If Oil Prices Continue Climbing, Count on Another Recession, Analysts Say

In a new letter to clients, analysts from Bank of America Merrill Lynch have reduced their forecasts for global economic growth. They are now warning that if oil prices keep climbing it could lead to another recession. Anyone feel like we’ve recovered from the last recession?

Huffington Post reports:

The price of Brent crude, an industry benchmark, hit $116 a barrel on Wednesday after clashes intensified in Libya. Oil production in the country, Africa’s largest oil exporter, has been greatly diminished, choking off 1 percent of the global oil supply.

The Bank of America Merrill Lynch economists warned that if prices hit $150 a barrel, and stayed there, there would be a serious risk of global recession. If prices hit $200, a recession would be almost certain.

Right now, rising oil prices were a symptom of anxiety, said Thorbjørn Bak Jensen, oil market analyst at Global Risk Management. "We have seen these increases before. If it lasts for just three months, everything should return to normal," said Jensen. But, he said, "as a rule of thumb, every 10 percent increase in oil prices means a 0.5 percent decrease in global growth."

More here

Banks Face $31 Billion Loss on Mortgage Buybacks

According to a Standard & Poor's report the top six banks in the U.S. (Bank of America Corp, JPMorgan Chase & Co, Wells Fargo & Co, Citigroup Inc, US Bancorp, and PNC Financial Services Group) could face up to $31 billion in losses from buying back bad mortgage.

According to Reuters.com, the financial giants are being pressured to buy back loans that were packaged and resold to investors.

The potential mortgage buyback losses would affect the banks' future profits, but are "not likely to affect our view of the banks' capital adequacy," Sharma wrote.

But those losses on mortgage buybacks, combined with the effects of increased regulation and an expected decrease in net interest income, "will likely hamper the financial recovery of the U.S. banks in 2011 despite declining credit costs," Sharma concluded.

Continue reading at Reuters.com...

The Pros and Cons of a Nation Wide Foreclosure Freeze

Bank of America made headlines with their announcement that they would temporarily pause all foreclosure proceedings to investigate procedures and allegations of false affidavits. Shortly thereafter banks like Chase and GMAC also issued a memorandum against evictions. The current review is only expected to take a few weeks. At that point financial institutions are hoping that foreclosures can resume, however, the possibility of mass foreclosure fraud has worried taxpayers across the country. Currently, 10% of Americans are delinquent on their home loans, and with an election just around the corner many members of Congress have spoken out about the possibility of a nationwide foreclosure freeze. Although the Obama administration does not support the moratorium on a Federal level, the Senate Banking Committee has scheduled a hearing on November 16^th to address the issue.

For all of my readers confused about the foreclosure fraud investigations and nationwide freeze, I have put together the following list of pros and cons. If you can think of any that I might have missed, drop me a line on either Twitter or Facebook.

Pro: Help to Struggling Homeowners

The number of American families that has suffered a foreclosure has been on the rise since 2007, and it has been expected that nearly five million homeowners could face foreclosure in the next two years. With a freeze in place, thousands of families will be able to stay in their homes. However, the current moratorium is only temporary and banks are still tracking delinquency so that they can resume foreclosure proceedings once the investigation has concluded.

Con: Nightmare for Banks

Although the investigation into foreclosure practices might be good for families struggling to pay their bills, it could become a nightmare for banks, and many other Americans. The credit market has been tight for years, which has made it difficult for small business owners to hire additional workers. Economists suggest that financial institutions stand to lose $2 billion every month that foreclosures are not moving forward. If revenue continues to decline, many worry that it will continue to prevent any improvement to the unemployment problem. Additionally, if banks are found guilty of foreclosure fraud it could lead to hundreds of lawsuits.

Pro: Fraud Investigations

The reason banks have been stalling foreclosures is to look into allegations of foreclosure fraud. When Bank of America began their freeze, officials claimed it was to look into cases to ensure no fraudulent documents were used to confiscate homes. After the investigations conclude, safer foreclosure programs are expected to be enacted which will help protect American homeowners. Additionally, some taxpayers could receive compensation if it is deemed that banks used fraudulent documents.

Con: Economic Recovery Prevention

Many politicians have warned a federally mandated nationwide foreclosure freeze would be bad for the economy. During a speech in New York, Senate Banking Committee Chairman Christopher Dodd said “a broad, sweeping moratorium is probably unwise. There are many institutions that are actually engaging the foreclosure process intelligently and well and doing a good job. To stop that across the board from happening would be very harmful for the economy.”

Pro: Stop to Robo Signing

Unfortunately, as financial institutions foreclosed on record numbers of homes over the past few years, the practice of using robo-signers emerged. Experts are accusing these so called robo-signers of approving hundreds of foreclosures every day, without taking the time to review them for legality. If investigations prove that this practice led to unjust foreclosures, then the government may step in to prevent robo-signers.

Con: Housing Market Instability

The Obama administration’s main objection to a nationwide foreclosure freeze seems to stem from a fear of further damage to the housing market, and economy. The real estate market has certainly seen a rough few years. A nationwide foreclosure freeze would only create more uncertainty, and possibly lower home values.

Bank Of America Halts All Foreclosure Sales

From CNNMoney.com...

Bank of America is halting foreclosure sales in all 50 states as part of a widening investigation into flaws in the process, the company announced Friday.

The announcement came a week after the nation's largest bank said it was freezing home foreclosures in 23 states where foreclosures must be approved by the courts. Friday's announcement by Bank of America extends a review of foreclosure documents to all states, regardless of the required legal processes.

"Our ongoing assessment shows the basis for our past foreclosure decisions is accurate," said Bank of America (BAC, Fortune 500) spokesman Dan Frahm in an e-mailed statement. "We continue to serve the interests of our customers, investors and communities."

The announcement came two days after JPMorgan Chase (JPM, Fortune 500) said it will also halt foreclosures for about 56,000 homeowners after learning that its employees may have approved foreclosures without personally reviewing loan files.

JP Morgan Chase had no comment on Friday's announcement by Bank of America.

Financial Literacy for Kids a Big Worry for Parents, BofA Says

According to Bank of America, financial management is the most important lesson a parent can teach their child. Although there are obviously many other important lessons parents teach their children, I do agree that financial literacy can help children lead a more stable life, and should be instilled at a young age.

The Merrill Lynch Affluent Insights Quarterly, which surveyed 1,000 Americans in June with investable assets of at least $250,000, found that 51 percent cited “financial know- how” as the most important life lesson to share with their children. That compares with 54 percent who named maintaining ties to family, 26 percent who said choosing the right spouse and 11 percent who mentioned staying physically fit.

“Cash and debt management, along with their children’s financial literacy, have become increasingly important to our clients as they juggle often competing financial demands while hoping to teach the next generation how to effectively manage their own money,” Dean Athanasia, head of banking and the direct investment division for Bank of America Global Wealth and Investment Management, said in a statement.

As uncertainty over jobs and long-term economic recovery increases, affluent investors are worried about rising college and retirement costs, the survey said. About 40 percent of respondents said they are concerned about the rising cost of college education and 46 percent are worried about their ability to preserve an inheritance for their children.

Continue reading at Bloomberg.com…

U.S. banks may end free checking accounts: report

Banks seem to be tightening up their financial purse strings lately. The latest report from Reuters.com states banks are doing away with free checking accounts. It further explains that this move is expected primarily to hurt retail businesses who could be asked to pay new monthly maintenance fees on their basic accounts that do not generate a lot of activity. According to Reuters banks are incurring expenses of $250-$300 a year to maintain each of the approximately 200 million checking accounts. However, some people disagree with this assessment. Don’t banks borrow against the money in checking accounts? And aren’t they already charging customer’s overdraft fees, ATM fees, and dozens of other outrageous fees? What do you think? Are you with a large bank or do you prefer a credit union instead? Let me know your thoughts on my Facebook or Twitter.

Bank of America Pledges $5 Billion More for Small Businesses

After a White House meeting encouraging U.S banks that received large bailouts to increase lending, Bank of America has announced they would be lending out $5 billion in 2010 to small and medium sized businesses. This is a good sign for the Obama administration, which is hoping that other large banks will follow suit. If small business lending does increase in the next year, it could certainly help slow down the ever climbing unemployment rate.

"Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make," CEO Ken Lewis said in a statement.

Lewis acknowledged the key role that small businesses play in creating jobs, calling them the "lifeblood" of the U.S. economy. "Our improved financial condition and our optimism about the economy will allow us to step up lending to support these clients," he said.

Bank of America (BAC, Fortune 500), based in Charlotte, N.C., is currently the second largest small business lender in the U.S., behind only Wells Fargo (WFC, Fortune 500), according to reports filed to the Treasury Department. Bank of America ended September with $41.9 billion in small business loans outstanding. That tally includes credit lines, credit cards, traditional loans and other financing.

But like most other big banks, Bank of America has pared back its lending through the recession. Since April, when top banks began submitting monthly reports on their small business lending, Bank of America has shaved its outstanding loan balance by 5%, or $2.2 billion.

Continue reading at CNN.com…

Bank of America to Repay TARP, Raise Cash

Yesterday, Bank of America announced plans to repay the $45 billion in government bailout money it received last year. They hope the move will help them recruit a new CEO, a feat they have yet to manage since their last CEO (Ken Lewis) announced this was to be his last year with the company.

The bank said in a statement it would use available cash and raise $18.8 billion in capital to repay the money, which it received during the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.

Bank of America has been searching for a successor to CEO Ken Lewis since the bank announced in late September that he planned to retire on Dec. 31. But the bank, burdened with government restrictions and close oversight after accepting the Troubled Asset Relief Program funds, has so far been unable to sign a new chief executive.

"It removes the stigma that we've had as a company," spokesman Bob Stickler said of the planned repayment. "We become more attractive to a CEO candidate. Whether that means we get somebody external is impossible to say."

The bank has said it was considering candidates from inside and outside the company. Stickler said a decision is expected "in the near future."

Investors were relieved by the news, and sent Bank of America stock up 3.3 percent in after-hours trading.

Continue reading at Huffington Post…

Bank Of America May Need More Money

Just days after I posted an entry on the 10 biggest recipients of Federal bailout money, Bank of America announced they may need more help from the government, according to the Associated Press. You can find a snippet of their story below, but the full article can be found here.

Bank of America Corp. (BAC) (BAC) and Citigroup Inc. (C) (C), which have each received $45 billion in government bailout funds, have been told by regulators that "stress test" results show they may need to raise additional capital, The Wall Street Journal said Tuesday.

Charlotte, N.C.-based Bank of America is looking at a shortfall in the billions of dollars, the paper said, citing people familiar with the situation. Both banks plan to rebut the preliminary findings, according to the paper, with Bank of America expected to respond Tuesday ahead of its shareholder meeting Wednesday.

Citigroup declined to comment; Bank of America officials weren't immediately available to comment.

As executives of the nation's largest banks review their stress-test results, even the top performers are lobbying regulators to raise their scores before the numbers are finalized Friday.

Fed officials told reporters Friday that all 19 banks that took its "stress tests" will be required to keep an extra buffer of capital reserves beyond what is required now in case losses continue to mount. That would mean some banks will likely have to raise additional cash. But the Fed stressed in a statement that a bank's need for more capital reserves to meet the requirements should not be considered a measure of the "current solvency or viability of the firm."

Federal Reserve officials held top-secret meetings with bank executives last week to give them preliminary findings of how each bank would fare if the recession got much worse. The government plans to announce the results of the tests May 4, and banks will have the opportunity to appeal the findings.

By law, the banks cannot publicize the results without the government's permission.

Executives sifted through the test results over the weekend, devising arguments they hope will persuade regulators to boost their scores, according to two industry officials who requested anonymity because regulators have barred them from discussing the process.

Banks have until Tuesday to make their cases. They will receive the final test results Friday, and the information will be released next week.

The results will determine the fates of the companies, which together hold one-half of the U.S. banking system's loans. Banks found to need more capital face several possibilities: The government could convert its stake in them to common shares, force them to raise money from investors or eventually release more funds from the Treasury Department's $700 billion financial bailout.

For Treasury, the easiest way to bolster bank balance sheets is to convert the government's existing stake from preferred shares - a form of debt - into common shares that carry voting rights. This would help Treasury avoid returning to Congress for more bailout money - a request lawmakers are likely to rebuff.

The banks' options are designed to ensure banks have enough cash to withstand the mounting loan losses they would absorb in a bleaker economy.

If the test showed a bank would need more money to endure a much worse recession, regulators will force it to meet higher standards for capital reserves, to offset possible future losses.