairman Sheila Bair urged more savings saying, “Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”  Bair added, “It is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.  A country with robust savings,” she said, “generally has more capital to fund investments and support economic growth over the long-term.”

17: BANKINSURANCE.COM - Climbing Noninterest Income Bolsters Increased Earnings…

…at U.S. Banks and Thrifts

NEWS IN BRIEF - MARCH 1 - 7, 2010

U.S. banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $914 million in fourth quarter 2009, a $38.7 billion improvement over the $37.8 billion net loss registered in fourth quarter 2008, according to the FDIC.  More than half (50.3%) of all institutions reported year-over-year improvements in their quarterly net income, while those reporting fourth quarter losses decreased to 32.9%, down from 34.6% in 2008.

Noninterest income drove improved earnings in the quarter, jumping 53.2% to $62.4 billion, up from $40.7 billion in fourth quarter 2008, while net interest income, excluding loan loss provisions, rose 1.8% to $98.7 billion, up from $96.97 billion.  Including loan loss provisions, which dropped 14.1% to $61.1 billion, down from $71.1 billion, net interest income on a 3.49% net interest margin grew 45.7% to $37.6 billion, up from $25.8 billion.  In the quarter, banks and thrifts charged off $53 billion in uncollectible loans, up 37.3% from $38.6 billion in fourth quarter 2008; noncurrent loans and leases increased by $24.3 billion, and total loans and leases decreased $128.8 billion.  Assets declined $137.2 billion (1%), and forty-five institutions failed.

For the year 2009, net income for all U.S. banks and thrifts combined surged 175.3% to $12.53 billion, up from $4.55 billion in 2008.  Once again, noninterest income bolstered these earnings, climbing 25.4% to $260.5 billion, up from $207.7 billion in 2008.  Net interest income, excluding loan loss provisions, increased 10.7% to $395.8 billion, up from $357.7 billion.  Loan loss provisions, however, jumped 40.6% to $247.7 billion, up from $176.2 billion, driving net interest income down 18.4% to $148.1 billion, from $181.5 billion in 2008.  Fewer than half (41%) of all banks and thrifts reported increased net income in 2009, and 29.5% reported net losses.  Over the year, 140 banks failed, the highest total since 1992, and the Deposit Insurance Fund ended the year with a balance of negative $20.9 billion, reflecting a $44 billion contingent loss reserve.  FDIC Chairman Sheila Bair said, “We saw signs of improvement in industry performance, but as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets.”

18: BANKINSURANCE.COM - Federal Judge Signs Off on B of A Fine

NEWS IN BRIEF - MARCH 1 - 7, 2010

U.S. Federal Judge Jed Rakoff agreed to the Securities and Exchange Commission’s plan to fine Charlotte, NC-based, $2.22 trillion-asset Bank of America (B of A) $150 million in order to settle charges that B of A inappropriately failed to notify shareholders that Merrill Lynch held $16 billion in impending losses before those shareholders voted on B of A’s $50 billion acquisition of Merrill at the end of 2008.  Judge Rakoff wrote in his ruling that “the amount of the fine appears paltry” and represents “half-baked justice at best,” InvestmentNews.com reports.

19: BANKINSURANCE.COM - Metlife Outstrips Competition in Total Annuity Sales

NEWS IN BRIEF - MARCH 1 - 7, 2010

New York City-based MetLife was the number one provider of individual annuities in the U.S. in 2009, ranking second in variable annuity sales ($15.4 billion) and third in fixed annuity sales ($6.97 billion) for an overall total of $22.37 billion.  Prudential, which ranked first in variable annuity sales ($16.1 billion) ranked second with $17.35 billion in total sales.  TIAA-CREF ranked third based solely on fixed annuity sales of $13.92 billion.  Jackson National ranked fourth ($13.86 billion) based on its fourth place rank in variable sales ($10 billion) and its 8th place rank in fixed sales ($3.86 billion).  AIG ranked fifth ($12.5 billion) as the number two provider of fixed annuities ($7.76 billion) and the 10th ranked provider of variable annuities ($4.75 billion).  New York Life, the number one provider of fixed annuity products ($10.33 billion), ranked 7th overall ($11.59 billion), according to Windsor, CT-based LIMRA.

20: BANKINSURANCE.COM - RBS Still Required to Sell Insurance Unit

NEWS IN BRIEF - MARCH 8 - 14, 2010

Edinburgh, Scotland-based Royal Bank of Scotland (RBS) reported a year 2009 net loss of £3.6 billion ($5.4 billion), an improvement over a net loss of £24.3 billion ($36.6 billion) in 2008.  The company acknowledged, however, that “if RBS hadn’t received government support, it wouldn’t be here today.”  That support mandates divestments, including the sale of RBS Insurance, as part of the company’s settlement with the European Commission.  “The required sale of our insurance business,” RBS said, is “intended to act as a deterrent to companies seeking state aid.”  In 2009, RBS reported £58 million ($87.4 million) in operating profit, down 90.1% from operating profit of £584 ($880 million) in 2008.

21: BANKINSURANCE.COM - U.S. Annuity Sales down Overall in 2009

NEWS IN BRIEF - MARCH 1 - 7, 2010

U.S. annuity sales in the fourth quarter fell 22% to $53.3 billion, down from $68.6 billion in fourth quarter 2008, as fixed annuity sales dropped 40% to $20.7 billion, down from $34.8 billion and variable sales slipped 3% to $32.6 billion, down from $33.8 billion, according to surveys conducted by Windsor, CT-based LIMRA.  Among fixed annuities, deferred annuities accounted for the most sales ($17.7 billion), but those sales were down 43% from $31 billion in fourth quarter 2008.  Book value annuities placed a distant second in popularity ($9.3 billion), but those sales were also down 43%.  Equity indexed annuities slid only 5% to $6.9 billion; fixed immediate annuities fell 199% to $1.7 billion.  But, market value adjusted tumbled 80% to $1.5 billion, and structured settlements dropped 24% to $1.3 billion, down from $1.7 billion in fourth quarter 2008.

For the year 2009, total U.S. annuity sales fell 11% to $234.9 billion, down from $265 billion in 2008.  Among all annuities sold, only equity indexed and book value annuities showed growth, with equity indexed up 9% to $29.4 billion and book value up 2% to $51.9 billion.  Fixed deferred annuities remained steady at $95 billion, but fixed immediate decreased 10% to $7.1 billion.  Variable fixed accounts declined 12% to $36.8 billion; structured settlements fell 13% to $5.6 billion; market value adjusted dropped 20% to $14 billion; and variable separate accounts skidded 21% to $90.2 billion.  Among all annuities sold, fixed deferred annuities were most popular ($95.2 billion), followed by variable separate accounts ($90.2 billion), book value fixed ($51.9 billion), equity indexed ($29.4 billion), variable fixed accounts ($14 billion), fixed market value adjusted ($14 billion), fixed immediate ($7.1 billion) and fixed structured settlements ($5.6 billion), according to LIMRA’s survey of 62 annuity providers.

22: BANKINSURANCE.COM - U.S. House Passes Agent Licensing Bill

NEWS IN BRIEF - MARCH 8 - 14, 2010

The U.S. House of Representatives passed H.R. 2554, the National Association of Registered Agents and Brokers Reform Act of 2009 (NARAB II) last week.  The bill establishes a National Association of Registered Agents and Brokers (NARAB) as a nonprofit corporation that prescribes national insurance agent licensing requirements and authorizes members of NARAB who meet these requirements to sell insurance, adjust claims, and so forth in any state for any lines of insurance specified in the producer’s home state license.  Under the bill, states retain regulatory authority over licensing, supervision, discipline, setting licensing fees, consumer protection and unfair trade practices.  Independent Insurance Agents and Brokers of America (Big I) President and CEO Robert Rusbuldt said, “H.R. 2554 would reform and improve the current system of insurance regulation by providing one-stop, non-resident licensing reciprocity.”  The House passed a similar bill last year, but the Senate has yet to act.  Both houses must pass the legislation and the President must sign it into law before it takes effect.

23: BANKINSURANCE.COM - U.S. Life Insurers Record More Sales,…

…Lower Premiums; Universal Life Dominates

NEWS IN BRIEF - MARCH 1 - 7, 2010

New annualized premium for individual life insurance products in the U.S. slid 5% in fourth quarter 2009 compared to fourth quarter 2008 and fell 15% for the year compared to 2008, according to survey data compiled by Windsor, CT-based LIMRA.  However, the number of individual life insurance policies sold rose 3% quarter-over-quarter and slipped only 2% year-over-year, LIMRA found. 

Universal Life (UL) products accounted for the largest share of annualized premiums (38%), followed by whole life (28%) and term (27%).  While the number of UL policies sold in 2009 increased 5% compared to 2008, UL premiums dropped 20%.  The number of variable life insurance products sold fell 36%, and variable premiums tumbled 50%.  In contrast, term life premiums slipped only 1%, and whole life premiums rose 4% for the year, driven by 12% growth in the fourth quarter.  The number of whole life policies sold increased 6%, LIMRA found.

24: BANKINSURANCE.COM - Young Adults Account for 25% of U.S. Residents...

...without Health Insurance

NEWS IN BRIEF - MARCH 1 - 7, 2010

Almost one-third (30%) of U.S. adults aged 20-29 who had no health insurance in 2008 accounted for 25% (13 million) of the country’s uninsured (citizen and non-citizen), according to the National Center for Health Statistics (NCHS).  The uninsured young adults were typically between being covered by their parents’ insurance policy or a government program and having a permanent job with health insurance benefits, according to NCHS.  NCHS researcher Robin Cohen said, “They may be taking jobs of lower wages or temporary jobs, and many of these jobs come with limited or no health benefits.”

25: K@W - Cents and Sensibility

Why Marketing to Multicultural Consumers Requires a Subtle Touch

In an era of globalization and fluid national borders, advertising that appeals to cultural and ethnic identity has become a vital part of the corporate marketing arsenal. But new research shows how ethnic-oriented marketing can backfire and even turn multicultural consumers against a product or service if ad campaigns are perceived as aggressive or patronizing. The key? Tread carefully, says Americus Reed II, a Wharton marketing professor who teamed up for the research with Stefano Puntoni and Peeter Verlegh from Erasmus University's Rotterdam School of Management in the Netherlands.

LINK TO FULL ARTICLE: http://knowledge.wharton.upenn.edu/article/2438.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 

26: K@W - Empty Pockets

What Does the Greek Debt Dilemma Mean for the Global Economy?

Fear is growing that Greece may default on a massive pile of debt, creating a ripple effect of problems throughout Europe and beyond. Following pressure from the European Union and the European Central Bank, the Greek government on March 3 announced a new round of austerity measures that include spending cuts and tax increases which critics fear will harm Greece's economy. Meanwhile, Wall Street banks are facing scrutiny for the complex financial instruments they used to allegedly disguise the country's real debt. What caused Greece's debt problem to spin out of control? And what steps should it take to remedy the situation? Wharton finance professors Richard Herring and Itay Goldstein weigh in.

LINK TO FULL ARTICLE: http://knowledge.wharton.upenn.edu/article/2447.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 

27: M&A - BNY Mellon Agrees to Acquire BHF Asset Servicing GmbH

Will become second largest asset servicing provider in Germany

Combined German organisation will have EUR473 billion in assets under custody & administration, EUR120 billion depotbanking volume

BNY Mellon, the global leader in asset management and securities servicing, has agreed to acquire BHF Asset Servicing GmbH from BHF-BANK Aktiengesellschaft and Sal. Oppenheim jr. & Cie. S.C.A. for EUR253 million (US$343 million), subject to regulatory approvals. This transaction will include the purchase of BHF Asset Servicing's wholly-owned fund administration affiliate, Frankfurter Service Kapitalanlage-Gesellschaft mbH (FSKAG).

28: MISCELLANEOUS - AIG, Federal Czar Reach Deal on Rest of Bonus Pay to Be Returned

American International Group has reached an agreement with the Obama administration's compensation czar to pay back the remaining money employees agreed to return last year after an uproar over bonuses at the insurance giant, according to sources with knowledge of the matter.

Employees at AIG Financial Products, the Connecticut-based unit whose faulty derivatives contracts brought AIG to the brink of collapse, agreed during a storm of criticism last March to return $45 million of the more than $165 million they had received in retention bonuses by the end of the year.

Only about $19 million, however, was returned.

LINK TO FULL ARTICLE: http://www.washingtonpost.com/wp-dyn/content/article/2010/03/11/AR2010031104760.html

29: MISCELLANEOUS - Americans Are Ready to Rebuild Their Financial Security

The Principal launches new battle cry with America Rebuilds campaign

Calling all Americans: Get an advisor. Get a plan. Get rebuilding. That’s the message from the Principal Financial Group® in its launch today of the new multi-faceted America Rebuilds campaign including an online planning center at www.AmericaRebuilds.com. 

“The country has been through tough economic times, but the resilient spirit of Americans is evident everywhere, including in their desire to rebuild their financial futures”

“The country has been through tough economic times, but the resilient spirit of Americans is evident everywhere, including in their desire to rebuild their financial futures,” said Mary O’Keefe, senior vice president and chief marketing officer, The Principal®. “There has never been a better time for people to rebuild. We can help by connecting those who need assistance with those who can provide it.”

LINK TO FULL ARTICLE: http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20100315006009&newsLang=en

30: MISCELLANEOUS - David Hoyt, Head of Wholesale Banking Testifies...

...Before the House Financial Services Committee

Chairwoman Velazquez, Chairman Frank, Ranking Member Bachus, Ranking Member Graves, and Members of the Committee, I’m David Hoyt, Head of Wholesale Banking at Wells Fargo & Company.

Thank you for the opportunity to be here today to discuss lending and credit – topics that are critical to business owners, our business at Wells Fargo, and the economic recovery.

For 158 years, Wells Fargo has focused on working with customers and building long-term relationships in the communities where we do business. As the number one small business, middle market, and commercial real estate lender in America, we have tens of thousands of people in our company dedicated to serving the needs of these business owners.

31: MISCELLANEOUS - Schwab Expands Fixed Income Offerings

with PIMCO Professionally Managed Municipal Bond 'Ladders'

Schwab Offers Four PIMCO Muni Bond Strategies Designed to Provide Tax-Exempt Income and Ongoing Credit Monitoring

As part of its commitment to providing investors with a wide array of fixed income solutions and simplicity in the investing process, Charles Schwab & Co., Inc. is offering four Municipal Bond Ladder Separately Managed Account (SMA) strategies managed by PIMCO, one of the most respected bond managers in America. The competitively priced strategies are designed for fixed income investors seeking tax-advantaged solutions and income generation as well as ongoing professional management. According to a recent Schwab study, 55 – 70 year old investors are more concerned with income generation and principal preservation than portfolio growth when compared to younger investors.

LINK TO FULL ARTICLE: http://businesswire.mercurynews.com/portal/site/mercurynews/?ndmViewId=news_view&newsId=20100315005649&newsLang=en

32: PERSONNEL CHANGES - Citi Board Nominates Ernesto Zedillo to Board of Directors

Citi's Board of Directors today announced that it has nominated Ernesto Zedillo as a new non-management director candidate to stand for election at Citi's annual shareholder meeting on April 20, 2010. Dr. Zedillo was the President of Mexico from 1994 to 2000 and is now Director of the Yale Center for the Study of Globalization.

"We are pleased to nominate Dr. Zedillo to join the Board of Directors. Dr. Zedillo's extensive experience as a world leader and his expertise in global economics make him a valuable addition to the Board," said Richard Parsons, Chairman of the Board. "He will be a great steward for Citi as it continues to grow internationally and build on its unmatched global strengths."

33: PERSONNEL CHANGES - Harris Appoints David Casper EVP...

...and Head of Commercial Banking

Harris announced today that David R. Casper has been appointed Executive Vice-President and Head of Commercial Banking, effective immediately. He will report to Ellen Costello, President and CEO of Harris Financial Corp. Casper was previously Executive Managing Director and Co-Head, Investment and Corporate Banking, U.S. with BMO Capital Markets.

"We have built strong momentum in our Commercial Banking business and see considerable growth opportunities ahead as the Midwest economy begins to recover," said Costello. "Dave's extensive leadership experience in our company and the relationships he builds with customers ideally position him to lead the next phase of our Commercial Banking growth. I'm delighted he's joining my leadership team."

34: PERSONNEL CHANGES - Karen Peetz Appointed...

...to the Council of the Americas' Board of Directors

Karen Peetz, chief executive officer of Financial Markets and Treasury Services at BNY Mellon, has been appointed to the Council of the Americas' Board of Directors.

The Council of the Americas is the premier international business organization whose members share a common commitment to economic and social development, open markets, the rule of law, and democracy throughout the Western Hemisphere.  The Council's membership consists of leading international companies representing a broad spectrum of sectors, including banking and finance, consulting services, consumer products, energy and mining, manufacturing, media, technology, and transportation.

As the chief executive officer for the Financial Markets and Treasury Services sector at BNY Mellon, Peetz oversees businesses that represent over a third of the company's revenue.  She is a member of BNY Mellon's Executive Committee, the company's most senior management body, and is the Executive Committee sponsor for Latin America.

"We are delighted to welcome Karen Peetz to the Board of Directors of the Council of the Americas.  Her outstanding reputation and long career in finance make her an ideal board member, and we look forward to working with her in the coming months and years," said Susan Segal, president and CEO of the Council of the Americas/Americas Society.

35: REGULATORY - 82% of Public Believe Wall Street Should Be Regulated More Toughly

Large majority believes Wall Street is essential, but are very critical of the people who work there

NEW YORK--(BUSINESS WIRE)--American attitudes towards Wall Street are ambivalent. Most people believe that Wall Street benefits the country and that what it does is “absolutely essential.” However, attitudes towards the people who work on Wall Street are overwhelmingly negative and are far lower than they were before 2008 and the bail-out of large banks and other financial institutions, with little or no improvement over the last year. The net result? Fully 82% of all adults believe that Wall Street should be regulated more toughly.

LINK TO FULL ARTICLE: http://www.usa.xorte.com/0,4,82-of-Public-Believe-Wall-Street-Should-Be-Regulated-More-Toughly,11488.html

36: REGULATORY - Comptroller Dugan Says Minimum Underwriting Standards Could Play...

...Major Role in Reforming Securitization Markets

Comptroller of the Currency John C. Dugan said today that a robust securitization market is vital to funding the needs of consumers and businesses, and urged policy makers to focus reform efforts on improving underwriting standards rather than “skin-in-the game” risk retention proposals.

“Asset securitization played a significant role in the crisis, and nobody should think that we can just wait for the market to stabilize and then go back to business as before,” he said in a speech to the American Securitization Forum.  “But I hope we also recognize just how important securitization is to our economy.  Done correctly, securitization helps consumers and businesses by increasing the availability of credit on terms that might otherwise be unavailable.”

LINK TO FULL ARTICLE: http://www.occ.treas.gov/ftp/release/2010-13.htm

37: REPORT - Americans Focused on Rebuilding, Improving their Financial Future

Survey finds most are spending less, paying down debt and increasing savings

DES MOINES, Iowa--(BUSINESS WIRE)--Americans are no longer dwelling on concerns about the economy and instead are focused on rebuilding their finances for the future, according to new research from the Principal Financial Well-Being IndexSM.

“Americans’ confidence was shaken by the economy, but they haven’t given up”

When asked what steps they have taken to improve or rebuild their financial well-being since the economic downturn began in 2008, most Americans (62 percent of workers and 54 percent of retirees) said they are spending less money, paying down debt (45 percent of workers; 29 percent of retirees) and increasing savings for an emergency fund (22 percent of workers; 14 percent of retirees). Eighteen percent of workers also indicated they have increased their retirement savings since 2008.

Recent behavior has been fueled by fears of long-term financial uncertainty and rising health care costs. Two-thirds of workers are very concerned about their long-term financial future, slightly less than in fourth quarter of 2009 (71 percent). Nearly the same percentage of retirees (64 percent) is very concerned about their long-term financial future; up significantly from fourth quarter 2009 (56 percent).

More than half of Americans (55 percent of workers and 54 percent of retirees) think health care reform will have a direct impact on their personal health insurance costs. Of those who think they will be impacted, the vast majority of both retirees (86 percent) and workers (82 percent) believe their costs will go up.

“Americans’ confidence was shaken by the economy, but they haven’t given up,” said Luke Vandermillen, vice president of retirement and investor services at the Principal Financial Group®. “As some indicators show things may be turning around, Americans are taking responsibility and beginning to plan a new future by getting their finances back on track.”

The Principal Financial Well-Being Index, which surveys both American workers at growing businesses with 10 to 1,000 workers and retired Americans, is released quarterly by the Principal Financial Group and is conducted online by Harris Interactive®.

With extra cash from tax refunds and bonuses, Americans will pay off debt or build up nest egg

According to the survey, 77 percent of workers and 42 percent of retirees expect to receive a tax refund this year. Workers’ plans for their tax refund include paying down or paying off short-term debts (44 percent) or saving or investing the refund (41 percent). Half of retirees plan to save or invest their refund, a significant jump from the same period last year (33 percent). Nearly another quarter of retirees (23 percent) plan to pay down or pay off short-term debts.

One out five workers received a corporate bonus for 2009, a significant decrease from this same period in 2008 (28 percent). The bonus was most often saved or invested – selected by more than a third (38 percent) of workers – a significant increase from this same period in 2008 (29 percent).

“It’s encouraging to see that instead of spending extra cash, this year Americans are rebuilding their portfolios by paying off debt, saving or investing,” Vandermillen said.

Other key findings include:

Americans don’t want to go it alone for financial planning

        Forty-eight percent of retirees and 34 percent of workers said a third-party professional (certified financial planner, bank or financial institution, accountant, benefit provider or financial services company, stock broker, insurance agent or attorney) would be the person they would go to first for financial advice.
        Three out of four workers said they would definitely or possibly use a financial planning service if their employer offered it.

Despite fears, Americans aren’t protecting themselves

        Three-fourths of workers rated the emotional impact of becoming disabled and not being able to work for a living as at least an eight on a 10 point scale in which a 10 means “devastated.”
        Nearly half (49 percent) of workers don’t own or plan to buy disability insurance in the next year and say instead they plan to rely on their family, disability insurance from their employer or savings in the event of a disability.

See the full report and past results at www.principal.com/wellbeing. 

38: REPORT - Nearly Half of All Workers Would Opt for Guaranteed Income for Life

EBRI Retirement Confidence Survey Illustrates Need to Fill Critical Retirement Savings Void

WASHINGTON, D.C. – The Employee Benefit Research Institute (EBRI) today released the findings of its 2010 Retirement Confidence Survey (RCS). Marking the 20th fielding of the survey, the most recent findings spotlight a continued decline in overall retirement preparedness, with nearly 3 in 20 workers saying they have less than $1,000 in savings. And, while worker confidence in having an adequate financial footing for retirement appears to have stabilized, less than half of the respondents have thought about how much money they will need to save in order to retire comfortably.

The survey also found that nearly half of all workers would consider a financial product or select a retirement plan option that pays them guaranteed income for life.  A strong 46% of workers indicated that they were either very likely, or somewhat likely, to turn to a guaranteed income product.  Another 14% of retirees have already turned to these guaranteed products to provide income throughout their golden years.

“While worker confidence in being able to enjoy a financially secure retirement appears to be gaining strength, EBRI’s study shows that there is a critically inadequate level of retirement savings and preparedness,” said Insured Retirement Institute President and CEO Cathy Weatherford. “I urge all Americans to rethink their retirement savings strategy and develop a holistic savings plan that will help make a secure retirement possible. With the growing interest by workers to secure lifetime income, the value of guaranteed investment strategies has never been more apparent.”

The EBRI 2010 Retirement Confidence Survey can be found at www.ebri.org

39: STATS - DTCC Trade Information Warehouse Completes Record Year

Processing OTC Credit Derivatives

NEW YORK & LONDON--(BUSINESS WIRE)--The Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse, a global repository that records the details of OTC credit default swap trades, ended 2009 supporting the processing and recordkeeping of more than 2.2 million contracts, worth more than US$25.1 trillion (€17.5 trillion), helping to reduce risk in the market. In addition, the Warehouse managed 50 credit events with a gross value of US$386 billion, 129 successor events caused by restructurings, and processed 11 million gross payments amounts in nine currencies through its central settlement service.

LINK TO FULL ARTICLE: http://www.dtcc.com/news/press/releases/2010/warehouse_record_year.php

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