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by Daniel WolfeCashEdge Inc. and Yodlee Inc. both say a legal ruling has given them the advantage in their patent-infringement battle., However, most of the decisions in the ruling, over how to interpret a variety of disputed patents, favored Yodlee, and one analyst said it likely would give the Redwood City, Calif., aggregation software vendor the upper hand., Still, CashEdge said that some of the most important issues were decided in its favor, and that it expects these issues to be an important factor in its fight against Yodlee., Yodlee filed a patent-infringement suit against CashEdge in April *2005-, asserting that six of its patents had been infringed. CashEdge invoked three other Yodlee patents in its defense of that suit, and it filed a countersuit in March., On Friday, Judge Susan Illston of the U.S. District Court for the Northern District of California, who is hearing Yodlee's suit, issued a so-called Markman ruling, which defines the basic patent issues at stake in an infringement case., (The Markman hearing for the CashEdge case is expected to take place next year.), Joseph Polverari, Yodlee's senior vice president of strategy and development, said in an interview Wednesday, From our perspective, The judge favored Yodlee's interpretation of six of the nine patents in dispute, Sanjeev Dheer, the chief executive of CashEdge, of New York, said that even though the judge favored Yodlee's interpretations of most of its patents, the few interpretations in his vendor's favor are critical, because they undercut several of Yodlee's key assumptions about how its technology works., The issue has come up before, in a pair of suits pitting Yodlee against Block Financial Corp. Block sued Yodlee in January *2002-, and Yodlee countersued in September 2003. The two companies settled out of court last year., In the Markman hearing for Yodlee's suit against Block, as data that cannot be accessed or retrieved without some kind of verification method., in the suit against Block., According to Mr. Dheer, However, The sheer volume of issues that went in Yodlee's favor indicate that the vendor has the stronger case, Yodlee's suit includes 149 claims of infringement, all we need to nail them is one infringement of one of these 149 claims, Out of 149 claims, It's very important, as a party, Oftentimes, Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, CashEdge's aggregation software is integrated with several online banking products, including Online Resources Corp.'s Money HQ., However, aggregation is only part of CashEdge's business, said Mr. Schatt, who was the general manager of Yodlee's data services business from 2002 to 2004. For example, its account-opening and funding software is an important part of its business and relies very little on aggregation, I think that CashEdge is going to be ultimately forced to be out of the aggregation business, get something positive out of something that's pretty strongly in favor of Yodlee, Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., said the case may eventually be resolved not in the courts, but by an acquisition. In another recent patent-infringement fight, Solidus Networks Inc. of San Francisco and BioPay LLC of Herndon, resolved their legal issues in January, when Solidus purchased BioPay., for Yodlee and CashEdge to consolidate
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by Daniel WolfeHewlett-Packard Co. is letting customers pay for online purchases through PayPal Inc. of San Jose., The deal is the third the eBay Inc. unit has announced with a large merchant in two months., Late last month Hewlett-Packard began using PayPal's Express Checkout service on its Web site. The service, designed to streamline the checkout process, allows buyers to authorize transactions without leaving a merchant's Web site., Barnes & Noble Inc. and 1-800-Flowers.com Inc. began using other PayPal services in August., PayPal has long said that it wanted more such agreements with merchants. However, with a few notable exceptions, it has had little success in landing them., Apple Computer Inc. and Hotwire Inc. began using PayPal in *2004-, and Dell Inc. followed at the end of last year. Still, 65% of PayPal's transaction volume comes from eBay auctions, according to the parent's second-quarter earnings statement., Todd Pearson, PayPal's senior director for merchant services, said that it would not have been able to make deals with any of the large merchants before it sold itself to eBay in October 2002 for $1.5 billion., PayPal had to overcome several hurdles in its early history, One of them was Billpoint, a competing person-to-person payments system that eBay had developed with Wells Fargo & Co. But by the time PayPal was acquired, it had already become one of the dominant payment mechanisms for eBay's auctions, and eBay shuttered Billpoint after the acquisition., Though PayPal has always wanted other merchants to use its services, its early success in eBay auctions was critical, Mr. Pearson said., Without eBay, we could not have really prospered at the time, EBay was the heart of the company, of PayPal, The acquisition, and the position as the preferred eBay payment service, allowed PayPal to devote more energy to courting other merchants and investing in merchant services, Mr. Pearson said., According to Gwenn Bezard, a research director at Aite Group LLC of Boston, before the acquisition almost 10% of PayPal's revenue came from online gambling sites, but eBay moved quickly to shut down those relationships., However, Mr. Pearson said eBay also encouraged the unit to expand in other areas., In 2002 it began introducing products for non-eBay merchants. The first was WebAccept, which enabled merchants to put a link to PayPal's site on their sites. Customers needed PayPal accounts to use the link., The following year PayPal rolled out WebAccept Express, WebAccept and WebAccept Express have since been rolled into the Website Payments Pro package, which includes Express Checkout., Another important development in *2003-, was application program interfaces, employees can issue a refund through customer service software rather than through PayPal's site., The tools were major factors in the deals with Apple, Hotwire, and Dell, Mr. Bezard said PayPal got where it is today not because of the freedom eBay granted, but as a result of its own momentum., PayPal was growing very fast before the acquisition by eBay, It would have been easy for eBay to shut down PayPal's nonauction operations, as it did with the casino relationships, Mr. Bezard said. In fact, that decision made him believe at the time that eBay would put even more restrictions on PayPal., However, it was in eBay's best interests to encourage PayPal to expand, EBay has had slowing growth in the U.S., its core market. EBay was looking for new ways to grow ... [and] PayPal, as a component of the business
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by Rob GarverTony Reyna, the youngest of seven children, grew up outside Laredo, Tex. His parents, Mexican immigrants, were migrant farm laborers, and when the children were old enough, they joined their parents in the fields of southern Texas., We worked until we were in high school, and then when my sisters went to college, we supported them, Then when they were out of college, Mr. Reyna is now a program manager for Independent Financial Marketing Group Inc., a Purchase, N.Y., the fastest-growing minority group in the United States., He supervises a team of eight full-time financial consultants who work in various branches of International Bank of Commerce, which is headquartered in Laredo and has branches in Texas and Oklahoma. These consultants have $400 million of assets under management, according to his firm., founded in 1966 by Antonio Sanchez Sr., got its start serving the small-business market in Laredo. It has since grown to $10.5 billion of assets and has a heavy concentration of Hispanic customers, particularly in branches at or near the Mexican border., constitute a majority), but it is really just an extreme example of a larger trend., Hispanics are the largest minority group in the United States, according to the Census Bureau. Its most recent estimate counted 41.3 million, or about one-seventh of the population, and they accounted for one-half of the U.S. population growth in 2003 and 2004., With numbers comes economic power. Hispanics are estimated to have buying power of more than $700 billion this year, and that number is expected to surge to $1 trillion by 2010., Even at relatively high income levels, Hispanics remain underrepresented among investors. A 2003 study by Mediamark Research Inc. found that 13% of Hispanics earning $75, 000 or more held common stock, and 14% owned mutual funds. By comparison, 18% of all Americans in that income category owned common stock, and 21% invested in mutual funds., However, a consistent effort to market to affluent Hispanics can have its rewards. According to Gerald Schwebel, the executive vice president who runs IBC's international division, the bank's income from its relationship with Independent Financial is growing 10% to 15% a year., Whatever the needs and economic status of their clientele, banks that sell insurance and investment products to Hispanics are looking at a vastly underserved market, according to the Federal Reserve Board. And there is good reason to think that early entrants will have a bigger-than-usual advantage over latecomers., A 2003 report by the Boston consulting firm Celent LLC said that Hispanics are generally more loyal customers than people from other ethnic groups, so the potential return on an early investment in marketing to Hispanics is a value proposition for banks., Research released this year by Barbara Robles, an associate professor at Arizona State University's School of Social Work, found that only 9% of Hispanic households owned stock or mutual funds, compared with 12% of African-American households and 35% of non- Hispanic white households., Part of any sales strategy is identifying what customers want, and according to Mr. Reyna and his colleagues at Independent Financial, IBC's customers are looking for a safe way to invest for their families' future., Particularly among immigrants and children of immigrants, there is a powerful desire to ensure that the younger generation enjoys a better standard of living than their parents'., Parents say to their children, 'Yes, I'm doing better than my parents were in Mexico. But I want you to do even better than me, Mr. Reyna said., This produces demand for products that protect assets and provide financing for higher education, like fixed annuities, mutual funds, and 529 college savings plans., Of course, his investment advisers cannot sell products until a prospect walks into the bank, and drawing Hispanic customers into financial institutions has long been a challenge., Mr. Reyna recalls that, in his childhood, he rarely saw his parents use a bank - a situation common in the immigrant community, at that time and today., A report that Synergistics Research Corp. released in May said that half the Hispanics in this country have no relationship with a depository institution., You have to understand the culture of the Hispanic community that comes from Mexico and migrates to the U.S., In Mexico, Though many banks are busy developing a strategy to address the growing number of Hispanics, by virtue of its sites near the Mexican border, says it has never made the ethnic group a distinct subset of its customer base., Part of what makes IBC attractive to such customers is the fact that 75% to 80% of its branch employees near the border are bilingual, and many are of Hispanic descent., The bank also reaches out to the community with financial literacy programs, which are often necessary to familiarize recent immigrants and their children with what the industry can offer., In Mexico they have only just created a lot of savings programs similar to 401(k)s. That was not something ordinarily seen in Mexico, only the wealthy had access to banks, checking accounts, they learn the necessity of homeownership, of saving for college, and of good, sound credit - all of these things that they or their parents didn't necessarily have, IBC employees, from bank officers to tellers and support workers, participate in numerous financial literacy courses in Laredo-area schools, including the federal Junior Achievement program and those focusing on more specific areas like savings or checking., The aim has never been to target Hispanics, We target all schools, we need to instill more of that savings culture in all of our society, Frequent contact with bankers also helps dispel some of the significant trust issues between banks and the Hispanic community. This distrust, though not as dramatic among people of Mexican origin, is also significant among other Latin American immigrants. In many cases they come from countries with unstable governments, where banks are seen as instruments of the (often corrupt) ruling party., Overcoming such distrust provides more than just financial gain for banks, Mr. Schwebel said., When you find these youngsters coming out of the schools and coming to work for us or becoming the area's future small-business men and women, it is rewarding, Once IBC gets customers in the door, though, the education process is just beginning. Those who come to Mr. Reyna's team looking for advice on insurance and investment products often need information about the basics of investing., Our approach is to go to whatever level of explanation we have to for the customer, Mr. Reyna said. All his financial consultants are bilingual, Frequently, the consultants find that customers whose English is quite good prefer to speak Spanish to their investment adviser, than the bank's typical customer, including a welcoming atmosphere, a bilingual staff, and the ability to obtain a safe, secure means of increasing assets., These are investors who come from Mexico, and many like to talk with and deal with Hispanics. They are either doing business here, or are visiting here, or have kids in college here, They have accounts not only to facilitate their businesses and their visits, Mr. Garver, a reporter in American Banker's Washington bureau from 1999 to *2003-, is a freelance writer in Springfield
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by David Gosnell (ATM & Debit News)When eFunds Corp. of Scottsdale, Ariz., purchased the prepaid debit card, processor WildCard Systems Inc. in July, the $228.8 million acquisition, represented a turning point for the company., Earlier eFunds had sold off its unprofitable automated teller machine, management business to refocus on its core transaction processing and risk, assessment businesses., Observers consider WildCard, since renamed eFunds Prepaid Solutions, be the leading processor of network-branded prepaid debit cards., The largest issuers of such cards use WildCard's processing platform., JPMorgan Chase & Co., for example, uses it to process prepaid cards, distributed for a wide range of payments and government benefits. Last fall, JPMorgan Chase issued hundreds of thousands of American Red Cross and, Louisiana prepaid debit cards distributed to those displaced by Hurricane, Katrina., As part of eFunds, WildCard processed millions of transactions initiated, on relief cards last year., Mainly as a result of shedding its money-losing ATM division and picking, up WildCard, eFunds reported earnings per diluted share of $1.17 for last, year, a 41% increase from a year earlier. The earnings rose despite a 9%, revenue decline, which was caused by the ATM division sale., However, eFunds' financial report for the first quarter of this year, shows what appear to be weaknesses in prepaid processing. Perhaps the most, prominent sign of that weakness is the imminent departure of Larence Park, who has led eFunds' Prepaid Solutions since the acquisition., Paul Walsh, eFunds' chief executive officer, announced May 3 that Mr., Park would leave the company next month., Mr. Park was a co-founder of WildCard and served as its CEO from *1997-, until it was purchased. The announcement of his departure was the leading, reason eFunds' stock has sunk 13% since hitting a high of over $25 a share, the day before the announcement, one source familiar with the purchase of, WildCard told ATM&Debit News., As part of the acquisition, Mr. Park and other WildCard executives have, agreement with eFunds, the source said. That provision would, provide Mr. Park additional earnings if the processing unit exceeded, certain, revenue thresholds this year., His departure plan may be a sign that WildCard's processing volume is not, growing as fast as many thought it would, The reason the, In a question-and-answer session with analysts on May 3, Mr. Walsh was, asked why Mr. Park would leave his prepaid processing leadership position, before a possible payout from the earn-out provision. Mr. Walsh said, Larry, The prepaid revenue threshold for this year is $106 million, That day eFunds reported that its prepaid operation, the second-largest, in its transaction processing division, generated first-quarter revenue of, about $21.8 million. The operation's loss of about $3 million after, expenses, contributed significantly to eFunds' 10.1% net income drop in the quarter, $10.7 million., (There is no year-earlier revenue comparison for the prepaid operation, because eFunds did not own WildCard at that time.), The first-quarter results suggest that eFunds' prepaid operation would, generate less than $106 million of full-year revenue. But analysts say the, prepaid business is highly seasonal, with much higher transaction volume, initiated on prepaid cards in the fourth quarter than in any other quarter., You make 35% in the fourth quarter in prepaid, says, Paul Tomasofsky, the president of Two Sparrows Consulting LLC., Moreover, other WildCard executives subject to earn-out provisions, including WildCard co-founder Gary Palmer, are staying on at eFunds. Mr., Palmer's responsibilities in the prepaid unit are increasing, according to, eFunds., In a recent interview with ATM&Debit News, Mr. Palmer said he expects the, prepaid processing division to remain the fastest-growing transaction, processing business at eFunds. Payroll cards and government and employee, He noted that most states have not converted from a check-based benefits, payment system to prepaid cards., Mr. Walsh told analysts that eFunds should begin getting some cost, savings from its prepaid processing operation this year as the WildCard, processing platform is integrated into eFunds' platform., Mr. Gosnell is the editor of ATM&Debit News, a sister publication of, American Banker.
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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 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 William LaunderWestern Union Co. reported strong third-quarter earnings in its first financial report since First Data Corp. spun it off last month, despite a legal dispute that has slowed traffic in its lucrative transfer service to Mexico., The Englewood, Colo., company reported that revenue jumped 12% from a year earlier, to $1.1 billion, and net income rose 7%, to $258 million., However, Western Union's president and chief executive, Christina Gold, said Tuesday during a conference call with analysts that the volume of its domestic transfer business fell 5% and the volume of its transfer business between Mexico rose only 4%., created fear and distrust among many Hispanic customers, Western Union has been embroiled in a legal battle with Arizona Attorney General Terry Goddard, who has seized about $17 million of Mexico-bound remittances since *2001-, suspecting they were intended for drug dealers and smugglers of illegal immigrants. More than $200, 000 of that money was to be sent through Western Union., In September, Mr. Goddard issued a warrant asking for additional suspicious transfers, but Western Union was granted a temporary stay Sept. 25. A U.S. district judge in Phoenix is expected to decide next week whether to make the ruling permanent., Ezra Levine, a lawyer representing the Money Services Roundtable, a trade group for money-services businesses, The Arizona case involves remittances sent from 28 states to locations in Sonora, Mexico, directly regulate, unduly burden, Money-services businesses are regulated like traditional banks, Western Union said, but Arizona is not treating it the same., D. Edward Wilson, a partner with the Washington law firm Venable LLC who is not affiliated with the case, is a constitutional question, as soon as the attorney general steps out of Arizona, This lawsuit is really about protecting corporate profits. If it is successful, our human smuggling investigations would be crippled and Western Union and other money transmitters would continue to profit from illegal activity, Mr. Goddard said in an Oct. 18 press release. He is up for election this year, he was defeated in two runs for the governor's office, in 1990 and 1994., the sooner we can come to some kind of resolution, Peter Ziverts, Western Union's vice president of external partnerships and anti-money-laundering, said regulators should improve their oversight of banks that work with money-services businesses., Banks need a clearer statement that they are not expected to police the activities of their MSB account holders, he wrote in a statement to American Banker last week, Craig Maurer, an analyst with Soleil Securities in New York, This quarter represents an immigration-legislation adjusted quarter
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by David BreitkopfCo-op Financial Services, which operates the largest automated teller machine network and processor for credit unions, is adding a debit card reward program to the list of products and services it offers them., The addition, which the Ontario, Calif., company announced last week, highlights the industry's increasing interest in debit rewards., As a major debit card processor, we needed to add this to our product menu, said Stan Hollen, the chief executive of Co-op, which is owned by credit unions., The network will begin testing the reward program next month. Member credit unions eagerly wanted to sign up for the test, but only three will participate, The program is scheduled to go live for the rest of the network's members in August. Mr. Hollen said Co-op expects to sign up between 200 and 225 credit unions this year., Credit unions are pressing to offer their members debit rewards, because they are increasingly popular with financial institutions, He estimated that 10% of all credit unions -- between 800 and 900 -- offer some debit rewards, the vast majority do not, particularly small ones that likely could not start such a program without Co-op's help., Most credit card issuers offer some type of rewards, which have long been popular with consumers. Debit rewards do not generate the same revenue stream for institutions but are gaining traction, because they tie consumers more tightly to a bank or credit union., for credit unions, This is a net expense to a credit union, which generate higher interchange than PIN ones., A study released last year by Dove Consulting Inc., a Boston division of Hitachi Consulting Corp., shows that more financial institutions are offering debit rewards. The percentage of financial institutions offering them rose to 36% last year, from about 24% in *2003-, said Chris Gill, a senior manager for Dove., This month TNS Financial Services, a consulting unit of Taylor Nelson Sofres PLC, released a consumer study saying the percentage of consumers with rewards programs linked to their debit cards nearly doubled last year, to 9%., Consumers also appear to prefer using debit cards over credit cards to rack up rewards. According to a study TNS Financial Services conducted last year, 57% of households that had both debit and credit cards offering rewards said they were more likely to use the debit card for purchases., RewardsNOW Inc., a Dover, N.H., provider of loyalty programs to financial institutions, will operate the program for Co-op. RewardsNOW operates similar programs for such companies as Marshall & Ilsley Corp.'s Metavante Corp. of Milwaukee and TNB Card Services, a Dallas payment card processor and issuer for credit unions., Mr. Hollen said Co-op's program will give cardholders a point for every $2 spent. But Steven Van Fleet, the president and CEO of RewardsNOW, said rewards can be redeemed not only for travel and merchant goods and services, but also for downloadable music and books and online gift certificates., One innovative debit program is Bank of America Corp.'s Keep the Change. When a consumer makes a purchase with a B of A debit card, The Charlotte company said about 2.5 million customers, 20% of whom are new to B of A, have signed up for the program since it was launched in October., Diane Morais, the senior vice president of deposit and debit products for B of A, wrote in an e-mail that one important factor banks must consider in offering rewards program is the ability to cover the cost., You typically will see 'richer' programs attached to credit cards, However, programs like Keep the Change have demonstrated that when customers see value in the reward, they are willing to shift more of their spending from cash, checks to the debit card -- so it's a win
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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.
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by Jody ShennOn Thursday, Countrywide Financial Corp. became the third big, mortgage-centric company in three days to report better-than-expected, earnings., For all of the financial companies with mortgage operations, earnings, contributions from the business remained under pressure last quarter, those contributions fell from a year earlier almost across the board., That was despite the home loan sales margin improvements that have been a, theme so far in the first-quarter reports of mortgage-focused companies., rebound, whose extent has surprised most analysts, appeared to be driven, primarily by a decrease in fears about credit risk among securities buyers., However, as some companies bucked what was thought to be a notable, industrywide volume decline or avoided servicing hedging hiccups, exactly, much pain they experienced from the mortgage business differed., Despite its earnings surprise, Angelo Mozilo, Countrywide's chief, executive, again cautioned Thursday that the down cycle that has put, competitive pressure on sales margins separate from secondary-market, conditions is not over., If I had to guess, it's going to take, I would say, 12 to 24 months, As with the Melville, N.Y., real estate investment American Home Mortgage, Corp., which reported earnings Wednesday, analysts said the main factor in, Countrywide's earning surprise was the strong rise in its sales margins, from, the previous quarter. IndyMac Bancorp Inc., the Pasadena thrift company, that, reported Tuesday, had relied more on the unexpectedly strong growth in its, originations for its earnings surprise. But the better sales-margin, environment clearly helped, too., I think for every single one of those companies, there's no doubt, there's different aspects to the 'beats, ' but the primary reason was the, said Edwin Groshans, an analyst, Fox-Pitt, Kelton Inc., In interviews, Moshe Orenbuch of Credit Suisse First Boston Corp. and Ken, Posner of Morgan Stanley said that the fourth quarter now looks like it was, for production margins., Mr. Orenbuch said they might worsen again, but probably not to below, where they were then, at least at Countrywide. Mr. Posner was more, skeptical., I do think it's a little bit early to claim the absolute worst is now past, If we saw spreads widen out ... we'd watch those, In the fourth quarter, a sharp rise in credit spreads and other, disruptions in the mortgage securitization market, such as a new disclosure, rule and a typical seasonal slowdown, had produced exceptionally weak bids, for nonconforming loans., On Thursday, Countrywide said its first-quarter gain-on-sale margin, improved 51 basis points from the fourth quarter, to 1.29%, increasing its, overall pretax production margin (or how much it made per origination) by, basis points, to 0.3%., It attributed some of the improvement on prime loans to unusual gains, from pipeline hedging and less pricing competition. But, it said improved, home equity and nonprime sales margins were solely from the secondary, market., Reflecting the still fierce competition for loans, the Calabasas, Calif., company reported its sales margin fell 35 basis points from a year earlier., Countrywide's first-quarter net income fell 0.7%, to $684 million, $1.10 a, share, because of a 30% drop in origination and servicing income. The, profits, beat the average analyst estimate by 14 cents a share., The Mortgage Bankers Association said this month that it believes, first-quarter industrywide volume fell 17% from both the fourth quarter, and a, year earlier, to $514 billion. However, volumes at many individual lenders, painted a very different picture., Production by Countrywide, the country's top home lender, rose 13% from a, year earlier, to $103 billion. Wells Fargo & Co.'s originations jumped, 40%, to, $91 billion, Washington Mutual Inc.'s were flat at $45 billion, so were, Bank, of America Corp.'s, at $17 billion, JPMorgan Chase & Co.'s rose 8%, to, $28.9, billion, and Citigroup Inc.'s rose 25%, to $32 billion. IndyMac's surged, to $20 billion. American Home's soared 83% to $13.2 billion., Of course, as the most recent quarter showed, loan volumes and loan, profits are often only loosely connected. Mike Cavanagh, JPMorgan Chase's, While originations, actually are up year-over-year and on a quarter-to-quarter basis, production, revenue was down a little bit, just because margins are getting squeezed, with, Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, last, quarter, in, part because many reported originations drops resulting from lower, refinancings., However, expectations, since the many volatile variables in the mortgage business, mean, Trying to predict with any accuracy, what gain-one-sale margins will be quarter to quarter is next to, Countrywide also avoided the sizable servicing hedge losses experienced, several rivals. Wells' mortgage banking noninterest income fell 49%, Wamu's home loan group's earnings plunged 88%, and National City Corp.'s, National City Mortgage swung to a $69 million loss. All of them complained, of net servicing hedging losses., Countrywide's earnings from servicing rose to $249 million, from $17, million a year earlier, somewhat offsetting a 61% drop in production, earnings, to $284 million., The company was also again helped by increased earnings from its, nonmortgage businesses, particularly banking. Pretax earnings from that, business rose 58% from a year earlier, to $341 million, as its assets rose, 53%, to $78 billion., Reflecting diversification efforts, earnings from Countrywide business, lines not part of its mortgage business -- mainly banking, insurance, capital markets -- made up 50% of its consolidated pretax earnings last, quarter, up from 33% for a year earlier., The net interest margin for its banking business rose 18 basis points, from the fourth quarter but fell 2 basis points from a year earlier, 2.29%.
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by David BreitkopfAmerican Bank Note Holographics Inc.'s second-quarter earnings doubled from a year earlier, to $1 million, even though Visa U.S.A. stopped using one of the vendor's newest products this year., Revenue rose 22%, to $8.4 million, the Robbinsville, N.J., provider of security holograms for payment cards said Friday., Visa began using American Bank Note's HoloMag stripes at the start of the year, but in March it said it would stop using them after it learned of problems with the technology. The magnetic stripes include security holograms, so issuers can delete the hologram from the front of their cards, creating more space for issuers' designs., However, under certain conditions, the stripes can retain a static electrical charge, which can prevent card readers from authorizing transactions. The charge can occur when humidity is very low, or if the magnetic heads on readers have a low tolerance for static., Both Visa and American Express Co. have said they received a small number of complaints., American Bank Note said it had billed Visa for $2.3 million in the first quarter for HoloMag shipments, but it did not recognize the amount as revenue, not considered probable at that time, The vendor collected and recognized $900, 000 of the amount in the second quarter., Kenneth H. Traub, American Bank Note's president and chief executive, that can dissipate electrostatic discharge., The company has also produced a second-generation HoloMag, in testing.
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by Joe AdlerThe Federal Deposit Insurance Corp. is planning a major initiative to encourage banks to offer alternatives to payday lending and other services for underserved people., The program, which is expected to be unveiled before yearend and is still in its planning stages, calls for the FDIC to assemble public-private coalitions in each of its eight regional offices to devise products and services that target the unbanked., We want to try to actively promote low-cost, competitive products, provide technical assistance, The program, called the Alliance for Economic Inclusion, is partly inspired by the New Alliance Task Force, which the FDIC helped create in 2003 out of its Chicago office as part of economic initiatives between the United States and Mexico. The task force has helped nearly 160, 000 Latin American immigrants in the Midwest get bank accounts., Under the new strategy, coalitions of regulators, bankers, and nonprofit groups will be assembled to target at least one area in each region, including underserved rural areas, minority and low-income neighborhoods, military bases, and areas with large immigrant populations., The FDIC has already launched community-based programs in Los Angeles and Austin., Ms. Bair hinted at the program in speeches at several industry conventions during the past week, Banks have the infrastructure and the imagination needed to create an array of affordable-lending services to meet the needs of all of their customers, she told the American Bankers Association on Monday., Ms. Bair said that she envisions alternative products such as small-amount loans taking the place of payday loans, and that she wants to encourage loans and services that automatically put extra funds tied to tax refunds or mortgage payments into a savings account., There is a lot of research that shows that people will save if you make it automatic, but a lot of lower- and middle-income people don't have access to 401(k)'s, The effort to encourage alternatives to payday loans should come as no surprise. During the past year several banks, under scrutiny from the FDIC, have cut ties with payday lenders, which are seen as an attractive quick-money option for low-income customers who then face exorbitant interest rates., Ms. Bair also has a history with the subject, both as an academic and a regulator. She authored studies, including one in June of last year detailing banks' obstacles in offering payday loan alternatives, while a professor at the University of Massachusetts Amherst., Lawmakers have also singled out payday lending. An amendment, sponsored by Sen. Jim Talent, R-Mo., in the Pentagon's reauthorization bill puts a 36% cap on annual percentage rates, including fees, on credit products sold to members of the military. Industry representatives said the amendment, designed to stop payday lending at military bases, could have a much broader effect. The bill was signed into law Tuesday., The FDIC plans to convene a conference in December for banks that operate near military bases to discuss ways to help members of the armed forces maintain access to credit., will take a willingness on the part of banks to show some open-mindedness in working with us in new product innovations, That will be particularly true with payday lending alternatives. For the most part, Agency officials emphasized that the program is designed to go beyond financial literacy., Financial education is fine as far as it goes, but it doesn't go far enough unless it includes an asset-building structure, such as checking accounts, savings accounts, credit cards, mortgages, and other banking services, said Robert W. Mooney, the FDIC's acting deputy director for compliance and consumer protection., Industry and consumer representatives said they cautiously support the program., James Ballentine, the ABA's director of grassroots and community outreach, said his group supports the idea, but he emphasized that institutions cannot offer short-term, small-denomination loans without determining if it makes market sense., You have to see if there is a mandate or a call for that type of product in your area, You have to have a marketplace, and you have to do things in a safe and sound manner, John Taylor, the director of the National Community Reinvestment Coalition, financial literacy programs often heralded by regulators, but he sounded skeptical that the regional coalitions would produce solutions., It's pretty unique for the head of one of the bank regulatory agencies to use the term 'economic inclusion, It speaks to the fact that there is economic exclusion, However, unless the coalitions are broad enough, the result could be feel-good stories that do not scratch the surface of what is needed, The quality of the community groups that participate will be a key ingredient
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by Katie Kuehner-HebertCommunity banks are cashing in on the commercial real estate boom in more, ways than one., Not only are they making more commercial real estate loans than ever, they are also making inroads in the niche business of holding funds for, real, estate investors., In recent years several banks have acquired companies that perform, so-called 1031 tax-deferred exchange services, or they have developed these, services in-house. In addition to generating fee income, the services can, bring in a steady stream of low-cost deposits, said Daniel C. Stevens, chief financial officer of the $3.3 billion-asset Taylor Capital Group Inc., in Rosemont, Ill., These are core deposits which are not only at a lower rate but, perhaps, than other funding sources, such as, brokered deposits, Mr. Stevens said., The Internal Revenue Service lets companies or individuals that sell, commercial or investment properties defer capital gains taxes if they, reinvest in other properties within 180 days. To get the tax break, investors, must use a qualified intermediary to process the paperwork and hold the, funds, until they are ready to buy another property., In hopes of capturing these lucrative deposits, bank companies are buying, these intermediaries., Last month The Bank Holdings, a Reno company with $385 million of assets, bought Granite Exchange LLC, a Roosevelt, Calif., company it renamed, Granite, Exchange Inc. The unit now operates two exchange services, Granite Exchange, Services and AllStar Exchange Services., The $5.7 billion-asset Commercial Capital Bancorp Inc. in Irvine, Calif., has bought several exchange companies since early last year and has merged, them into three subsidiaries. (The company announced this week that it was, selling itself to Washington Mutual Inc. of Seattle.), Taylor Capital's Cole Taylor Bank has been offering tax-deferred exchange, services in-house since the 1970s. It liked the service so much that six, years, ago it expanded its operations to reach investors nationwide., But the business has really taken off since the bank began a partnership, in October with Nationwide Exchange Services Inc., a Cupertino, Calif., online provider of tax-deferred exchange services. Cole Taylor employees, brought in clients for the tax-deferred exchange service now work for NES, but Cole Taylor gets to keep all of the deposits they generate. Moreover, bank gets fee income anytime it refers new customers to NES, though Mr., Stevens would not say how much., Cole Taylor made the deal because it could attract more investors by, helping market NES' new Web-based capabilities, bank's deposits from the services have more than tripled, to about $300, million., This company came up with a phenomenal software program that makes it, extremely easy for a company to do 1031 exchanges online, with all of the, We want to maintain our, contact with the customers by keeping their deposits, and it's also helped, Richard A. Soukup, a partner with the Chicago accounting and consulting, firm Grant Thornton LLP, said tax-deferred exchange services not only can, provide low-cost funding and fee income, but also enhance a bank's, relationships with commercial customers., It's a good specialty business for a real estate-oriented bank, who can, They've already made a loan to a, borrower who's flipping a property, that, warehousing their cash until they find another piece of, Like Cole Taylor, the $158 million-asset Christiana Bank and Trust Co. in, Greenville, Del., has developed an in-house tax-deferred exchange service, provider, Christiana Corporate Services Inc., However, the company is less interested in low-cost deposits than, generating fee income. Instead of putting investors' sale proceeds into, low-cost deposit accounts, it invests the funds in higher-yielding, instruments through the wealth management department, said Thomas A., Campbell, an executive vice president., This enables us to attract customers with much larger transactions, Mr. Campbell said., Though he would not say how much Christiania charges for the service, part of his company's trust fee income, which, rose about 15% in the first quarter from a year earlier, to $916, 000., Martin Verdick, a managing director in the Champaign, Ill., office of RSM, Gladrey Inc., said banks considering offering tax-deferred exchange, services, should make sure they hire experienced people, because the IRS requires, very, specific procedures and documentation. If banks fail to adhere to all the, rules, their customers could face huge tax liabilities -- and they often, It's not as simple as opening an account and holding the funds, There are very strict requirements that have to be met, Karen M. Meislahn, an assistant vice president and trust officer at Main, Street Bank & Co., a unit of the $1.6 billion-asset Main Street Trust Inc., Champaign, Ill., said it gets around those requirements by having the, customers' attorneys do all the necessary paperwork. That way, attorneys, assume much of the liability, while Main Street maintains an average, monthly, balance of $1 million in each of the accounts for the service, Main Street opens about 40 to 50 such accounts a year, We don't make a lot of money on these services, because we really just, dump the money into an account, and the attorneys do all of the real work, But we do the service as a favor to these attorneys,, also come to us with clients who need estate planning and other trust, Last year Main Street's income from trust and brokerage fees increased, 15%, $7.6 million.
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by Tim MazzuccaKeefe, Bruyette & Woods Inc. filed a registration statement Friday for an initial public offering in which the New York company would seek to raise $100 million., The 44-year-old employee-owned investment banking boutique flirted with going public in 1998 and 1999 but retreated from those plans., The company, which filed as KBW Inc., did not set a date for its first trading day or price its shares, but the prospectus it filed with the Securities and Exchange Commission said it plans to use the ticker symbol KBW., Evercore Partners Inc., whose shares rose as much as 25% early Friday and closed up 18.3%., However, last month Ryan Beck & Co. Inc., the Florham Park, N.J., investment banking division of BankAtlantic Bancorp Inc. of Fort Lauderdale, Fla., postponed a planned IPO, citing poor market conditions. Ryan Beck's decision followed an unsuccessful debut July 13 by another New York investment bank boutique, Cowen Group Inc., whose shares fell as much as 5% on its first trading day, though they recovered to close down 0.8%. The shares have fallen 10.9% since then., Like Keefe Bruyette, Ryan Beck was looking to raise $100 million., Evercore raised almost $83 million in its offering Friday, which was priced at $21 a share., Cowen Group, formerly a subsidiary of the French company Societe Generale SA, raised about $179 million from its IPO., J. Cory Shipman, an analyst with Stanford Financial Group, said he would be surprised if BankAtlantic revived its IPO plan for Ryan Beck this year, Albert Savastano, an analyst of Janney Montgomery Scott LLC, would not discuss the Keefe Bruyette filing. However, Keefe Bruyette would not comment Friday, because of the mandatory quiet period before the offering., However, in a memo to employees in May, John Duffy, Keefe Bruyette's chairman and chief executive, of an IPO. The memo cited the company's recovery from devastating losses suffered in the Sept. 11 attacks, when 67 of its employees were killed., Without our great efforts in rebuilding KBW over the past five years, we would not be in a position to pursue an initial public offering, Mr. Duffy wrote., It has rebuilt its ranks from 157 employees after the attacks to 430 as of June 30, with 101 in investment banking, 151 in sales and trading, and 82 in research, according to the filing. No current employee owns more than 4.1% of the shares., Keefe Bruyette and Merrill Lynch & Co. Inc. would be the lead book managers, with Banc of America Securities LLC as a co-lead manager, according to the filing., Keefe Bruyette also said that it earned $17.4 million on revenue of $101.4 million last year, and it earned $10.2 million in the first quarter, more than three times what it earned a year earlier., According to the filing, Keefe Bruyette participated in Capital One Financial Corp.'s $14.6 billion deal for North Fork Bancorp. Inc., Bank of America Corp.'s $34 billion purchase of MBNA Corp., and HSBC Holdings PLC's $14.2 billion purchase of Household International Inc. The North Fork deal is set to close next quarter. The MBNA deal closed Jan. 1. The Household one closed in March 2003., Keefe Bruyette also said it was involved in the Evercore and Cowen IPOs., KBW is the parent company of Keefe Bruyette, the New York investment adviser KBW Asset Management
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by H. Michael JaliliThird-quarter earnings reports due this week are expected to show that credit card chargeoffs, depressed in the first half as a result of last year's changes in bankruptcy law, climbed back toward normal levels., However, Diane Merdian, an analyst with Keefe, Bruyette & Woods Inc., said chargeoff volatility resulting from the changes have made it hard to predict losses., it was relatively easy to see loan-loss rates moving up and down with changes in net interest margins, Ms. Merdian wrote in a report released Friday. However, right before the changes took effect., After they took effect, filings plunged to below-normal levels, because people who would have filed eventually did so sooner to avoid the new restrictions. In recent months filings have risen toward normal levels, and Cynthia Ullrich, an analyst with Fitch Inc., told American Banker last month that even though the changes made it harder to file, consumers who cannot afford to meet their obligations would still default on their loans., Ms. Merdian estimated that third-quarter chargeoffs at Citigroup Inc. -- which is expected to report earnings Thursday -- climbed 11.3% the second quarter, to $1.58 billion., This quarter they should rise 10.1%, to $1.74 billion, Meredith Whitney, at CIBC World Markets Corp., wrote in a report issued Friday that JPMorgan Chase & Co., the nation's second-largest credit card issuer, will report earnings of 81 cents a share, or 5 cents below the average estimate of analysts., Slow credit card growth is one of several factors that continue to squeeze JPMorgan Chase's earnings, Ms. Whitney wrote., She also expects Citi, the third-largest issuer, to report earnings of $1.05 a share, or 2 cents above the average estimate of analysts. The main engine for Citi's growth it is international consumer business, whose net income likely rose 28% from a year earlier, to $1.23 billion, she wrote., American Express Co. is expected to report its earnings Oct. 23. Laura Kaster, an analyst with Sandler O'Neill & Partners LP, predicted in a note issued Friday that the company would report earnings of 75 cents a share, or a penny below the average estimate., continued strength in consumer, small-business, and corporate spending, Ms. Kaster wrote., Spending per card likely increased 5.4% from a year earlier, to $1, compared with a 5.6% increase reported for the second quarter, she wrote., Net chargeoffs likely inched up toward normal levels, she estimated, to 3.6%, from 3.4% in the second quarter, Ms. Kaster wrote., However, our estimates could prove to be conservative, in the master trust fell to 3.13% in the third quarter
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by David BreitkopfTwo point of sale terminal companies are touting portable, wireless, payment systems for the restaurant, hospitality, and service industries., Vendors say wireless terminals are not yet widely used in this country, but are starting to take off, because of the convenience of taking the, terminal directly to the customer and increasing consumer awareness of card, fraud., Hypercom Corp. of Phoenix unveiled its M4100 Blade on Wednesday at the, Electronic Transactions Association trade show in Las Vegas. The device, which includes a printer and a roll of 200 receipts, tips the scales at 7.1, ounces. It accepts credit and PIN debit cards and has an optional, contactless, reader. It also accepts smart cards using the Europay, MasterCard, Visa, format., Customers sign their names on a touch-sensitive screen that can be read, said Ed Mastrangelo, the director of wireless, products for Hypercom., The M4100 Blade offers all the features as Hypercom's countertop, counterparts, and though it is aimed mainly at the U.S. restaurant, industry,, using cellular coverage, we can hit route sales, delivery drivers, taxis, limousines -- anyone looking to accept payments where wire, Mr. Mastrangelo said., Gwenn Bezard, a research director for Aite Group LLC of Boston, said, skimming fraud -- stealing account information by running cards through a, The waiter disappears, comes back five minutes later, but you don't know what happened to your, Hypercom already sells a wireless, portable device, the M *2100-, in foreign, countries, and Mr. Mastrangelo said his company plans to eventually make, device available in the United States. It does not have a touch screen for, signatures, does not accept contactless cards, and is slightly heavier than, the M4100 Blade., VeriFone Holdings Inc. also offers a hand-held device for restaurants., The Vx 670 device accepts credit and PIN debit cards and prints out an, itemized receipts for people to sign. VeriFone announced the device's, development in November and said this week that it will begin shipping it, U.S. restaurants next month., The leading wireless terminal maker in the United States is Lipman, Electronics Engineering Ltd., an Israeli company that VeriFone is, acquiring., The deal, announced last week, is expected to close by October., Paul Rasori, the vice president of marketing and product management for, VeriFone, said Thursday that the Vx 670 can reduce the number of trips a, waiter must make to the table., Anything that shaves off seconds during payment transactions increases, Mr. Rasori said., Because the Vx 670 also accepts PIN debit cards, which few U.S. table, service restaurants accept today, it can also reduce merchants' interchange, fees, signature, debit.), Mr. Rasori predicted that consumers would learn to like the convenience, of having a waiter coming to the table with a hand-held terminal. Payments, would be completed faster, and the handheld systems address consumers', The whole notion of not having to give up your card, we think, would be, Mr. Rasori said., Initially, some customers might be confused by the idea of paying at the, but once they get used to it, we don't see a big consumer, VeriFone is talking to several well-known chain companies about using the, Vx 670, Mr. Rasori said, but he would not name them., Mr. Bezard said paying at the table is very common at restaurants in, France, where the EMV standard has been used for several years. (EMV cards, require a PIN, even for credit transactions.), It was not very convenient [for customers] to get up and go to the, It was far more efficient, the restaurant to have those portable wireless devices so waiters were able, However, whether U.S. restaurants will accept portable terminals remains, The pitch is probably going to revolve around, security, because more and more people are aware of security problems such
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by Steve BillsThe president and chief executive of Fiserv Inc., which has long been an active purchaser of banking technology vendors, says he plans to be more selective now that the market has become overheated., Instead, Jeffery W. Yabuki, who took over Fiserv in November, said in an interview Tuesday that he plans to focus more on developing products and services internally., He is even considering selling some of the Brookfield, Wis., company's 77 subsidiaries, though he would not say which ones, for fear that competitors would try to poach his customers., His comments demonstrated a significant strategic shift for a company that has built itself up through 142 acquisitions since it was founded in 1984., Fiserv has had difficulty identifying candidates with both attractive offerings and the right price, He succeeded Leslie Muma, who co-founded Fiserv and was its president and CEO from 1999 until his retirement last year., Though Fiserv has always had to compete with other banking technology vendors when courting acquisition targets, increased pressure in recent years from financial investors, especially private equity groups and hedge funds, has driven up prices, Mr. Yabuki said., we're going to look at acquisition a little bit differently, He reiterated his company's full-year earnings guidance of $2.48 to $2.54 a share and said Fiserv could generate organic revenue growth of 6% to 9%, versus its current range of 5% to 9%. He offered similar outlooks for operating margins and earnings growth., As part of a strategic review announced in April, Fiserv ranked each of its businesses according to its attractiveness for the future, As a result, Fiserv would consider selling units that it does not consider strategic for the future, Mr. Yabuki said, If somebody came along and offered me private equity multiples, During an presentation to investors Tuesday, Mr. Yabuki outlined his plans to increase Fiserv's annual revenue by $360 million by *2012-, mainly from cross-selling, and to reduce expenses by $125 million by *2011-, mainly by streamlining internal operations., One important goal is to offer clients a broader swath of payment services, BillMatrix Corp., a last-minute payment service provider that Fiserv acquired last month, would serve as the foundation of a broader bill-payment business., Fiserv's health-care processing division has gained a foothold in the nascent market for health savings accounts, Mr. Yabuki said. The company had looked at exiting the health business, but in April it announced that it had won a contract to provide processing services to Blue Healthcare Bank, a start-up industrial bank being organized by the Blue Cross Blue Shield Association and 32 of its 38 state and regional Blue Cross health plans to hold consumers' HSA deposits., On the cost-cutting side, Mr. Yabuki said Fiserv should lower annual costs by $100 million by 2010 and $125 million in 2011 by consolidating some of its back-office operations such as accounts payable, using common data centers for multiple operating units, developing unified purchasing and travel management systems, and potentially outsourcing some functions., Last year Fiserv had $4.1 billion of sales, but because of its decentralized business model, with many independent operating units, we often operate as a $50 million business 80 different times, And each of those units has its own overhead. For example, Fiserv operates 65 different e-mail systems, each with its own infrastructure and software., Executives emphasized in the presentation that they wanted to avoid things that would harm Fiserv's customer banks., Norman J. Balthasar, a senior executive vice president and the chief operating officer, said during a question-and-answer session with analysts., When you use a word like sunset, However, he also said that sunsetting could happen eventually. For example, Fiserv offers 10 systems for Internet banking, and it might need only three, Jeanne Capachin, the research director of corporate banking at Financial Insights Inc., a research unit of the Boston technology publisher International Data Group Inc., said that even modest efforts to centralize Fiserv could be difficult., Consolidating the back-office functions should not be that difficult, culturally, Jeff is going to have a big job on his hands, It's going to be hard, Even training the sales force for cross-selling more products could be difficult, Ms. Capachin said., Information Technology Inc.'s core system and ancillary products, it's going to be hard to know what to take to the customers and what to sell, Paul Bartoli, an analyst at Credit Suisse Group, rating on Fiserv's stock, expressed skepticism about whether the company could achieve its growth goals., We did not come away with a concrete sense of how management intends to achieve these goals
Published in American Banker (2006)
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by Howard J. Stock, Bank Investment ConsultantKerry Hatcher, a trust and investment specialist and market manager in the, First Interstate Financial Services division at First Interstate Bank of, Billings, Mont., has gained a $35 million book of business, given it up, then, started all over again to create a business he says is growing almost too, fast, to keep up with., Apart from one short-lived venture, Mr. Hatcher has spent the past 21, years working in financial services. He joined Prudential out of college, then moved to Farmers Insurance. He took a break from the industry to open, guest ranch with his wife, but the reality of hosting a constant stream of, visitors soon rubbed the sheen off the project, and in *1996-, he joined the, regional broker-dealer D.A. Davidson in Miles City, Mont., After moving in 1998 from Davidson to a First Interstate branch in Miles, City, on the high plains of eastern Montana, Mr. Hatcher had to make a, tough, choice to achieve the work-life balance he sought. He pined for his home, territory at the opposite end of the state. And when an opening occurred in, Bozeman, in the mountains of western Montana, he jumped at the chance., But he had to leave behind his book of 800 clients and $35 million of, but I'm now, my fifth year, Because First, Interstate pays a salary plus bonus, the move did not sting as much as it, would have had he been a commission-only rep., Originally assigned to six branches, including Butte, Mont., and Jackson, Wyo. -- the latter so far away that he had to fly down every month to put, some face time -- Mr. Hatcher responded by training his branch staff on the, do's and don't's of client handholding and by using conference calls to, meet, with far-off clients., These aren't as good as face-to-face meetings, but they're useful when, I've also used video conferencing with, high-net-worth clients, Mr. Hatcher's territory has now been scaled back to four branches, Bozeman, Livingston, and two rural sites, but his furthest two branches are, still 100 miles apart. He also must help clients whose accounts range from, $50 Roth IRA start-ups to $3 million trust accounts., I now have, 100 accounts, which translates into 500 relationships and $60 million in, My assets have grown from $45 million, back in *2004-, the markets have been good, Mr. Hatcher's diverse client base is reflected in his product mix -- 35%, fixed income, 30% mutual funds, 20% fixed or variable annuities, individual equities, 5% life insurance, and 5% unit investment trusts. This, mix also reflects his clients' investment outlook, which, as is usual in, bank, brokerage, is on the conservative side., However, his clients' demographic characteristics vary widely from branch, to branch and town to town. Bozeman, for example, is a younger, outdoorsy, There are a lot, of 20- and 30-year-olds living off of trusts. Bozeman is the, fastest-growing, area in Montana. People have discovered the West, they love skiing, they, love, the open space, and it's a fly-fishing mecca. It's a very active, Livingston, on the other hand, is a staid, older community. Mr. Hatcher's, clients there tend to be 50 or older. Both communities have enjoyed a, decade-long growth spurt that has seen housing prices rise 15% per year, forcing Mr. Hatcher to compete with real estate for investment dollars., Mr. Hatcher's practice is actually two businesses in one because, unlike, most banks, First Interstate combines trust and brokerage. About $70, 000 of, his 2005 production came from trust-related business, which is all fees., Though he does not use wrap accounts on the brokerage side, Mr. Hatcher, will, use C-share mutual funds, which also generate fees. But the customer, dictates, the approach., but in general the typical trust, client requires additional services and wants total money management. We, only, Mr. Hatcher categorizes his clients in tiers from A to D. He contacts A, and B clients monthly, C clients quarterly, and D clients at least, annually., He uses a fund family that gives them many of the benefits of active, management without the hassle., I use a lot of asset-allocation funds, particularly Accessor Funds, Accessor rebalances, each quarter, monitors for performance and style drift, and optimizes risk, and return. It only uses external managers, and it is quick to replace, underperformers. Accessor is slightly above the industry average cost, I try not to use, individual securities until clients are at least at a $75, 000 to $100, which makes, Nonetheless, he says he has zero, client attrition and is averaging 20 to 30 new clients per month. In the, months after the Sept. 11 attacks, his efforts to contact clients and, prospects paid an unexpected bonus., We were very busy contacting clients and growing by 30 to 40 new clients, per month because other firms weren't contacting their clients, he says., Clients have the perception that brick-and-mortar places are safer, Mr. Hatcher credits his two assistants -- Ellen Ross, who has worked with, him for six years, and D'Dea Raihl, his new assistant in Livingston -- for, ability to handle the workload. He says he is now handing off some of his C, and D clients to these assistants and may end up hiring a junior broker., He manages four other reps, and the bank is developing a platform, program. In its two-state footprint First Interstate has 40 advisers in all, who also double as trust officers. The reps report to one of four regional, I work with trust, but, also a regional market manager, so I have supervisory responsibility over a, Mr. Hatcher explains. He was promoted to the post two years, ago after the bank restructured -- it had grown large enough to justify, creating a layer of producing managers. The overall program manages $3, billion of assets., Mr. Stock is the managing editor of Bank Investment Consultant, SourceMedia publication where this article appeared in longer form.
Published in American Banker (2006)
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