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by David BreitkopfFraud has long been one of the many causes for chargebacks, but several, processing companies say that in 2005 it became the primary reason for, financial institutions to reverse charges., To some degree this could be a result of a Visa rule change that has, streamlined the reversal process and that might have led some merchants to, absorb chargeback losses for valid charges., However, there is widespread agreement that fraud surged in the past, year, and executives said the increase in chargebacks reflects a spate of, data security breaches in 2005 and more sophisticated scams by crime rings., James A. Hanisch, the executive vice president for network operations and, corporate development for the credit union debit network Co-op Network in, Ontario, Calif., said fraud-related chargebacks have gone through the roof., If I look back three years ago, our volume of routine disputes has stayed, In 2003 routine disputes generated 58% of Co-op Network's chargebacks and, fraud accounted for 42%. Since then, Mr. Hanisch said, chargebacks have, increased by about 350%, and in 2005 fraud generated 88% of them. Other, problems such as disputes about purchase amounts, damaged goods, merchandise never received were responsible for only 12% of chargebacks in, 2005., It's almost like you hit a hockey, He blamed last year's string of data breaches., In one of the most notable incidents, the transaction processor, CardSystems Solutions Inc. said in June that personal data on 40 million, consumer credit card accounts had been exposed. As of early October, American, Banker had tracked 84 data breaches, though few were of that magnitude., Alan Nevels, the senior vice president of operations and card risk for, ICBA Bancard, the for-profit card services subsidiary of the Independent, Community Bankers of America, said fraud-related chargebacks went from 49%, his chargebacks in 2004 to 55% last year. His company handles both credit, debit transactions. The total value of fraud losses for his bank clients, grew, 72% in the 12 months ended Oct 31, after falling by 21% from 2003 to, 2004,, though he would not provide the exact number., Richard S. Jenkins, the senior vice president and corporate counsel for, the debit network Shazam Inc. of Johnston, Iowa, said fraud-related, chargebacks have tripled over the past year at Shazam, though he would not, give the exact number., Chris Gill, a senior manager for Dove Consulting in Boston, a division of, Hitachi Consulting Corp., said the growth in fraud is behind the dramatic, increase in chargebacks., There is definitely a plethora of ways that criminals can perpetrate, Mr. Gill said, including skimming debit and credit card numbers, online attacks such as phishing, Dumpster diving to find personal, Clearly, breaches of the, CardSystems variety are a great opportunity [for criminals] to perpetuate, Though observers agree fraud is increasing, Marla Knutson, the president, of the financial institutions division at the merchant processor TransFirst, LLC of Dallas, said the growth in fraud-related chargebacks could also be a, result of an October 2004 rule change by Visa U.S.A. that made it easier, banks to initiate chargebacks., Ms. Knutson said one of the changes under a Visa program, known as, re-engineering disputes, was that the San Francisco card association, permitted banks to submit documentation of a disputed charge electronically, instead of by standard mail. And, merchants need to show documentation, verifying a transaction's validity just once now instead of two or three, times., Visa no longer requires issuing banks to order a sales draft from a, merchant when a customer disputes a transaction they do not recognize, Knutson noted. This process can often take as long as 21 days, but is now, optional., and a money saver,, and it has inflated the number of chargebacks because some of the, transactions later turn out to be valid., For example, many consumers are confused when a merchant's name on their, statement is different from the name of the retail outlet where the, purchase, was made., The number of fraudulent credit and debit chargebacks TransFirst handled, She would not provide exact numbers for chargeback rates or, losses., Dave Richey, a vice president for back-office product management at Visa, said in an e-mail that changing the chargeback procedure has enabled banks, and led to a, shift away from a protracted litigation-based process that depended on, with merchants., In an interview, Visa's network fell 21.2%, to 7.8 million, between 2001 and *2004-, but rose, 3.8% last year, to 8.1 million. He also said that the total number of, transactions rose by 19% from 2004 to *2005-, and that chargebacks, as a, percentage of total volume, fell by 12%., the rate of decline of fraud disputes is less than the rate of, decline of consumer-related disputes. Therefore, the percentage of, even though the overall numbers, are down., Avivah Litan, a vice president and research director for Gartner Inc. in, Stamford, Conn., said that Visa's chargeback rules favor banks and, consumers, over merchants, and that chargeback rates may be climbing because some, merchants simply find it too much of a hassle to challenge even valid, transactions., because it costs more to, It's beyond their control, and, Mr. Richey said that merchants may have accepted chargebacks for valid, transactions before the rule change took effect, but it is far less common, now., Kevin Gregoire, an executive vice president at Fiserv Inc.'s Portland, Ore., debit card unit Fiserv EFT, said his company had a brief spike in, fraud-related chargebacks last August and September after the CardSystems, data breach., But the number of chargebacks was roughly flat from 2004 to *2005-, fraud went from 47% of chargebacks in 2004 to 55% last year., Kurt Schaeffer, the vice president of operations for Global Payments, Inc., a credit and debit transaction processor based in Atlanta, said that, because of the efficiencies in the changes of, easy it was for an issuer to get the process going. But we've seen that, tail, Global Payments had a 10% to 20% increase in chargebacks due to actual, fraud last year, Mr. Schaeffer said. Processors handling more, card-not-present transactions, particularly over the Internet, are more at, Any merchant processor that, tends to dive a little more into the high-risk merchant portfolios, related to, fraudulent transactions.
Published in American Banker (2006)
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by Katie Kuehner-HebertMost financial institutions are being squeezed to some degree by the, combination of a flat yield curve and rising interest rates, but thrifts, feeling the most pain., Unable to reprice mortgage loans fast enough to keep up with rising, deposit costs, many thrifts reported steep margin and earnings declines in, the first quarter -- and analysts do not see conditions improving much this, year., Jared Shaw, an analyst in Hartford, Conn., for Keefe, Bruyette & Woods, Inc., said that even if the Federal Reserve stops raising interest rates, many thrifts might not have earnings gains until *2007-, when hopefully, Thrifts with more of a commercial mix fared better, because they had more, low-cost core deposits from business customers, higher-yielding commercial, loans, and fee income from cash management and other business services, Shaw said., Also, some thrifts countered the effects of margin contraction by buying, back shares to increase earnings per share. In fast-growing markets, some, thrifts -- such as BankUnited Financial Corp. in Coral Gables, Fla. --, actually reported increases in net interest margins., But by and large it was a forgettable quarter for many thrifts. Ryan Beck, & Co. in Florham Park, N.J., said in a research report issued Tuesday that, of the thrifts it covers had missed analysts' earnings-per-share estimates, the first quarter. Net income fell an average of 6% from a year earlier, earnings per share 4%. Only 14% of the thrifts it covers exceeded, estimates., At the $3.8 billion-asset Partners Trust Financial Group Inc. in Utica, N.Y., net income fell 10%, to $5.6 million, as an increase in deposit, costs,, coupled with the continued flat yield curve, led to a 6.8% drop in net, interest income. Its net interest margin fell 38 basis points, to 2.72%., Their margin had a pretty big contraction, and it's going to continue, said Laurie Hunsicker, an analyst at Friedman, Billings, Ramsey & Co. Inc., Furthermore, their previously forecasted commercial loan, growth didn't happen, as smaller companies got very aggressive in pricing, Partners decided not to compromise their underwriting standards and chase, Commercial loans fell 7%, to $471 million. The $494 million-asset Peoples, Bancorp of Auburn, Ind., said that its net income fell 30%, to $711, largely because of margin contraction., It was a similar story at the $3.5 billion-asset Bank Mutual Corp. in, Milwaukee. Its earnings fell 32%, to $5.4 million, because of a, 45-basis-point decline in its net interest margin., The $29.7 billion-asset Hudson City Bancorp Inc. in Paramus, N.J., much better than most thrifts, its first-quarter earnings rose 21.5%, to, $75.2 million, largely because of its size. Though it too experienced a, margin decline, a 41% increase in interest-earning assets -- mainly loans, mortgage-backed securities -- more than offset the drop., Hudson City also bought back 9.2 million shares, which helped boost, earnings per share by 27%, to 14 cents. Its earnings should increase, further, once it completes its acquisition of Sound Federal Bancorp Inc. in White, Plains, N.Y., Ms. Hunsicker said. It is expected to close in the summer and, be accretive to earnings in 2007. The deal was announced Feb. 9., The $12.2 billion-asset BankUnited was among the few publicly traded, thrifts that reported a margin expansion -- from 1.75% in the first quarter, of 2005 to 2.08% in this year's first quarter., Ms. Hunsicker said that BankUnited's margin grew because it aggressively, added loans and priced the majority of them using the lagging Monthly, Their results are staggering, well ahead of analysts', consensus, BankUnited's earnings rose 45%, to $19.7 million, on strong growth in, both loans and core deposits. South Florida is one of the fastest-growing, markets in the country, and BankUnited had been able to rapidly increase, both, its retail and commercial business, Ms. Hunsicker said., Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest, Research Securities Corp. in Nashville, said that despite the difficulties, thrifts are facing, most are still profitable because their credit quality, and balance sheet management are strong., He said a case in point is the $22.2 billion-asset Astoria Financial, Corp. in Lake Success, N.Y. Its net income fell 17%, to $48.9 million, its return on equity was 14.77%, well above average for thrifts these days., Mr. Davis said that Astoria manages its balance sheet well by offering, more certificates of deposit with longer durations, reducing the amount of, borrowings and investment securities, and continuing to buy back shares., Relative to what thrifts were earnings two years ago, it's miserable, But from a longer-term perspective, many thrifts are still very
Published in American Banker (2006)
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by On Dec. 9, American Banker published an opinion article defending, Sovereign Bancorp Inc.'s effort to sell an equity stake and use the, Attacks on Sovereign, was written by Ben A. Plotkin, chairman of, investment bank Ryan Beck & Co., which is owned by BankAtlantic Bancorp, Inc., That opinion piece is at the center of a skirmish in Sovereign's fight, with a dissident shareholder, Relational Investors LLC. Relational - which, opposes the acquisitions - said last week that it had asked the SEC to, conduct by Sovereign regarding the article., Relational cited a Dec. 15 letter to shareholders from Sovereign's, chairman, Jay Sidhu, that included a reprint of the article. Relational, said an author's note following the article should have disclosed Ryan, business relationship with Sovereign, the note said, was not involved in the Sovereign transaction but publishes, equity research on numerous regional and community banks, including, Last Friday American Banker reported details of Relational's complaint in, a brief news story that included the information that Mr. Plotkin had, submitted the unsolicited article for publication and had provided the, contents of the author's note. We have since asked Ryan Beck to provide, fuller disclosure. Below is the full text of Ryan Beck's statement, which, we received Tuesday., American Banker welcomes all perspectives, its news and opinion pages will, continue to cover Sovereign and its shareholders., * Ryan Beck's financial institutions group has been providing investment, banking services to community banks and thrifts for more than three, decades. The 30-member financial institutions team has over two centuries, of combined industry experience., * Ryan Beck offers a full range of financial advisory services, including, buy-, sell-side advisory, balance-sheet restructuring, due-diligence, assistance, fairness opinions, and feasibility studies. Past financing, solutions for clients include the use of equity, debt, trust-preferred, and hybrid securities., Through its distribution platform, the firm assists banks in selling their, securities to both retail and institutional investors. The firm is also a, leading specialist in providing mutual-to-stock conversion analysis and, transaction assistance., * Ryan Beck has been engaged by Sovereign Bank in the following, capacities: From 1997 to 2002 the firm served as a non-lead, co-manager in, public offerings of securities. Prior to 2002 the firm provided other, types of financial advisory services., * Ryan Beck has performed investment banking services for banks that have, subsequently been acquired by Sovereign, but no fees were paid to Ryan, Beck by Sovereign in connection with those assignments., * Ryan Beck was not involved in any capacity in the transaction involving, Sovereign, Banco Santander, and Independence Community Bank Corp., * Ryan Beck presently has no investment banking relationship with, Sovereign Bancorp but is entitled and qualified to seek or accept such a, relationship in the future., * Ryan Beck currently serves as a market maker in 476 bank and thrift, stocks, and Sovereign Bancorp is included in that group. In that capacity, Ryan Beck may either be long or short any of those stocks, including, Sovereign's stock, at any given time., * Ryan Beck has no other material business relationship with Sovereign or, its management., * Ryan Beck's research department publishes independent opinions on 99, community banks and thrifts, including Sovereign Bancorp. This research is, widely disseminated to news sources at time of publication, and available, * Ryan Beck's most recent research report on Sovereign was published on, Dec. 20, 2005. (Ryan Beck provided its three most recent reports on, Sovereign, which are are linked in the online version of this article at, * Ryan Beck's chairman and CEO, Ben Plotkin, has never publicly expressed, and does not publicly express, his personal views regarding the investment, merits of any financial institution. He is a longtime shareholder of, Sovereign Bancorp., * Ben Plotkin's consent was not sought by Sovereign Bancorp prior to its, decision to distribute his American Banker op ed article to its, shareholders.
Published in American Banker (2006)
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by Compiled by Daniel WolfeBank of America Corp. is offering a two-factor online authentication, product to former FleetBoston Financial Corp. customers and an, anti-phishing, product to all B of A customers., The Charlotte company said Wednesday that it had deployed the, authentication software to online banking customers in Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island in December. All those states were served by Fleet, which B, of A, bought in 2004., Bank of America began using the product, from PassMark Security Inc. of, Menlo Park, Calif., last May, after revealing in February that it had lost, backup data tapes containing account details on 1.2 million credit card, customers. It has since been rolling out the PassMark product, which it, calls, SiteKey, regionally. The only states where B of A customers cannot yet use, SiteKey are Washington and Idaho., Bank of America has said it plans to make SiteKey available to all of its, customers. It has also said that SiteKey will eventually be mandatory in, regions, and in November it began requiring it in some markets., The SiteKey software displays a pre-selected image to customers when they, type in their user name, to confirm that the bank's site is legitimate., SiteKey also looks for a file on the consumer's computer to verify that it, a known computer., Last month B of A began offering a toolbar plug-in for Web browsers that, can flag known phishing sites. It is using a version of the toolbar, currently, offered by the Internet service provider Earthlink Inc. of Atlanta., The software receives information about phishing sites from Earthlink, users, Cyota Inc. of New York, eBay Inc. of San Jose, Calif., Brightmail, Inc., (a unit of Symantec Corp. of Cupertino, Calif.), Digital Envoy Inc. of, Norcross, Ga., and the Anti-Phishing Working Group.
Published in American Banker (2006)
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by Todd DavenportIn another sign of its escalating conflict with institutional, shareholders, Sovereign Bancorp Inc. said it would delay its annual, shareholders meeting to give itself time to integrate its pending, acquisition, of Independence Community Bank Corp. of Brooklyn, N.Y., The Philadelphia thrift company, which over the last decade has never, held its annual meeting later than April 27, said Wednesday that it will, hold, this year's meeting after Aug. 31, so the proxy contest initiated by, Relational Investors LLC, its largest shareholder, will not be a, distraction, during the integration., Analysts and investors criticized the delay and questioned Sovereign's, motives. Many said delaying the meeting will give the company ample time to, put a substantial chunk of stock in the sympathetic hands of Banco, Santander, Central Hispano SA, which is buying a 19.8% stake., Sovereign's board is going to do everything in its power to maintain, control and to thwart the efforts of Relational, and this is just another, said Matthew Kelley, an analyst at Moors & Cabot, Inc., The Sovereign shareholder base is really the one that has been denied the, Closing the three-way transaction in time to let Banco Santander vote its, shares at the annual meeting would be a substantial obstacle for, shareholders, trying to unseat Sovereign's directors., When Santander acquires its stake, institutional ownership of Sovereign, said Joseph Fenech, an analyst at, If there is going to be a proxy fight and, investors are against the deal, then it's to Sovereign's interest to hold, Sovereign said Wednesday that its board amended the bylaws governing, shareholder meetings to remove a reference to the third Thursday of April, the target date for the meeting. Neither Pennsylvania corporate law nor, securities regulations appear to preclude such a delay., Nell Minow, the co-founder and editor of The Corporate Library LLC, governance research firm in Portland, Maine, said the delay is another, example of Sovereign's weak corporate governance., Every time I think it can't get worse at Sovereign, they amaze me and it, If you go to, capital markets for money, you promise a certain level of accountability., Sovereign said it decided to delay the meeting to focus on integrating, before it becomes necessary to devote very, Relational., But that reasoning inspired mostly skepticism. Mr. Kelley said it was a, core, Franklin Mutual Advisers LLC, Sovereign's second-largest shareholder, a transparent ploy to disenfranchise the company's, Lee Delaporte, a portfolio manager at Dreman Value Management, another, by the announcement., It did not surprise me, but it does reinforce my feelings on management:, I can't believe that this, isn't, being done to put a roadblock in front of the ability to change or put, forth, a couple of other options for board membership. They seem to be pulling out, Institutional Shareholder Services Inc., a proxy-consulting firm that, advises or directs voting by several of the thrift company's other, premature to speculate on our, will be a factor that we will, A Sovereign spokesman would not discuss the reactions to its decision to, delay the meeting. Relational did not comment by press time.
Published in American Banker (2006)
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by Steve Billsrivate Business Inc., a Brentwood, Tenn., financial technology company, has pushed further into the banking industry by buying the assets of PTC, Banking Systems Inc., a Bradenton, Fla., teller-automation software, developer., The purchase was announced Wednesday. Private Business did not say how, much it paid., Private Business plans to integrate PTC's software, including its, flagship product, WinTeller, into its own products for community banks and, middle-market companies., Kjell Purnell, the president and chief executive of PTC, said in the, press release announcing the acquisition that he expects to join Private, Business' management team., Last month it paid $6.9 million in cash and stock for Captiva Solutions, an Atlanta core data and item processing services provider that was, formed last year. As part of that deal, Captiva chief executive Lynn Boggs, became the CEO of Private Business. (Before joining Captiva, Mr. Boggs had, been the president and chief operating officer of the Atlanta core and item, processing outsourcer InterCept Inc., which Fidelity National Financial, Inc., of Jacksonville, Fla., acquired in 2004.), In the press release, another step, in our plan to provide a full-product suite to community financial, PTC had 80 financial customers in the United States., Private Business, founded in *1990-, offers core data processing, accounts, receivable financing, cash management, financial accounting tools, electronic, image, item processing, and online debt collections software.
Published in American Banker (2006)
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by Jody ShennFor home lenders, 2005 may go down as the year that disclosure of details, on option ARMs began to achieve critical mass., Information on activity in the niche had long been elusive, among the, biggest participants, Downey Financial Corp. was notable for the amount of, information it had provided in past years. But a survey of top option-ARM, lenders' 10-K filings by American Banker shows that much more data is now, available, including figures on topics to which regulators and investors, paying close attention: deferred interest and related negative, amortization., While definitions on those areas are not yet standardized across the, industry, all the leading lenders in this niche provided evidence that, principal-balance growth on such loans surged last year as many borrowers, made only minimum payments. Noncash income from deferred interest was a, sizable portion of some lenders' profits -- in some cases, more than 60%., That may add to the worries of regulators, who have expressed concern, about such borrower behavior, which reduces the equity cushion for lenders, and can cause payments to more than double. In December joint guidance, proposed by bank regulators suggested tighter underwriting, sterner, borrower, warnings, and better risk management. After an extension, comments were due, last week., the Securities and Exchange Commission's staff called for more disclosures, about risky home loans, especially option ARMs. The Financial Accounting, Standards Board, also in December, issued a staff position saying such, loans, may require additional disclosures -- some may be needed with a, -- and different accounting assessments., In their 10-K filings released last month, Downey along with Washington, Mutual Inc., which had been stingy with details until last year, led the, pack, in giving details about option ARMs, though each approached it differently., Alan Gulick, a Wamu spokesman, said it expanded its disclosures, which a, year earlier consisted of vague hints on option ARM originations and, holdings, in response to the SEC's guidance. The Seattle thrift company has, closely monitored regulators' growing interest in the product, so it was, Golden West Financial Corp., the product's granddaddy, also added some, disclosures, which its accounting chief called a response to the increased, interest. FirstFed Financial Corp. apparently took into account the FASB, cash-flow issue, and also provided more of a narrative description., Two product newcomers, Countrywide Financial Corp. and IndyMac Bancorp, Inc., were relatively tight-lipped. North Fork Bancorp. Inc., a sizable, option ARM player through its GreenPoint Mortgage, had little to say, except, that it does not portfolio such loans, which made up 30% of originations., First, a look at the figures that have tended to draw the most questions, from Wall Street., Wamu: Deferred interest in its earnings created by minimum payments rose, to $316 million, or 9% of the company's net income, from $19 million in, 2004., Negative amortization above original balances -- a measure some analysts, can obscure borrower stress if disclosed alone -- rose to $157 million, from, $11 million., The nation's No. 3 home lender did not give the total ammount of its, option ARM balances that was made up of deferred interest., Last year, as it sold more such originations, its option ARM book grew, just 5.8%, to $70.1 billion, after jumping 35% in 2004. At yearend the, loans, made up 52% of the home loan book, essentially the same percentage as in, 2004., As a percentage of originations, option ARMs fell about 1 percentage, point, to 31%., Countrywide: Negative amortization above the ARMs' initial balances rose, to $74 million by yearend, from $29, 000 a year earlier. The $175, billion-asset Calabasas, Calif., company did not give the total deferred, interest or the amount that was deferred last year., Such loans at Countrywide's rapidly growing bank jumped more than, fivefold, to $26.1 billion, or 41% of the mortgages held for investment, versus 14% in 2004., The loans made up 19% of last year's originations at the nation's largest, home lender, up from just 6% in 2004. That percentage has held fairly, steady, so far this year, though last week Countrywide said it was raising start, rates, and hence minimum payments, and dropping teaser periods. It said, those, changes, and possible regulatory action, could cut into its volume., Golden West: Outstanding deferred interest in its option ARM balances, rose to $448.8 million, from $55 million. As the $124 billion-asset, Oakland,, Calif., thrift company's cash-flow statement shows, net deferred interest, recognized in earnings rose from $34 million to $394 million -- about 26%, its earnings., of its ARM portfolio was made up of option ARMs,, the filing said, while 99% of its $119 billion of mortgage and, mortgage-bond, receivables were ARMs, 1 percentage point more than a year earlier., Downey: Per the $17.1 billion-asset Newport Beach, Calif., thrift, company's cash-flow statement, about $135 million of interest income last, year stemmed from deferred interest capitalization. But deferred interest, outstanding on the loans rose by only $96 million., The mismatch relates to one of the biggest sources of confusion about, these loans., Thomas E. Prince, Downey's chief operating officer, said the mismatch, reflected the fact that refinancings and home sales paid down some, outstanding deferred interest. (Downey has disclosed deferred interest in, cash-flow statement for several years.) Wamu used a similar method in its, cash-flow statement and to show deferred interest elsewhere., But Golden West's chief accounting officer, William C. Nunan, said his, company actually netted out such repayments in the entry in its cash-flow, meaning the figure should show the growth in deferred payments the company, not sure it can collect., Both treatments seem to have merit. Netting out repayments means a lender, is understating new noncash interest income, but ignoring them would mean, getting no credit when the noncash income turns into cash payments. The, FASB,, in directing companies to FAS 95, did not give specific guidance on the, issue., Other salient figures in the Downey 10-K: Ninety-seven percent of the, $133 million of deferred interest outstanding came from loans with balances, above the original principal amounts, and the company generated 62% of its, profits from noncash income from deferred interest. (It did not say how, much, the deferred interest exceeded original balances.), About $13.4 billion, or 91%, of Downey's one-to-four-family residential, loan portfolio could experience negative amortization, up from 82% a year, earlier., IndyMac: The $21.5 billion-asset Pasadena, Calif., thrift company did not, report any negative amortization in its 2004 filing. In last year's filing, reported $5.3 million, but a spokeswoman said the figure was only the, amount, above the loans' original balances. Like Countrywide, IndyMac did not, disclose total deferred interest., Its $1.3 billion of such loans made up 25% of its single-family home, loans held for investment, up from 13%. The mortgage book made up 38% of, loans held for investment, down about 2 percentage points from the end of, 2004., FirstFed: Negative amortization, apparently meaning any deferred, interest, rose to $63 million, from about $5.5 million. Interest income, accrued in excess of borrower payments jumped to $57 million, from $1.5, million. Noncash interest income made up 62% of the $10.5 billion-asset, Santa, Monica, Calif., thrift company's net income., of mortgages subject, to negative amortization. One-to-four-unit residential loans grew 60%, $7.3 billion, and the percentage of such loans in its portfolio grew to, 76%,, from 66%., STANDOUTS, Besides some coyness and different treatments on deferred interest, what, else was varied?, Uniquely, Wamu broke down the top six geographic areas where the option, ARMs in its portfolio were made, and the original loan-to-value ratios of, loans in each. (California, at 48%, was No. 1, and such ARMs started with, LTVs.), The company also provided a rare snapshot of the percentage of option ARM, borrowers whose final payment of the year resulted in negative, amortization., That figure was 47%, up from just 21% in 2004. Estimates by bond analysts, executives for the number of option ARM borrowers making minimum payments, last, year have ranged from 25% to 75%, the variance may reflect real diversity, among actual loan pools., Wamu's filing also discussed qualification standards. As American Banker, reported at the time, in December the company scrapped the use of an, artificial rate, which it would manually set, to calculate debt-to-income, ratios, rather than the fully indexed one, which adds a loan's margin to, prevailing rate on the index to which it is tied. Most lenders use a fully, indexed rate, though some use an artificial rate set above it, to consider, potential borrower stress as rates rise., Because Wamu did not raise that rate during a flurry of Federal Reserve, Board rate hikes over the last two years, before finally doing so in, October,, it qualified many borrowers at less than fully indexed rates, the filing, said., (Even the use of fully indexed rates is a less stringent underwriting, method, than what bank regulators want -- their proposed guidance also calls for, lenders to assume principal balance growth, sparking complaints.), Borrowers qualified below fully indexed rates got $30 billion, or 70%, such ARMs Wamu made in the past two years and now holds., For the first time, Golden West provided a chart showing the distribution, of deferred interest outstanding across origination dates and loan-to-value, ratios (or ratios that take into account the home equity loans, if it made, them, behind the first mortgages)., Only about 11% of the deferred interest came from loans originated with, LTVs, or combined LTVs, above 80% last year, when many bears say most hot, considered, appreciation. Mr. Nunan said they would if it later made an equity loan on, home or was doing regular valuation surveillance on a multifamily property, of cases., About 70% of the deferred interest came from loans with LTVs or combined, LTVs below 80%. Only 2.6% came from loans with LTVs or combined LTVs above, and a footnote said 99% of the deferred interest on these option ARMs, was on loans with mortgage insurance or pool insurance on the equity loans, Golden West made behind it., Other Golden West disclosures, if not on option ARMs in particular, also, provided insight. One highlighted a particular risk: Policies on buying, mortgage insurance at origination do not apply to situations where negative, amortization later erases down payments., For example, 16.7% of Golden West's first mortgage and home equity, portfolio had a LTV or combined LTV above 80%, about two thirds of them, of the, (mostly uninsured) first mortgages in the 80%-85% LTV range got there by, amortizing negatively after the closing, it said. In 2004 just 12.2% of its, home loan book had LTVs or combined LTVs above 80%, but only 44% of those, were uninsured., Asked why it did not break out deferred interest below original balances, Eric Sieracki, Countrywide's chief financial officer, first said, It's an, evolving product, then, noted Countrywide's stellar reputation for disclosure. He finally said its, from, that figure plus other deferred interest., Most of the loans Countrywide owns were recently originated and have not, had much time to be paid down, though most have teaser periods in which, minimum payments are fully amortizing, as do loans from other companies., about other disclosures, Mr. Sieracki said., IndyMac's option ARMs as a percentage of loan production rose 8, percentage points last year, to 29%. They made up 24% of the collateral, behind its non-investment-grade securities, but none of the true, margin for sold loans -- combining sales, gains, hedging, and warehousing spreads -- showed one reason the product, remains so appealing to lenders. The margin for such loans slipped 9 basis, points, to 2.05%. For other conduit loans, it dropped 28 basis points, 0.41%., IndyMac said the original weighted average combined LTV on the option, ARMs it holds for investment was 74%. Unlike others, it estimated the, loans', average current combined LTV (63%), based on appreciation, as well as, either, positive or negative amortization. It used Office of the Federal Housing, Enterprise Oversight data on appreciation by metropolitan area for the, loan-level calculations that produced the figure., Pam Marsh, IndyMac's executive vice president of strategic and financial, planning, said it did not disclose more attributes of its option ARM, portfolio, such as average FICO scores, because they remain a fairly small, part of its holdings. Asked why it does not break out all the deferred, If you pay down principal and move it back up, you, SLICE, Downey was the only company examined by American Banker that made, (which it said elsewhere referred, only, loans) and prime option ARM lending., Few option ARM lenders will make the loans to borrowers with truly, credit scores, but many offer them with high LTVs, no income, documentation, and scores well below 700., Downey considered only 7% of its option ARMs subprime. By balance, only, 21% of these loans did not experience any negative amortization, versus 27%, of prime ones., The company also detailed how much negative amortization occurred on, loans that had exceeded initial balances, how much occurred on loans still, below those balances, and what the amortization did to their respective, LTVs,, assuming no appreciation. By balance, about 10% of the loans experienced, negative amortization without exceeding their original balances, while 64%, negatively amortized above them., offering the average age of the loans with this breakdown, Downey, revealed its older option ARMs were less likely to amortize negatively, those, not using negative amortization were, on average, 21 months old, versus 15, months for those that were., This may be surprising, considering the common teaser periods, which, generally preclude balance growth. But it could be taken to mean borrowers, who took out the loans after the recent home price surge did so because, they, needed to rely on the minimum payments., Downey also said an older version of the loan, which allows the balance, to rise up to 125%, fell to 5% of its one-to-four-unit residential, portfolio, at yearend, from 11%., Higher caps -- 110% is today's standard -- are considered riskier in one, sense, because they can erase more equity. Another view is that lower caps, accelerate payment shocks, which typically would come after five years and, might otherwise be avoided., One quirk: Countrywide's initial 10-K overstated negative amortization, above initial principal balances, making the figure appear nearly twice as, large as it actually was. The error was quickly corrected.
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by Paul DavisBank of America Corp. said fourth-quarter earnings missed Wall Street, including an, unexpectedly strong hit from the recent bankruptcy reform, lower trading, revenue, and reduced service fees., In brief opening remarks on a conference call Monday, Kenneth D. Lewis, of A's chairman, president, and chief executive, focused entirely on the, with, expectations his company made public a year ago. Nevertheless, full-year, income, though up, fell short of analysts' estimates., Chief financial officer Alvaro G. de Molina then took over to explain why, the company's fourth-quarter earnings missed expectations., During the quarter bankruptcy filings and lower trading revenue hit other, large banking companies, such as Citigroup Inc. and JPMorgan Chase & Co., Mr. de Molina was quick to point out., The good news is that a number of the issues that had a negative impact, on fourth-quarter results are unique to the ... quarter and don't signify a, But Mr. de Molina cautioned that B of A would not have its typical 10%, year-over-year earnings growth this year. Instead, low- to, The $34 billion acquisition of the Wilmington,, Del., credit card issuer MBNA Corp. should be neutral to earnings this, year,, B of A had said it expected, slight dilution this year., The $1.3 trillion-asset Charlotte company's fourth-quarter earnings fell, 8.7% from the third quarter and 2.1% from a year earlier, to $3.77 billion., Excluding $59 million of pretax charges tied to the 2004 acquisition of, FleetBoston Financial Corp., earnings per share fell 7.8% from the third, quarter, to 94 cents, which missed the average of analysts' estimates by 8, cents., Full-year earnings rose 19.4% from a year earlier, to $16.89 billion, excluding $412 million of pretax merger-related charges, earnings per share, rose 10.8%, to $4.21, which missed the average of analysts' estimates by 9, cents., The fourth-quarter and full-year numbers did not reflect the acquisition, of MBNA, which closed Jan. 1., In November, B of A had forecast that fourth-quarter net chargeoffs could, rise between $300 million and $500 million from the third quarter, because, the bankruptcy reform law that went into effect in October. But, fourth-quarter net chargeoffs actually rose $503 million, or 43.5%, $1.65, billion. Its provision rose 20.7% from the third quarter and nearly doubled, from a year earlier, to $1.4 billion., Trading account profits fell 50.8% from the third quarter and 5.9% from a, year earlier, to $253 million. Earnings in the global capital markets and, investment banking group fell 71.7% from the third quarter and 79.1% from a, year earlier, to $123 million., Net income from the global consumer and small-business banking group, which includes credit cards, fell 6.5% from the third quarter but rose 9.5%, from a year earlier, to $1.76 billion., In the fourth quarter, B of A's earnings were stung by policy changes for, overdraft fees for checking accounts and over-the-limit fees in its credit, card business. Service charges fell 7.4% from the third quarter but rose, 1.9%, from a year earlier, to $1.93 billion., Mr. de Molina said in Monday's interview that his company changed its, schedule for writing off uncollected overdraft fees to 60 days past due, from, with the industry. It also started, waiving over-the-limit fees more frequently., there's been a lot of conversation in the industry, about, Edward Najarian, an analyst at Merrill Lynch & Co., wrote in a note to, weak across, fee income, higher incentive compensation expenses, and core, credit losses that were higher than expected., for net, interest income this year, in part because the company held back deposit, pricing last year. Fee income such as trading revenue should rebound, will have to decide whether to raise deposit prices more rapidly than, Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, said in an, there is really, in the company's overall outlook. In particular, he, downplayed the rise in expenses and emphasized the efficiency ratio, which, finished the year at 49.79%., The loan book rose 3.5% from the third quarter and 10% from a year, earlier, to $573.8 billion at yearend. Deposits rose 1.3% from the third, quarter and 2.6% from a year earlier, to $634.7 billion. The net interest, margin expanded by 2 basis points from the third quarter, to 2.82%., B of A reported MBNA's earnings separately. The card issuer's, fourth-quarter earnings fell 45.8% from the third quarter and 49.4% from a, year earlier, to $389 million. Its fourth-quarter provision rose 6.5% from, the third quarter and 8.6% from a year ago, to $279 million., As a percentage of average managed credit card receivables, net credit, losses rose 375 basis points from the third quarter at B of A, to 9.49%, 163 basis points at MBNA, to 5.92%., Edwin Groshans, an analyst at Swiss Reinsurance Co.'s Fox-Pitt, Kelton, Inc., said in an interview that the difference in those increases could be, tied to MBNA's securitization activity and to the fact that it typically
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by Damian PalettaRecords obtained under the Freedom of Information Act and an interview with, Alan Greenspan reveal the pivotal role the former Federal Reserve Board, chairman played in the debate over reforming regulation of Fannie Mae and, Freddie Mac, and how closely he coordinated with White House officials on, issue., The records, provided to American Banker in response to an October *2004-, FOIA request, reveal 450 meetings Mr. Greenspan hosted at the Fed with 319, people from September 2003 through August 2005., Mr. Greenspan met with foreign dignitaries, bankers, Wall Street, executives, and cabinet officials, but many visitors were key players in, fight over cracking down on the government-sponsored enterprises., GSEs are a very serious financial issue for this country, Mr. Greenspan, I would have been derelict had I not, Mr. Greenspan held frequent meetings with White House officials who, agreed with him that Congress should create a strong new regulator with, authority over Fannie and Freddie., For example, on April 4, *2005-, Mr. Greenspan hosted a meeting with Allan, Hubbard, director of the National Economic Council, and Kevin Warsh, then, special assistant to the President on economic policy., Two days later, Mr. Greenspan testified before the Senate Banking, Committee, urging lawmakers to cap the mortgage portfolios of Fannie and, Freddie. The next day Treasury Secretary John Snow largely embraced Mr., Greenspan's position, saying a new regulator should be required to limit, portfolios., Mr. Greenspan met several other times with White House officials on the, GSEs and other issues., Those meetings included nine with Stephen Friedman, Mr. Hubbard's, predecessor at the White House, and eight more with Mr. Hubbard., Mr. Greenspan met three times with Mr. Warsh, who was instrumental in, setting the administration's GSE policy. The Senate confirmed Mr. Warsh, last, Friday for a seat on the Fed's seven-member board of governors. He is, rumored, to be a candidate to succeed Roger Ferguson as vice chairman, Mr. Ferguson, announced his resignation Wednesday. (See story page 2.), This data indicates just how closely the Fed and the White House may, have been working together ... on an issue that is critical to both, said Tom Schlesinger, the executive director of the, Financial, Markets Center, an independent, nonprofit research center that monitors the, Fed from Howardsville, Va., A White House spokeswoman did not return calls seeking comment., Mr. Greenspan also met multiple times with the chief executives of Fannie, and Freddie., Richard Syron, Freddie's CEO, met with Mr. Greenspan seven times between, January *2004-, a month after Mr. Syron took the job, and March 2005 -- more, than any other nongovernment official., Asked about the meetings, Mr. Greenspan said Mr. Syron, who formerly was, the president of the Federal Reserve Bank of Boston, Still, several of Mr. Syron's meetings came before Mr. Greenspan, testified on Capitol Hill about GSE issues, including a meeting in January, February, and March of last year., In contrast, former Fannie CEO Franklin Raines met with Mr. Greenspan, only twice, and Daniel Mudd, who took the reins last year after Mr. Raines, was ousted, met with the central banker once in February 2005., Mr. Greenspan, who retired Jan. 31 after 18 years atop the Fed, said that, he met with the companies' executives at their request, and that they, attempted to convince him their portfolios did not pose a threat to the, U.S., economy., I did not get credible rebuttals to the analysis which I presented in, Mr. Greenspan said., Former Fed Governor Edward Gramlich, now the provost at the University of, Michigan, said the complex GSE issue often came up at the weekly or, biweekly, economic briefings that the Fed governors hold with staff on Monday, mornings., The Fed's interests in this are pure as the driven snow, Mr. Gramlich, Greenspan was, and we were, A spokesman for Fannie declined to comment for this story. A spokeswoman, are former colleagues and, have, She deferred to the Fed on, content of the meetings., There were other GSE-related meetings. Mr. Greenspan met with Armando, Falcon Jr. on May 9, *2005-, just days before he stepped down as director of, the Office of Federal Housing Enterprise Oversight. In an interview, Falcon, now a principal at Canonbury Group, said that he requested the, meeting to discuss broader housing issues, but that they also discussed, congressional efforts to reform the GSEs., The records are incomplete because the Fed would name only visitors who, checked in to meet with Mr. Greenspan. The records do not include visitors, who might have first met with another Fed official and then visited the, chairman. The records also do not list meetings Mr. Greenspan had, elsewhere,, such as on Capitol Hill or at the White House., Still, the records offer a rare window into the breadth of issues that, Mr. Greenspan faced on a daily basis in his role as central bank chief., For example, he met with lawmakers or Hill staff members on 31 occasions, including four meetings with Sen. Charles Hagel, R-Neb. Mr. Greenspan also, twice, in September 2003 and September *2004-, with National Security Adviser, Condoleezza Rice, now the secretary of state., Mr. Greenspan met three times with former Treasury Secretary Robert Rubin, after he had become the chairman of the executive committee at Citigroup, Inc., He met four times with James Thain, the chief executive officer of the New, York Stock Exchange. He also met once with Stan O'Neal, the chief executive, of Merrill Lynch & Co., More than 100 of the 450 meetings were with international officials or, diplomats, including Gordon Brown, the U.K. chancellor of the exchequer, (three meetings), and Kamil al-Gailani, the Iraqi minister of finance (one, meeting).
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by Jody ShennFreddie Mac's latest set of delays in its financial reporting reflects an, apparent shift of priorities, from current reporting to remediation work., The government-sponsored enterprise said Friday that it would not meet, its self-imposed March 31 deadline for releasing full-year 2005 results., does it plan to return to timely reporting of its capital position to its, regulator on a basis compliant with GAAP by next month, as it had, previously, expected., The capital-reporting delay, the more important of the two, surprised, some analysts. Before Friday the GSE had appeared to be on the cusp of, getting its quarterly earnings reports back to a normal schedule. Though it, had not offered a firm schedule for doing so, most observers assumed a, full-year release meant timely earnings reporting from then on., But Martin F. Baumann, Freddie's chief financial officer, said Friday in, infrastructure to the point where it can, support timely, reliable quarterly reporting continues to be an enormously, Edwin Groshans, an analyst at Swiss Reinsurance Co.'s Fox-Pitt, Kelton, Inc., said Freddie told him Friday that it has stepped back from quarterly, reporting because the staff involved with preparing it, at times using, manual, steps, is also working on accounting and controls systems., Ensuring that those systems are in order, and that needed policy updates, For the longer term, this is the, right, Even if Freddie had focused too much in the recent past on putting out, results rather than repairing systems, there were good reasons for doing, The Street doesn't want to have radio silence for three, Full-year results will not be out until May, and even those will not, include an audited annual report. However, Freddie will discuss preliminary, results and future timelines on a March 30 conference call. It said its, goal, now is to start filing GAAP-compliant capital reports with the Office of, Federal Housing Enterprise Oversight and disclosing quarterly earnings in a, timely manner by yearend., Freddie also said it will begin registering its stock with the SEC after, it started putting out timely quarterly reports. It was expected to start, registering next quarter., significant improvement in its method for determining the estimated fair, It will make, Freddie has been collecting thoughts from Wall Street firms on similar, financial instruments that it is feeding into its models for valuing the, essentially untraded assets and obligations, after using less third-party, information in the models previously. It said it does not expect the change, to affect any previously released audited financial statements. (It had, previously revised the modeling for first-half 2005 results.), To be fair, executives have repeatedly warned Freddie's timelines could, prove overly optimistic. Eugene McQuade, the GSE's president, cautioned at, We have an awful lot of work to do, and, Freddie was steadily moving closer to regular earnings releases until a, computer programming error it uncovered in preparing third-quarter results, required a $220 million reduction of past results. Firm third-quarter, results, have yet to be released. Freddie entered a reporting black hole because of, accounting scandal that broke in the middle of 2003., Naturally, some saw Friday's announcement as more ammunition for GSE, critics in policymaking circles., can bolster support for the strict, reformists, who argue the GSEs never really knew what risks they actually, said Robert Lacoursiere, an analyst at Banc of America Securities., However, Fannie Mae has been working on a multiyear restatement since late 2004., In November it said it does not expect to issue the restatement, expected, erase about $10.8 billion of past profits, before July., the restatement, a Fannie spokeswoman said.
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by Tim MazzuccaHSBC Holdings PLC outlined plans to expand its U.S. commercial banking., The $1.5 trillion-asset London company said Tuesday that HSBC Bank USA, Inc., which is based in New York, plans to open a commercial banking office, in Chicago before July and is scouting a location in Houston, Over the last three years HSBC has focused on opening commercial bank, offices on the Atlantic and Pacific Coasts, Brendan McDonagh, the chief, operating officer of HSBC Bank USA, said during a conference call with, analysts focused on its commercial banking strategy. The unit will now work, toward filling in the gaps between the coasts and expanding in the South, said., Opening a commercial office, or offices, near Houston would help the unit, forge closer ties with the parent's Mexican commercial banking operations., We're trying to replicate our U.S.-Canada team in creating, The unit currently has offices in 11 U.S. cities, including Seattle and, Portland, Ore., on the West Coast and New York, Buffalo, and Washington on, the East Coast., Mr. McDonagh did not say where it would open offices after Chicago and, Houston, markets according to density and has 16 of those markets covered., HSBC Bank USA expects to hire 14 relationship managers in its current, Commercial markets that HSBC considers among the top 25 but does not, currently cover include Detroit, Atlanta, Minneapolis, St. Louis, Diego,, Meanwhile, HSBC is creating a China trading desk in New York for, corporate and middle-market customers of the commercial bank. The company, offers a similar service to its corporate investment banking and markets, customers, Mr. McDonagh said., Last year HSBC Bank USA generated 29%, or $443 million, of its pretax, income from commercial banking and 33%, or $509 million, from personal, financial services or retail banking., The unit did not outline any growth targets or say how much it plans to, spend on the expansion. However, executives said they will spend equally on, new and current markets., The unit has already been focusing on expanding its retail and private, banking operations, mostly through organic growth., On Tuesday, it provided an update on its three-year initiative to open, 140 retail bank branches., The company said it is about a third of the way through the initiative, launched last year, and has opened branches in New Jersey, Philadelphia, Washington., From a retail point of view, we are largely a New York state bank, McDonagh said. Of HSBC's 430 U.S. retail bank branches, 385 are in New, York,, and the company said it is focusing on reducing that concentration., Gerard Aquilina, the chief executive of HSBC Private Bank in the, Americas, told American Banker last week that he would not rule out, acquisitions here to boost the company's private banking, but he plans to, open private banking offices that would piggyback the company's retail, banking expansion., This month HSBC Private Bank hired Marlon Young from Citigroup Inc. to, work with Mr. Aquilina on the unit's strategy. Mr. Young headed private, client lending at Citi's Smith Barney, where he spent 27 years. He also led, the Northeast region for Citigroup Private Bank and headed investment, finance, for the Northeast and Middle Atlantic regions., He started his new job last week. HSBC said he was not available for an, interview.
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by Daniel WolfeThe fact that PayPal Inc. has more than 100 million registered users, worldwide was not enough to persuade Cingular Wireless LLC to cooperate, with, the eBay Inc. unit when it introduced its mobile phone payments service in, April., However, the Atlanta phone carrier has agreed to work with Obopay Inc., year-old Redwood City, Calif., person-to-person payment company that is, still, testing its service., The reason? Obopay offered the carrier a piece of the pie., said Howard Gefen,, executive vice president for marketing and business development at Obopay., the more people that, Both mobile payment services can work with any phone and any carrier., However, the carriers can make a service easy or hard to use on their, phones,, so they have some heavy leverage. Vendors have long complained about the, difficulty of negotiating with them for any service that would require, changes to software or extra charges on consumers' phone bills., Analysts said the decision to work with Obopay indicates that Cingular, sees payments not only as a useful service to offer customers, but also as, important potential source of revenue., Kevin Dulsky, the senior director and general manager of mobile for, PayPal, said its value proposition for carriers centers around the, potential, increase in text messages. PayPal Mobile payments are initiated by text, messages, and carriers charge their customers for sending the messages., Every carrier in the United States, Canada, and the United Kingdom, supports PayPal's Text to Buy service, except Cingular, In PayPal's system, products and services are assigned short numeric, codes, and customers send a text message to the number to make a purchase., The goods are shipped to the customer's address registered with PayPal, the charges are deducted from their PayPal account., Cingular won't transmit messages to those numbers, but customers can make, purchases by calling PayPal., Both the text and voice versions of the service are free for customers, and PayPal charges merchants for each transaction., Mr. Dulsky said that PayPal is negotiating with Cingular to support Text, to Buy, and that the carrier is missing out on revenue by not supporting, service., At the heart of any negotiation, it comes down to things like money and, are looking at it as a strategic, partnership, or a strategic relationship, and Cingular is not any different in that, Obopay currently offers person-to-person payments that are authorized, with a mobile phone and debited from a prepaid account. It charges users 10, cents to send or request money., Anyone can initiate payments with text messages, but Cingular customers, can download custom software that links the process to their phones', address, books, to makes the service much easier to use. Mr. Gefen said that his, company will let people start initiating transactions through phones', mobile, Web browsers within 30 days, though the service would not be linked to the, phones' address books., Only Cingular customers can download the software, though Mr. Gefen said, he expects to announce a deal with a second carrier within 60 days., He would not say how much revenue it shares with Cingular, nor whether, its deal with Cingular permits the carrier to support any other company's, mobile payment system., In March, Obopay announced it had received $10 million of funding from, several venture capital companies, including Redpoint Ventures, Onset, Ventures, and Richmond Management. In addition to the mobile service, offers a MasterCard-branded prepaid debit card, issued by First Premier, Bank, of Sioux Falls, S.D., Obopay's management team includes executive that have worked previously, at Visa International, First Data Corp., Norwest Bank, and Microsoft Corp., Mark Siegel, a Cingular spokesman, would not say whether revenue-sharing, was a factor in the company's decision to support Obopay instead of PayPal., However, he did say that Cingular is keen on using phones to make payments, and he noted that it is testing such a system now at Atlanta's Philips, Arena., Cingular, JPMorgan Chase & Co., and Visa U.S.A. began testing a payment, system for the arena in January. Basketball and hockey fans were given, phones, with contactless payment card chips that can be used to charge purchases to, Chase Visa cards at the arena's concession stands., When the deal was announced in December, JPMorgan Chase said that an, important consideration was making the system profitable for Cingular, because carriers are unlikely to support payment systems that do not offer, them a return. In this test, the phones can also be used to purchase, ringtones, games, and videos from Cingular., But so far Cingular has barely tested the waters for person-to-business, phone payment services outside its network, such as Text to Buy., We are in the very, very early stages of thinking of that particular, space and whether or not it can bear fruit on a bigger scale, Mr. Siegel, Aaron McPherson, a research manager for payments at Financial Insights, Inc., a Framingham, Mass., unit of International Data Group Inc., said, It's, very difficult to get the carriers to cooperate because the carriers want, maintain control over payment systems on their devices as much as they, PayPal has 105 million accounts for its online payment service, and 29.2, million were used to conduct transactions in the first quarter, but Mr., McPherson said far fewer people use its mobile payment service. (Mr. Dulsky, would not provide specific volume figures.), To get more leverage in negotiations with carriers, a payment service, provider needs enough people using its system to prove that the carrier, would, benefit from supporting the service, it's too early in, They don't have enough people using, Such a service would need at least a million regular users to be in this, Dan Schatt, a senior analyst for the Boston market research firm Celent, classic tension between financial service, Clearly, it is in PayPal's best interests to persuade Cingular to support, Text to Buy. Without the carrier's sanction, its customers cannot use, PayPal's, more convenient payment method., And Cingular's reluctance to participate in the PayPal system is, Either Cingular is planning something, for more money.
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by Katie Kuehner-HebertWith its deal for GBC Bancorp Inc. in suburban Atlanta, First Charter, Corp. of Charlotte is taking a big step toward building a regional, franchise, stretching from Virginia to Georgia., The $4.3 billion-asset First Charter has agreed to pay $102 million in, cash and stock for GBC, which is based in Lawrenceville, Ga. It would be, First Charter's first acquisition outside its home state, its first bank, acquisition in six years, and the first under president and chief executive, Robert E. James Jr., who took the helm in July 2005., Mr. James' first priority was to make First Charter more profitable by, restructuring the balance sheet and cutting expenses. Now, with the company, coming off one of its best quarters in years, Mr. James said it is ready to, start expanding -- through acquisitions or branching or both., which has assets of $418 million, is the parent of the 9-year-old, Gwinnett Banking Co. Population in its principal market, Gwinnett County, projected to increase 23.5% by 2010 -- against 11.3% for Georgia as a whole, and 6.3% for the nation., Atlanta is a great market because of its sheer size, and because it's, one of the fastest-growing markets in the entire U.S., Mr. James said in, interview Friday. The deal for GBC was announced late Thursday., Gwinnett Banking would be merged into First Charter Bank but retain its, name and management, including Larry Key, its president and CEO., The deal is expected to close in the fourth quarter, on completing it, First Charter would have assets of $4.7 billion and 60 branches., Jefferson Harralson, an analyst in Atlanta for Keefe, Bruyette & Woods, Inc., said the deal complements the new management team's focus on, upgrading, the company's performance., After Lawrence Kimbrough retired in July 2005 as president and CEO of the, holding company, Mr. James, First Charter Bank's president and CEO at the, time, assumed the top positions at the holding company as well. Four top, managers were replaced, including the chief financial officer and the chief, risk officer., First Charter was not a poor performer, but in 2003 it hit a bumpy patch, with credit quality problems and a regulatory order to tighten its Bank, Secrecy Act procedures., However, when Mr. James and his new team came onboard, they started, restructuring the balance sheet by reducing the amount of securities and, borrowings and slashing expenses by consolidating some insurance offices, switching to lower-cost vendors., This new management team is more committed to improving ROE and, The management team before it did, First Charter's goal is to have a return on equity of at least 15% within, the next several years, Mr. James said. Its first-quarter ROE was 14.12%, versus 13.21% for last year's first quarter. Its 1.14% return on assets in, the quarter was its highest since the third quarter of 2002., Mr. Harralson said he was surprised First Charter skipped over South, Carolina to make its first deal outside North Carolina., sense considering that the price is reasonable -- 2.6 times tangible book, 14.4 times trailing earnings -- and that GBC is one of the region's top, Small, Business Administration lenders and had an ROE of 19.59% on March 31., Moreover, 72% of GBC's loans are construction and commercial real estate, loans. That, said John A. Pandtle, a senior vice president at Raymond, James &, should accelerate the repositioning of, First Charter's balance sheet away from securities, and more toward, Christopher Marinac, an analyst at FIG Partners LLC in Atlanta, said, First Charter should not have much trouble offsetting the certificates of, deposit on GBC's books by opening more branches in Atlanta and getting more, demand deposits., First Charter's stock fell 1.3% Friday, to $24.24. GBC's rose 16.7%, $45.50.
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by David Breitkopf and H. Michael JaliliVisa U.S.A.'s bank members on Friday overwhelmingly approved an overhaul, of the card association's board and rules that is aimed in no small part at, reducing its susceptibility to litigation risk., The next step could well be a court battle., Visa said 99% of the votes cast supported the changes, which included the, addition of nonmember representatives to its board. (Votes were granted, based, on members' fees paid to Visa.) Ninety-two percent of those eligible to, vote, did so, it said., One abstention was TCF Financial Corp. of Wayzata, Minn., which went to, court on Wednesday seeking to block the vote altogether but was turned down, Thursday., William Cooper, TCF's chairman and chief executive, called Visa's proxy, misleading in an interview Friday, and said that the new structure would, in such a way that they can assess any lawsuit, losses, they may have to the member banks. That big change is not clearly written, Mr. Cooper said that his company plans to amend and refile the lawsuit to, address issues that were not covered in the first suit., John Philip Coghlan, the president and chief executive of Visa U.S.A., we were very disappointed that, at the, 11th, we were pleased that the judge denied their application for, injunctive relief, which therefore allowed us to conduct today's meeting, a process that began two years ago, ... to update the governance of Visa to meet the needs of our members in, One significant change will be the addition of a second seat on Visa's, board reserved for small banks, which has yet to be filled., Charles T. Doyle, the chairman of Texas First Bank, who has represented, small banks on Visa's board since *1990-, said in a joint interview with Mr., listened to the needs of the smaller, In addition to the extra seat, Visa also gave four board seats currently, held by bank members to people unaffiliated with Visa or any of its, members., Four other bank-held seats will be given to independent members later. At, least three of the independent directors would oversee a committee that, would, determine interchange rates., The new directors are: Philip DeFeo, Linda Baker Keene, Jon Madonna, John Swainson. Most of the remaining board seats will continue to be held, present directors., Visa has been sued by merchants over its interchange fees, and its proxy, enhance, (Mr. Madonna is on the board of Albertson's, Inc., one of the merchant plaintiffs in the case, but Albertson's is being, acquired and its board will be dissolved sometime this year.), Conspicuously absent from the new board is a representative from Bank of, America Corp., the largest debit and credit card issuer in the world, which, founded Visa decades ago. Mr. Coghlin said that B of A's board, representative, J. Tim Arnoult, resigned his directorship several months, ago,, still has the option to do so., Gwen Bezard, a research director at the Boston research company Aite, Group LLC, said that giving up control over interchange rates is a, It's definitely a risky move to open up the, I am not surprised that they're, careful, in picking their board members and taking their time, He also speculated that Bank of America's apparent decision to vacate, interchange, Mr. Cooper said that the reorganization approved Friday includes a, provision that empowers Visa to pass on any penalties it may incur in the, ongoing interchange lawsuit to its members. He said this is an important, shall not have the, power, The problem is, when you look at the corporate structure that they have, them to pass the financial liability to banks, he, If you look at the corporate structure that they're creating it
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by Ben JacksonFor a company that has struggled with credit-quality problems in the, past, Citizens Banking Corp. of Flint, Mich., has no reservations about, moving into the risky business of asset-based lending., John D. Schwab, the $7.7 billion-asset company's chief credit officer, said it formed an asset-based lending unit last month to keep customers it, might have needed to refer elsewhere because of their credit risk., Asset-based loans are viewed as less safe than conventional loans, Mr. Schwab said that Citizens has learned from the mistakes that led to, more, than $200 million of chargeoffs from 2002 through 2004. The unit will fill, hole in the company's product line, boost revenue, and diversify its, customer, We've had some other things within our company that held our attention, for the last several years, and now that we are where we are, we can take, Mr. Schwab said., In *2002-, Citizens charged off $102 million and had a return on assets of, 0.37%. By the end of last year chargeoffs had fallen to $28.7 million, the ROA had risen to 1.22%., He attributed the improvement largely to a credit approval structure it, put in place in late 2002. Previously, credit officers reported to local, market presidents, who made the credit decisions. An automated system is, used to make decisions on loans of less than $500, 000. Decisions on larger, loans are made by credit officers who report directly to Mr. Schwab., Credit officers with the new unit, Citizens Bank Business Finance, will, Kevin K. Reevey, an analyst with BankAtlantic Bancorp's Ryan Beck & Co., Inc., said the unit will give Citizens another tool to penetrate the, business, banking market and complement the treasury management, cash management, wealth management businesses it started in 2004., Asset-based lending is a logical extension of the strategy that William, R. Hartman put in place when he became the company's president, chairman, When Bill Hartman came on board, *2002-, Asset-based loans typically use short-term receivables and inventory as, collateral. The company said it created a separate unit for the business, because asset-based lending is specialized and requires lenders with an, expertise in it., Mark Widawski, the unit's managing director, said asset-based lending is, traditionally considered something for troubled companies, but Citizens, will, focus on companies going through some kind of transition, such as, launching a, product line or undergoing rapid growth or a corporate restructuring. The, goal, is to convert the asset-based customers into traditional banking, customers, he, said., Citizens is targeting companies throughout the Midwest with $15 million, to $150 million of annual revenue, primarily those in the manufacturing, distribution, and service sectors., In targeting these firms, Citizens will have an advantage over the, This segment of the market is too big for, many of the independent companies and not focused on by people at the, larger, Terry J. McEvoy of Oppenheimer & Co. said Citizens' aggressive marketing, to small businesses over the past two years should help it expand its, asset-based lending business., Because of the sluggish economy in the Midwest, particularly in Michigan, starting the asset-based unit makes good business sense -- as long as, Citizens, If they grew the business rapidly, then it would be a red flag on my, end. I would like to see steady growth, so they prove to their investors, profitability and their ability to manage the credit risk, Mr. McEvoy, said.
Published in American Banker (2006)
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