Week in Review: Mark Sievewright Posted by AVCU on 9:49 AM

Market News

2010 bank failures increase to 26; 1 credit union closed - Four banks were closed on Friday bringing the year-to-date total to 26:

• Sun American Bank, Boca Raton, Florida - $536 million in assets
• Centennial Bank, Ogden, Utah - $215 million in assets
• Bank of Illinois, Normal, Illinois - $212 million in assets
• Waterfield Bank, Germantown, Maryland - $156 million in assets

Also, one credit union was closed. The NCUA announced that it liquidated the $2.5 million Lawrence County School Employees Federal Credit Union, which had been headquartered in New Castle, Pennsylvania. At the time of its liquidation, Lawrence County FCU had just over 1,000 members whose accounts have been picked up by the First Choice Federal Credit Union, also of New Castle.

Volcker Rule introduced; bids to restrict big bank activities - The Obama administration put forward legislation on Wednesday to rein in the size and scope of the nation's largest banks. But the proposal faces strong resistance in Congress, where lawmakers have shown little appetite for adding to the prolonged debate on overhauling financial regulations. The legislation would ban banks that take federally insured deposits from investing in hedge funds or private equity funds and from making trades that are for the benefit of the banks, not their customers, a practice known as proprietary trading. Goldman Sachs and Morgan Stanley would probably be the Wall Street firms most affected by the ban, known informally as the "Volcker Rule", but they might be able to shed their status as bank holding companies, to avoid some of the restrictions. The legislation also would ban any bank from acquiring another bank if the merged company would have more than 10% of all liabilities in the financial system.

MetLife in $15 billion AIG deal - According to reports, AIG was closing in on a deal on Sunday to sell its foreign life insurance unit to MetLife for about $15 billion in cash and stock, ultimately giving it more than 20% of MetLife. MetLife is expected to pay AIG about $7 billion in cash and the rest in equity, including about $3 billion in convertible preferred, and the rest in common stock and temporary securities similar to common shares.

CUNA panel wants revamp of Corporate CU system . . . calling for a pared down Corporate CU system that requires little new capital from natural person credit unions. The task force's report boldly stated that the corporate business model is no longer viable and natural person credit unions are unwilling to invest significant amounts of funds needed to recapitalize the Corporates. It also said that "several groups of credit unions" are organizing their own cooperatives to replace them. The task force envisions the corporates as limited to settling and payments services, and meeting short- to medium-term liquidity needs. One important change might be to have payment and settlement functions combined. Investment services would be limited to agent or advisory roles, with investments remaining on natural person credit union balance sheets, removing what Corporate CUs claim is a vital source of revenue.

Credit union report positive 2009 results . . . with nearly 10% net worth, while loan demand and delinquencies showed weakness, according to Call Report data released last week by the National Credit Union Administration. Highlights of 2009 credit union performance were:

• Net income returned to a positive $1.7 billion after a 2-year decline.
• Return on average assets grew 24 basis points compared to year-end 2008.
• Assets increased 9.08% to $884.8 billion from $811.1 billion;
• Loans grew 1.1% to $572.4 billion from $566.0 billion;
• Shares increased 10.5% to $752.7 billion from $681.1 billion;
• Investments increased 27.3% to $210.9 billion from $165.7 billion;
• Net worth grew 1.9% to $87.7 billion from $86.1 billion; and
• Membership increased 1.5% to 89.9 million from 88.6 million members.

Because share growth significantly outpaced loan growth during 2009, the loan-to-share ratio declined to 76.05% from 83.1% posted at year-end 2008. This resulted in significant investment growth. To protect against potential losses, federally insured credit unions increased provisions for loan and lease losses by 34.1% during 2009 following a 120% increase in 2008. Over $9.4 billion is now set aside to cover loan and lease losses. Delinquent loans grew 33.7% to a reported $10.4 billion.

Dodd proposes consumer protection under the Fed - In an effort to secure Republican support for an overhaul of financial regulations, the chairman of the Senate Banking Committee proposed giving the Federal Reserve responsibility for protecting consumers from abusive and deceptive financial products. The new plan, described by an official briefed on the negotiations, was the latest iteration of an idea that has divided members of the committee, largely along party lines.

Kohn to retire from Fed - Donald L. Kohn, the vice chairman of the Federal Reserve, who helped coordinate the central bank's response to the fiscal crisis in 2008, told the White House on Monday that he would retire when his four-year term expires on June 23. His departure would bring to three the number of vacancies on the Fed's board of governors, and gives the Obama administration the chance to significantly impact the governance of the Fed and its conduct of monetary policy.

Economic News

Consumer borrowing rises unexpectedly - Borrowing by US consumers rose for the first time in a year in January, according to the Federal Reserve. The central bank said consumer credit rose 2.4% or $5 billion from December, 2009 to a total of $2.45 trillion in the first month of 2010. It was the first gain after a record 11 straight declines and it was the largest increase since July, 2008. January's figure was boosted by a $6.6 billion, or 5%, increase in credit for car loans. However, credit card borrowing, which has now fallen for the 16th month in a row, declined by $1.7 billion, or 2.3%.

Jobless rate holds steady - The U.S. economy lost fewer jobs than expected last month - about 36,000 jobs disappeared from the economy in February, while the unemployment rate remained unchanged at 9.7%. Compared with monthly job losses of more than 650,000 a year ago, most economists construed the report as a sign that a tenuous recovery might be gaining momentum.