FDIC May Seek More Than $1 Billion From Failed-Bank Executives

The Federal Deposit Insurance Corp. is going after over 50 failed bank officers and directors, to collect losses caused by the financial crisis. The agency is hoping to recoup more than $1 billion from credit crisis losses.

Bloomberg.com reports:

The lawsuits were authorized during closed sessions of the FDIC board and haven’t been made public. The agency, which has shuttered 294 lenders since the start of 2008, has held off court action while conducting settlement talks with executives whose actions may have led to bank collapses, Richard Osterman, the FDIC’s acting general counsel, said in an interview.

“We’re ready to go,” Osterman said. “We could walk into court tomorrow and file the lawsuits.”

The FDIC, which reviews losses for every bank failure, has brought only one case against officers or directors tied to recent collapses -- a suit filed in July seeking $300 million in damages from four executives of IndyMac Bancorp Inc.

When a bank fails, the agency’s investigators take about 18 months to complete their autopsies, meaning most of the probes stemming from the financial crisis are ongoing, Osterman said.

Continue reading here…

What Banks Say About The Economy

Although the economy continues to struggle, and unemployment numbers continue to increase, financial institutions are showing profits. This suggests the worst of the credit crisis is over, as many banks are charging less to cover bad loan losses. Read more from CNNMoney.com.

As the economy goes, so goes the financial sector, which explains why bank shares have taken a hit ever since fears of another slowdown emerged. But you can't just look at stock prices. You have to weigh the performance of the underlying businesses. When you do, you may be in for a bit of a surprise.

With unemployment about as high as it's been in 30 years and the nastiest real estate bust in almost a century still playing out, you'd think that big banks would be having a rough time making money, right?

Actually, they're pretty much printing profits. The big four -- Wells Fargo, Bank of America, Citi-group, and J.P. Morgan Chase -- collectively earned almost $14 billion in the second quarter.

The good news: Fewer deadbeat borrowers

This is a reflection that banks are having to charge off less to cover bad loans, which suggests the worst of the credit mess is really behind us. Wells recently trimmed its loan-loss reserves by $500 million, which went straight to its bottom line. Over the next few years, it could release as much as $11 billion more.

Another plus for banks: Funding costs are incredibly low right now. While you may be frustrated with the paltry interest rates you're getting on your CDs, these low rates are manna from heaven for banks.

Continue reading at CNN.com…

Warren: Regulation Will Help Customers and Banks

The newly appointed Consumer Financial Protection bureau adviser Elizabeth Warren has spoken up, and is claiming that financial regulation consolidation will benefit both consumers and banks alike. On Wednesday she gave a speech and shared her hope that Americans will begin seeing banks as friends and not enemies.

"Instead of seeing banks as their friends, as I did when I put my babysitting money in a savings account at Penn Square National Bank so my brothers didn't borrow it out of my sock drawer, too many Americans see dealing with banks like handling snakes - do it long enough and you'll get bit," she said in a speech Wednesday to the Financial Services Roundtable in Washington.

She said the new law will force banks and non-bank lenders to be subject to federal examination and will consolidate consumer financial protection activities performed by seven different agencies into one agency, "closing gaps in oversight."

Warren said the purpose was to make these lenders more palatable and user-friendly for the American people.

"Thanks to the new law, for the first time ever, we will have a single federal agency charged with writing the rules for all mortgages and all credit cards, regardless of whether they are issued by a federally chartered bank, a state chartered credit union, or a group of unlicensed investors," said Warren, in her speech to the Financial Services Roundtable.

Continue reading at CNN.com…

Regulator Says Banks Slow to Buy Back Bad Loans

From the Associated Press:

A federal regulator is criticizing banks for failing to take back bad mortgages sold to giant mortgage buyers Fannie Mae and Freddie Mac.

Edward DeMarco, acting director of the Federal Housing Finance Agency, says in testimony prepared for a House subcommittee hearing Thursday that the two government-controlled companies had tried to send more than $11 billion in bad loans back to lenders as of this summer, but have met resistance.

A third of those requests have been outstanding for at least three months. DeMarco said delays by lenders in repurchasing these loans are a "significant concern."

Investors who buy loans from banks have the right to force lenders to repurchase them if they later discover fraudulent statements on loan applications.

Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans — even after the housing market collapsed.

5 Signs the Economy is still Struggling

With the November elections just a few weeks away, some politicians want Americans to believe that the U.S. economy is recovering. However, according to a report from Rutgers University, over half of American taxpayers believe the economy has undergone a fundamental and lasting change. Yesterday, I posted this blog entry taking a look at some of the signs of economic recovery, however, not all signs are good. There are also plenty of reasons to still be concerned about the economy.

Auto Sales

We all know that the three main American automakers have been struggling for years. Despite federal funds, the companies are having ongoing problems. Some economists estimate that U.S. automakers must charge an additional $2,000 per vehicle because of labor costs, and high medical and retirement benefit expenses. With this additional overhead, it has become almost impossible for American automakers to stay competitive. Compared with August of 2009, auto sales have decreased by 21% over the past year, and between July and August of 2010, sales fell by 5%. These disappointing numbers have led many economists to call for another Cash-for-Clunkers program, or another type of financial incentive to purchase a new car.

Unemployment

It is impossible to ignore unemployment problem in this country, with thousands of jobs being lost every month. According to the Labor Department the economy lost 100,000 jobs in August, which increased the unemployment rate from 9.5% to 9.6%. The ongoing unemployment problems are commonly cited as the main delay in economic recovery, and although we might see seasonal job creation over the next few months, many experts predict that we will not see any significant employment gains until 2012.

Home sales

Earlier in the year the housing market was showing some signs of improvement, but after the housing credit expired in June, home sales decreased quickly. In July, home sales were down over 25% compared with July of 2009. To make matters worse, home values are also continuing to plummet. Experts are even predicting another 5 to 10% decline in house prices over the next few months. Fortunately, as Neil Irwin or the Washington Post explains, housing activity has already decreased so much that it would be hard for it to hurt future economic recovery. Between 2006 and 2009 home sales fell from 2.3 million annually to under 500,000. This sudden drop was a major strain on the economy, but even if construction levels decrease further it is very unlikely to have the same impact on our economy as the collapse between 2006 and 2009.

Local Double Dips

One of the largest fears about the U.S. economy is the possibility of a double-dip recession. Most economists agree that this is unlikely on the national level. However, many state and local governments are at a serious risk of slipping into a second, more severe recession. Several government agencies across the country are facing unbalanced budgets, and have turned to drastic tax increases to generate revenue. Many economists suggest that these tax hikes could have a negative impact as consumers are left with less money to spend in their local economy.

Bank Failures

Last month the Federal Deposit Insurance Corporation (FDIC) announced that 829 financial institutions (or 1/10th of the banks in this country) were on their problem list. These banks are on the edge of going under, and there have already been 118 bank failures this year. There were 140 total bank failures in 2009, and it does not look like this trend is going to stop anytime soon. The problems facing financial institutions in the U.S. has a significant impact on the overall economy. When banks are struggling lending becomes more difficult, between April and June loan and lease balances fell another 1.3%. Until businesses have easier access to credit, unemployment problems will persist and the economy will continue to struggle.

'Too Big to Fail' Banks May Try to Get Smaller

From CNNMoney.com:

Wall Street appears to have beaten Washington to the punch.

While lawmakers enter the home stretch on regulatory reform with Thursday's Senate vote, the financial industry has already started to shake up how it does business ahead of the proposed new rules.

Just last week, Wells Fargo (WFC, Fortune 500) said it planned to shutter its more than 600 Wells Fargo Financial stores across the country and announced it was no longer going to make mortgage loans to people without stellar credit.

And on Tuesday, Citigroup (C, Fortune 500) said it had struck an agreement to transfer the management of part of its private equity business to outside parties StepStone Group and Lexington Partners.

Neither Wells nor Citigroup acknowledged that the moves were prompted by the proposed legislation which is expected to be signed into law by President Obama as early as next week.

Small Banks Are Big Problem In Government Bailout Program

Although Wall Street and large financial institutions are usually the subject of negative bailout headlines, according to new reports many smaller banks are also behind on their payments to the Treasury Department. According to this article on WashingtonPost.com, over 100 “small” financial institutions that received federal aid are behind on payments. That total is up by around 25% since February, and has reportedly doubled since last year.

The rising number of "deadbeat" banks, as they are known, could force Treasury to become more deeply entangled in the affairs of small financial firms that are troubled. The bailout legislation gives Treasury the right to appoint members to the boards of banks that miss six dividend payments.

So far only one firm, Saigon National Bank in Southern California, has missed that many payments. Eight others have missed five payments and 16 have missed four. Most banks that received federal aid agreed to pay the government a 5 percent dividend every three months upon taking funds from the Troubled Assets Relief Program.

Treasury officials declined to answer questions about whether they were preparing to make board appointments.

Banks Seizing More Foreclosed Homes

Despite the fact that less Americans are behind on their mortgage payments, the number of homes being foreclosed actually increased in May. CNN Money put together a great article discussing some potential reasons for the hike, as well as a set of tips for those who have faced or are likely to face foreclosure in the future.

Bank repossessions hit a record monthly high in May, according to RealtyTrac, the online marketer of foreclosed properties. Lenders took back 93,777 properties, up 1% from the previous month's record and 44% from the same period a year earlier.

Foreclosure filings, meanwhile, fell by 3% from a month earlier and edged up less than 1% from May 2009. One in every 400 homes received a foreclosure notice last month.

"Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed," said James Saccacio, RealtyTrac's chief executive.

After foreclosure: How long until you can buy again?

Overwhelmed by the mortgage meltdown, lenders have been relatively lax in repossessing homes as they try to cope with the flood of borrower defaults. As the housing market starts to stabilize, however, they are turning their attention to taking back homes.

Continue reading at CNN.com…

18 Ways to Earn 5% or More

Due to the poor economy and weak banking industry, most account holders are earning next to nothing from interest on their savings. Many Americans are being forced to find other investment opportunities, however finding a safe investment is much easier said than done. Fortunately, MSN Money.com put together a helpful article with over a dozen tips on earning 5% or more on your savings. I have included a few of their tips below, but you can find the full story here.

Taxable munis

In little more than a year, cities, states and public agencies have issued $100 billion of taxable Build America Bonds (BABs). BABs pay extraordinarily high interest rates because Uncle Sam, as part of the 2009 financial-rescue package, picks up 35% of the issuers' interest costs. BABs now yield more than corporate bonds with similar maturities and credit ratings, making them great not just for IRAs and other tax-deferred accounts, but for taxable accounts as well.

Yields of at least 6% are common for new, long-term BABs. The state of Illinois, for example, just issued 25-year BABs at 6.6%. These are general-obligation bonds, backed by the state's taxing power. Standard & Poor's rates Illinois A-plus, although the state is on watch for a possible rating downgrade. If you prefer to lend to an entity that appears to be in better shape, consider a new, 30-year New York City water-and-sewer revenue bond. The BAB, rated double-A-plus, hit the market at 6.4%.

Fans of exchange-traded funds should consider PowerShares Build America Bond ETF (BAB, news, msgs). With an average credit quality of double-A, it pays dividends once a month and was recently yielding 6.2%.

Preferred stocks

A preferred stock is closer in spirit to a bond than a common stock because a preferred dividend is almost always fixed. So, if long-term interest rates rise, a preferred reacts like a bond and loses value. You also face company risk should the issuer run into trouble and suspend preferred dividends. If you can stand some price fluctuation, consider reinsurer Endurance Specialty Holdings 7.75% Preferred (ENH-A, news, msgs). Rated triple-B-minus, the issue is not callable until 2015 and sports a current yield of 8.1%. Under current federal law, the top tax rate on qualified dividends is just 15%. (Many stocks that look like preferred are actually hybrid securities and aren't eligible for preferential tax treatment.)

Banks, insurers, and real-estate investment trusts are the most common issuers of preferreds. With a preferred-stock ETF, you can diversify into utilities and industrials. The oldest and largest among these is iShares U.S. Preferred Stock Index ETF (PFF, news, msgs). It pays dividends monthly and yields 6.5%.

FDIC Opposes $1.4 Billion Refund for JPMorgan

From the Associated Press:

Federal regulators are opposing a proposed $1.4 billion tax refund for JPMorgan Chase & Co.

The tax benefit has become an issue a year and a half after the Wall Street titan galloped in to buy the assets of Washington Mutual Inc. when it collapsed under bad mortgage loans and became the biggest bank ever to fail in the U.S.

The Federal Deposit Insurance Corp. seized Seattle-based Washington Mutual and sold its bank assets to JPMorgan for $1.9 billion.

JPMorgan has been involved in the bankruptcy reorganization proceeding for Washington Mutual's holding company, and had reached a compromise earlier this month with the FDIC.

Under that accord, JPMorgan agreed to turn over about $4 billion in disputed WaMu deposit accounts to Washington Mutual in return for a portion of the tax refunds expected from the fallen bank's prior operating losses.

JPMorgan would get the right to the $1.4 billion and creditors of the WaMu holding company would get the most of the remaining $2.7 billion refund.

Under economic stimulus legislation enacted late last year, money-losing companies — in this case WaMu — can use their losses to get refunds of taxes paid in the previous five years. That was an expansion from the previous two-year allowance for calculating refunds.

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Credit Card Companies Like Making Money! (DUH!)

Most of the much hyped credit card legislation went in to effect today, and the Huffington Post has put together a summary of all the new changes consumers should be aware of. Although many of these changes are beneficial to most Americans, credit companies will always find ways to get more money from their customers, so it is important to understand these new regulations. I have included a section of their article below, but be sure to checkout the full text at Huffington Post.com.

As of today, February 22nd, all credit card companies must do the following:

Keep all due dates the same on your credit card: Now you can better plan for your credit card payments each month without fear of being late because they have arbitrarily changed the grace period.

Provide you 45 days notice before they raise rates: While there are no limits as to how high the rates can go and they can still jack up your interest rates, at least you now have much more time to prepare for these rate increases.

Younger adults under the age of 21 will find it much harder to obtain a credit card: I used to have a portion of my workshop for college freshmen that cautioned them against credit card companies that solicited their business... that practice will severely be limited because of this age restriction.

No more double cycle billing: Card companies used to be able to charge interest on a debt that had already been paid in a previous month. As wrong as this practice was it was legal... not anymore.

Open a Checking Account, Get $100

With new restrictions and customers with tighter budgets, many banks are finding it hard to pull in new customers. In an attempt to bring in new business, several banks are offering deals where you can get free cash (often ranging between $50 and $200) to new customers. However, as this article from MSNMoney.com warns, many of those banks offset the free cash by introducing new fees, minimum balance rules, direct deposit requirements, etc.

For decades, banks have been trying to get consumers to open checking accounts with freebies like toasters, George Foreman grills and even iPods and Home Depot gift cards.

Now, they're upping the ante with offers of $100, $150 or more in cold, hard cash. This month, Capital One launched a promotion offering a $200 bonus to customers who open a Rewards Checking account through Feb. 28. Bank of America offers $100 to anyone who opens a checking account through Feb. 28.

While cash incentives aren't new -- Chase has been offering cash bonuses for four or five years, according to spokesman Tom Kelly -- at a time when consumers are starting to receive their holiday shopping bills and are mindful of their budgets, such promotions may seem particularly attractive. And thanks to new credit card legislation coming into effect next month and new regulations limiting banks' ability to charge overdraft fees, banks are likely to make such offers even sweeter.

"Banks are wondering how they'll recoup some of their lost revenue, so they're focusing on generating revenue through checking accounts and debit card activity," says Ron Shevlin, a senior analyst with market research firm Aite Group. (See "Credit card rates, fees soar as new law looms.")

Yet consumers shouldn't jump at such offers without reading the fine print. "These deals sound very attractive, but they come with behavioral restrictions and requirements," says Shevlin. "It's great that you'll get $200 upfront, but will you pay $200 in ATM and safety-deposit fees?" Many banks require consumers to set up direct deposit, maintain a minimum account balance or make a certain number of debit-card purchases each month.

Continue reading at MSNMoney.com…

Big Banks vs. Obama

From NewsWeek.com:

The big banks are considering challenging President Obama's proposed tax on very large banks and financial institutions in court as unconstitutional. Let's see if I have this right. The Federal Reserve deciding unilaterally, without public debate, to assume hundreds of billions of dollars of financial companies' liabilities, spent hundreds of billions to buy mortgage-backed securities and potentially expose taxpayers to massive losses: That's totally constitutional. Congress passing a law suggesting that a small portion of the bailed-out financial industry, which is still benefitting from massive government subsidies, pay a fee for running huge balance sheets: That's unconstitutional.

The industry has argued that the Obama bank tax would hurt the recovering economy because banks would pass on higher costs to customers and borrowers rather than eat them. Higher taxes mean less money available for lending. In theory, that may be true. But when you consider the size of the banks, the size of the tax, and the vast sums of money they squander each quarter because of poor lending decisions—the proposed banking tax is a drop in the bucket.

The tax amounts 15 basis points on the net liabilities of financial institutions that have assets greater than $50 billion and that received capital as part of the TARP or issued debt as part of the Temporary Liquidity Guarantee Program, which allowed banks to save hundreds of millions of dollars on interest costs. It would total about $90 billion—$9 billion per year over 10 years. Sean Ryan of Wisco Research in Madison, Wisc., calculated the expected tax hits for several institutions, which he provided to me. The bigger you are, the harder you get hit: Giants JPMorgan Chase and Citi would each pay about $1.5 billion per year, while a merely large bank like US Bancorp would pay about $100 million per year.

Use American Express Points to Pay Taxes

American Express cardholders may not be able to use their card at every single small business in the country, but the still widely accepted credit giant announced on Monday that customers could now use their rewards points to their tax bills. Several card companies offer programs that offer airline miles, gasoline credits, other rewards, but American Express’ new program to use reward points to pay taxes is an industry first. CNN Money.com posted an article this morning on AmEx’s announcement; you can find a clip from their story below.

AmEx (AXP, Fortune 500) cardholders can use the points toward federal, state and local income tax payments when they use one of two Web sites to file their taxes: Pay1040.com and OfficialPayments.com.

But to pay off $5,000 in taxes a cardmember would have to charge $1 million.

That's because it takes a whopping 200 points to pay off just $1 in taxes. And, according to an AmEx spokeswoman, cardmembers typically earn about one point for every dollar charged to their credit card.

"In light of the economy, we wanted to give cardmembers a practical use for their rewards points," said spokeswoman Mona Hamouly.

Community Lenders Hit the Funding Jackpot

From CNNMoney.com:

Goldman Sachs' banking titans and top congressional Democrats don't often see eye to eye -- executive pay caps, anyone? But here's something the megabank and Capitol Hill agree on: One of the best ways to get financing to worthy small businesses is through a little-known community lending vehicle called a CDFI.

Taken together, Goldman Sachs and the federal government have earmarked more than $300 million to invest in these local financiers in 2010. Compared to Wall Street's bailout billions, that's pennies on the dollar, but for CDFIs it's a jackpot. Next year's funding pool is almost three times bigger than any they've ever had before.

A CDFI is a Community Development Financial Institution, a certification conferred by the Treasury Department. The program gives low-interest government loans, grants and tax credits to organizations that specialize in economically developing low-income and otherwise underserved markets.

CDFIs were a hot topic at the small business lending forum Treasury Secretary Timothy Geithner convened last month to brainstorm solutions to the ongoing credit crunch small companies face. Wary of lending to firms struggling through the recession, banks slashed their small business credit this year.

That left CDFIs, which specialize in riskier loans, scrambling to pick up the slack. Funding requests surged. For the 2010 fiscal year, the CDFI Fund received applications totaling $467 million, a 97% jump from 2009.

Obama (again) Urges Bankers to Lend more Money

From USAToday.com:

It was a little like financial Groundhog Day at the White House today-- President Obama again met with a group of bankers, and again asked them to provide more loans to business owners so they can hire more people.

The difference is that this group consisted of a dozen owners of smaller, community banks.

Obama said he had "the same conversation that I had with some of the larger banks last week and that I've been having with CEOs of companies across the country."

The goal, he said, is to see "that businesses are getting the capital that they need and that we are starting to see people hired again, people able to finance their homes, finance college educations and so forth."

And again, banking analysts pointed out that it's not that easy to find credit-worthy borrowers in this economy.

And many lenders are "getting a lot of grief from the banking examiners," said banking consultant Bert Ely. "They're criticizing the bankers for some of their loans."

At the White House meeting, Obama echoed a message he has used for months, and will continue to use as long as the unemployment rate remains in double digits. "Everything that we're going to be doing here in the White House over the next several months," he said. "is going to be geared towards catalyzing and spurring additional lending."

Obama also asked this second set of bankers to back new financial regulations that are pending in Congress.

US Bank Regulators Clash Over Private Equity Rules

From Reuters.com:

U.S. bank regulators on Thursday clashed over stringent proposed guidelines for private equity investments in failed banks, with some officials expressing concern that the tough proposals could scare away needed capital.

The heads of the Office of the Comptroller of the Currency and the Office of Thrift Supervision both aired their concerns at a board meeting of the Federal Deposit Insurance Corp, during which the board proposed the new guidelines.

FDIC Chairman Sheila Bair said the guidelines need to include strong capital requirements and other provisions to ensure the safety and soundness of the banks, but said she is open to comments on the proposal.

The FDIC plans to hold a roundtable discussion on the proposal next week, Bair said.

Bankruptcy Bill Watered Down, Still Fiercely Opposed By Banks

From Huffington Post.com:

After weeks of negotiations between Senate Democrats and major players in the financial industry, a compromise bankruptcy reform deal has been reached, Majority Whip Dick Durbin (D-Ill.) said on the Senate floor Monday night. Whether it will pull 60 votes, the number needed to overcome a GOP filibuster, is a question that will be answered later this week when the Senate takes up Durbin's amendment to the House-passed bankruptcy bill.

In order to garner the support of conservative Democrats and a few Republicans, the proposal has been watered down. The bankruptcy legislation will still allow homeowners to renegotiate mortgages in bankruptcy - the so-called cram down provision - but only under strict conditions. The banking industry has lobbied fiercely against cram down, but Durbin said on the Senate floor Monday night that the compromise was supported by Citigroup, which has been at the negotiating table.

"In the past, some of my colleagues understood the need for action but have been uncomfortable with the original language. Let me be clear: this amendment is different," said Durbin. "The amendment I'm going to offer will make a modest change in the bankruptcy code with a lot of conditions. It won't apply across the board. This amendment limits assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the foreclosure prevention efforts already underway - Obama's homeowner assistance and stability plan and the Congressionally-created HOPE For Homeowners, which this bill will greatly improve."

If banks refuse to take part in either of those programs, which allow homeowners to renegotiate mortgages under certain conditions, then a bankruptcy judge would be able to reduce a homeowner's monthly payment.

Durbin didn't release any further details. The compromise, which he said is also supported by the Center for Responsible Lending, AARP and the Leadership Council on Civil Rights, is being shared with wavering members and staff leading up to the vote.

Meanwhile, the banking lobbyists are furiously lobbying against it and Durbin acknowledges it will be difficult to "muster the votes, although I know it will be hard."

It is "hard to imagine that today the mortgage bankers would have clout in this chamber but they do," said Durbin. "They have a lot of friends still here. They're still big players on the American political scene and they have said to their friends, stay away from this legislation."

While Citigroup, Bank of America, Wells Fargo and other major banks were negotiating with Durbin and his allies, the major bank lobbies were whipping up opposition to it.

IRS Says Set To Pursue "Other Banks" On Tax Evasion

From Reuters.com:

The U.S. Internal Revenue Service (IRS) is poised to pursue "other offshore banks" for allegedly facilitating tax evasion by wealthy Americans following its high-profile case against Switzerland's UBS AG (UBSN.VX) (UBS.N), an IRS official said on Monday.

"We have identified other offshore banks that are engaged in similar activities," David Reeves, an agent with the IRS' Offshore Compliance division, told a conference in Miami on offshore finance centers.