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by Rob Blackwell and Patrick RuckerThe Office of Federal Housing Enterprise Oversight asserted broad control, Tuesday over Fannie Mae's mortgage portfolio, capping it at $727 billion, requiring the company to win the agency's approval for any growth., The move -- included in a wide-ranging consent agreement between Fannie, and the agency -- sparked immediate debate over how long the restriction, would last and whether it would significantly impact Fannie's business or, give Freddie Mac a competitive advantage., It also prompted speculation over whether the cap would help propel, legislation to revamp the regulation of the government-sponsored, enterprises,, which has stalled over how much authority a new supervisor should have over, the portfolios., Some analysts argued that OFHEO is doing what Congress and the Treasury, Department have tried but failed to do. They said the cap could undermine, Bush administration's argument that legislation must force the GSE, supervisor, to reduce the portfolios., The people that don't want to do portfolio limits can say ... 'Where is, said Jim Vogel, the head of market research at First, Horizon, Now we have de, facto, This does provide something for Senate Banking Committee Chairman, Richard Shelby or the administration to lean on if they want to try and, cut a, deal with Sen. Paul Sarbanes [the panel's lead Democrat], said Jaret, Seiberg,, a policy analyst with the Stanford Washington Research Group., He said the administration could follow OFHEO's approach, agreeing to, limit the portfolios and tie them to the growth of the mortgage market or, other factors., But administration officials and some lawmakers countered that the, agency's action only made their argument stronger., The agreement caps the portfolio, said, Randal Quarles, the Treasury's undersecretary for domestic finance, at a, Important as well is that this is an agreement, All of this is why we need a legislative framework that instructs the, regulator to reduce the size of these portfolios. The cap alone is not the, Rep. Richard Baker, the chairman of the House Financial Services, subcommittee with oversight of the GSEs and the author of the House, legislation to create a new regulator, expressed frustration with the Bush, administration. Noting that the administration recently appointed James B., Lockhart to head OFHEO, he was puzzled about why the agency did not go, further in its agreement with Fannie and reduce the portfolio instead of, capping it., If it was a strongly held view that the portfolios must be reduced, Merely capping the, Rep. Baker's committee has scheduled a June 6 hearing to discuss OFHEO's, findings., Though several analysts said they believe OFHEO's cap on the portfolio, would only last a few months, Mr. Lockhart said he expected it to be in, place, for much longer., If you really look at the issues laid out in this report, we're talking, years before this company really meets the standard to be expected of an, institution -- particularly a financial institution -- of this size, Lockhart said at a press conference announcing Fannie's agreement., Under the agreement, OFHEO can maintain the portfolio cap -- the level of, the portfolio as of Dec. 31, 2005 -- for the foreseeable future, until, Fannie, has returned to timely filings with the Securities and Exchange Commission, and taken other steps to right itself. Even then, the agreement allows the, in maintaining such a, cap., The agreement does allow Fannie some leeway if it can prove to OFHEO that, it must increase its portfolio holdings. The agreement requires the agency, outline a plan within 60 days for managing its business, with specific, attention to risk management., Such a plan can include a moderate per annum increase in the 'mortgage, portfolio' for reasons including liquidity, housing goals, portfolio, the agreement says., But some analysts argued that the portfolio cap was an opportunity for, Freddie, which does not face such restrictions and has continued to grow, portfolio to nearly Fannie's size., Mr. Lockhart said the agency will review what parts of Fannie's agreement, should apply to Freddie as well., Certainly we will be looking, going forward, if any things in this, settlement would make sense to also impose on Freddie Mac, Mr. Lockhart also said OFHEO's current authority over the GSEs', portfolios was not sufficient, and said he hoped a bill granting a new, regulator more powers would pass soon., We need to get better control on the growth of these companies, Lockhart said., The consent agreement came as OFHEO released a report on Fannie's, accounting scandal and accused the company's executives of willfully, managing, earnings in order to boost compensation. The agency said the company's, board, and controlled by senior management., In its agreement, Fannie said it would pay $400 million in fines to OFHEO, and the SEC. The company also agreed to conduct a review of its current, management mentioned in OFHEO's report, provide succession plans of senior, management within 120 days, examine its controls over the company's, lobbying, shop, and allow the agency to oversee executive appointments for five, years., Paul Miller, an analyst with the Friedman, Billings, Ramsey Group Inc., This is a harsh piece of paper that is pretty much saying OFHEO is, This is much worse than Wall Street, the end of the day, Fannie's stock had risen 45 cents, just under 1%, to $50.72., Some analysts speculated that Fannie chief executive Dan Mudd could be in, trouble. He is mentioned 89 times in OFHEO's report and was Fannie's chief, operating officer during the period the accounting misdeeds took place. Mr., Mudd was elevated to chief executive in December *2004-, after Fannie's board, ousted Franklin Raines, the previous CEO., at this point, doing a good job trying to, Fannie. But he declined to comment on Mr. Mudd's past at the, company., In a conference call, Stephen B. Ashley, Fannie's chairman, said the, in his, leadership., Jody Shenn and Joe Adler contributed to this article.
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by Matt AckermannBoston Private Financial Holdings Inc.'s purchase Friday of 80% of a, Boston separately managed account provider puts the company for the first, time into manufacturing these products -- and into conflict with an, industry, trend toward separating investment product distribution from manufacturing., Walter Pressey, the private banking company's president and chief, financial officer, said the deal for Anchor Holdings LLC -- announced in, February at an estimated price of $68 million -- will generate business by, furthering the bank's diversification of business lines to include both, distribution and manufacturing despite the industry trend to the contrary., One of the fundamental precepts of our strategy is diversification, We want to diversify our services, diversify our products,, diversify our styles, diversify our geographies, and diversify our, Boston Private's structure as a holding company that assembles, permits, the individual subsidiaries to specialize in an area while the company, The separation of proprietary product manufacturing from distribution had, become confirmed as a trend in Citigroup Inc.'s big divestiture of its fund, business to Legg Mason last year and the BlackRock-Merrill Lynch deal this, year., High-net-worth clients want to work with an adviser that is free of, said Burton Greenwald, an analyst at BJ Greenwald Associates in, That has meant forgoing proprietary asset management in the, Rus Prince, the president of Prince & Associates, an investment, consulting firm in Shelton, Conn., said smaller, more nimble companies, continue to combine manufacturing and distribution while the overall trend, toward separating them., The trend is away from commingling proprietary products and, distribution, but that doesn't matter for companies that want to make, The logic is, companies want to make money, and that, means, offering proprietary products. Some clients will be turned off by this, W. Christopher Maxwell, a managing partner at Conestoga Capital Advisors, a Rock Hall, wealth management firm, said companies can do both so, long, as they practice proper due diligence in their distribution channels to, ensure there is no bias in favor of proprietary products., Boston Private has a very good business, and they seem to be focused in, They still have a relatively, small amount in terms of assets under management, and that enables them to, Mr. Pressey said the deal gives Boston Private access to the rapidly, growing separately managed account market and to wire house distribution., Anchor, which is a value-oriented investment adviser specializing in active, investment management, has distributed its products through wire houses, channel to which Boston Private previously had no access., This is a segment of the high-net-worth market that works with wire, houses that we couldn't reach if we didn't make this deal, Mr. Pressey, said., The account size that Anchor traditionally deals with is smaller, statistically, but it is a demographic that is certainly the high-net-worth, but we, want to be in a position where we can provide asset management services to, Anchor, which had $5.5 billion of assets under management on June 1, offers four core disciplines in its separately managed accounts --, balanced,, all-cap, mid-cap, and small-cap. Mr. Pressey said Boston Private would look, to add more separately managed account providers in other disciplines in, order to develop the platform., Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said there is a $5 billion- to $10 billion-asset threshold for, companies to succeed in distributing any product. Many companies have, decided, to get out of proprietary distribution because they couldn't reach that, In the past four years, Boston Private, which has $31 billion of assets, under management and advisement, has focused on deals to expand, distribution, developing clusters of wealth advisory and investment management firms, around hub private banks in Florida, New England, and Northern California., Mr. Pressey said the company has six regions -- New England, metropolitan, New York, South Florida, the Northwest, Northern California, and Southern, California -- and hopes to continue buying in order to generate assets and, client relationships.
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by Luke MullinsHamstrung by state limits on the amount of municipal deposits a, state-chartered thrift can accept, Bank of Greene County in Catskill plans, convert to a federal charter., A New York law actually prohibits state thrifts from taking in municipal, deposits at all, though some -- including the $296 million-asset Bank of, Greene County -- have gotten around it by establishing limited-purpose, commercial bank subsidiaries., But the amount of municipal deposits that such subsidiaries can accept is, limited, and the thrift's executives have concluded it would have more, freedom, to solicit funds from local governments if the Office of Thrift Supervision, regulated it., If I flip to the federal charter, we'll be able to accommodate all the, said J. Bruce Whittaker,, Bank of Green County's president and chief executive officer., New York is the only state that forbids its thrifts from taking in, government deposits. Since 1999 about 10 thrifts there have established, commercial banks solely for the purpose of soliciting municipal deposits., But when Bank of Greene County set up Greene County Commercial Bank in, May *2004-, it could invest only $2.7 million into the subsidiary, because, state regulations limit the capital contributions to such subsidiaries to, of the thrift's assets. Furthermore, since the Federal Deposit Insurance, Corp. requires such subsidiaries to maintain an 8% ratio of capital to, assets, the subsidiary's total assets cannot exceed $33 million., As of March 31, Greene County Commercial had $23.5 million of assets, it is on pace to top $33 million by this time next year., The bottom line is that there's more than $33 million of business out, there, and we would find ourselves in a position of having to turn away, municipal deposits if we did not switch to a federal charter, Whittaker, said., Roberta Kotkin, the general counsel and chief operating officer of the, New York Bankers Association, said she was not aware of any other New York, state-chartered thrift that was converting to a federal charter, specifically, Bank of Greene County's conversion to trigger a flood of similar ones., In a filing last week with the Securities and Exchange Commission, Bank, of Greene County said it filed its conversion application with the OTS on, 26 and expects to have it completed by the end of the third quarter., In an e-mail released last week by her press office, New York State, It is always a disappointment, to face the prospect of losing one of our state-chartered banks. However, choosing a charter is a business decision, and a bank can and should assess, the regulatory environment in terms of its business plan. This holds true, all depository institutions, whether they are commercial banks, savings, banks,
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by Matthias RiekerContinued pressure from a flat yield curve has prompted several banking, companies to slash operating costs in recent quarters. Bankers and analysts, agree that staying lean in a tough business environment is important, what to do with the savings remains a question., Investors might applaud banks that give themselves an instant profit, boost with the money their efficiency initiatives save, but Diane Merdian, Keefe, Bruyette & Woods Inc. says that strategy cannot be sustained over, long term., In a March 14 report, Ms. Merdian said banks should reinvest by passing, on the cost savings to customers in the form of better prices. That would, ultimately benefit both customers and shareholders, interview, revenue growth is really what drives sustained, She noted the ability to offer attractive loan and deposit prices as one, benefit of strong efficiency., But Robert B. Albertson, the chief strategist at Sandler O'Neill &, Partners LP, Bankers are a, little bit blind to the idea that you can invest and grow faster, Ms. Merdian said banking companies with the lowest expense base are not, A cost advantage is, only worth something if you can actually do something with it, Her report praised the way Wells Fargo & Co. tackled the issue - the San, Francisco company has posted above-average revenue growth while keeping, expenses under control. Unlike some of it peers, the $481.7 billion-asset, Wells does not have a stated efficiency program. But it cuts costs wherever, it can, unless it would mean hurting service, said Howard Atkins, Wells', chief financial officer., Our philosophy is, you really can't spend too much money on your, Mr. Atkins said in an, interview Friday., Wells is constantly opening branches and looking to provide a better deal, for customers, while carefully managing back-office, suppliers, and other, You have to be very efficient in areas ... which don't compromise your, ability to grow your customer base and produce more business with your, Mr. Atkins said. Over the last five years, Wells' expenses rose, at a compounded 8.1%, but revenue increased 9.7%. Its efficiency ratio is, 57.7%., In order to keep the company growing, you have to reinvest in your, And that means not necessarily letting cost, savings directly fall to the bottom line in any given quarter. Investors, want, PNC Financial Services Group Inc. is one of several companies that, started an efficiency initiative last year. PNC's three-year One PNC, program,, which got under way in January *2005-, aims to trim $300 million of expenses, 2007 -- including through the elimination of 3, 000 jobs -- and to increase, revenue by $100 million., The Pittsburgh company doesn't plan to pass along the savings to, customers right away by paying higher rates on deposits or charging lower, interest on loans. In fact it raised fees for certain retail transactions, late last year and introduced fees on others., Richard J. Johnson, PNC's chief financial officer, said in an interview, becoming mores efficient now it will allow itself to be may be more, We only increased our pricing where we were below the peer group, and we, Mr. Johnson said., Gauging efficiency is a matter of debate. Some argue that while the, efficiency ratio is popular with analysts, investors, and banks that have, good ratios, it is an incomplete measure and is too varied among lines of, business. Generally, though a lower ratio is seen as desirable. PNC's, efficiency ratio was 69% last year., Mr. Johnson said investors should look at positive operating leverage or, whether revenues grow faster than expenses instead of focusing entirely on, the efficiency ratio. But he also said that at the end of next year, when, PNC is completed, the company's efficiency ratio will have fallen by 400 to, 500 basis points., The merger of the asset manager BlackRock Inc., with Merrill Lynch, Investment Managers Inc. will lower PNC's efficiency ratio by an additional, 300 basis points. PNC owns a 70% stake in BlackRock, the deal with Merrill, Lynch is expected to be completed in September, and would lower PNC's stake, to 34%., the end of *2004-, PNC had invested heavily in its risk management, program and procedures and its overall interest risk profile, so it started, to look at its efficiency ratio, Mr. Johnson said. In comparing PNC's ratio, saw that we are an outlier, and, Mr. Johnson said Wall Street likes what his company is doing. Merrill, Lynch & Co. analyst Edward Najarian wrote in a recent report that, investors, should focus on companies with the best potential to improve efficiencies, this year., PNC is one of those companies, Mr. Najarian says., Fifth Third Bancorp, which has assets of $105.2 billion and a 53.2%, ratio, has long been thought of as one of the nation's most efficient, banking, companies. But is also known for its aggressive loan pricing and teaser, rates, on deposits., The Cincinnati company hit a wall in *2002-, however, when regulators found, deficiencies in its risk management procedures. A resulting regulatory, agreement in 2003 was lifted in *2004-, and since then Fifth Third has been, investing heavily -- fine-tuning service and opening new branches - in an, effort to achieve the growth rates it is accustomed to. Now it's looking, inward., George A. Schaefer Jr., Fifth Third's president and CEO, told investors, in an earnings conference call in January that though the company would, focus, on improving productivity from the significant investments made in, recent quarters and remaining diligent on the expense side given our, overall, Investing in and expanding our distribution network remains a priority, Such investments are sound, but investors will wait for results before, Long-term, they have the, potential, of turning things around, but the market is not paying for it before it has, said., Only an efficient company can invest in future revenue, Ms. Merdian said, but that doesn't make driving costs down to please shareholders and lift, earnings a good idea. A banking company with an efficiency ratio of 53% --, which according to Ms. Merdian's report is 5 percentage points better than, the median -- could generate 12.9% more in net income than one with the, median efficiency ratio., But the bank with the 53% ratio could lower interest rates on loans by 40, basis points, or raise the rates it pays customers for deposits by 50 basis, points. It would then make the same profit as the other bank, and would, have, a competitive advantage. And if that causes more customers to take out, loans, and make deposits, the more efficient bank is worth more, Ms. Merdian's, report said., Pricing is driven more by the market than, Ms. Merdian conceded that low overheads mean little to a company, operating in a difficult environment. For example, it may not make sense to, be aggressive in lending when credit quality is bad. In that event, though, bankers can always shift their focus to deposits
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by Matthew QuinnAn investor group led by Kohlberg Kravis Roberts & Co., Five Mile Capital, Partners LLC, and Goldman Sachs Capital Partners finally closed its deal, for a, majority stake in General Motors Corp.'s commercial real estate business., The group, which originally said it would buy 60% of the unit, said, Thursday that it had actually bought 78%, though the unit's management team, then bought a 4% stake from the group and the automaker's finance arm, General Motors Acceptance Corp. (The investor group was left with a 75%, stake, and GMAC with 21%.), GMAC said that it received $1.5 billion in cash for the stake in GMAC, Commercial Holding Corp. Also, the commercial unit repaid about $7.3, billion, of intercompany loans to GMAC., Michael Stoller, a GMAC spokesman, said that it will redirect the capital, to its other businesses. He would not say whether GMAC would boost its, dividend to its parent. GMAC paid $2.5 billion of dividends to GM last, year., The commercial lender changed its name to Capmark Financial Group Inc., name derived from a company it purchased in 2003., Standard & Poor's Corp. gave Capmark's debt its lowest investment-grade, rating, BBB-minus, and Moody's Investors Service Inc. gave it the, equivalent, rating of Baa3. Fitch Inc. rated the lender a notch higher, at BBB., GM is still seeking a buyer for a controlling interest in GMAC, to help, the finance arm get an investment grade rating., Capmark appointed Dennis Dammerman, a former vice chairman of General, Electric Co. and the former chairman and chief executive of GE Capital, Corp.,, as its chairman., Molly Morse, a spokeswoman for Kohlberg Kravis Roberts, said that her, company, Goldman Sachs, and Five Mile all had previous relationships with, Dammerman., The deal, announced in August, was originally slated to close by Dec. 31., Representatives for Capmark and GMAC chalked up the delay to routine, process, and due diligence issues., Joyce Patterson, a spokeswoman for Capmark, said that when the deal was, announced the investor group had an option to increase its stake., happy to invest more capital, Goldman Sachs had not said by press time why the group increased its, stake., Capmark said it originated $29.9 billion of loans last year and had a, servicing portfolio of about $276 billion at yearend. It also manages $10.8, billion of investments for third parties., In the first nine months of last year the lender's earnings rose nearly, 70% from a year earlier, to $229 million, according to GMAC's most recent, securities filing., Also Thursday, Capmark closed a deal for a $10.75 billion financing, package from a syndicate of banks., GMAC will also invest $250 million in Capmark's trust-preferred stock.
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by Marissa FajtAmong the sticking points in merger talks between the Independent Bankers, Association of Texas and the Texas Bankers Association is which national, trade group to affiliate with., The on-again, off-again merger talks between the rival groups appear to, be on again. Representatives say the talks, which broke off in March, likely to resume next month. High on the list of issues up for discussion, where the combined group would send its political action committee money., The Texas Bankers Association is affiliated with the American Bankers, Association, and to whose political action committee it sent more money, last, year ($120, 100) than any other state affiliate. The ABA distributed even, more, -- $160, 000 -- to federal candidates in Texas whom the Texas Bankers, Association supports., Also, a Texas Bankers' member recently served as the chairman of the, ABA's political action committee for four years, and another member, Scott, Dueser, sits on the committee this year., The great relationship with ABA and the good things that came out of, that relationship are something that we'd hate to have to give up, said, Rick, Smith, the president and chief executive officer of the Texas Bankers., The Independent Bankers Association of Texas is affiliated with the, Independent Community Bankers of America, and its president said that some, members might not want to send their money to an organization that includes, banking giants., said Chris Williston,, the president and CEO of the Independent Bankers Association of Texas. He, said, bankers have extreme, loyalties, Of course, state groups can be affiliated with more than one national, organization, and Texas trade group officials say they have not ruled out a, dual affiliation., The Florida Bankers Association and the Florida Savings and Loan, Association merged in *1995-, and in 1998 the combined group merged with the, Community Bankers Association of Florida., Alex Sanchez, the president and chief executive officer of the resulting, group, which kept the Florida Bankers Association name, said it resolved, issue of which national group to support by affiliating itself with the, ABA,, the ICBA, and America's Community Bankers, which represents primarily, thrifts., It has been the greatest thing our Florida bankers have ever done, When you go to Capitol Hill, you speak with one voice. When you have, multiple voices from one industry, politicians don't want to offend your, The Community Bankers Association of New York, which represented mostly, thrifts, was folded this year into the New York Bankers Association. That, group's president, Mike Smith, said that it is affiliated with the ABA and, ACB and that a committee decides where to send political action committee, money., said Mike Smith (no relation, The combined organization has more power than the two groups did apart, We have much more in common than we have differences on many of, issues we are confronting today. Our issues were so parallel that coming, In Texas, supporters of a merger note that many Texas banks already, belong to both groups and say that a combined group would have more, lobbying, clout in Austin and Washington. Sixty-seven percent of banks in Texas, belong, to both groups. Some Independent Bankers' members oppose a merger with the, Texas Bankers, which they say represents mainly the interests of large, banks., But Rick Smith, who supports a merger, said that 98% of his group's members, are community banks., I think the merger has overall benefits for banks in Texas, And I think if we can achieve the merger under the right terms and, conditions, the result will be beneficial and outstanding for the banking, Representatives from the state groups began discussions in August, and in, March they asked their respective boards to decide whether talks should, continue. The Texas Bankers' board voted unanimously to continue, discussions,, but the board of Texas' independent bankers group initially voted not to, do so, -- then reversed that decision at a March 30 meeting., Several people said that many of the political issues that split large, and small banks in the past -- and led to the formation of the independent, group in 1972 -- have largely disappeared, and that the two groups are more, closely aligned now., They were actually close to merging in *1998-, but Robert E. Harris, Texas Bankers' chief executive at the time, died during the negotiations, which broke off.
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by Matt AckermannSun Life Financial U.S. plans to introduce a living benefit rider in its, variable annuity lineup today as part of a strategy to gather assets by, selling to customers nearing retirement., The Wellesley Hills, Mass., unit of Toronto's Manulife Financial Corp., said the optional living benefit, Secured Returns for Life Plus, available in its Masters variable annuity product line. The benefit offers, an automatic step-up program and a program that awards annual bonuses to, customers for deferring income., The enhancements, in combination with Sun Life's guaranteed principal and, income benefit, are intended to let clients increase their guarantees in, any market condition and maximize their chances to expand retirement, income., Mary Fay, a vice president and general manager of Sun Life's annuities, division, said the company is focused on generating business by offering, products that promise customers an income stream in retirement., We are developing our foundation in order to grow our business, Ms. Fay, We have added wholesalers and continue to develop products to offer, through banks, independent financial planners, Sun Life, which had $332 billion of assets under management at Dec. 31., has increased its wholesaling force by 167.8%, to 75, since the end of, 2004. Ms. Fay said she expects to add more. The larger sales force has, helped spur growth, including the roughly 25 wholesalers devoted, to the bank channel., I think that we have a field force that is a respectable size, Sun Life Financial has strong products and the right people on the street, but having, wholesalers who can help expand distribution is essential, as is having, Analysts said innovative riders have stimulated a rebound in variable, annuity sales. Banks' variable annuity sales were nearly flat last year, according to Kenneth Kehrer, the president of Kenneth Kehrer Associates, Princeton, N.J., consulting firm that tracks bank annuity sales. His, firm's data showed that the top 22 providers in the bank channel had $17.6, billion of variable sales last year, up 1.1% from 2004., Mr. Kehrer said he expects many of the companies that distribute variable, annuities through banks to post first-quarter increases. Michael White, Associates, a bank insurance consultant firm in Radnor, said, everything indicates that variable annuities are ready to bounce back., There is still a lot of money to be accumulated and certainly will be a, lot more distributed through variable annuity products, Michael White, There is a retirement bulge coming, and most firms are looking to, Bank-channel sales rose in the first quarter, and overall variable annuity, sales, in all channels, are accelerating, according to David Jacobson, spokesman for Sun Life. Ms. Fay said sales have improved industrywide and, the outlook for this year favors more growth in variable annuities. Sun, Life's first-quarter sales, including through the bank channel, have, That is an, The Kehrer firm ranked Sun Life, 12th last year in bank-variable annuity sales, with $504 million, and 14th, overall, with $894 million of fixed and variable annuity sales through, banks., Ms. Fay said the decline in defined benefit pension availability has more, people looking for variable annuity products that will give them a, consistent income stream into retirement., The Secured Returns for Life Plus product offers two enhancements, including an automatic step-up option that lets customers lock in any, market gain every three years. The second enhancement, plus 5, lets customers boost their guaranteed withdrawal amount by 5% of, their principal, or the stepped-up amount, whichever is greater, for each, year withdrawals are deferred during the contract's first 10 years., With the step-up program to take advantage of rising markets and the, plus-5 feature to expand the withdrawal guarantee during down markets, Secured Returns for Life Plus is designed to assure retirement-focused, customers that they will not outlive their income., Secured Returns for Life Plus was to become available today on most Sun, Life variable annuities. The company has operations in Canada, the United, States, United Kingdom, Hong Kong, Philippines, Japan, Indonesia, India, China, and Bermuda.
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by Jody ShennFor more than a decade Clayton Holdings Inc. has been a major provider of, due diligence on home loans and other support services to the top mortgage, securitization conduits., Now the Shelton, Conn., other half, -- loan originators -- and the expanding European, operations of, those Wall Street and bank-owned securitizers, according to Frank P., Filipps,, its chairman, chief executive, and president., Clayton, which went public in March, also wants to do more work on other, loan types, such as auto loans and commercial mortgages, interview last month. It had all but stopped doing such work in recent, years,, as it devoted resources to keeping up with surging nonagency residential, mortgage bond issuance., Its main businesses are Clayton Services Inc., which does work for, conduits, and the smaller Clayton Fixed Income Services Inc. (the former, Murrayhill Co.), which provides credit risk management and surveillance, services, mostly to mortgage bondholders. It also offers consulting, staffing, underwriting, and compliance products and services, mainly to, conduits, as well as special servicing through its Quantum Servicing Corp., The $146 million initial public offering last month went well, pricing at, the top of the expected price range, with 20% more shares than planned, with underwriters quickly taking advantage of their ability to buy even, more., The capital will be used to pay down debt and to expand, possibly through, acquisitions, Mr. Filipps said. Since its March 27 debut the stock has, gained, about 27%., The Boston private equity firm TA Associates Inc. formed Clayton Holdings, a year ago by combining Clayton Services and Murrayhill, two firms in, which it, had acquired majority stakes in 2004. (In the past three years a few other, small firms were also rolled up into what became Clayton Holdings.), Also last April, TA Associates said it had hired Mr. Filipps, then Radian, Group Inc.'s chairman and CEO, to run Clayton. The previous November the, Philadelphia mortgage insurer, which he helped create by orchestrating the, late 1990s merger of Amerin Guaranty Corp. and Commonwealth Mortgage, Assurance Co., had said he would retire in June., In the interview, Mr. Filipps, said that by the time TA Associates, approached him, he expected to take time off and then find a new job, which was just tailor-made for my skill, Conduit services are Clayton's biggest business. In each of the last, three years it has worked for all of the top 10 nonagency underwriters as, ranked by the newsletter Inside B&C Lending, according to its IPO, prospectus., These securitizers accounted for at least 70% of all nonagency issuance in, each year, the newsletter says., All but three or four of the top 25 issuers are Clayton customers, Filipps said. Many also use other firms for the same work. Lydian Trust, Co.'s, Lydian Data Services is a major competitor., According to the prospectus, Clayton's major customers include Bank of, America Corp., Bear Stearns Cos. Inc., Citigroup Inc., Countrywide, Financial, Corp., Credit Suisse Group, the Department of Housing and Urban, Development,, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Lehman, Brothers, Merrill Lynch & Co., Morgan Stanley, UBS AG, and Winter Mortgage, Group., Clayton signaled its intention to get bigger in outsourcing in the, primary market in January by acquiring Mortgage Resource Network Inc., small Dallas provider of pre-closing and post-closing services to, originators., Mr. Filipps said Clayton's main offering for lenders is outsourced, underwriting -- which mortgage insurers, such as Radian, have long, provided., This was one of Mortgage Resource Network's offerings. Clayton also offers, quality control services to lenders., Lenders want to turn underwriting into a more of a variable cost, outsourcing does that, Mr. Filipps said. In addition, because of the work, Clayton does for conduits, natural, staff, and technology., He said a main selling point will be Clayton's familiarity with conduit, buying habits and underwriting rules -- along with reviewing loan files, If we are, able to combine our knowledge of the conduits, the way we think we can, with, Clayton does not expect to be able to do much underwriting for the, largest lenders, but it already has added a couple of lender customers to, In foreign countries, Mr. Filipps said, to follow our, It will likely start in London, but it also sees opportunities in, Germany, Italy, Spain, and Eastern Europe. It has not found any companies, that provide the types of services it offers to conduits internationally, said., Securitizers' interest in those countries is logical, because the fast, growth in securitization activity in recent years has only scratched the, surface of the markets' potential, Mr. Filipps said. Compared with the U.S., market -- where well over half, and maybe as much as three quarters, of the, way,, When asked whether the potential for Fannie Mae and Freddie Mac to regain, securitization market share could hurt his company, Mr. Filipps quickly, said, to sell more of the work it, does, on existing bonds to the government-sponsored enterprises., In the interview, he acknowledged that an expected drop-off in, originations and, hence, securitization activity should hurt Clayton in the, next few years, but he then pointed to the other opportunities it sees as, offset., Mr. Filipps also said that in the next few years a high level of, refinancings on adjustable-rate and interest-only mortgages will provide a, to the securitization market. In addition, generally higher, consumers using mortgage debt, should create a higher floor for the market, no, matter where rates go, he added., The explanation was in fact much longer, and he conceded that it was, He said it was a pitch he delivered often during
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by Steve BillsCitigroup Inc. is hoping to create a business out of offering corporate treasurers digital credentials, a technology that has been available for years but seen little use in the banking industry., The credentials, often called digital signatures, let people use encrypted data to verify their identities. That capability has become more important as online fraud has become more common., The New York company has already tested two credential-related services - one that would give treasurers permission to initiate high-value wire transfers, and one that would automate changes to multiple customer accounts -- and it is planning to develop other applications that could be offered as commercial services for a fee., Gary E. Greenwald, the global head of information products in Citi's corporate and investment banking global transaction services unit, said that the technology is well established, and that the hurdle for his unit has been to demonstrate the value of digital credentials for customers., If you can show an ROI on this thing in some way, all these things are poised to come together, Mr. Greenwald said in an interview last week., Companies are willing to pay for a digital signature service because it makes wire transfer payments more secure, and Citi is preparing to roll out the transfer service worldwide, Arlene S. Chapman, a senior consultant to the Association for Financial Professionals, a trade group for corporate treasurers, However, the market has shifted for several reasons, including the growth of electronic commerce, increased concern about identity theft, and an increase in international payments, All these factors have come together and are heightening the interest and awareness in these digital identity products and processes, that would be useful to corporate treasurers., The signatures are based on public-key infrastructure, which has been widely accepted as a complex but effective encryption format., However, electronic authentication also falls squarely into Citi's bailiwick as a provider of cash management services to corporate customers, Last month at the annual Sibos conference sponsored by the global financial cooperative Swift, and BNP Paribas SA had relied upon the credential to accept the payment., Mr. Greenwald said that Citi has developed another cash management application, which can automate changes to a company's accounts, such as when an employee, as a result of a promotion, is authorized to initiate payments., In the past such an employee would have had to sign signature cards for potentially hundreds of accounts, Three companies, which he would not name, are testing that service now., Banks are in a natural position to offer digital credentials, and corporate customers are more likely to trust a bank than a technology vendor, At the end of the day, Susan Feinberg, the research director in the wholesale banking group of TowerGroup, a Needham, Mass., market research unit of MasterCard Inc., said, Citi is creating a new business in identity management, being that trusted party and having very stringent practices how you authenticate an individual., People are now starting to focus on what are the business problems and the business applications, rather than the technology, Ms. Feinberg said., Authenticating corporate treasurers is becoming a more important task, rather than connecting only indirectly through their banks., in the past, because the bank took responsibility for confirming the identity and authority of the sender of a payment message, but now that users make those confirmations directly to SwiftNet, there is a bigger need to validate the customers, Karen J. Wendel, the chief executive officer of IdenTrust Inc. of San Francisco, which provides the technology underlying the credentials, acknowledged the difficulty of establishing the signatures not only as a reliable standard technology but also as a viable business., Citi is willing to go out, test it, see how it works, Right now 22 banks around the world use IdenTrust's credentials, mainly to authenticate their own corporate customers, Ms. Wendel said. The Citi wire transfer test was significant, because a second banking company was able to rely on the credential, The other guys are still trying to figure out where the market is going to go
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by Matthias RiekerThe recent pickup in big-bank deals has shone a light on an emerging, trend: Buyers appear to be focusing more on revenue synergies., Take Wachovia Corp. During a conference call with investors Monday to, discuss its $25.5 billion deal for the Oakland, Calif., thrift company, Golden, West Financial Corp., G. Kennedy Thompson, Wachovia's chairman, president, chief executive, made only a brief reference to anticipated expense cuts., Tom Wurtz, Wachovia's chief financial officer, modest, of about 9% of the $125 billion-asset Golden West's cost, base., zero, very, very confident, for his $541.8, billion-asset Charlotte company. The deal, announced May 7, is expected to, close in the fourth quarter., During a conference call Friday, Mr. Wurtz outlined $230 million in, revenues synergies in *2009-, by expanding Wachovia's broader product set to, Golden West customer, cross-sell option adjustable-rate mortgages to, Wachovia, Gary L. Perlin, the chief financial officer of Capital One Financial, Corp., was up front when he discussed the McLean, credit card lender's, agreement to purchase the $58 billion-asset North Fork Bancorp. Inc. of, Melville, N.Y., We expect revenue synergies of approximately $130 million, About 40% of those synergies would come from cross-selling North Fork's, mortgage offerings to customers of Capital One and Hibernia Corp., the New, Orleans banking company it acquired November. About 40% would come from, selling Capital One's cards to North Fork customers, and about 10% would, come, from cross-selling opportunities in small-business banking., The $14.6 billion deal, announced March 12, is expected to close in the, fourth quarter., Though Mr. Perlin also outlined $110 million of cost cuts resulting from, the deal, observers said there appear to be a change in mentality among, acquiring companies., Nobody is out there saying, 'Here is this big slash-and-burn cost cut, Robert B. Albertson, the chief strategist at, That era may, Investment bankers share this view., I don't think anybody is looking to take out capacity, Andrew M., Senchak, a vice chairman and the president of Keefe, Bruyette & Woods Inc., Many observers said that desire for expansion also fueled JPMorgan Chase, & Co.'s decision to swap its corporate trust business -- and $150 million, cash -- for Bank of New York Co. Inc.'s retail and middle-market banking, business., There is increasing evidence of the benefits of size and scale in terms, of capital efficiency, marketing advantages, and cost structure, John, Mahoney, a co-head of the U.S. bank group at Goldman Sachs Group Inc., said, in an interview Tuesday., Mr. Senchak and others said the focus on revenue also shows up in smaller, recent acquisitions., narrowly defined, of Wachovia and Capital One, but they are following, same broad trend of revenue growth, Richard A. Schaberg, a partner with the, law firm Thacher Proffitt & Wood LLP, Your, rank-and-file thrift or bank sale to yet another bank or thrift is more, about, ... let's just take that customer base and service it better, more, Two examples observers cited from last month are TD Banknorth Inc.'s, $480.6 million deal to buy Interchange Financial Services Inc. of Saddle, Brook, N.J., and the $55 million deal that $980 million-asset Alliance, Financial Corp. in Syracuse, N.Y., announced April 24 to buy the $225, million-asset Bridge Street Financial Inc. of Oswego., The reasons to sell have not changed., What we have seen and heard over the last two years: The economic, reality of just how tough the operating environment is, is weighing very, John Chrin, the head of financial, institution mergers and acquisitions at JPMorgan Chase, said in an, interview, Tuesday., Pressure on revenue from the continually slowing mortgage business, pressure on loan spreads from the flat yield curve, are cited most often as, reasons to look for a buyer. Slower deposit growth makes it harder -- and, more expensive -- for some to fund loan growth, and worsening credit, quality, later this year may well require many bankers to increase reserves to cover, loan losses., The cost of regulation, the cost of computerization, the cost of, marketing is just driving a lot of the smaller banks to want to find a, William J. Ryan, the $40.9 billion-asset TD, Banknorth's chairman and CEO, told American Banker in an interview April, just after his Portland, Maine, company announced its deal to buy the $1.6, billion-asset Interchange., The deal would provide TD Banknorth with ample cost savings, Mr. Ryan, said, but his company would expand Interchange's offerings, particularly in, insurance products and wealth management services., Even the decisions by Herbert and Marion Sandler, the co-founders and, co-CEOs of Golden West, and John A. Kanas, the chairman and CEO of North, Fork, to sell their companies reflect the desire to increase revenue rather, than a simple response to competition., said Mr. Sandler, during the conference call announcing Golden West's deal to sell itself to, But the negative is that we are, in fact, a monoline company., Golden West found its match in Wachovia's dedication to service and its, Mr. Kanas told American Banker in an interview March 13, a day after the, Capital One deal was announced, asset, that North Fork needs to withstand an inverted yield curve., Many analysts and investment bankers said both companies had years to go, before hitting an earnings wall., Neither one is really indicating that they couldn't go alone. It is just, Mr. Albertson said., Observers said the sellers met the revenue expectations of the buyers., one investment banker, I don't think that it is totally random that they chose now to, And the fact that neither had to sell makes predictions about who could, follow their lead particularly difficult, investment bankers said., Kenneth Bruce, a Merrill Lynch & Co. Inc. analyst, wrote in a report, issued last week that investors may now look at Washington Mutual Inc. and, Countrywide Financial Corp. as potential targets., Countrywide, by all accounts a formidable mortgage originator, narrowly focused and lacks branches. But David Hendler, an analyst at, CreditSights Inc., wrote in a report issued Thursday that Countrywide is an, unlikely seller., Analysts and investment bankers also disagree on whether Wamu is more, likely to buy or sell. Several investment bankers said the $348.7, billion-asset Seattle thrift company could be a long-term survivor, especially if it chooses its targets well., Last year Wamu bought the San Francisco credit card lender Providian, Financial Corp., and last month it announced it would buy Commercial, Capital, Bancorp Inc. an Irvine, Calif., thrift company that specializes in, multifamily lending., But the research team at Keefe Bruyette added the Seattle thrift company, to its list of potential takeover targets on May 10. Wamu is, under-earning,, merger, One investment banker said that the $37.3 billion-asset First Horizon, National Corp. may consider putting itself on the block., The large Memphis mortgage lender, which has sizable exposure to capital, markets, issued a messy first-quarter report. The company may provide a, buyer, with an attractive entry into the fast-growing southern banking markets., Observers are divided on whether the current pace of deal-making in, financial services will continue. SNL Financial LC said that as of May 5, bank, thrift, and specialty finance deals had been announced this year, more than in the same period last year., against concluding that the pace will pick, Kevin S. Pierre, an analyst with AllianceBernstein LP's Sanford C., We believe that at, current bank valuations, it is quite difficult to find attractive deal, What we are seeing is a fairly, I frankly don't see that, All of the investment bankers interviewed for this story, as well as Mr., Schaberg, advised on at least one of the deals mentioned in this story., Spokespeople for Countrywide, Wamu, and First Horizon declined to, comment.
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by Will WadeDespite strong skepticism within the industry, Nacha plans to test a system, that would route payment for online purchases across the automated clearing, house network., The electronic payments trade association has been touting the idea under, various names for years. When it was unveiled in 2002 it was known as, Project, Action, last year Nacha organized a proof of concept of what it was calling, credit-push, because it uses customers' online banking sites to push, payments, to Internet merchants., Samantha Carrier, the director of Nacha's eCommerce Group, said this week, at the association's Payments 2006 conference here that her team is looking, for banks to participate in a pilot test, which it hopes to begin in early, that would go beyond credit, The system would reduce risk for online transactions and would appeal to, consumers who lack credit cards or do not want to use them for Internet, from banks and, merchants, though she would name only one that has committed to, joining the pilot program, Gardiner Savings Institution in Maine., The vast majority of online purchases are paid by credit card. Arthur C., Markos, Gardiner's president, said that means there is no role for his, company in his customers' online purchases. But the system Nacha has, developed would enable banks to become involved in the transaction., Consumers get to take charge of their checking account, but are working, Gardiner was one of four banking companies that participated in the, credit-push proof, along with Bank of America Corp., Wells Fargo & Co., National City Corp., But other participants in the proof of concept are less supportive., Leonard J. Heckwolf, a senior vice president with Bank of America, said, that, after the proof-of-concept phase ended last year the Charlotte company, concluded the system offered few advantages over the well-entrenched, payment, system now in place., The ability to purchase goods and services online, with verification, We want to, support new and innovative payment capabilities that add value to the, network, but we think these capabilities exist elsewhere, and the cost to, Bank of America has no plans to participate in the pilot program. Calls, to National City, of Cleveland, were not returned, and a spokesman for, Wells, Fargo could not say whether the San Francisco company would be in the test., Nacha, of Herndon, hopes to announce the participants by August and, will accept additional participants for the 12-month pilot after it gets, under way., Consumers can already use the ACH system to make online purchases by, providing their banks' routing numbers and account numbers to merchants, which use that information to initiate an ACH debit. But Ms. Carrier said, many people are uncomfortable giving out this information., The basic idea behind the new system is that online merchants will add, links on their payment pages to banks' bill payment sites. Shoppers will, fill, their Internet shopping carts, select their bank, log in to their bill-pay, site, and initiate an ACH credit payment to the merchant., This reduces risk because the retailers never have their customers' bank, account information -- it cannot be misused by unscrupulous merchants or, stolen by hackers. It also improves security because the shoppers must, authenticate themselves at their banking sites., The redirected transactions, and the payment information moving from the, banks to the merchants, will all move across a virtual private network, operated by eWise Systems Ltd. of London., Ms. Carrier said people want a safe alternative to credit cards for, gives merchants the, ability to tap into a new market, Rossana Salaris, the senior vice president of The Clearing House Payments, Co. LLC, who runs the New York company's ACH unit, Electronic Payments, Network, said there is another important reason merchants might be, interested, Merchants want this because they don't want to pay, However, George Thomas, an executive vice president at The Clearing, House, said the costs to develop this system would almost certainly be, passed, If there is no ROI for the, banks,, Ms. Carrier confirmed that the current model calls for receiving banks --, the merchants' banks -- to pay a fee to the originating banks -- the, customers' banks. The receiving banks would probably pass these fees on to, She would not say how large the fee would be, but did say that there will, probably be different fees for different types of payments processed over, system, more complex than banks' bill-pay sites and that the payments would be more, expensive than standard ACH payments., It will, not be priced like an ACH. People understand that this is very different, from, But Mr. Thomas said merchants would not take to a complex, untested, This is not going to
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by Katie Kuehner-HebertWhen American Bank FSB in Bethesda, opened the first of two in-store, branches in outlets of the Super Fresh grocery chain in *2003-, bank, officials, started brainstorming ideas to attract grocery store employees to the bank., which lets customers who deposit, their paychecks through direct deposit have access to up to 90% of the, funds, the day before they hit the account., James Plack, American's president and chief executive, said Super Fresh, employees have taken to the idea of getting their paychecks ahead of time, without paying an overdraft fee., Having had modest success landing deposits from grocery workers, the $298, million-asset bank now plans to market guaranteed checking to other, businesses, including hospitals., This has given us a lot of good will with the food store, Mr. Plack, As we go into new markets, we can go to other large employers and, this as a way not only to get their commercial deposits, but also their, Just a handful of banks have offered similar services, but many credit, unions that serve employers have been offering some form of guaranteed, access, to direct deposit funds -- even in the unlikely event there is a problem, with, processing -- as a way to increase their field of membership, says Thomas, Parliment, the president of Parliment Consulting Services Inc. in Key West, Fla., Bank products have become commodities that other financial services, providers, such as brokerage houses, are also offering, Mr. Parliment said., In order to compete with these retailers, banks have to think the same way, -- they have to differentiate their products, and do more things like, Even though all this service does is guarantee automated clearing house, transactions that carry implicit guarantees themselves, play, to grab customers' attention, Mr. Parliment added., The guarantee isn't really worth much, but that's not what retailing is, all about -- it's more about the perceived value of things, Mr. Plack said that older customers who receive their monthly Social, Security checks through direct deposit have said they like the service., American Bank has received fewer calls from these customers asking whether, the direct deposit was actually processed., Not all banks are sold on the idea. John J. Dickson, the president and, CEO of the $2.6 billion-asset Frontier Financial Corp. in Everett, Wash., said that when management first heard of guaranteed checking at a banking, conference several years ago, for Frontier Bank., This seems like it could be encouraging people to use money before it's, actually deposited in their accounts, and that's just not what we're, Mr. Dickson said. Then again, he concedes that Frontier Bank, predominantly a, business bank, has not been very progressive in retail banking, it only, recently introduced free checking., Michael Cyr, a vice president of sales at the retail banking consultant, firm IBT Enterprises LLC in Atlanta, said giving access to direct deposit, funds the day before they are processed would not change customer behavior., Those who prefer to wait until the funds are actually posted in the, account to withdraw money would continue to do so, Mr. Cyr said. And those, who tend to hedge their bets and write checks the day before every payday, said, would appreciate being given that grace period -- particularly on a, deposit the bank knows is a sure thing., In community banking, any time you have an
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by Luke MullinsFor the second straight year, the New York Legislature has killed a, provision in Gov. George Pataki's budget proposal that would have added, millions of dollars to the tax bills of dozens of banks and thrifts., Gov. Pataki, a Republican, released his $111 billion budget proposal for, fiscal 2007 in January. It included an item that would have eliminated the, 60% tax deduction that banks and thrifts receive on dividend income from, their real estate investment trust subsidiaries., John Sweeney, a spokesman for the New York State Division of Budget, said, the elimination of the deduction would have closed a corporation tax, loophole, and added an estimated $150 million to state coffers over three years., But in a clear victory for bankers, leaders from the Assembly and the, Senate removed the REIT deduction provision from a package of budget bills, they approved late Tuesday night. The full Legislature is expected to pass, the budget package within the next several days, at which point the, governor, will have 10 days to consider the bills., Michael Smith, the president and chief executive officer of the New York, Bankers Association, said Wednesday that the Legislature's rejection of the, but added that Gov., Pataki has the authority to reopen the issue., New York's 2007 fiscal year begins Saturday., Mr. Smith said that more than 85 banks and thrifts in the state have REIT, subsidiaries, and that protecting the deduction had been among bankers' top, priorities this legislative session., Bankers argued that they are already paying their fair share of taxes and, that the deduction encourages banks and thrifts to make more home loans., said Sanford A. Belden, the president and chief, executive officer of the $4.1 billion-asset Community Bank System Inc. in, It would be very disadvantageous to our ability to do home, mortgages, and it certainly would increase our tax burden unfairly and, Also, out-of-state banks might be discouraged from moving into New York, if lawmakers eliminated the deduction, Mr. Belden said., Gov. Pataki included a similar measure in his executive budget proposal, last year, but it too was defeated., A handful of other states, including California, Connecticut, Massachusetts and Hawaii, have cracked down in recent years on banks that, deduct income from REIT subsidiaries., The New Jersey Division of Taxation considered eliminating the REIT, deduction in February *2005-, but its plan was scuttled during negotiations, between the state treasurer and the New Jersey Bankers Association., Banks and thrifts create REITs by putting their mortgages into a separate, subsidiary and then selling securities of that subsidiary to investors. The, investors are primarily the banks that create them., Under New York law, REITs' investors must pay taxes on 40% of the income, they receive from dividends and can take a tax deduction on the remaining, 60%., The New York Division of Budget projects that taxes from banks and, thrifts will reach $790 million in the fiscal year that ends Friday, up 35%, from fiscal year 2005., John M. Scarchilli, the president and CEO of the $722 million-asset, Pioneer Savings Bank in Troy, said that a tax on REIT dividends could force, some banks and thrifts to scale back mortgage lending., He added that he hopes the governor will not try to revive the provision., All we can do is continue to lobby, until we have a signed agreement on the budget -- things can change like
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by Patrick RuckerA regulatory ruling allowing the Federal Home Loan Bank of Chicago to issue, its own nonconsolidated debt has touched off a debate in the system about, whether its other banks should be allowed to follow suit., The Federal Housing Finance Board argues that the Chicago move was, unique, and that it cannot legally allow the other 11 banks to offer, something similar. But many observers say the agency could change its mind, and a few Home Loan banks are quietly mulling if such an offering would, give, them a better way to reduce their excess stock and fund their mortgage, purchase programs., We believe that sub-debt funding options merit future consideration by, said Barbara Hembree, a spokeswoman, the Indianapolis Home Loan Bank., Last month the Finance Board allowed the Chicago bank to issue $1 billion, of subordinated debt in order to buy back some of its excess stock. Never, before had the board authorized any Home Loan bank to issue debt that was, backed by the whole system., Steve Cross, the Finance Board's director of supervision, has insisted, and could not be repeated., Officials of the board point to constraints on capital mandated by the, Gramm-Leach-Bliley Act of 1999., would count as capital for a Home Loan bank. Finance Board employees argue, that subordinated debt would absorb losses only during the liquidation of a, Home Loan bank, so does not count as capital under the law., If someone could argue that subordinated debt absorbs losses during, said Neil Crowley, the deputy, general, But frankly, I don't see how sub debt meets, The Finance Board said it allowed the Chicago bank to issue subordinated, debt because it is the only Home Loan bank that is not yet compliant with, Gramm-Leach-Bliley and its subordinated debt will count as capital toward, leverage requirement., Some observers are not convinced the Finance Board is correct to say, subordinated debt should not count as capital under the new system. They, said, the board could reinterpret the law later., The regulator is 'right' until someone takes it to court or it changes, said Karen Shaw Petrou, a managing partner with Federal, Financial, Analytics., Many believe the Chicago move could serve as a precedent regardless of, the Gramm-Leach-Bliley capital restrictions. But the system's banks are, divided on whether that is a good thing., Some of them believe offering individual subordinated debt could help, them to expand their mortgage purchase programs. Until recently they used, excess stock to fund such programs, but in March the Finance Board issued a, proposal that would make them limit their excess stock to 1% of assets., Many of the banks do not know how they could fund their mortgage programs, under such a restriction., said one industry official, who spoke on condition of ity., The debt could also be used to quickly reduce a bank's excess stock. Like, the Chicago bank, the ones in Cincinnati, Indianapolis, and Seattle are, over, the Finance Board's proposed 1% limit., would be a nice thing to have in the, said one Home Loan bank official, who spoke on condition of, ity., Alex Pollock, a former Chicago Home Loan bank president and now a fellow, at the American Enterprise Institute, said individual debt offerings by the, banks are overdue. Having the fate of all 12 Home Loan banks tied together, individual offerings would enable the market to assess, banks individually., If the 12 banks were issuing credits on their own, the market could, Mr. Pollock said., That idea alarms some member institutions and other Home Loan bank, officials, however., Alfred A. DelliBovi, the president of the Federal Home Loan Bank of New, York, said that consolidated debt obligations remain the cheapest and, easiest, way for Home Loan banks to get cash., Under any scenario that I can think of, the 'jointly and severally', I don't, know why I would want to issue my own debt when I can issue debt that the, Mr. DelliBovi has long advocated that the banks stick to their, traditional business of offering advances to member institutions. Only a, Home, Loan bank that wants to explore other opportunities would need to issue, subordinated debt., If you are going into a new business, maybe you need to get a different, If you want to be Fannie Mae, maybe you, should, Ann Grochala, the director of lending and accounting policy at the, Independent Community Bankers of America, said the Chicago bank's, subordinated debt issuance will challenge the primacy of consolidated, obligations., This may put a greater importance on the individual bank ratings, said, which could damage the system as a whole., Our members want ...[Home Loan banks to be] an attractive and reliable, That's pretty much the end of the
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by Stacy KaperThe New York State legislature is contemplating forcing banks to stop, severing relationships with money-services businesses., The State Assembly's banking committee unanimously passed a bill last, week that would require financial institutions to obtain approval from the, state's Banking Department before dropping such businesses for failure to, comply with the Bank Secrecy Act., Though its chances of enactment this year are uncertain, the bill is, raising concerns with state regulators and bankers who warn it would set a, dangerous precedent., It's important that this bill never sees the light of day, said Diana, L. Taylor, the superintendent of the New York Banking Department., Were something like this to pass, the second we directed a bank -- which, is actually probably not constitutional in the first place -- to do, business, with an MSB, then if anything ever happened -- for instance, if the MSB was, guilty of any type of misdemeanor -- then it would be our liability, Taylor said., The New York bill is the first example of a state legislature trying to, tackle the issue. Hundreds of banks have broken off relationships with, money-services businesses, citing fears of enhanced regulatory scrutiny of, the outfits. Though regulators released guidance last year intended to stem, the tide, it appears to have worsened., The Financial Crimes Enforcement Network announced Wednesday that it has, cut 10, 600 money-services businesses from a registration list that banks, required to check before allowing such a business to open an account. Only, 000 of the businesses are now registered with the agency. A spokesman, said, the cuts were made because the businesses either folded or failed to renew, their registration., New York Assemblyman Jose Peralta, D-Queens, who sponsored the New York, bill, said the legislation is needed because legitimate money-services, businesses are losing access to banking services. He said that federal, regulators are unfairly targeting banks, and that he is trying to give them, cover for maintaining a relationship with a money-services business., Assemblyman Peralta said., All it says if you are going to close an account, give rationale and let, Banking Department be the judge. So if the Feds come after the banks, they can sort of turn to the Banking Department and say, 'Hey talk to them, they regulate us, The bill passed the Assembly's banking committee on June 6. Assemblyman, it will be passed by the full chamber, before, this year's legislative session ends on June 22., Its chances in the state Senate are also unclear. Sen. Efrain Gonzalez, D-Bronx, introduced a companion bill, its passage. While the bill has a good chance of passing the Assembly, because, Democrats are the majority, Republicans are in control of the Senate and so, The National Money Transmitters Association, the primary lobbying group, supporting the bill, argues it would make banks feel safe to accept MSB, customers., State law requires the New York Banking Department to verify that, money-services business have appropriate anti-money-laundering compliance, systems in place before issuing state licenses to them. David Landsman, executive director of the National Money Transmitters Association, said the, bill would help ensure that banks take that process into account., The main idea of the bill is that these licenses need to be given some, weight, especially if the reasons for closing the account are said to be, Mr. Landsman said., If the banks were given the political and legal cover that this bill, we believe that enough banks will come back into the, market voluntarily in the short term, and we believe that all banks will, come, But banking industry representatives are lobbying against the bill., We are opposed to any legislation that would impede a bank's business, said Michael Smith, the president of the New York Bankers, Association., We feel it would not be a good step at the state level, attempt to address the problem, should be done through a, concerted, The bill also raises legal and practical questions, observers said., Regulators do not direct their regulated entities to do business with or, Ms. Taylor said., Ms. Taylor said that even if the bill is enacted, the Office of the, Comptroller of the Currency would ensure national banks would not have to, comply with it., We have no jurisdiction over the nationally chartered banks, so it would, Talk about, another
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by Jim ColeWashington Mutual Inc. has hired yet another executive from JPMorgan, Chase & Co., this time to beef up its small-business banking., The $343.1 billion-asset Seattle thrift company said Wednesday that it, had picked Frank Vella Jr. to head its small-business banking division., Mr. Vella, who joined Wamu on March 14, was a senior vice president of, small-business banking at JPMorgan Chase, where he designed and, implemented a, strategic sales and service business plan for 2, 750 branches. Mr. Vella, worked, at Chase for 25 years., Frank brings 35 years of retail and small-business banking experience to, Washington Mutual, and we're confident he will set and execute a strategy, that, Kenneth Kido, the, executive vice president and acting president of Wamu's retail bank, said, a press release., The position is a new one, previously several Wamu executives handled its, small-business operations., Mr. Vella, joined a string of former JPMorgan Chase executives hired, Wamu in the past 15 months, including Steve Rotella, the head of the New, York company's mortgage unit, who became Wamu's president and chief, operating, officer in January 2005., Frederick Cannon, an analyst with Keefe, Bruyette & Woods Inc. in San, Francisco, said small-business banking is an area in which Wamu wants to, Clearly, under Mr. Rotella they want to not just open more, branches, but offer more products through their branches, and small business hasn't, Mr. Vella's initial duties will include developing growth strategies for, Wamu's markets and establishing a distribution and sales strategy., Last year the number of small-business checking accounts at Wamu rose 48%, from the previous year, and average deposits rose at a similar rate. The, company said it had 587, 000 small-business checking accounts at yearend., Small business has been an area of success for us, but there is, I expect Frank's, extensive experience and leadership skills will allow us to leverage this, The same month that Mr. Rotella joined Wamu, it hired three other, JPMorgan Chase executives: John Berens, who became the thrift company's, senior vice president for service delivery, Youyi Chen, now its senior vice, president for mortgage portfolio management and research, and Bill Murray,, now a senior vice president and division finance officer for mortgage, servicing., Other recent hires include David Schneider, a CitiMortgage veteran, became Wamu's home loan chief in August, and John Woods, a Freddie Mac, senior, vice president and its corporate controller and principal accounting, officer,, who became Wamu's corporate controller in December., Before taking over JPMorgan Chase's small-business banking division, Vella had been a vice president and national sales and dealer service, center, executive for Chase Automotive Finance, and the Southeast regional, president, for personal financial services., A Wamu spokeswoman said Mr. Vella would not comment.
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by Matthias Rieker and Tim MazzuccaFour regional banking companies managed to report first-quarter earnings, that beat or met analyst estimates Tuesday, despite some evidence of margin, pressure., Both Fifth Third Bancorp and National City Corp. reported net income, declines. KeyCorp reported a 9.5% profit increase, citing double-digit, growth, in its community banking unit, while M&T Bank Corp. reported a 7% profit, increase., George A. Schaefer Jr., the president and CEO of Fifth Third, told, analysts to stay tuned for news on the $104.7 billion-asset company's, search, for a chief financial officer., I know some of you may have questions on our progress on our CFO search., I can say that we have met with a number of talented people over the last, months and believe that we will have an announcement to make very soon, Schaefer said in a conference call., His company has been searching for someone to succeed R. Mark Graf since, September, when he announced plans to step down., However, Fifth Third's news about its net interest margin was not as good, as the news about the CFO search. The margin shrank 3 basis points from the, fourth quarter and 30 basis points from a year earlier, to 3.08%, despite, earlier predictions of stability as a result of a balance-sheet reshuffling, and a reorganization of its retail banking operations last year., Kevin Kabat, the head of Fifth Third's retail banking business, said, a few additional, basis, though Mr. Schaefer said that, During the first quarter Fifth Third's deposits rose 6% from a year, earlier and 9% from the fourth quarter, to $69 billion, though transaction, deposits fell from the fourth quarter., Mr. Kabat said the new retail strategy lets his company be less, We do, recognize, we have to be competitive from a pricing standpoint, but we don't lead, with a, Net interest income fell 5% from a year earlier, to $718 million, though, noninterest income rose 2%, to $617 million., Edward Najarian, a Merrill Lynch & Co. analyst, wrote in a research note, Its profits fell 10% from a year earlier, to $363 million, or 65 cents a, share, which beat the average analyst estimate by a penny, according to, Thomson Financial., KEYCORP, Commercial loan growth remained strong, and credit quality remained, clean. Mr. Kabat said those facts suggest the problems in the midwestern, automobile industry have not hurt customers' ability to repay loans. Loan, Fifth Third's loan book rose 10% from a year ago and 9% from the fourth, quarter, to $71.4 billion, the growth was driven mainly by commercial, loans., Community banking operations dominated the $93.4 billion-asset Cleveland, company's first-quarter results., Net income rose 9.5% from a year earlier, to $289 million, or 69 cents a, share, which met the average analyst estimate., Income from the community banking arm increased 21.3% from a year, earlier, to $108 million, because noninterest expenses fell 9.5%. The, community bank contributed 37% of the company's overall profits, or 3, percentage points more than it did a year earlier., A 6-basis-point expansion in KeyCorp's margin from the fourth quarter, 3.77%, also boosted profits, CFO Jeffrey B. Weeden said on a conference, call, with analysts Tuesday., However, he also said 3 basis points of that expansion came from loan, securitizations that will not be repeated future quarters., Commercial real estate loans increased 1.2% from the fourth quarter and, 11% from a year earlier, to $15.7 billion. Within that portfolio, construction loans rose 28.6% from a year earlier. However, Mr. Weeden said, that late last year KeyCorp decided to pull back from certain commercial, real, estate-related financing, real estate lending had no bearing on the decision., Core deposits increased 4% from a year earlier, to $59.4 billion, total loans rose 4.6%, to $67 billion., Chairman and chief executive Henry L. Meyer 3d alluded to his makeover of, the executive ranks in recent years. During the conference call he noted, that, once Beth Mooney joins KeyCorp from AmSouth Bancorp of Birmingham, Ala., May 1, four of the five people who report directly to him will have joined, the company in the last five years., KeyCorp announced April 4 that it had hired Ms. Mooney, the chief, financial officer of AmSouth, to be the vice chairwoman in charge of the, community banking unit., Mr. Meyer said., NATIONAL CITY, The Cleveland company cited a continued mortgage slowdown and said it, will focus on its retail banking operations., The outlook for mortgages is for lower volumes and no real growth for, chairman and chief executive David A. Daberko said, We've been emphasizing corporate and retail here,, Net income from mortgages dropped 62% from the fourth quarter and 77%, from the first quarter of last year, to $56 million. National City, recorded a, $101 million loss in hedging on mortgage servicing rights. As a result, fee income fell 4% from a year earlier, to $644 million., Average core deposits were flat compared with the fourth quarter and the, Our general impression ... is, that the Midwest and the New York City area are probably the toughest, deposit, Mr. Daberko said., His $140.2 billion-asset company reported Tuesday that net income fell, 5.2% from the first quarter of last year, to $459 million, or 74 cents a, share, which beat analyst estimates by 2 cents, according to Thomson, Financial., Total loans fell 4.5% from the fourth quarter and were flat from a year, earlier, at $102.3 billion. Commercial loans were flat from the fourth, quarter but rose 5.6% from a year earlier, to $43.6 billion., Net interest income was flat from the fourth quarter but rose 2% from a, year earlier, to $1.2 billion. National City's net interest margin, expanded 4, basis points from the fourth quarter but narrowed 10 basis points from the, first quarter of last year, to 4.01%., The $55.4 billion-asset Buffalo company's net interest margin increased 4, basis points from the fourth quarter but shrank 10 basis points from a year, earlier, to 3.73%., M&T said its profits for the first quarter rose 7% from a year earlier, to $203 million, or $1.77 a share, which beat the average analyst estimate, 3 cents, according to Thomson Financial., Robert G. Wilmers, M&T's chairman, said during the company's annual, reflect continued excellent, credit, quality, as well as our ongoing efforts to keep expense growth under, Its costs rose 4% from a year earlier and 3.5% from the fourth quarter, to $382 million, in part because of an accounting change related to stock, option expenses and the amortization of deposits., Deposits rose 5% from a year earlier and 2.9% from the first quarter, $38.2 billion. Loans grew 5% from a year earlier and 1.3% from the, fourth-quarter, to $40.9 billion, that growth was driven by commercial loan, demand.
Published in American Banker (2006)
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by Matt AckermannBank of America Corp. says it has gathered a wealth of assets by, assembling teams of bankers and investment advisers to target the mass, affluent., Pat Phillips, the president of Bank of America's premier banking and, investments division, said that working in teams has enabled the group to, develop relationships with customers that have $100, 000 to $3 million of, investable assets, increase the assets these people invest with the bank, help improve cross-selling to them., Typically these clients fall just below the radar of our private banking, Frequently, their transactional service needs were being, handled, but their more sophisticated needs were not, and we were, vulnerable, Since the Charlotte banking company increased its focus on this group, balances in the division's accounts -- including deposits, loans, brokerage assets -- have grown from $98 billion, in *2002-, to more than $250, billion as of this March 31., Mr. Phillips said,, since the teams began to be formed in January 2004 to focus on the mass, We are demonstrating that we are meeting their needs, and they, giving us business that otherwise they wouldn't have given us, From Aug. 31 through Feb. 8, Bank of America has expanded its force of, bankers and advisers for the mass affluent by 10%, to 4, 000. It has five, geographical divisions covering its national footprint. The company will, We have hired, externally and promoted internally, and we will continue to do that to grow, Analysts said most private banks are so focused on ultra-wealthy, customers -- those with more than $5 million of investable assets -- that, clients with $1 million to $3 million to invest can be lost in the shuffle., Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia, said, large banking companies like JPMorgan Chase & Co., Wachovia Corp., Bank of, New York Co. Inc. also have groups that target the mass affluent., Private banking customers need at least $1 million of investable assets, Mr. Phillips said, but this does not necessarily mean they will get the, right, level of service., Investors with $1 million to $3 million in investable assets are, sometimes better served by a team of a banker and an adviser that typically, It isn't that our private, bank doesn't value these customers, but we wanted to offer a better service, Spectrem Group, a Chicago research firm, has said that banks still trail, most financial services companies in managing wealth for the mass, affluent. A, 2005 Spectrem survey said that bankers were considered the primary adviser, just 7% of the mass-affluent investors queried, whereas full-service, brokers, were the primary advisers for 23%, investment advisers, 21%, independent, financial planners, 16%, investment managers, 9%, and discount, online, brokers, 8%., Mr. Phillips said he knows competition is getting stiffer as more banks, reach out to the mass affluent -- a segment that banks typically have not, pursued -- but that an opportunity is there. Bank of America has, relationships with 44% of the 18 million affluent households in its, geographic footprint, and 50% more premier banking households have, brokerage relationships than a year ago.
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by Howard J. Stock, Bank Investment ConsultantMerrill Lynch & Co. advisers Scott Macolino and Roger Shaffer had it all, -- a partnership serving a book full of ultra-wealthy investors with a, minimum account size of $5 million., But it wasn't enough: Their clients had needs the wire house could not, meet. So in *2003-, after spending a decade building their book at Merrill, they moved with their four assistants to the Alexander Key division of the, investment unit at SunTrust Banks Inc. in Atlanta., The two advisers say they had differentiated themselves at Merrill's, Atlanta office with a technique that is now commonplace but was fresh in, *1993-, It was a, first-move, We also, embraced, financial planning, which was also new to the business, and we were, annuitizing our business from the start by charging a flat fee for, They soon found that they closed more deals when they met people as a, team, another key to their early success., Mr. Macolino and Mr. Shaffer brought to SunTrust the lion's share of, their book, which currently stands at more than $650 million. They work, with, about 140 families, whose average net worth is between $7 million and $8, million. Mr. Shaffer said their clients' primary goals are capital, preservation, tax efficiency, legacy planning, and cash flow -- they have, already hit the jackpot, so to speak., We can honestly say we're different -- we offer true open architecture, and we can use products from all sides of the bank, including private, placement deals that would be too small for other firms to bother with, said, Mr. Macolino., Many of their clients are corporate executives with highly concentrated, stock positions in their companies., Over time, Mr. Macolino and Mr. Shaffer helped these clients diversify, their portfolios to reduce risk, then helped them create cash-flow, strategies. This leads to broader financial planning, estate planning, asset, When we meet with a new client, we, learn about kids, wills, and trusts, and we discuss high-level estate, We take a long time on this, we've always, taken, Mr. Macolino said., The team works whenever possible with a client's attorneys and, accountants, though they say these advisers have thus far made poor, referral, sources. Most new business comes from the team's clients through word of, mouth, they said., Doing business with the family members of wealthy clients can produce, growth opportunities as well. Mr. Macolino and Mr. Shaffer spend a lot of, time in family meetings, which can make it more probable that the heirs, will, maintain their accounts with the partners when the original client dies., We always want to grow new business and to have something in the, pipeline, but we don't want to lose the families we meet with, Macolino, Meeting with clients' children is very important to instill in them, Since these meetings can get emotional, the, partners usually hold them in their office., Though one partner usually takes the lead in any client relationship, two together meet with clients and their families. This presents a united, front and, equally binding, shows that the two bring complementary, philosophies to the table., They use Monte Carlo, probability-based planning software called, FinanceWare to put together plans based on likely market performance, clients' risk tolerance, We tried putting, together portfolios based on what the chief investment strategist told us, Mr. Shaffer said., so we don't try to, predict the next hot asset class, Of course, managing a high-net-worth business while insisting on joint, meetings would be too much for the two men to handle alone. They credit, their, four associates -- administrator Rhonda Lamb, Rebecca Childress, who, specializes in mortgages and securities-based lending, Kimberley Kane, who, does probability-based planning, trust work, and insurance, and Perry, Newman,, who handles derivatives transactions and ensures the accuracy of data the, firm, buys -- for their success., Though SunTrust pays the assistants' salaries, Mr. Macolino and Mr., Shaffer augment their compensation from asset management fees after, SunTrust, and the portfolio managers have taken their cut., Everyday customer service is managed by the whole team with Mr. Macolino, and Mr. Shaffer calling the shots and making sure client queries are, answered, quickly. Because their business model is based on capital preservation, calls rarely have to do with new investment ideas, a service the team does, not provide., We won't double or triple their money, so we interview them as they, We can't guarantee our clients returns, 12% or 15% per year, but we can help them meet their objectives and tax, issues. If that's what they're looking for, To reward their best clients, they have found that golfing trips with, four or five people work well, both in terms of client satisfaction and, referral flow. Larger events do not work as well. Even the seminars have, When everyone started doing them, their effectiveness wore out, Macolino said., The team has not lost a customer since moving to SunTrust. Mr. Macolino, of clients tied to several, subsets, Advisers shouldn't just focus on investments but on loans and, These are very important parts of the, relationship, and when a client is this involved with an institution, it's, Though the partners refer business to other departments in the bank, only, an occasional referral flows back to them. As former wire house brokers, they, are used to generating business externally. However, access to an, increasingly diverse product base throughout the bank, they said, crucial, to gaining business., Business is heading more toward the alternative side, private, We'll, successful at this, others will be left behind. As far as our team goes,, we'll soon need to add more folks, maybe a junior partner, although we, won't, Mr. Stock is the managing editor of Bank Investment Consultant, SourceMedia publication where a longer version of this article appeared in, the April issue.
Published in American Banker (2006)
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