4/05 Market Update by Mark Sievewright Posted by AVCU on 9:48 AM

2010 bank failures remain at 41 - No bank failures occurred last week.

Fed ends its purchasing of mortgage-backed securities - The Federal Reserve’s $1.25 trillion program to buy mortgage-backed securities came to a long-anticipated end on Wednesday. The program has been credited with holding mortgage interest rates at near-record lows and slowing the nationwide decline in home prices that threatened to send the economy into an extended slump. When the central bank announced the program two days before Thanksgiving 2008, the spread, or difference, between the rates for a 30-year fixed-rate mortgage and a 10-year Treasury note exceeded 2.5 percentage points, or 250 basis points, nearly twice the typical spread.

Financial reform next for Obama Administration - The White House and one of its top outside economic advisers, Paul A. Volcker, expressed confidence last week that legislation to overhaul the nation’s financial system would be completed this year, possibly before the Congressional summer recess. “I feel more optimistic than I would have felt a month or two ago,” Mr. Volcker, said in a speech at the Peterson Institute for International Economics. Asked about reports that the Senate might move on the legislation by the end of May, the White House press secretary, Robert Gibbs, said, “I don’t think that’s an unrealistic timetable at all.” The House passed a sweeping financial reform package in December, and the Senate Banking Committee did so last month, on a party-line vote. Democrats would have to obtain some Republican support to overcome the threat of a filibuster in the Senate.

Citigroup exit likely to be profitable - The U.S. Treasury is set to sell its 27% stake in Citigroup in an exit move that should deliver a healthy profit for taxpayers. The sale will happen comparatively quickly considering its size. Treasury has hired Morgan Stanley to trickle-feed its 7.7 billion Citigroup shares into the market over the next nine months.

Supreme Court hands big win to mutual fund industry - The Supreme Court handed a victory to the $11 trillion mutual fund industry last week by endorsing a 1982 legal standard to decide the fairness of fund fees, a ruling that gives companies considerable freedom to set investment adviser charges. The justices unanimously adopted the standard in a 1982 U.S. appeals court ruling that fees are excessive only when they are so high they could not be the result of arm's-length bargaining and bear no reasonable relationship to the services provided. Industry executives and attorneys described the high court's ruling as a big win because it limits the potential that Congress or lower courts could force fund firms to reduce the roughly $90 billion they collect in fees every year.

SEC looks at Wall Street accounting - The Securities and Exchange Commission (SEC) announced last week that it had started an inquiry into about 24 financial companies to determine whether they followed accounting practices similar to those recently disclosed in an investigation of Lehman Brothers. The SEC is interested in transactions known as repurchase agreements, which are a common way that investment banks provide funds for trading activities. It wants to know whether other Wall Street firms used tactics like those that Lehman used to mask their debt levels from investors. The SEC did not list the companies the letters were sent to.

U.S. companies calculate the impact of health care legislation - U.S. companies have started to tally up the financial hit they say they will take as a result of the U.S. healthcare overhaul signed into law last week. The government continues to pay subsidies to some large companies to help pay for prescription drug benefits for their large ranks of retirees. However, the revamped law no longer allows companies to deduct the amount of the subsidies from their taxable income. AT&T said it would record a $1 billion noncash charge for the first quarter and evaluate prospective changes to the healthcare benefits it offers. Prudential Financial said on Monday that it would take a $100 million charge in the first quarter. However, not all big companies are warning of trouble. For example, General Electric says it does not expect a "significant material impact" on its first-quarter results.

Jobs data turns positive - Data on Friday showed U.S. employers created jobs in March at the fastest rate in three years. Non-farm payrolls rose 162,000, only the third increase since the U.S. economy fell into recession in late 2007 and the largest since March 2007. U.S. manufacturing is also expanding at its fastest pace for more than five years.

Consumer confidence rebounds - U.S. consumer confidence rebounded in March, while home prices rose in January for the eighth straight month, bolstering hopes for a sustainable economic recovery. The consumer data also showed a slight increase in optimism about the labor market. The Conference Board, an industry group, said on Tuesday its index of consumer attitudes rose to a reading of 52.5 in March from an upwardly revised 46.4 in February.

Personal bankruptcies jump in March - More Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened in October 2005. Federal courts reported over 158,000 bankruptcy filings in March, a rise of 35% from February. Filings were up 19% over March, 2009.

Oil price hits 18-month high - U.S. crude futures hit an 18-month high, climbing toward $86 per barrel on expectations of a faster-than-expected economic recovery. The price has risen almost 2% in the first five days of the quarter, versus a rise of 5.5% through the whole of the first three months of the year.