Market/Economic Update by Mark Sievewright Posted by AVCU on 10:05 AM

Market News

The number of bank failures in 2010 rose to 64 on Friday with the close of 7 institutions:

• R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico - $5.9 billion in assets
• Westernbank Puerto Rico, Mayaguez, Puerto Rico - $11.94 billion in assets
• Frontier Bank, Everett, Washington - $3.5 billion in
• Eurobank, San Juan, Puerto Rico - $2.56 billion in assets
• CF Bancorp, Port Huron, Michigan - $1.65 billion in
• Champion Bank, Creve Coeur, Missouri - $187 million in
• BC National Banks, Butler, Missouri - $67 million in assets

The NCUA liquidated Tracy Federal Credit Union in California, and accepted Modesto, California, based Valley First Credit Union’s offer to purchase and assume the credit union. Tracy FCU’s declining financial condition led to its closure and subsequent purchase and assumption. At closure, Tracy FCU had $25.4 million in assets.

Wall Street faces capital shortfalls, pay cuts in Banking Bill - JPMorgan Chase and Goldman Sachs are among U.S. investment banks that may be forced to raise an additional $250 billion in capital, cut executive pay and divest some of their most lucrative assets under a bill now being reviewed on the U.S. Senate floor. A two-page provision tucked inside the 1,558-page bill would change the structure of about 40 of the largest U.S. investment banks by forcing them to spin off their derivatives businesses. Another measure added this month would require derivatives dealers to maintain a “fiduciary duty” to municipal, pension and retirement plan investors, which some analysts say would wipe out that market altogether.

Fed keeps rates unchanged - As expected, the Fed’s FOMC made no changes in the targeted funds 0% to 0.25% interest rate or in the language of its "extended period" policy. Also, it closed all but one of its special liquidity facilities that had been created during the financial crisis. Many economists presume the Federal Reserve policymakers will start selling off some of its $1.25 trillion mortgage-backed-security portfolio before they move on interest rates.

President Obama makes Fed picks - President Obama’s appointment of three Federal Reserve governors will bring the board to full strength for the first time in four years, helping Chairman Bernanke manage a withdrawal of record monetary stimulus and an overhaul of bank supervision. San Francisco Fed President, Janet Yellen, will be vice chairman of the Board of Governors. President Obama also named Sarah Bloom Raskin, Maryland’s commissioner of financial regulation, and Peter Diamond, an economics professor at the Massachusetts Institute of Technology, to the seven-person board. The three are subject to Senate confirmation.

U.S. 10-year notes register first monthly gain since January - U.S. 10-year notes had their first monthly gain since January as concern the Greek debt crisis will spread fueled demand for the safest government securities even as the U.S. economic recovery showed signs of accelerating. Also, reports emerged that the Labor Department will report on May 7 that the U.S. economy added 190,000 jobs in April, the most since March 2007.

Economic News

U.S. economy grew 3.3% - The U.S. economy expanded in the first quarter, capping the biggest six-month gain since 2003, as consumers spent more freely. Gross domestic product grew at a 3.3% annual pace from January through March.

Home prices in U.S. cities rise less than forecast - The S&P/Case-Shiller home-price index of property values in 20 cities increased 0.6% from February 2009, the first gain since December 2006. Home prices in February were 30% below the peak reached in July 2006, indicating the industry will take years to recover lost ground.

Consumer confidence rises - Confidence among U.S. consumers increased in April to the highest level since September, 2008 as Americans became more upbeat about jobs, according to the Conference Board. The index rose to 57.9 from 52.3 in March.

Number of U.S. jobless claims falls - Fewer Americans filed claims for unemployment benefits last week, a sign the economic rebound is lifting the labor market. Initial jobless claims fell by 11,000 to 448,000 in the week ended April 24. The number of people receiving unemployment insurance and those getting extended payments decreased.

Housing stimulus ends - Friday marked the last day that homebuyers could qualify for an $8,000 federal tax credit. Also, a few weeks ago, the Federal Reserve stopped another program that was helping to keep mortgage rates low through the purchase of mortgage securities. Some analysts say millions of people are still headed for foreclosure, and the added inventory of homes could glut the market and keep pushing prices down.

Bernanke says budget gap might raise interest rates - Federal Reserve Chairman, Ben Bernanke, said last week a failure to reduce the federal budget deficit may push up interest rates over time and impair economic growth, putting the recovery at risk. According to Bernanke, budget deficits may eventually erode the confidence of bond investors in the management of U.S. fiscal policy, driving yields higher on Treasury borrowing, raising the cost of lending in the economy and slowing economic growth, Bernanke said. The Obama administration estimates budget deficits will total $5.1 trillion over five years and hit a record $1.6 trillion in the year ending Sept. 30, 2010.