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by Laurie KulikowskiA report by Keefe, Bruyette & Woods Inc. predicts that beginning next, year banking companies will cut back branch-building dramatically, particularly in high-growth markets., Weakened profitability and broad economic changes will make building, branches less attractive and could force more industry consolidation as, companies look for alternative ways to enter markets, according to the, report, released last week., in building,, Frederick Cannon, the report's author, said in an interview Thursday. As a, result of the slowdown, he expects more consolidation in Texas, Florida, Illinois, Colorado, and New York., Keefe Bruyette expects a decline in core deposit growth to be a key, driver for the slowdown., The rate of deposit growth, rather than profitability of the deposits, We expect, see an increasing value of core deposits in the current higher-rate, Mr. Cannon said in the interview that as interest rates rise and the, equity markets strengthen, consumers are being more selective about where, they put their money, and in many cases they are choosing higher-yielding, products than deposit products., We believe we see the early signs of consumer disintermediation, The report said that the housing market has cooled, and the widespread, adoption of free checking accounts and the saturation of home equity loans, have peaked. For the first time since statistics became available in the, declined, from its, peak of about 3, 000 in 2002 and 2003 to just over 2, 900 last year, report, said., Mr. Cannon said Washington Mutual Inc. could scale back its plans to, build branches., The $343 billion-asset Seattle thrift company's branch-building strategy, Wamu, which had 2, 140 retail banking centers at yearend, said it opened, 250 stores in 2004 and 210 stores last year. Last week it said it is, committed to expanding its retail banking operation and plans to open 150, 200 branches this year., However, in an e-mailed response to questions, a spokeswoman for Wamu, As we said earlier this year, we don't want to be bound by a hard, target, but will retain the flexibility to adjust to market conditions and, Wamu said that 44% of its fourth-quarter retail banking revenue came from, deposits, 42% from fee income, and 13% from home equity loans., It is one of several banking companies to announce plans to get into, direct banking, which would give them another channel to gather deposits., Wamu began pilot testing direct banking in four regions last year., Some analysts have speculated that Wachovia Corp. could also scale back, its branch-opening plans, especially in New York, where it is a relatively, recent entrant. The Charlotte company has been rumored lately to be scaling, back its plans in the market, because profits have been lower than, originally, anticipated, analysts said., Benjamin P. Jenkins 3d, Wachovia's vice chairman and the head of its, general bank, confirmed in an interview last week that his company plans to, slow down its New York-area expansion efforts by early next year. However, also said it had always planned to do so., At that point it will have about 20 branches in Manhattan and 10 on Long, giving us the coverage we, We would take a look and see where we are and build a few, next year, Mr. Jenkins said, Wachovia will be looking more at building, branches in southern California, where it acquired Westcorp of Irvine on, March 1, and where it has said it would look to add 200 branches over the, next five years., Wachovia is also focusing on branch-building in Texas and Florida., Jim Cole and Paul Davis contributed to this story.
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by First Data, of Denver, has long processed a small number of Visa transactions using its own network rather than Visa's, but under the settlement, announced Wednesday, it agreed to shift those transactions to the San Francisco card association., In the short term, For observers hoping for clarity on the question of who owns the transaction, it remains unresolved and First Data could try to use its network for transactions initiated with other card companies' cards., Neither First Data nor Visa would discuss the settlement Wednesday, First Data will shift the contested transactions to Visa's network, VisaNet, The release gave no details of the financial arrangements., transactions -- when First Data processes for both the card issuer and the acquirer., Because it controls both ends of these payments, But in June *2001-, when First Data bought a majority stake in the NYCE debit network, Charles Fote, First Data's president and chief operating officer at the time, said that he planned to expand this practice considerably and that First Data would create a new network, First Data Net, to handle them., For 30 years we've been doing that for some of our transactions. We just woke up and said, 'If it works for some, His words sent a tremor through the payments world. The idea that the industry's largest processor, also wanted to carry transactions on its own network made some people wonder whether the card associations, and their networks, would someday become irrelevant., Edward Neumann, the managing director of the banking practice for the consulting firm CC Pace said that if First Data Net had taken off, Visa responded in April 2002 by filing a lawsuit alleging that First Data was illegally bypassing the Visa network, and First Data countersued later that year accusing Visa of abusing its market power., However, He said that the ability to handle on-us transactions for payments made with Visa's rivals, such as MasterCard, American Express Co., or Morgan Stanley's Discover Financial Services, in future negotiations., Eric Grover, a consultant with Intrepid Ventures, Large banks like JPMorgan Chase, Citigroup, and Bank of America are currently doing on-us transactions now, and always have, The more consolidation you have in the banking industry, Bank of America is also rumored to be interested in creating its own card processing network., Tim Sloane, the director for debit advisory service for Mercator Advisory Group Inc. of Waltham, Mass., said the settlement is a potential slight to Mr. Fote's legacy. Mr. Fote resigned last year and was succeeded by his predecessor, Henry C. Duques, who has since begun to dismantle First Data through a planned spinoff of the money transfer business Western Union Financial Services Inc., lost on his vision, but gave First Data a nice negotiating chip, First Data Net, First Data's legal suit appeared to get a boost in March. It had argued that because Visa represented many banks, its efforts to quash First Data Net represented restraint of trade. Visa had argued that it was a single business enterprise, but the U.S. District Court for the Northern District of California disagreed., Still, First Data's notion of operating a payment network depends on having a good number of on-us payments, and the company has lost several major processing agreements in the past few years., In *2003-, Bank One Corp. said it would move its 50 million card accounts from First Data to Total System Services Inc. The following year, JPMorgan Chase & Co. bought Bank One and said it would shift its card processing business -- about 35 million accounts -- to TSYS. Also in *2004-, Bank of America Corp. said it would move the 12 million accounts it acquired by purchasing FleetBoston Financial Corp. from First Data to TSYS., Tien-tsin Huang, an analyst with JPMorgan Securities Inc., Robert J. Dodd, an analyst with Regions Financial Corp.'s Morgan Keegan & Co. Inc., said that the settlement was not surprising, because First Data was probably not doing many on-us transactions, And though the settlement said that Visa would support First Data financially
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by Eugene A. Ludwig and Duncan P. HennesHedge funds are major new entrants into the credit markets., Some observers note these funds bring greater efficiency, stability, which could be exacerbated when the credit cycle takes a negative turn., It is essential for bankers to understand not just the benefits but also the complex risks being presented by these new realities., Increasingly over the past decade, banks have sought to lower their own credit risk. They have done this in large part by selling their credit risk to the markets, often using newly developed derivative and asset-backed technologies. Today many banks are focusing more on distribution and less on their more traditional job of risk-warehousing., Of course, there is much to be said for this arrangement. Having new parties evaluate risk should help in refining credit metrics and analysis. And spreading risk should increase diversification, making it less likely that one firm will hold too much of a bad credit or group of credits., Hedge funds have played an important role in this process. As relatively new entrants into the credit markets, they have served to spread risk. Furthermore, their comfort with complex new risk-spreading instruments has added layers of sophistication to the market. In addition, they have been major sources of capital for the market., However, In this regard, it is worth noting the various ways in which hedge funds are taking on credit risk. First, they are purchasing illiquid instruments, which often are backed by lower-quality collateral, making the investment that much riskier. Also, hedge funds have become major players in the credit derivatives market, through single-name credit default swaps and through newly created credit indexes, such as the ABX index., Second, hedge funds can increase their nominal returns through leverage., When an excess risk concentration accumulates, pricing becomes more attractive. In theory -- and, at least to some degree, continues, hedge fund money is attracted to the market. However, as more money gets invested in hedge funds, the fund managers increasingly are driven by the need to keep money invested, instead of the rational pricing of those investments., Many hedge funds manage themselves better today than they did before the collapse of Long-Term Capital Management, and banks and investment banks are more careful in leveraging hedge funds, but there are still some areas of concern. Most notably, Moreover, most hedge funds simply cannot stay involved to work out credit issues. Most do not have permanent capital, and most don't even have patient capital. Hedge funds are driven by market pricing, not the fundamental long-term viability of a borrower., Finally, Their need to deleverage and get out of risk positions, coupled with the illiquid nature of their investments, could lead to pronounced price movements and further illiquidity in a downturn. And as negative price action brings momentum players into the market on the short side, price movements can spiral down even quicker., Risk managers and senior management need to challenge operating assumptions in credit derivatives, including any residual risk in structuring and trading these instruments, as well as their hedge fund exposures., Mr. Ludwig was the comptroller of the currency from 1993 to 1998. He is now the chief executive officer of Promontory Financial Group, a Washington consulting firm. Mr. Hennes is the chief executive officer of Promontory Asset Finance Co., an affiliated company in Greenwich, Conn.
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by Tim MazzuccaOf the three Puerto Rican banking companies dealing with an accounting, scandal, R&G Financial Corp. has been the most reticent in telling, investors, where it is headed., Late last week the San Juan company gave a little more clarity by, announcing a slate of executive changes, including the firing of chief, financial officer Joseph Sandoval., But R&G has given fewer details on a plan to restate several years of, earnings than Doral Financial Corp. and First BanCorp, which are also based, in San Juan. Doral and First BanCorp have remade their executive ranks and, offered some information about when they plan to restate results and what, expect in the restatements., In April, R&G said it wrongly accounted for interest-only strips and, mortgages. Its announcement came a month after Doral announced similar, problems. First BanCorp told a related tale of woe in August. The, Securities, and Exchange Commission is investigating all three companies., Analysts differ on whether R&G's executive reshuffling indicates the, company is close to completing its review., The board of directors is taking a pretty aggressive stance now that, they have the internal investigation almost completed, Joe Gladue, an, analyst with Cohen Bros. & Co. Inc., This indicates, However, Eric Rothmann, a Brean Murray, Carret & Co. LLC analyst, wrote, We believe the company is no closer to a, Mr. Rothmann, who reinstated coverage of R&G's stock on the news with a, rating, expects the company to issue restatements in about three, months., That could put R&G on almost the same timetable as the one at Doral, which last month gave some details of a planned restatement and said it, would, restate its earnings by early February., Also last month, First BanCorp said it had revised its accounting methods, related to selling mortgages. It did not say when the restatement would, occur,, but it gave some insight into what the company's restated earnings would, look, like., Though R&G has not given a timeline for its planned restatement, it said, It also said it had retained the law firm Fried, Frank, Harris, Shriver &, Jacobson LLP and the consulting firm Promontory Financial LLC to perform, investigation., On the personnel side, R&G said its board had accepted the resignation of, Mario Ruiz, the vice chairman and executive vice president of R&G Premier, Bank, of Puerto Rico., The board did not accept the terms of a Jan. 4 resignation letter, submitted by Mr. Sandoval, and he was fired the next day. He had been on a, leave of absence since Aug. 24, and his job has been given to Vicente, Gregorio, who had been holding it on an interim basis, the company said., Ramon Prats resigned as the president of R&G and the chief executive of, its banking and mortgage subsidiaries, but he will remain with the company, an adviser., Victor Galan will remain the parent company's chairman and CEO, but the, board declared him ineligible to receive bonuses for last year, because of, of R&G's, management., The board also said that it remains confident in Mr. Galan's leadership, and that he will succeed Mr. Prats on an interim basis., Mr. Gladue said the actions were surprising, and the willingness of the, Other analysts said the board's actions were warranted, and that Mr., Galan did not deserve to be removed. (Because he owns 42% of the company's, class A shares, he controls 59% of the shareholder votes.), said Avi Barak, an, analyst with Sandler O'Neill & Partners LP, which does advisory work for, R&G., Most of this is a non-event. Mr. Sandoval was on already on leave, and Mr., R&G said it will pay a fourth-quarter dividend of 9.4 cents a share, though Mr. Galan will not get a dividend payment for the quarter.
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by Paul DavisWall Street is expecting the largest U.S. banking companies to report, higher first-quarter earnings than they did a year earlier, but analysts, holding down their expectations, citing increased expenses and the effect, the flattened yield curve., Keefe, Bruyette & Woods Inc. said the large-cap companies could report, earnings growth significantly lower than their fourth-quarter numbers., Profit growth started to fall off in the fourth quarter, when a spike in, consumer bankruptcies hampered profits., For the first quarter, the broad issue was Financial Accounting Standard, 123R, which governs the expensing of employee stock options, several large, companies have already telegraphed its anticipated effects., Bank of America Corp. has also said its recent restatement related its, accounting for certain hedging activities will reduce its earnings, slightly., Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, said in an, reports from large, Notice that I'm not saying it will be a great quarter., know that these guys have investment banking, but at the end of the day, it's, Last month the Federal Reserve Board raised its benchmark interest rate, for the 15th time since June *2004-, to 4.75%. Some banking executives, cautioned during the first quarter that more increases -- and the residual, effects -- could influence earnings., U.S. Bancorp chairman and chief executive officer Jerry Grundhofer, In a general sense, the, basic, There's margin, compression, and the asset side of the balance sheet will be under, Citigroup Inc. chief financial officer Sallie L. Krawcheck was more, during a conference in New York hosted by Citigroup Financial Services that, her company had withstood the brunt of rate-related headwinds., It is the flattening that is truly painful as it occurs. As it's flat, you have more in your rearview mirror than you do in front of you, said, at the conference., Commercial loan growth is expected to remain strong at large banking, companies. In a research report issued Tuesday, Keefe Bruyette analysts, wrote, gains. Their forecast is based, largely, on Fed data suggesting that commercial and industrial loans are growing at, double-digit rate., Consumer loan growth, particularly in home equity lending, remains weak, as a result of rising rates, the analysts said., Fed data suggests that first-quarter deposits grew 8% from a year, earlier, but analysts said that most of that growth is tied to certificates, of deposit, not lower-cost transaction deposits., My guess is that margins will be stable relative to the fourth quarter, Jon Balkind, an analyst at Swiss Reinsurance, Co.'s Fox-Pitt, Kelton Inc., said Thursday in an interview., Analysts say that they expect credit quality to remain robust, and that, large banking companies have already weathered the fourth-quarter chargeoff, jump tied to bankruptcy reform that took effect in October., Expenses will be a factor in the quarterly reports, according to, analysts. Keefe Bruyette said in its earnings preview that the banking, industry could report a 7% increase in expenses from a year earlier., Frank Barkocy, the director of research at Keefe Managers Inc., a fund, manager that focuses on the banking industry, said that large banking, companies could report higher personnel expenses as they have bolstered, investment banking and capital markets operations., Analysts expect earnings at many large companies to have benefited from a, pickup in their capital markets businesses, as reflected by the results, issued, last month by several investment banks., in those operations,, Richard X. Bove, an analyst at Punk, Ziegel & Co., said Wednesday in an, interview., However, David Hendler, an analyst at CreditSights Inc., wrote in a note, issued Sunday that he expects investment banking results at B of A and, that, have already reported., Analysts said there are some other things to bear in mind., For example, B of A's results will include the Jan. 1 acquisition of the, credit card issuer MBNA Corp., and Wachovia's will include February's, purchase of Westcorp and WFS Financial Inc. JPMorgan Chase & Co. has said, no longer plans to report operating earnings. SunTrust Banks Inc., which, typically discloses business-segment results only in its quarterly filings, with regulators, will also begin doing so in its earnings reports.
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by Laurie KulikowskiDiminishing credit quality, net interest margin pressure, and concerns over exposure to softening housing markets led one analyst to downgrade Zions Bancorp.'s stock Monday., However, a majority of analysts remain bullish on the Salt Lake City company, pointing to its continued strong loan demand., Richard X. Bove of Punk, cut his 12-month price target by $8, to $86 a share, and trimmed his 2006 and 2007 earnings estimates -- by a penny, to $5.50, and by 3 cents, to $5.98., Loan growth has not been a problem for the $45 billion-asset Zions, whose portfolio grew 19.8% in the second quarter, customers may be stretching for working capital loans to help themselves over a tough period, Mr. Bove wrote., from lending to homebuilders in hot housing markets such as southern California and Arizona. But those markets are showing signs of weakening, he wrote., In addition, Zions has said that it might not complete the securitizations of small-business loans, Mr. Bove wrote. At the same time, the company may have to look increasingly to the wholesale markets for funding, which will put pressure on its net interest margin, The prospect of lower unit growth, weaker margins, and higher loan losses suggests to us that the consensus earning estimates on this bank are too high, Since the stock carries a higher than normal multiple for a regional bank, With Mr. Bove's downgrade, according to Bloomberg., Scott Siefers at Sandler O'Neill & Partners LP said that although it is fair to have concerns about Zions' housing exposure, I tend to fall back on the quality of underwriting, than other regional banks, second-quarter margin compression at Zions., by providing more personal service, said Mr. Morford, Mr. Morford disclosed that he owns stock in Zions., Clark Hinckley, a spokesman for Zions, acknowledged that the cooling in some housing markets could result in slower loan growth, because of accounting rule changes regarding off-balance-sheet conduits, we will continue to look and see if it is economically advantageous to do it, Mr. Hinckley said., Zions rose 0.7% Monday
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by H. Michael JaliliShares of MasterCard Inc. surged almost 18% Thursday after its initial, public offering was completed at a slightly lower price than it had aimed, for., The stock ended the session at $46, up $7 from where the IPO was priced, Wednesday night. MasterCard had sought to sell the 65.1 million shares, stake, at $40 to $43 a share., MasterCard's IPO drew added interest from market watchers because it came, a day after a disastrous opening Wednesday for another offering. Vonage, Holdings Corp. sank 12.6% in its debut and was down almost as much again, Thursday. David Menlow, the president of IPOFinancial.com, a research firm, Millburn, N.J., said the poor performance may have affected MasterCard's, pricing., It may have worried some people because there were mutual fund managers, There may, have been people who were just putting Vonage and MasterCard into the same, Legal uncertainties were a more important factor in determining the price, for MasterCard, Mr. Menlow said., Craig Maurer of Soleil Securities-Fulcrum Research gave MasterCard a, rating Thursday. Earlier this month he had put its fair value at $50, could be achieved by, investors will have to assess their, MasterCard and Visa U.S.A. face a series of lawsuits from merchants over, interchange rates. American Express Co. and Discover Financial Services are, also suing MasterCard and Visa for having prevented banks from issuing, cards, with competing brands until 2004., rating, because of recent market share losses to Visa and Amex and its, legal, woes., Our probability-weighted estimate for litigation exposure is $11, Mr. Dickerson wrote Thursday. The after-tax cost to MasterCard, estimated, will be $4.5 billion if the company is allowed to make payments, over a 10-year period., Because card payment is gaining ground, Mr. Dickerson wrote, MasterCard, should grow -- but not as fast as other networks, it's not, Last year Visa's share of worldwide card use grew 65 basis points, 65.6%, while MasterCard's fell 54 basis points, to 25.6%. Amex's share grew, 14 basis points, to 7.3%., However, Mr. Maurer said that in one respect MasterCard is less risky, than its issuing banks, because it does not rely on receivables growth to, increase profits and is not directly affected by interest rates., Though MasterCard has lost share to Amex, it still has broader merchant, acceptance and better prospects in emerging markets such as China and, India,, In getting a new card business off the ground, we, believe, everyday utility of that card becomes paramount, not the high-spending, of Amex, he wrote., Steve Mott of BetterBuyDesign, a consulting firm, said at a conference, this week in Florida that after the IPO, Wall Street would encourage, MasterCard to settle the suits., The company plans to retain $650 million of the proceeds and use the rest, to redeem shares held by its member banks. They will retain a nonvoting, minority stake. A charitable foundation will get the rest of the voting, shares., Also Thursday, Standard & Poor's Corp. cut the long-term counterparty, credit rating on MasterCard to BBB-plus from A-minus and its debt rating to, BBB from BBB-plus because MasterCard is giving up its right to levy, assessments on the member banks.
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by However, present law still will force the FDIC to levy excessive deposit insurance premiums., This deposit tax will reflect the fundamentally flawed capitalization structure of the Deposit Insurance Fund. This structure bears absolutely no relationship to how insurance works, even though staff members sometimes characterize the FDIC as an insurance company., Although the FDIC has been extremely profitable for over a decade, the banking industry soon must start paying several billion dollars annually in unneeded premiums. Only Congress can fix the flawed structure, the underlying cause of these premiums., Since 1997 the DIF's investment income has been more than double the FDIC's operating expenses and losses in banks and thrifts closed after 1996. On a merged basis, its profits boosted the fund's balance by $13.8 billion over this period, in which losses in 41 small-bank failures consumed just 2.8% of the fund's revenue., The FDIC's low losses have not been luck. Instead, they reflect the payoff from numerous congressional actions, including permitting banks and thrifts to merge, adopting prompt corrective action, and authorizing interstate banking and branching in 1994. Widespread branching has led to the formation of larger, safer banks subject to more intense market discipline than existed several decades ago., Not only have higher capital standards and tougher safety-and-soundness regulation reduced the number of weak banks, the FDIC will experience very few failures, and none among large banks., Despite this favorable outlook, the DIF's statutory construct will force the FDIC to begin levying billions of dollars of premiums it does not need., Contrary to insurance theory and practice, the fund's capitalization requirement, called the designated reserve ratio, bears absolutely no relationship to the FDIC's actual or reasonably expected loss experience. Instead, Congress has set a floor for the ratio equal to 1.15% of insured deposits. The FDIC can vary the ratio up to 1.5%, it seems inclined to keep its traditional (but nonsensical) 1.25% ratio., As a practical matter, the fund's balance below 1.15% is unavailable to pay losses, for at that point the FDIC must aggressively levy premiums to restore the ratio to at least 1.15%. That is, any dip below 1.15%, or whatever higher ratio has been set, must be made up through higher premiums., Had the DIF been formed in *1996-, its minimum, untouchable balance, at a ratio of 1.15%, would have grown by 50%, to $46.4 billion on June 30. In the first half of 2006 alone, $1.7 billion of the balance dropped into the untouchable category (below 1.15%) due to strong industry deposit growth., The FDIC's investment earnings can hold the ratio fairly constant, if annual industry deposit growth falls in the 3% range. However, if deposits grow as fast as nominal GDP -- 6% to 7% annually -- then the FDIC must levy approximately $2 billion of premiums annually just to hold the ratio at 1.15%, even if it never takes another dollar of loss., These premiums are nothing but a tax on deposits, a tax used to pay for other governmental activities., Congress can easily solve this problem by putting the FDIC on a pay-as-you-go basis, backstopped by stock market discipline, deposit insurance losses will be very low, investment income will more than cover operating expenses, and the DIF will report a profit., As my previous article explained, risk-based premiums should be charged only against riskier institutions -- those the FDIC proposes to classify as Category II, or IV. To ensure those premiums are high enough, Congress should direct the FDIC to collect enough premium income over 5 or 10 years to at least cover its insurance losses. Most banks and thrifts, though, should continue to pay zero premiums, since their reasonably foreseeable failure risk will be zero., Because the fund will be profitable, its balance will continue to grow. How much would be of no consequence, though, as long as the FDIC were collecting sufficient premiums to cover its actual losses., If large losses occurred, then premiums would have to rise, possibly an across-the-board premium would have to be levied. That would be no different than today, for if the FDIC experienced substantial losses, it would have to levy large premiums, since none of the DIF balance below 1.15% can be permanently used to cover losses., Mr. Ely, the principal at Ely & Co. Inc., is a financial institutions and monetary policy consultant in Alexandria, Va. He has consulted on deposit insurance-related issues for trade associations and individual companies
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by Joe AdlerWal-Mart Stores Inc. has promised regulators it will make significant, changes, to its industrial bank application by Friday, including increasing the, proposed bank's capital and hiring a chief risk officer., In a letter to the Federal Deposit Insurance Corp., the proposed bank's, president and chief executive said the Utah start-up would be capitalized, with $125 million -- more than 10 times the $12 million pledged in the, original application in July., said Gil Schwartz, a former, Federal Reserve Board staff member and now a partner at Schwartz & Ballen, This is clearly in response to the risk to the payments system that, After trying for years to get a full-service bank, Wal-Mart scaled back, its ambitions last summer and asked regulators for permission to simply, process electronic payments. The goal is to save money by cutting out, third-party processors., In addition to a chief risk officer, Wal-Mart said its bank would hire a, senior auditor with extensive experience in payment processing. The, retailer, also agreed to pay its bank market rates for processing electronic payments, at its stores., Wal-Mart may be strengthening its application to blunt opposition to the, ILC -- some already levied by lawmakers and community advocates, and more, that is expected during two public hearings the FDIC has planned for next, month., several, of discussions with regulators. The retailer agreed to provide the, FDIC and Utah regulators with more specifics by Friday., The two-page March 1 letter was posted on the FDIC's Web site this week, despite a request from W. Alan Whitchurch, the proposed bank's president, CEO, to keep it secret., Public disclosure of this information could cause substantial harm to, Wal-Mart and the bank by providing competitors with significant financial, operational information concerning business plans and strategies, Whitchurch wrote to John Carter, the FDIC's regional director in San, Francisco., Marty Heires, a spokesman for Wal-Mart, said Wednesday that it no longer, objects to publicizing the modifications. He also said the FDIC suggested, changes -- including the capital increase., This was a result of the FDIC's concerns about potential liability ..., We don't, have, any strong objections to the letter being public. We were toying with, sending, this around to reporters, We're not going to, A spokesman for the FDIC would not discuss the application., The letter also reiterates Wal-Mart's decision to adjust its application, regarding compliance with the Community Reinvestment Act., However, fully, with CRA, the March 1 letter falls short of that. It asks the FDIC, one under the reinvestment law rather than, bank., Under FDIC rules, both types of institutions face the same CRA compliance, standards, which are less than the full compliance demanded of retail, banks., On Wednesday, Mr. Heires clarified his statement, saying Wal-Mart Bank, will not be authorized to make loans so it would only be able to meet the, CRA's investment and service criteria., Finally, Wal-Mart said Broadstreet Financial Services Inc. would no, longer be involved in the ILC. Broadstreet, a shell organization owned by, Wal-Mart, is listed in the original application as the bank's primary, shareholder., Wal-Mart Bank stock will be issued directly (and solely) to Wal-Mart, the letter said.
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by Bill StonemanEmployees of First National Bankshares of Florida Inc. expected some changes when Fifth Third Bancorp bought their company early last year., However, many did not realize how intensely and quickly those changes would hit them., The need to sell immediately was higher at Fifth Third, said Robert W. Dyer 3rd, Mr. Dyer's experience may not tell everything about the differences between Fifth Third and First National, but cultural disparities, including contrasting approaches to selling, appear to have contributed greatly to the most visible result of the transaction: According to industry observers and insiders, First National employees, from executives to tellers have left the company in droves., Gary Tice, First National's former chairman and chief executive officer, never worked for Fifth Third. His two top lieutenants, Garrett Richter and Kevin C. Hall, did for a time but have since left., A few months after taking over, Fifth Third bought out about 10 managers a rung lower, apparently in the belief that they were not coming around to its way of doing business. Commercial lenders have since moved from Fifth Third to a raft of smaller banks in Florida., The departure of so many First National employees is a clear sign that Fifth Third, which is known for its aggressive sales culture, miscalculated its expansion in Florida, according to several analysts and insiders. (The company already had a small operation in Naples, Fla., First National's home base, when the $1.5 billion deal was announced in August 2004.), said Fred Cummings, an analyst with KeyCorp's McDonald Investments in Cleveland., It remains unclear whether outward appearances tell the full story. Fifth Third says its expanded Florida operations are doing well without the First National employees who left., While it is true that turnover has been larger than what we thought it would be initially, we think our numbers and our momentum speak for themselves, said Kevin T. Kabat, Mr. Kabat would not provide exact figures for the staff turnover, but he did say that from June 30, *2005-, to June 30, *2006-, loan balances in Florida jumped 23%, deposits 16%, and fee income 20%., Fuller data describing Fifth Third's performance in Florida are difficult to find. The company does not break out results in its financial reporting to investors. As a result, it's impossible to tell how loan and deposit growth in a particular region translates into increased earnings., The most current deposit, figures available from the Federal Deposit Insurance Corp. are over a year old and show market-by-market totals from June *2005-, leaving plenty of room for interpretation., That month, six months after the deal closed, Fifth Third had $1.8 billion of deposits in the Naples market, But that comparison may not be entirely valid, according to Mr. Kabat, because some escrow funds were moved and later recorded in Fifth Third's Cincinnati headquarters., Ohio or Michigan - is not hard to follow. Statewide, deposits grew nearly 14% in Florida from June 2004 to June *2005-, according to the FDIC., The big questions about Fifth Third's performance in Florida, observers say, are how much of the state's growth the company can capture and how big a share it needs., Company executives say that with 90 branches across the state, compared with the 16 it had before the acquisition, Fifth Third is better positioned to open additional offices and leverage a name that many midwesterners recognize when they move to Florida or go there on vacation., Fifth Third has opened five branches in Florida this year and has 16 more in the pipeline, according to Mr. Kabat, who said that even more will follow, especially in the Orlando and Tampa markets., If we just keep up with the market, we'll do very well, Others, however, say that Fifth Third, whose earnings growth has stalled in the last two years after many years of industry-leading results, must take market share away from other banks to earn a sufficient return on its investment. And early indications do not look good, some experts say., Fifth Third would not regard just participating in Florida's growth as meeting its objective, said Gary Townsend, an analyst with Friedman, Billings, Ramsey Group Inc., Though it is clearly a highly profitable and strong company, its business model does not position it well to capture market share, at least not without giving up some profitability, Mr. Townsend said., Fifth Third competes particularly on the basis of price, which generates more loan and deposit balance growth than it does earnings growth at a time when long-term rates are no higher than short-term ones, At the same time, Bank of America Corp. and Wachovia Corp., the banking companies with the biggest deposit share in Florida, have done more than Fifth Third to close the traditional gap between big banks and small ones in customer service, so it is more difficult to win their customers away, Mr. Townsend said., As challenging as it is to determine whether a bank is winning, holding, or losing deposit share, growth at some of the small, independent banks in Naples make it easy enough for analysts to question whether Fifth Third is keeping up., Assets at Orion Bancorp Inc. of Naples, for example, grew 38% last year, to $1.74 billion, while the loan portfolio grew 41% and deposits grew 29%. Assets at TIB Financial Inc., which is also based in Naples, grew 30%, to $1.08 billion, while loans grew 35% and deposits grew 34%., Moreover, according to observers, the departure of many commercial banking officers would seem to be a particular blow to Fifth Third., It makes you wonder whether their accounts aren't leaving as well, said Ben Bishop, the chairman of Allen C. Ewing & Co., an investment bank in Jacksonville., When asked about the number of commercial account departures since the acquisition, Mr. Kabat said, While we certainly are not immune to the normal account attrition experienced with any conversion, Former First National, Fifth Third bankers and competitors say cultural differences, perhaps an amorphous concept at times, can make a big difference in where people want to work., People at Fifth Third take great pride in charging hard, said Bill Valenti, Mr. Valenti and others say difficulties can easily arise when trying to bring the employees of an acquired company into the fold too quickly., The stronger the culture is at the acquiring bank, the stronger the ego is, and the more difficult it is to allow the other people to be absorbed in and buy into the culture, Mr. Valenti said., Without quite endorsing that analysis, Mr. Kabat suggested that it has merit., Fifth Third's not for everybody. Our culture is a strong one, We give people an opportunity to decide. It works out for some, Turnover has slowed markedly in recent months, though it has not abated entirely, Mr. Kabat said., Just the same, there is nothing wrong with asking for business, When you sell an appropriate service to a customer, Mr. Stoneman is a freelance writer in Albany, N.Y.
Published in American Banker (2006)
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by Erick BergquistIn its 15-year history, Accredited Home Lenders Holding Co. has generated, almost all its growth organically., It has made only a few small acquisitions, including one wholesale office, from National Mortgage in late 1999 and 14 retail branches that came with, Royal Mortgage Bank in May of 2000., But James Konrath, its chief executive, said slim margins in wholesale, lending -- its main production channel -- led the San Diego company to, take a, in the more profitable retail lending business., We like organic growth, and much of the growth of Accredited has been, Mr. Konrath said in an interview Friday, the day after, Accredited announced a deal to buy Aames Investment Corp. of Los Angeles, We're by no means saying that's a broken, However, it is harder to build a retail channel quickly than a wholesale, so a deal was a more logical and necessary step, Most [wholesale] account executives work out of their homes and spend, so they are more independent and easier, hire or lay off than retail employees, Mr. Konrath said., It's a bit more difficult when you want to open retail branches. You, have to find a manager, go into the licensing process -- in some states, that's brutal in terms of time -- and it's something we do, but it consumes, A company could grow organically in the retail business, but not, as it could through an acquisition., Accredited was one of the companies surprised a few weeks ago when ACC, Capital Holdings, the parent company of Ameriquest Mortgage Co., said it, There was no opportunity to look at those, Mr. Konrath said, and Accredited might have been interested in, acquiring some (though the entire network would have been too much)., At the moment, retail lending is a lot more profitable than wholesale, lending, and the acquisition of Aames would be accretive to earnings in, four, The pricing competition on the wholesale side has, Despite its higher fixed costs, retail lending has many advantages, Sometimes on the wholesale side, you have a broker who has put a, deal, together, and there could be two, three, four different lenders looking at, the deal ... on the retail side, once you have the process started, that, Accredited is by no means abandoning wholesale lending, Mr. Konrath said., Pricing in the wholesale market is cyclical, and the company is looking, Historically it changes back and forth, from, The Aames deal, which is expected to close in the third quarter, would, more than double Accredited's branch total, to 116, plans not only to keep all of Aames' retail employees but to keep expanding, the retail business, though under the Accredited brand., On the wholesale side, there would be some consolidation as Aames', operations are integrated into Accredited's, Mr. Konrath said, Accredited, may not retain some of Aames' employees.
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by Steve BillsWachovia Corp. has turned to service-oriented architecture to create reusable components that are accelerating software development., The company says that it has made SOA a key element of the technology strategy at its corporate and investment banking division, and that it hopes to apply several of the best ideas produced there to other parts of the company., Several other banking companies have used SOA to improve some of their applications, but observers say Wachovia's project goes far beyond these efforts, because it incorporates SOA at the ground level of its software development., Analysts say Wachovia's plan to apply its SOA expertise to other divisions is worthwhile. However, the challenges will be daunting, the analysts say, because the company wants to import technology from the specialized world of investment banking, where it is a relative newcomer, to businesses where it has well-entrenched systems., Susan Certoma, the investment banking division's chief information officer, of its rapid growth., Its revenue last year was up 73% from *2000-, to $5.8 billion, or 22.2% of the company's total. Wachovia's retail bank and its capital management division have grown through several significant acquisitions, but the investment bank has been built organically, by hiring top people away from competitors and moving into areas such as equities derivative trading., In the past five years, Wachovia has built out 2, 200 trading seats around the world, including in Charlotte and San Francisco. In the last year alone trading floors have been built in New York, London and Hong Kong., The New York site, which covers five floors of a Park Avenue building, is large enough to hold more than 600 traders., Wachovia hired Ms. Certoma in August 2004 from Goldman, Sachs & Co., where she had been in charge of sales technology. She arrived at the Charlotte company with a mission to make its investment bank more nimble and more efficient., They didn't know how to buy a team, so they rented one, said George Vega, a managing director and the head of global capital markets technology., Ms. Certoma shifted the division's direction by hiring top people away from competitors. Mr. Vega, for instance, came from Goldman, others came from Deutsche Banc Alex. Brown, Salomon Smith Barney, and JPMorgan Chase & Co. The goal was to bring the development capabilities in-house., Her strategy was to use SOA as the foundation of a strategy aimed at streamlining Wachovia's internal software development efforts., If we wanted to stay in the competition, we had a lot to do in two years, Service-oriented architecture uses standardized, common core software modules, such as the basic frameworks for desktops, servers, and portals, and the messaging systems needed to tie them together. This is a departure from the traditional approach of building specific applications for each department, such as customer relationship management, investment banking, trading, or risk pricing., By using interoperable components as the building blocks of each application, Ms. Certoma said., J. Mark Cates, a managing director in corporate and investment banking technology, said the concept is straightforward enough, equities sales teams often use different systems from equities derivative sales teams. By providing a common framework for all the sales teams, For example, -- who could quickly plug their work into the existing desktop sales management application, and by last month they had created a modified version for the derivatives sales system., Within the next month or two they'll have the next piece on the desktop, The first time we do a piece of core [coding], it may take six months. After that, Over the past 18 months Wachovia developers have built 40 to 50 reusable components for services ranging from logging on to the system to monitoring system functions., As that list grows, the process of managing the services becomes more complicated, said Tony Bishop, what are the pieces I have, A catalog of components accelerates the process of building customized applications for specific products or areas of a business, However, the strategy is easier to implement at the investment bank, which is relatively new at Wachovia, Mr. Cates said., Ms. Certoma said the investment banking unit is talking to Wachovia's other three divisions about using its approach., The wealth management division, which is most like the investment bank, is the most likely candidate to try the strategy, though pieces might also fit into the capital management and retail banking divisions, product data, customer and client information, In addition, the investment bank might build a foreign exchange application that could be used in other divisions, especially wealth management., And though there is no reason for the investment bank to build its own demand-deposit accounting system, it might prove useful to build an interface so it could access the retail bank's system., shifting some of the concepts developed at the investment bank to other divisions, Analysts said that by thinking from the very beginning about reusing components, Wachovia is taking a different approach from most financial companies., Jim Adamczyk, a partner in the consulting firm Accenture Ltd., said that many banking companies are using SOA, but most apply it only to link existing applications, instead of building modules into every level of the software development process., We're seeing a number of banks working on service-oriented architecture, but very much at the bottom layer, What we're seeing a lot of banks do is to sneak SOA in, to help them achieve their goals., Peter Kastner, a vice president and research director at Aberdeen Group of Boston, said organizational politics often make it difficult to reuse software components for different applications, which is exactly what SOA is designed to do., If Wachovia has been able to start with a clean slate, then reusability is a worthwhile goal
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by Luke MullinsJust four days after closing its first acquisition, the $764 million-asset Bancshares of Florida Inc. said it is scooping up another rival., The Naples company announced plans Tuesday to buy the $324 million- asset Old Florida Bank in Fort Myers. The cash-and-stock deal, worth roughly $83 million, is expected to close in the first quarter., Buying Old Florida would add four branches to Bancshares of Florida's seven-branch network, which covers Fort Lauderdale, Tampa, Boca Raton, Naples, and Lee County., said Michael McMullan, Bancshares of Florida's president and chief executive officer., We will be establishing a visible presence as the premier community bank in Southwest Florida, Mr. McMullan said., Once National City Corp. completes its recently announced deals to buy two Florida banks, more than 80% of the state's deposit market would be held by out-of-state companies, according to SNL Financial LC., Lee Calfo, a director of research for Cohen Bros. & Co., It's a very vibrant acquisition market, and this certainly increases the value of Bank of Florida as a potential acquiree, Mr. Calfo said., Wilson Smith, the director of financial research at Boenning & Scattergood Inc. in West Conshohocken, said Mr. McMullan, at age 51, However, Mr. Smith predicted Bancshares of Florida would make another acquisition in the state. Mr. Calfo agreed, saying a deal for a bank with $75 million to $400 million of assets is likely within the next 12 to 18 months., Bancshares of Florida's corporate structure, which provides plenty of autonomy to its banking subsidiaries, makes it attractive to banks looking to sell, Last week Bancshares of Florida acquired the $93 million-asset Bristol Bank of Coral Gables for $21 million.
Published in American Banker (2006)
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by Isabelle LindenmayerWith banks continuing to lose data tapes containing sensitive consumer, information, Unisys Corp. has developed a set of tools for tracking the, movement of such tapes., The Blue Bell, information technology consulting company says one of, the five largest U.S. banking companies is pilot testing the tools, another is considering doing so. (Unisys would not name either company.), The tools include radio frequency identification tags that are put on, tapes to track when they enter and leave a specific place. The tags send a, signal to a reader that can be installed at the entrance to a storage, facility or on a shelf in a data center. The readers, which can detect the, tags from up to 15 feet away, can also be put inside the tubs in which, tapes, are packed to monitor what is in each tub., (Wal-Mart Stores Inc. has started using short-range RFID tags to track, the movements of goods, and it is requiring its suppliers to put the tags, pallets and cases this year.), Unisys is also putting cellular devices inside the tubs to act as homing, mechanisms, allowing a bank to locate a tub no matter where it is. In, addition, if the tub deviates from the pre-programmed route, the sender, will, be notified., is attached to the cellular device, which alerts, the sender if the seal is broken., Peter Regen, Unisys' vice president of global visible commerce, said the, cost of the tools depends on the scale at which they are being deployed., Generally, the tags run between 8 and 40 cents, the cellular devices cost, about $300 (roughly the price of a high-end phone), and the seals run about, Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., You still need to have, Gary Cawthorne, the managing partner of Unisys' global banking practice, If the theft of tapes became, widespread, on the, tags,, This is more about losing the data, than, Jacob Jegher, a senior analyst for banking at the Boston research firm, for the industry., It doesn't require financial institutions to change processes that are, However, many banks are starting to encrypt data and exploring how to, send information electronically, but such changes take time to implement, said., if all, But if you talk to security experts in most, banks, they tell you that ... [encrypting data] is such an immense job that they, Therefore, the tracking tools will be useful only for the next 10 years
Published in American Banker (2006)
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