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by Todd DavenportConcerns about creeping costs have become acute as compressed margins and, weakening credit have complicated prospects for revenue growth., Still, the nation's largest banking companies are accepting a higher, occupancy expense as a logical consequence of investing in their retail, business., The occupancy expense rose at each of the country's 13 largest retail, banking companies during the fourth quarter, with an aggregate increase of, 7.3% from the fourth quarter of 2004. Opening branches, refurbishing old, ones, rising real estate prices, and even rising energy costs contributed, the increase., The decline in large-corporate borrowing over the past few years may, ultimately prove to be cyclical, but many companies have interpreted it as, structural shift. They have targeted consumer businesses to compensate for, the decline, and they are expanding and improving their branch networks at, substantial cost to accommodate that strategy., It's a different strategy than the one that drove bank mergers and, acquisitions not so long ago, when adding bulk to the balance sheet was, generally more important than adding depth to the branch network. Merging, companies slapped franchises together and closed branches in an attempt to, engineer profits. Skimping on branches made sense at the dawn of Internet, banking, when experts assumed the irrelevance of bricks and mortar was, merely, a question of time., Many of those mergers resulted in botched integrations, too-sharp costs, cuts, and deposit attrition. Investors, weary of expensive deals that, rarely, met expectations, pushed down the stocks of companies considered likely, acquirers. Saddled with cheap stock, the companies lost the currency to do, deals., But that hardly dimmed banking executives' visions of empire. They just, decided to build rather than buy., De novo branching is a much more widely accepted practice than it was, just four or five years ago, when banks were bragging about reducing the, number of branches and increasing the number of eyeballs on their Web, said Kevin Fitzsimmons, U.S. commercial banks added 2, 339 domestic branches in the year that, ended June 30, the branch total increased 3%, to 78, according to the, Federal Deposit Insurance Corp., Building may be cheaper than buying, but it carries costs of its own. And, given investors' focus on increasing revenue faster than costs, banking, companies must convince them that the potential justifies the additional, expense., The occupancy expense rose 23% at Fifth Third Bancorp compared to the, fourth quarter of *2004-, which it attributed largely to de novo branching., Chief executive George Schaefer said during a Jan. 17 conference call, with analysts that the $105 billion-asset Cincinnati company added 15, branches in the fourth quarter. That meant more salary costs and operating, costs., We could have chosen not to do any of these things, and that would have, brought that expense level down much more similar to what the other people, We would have looked much better on the operating, leverage side, but I think over all for the long term, we have to continue, PNC Financial Services Group Inc. also reported a steep increase in its, occupancy expense: 28% from the fourth quarter of 2004., To create organic growth, we continue to expand and refurbish our branch, chief executive James Rohr said in a Jan. 19 conference call., The $92 billion-asset Pittsburgh banking company's acquisition of Riggs, National Corp. in May added expenses, as well., driven primarily by branches, service centers,, and campuses -- anything where you've got a building, whether rented or, said Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co., Inc., Rising real estate costs also figure into the equation. Banking companies, have generally shown the most enthusiasm for branch-building in markets, with, the population and income growth to support them. Retail space in those, markets comes at a price., If you're building a new branch in one of those ridiculously expense, markets, the northeast or Washington, D.C., the costs certainly have gone, said Nancy Bush, an analyst at NAB Research LLC., Banking companies are measuring their commitment to consumers not just by, the number of branches, but by their quality., De novo branching gets a lot of attention these days, but what some, banks are doing is not necessarily opening a ton of branches, but going, back, Mr. Fitzsimmons said., He mentioned Synovus Financial Corp., which said in June that it would, spend about $30 million to overhaul its 281 branches. The $28 billion-asset, Columbus, company said its fourth-quarter occupancy and equipment, expenses rose 22% from a year earlier, to $94 million., The contribution of leased branches to occupancy expenses is obvious, the costs of ownership, including utilities and taxes, end up there, well., Some of the increase in the fourth quarter is due to the higher energy, said Peter Winter, an analyst at Bank of Montreal's Harris Nesbitt, Corp., One remarkable element of branching strategies is that the big banking, companies have nonetheless been largely successful at keeping overall, expense, growth in check. The 13 largest companies reported an aggregate noninterest, expense increase of just 0.6% for the fourth quarter., Nonetheless, there were scary indicators, not the least of which was the, $6 billion of provisions those companies made in the fourth quarter. Though, many of them chalked up the higher costs to changes in bankruptcy laws, aggregate increase was a 43% jump from the fourth quarter of 2004., And though margin contraction may not get a lot worse, executives, suggested during fourth-quarter earnings conference calls that the problem, likely to persist., Mr. Townsend said weak revenue growth and thin margins have led some, observers to question the wisdom of branch-expansion strategies., Some companies are pulling back. Webster Financial Corp. of Waterbury, Conn., said last week that it has decided to slow down the pace of, branch-building this year. (See related story on page 1.) The $18, billion-asset company, which had expected to open nine branches, expects, to open six., We are very bullish on our de novo program, but we recognize the, environment we're operating in requires us to manage the expenses more, said James C. Smith, Webster's chairman and, chief executive., Mr. Townsend said whether adding branches -- and accepting the attendant, increase in the occupancy expense -- is a strategy that works will vary, from, company to company. He pointed out that there are plenty of mediocre, banking, companies, and that the consequences of failure are serious., There is nothing more expensive than a failed de novo strategy, said.
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by Laurie KulikowskiThree months after becoming Mellon Financial Corp.'s chief executive, Robert P. Kelly made his first organizational change at the Pittsburgh, company, a restructuring of its asset servicing business., The restructuring, announced Tuesday, combined Mellon's global securities, services and investment manager solutions units to enhance cross-selling., did not scream radical departure. If anything, it is a continuation of a, makeover initiated by his predecessor, Martin G. McGuinn., The Pittsburgh company said the changes took effect Monday., It combined its mutual fund and institutional asset management businesses, under a single unit in January, a month before Mr. McGuinn resigned after, months of investor pressure to shed either its asset servicing or, management, units to unlock shareholder value., A spokesman for Mellon said Mr. Kelly, the former chief financial officer, of Wachovia Corp., was unavailable for comment Tuesday, but James P., Palermo,, one of the executives promoted in Monday's reorganization, said it shows, Kelly's commitment to both asset servicing and asset management., We're very clear to state, and Bob is very clear to state, the emphasis, that we have on our asset servicing and asset management businesses ... and, how we see just tremendous synergies and opportunities for the two groups, Mr. Palermo, who was the president of Mellon's global securities services, and its New England operations, now heads the asset servicing business. He, continues to report to senior vice chairman Steven G. Elliott, the company, said., John L. Klinck Jr., who was the president of Mellon's investment manager, solutions, assumed a new role -- chief operating officer of the asset, servicing business. Mr. Klinck is in charge of global operations and, product, management and design for the business, the company said. He now reports to, Mr. Palermo instead of Mr. Elliott., Mellon, with $4.1 trillion of assets under administration, offers, institutional trust and custody services such as securities lending, foreign, exchange, investment management back-office outsourcing, performance, measurement, and fund administration, among other things, through units, that, were combined in the asset servicing business., is all about continuing to emphasize our asset, management, asset servicing businesses and to deliver it in the most, effective, Mr. Palermo said in an interview Tuesday., When Mellon issued its first-quarter earnings report last month, appraisal of its, strategy and tactics. The company aims to improve performance in all of its, business lines. First-quarter revenue from asset servicing rose 29% from a, year earlier, to $313 million, or 25% of the company's total., Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners, said the changes improve accountability as the company continues to, become more efficient, but they also suggest that Mr. Kelly is supportive, the changes that his predecessor began., It's a ratification that the asset servicing is on the right track and, Mr. Fitzgibbon said., I think that some people had thought when [Mr. Kelly] came to the, company that he would bring in his own people. These announcements would, seem
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by Tim MazzuccaHow did Marshall & Ilsley Corp. manage to accomplish in a quick six weeks, something that its competitors seem to need much more time to do?, On Monday the $47.3 billion-asset Milwaukee company said it had reached, into the investment banking world to fill the job currently being done by, interim chief financial officer., Gregory A. Smith, will join M&I next month. He was a Credit Suisse, Group managing director, specializing in Midwest financial institutions, a longtime adviser to M&I., Frankly, we are a bit surprised at the rapidity with which M&I has been, Anthony R. Davis, an analyst at, BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., wrote in a research note, issued Monday., The quick turnaround in filling the CFO job, as well as the treasurer job, speaks volumes about M&I's reputation, market presence, Mr. Davis wrote., Gordon Grand 3d, who heads the global financial officers practice at, Russell Reynolds Associates Inc. in New York, said in an interview Monday, that finding a CFO is difficult for a big banking company, because, consolidation has reduced the candidate pool., M&I's search was roughly six months faster than that of Fifth Third, Bancorp in Cleveland, which on April 20 named Christopher G. Marshall, Bank, of America Corp. executive, its CFO after a search that began in September., The problem is the shrinkage in the number of the actual banks you can go, You can cover them pretty quickly,, and often it's hard to find incentives to offer to make them make the, When asked if he had turned to the investment banking world because of a, lack of candidates in the commercial sector, M&I president and acting CFO, Mark F. Furlong said that Mr. Smith was the right man for the job and a, known, entity. During his tenure at Credit Suisse he had advised M&I executives, since, 1990 on a variety of matters, including raising capital and corporate, strategy., What we needed was someone with superior finance skills, but Mr. Smith, Mr. Furlong, said., In naming Mr. Marshall as its new CFO, the $105 billion-asset Fifth Third, cited his range of experience as an important factor. Mr. Marshall most, recently was an executive in B of A's global consumer and small-business, unit, but had been the Charlotte company's CFO for technology and, operations., Earlier he had been the CFO for global business services at Honeywell, International., Thomas Daniels, a consultant with the New York executive search firm, Spencer Stuart, said that in general, hiring a CFO can take a long time, because potential candidates tend to take a long time making a decision., candidate pool is very sophisticated, and by definition, they are, According to Mr. Furlong, M&I started its search with an advantage: The, company had interviewed several candidates for the job in 2004. It hired, John Presley in October 2004 from National Commerce Financial Corp. in, Memphis. Mr. Presley left M&I in late March to become a senior vice, president of strategic initiatives at Fifth Third., (Mr. Furlong would not say whether M&I had previously courted Mr. Smith, for the CFO or any other position.), In March, M&I hired Michael C. Smith, the treasurer of the consumer, finance group at American International Group in New York, as its, corporate treasurer. He succeeded Donald H. Wilson, who resigned in, January to become the CFO of Amcore Financial Inc., a $5.3 billion-asset, banking company in Rockford, Ill., Some analysts said that hiring an investment banker as its CFO will, likely help M&I forge a better relationship with Wall Street. However, Furlong said that investors should not read the hiring as a sign the, company is about to ramp up its acquisition plans., Mr. Furlong said at a, conference in Chicago sponsored by Robert W. Baird & Co. Inc., M&I has recently closed two bank acquisitions. On April 1 it acquired, Gold Banc Corp. Inc. of Leawood, Kan., and Trustcorp Financial Inc. of St., Louis for a total of about $880 million. Before that, M&I's most recent, bank, purchase was in October *2002-, when it bought Mississippi Valley Bancshares, Inc. of St. Louis for $495 million., Mr. Furlong, who was the CFO from April 2001 to October *2004-, said that, M&I would like to buy commercial banks with $1 billion to $3 billion of, assets, but the prices of potential targets have been too high., A higher priority in future dealmaking might be wealth management, Tuesday. His company's last acquisition in that area was Jan. 4, when it, bought FirstTrust Indiana Corp. of Indianapolis. (M&I did not say how much, it paid.), worked with us in a variety of strategic, Some manners were carried to a, successful conclusion, and other matters turned out to be great
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by Erick BergquistRhode Island's tough anti-predator measure may persuade lenders to stop doing business in the state, industry observers said., The Home Loan Protection Act, which was enacted July 11 and is scheduled to go into effect in December, would let borrowers rescind their loans if the law's provisions against flipping were violated., regardless of their cost., Nanci Weissgold, a partner with the law firm Kirkpatrick & Lockhart Nicholson Graham LLP in Washington, She also said the explicit assignee liability for high-cost loans would be imposed without any ceiling on damages in some cases., The anti-flipping provision requires that on all refinancings, to the borrower. Ms. Weissgold called the provision ambiguous and hard to comply with., Though certain federally chartered or Rhode Island depository institutions and their subsidiaries would be expressly exempt from the law, according to Ms. Weissgold., It is not clear how the debt ratings agencies will respond to the law., But Donald Lampe, a partner with Womble Carlyle Sandridge & Rice PLLC in Charlotte, a high degree of likelihood that the secondary market is going to have trouble with this, Lisa Tibbits, a spokeswoman for Moody's Investors Service Inc., said, We are studying the law to see how it will affect the market, Impact of Predatory Lending Laws on RMBS Securitizations, When the magnitude of potential damages is large, it may be practically impossible to protect securitization investors sufficiently to obtain an investment grade rating. Where this is the case, Neither Fitch Inc. nor Standard & Poor's Corp. returned requests for comment.
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by Tim MazzuccaCharles O. Prince's first deal as chairman was another divestiture for, Citigroup Inc., And though Citi's past line-of-business divestitures dwarf the sale of 21, branches, some analysts said they were surprised that the New York company, pulling back in a business it had spoken of expanding., said Robert Maneri, an, I was more focused, M&T Bank Corp. of Buffalo is buying the branches, nine in the Buffalo, area and 12 in the Rochester area., The deal was announced Tuesday and is scheduled to close this summer., The price was not disclosed, but a person with knowledge of the agreement, said that M&T agreed to pay a 15% premium for assets but that a total, price is, hard to calculate because of the value of the real estate involved. The, branches have $1.1 billion of deposits and $274 million of loans., I think Citigroup is in a bit of a bind in terms of needing to get, in retail banking, said John McDonald, an analyst with Banc of, America, Building scale is expensive and slow, and buying scale is, Mr. Prince has said he would like to increase Citi's retail presence here, and abroad, focusing on organic growth in the United States. The company, recently put its name on 5, 500 automated teller machines in 7-Eleven Inc., stores., But he has not shut the door on U.S. retail deals, and in an early April, interview he hinted that a deal to complement its new online bank, Citibank, Direct, could make sense. (He spoke after the Federal Reserve had lifted a, yearlong ban on Citi's making significant acquisition deals.), Mr. Prince, who is also Citi's chief executive, became chairman on April, 18 when Sanford I. Weill retired., The $1.6 trillion-asset company has said it will build as many as 100, branches in the United States this year., It opened 11 in the first quarter and now has 909, including the 21 it is, selling., In a statement e-mailed to American Banker on Tuesday, after the M&T deal, was announced, Maura Markus, the president of Citibank North America, said, proceeds of the M&T deal would help pay for building branches in, higher-growth, markets., Mr. Prince said at a Feb. 1 analyst conference that Citi plans to build, branches in metropolitan markets where it has credit card and consumer, There are lots of places, where we have concentrations of existing customers that we can leverage to, For instance, Citi plans to build four branches each in Boston and, Philadelphia -- both new markets for it -- this year. It also plans to add, branches in existing markets, including New Jersey, Miami, New York, Dallas,, and Washington, D.C., nearest retail, Mr. Prince said during, I'm not sure it's good enough to ask somebody to, Mr. McDonald said he is skeptical about what four branches in Boston, does for a company like Citigroup in terms of brand awareness, real market, A spokesman for Citi said it does not plan to sell more branches, analysts said they do not suspect hidden motives in last week's deal., That's one thing that they've been pretty consistent with: looking where, they have assets invested and deciding whether, strategically, that's the, right place to be, getting out, and redeploying the assets pretty quickly, said Jeffery Harte, It's, at Citi., Andrew W. Dorn Jr. is the president and chief executive of the $775, to learn, that, Citi was pulling out of his market, but he understands why., Our market is tainted because it isn't a growing market, Mr. Dorn said., The thrift's holding company, Great Lakes Bancorp Inc., is scheduled to, merge today with Bay View Capital Corp. of San Francisco. The deal will, give, the thrift as much as $100 million in new capital to use for expansion, Dorn said., Greater Buffalo Savings -- the only bank or thrift of the 18 operating in, in its name -- is keeping its eye on Citi's, The Citibank branches are right next door or right across the street, The Citibank customers obviously, chose, Citibank over M&T, and now they're getting the news that they are becoming
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by Isabelle LindenmayerCo-branding is definitely the future for Barclays' U.S. credit card, business., Barclaycard US says it has no plans to market its own cards. Instead the, 2-year-old unit of Barclays PLC will continue to rely on co-branding, competing with the name most often associated with such cards, MBNA Corp., We believe that the day of the unbranded credit card is fast fading, said Richard Vague, Barclaycard's chief executive, in an extensive, interview., You have to have more than a good APR and reward program, and the most, Its latest such partner is Barnes & Noble Inc., their new card was, introduced Tuesday. Mr. Vague said a hands-on, customized approach to, partnerships will help Barclaycard score more big deals and push further, into, new markets, particularly the affluent market., Barnes & Noble is one of its best-known partners, and the deal highlights, an emerging strategy: merging retailers' loyalty programs with co-branded, cards., The level of integration between the card program and the loyalty, said Ben Brake,, Barclaycard's, There are just a handful of credit card, issuers that are in a position to be able to appreciate what the partner is, trying to do, and that it's really all about loyalty and integrating the, Applicants for the Barnes & Noble MasterCard are automatically enrolled, in the bookseller's loyalty program. Cardholders are entitled to various, perks, and their purchases rack up points toward Barnes & Noble gift cards., Barclaycard US, of Wilmington, Del., has roughly 1 million cardholders, and is constantly on the lookout for co-brand partners. In this it imitates, MBNA, long considered the market leader in co-branded and affinity cards., (Bank of America Corp. bought MNBA in January but is still issuing, co-branded, cards under the MBNA name.), Two other heavy hitters in cards, Capital One Corp. and American Express, use a very different strategy, pouring millions of dollars into, promoting their own brand names rather than relying on partners., Over the course of time we'd like to have a full, balanced portfolio of, There is a very significant middle-market, co-brand universe that is out there where you don't find everybody in the, Industry experience, speed, size, and a more personalized and segmented, approach are the keys to expanding his company's partnership portfolio, said., Because of our relative size, partners are going to get a lot more, Partners will get programs more, Mr. Vague ran the card issuer First USA before Bank One Corp. bought it, in 1997. In 2000 he founded Juniper Financial Corp., which Barclays bought, 2004 and renamed Barclaycard US this January., The unit's president, Jim Stewart, who was the president and CEO of First, USA's now-defunct WingspanBank, reiterated the advantages of being smaller, than competitors like MBNA., A lot of our competitors are very large, so we try to use that to our, We're not some huge factory that is just churning out, Mr. Brake said speed in implementing new programs has also been important, We've launched very complicated programs in record, Our ability to respond on a dime has really been, The U.K. parent company is important, Mr. Stewart said, because it, and a, In addition to landing new partners, Barclaycard wants to push deeper, into new market segments, especially the affluent. One of its first moves, that direction was through a unique co-branding partnership formed last, year, with UBS AG., Barclaycard is issuing American Express charge cards and Visa Signature, credit cards to UBS' wealth management clients. Cardholders can earn, rewards, points by spending with either card., The program was designed by Barclaycard and imitates American Express', tiered product hierarchy, in which reward levels depend on how much the, cardholder spends. The issuer plans to offer the program to other potential, partners., Mr. Brake said that Amex has been talking to several other potential, co-brand partners, and that Barclaycard hopes to be involved in other, card-issuing deals with it., The operation has been growing steadily. It now has about 900 employees, and should have more than 1, 000 by yearend, Mr. Stewart said. In January, Barclaycard US opened its first remote call center, in Colorado, and it is, building a second office building in Wilmington. It is also beefing up its, customer service representative, credit and collections, and technology, teams., But the operation has yet to turn a profit and will probably lose money, this year too, the parent company said in February. It predicted break-even, in 2007 and said it is aiming for profits of $150 million in 2008., (Barclays PLC does not say how much of its profits come from this, country, but it did say that the earnings of its worldwide credit card, business fell 25% in the fourth quarter, to about $1.2 billion.), Barclaycard US landed a major airline partnership last year, paying $480, million to win US Airways Group Inc. away from Bank of America. The, co-branded US Airways cards, which were launched in January, going, like, Mr. Stewart said., Barclaycard US also issues co-branded cards with Frontier Airlines, AirTran Airways, and Midwest Airlines. Other affinity partners include Best, Western, the Harvard Alumni Association, Orbitz, TiVo, Sinclair Oil, Gulf, Petroleum, and Century 21., Mr. Vague said Barclaycard US is ready and willing to embrace new card, technologies and plans to be issuing contactless cards for some of its, partners by yearend. It has no plans to issue debit cards, though, is looking into issuing prepaid cards for some of its partners., Nor is it likely to enter the private-label market, because, The co-branded, card could fully take the place of the private-label card in a lot of, Mr. Vague said.
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by Laurie KulikowskiA report by Keefe, Bruyette & Woods Inc. predicts that beginning next, year banking companies will cut back branch-building dramatically, particularly in high-growth markets., Weakened profitability and broad economic changes will make building, branches less attractive and could force more industry consolidation as, companies look for alternative ways to enter markets, according to the, report, released last week., in building,, Frederick Cannon, the report's author, said in an interview Thursday. As a, result of the slowdown, he expects more consolidation in Texas, Florida, Illinois, Colorado, and New York., Keefe Bruyette expects a decline in core deposit growth to be a key, driver for the slowdown., The rate of deposit growth, rather than profitability of the deposits, We expect, see an increasing value of core deposits in the current higher-rate, Mr. Cannon said in the interview that as interest rates rise and the, equity markets strengthen, consumers are being more selective about where, they put their money, and in many cases they are choosing higher-yielding, products than deposit products., We believe we see the early signs of consumer disintermediation, The report said that the housing market has cooled, and the widespread, adoption of free checking accounts and the saturation of home equity loans, have peaked. For the first time since statistics became available in the, declined, from its, peak of about 3, 000 in 2002 and 2003 to just over 2, 900 last year, report, said., Mr. Cannon said Washington Mutual Inc. could scale back its plans to, build branches., The $343 billion-asset Seattle thrift company's branch-building strategy, Wamu, which had 2, 140 retail banking centers at yearend, said it opened, 250 stores in 2004 and 210 stores last year. Last week it said it is, committed to expanding its retail banking operation and plans to open 150, 200 branches this year., However, in an e-mailed response to questions, a spokeswoman for Wamu, As we said earlier this year, we don't want to be bound by a hard, target, but will retain the flexibility to adjust to market conditions and, Wamu said that 44% of its fourth-quarter retail banking revenue came from, deposits, 42% from fee income, and 13% from home equity loans., It is one of several banking companies to announce plans to get into, direct banking, which would give them another channel to gather deposits., Wamu began pilot testing direct banking in four regions last year., Some analysts have speculated that Wachovia Corp. could also scale back, its branch-opening plans, especially in New York, where it is a relatively, recent entrant. The Charlotte company has been rumored lately to be scaling, back its plans in the market, because profits have been lower than, originally, anticipated, analysts said., Benjamin P. Jenkins 3d, Wachovia's vice chairman and the head of its, general bank, confirmed in an interview last week that his company plans to, slow down its New York-area expansion efforts by early next year. However, also said it had always planned to do so., At that point it will have about 20 branches in Manhattan and 10 on Long, giving us the coverage we, We would take a look and see where we are and build a few, next year, Mr. Jenkins said, Wachovia will be looking more at building, branches in southern California, where it acquired Westcorp of Irvine on, March 1, and where it has said it would look to add 200 branches over the, next five years., Wachovia is also focusing on branch-building in Texas and Florida., Jim Cole and Paul Davis contributed to this story.
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by David BreitkopfTRM Corp., which raised worries last month that its inability to service, its loans could put it out of business, says it has a tentative deal to, refinance them., Chief executive and president Jeffrey F. Brotman said Thursday that the, deployer of automated teller machines had signed a letter of intent with, Bank, not be significantly, now under a forbearance, He spoke during a conference call on TRM's first-quarter results., In April, its auditor, PricewaterhouseCoopers, reported in a Securities, and Exchange Commission filing that TRM's net loss in 2005 left it unable, meet its debt, and that it would probably remain so this year. That debt, could therefore be callable, and if it were called, the company might be, PricewaterhouseCoopers said., Reed A. Anderson, an analyst with Miller Johnson Steichen Kinnard, said, TRM's ability to secure financing at a rate comparable to what it is paying, there's still a high degree of cash flow to their core, business, so you don't have to be concerned today that this company is not, of Portland, Ore., reported a first-quarter net loss of $1.5, million, versus net income of $1.7 million in the same quarter last year., Gross sales fell 10%., The company retained the investment bank Allen & Co. Inc. in January to, Mr. Brotman said that TRM is, working, but that there were no developments to report., TRM got most of the merchant-owned ATMs it operates, 000 of them, November 2004 from eFunds Corp. for $150 million in cash. But by the end of, this March its total had dropped 10% from a year earlier, to 18, 321 ATMs., Transactions per month also dropped, to 17.3 million, 7% fewer than a, year earlier -- but the number of withdrawals per machine rose 3%, to 315., Mr. Brotman attributed that gain to the success of the machines his company, owned before the eFunds deal and to owning fewer that perform badly., TRM has been working harder to retain merchant customers that might be, Oftentimes it's a, technical issue, and if you solve that technical issue right away you wind, Mark A. Marostica, an analyst with Piper Jaffray & Co., wrote in a, research note published Friday that TRM's first-quarter report highlighted, the company's other line of business, the deployment of copying machines., Net sales, gross profit, and operating income were down in that business., Mr. Brotman said TRM is now raising prices to address those trends.
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by Steve BillsMetavante Corp. is trying to capture a bigger piece of the growing, business for processing transactions for health savings accounts., John M. Reynolds, who was named the president of its health-care payment, solutions division last week, says that, unlike others in the market, of health-care payment, processing:, a neutral party that serves insurance companies, care providers, and the, banks that hold patients' accounts., Mr. Reynolds said., It's also a natural place for insurance companies to play. The lines are, Metavante, the technology unit of the Milwaukee banking company Marshall, & Ilsley Corp., also said last week that it had rolled AdminiSource Corp., Carrollton, Tex., into the health-care division. Metavante acquired, AdminiSource last month but did not say how much it paid., AdminiSource is the third health-care services company Metavante has, acquired since 2003. It bought Med-i-Bank Inc. of Waltham, Mass., in July, $145 million, and in 2003 it acquired Printing for Systems Inc., a Madison, Conn., maker of cards and documents for health insurers., Frank D'Angelo, the president and chief operating officer of Metavante's, payments group, said that the health-care division already has a full suite, of products and services, but he would not rule out additional deals as the, payments market continues to evolve., There are some associated areas that we are looking at, he would not identify them., Most recently, Mr. Reynolds was a senior vice president and the business, director for health benefits services at Wells Fargo Institutional Trust, Service. He said he joined Metavante early last month because it offered, the chance to tackle a fundamental issue in health care: spiraling costs., Metavante had the opportunity to go much deeper with what we can do from, We can solve the technology issues,, Mr. D'Angelo said that Mr. Reynolds' mandate is to develop the company's, health transaction processing services without becoming a competitor to its, customers., We made a strategic decision to stay in the consumer money-movement part, My role as a, processor is to sell to all those guys. I sell to insurance companies. I, sell, Metavante does not act as a third-party administrator, which manages, But I do sell to, third-party administrators. We don't think it makes sense for us, in our, Though he did not name any competitors, that point was an apparent, reference to the Brookfield, Wis., core processor Fiserv Inc., which, acquired, the Lexington, benefits plan administrator Administrative Services, Group, Inc. in July., Several other financial companies are positioning themselves for future, roles in the nascent HSA market. Blue Cross and Blue Shield Association, said, in December that it plans to charter a bank to administer high-deductible, health plans. Such a bank could be in operation by this summer., Fidelity Investments has developed an account that it plans to offer to, its customers, and big banking companies such as Bank of America Corp., JPMorgan Chase & Co., and Wells are developing their own HSAs., Webster Financial Corp. of Waterbury, Conn., is the current market, leader, with 125, 500 accounts and $220 million of deposits as of October, according to statistics compiled for American Banker by Information, Strategies Inc. and Inside Consumer-Directed Care., The reason for all the interest is the anticipated explosion of, high-deductible health plans, which also let people put pretax earnings in, HSAs. Financial companies began offering the accounts in *2004-, and demand, them is beginning to take off now., The Boston research and consulting firm Celent Communications LLC, predicted in September that 15 million Americans would be covered by, HSA-linked plans by *2010-, and more than 30 million would be covered by, 2015., said Octavio Marenzi, Celent's, managing director. He predicted that consumers would put money into deposit, accounts that they control rather than continuing to pay high insurance, the banks are going to gain, to the detriment of, Metavante's health-care division says it has more than 120 financial, institutions as customers, including one of the nation's largest banks, (which, it would not name). It says 17, 000 employers are using its MBI Benefits, debit, card for their employees, and nearly 1.5 million of the cards have been, issued., Last month Metavante announced that Cigna Corp. would use the card to, access their flexible spending accounts, a different form of tax-advantaged, health account., Mr. Reynolds said small and midsize banks are a natural market for, Metavante, which provides core processing services to many such banks., we have a very strong opportunity now to market these same, For speed to market,, they, Other insurers, like Cigna, will likely see the value of offering, card like MBI Benefits, which can used with, flexible spending, and other types of accounts, such as child-care and, The card is going to be a key enabler to affirming health-care, Insurance companies are very important, clients, for Metavante, as well. We think that is a key competitive advantage that
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by Joe AdlerFor J.J. Singh, the industrial loan company debate is less about Wal-Mart, Stores Inc. than about banking services for truck drivers., The chances that his Utah ILC, Transportation Alliance Bank, can open, full-fledged branches at truck stops across the country are less likely now, that a handful of states are mulling bans on ILC branching., are on the road from Sunday to Saturday, and the truck, said Mr. Singh, the president of the, $341 million-asset industrial bank, which now provides automated teller, machine and computer banking at 180 Flying J travel plazas in the United, Mr. Singh's concerns echo those of much of Utah's booming ILC industry, which has nearly quintupled in assets in the last six years but now finds, itself in an unenviable spotlight., ILC executives say their industry is being misunderstood in the furor, caused by Wal-Mart's application., can't point to any regulation problems or an unhealthy, said Phillip Ware, the president of the $69 million-asset Celtic, Bank, a Salt Lake City ILC specializing in construction and small-business, loans., What's motivating all of this is, either you love or you hate Wal-Mart, Opposition to Wal-Mart's application has amplified the years-long, question of whether ILCs -- especially those owned by commercial firms --, sufficiently regulated. The institutions now are supervised by agencies in, seven states that offer the charter, as well as the Federal Deposit, Insurance, Corp., Wal-Mart's application has been pending at the FDIC since July., Responding to pressure from the retailer's opponents in Congress, agency, is scheduled to hold the first of two public hearings on the application, Monday. But most experts agree the FDIC will eventually approve it. For one, thing, Wal-Mart has scaled back its ambitions from retail banking to merely, processing payments. For another, rivals such as Target Corp. already have, won government approval to operate an ILC., In addition to the branching bans being mulled in several states, ideas, floated in Washington for tightening the grip on ILCs include subjecting, their parent companies to Federal Reserve Board oversight and preventing, branching by ILCs owned by companies with 85% of their assets in, commercial,, rather than financial, activities., The most stringent proposal for a regulatory overhaul has come from Rep., James Leach. The Iowa Republican introduced a bill in September that would, force ILC parents to become financial holding companies under Fed, supervision, and give up any commercial activities., The question becomes: do I keep making BMW's, or do I keep this little, said Doug Foxley, the director of the Utah Association of Financial, Services, referring to one of the many automakers that owns ILCs in the, state., Rep. Leach's bill has not made much headway, but it is backed by Fed, Chairman Ben Bernanke and former Chairman Alan Greenspan. And it has, sparked, other policy proposals. One being quietly pushed by the nation's largest, banks, which are concerned about an uneven regulatory playing field, would, give the Fed oversight of commercial parents while allowing them to keep, their ILCs., But Mr. Ware, who formerly worked with Morgan Stanley's industrial bank, known as Morgan Stanley Bank, said such an outcome would be tough to, stomach, even for the financially owned ILCs., would not want the Fed dealing with their parent, company, not because they have anything to hide, but the Fed could come in, The proposed clampdown presents the banks -- many of which are small, niche operations -- with few options. The ILC is the last legal option for, commercial companies to do banking., George Sutton, the former Utah banking commissioner who now represents, industrial banks like Target's, said car companies, many of which use ILCs, for financing services, could convert to finance companies., These companies can do that business one way or another, question is do they do it with a bank or go to the less efficient option of, ILCs owned by financial companies could adopt a bank or thrift charter., Gerry Smith, the president of the $7 million-asset WebBank, which is, owned by a hedge fund and specializes in small-business lending, said he, the Office of the Comptroller of the Currency., Mr. Ware's bank is owned by a shell parent known as Celtic Investments., If I could not be an industrial bank, I'd have a commercial bank charter, If I were a state-chartered nonmember bank, for example, I'd be, Fifteen examiners will begin a two-week exam of his bank April 17, said., The FDIC and the state -- they're tough. If you don't get over the bar, Of the seven states with ILCs, Utah has been the most successful by far, in attracting institutions., Since 1994 assets in Utah industrial banks have grown from $1.8 billion, to over $115 billion, according to the latest figures from the Utah, Department of Financial Institutions. The Fed estimates it is a $140, billion, industry., Utah banks operating under other charters hold just $4.4 billion of, assets, and state-chartered thrifts have just under $500 million, according, to the state's figures., Thirteen of Utah's 33 industrial banks are owned by commercial firms. The, vast majority of the assets are controlled by financial firms. The state's, largest industrial bank, Merrill Lynch Bank USA, has more than half of the, industry's assets alone, with $60 billion, and is one of just two Utah, ILCs, with branches -- one each in New York and New Jersey., Mr. Sutton said., not going to withstand a legal, challenge, Like many other ILC executives, Mr. Singh, who sees out-of-state, branching as a natural progression for Transportation Alliance, says he is, neutral about Wal-Mart's application. But with the retailer so visible in, debate, the benefits that ILCs provide consumers are being missed, You're not, going to lend to an industry that you don't know very well, and banks in
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by Todd DavenportGiven the frequent reference to operating leverage during discussions of, banks' financial performance, it's natural to assume that there is some, common definition., Only there isn't. With the confounding state of banks' financial, reporting these days, just getting agreement on earnings per share is, challenge enough. Common agreement on a term that attempts a broad, interpretation of revenues and expenses doesn't stand a chance., Companies can use financial leverage to make sure their equity is, achieving the best possible returns, and in good times can use credit, leverage to boost results. But operating leverage is a measure of whether a, company is getting good value for its costs. Positive operating leverage, which revenue growth outstrips expense growth, is a virtual guarantee of, earnings growth, negative operating leverage, if persistent, virtually, guarantees the absence of profit., It's a popular topic, said Gerard Cassidy, an analyst at RBC Capital, It seems that every year there's a new focus in banking, right, Its currency is an indication of the middling prospects for bank, earnings. When times are good, talking about controlling expenses is, shouting, into the wind. And when times are bad, the earnings killer is always, credit,, not expense., For now, banks are in between. The industry has enjoyed a strong run over, the past couple of years, but earnings prospects are dimming in the face of, compressed margins from a flat yield curve and tough competition. As, concerns, about top-line growth mount, operating leverage has become a popular, indicator, of a bank's ability to deliver good results in difficult conditions., When revenue is growing strongly you don't have to focus on it, said, But when revenue isn't easy, come by, it's the expense side you control where you highlight the, flexibility, Operating leverage has long been a standard metric for fee-based banks, specializing in trust and custodial services, where economies of scale are, far more evident and easier to model than in traditional banking., But its use is spreading. Of the nation's 10 largest banks, only JPMorgan, Chase and BB&T did not discuss operating leverage during recent conference, calls and investor presentations., is something that is a clear focus for the executive, management team and driven all way through the organization, Mark Chancy,, SunTrust Banks' chief financial officer, told investors during a Jan. 31, presentation. He proved the point by using the term nine times, discussed, at length the Atlanta company's targets for it., Few conversations about operating leverage are short. Measuring it is, conceptually simple, but practically maddening., The figure is meaningful only if it accounts for items that form a, reasonable basis for estimating a company's future performance. That, presents, a dilemma very similar to determining operating earnings -- analysts, frequently can't agree which income and expense items are properly, considered, operating., Revenue determinations are messy enough. Most analysts add, taxable-equivalent net interest income (before credit provisions) and fee, income. They generally agree that one-time gains from asset sales --, business, units and branches, for instance -- should be subtracted., Some analysts -- but not all -- also adjust for gains and losses from the, securities portfolio. Others adjust for gains or losses on loan sales. The, question of how to handle venture-capital and private-equity gains is, equally, vexing, and again, not answered the same way consistently. Given its, volatility, there are analysts who net out trading income, and even, mortgage, banking results., In short, any revenue item that can't be reasonably predicted or modeled, is liable to be removed from the calculation., The expense side of the equation is also troubling. Analysts generally, subtract amortization of deposit intangibles and merger costs from, expenses., What about amortization of mortgage servicing rights? Debt prepayment, penalties? Charges from balance-sheet restructurings, or other items, in nature by the banks that take them, but, suspiciously like operating costs to disinterested observers?, There's also little agreement as to the appropriate periods of, comparison. Some analysts compare sequential quarters, arguing that banking, isn't seasonal like other industries. Others say a particular quarter, should, only be compared against the year-earlier quarter, noting that some banks, record specific gains or expenses in the same quarter every year, and that, the longer intervening period is a better baseline., Still others maintain that quarter-to-quarter comparisons aren't valid, and that annual assessments -- or even comparisons over several years --, the only way to come to appropriate conclusions., Analysts acknowledge these are subjective decisions, calculations of, operating leverage are rarely the same., rough estimates, only two of the nation's 13 largest retail banks --, Wells Fargo and PNC -- achieved positive operating leverage in the fourth, quarter compared with the third quarter. (JPMorgan Chase & Co. could argue, did as well, the company's revenues declined, but expenses dropped more.), A quarter in which a company claims a series of unusual items presents a, particular challenge for calculating operating leverage. Citi's fourth, quarter is by some estimations the zenith of inscrutability., Three analysts asked about operating leverage during Citigroup's Jan. 20, conference call. One of them, Diane Merdian of Keefe, Bruyette & Woods, to attempt to strip away the, special items in Citi's results., Sallie Krawcheck, Citi's chief financial officer, acknowledged that any, Industry analysts have traditionally used the efficiency ratio, operating costs divided by operating revenues, to measure cost discipline, but operating leverage offers some nuances that the efficiency ratio cannot, capture., The efficiency ratio is a report card on where you are from a snapshot, said Anthony Davis, an analyst at Ryan, Beck & Co. Because it, operating leverage is more dynamic. You are, looking at the most recent quarter's rate of growth in revenues and, expenses,, and that's an indicator of the progress you're making in improving the, Charles Peabody of Portales Partners LLC makes a second distinction., Operating leverage is a worthwhile indicator for all banks, while the, efficiency ratio isn't a particularly helpful point of comparison for banks, with different business models., If you have a strictly commercial-oriented bank, you should be able to, produce an efficiency ratio in the 40%-plus level, but if you have a heavy, retail, branch-banking franchise, it is going to be tough to get into the, trust banks, retail banks, corporate, banks,, investment banks. Organizations have developed niche expertise, and that's, people are now looking at operating leverage rather than efficiency, Bankers and analysts alike said the current fascination with operating, leverage does have its shortcomings., Jeff Davis of FTN Midwest Research said interest rates can distort the, measure. Because it incorporates net interest income, wide spreads produced, solely by the right yield curve can push revenue higher and overstate, operating leverage, understate it., Ms. Merdian appreciates the value of operating leverage, but said relying, too heavily on it can dissuade companies from making necessary investments., If a company is efficient, it's harder and harder to use operating, We've seen companies in the, past doing this -- repeatedly. They push too hard on the leverage and not
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by Luke Mullinscommunity development bank in Washington that has run afoul of, regulatory requirements has brought in an industry veteran and Washington, mainstay to turn it around., The $126 million-asset City First Bank of D.C., which specializes in, affordable housing, small businesses, and nonprofit organizations, said, Feb., 9 that it had hired Edward E. Furash, as its chief executive officer at, the end of December., In a Feb. 6 agreement with the Office of the Comptroller of the Currency, the bank undertook to address a number of operational deficiencies. Mr., Furash would not discuss the agreement in detail but said the OCC, identified, problems with Bank Secrecy Act compliance, information security, credit, administration, and asset and liability management., In his nearly 50 years in the industry, Mr. Furash has worked at numerous, banks, founded two consulting companies specializing in banking, taught at, Harvard Business School and the Wharton School of Business., He led an investment group that bought the $72 million-asset Treasury, Bank of Washington in 2000. He moved it to Alexandria, and sold it to, Countrywide Financial Corp. in 2001. Under Countrywide he was Treasury, Bank's, chairman until *2004-, when he left it had nearly $16 billion of assets., said Chuck Muckenfuss, a lawyer at Gibson,, Dunn & Crutcher LLP, a former senior deputy comptroller at the OCC, and a, Ed will get the nuts and bolts straight and, create, a platform that makes ... [City First] a premier community development, Mr. Furash became a City First director in 2004. Last November the board, asked him to become CEO and address its regulatory problems., The job required someone with industry experience, knowledge of the local, market, and familiarity with the bank, said Marie Mann Bibbs, a City First, director who is a senior vice president at National Cooperative Bank in, All of those things converged, and everybody was looking at, City First's assets have grown 173% since the end of 2001. It recorded a, $1.2 million loss for that year but has been profitable each year since., Last, year it earned $642,000., But Mr. Furash said that over the past five years OCC examiners have, repeatedly flagged deficiencies in its processes and procedures. He said, that, the problems resulted from an ineffective infrastructure and a lack of, updating the organization to, meet, the needs of a modern community bank and to meet all of the regulatory, Five employees left the bank after a management review, and two senior, managers were added, the bank plans to hire 10 people. Mr. Furash also, formed, task forces to address the deficiencies identified by the OCC., We believe that in the course of, The OCC will examine the bank again this spring, but compliance with the
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by Rob GarverBetween e-commerce, new payment technologies, and a credit card industry, on tenterhooks over interchange fee litigation, there are plenty of things, that could rock the world of consumer finance in the coming year., But when top financial services executives across the nation were asked, what external forces they expected to have the biggest impact on their, consumer finance business in *2006-, nearly a third pointed to the incursion, retailers and other nonfinancial companies into financial services., That was among the findings of the latest Executive Forum, American, Banker's quarterly online survey, which this time focused on consumer, finance., The survey, conducted late last year, brought responses from 462 people, including 345 at financial companies with less than $10 billion of assets, 81 from bigger ones., Asked to pick from a list of specific issues and trends facing the, industry, a plurality of these executives (28.6%) said the biggest impact, their business will come from competition by retailers and other, nonfinancial, firms., The expansion of e-commerce was the top concern for 18.4%, while 16%, cited the introduction of new payment technologies, and 7.6% said, litigation, over credit card interchange fees. Some 3% cited consolidation among credit, card issuers and 17.5% were unsure., Though community banks have noisily worried in recent months that, retailers --especially Wal-Mart, which is seeking regulatory approval of a, bank-like industrial loan company charter -- will drive them out of, business,, an even larger percentage of respondents from big financial companies, reported, concern about nonfinancial firms -- 32.1% versus 28.4%., Dave Kaytes, a managing director at the Novantas management consulting, firm in New York, said the entry of Wal-Mart and other retailers could, create, just as much trouble for large financial companies as for small ones., The latter typically emphasize service and customer relationships., Retailers would compete more directly with many large financial companies, price and convenience, Mr. Kaytes said., If all you want is a cheap transaction account that is highly convenient, for you, and you can do it while you are taking your kids shopping at, It's, not going to get 100% of the population, but it is going to get enough of a, percentage over time., Banks may keep the first-class passengers, but they are going to lose, Keith Leggett, a senior economist with the American Bankers Association, said frequent news stories inflate such worries out of proportion., They see, 'Wal-Mart' and 'ILC Charter' over and over again. That's what is taking, But Eric A. Gillett, the president of Sutton Bank in Attica, Ohio, said, that every element of his business is affected by nonfinancial competitors., We not only see it on the consumer side, we see it on the commercial side, Nonbanks are using smart marketing to siphon off banks' business, Gillette said. For example, many consumers are turning to credit cards, co-branded by major oil companies that offer cash back or discounts at the, Right now that is the apple of everybody's eye, because of the price of, So I would not be surprised to see people switch, In this winter's survey, 60.6% of the respondents said they would pursue, consumer finance opportunities more aggressively in the coming year., Sixty-five percent said that a year earlier., There was a big split by size of company, though. Only 56.2% of the, respondents from small financial companies expect such a push (down from, 63.2%) -- but 80.2% of those from the large ones do (up from 72%)., Industry observers said the divergence reflects the dedication of many, small banks to commercial lending, as well as the options available to, those, of different sizes., The consumer segment has been the business that floats the boat in, said Joe Belew, the president of the Consumer Bankers, larger banks are stressing consumer, [banking], in addition to lending they can, And in many cases, it isn't, about branches -- it's about scale of operation and trying to leverage, Asked to identify the products with the most growth opportunity, respondents as a whole flagged home equity loans (41.8%) and mortgages, (25.4%). Auto loans, credit cards, and debit cards were each mentioned by, fewer than 10%., Respondents who wrote in their answers to this question named such, diverse areas as reverse mortgages, second mortgages, microfinancing, construction loans, small-business loans, and Islamic finance., Again, though, there was a significant difference between small and large, financial companies. Twenty-six percent of the small-bank respondents but, only, 15.4% from big banks said mortgages are the most promising growth product., Mr. Gillett of Sutton Bank said that in addition to pursuing its typical, mortgage customers, his bank is drumming up new mortgage business with a, to try to generate some more, Mr. Gillett said. They will be sold on a servicing-released basis, The housing market is, said Dana Johnson,, chief economist at Comerica Inc. in Detroit, Housing prices have risen much faster than wages, and there is a large, supply of new housing, pointed out Mr. Johnson, a senior vice president., strongly suggests that housing prices are at best going to hold steady, in that kind of environment there will be fewer homes sold and built and, less, The survey hints at rapid growth of loan origination over the Internet or, phone. Asked what is the leading channel for their company, only 5.6%, said, such remote channels are now -- but 14.1% expect them to be in five years., Some of those who typed in an answer wrote that bank loan officers would, continue to play the key role in origination in their shop. Others said, referrals from real estate agents will still play that role while some, pointed to referrals from current customers., If interest rates keep climbing, as most economists expect, mortgage, refinancings will also keep declining, Mr. Johnson said., An offset will be the wave of option-ARM refis expected this year from, borrowers looking for the shelter of fixed rates in a rising rate, environment. Without such refis in prospect, fewer bankers would count on, mortgages for growth, Mr. Johnson said., But that doesn't mean that people won't still want to take equity out of, and home equity loans will be the natural way for, them, Mr. Belew pointed out that smaller institutions look at mortgage lending, very differently than big ones do., The mortgage market, nationally, has consolidated into a dozen or less, If you are a top-20 or top-30 bank but, you haven't bought a mortgage company or specialized in mortgages ... you, probably don't see that as a productive way to go head to head with, Countrywide or Wells., Conversely, a small or midcap bank might think that they can do well in, mortgage, lending, Mr. Below said., Mr. Kaytes agreed., Despite the falloff in refinancing in the past year, steady, of between $600 and $800 billion, annually,, They, believe that they have as good if not better market position to get that, business as anybody. Strong correspondent networks, good local position are, all good reasons why they might have a good shot -- maybe even an, advantaged, And Mr. Belew spoke of another reason for community banks' reluctance to, give up on the mortgage market: cross-selling. For banks, that is, the Holy Grail., Mr. Garver, who covered regulatory issues as an American Banker reporter, from 1999 to *2003-, is a freelance writer in Springfield
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by Kate BerryVisa U.S.A. Inc. has introduced a small-business credit card that bears the Signature brand it uses for affluent consumers., The Visa Signature Business card is aimed at business owners with annual household incomes of $125, 000 or more. It has no preset spending limit and includes a reward program that varies by issuer, discounts at certain retailers, and an online expense management feature that lets cardholders track their spending and cash flow., The San Francisco association is targeting businesses with up to $25 million of annual sales and fewer than 100 employees. Each issuer will determine the annual fee, interest rate, and credit limit, but there is no fee simply for revolving, Visa said. It recommends setting the limit at $10, 000., JPMorgan Chase & Co.'s Chase Card Services will be the first company to issue the card., Raghav Lal, Visa's senior vice president of small-business products, said the businesses present an untapped opportunity for issuers, because they tend to use checks and cash, rather than cards, for major purchases., These are high-spending, very creditworthy small businesses that are using primarily checks to pay their invoices, Many small-business cards have insufficient lines of credit, so it's fine if you're paying for office supplies, but if you're going after the heart of the business, Visa says its research has found 70% of spending by small businesses falls into three categories: core business services, maintenance, repair, and operations, and raw materials and manufacturing services. The businesses spent $4.3 trillion on those three combined last year, nearly all of it paid by check, the association said., Frank Martien, a partner at First Annapolis Consulting in Linthicum, said, Visa has spent a significant amount of time building the Signature brand, Ken Paterson, the director of the credit practice at Mercator Advisory Group of Waltham, Mass., said charge volume on small-business credit cards is growing 20% a year, twice the rate for consumer cards., One of the big strategic issues is motivating people who may not have a small-business card to migrate over, Part of that equation is the rewards
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by Tim MazzuccaHuntington Bancshares Inc. said weaker credit crimped profits in the, fourth quarter, and analysts said one problem loan to a supplier to, automakers could signal more to come., On Wednesday the Columbus, Ohio, company reported fourth-quarter earnings, that missed analyst estimates by 3 cents. It cited a pair of nonperforming, loans totaling $12 million, one of them to an automotive supplier in Ohio., Nonperforming loans over all rose 15% from the third quarter., Thomas Hoaglin, Huntington's chairman, president, and chief executive, said several other credits were downgraded in the quarter, though he noted, they came from a number of industries., It wasn't concentrated in automotive. It wasn't concentrated in real, It was a credit here and, But observers say banks could find themselves dogged by auto-related, credits, particularly to suppliers doing business with the big, manufacturers., We know that the auto industry is under a lot of pressure these days, said Kevin Reevey, an analyst with BankAtlantic Bancorp's Ryan Beck & Co., Mark Chancy, the chief financial officer of SunTrust Banks Inc. of, Atlanta, said Wednesday that less than $130 million, or 0.1% of its loans, over all in the fourth quarter, were to auto manufacturers. In some cases, leases were secured as collateral for the loans to the automakers. (See, story, on page 1.), that is undrawn, Mr. Chancy said. Its exposure,, including, to auto suppliers, is less than 0.3% of its loan portfolio, Mr. Hoaglin said that though he does not expect credit quality to remain, an issue for Huntington this year, it could incur costs of a different kind, -- it could take a charge of 3 or 4 cents if it wins regulatory approval to, buy Unizan Financial Corp. for $587 million., Huntington and the Canton, Ohio, banking company announced the all-stock, deal in January 2004. It was derailed after regulators asked Huntington to, address corporate governance and accounting issues., Huntington now awaits the Federal Reserve's approval of the deal. Mr., Hoaglin said he expects to hear from the Fed in the next couple of weeks., agreement with Unizan expires Jan. 27, the deal was announced that date in, 2004., They've been in an, awkward position for the last couple of years. They've done a great job, with, Unizan's assets fell 7%, to $2.6 billion, from the second quarter to the, third in 2005. It is expected to announce fourth-quarter earnings in, mid-February, according to Thomson Financial., On Wednesday the $33 billion-asset Huntington announced a 16% increase to, its quarterly dividend, to 25 cents a share, payable April 3., We felt it was well for us to give shareholders a return in the form of, Mr. Hoaglin said. But Mr. Reevey said the idea may have been, Why else would you take Huntington's stock when, they, Shares of Huntington fell 3% Wednesday., Mr. Hoaglin said that once the Unizan deal is done, he would be open to, acquisitions in states where Huntington already has operations -- in West, Virginia, Kentucky, Michigan, Indiana, and Ohio., The Midwest is the least consolidated banking region in the country, We need intrastate, intraregion to get us more in line with other, Huntington reported fourth-quarter earnings of $100.6 million, or 44, cents a share, 3 cents below analysts' estimates, according to Thomson, Financial. For the year it earned $412.1 million, $1.77 a share., Huntington's average loans increased less than 0.1% from the third, quarter, to $24.5 billion, and 6% from the fourth quarter of 2004. Its, loan-loss allowance exceeded its loss provision by $13.3 million. Deposits, rose 1% from the third quarter and 2.6% from a year earlier, to $17.3, billion., Scott Siefers, an analyst with Sandler O'Neill & Partners LP, said, Wednesday in a note that Huntington's net interest margin -- up 3 basis, Mr. Siefers had expected Huntington's, interest margin to drop 1 basis point, since several other banking, companies, struggled to increase their margins in the fourth quarter., We felt good about
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by Christine BuurmaIn an effort to address regulators' concerns about banks' annuity sales, practices, some insurers have begun offering certification courses for, bankers who sell their annuity products., Jackson National Life Insurance Co. in Lansing, Mich., mandates such a, course for all non-securities-licensed advisers who sell its index, annuities,, said Steve Kluever, a senior vice president of product management in the, company's distribution arm., A second company, ING U.S. Financial Services in Atlanta, has a, certification program it does not make mandatory for its bank partners., For Jackson National's program, bankers take a test with 32, multiple-choice questions about specific features of the insurer's index, annuities, they must score 80% or better to be certified by Jackson, National, to sell the products. Jackson National, which is owned by Prudential PLC of, London, mails an index annuity guide that can be used as study material to, bank representatives along with the test. The bankers can then mail or fax, the completed test back to the insurer., Particularly in the bank channel, we try to do an awful lot of education, ... to make sure they understand the products they are selling, Kluever, It helps us understand from our perspective that the people selling, Jackson National issued index annuity due diligence kits Jan. 1 to help, banks identify which products are appropriate for certain customers, Kluever said. It has been offering annuity-related training to banks since, before the National Association of Securities Dealers issued guidance on, Requiring bankers to complete certification courses for selling annuities, not common, but it's emerging as a best practice in the [insurance], said Kenneth Kehrer, the president of Kenneth Kehrer, Associates, a, bank insurance consulting firm in Princeton, N.J., The U.S. unit of ING Group NV of Amsterdam also offers a certification, program for banks that sell its annuities, said Dana Ripley, a spokesman, though the company does not require its bank partners to complete it. He, declined to give details about the bank program, saying ING is just, beginning, to roll it out., ING has a comprehensive platform of training and education programs for, ING's new certification program is, one program for our bank partners to select. It is the bank's choice to, Jackson National has also sought to address compliance concerns by, offering banks a wider array of annuity products and features, Mr. Kluever, said., Flexibility and choice is the right thing to do for advisers so they can, customize a financial plan for individual clients that meets clients', The company announced on Monday that it was adding several features to, its index annuity portfolio and launching two index products. One, Elite, Choice Rewards, lets buyers get 5% of the annuity contract's value, immediately. Both products offer a variety of crediting methods., But expanding the product menu can be a double-edged sword for insurers, Mr. Kehrer said. Companies that offer a plethora of annuity features may, Choice is good, but choice, can be confusing for the customer and the adviser. One concern that we have, about index annuities and variable annuities is their complexity and the, Several insurance companies expanded their bank education offerings in, recent months, largely in response to an investigation by the Securities, Exchange Commission and National Association of Securities Dealers that, found, unscrupulous variable annuity sales practices in the industry. The, regulators, expressed concern that brokers were taking advantage of senior citizens who, did not fully understand annuity contracts' nuances., NASD issued a warning letter in 2003 and proposed regulations in *2004-, that emphasized determining variable products' suitability for the, customers, to whom they are being sold., Nationwide Financial Services Inc. in Columbus, Ohio, said in November, that it had expanded its compliance education program for banks, offering, in-person annuities training and a Web site to let banks track annuity, sales, activity. And Symetra Life Insurance Co. in Bellevue, Wash., said the same, month that it was strengthening its bank compliance program to offer, suitability education in partnership with a Seattle training and consulting, firm.
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by Paul DavisWall Street is expecting the largest U.S. banking companies to report, higher first-quarter earnings than they did a year earlier, but analysts, holding down their expectations, citing increased expenses and the effect, the flattened yield curve., Keefe, Bruyette & Woods Inc. said the large-cap companies could report, earnings growth significantly lower than their fourth-quarter numbers., Profit growth started to fall off in the fourth quarter, when a spike in, consumer bankruptcies hampered profits., For the first quarter, the broad issue was Financial Accounting Standard, 123R, which governs the expensing of employee stock options, several large, companies have already telegraphed its anticipated effects., Bank of America Corp. has also said its recent restatement related its, accounting for certain hedging activities will reduce its earnings, slightly., Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, said in an, reports from large, Notice that I'm not saying it will be a great quarter., know that these guys have investment banking, but at the end of the day, it's, Last month the Federal Reserve Board raised its benchmark interest rate, for the 15th time since June *2004-, to 4.75%. Some banking executives, cautioned during the first quarter that more increases -- and the residual, effects -- could influence earnings., U.S. Bancorp chairman and chief executive officer Jerry Grundhofer, In a general sense, the, basic, There's margin, compression, and the asset side of the balance sheet will be under, Citigroup Inc. chief financial officer Sallie L. Krawcheck was more, during a conference in New York hosted by Citigroup Financial Services that, her company had withstood the brunt of rate-related headwinds., It is the flattening that is truly painful as it occurs. As it's flat, you have more in your rearview mirror than you do in front of you, said, at the conference., Commercial loan growth is expected to remain strong at large banking, companies. In a research report issued Tuesday, Keefe Bruyette analysts, wrote, gains. Their forecast is based, largely, on Fed data suggesting that commercial and industrial loans are growing at, double-digit rate., Consumer loan growth, particularly in home equity lending, remains weak, as a result of rising rates, the analysts said., Fed data suggests that first-quarter deposits grew 8% from a year, earlier, but analysts said that most of that growth is tied to certificates, of deposit, not lower-cost transaction deposits., My guess is that margins will be stable relative to the fourth quarter, Jon Balkind, an analyst at Swiss Reinsurance, Co.'s Fox-Pitt, Kelton Inc., said Thursday in an interview., Analysts say that they expect credit quality to remain robust, and that, large banking companies have already weathered the fourth-quarter chargeoff, jump tied to bankruptcy reform that took effect in October., Expenses will be a factor in the quarterly reports, according to, analysts. Keefe Bruyette said in its earnings preview that the banking, industry could report a 7% increase in expenses from a year earlier., Frank Barkocy, the director of research at Keefe Managers Inc., a fund, manager that focuses on the banking industry, said that large banking, companies could report higher personnel expenses as they have bolstered, investment banking and capital markets operations., Analysts expect earnings at many large companies to have benefited from a, pickup in their capital markets businesses, as reflected by the results, issued, last month by several investment banks., in those operations,, Richard X. Bove, an analyst at Punk, Ziegel & Co., said Wednesday in an, interview., However, David Hendler, an analyst at CreditSights Inc., wrote in a note, issued Sunday that he expects investment banking results at B of A and, that, have already reported., Analysts said there are some other things to bear in mind., For example, B of A's results will include the Jan. 1 acquisition of the, credit card issuer MBNA Corp., and Wachovia's will include February's, purchase of Westcorp and WFS Financial Inc. JPMorgan Chase & Co. has said, no longer plans to report operating earnings. SunTrust Banks Inc., which, typically discloses business-segment results only in its quarterly filings, with regulators, will also begin doing so in its earnings reports.
Published in American Banker (2006)
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by Matthias RiekerA sharp decline in its mortgage business and a flurry of charges made, First Horizon National Corp.'s first-quarter results challenging to, evaluate., The Memphis company said late Wednesday that profits more than doubled, from a year earlier, to $215 million, and executives spoke positively about, the performance. But analysts counted as many as 14 special items that, either, added to or subtracted from earnings, topped by a $208 million gain from, sale of its merchant processing business to U.S. Bancorp., It is a coincidence that all these things happened in the same quarter, Marty Mosby, First Horizon's chief financial officer, When, tucked in the, results., The bank is continuing to grow very rapidly. Our national expansion, continues to take advantage of the consolidation of past mergers in the, state, of Tennessee. We had a good turnaround trend in capital markets, Analysts said they were unprepared for that much noise., First Horizon reported the sloppiest quarterly results we have ever, Heather Wolf, a Merrill Lynch & Co. Inc. analyst, wrote in a, research note., Kevin Fitzsimmons of Sandler O'Neill & Partners LP wrote that calling it, Analysts' calculations of operating earnings ranged from 57 cents to 76, cents a share, depending on what items were considered part of core, earnings., my math, and I am still generous after Easter, it's 66 cents, said, Christopher Marinac, I can't get any, higher, Not surprisingly, analysts disagreed on how the company did in its core, businesses. The average forecast had called for earnings of 81 cents a, share,, according to Thomson Financial., They fell short [of analyst expectations] several times over the last, But James M. Schutz of Sterne, Agee & Leach Inc. wrote in a note, Stripping away all the noise shows the quarter ... [was] not all that, Revenue from retail and commercial banking rose 10.6% from a year, earlier, to $331.4 million, but income from that business line fell 8.5%, $97.8 million, because of charges. Capital markets profits fell 25.9% from, year earlier but more than doubled from the fourth quarter, to $7 million., Mortgage banking profits swung to a $5.4 million loss, from a $45.8, million gain a year earlier., First Horizon had already told investors that it would use part of the, gain from the merchant processing business sale to reposition its, securities, adds value to, shareholders and generates future financial performance, Mr. Mosby said., On Thursday, Mr. Mosby said the $208 million gain enabled the company to, take a $80.3 loss to replace low-yielding securities with higher-yielding, ones., We repositioned the securities portfolio in order pick up a $20 million, Many banking companies repositioned their balance sheets last year, First Horizon did not.
Published in American Banker (2006)
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by Ben JacksonCommunity bank advocates are pressing federal regulators to count, contracts for core deposits as capital just the way they let larger banks, count other intangible assets such as purchase mortgage servicing rights, purchase credit card receivables., Under the contracts a bank pays a fee to guarantee that a third party, will buy core deposits for a fixed price. Currently the established value, those deposits must be deducted from capital, but community bank advocates, argue that by establishing a minimum value through the contracts, the bank, creating an asset akin to other intangibles that large banks get to treat, capital., Core deposit intangibles arise in virtually every bank deal that is ever, said H. Rodgin Cohen, a partner with the law firm of Sullivan &, Cromwell LLP in New York. A change in the capital rules would benefit, because they are not in a position to take advantage of, other types of intangibles: mortgage servicing rights or credit card, Mr. Cohen said community bankers should strike now because regulators are, It seems appropriate since there is now a, to create a structure for smaller, The Independent Community Bankers of America supports the change, said, Christopher Cole, a regulatory counsel for the group., I think they'll listen to the argument and I think they will go along, Mr. Cole said of the regulators., Still, the change would only affect about 100 banks., It is a big issue with the guys who have done a lot of branch, Mr. Cole said., Mr. Cohen agreed the impact would initially be limited but said more, banks would buy options contracts for deposits if there were a capital, benefit. (These contracts never require banks to sell the deposits, they, just, have the option to do it.), Regulators are pursuing a two-pronged revision of the Basel accord, risk-based framework put in place in 1988 by the major industrialized, countries., About 10 years ago the banking agencies began work on an update of those, rules, which has become known as Basel II. It would apply only to the, largest, most internationally active banks, and that led some smaller banks, to question whether they would be held to a tougher standard and put at a, competitive disadvantage. So regulators are working on a companion, revision,, known as Basel IA, for smaller banks., They issued an advance notice of proposed rulemaking in October 2005. In, a comment letter the American Bankers Association said core deposit, intangibles should be given the same treatment as the other two intangibles, that get capital credit., Robert W. Strand, a senior economist with the ABA, said in an interview, They have an established market value and it seems like it makes, sense. Just like you could sell a security, it has an established market, John R. Madden, the chairman of the $392 million-asset F.N.B.C. of La, Grange Inc. in La Grange, Ill., said in his comment letter that core, deposit, intangibles should be counted as capital and that they are less risky than, the other two other kinds of intangible assets., Doing so would be the most effective way to accomplish the two primary, objectives of the ANPR -- to eliminate potential competitive inequities, between Basel II and general banks and to more accurately align capital, with
Published in American Banker (2006)
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