Banks Keep Failing, No End in Sight

Since September 25, 2008, about 279 banks have collapsed. This is the largest number in 20 years. This is causing “the eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers” reads the Wall Street Journal. Nobody seems to really know to what extent such bank failures will affect the overall economy on the country. “The Federal Deposit Insurance Corp. already increased its number of problem banks by 6% to 829”(WSJ).
The only hope here appears to be if the Federal Reserve decides to stimulate the economy. Although to this economist argue that will only worsen the condition due to the fact the help usually goes to the big bank which inevitably kills the completion. “Large banks like Countrywide Financial Corp. and Wachovia Corp. were acquired to avert failure while powerful banks including Citigroup Inc. and Bank of America Corp. were propped up by the government” (WSJ).
Here are the pros and cons of the situation,

Pros:
• This could become a healthy cleansing of a sector that grew too fast

Cons:
• A number of U.S. banks could fall to 5,000 over the next decade from the current 7,932
• A weakness in real estate continues to constrain economic growth
• There a many lost jobs
• Failed bank assets are now strewn across the banking system

The bottom line is, the current economic problem is feeding on itself. Companies can´t take loans from banks to acquire assets and reinvest in the bank because the bank reduced amount of assets impairs them from making loans. As Richard Bove, a bank analyst at Rochdale Securities in Lutz, Fla said: "If you reduce the amount of assets at a bank, it means they make fewer loans, and that has a negative impact on the economy" (WSJ). The only two possibilities that I see this ending up are: 1.- The Fed intervenes or 2.- the industry will collapse living only the big players to rip off the benefits of underpriced assets.

References:

http://online.wsj.com/article/SB10001424052748704760704575516272337762044.html

A 0% mortgage! is that possible?

Mortgage rates continue to drop closer to 0%. These extremely low rates are coming from the Federal Reserve which is willing to take the necessary steps to keep the economy growing. The idea of “No-interest Mortgages” is still a far off fantasy, but it’s not preposterous to think of the banks offering 2% or 3% rates.
One expert, Mortgage planner Jim Sahnger, doesn’t think it would be possible for the rates to reach 0%. Without funding he believes that it would be unethical to have a 0% rate. He believes "unless there were significant fees on the front to compensate for costs to originate, deliver, default, etc.”. That is not to say that the idea isn’t impossible; even today’s rates being at 4% seemed impossible a couple of years back.
Qualifying for these low interest loans is no small feat though. In a recent study by Zillow Mortgage Marketplace they found that nearly one-third of Americans are unlikely to qualify for a mortgage because their credit scores are too low, and only 47% of Americans qualify for the best rates. "We are in an era of historically low mortgage rates, reaching levels not seen in decades. Coupled with four years of home-value declines, homes are more affordable than we've seen for years," said Stan Humphries, Zillow's chief economist. He further states,"… the irony here is that so many Americans can't qualify for these low rates, or can't qualify for a mortgage at all."
However, the article brings up an interesting point, what if the rates weren’t just for first time homebuyers? What if they were for people refinancing loans as well? They say that in theory it would cause such a surge of mortgages that the banks would be understaffed and would have to hire more employees to help meet the needs of the people. Even if everyone couldn’t qualify for these types of mortgages it would still bring a surge in the market. So many people out there are qualify but are staying out of the market because they are scared. Although 0% loans are still a distant dream, these loans would stimulate the growth of the economy. One way would be an increase in the job market and the second in the consumer banking industry.


http://online.wsj.com/article/SB10001424052748704791004575519913915143970.html?KEYWORDS=personal+loans

3rd Quarter Earnings Show a Healing Financial Services Industry

In its release of its 3rd quarter earnings, Discover Financial Services recorded a profit of over $260 million.  Along with other members of the consumer banking industry such as American Express Co. and Capital One Financial Corp., Discover attributes its earnings to better credit trends, more consumer spending, and more availability of reserves.  

An important indicator for the future of the consumer credit industry is the delinquency rate.  A falling delinquency rate means that more card holders are paying off their credit card debts, and fewer are late in submitting their payments.  Lower delinquency rates allow financial services companies such as Discover to lower its reserve funds because it feels more confident that card holders will pay back their debt.  Fewer reserve funds are a good indicator of industry health.  Hopefully, the falling delinquency rate is a sign of future industry health.

Declining delinquency rates also show an important positive trend in the consumer credit market.  Since the height of the financial crisis, financial services companies have clamped down on the amount of credit available to consumers.  Lower delinquency rates are a clear indicator that the clamp down on credit has effectively reduced the number of risky consumer borrowers.  This allows companies such as Discover to generate more profits and it is a good sign for a recovering financial services industry.  

The increase in consumer spending on credit cards also is a positive sign for the consumer financial services industry.  Consumers have responded to a rebounding economy by increasing their spending which contributes to an increase in profits.  While the positive 3rd quarter earnings are clearly a step in the right direction for the consumer financial services industry, more positive data is required to make a firm judgment about the overall trends of the industry.

-Justin Schaffer

Source: WSJ: http://online.wsj.com/article/SB10001424052748703989304575503661381307820.html

Team Contract Assignment

Please let me know where and when can we all meet to do the H.W.. I do not have you emails.

H.W.:
Team Contract Assignment
BUS 1.0


Objective:

To prepare you for the teamwork required in business school and later in the business world, you have been assigned to work on an industry team for the semester. Together, your team will work to complete the collaborative projects in BUS 1.0 including a team blog, a team paper (draft and final), and a team presentation.

To set your team up for success, you are now tasked with developing a team contract. To complete such a contract requires team members to discuss and negotiate the terms upon which they will work together. This process will help you to clearly establish your mutual expectations, assign roles and responsibilities, and establish the necessary procedures to meet your team goals.

Team Contract Assignment

Your team contract is divided into three major sections:

1. team procedures
2. expectations
3. accountability


By outlining your expectations in your contract, you will be more likely to prevent misunderstandings as you go about your work together. Therefore, in each of the following sections be sure to specify each task, the person(s) responsible, and any negotiated timeframes.

Use the Team Contract template to discuss and finalize your team roles, procedures, and standards. Each question requires a concise 1-2 sentence answer. Complete, sign, and submit one copy of your finalized contract to your section TA by class time on September 30, 2010.

Once you have completed your team contract, you should refer to the document when conflicts arise. Call a team meeting immediately to discuss and resolve the challenges your team is facing; do not delay. Seek guidance from your Professor or TA to resolve any conflicts so that you will have the most positive team experience possible. If some aspect of your team contract needs to be renegotiated, you are welcome to do that. Please submit any changes to your team contract that are made over the course of the semester to your TA. When you evaluate your team at the end of the semester, one of the questions you will respond to will be how well the contract was followed by the team members.

Prosper.com & Peer-to-Peer Lending

Through the use of the World Wide Web people are able to transfer money from one account to another in a matter of seconds. This concept has already revolutionized the consumer banking industry once and it can do so again. Through a process called peer-to-peer lending, borrowers and lenders can do transactions without the presence of a bank as an intermediary. One new company that is making money with such an idea is called Prosper.com. Prosper.com makes its money by “matching people who need small loans with willing lenders and billing the borrowers.” (WSJ) To me, Prosper.com seems to have a pattern of business that we may play an important role in the future of the consumer banking industry. However there are always two sides to the same coin.

In the pros we have that:
• Peer-to-peer lending is a lower-cost alternatives to credit cards and unsecured bank loans
• It’s a market increasing in size: “About $100 million in new person-to-person loans will be issued this year, and that will increase to as much as $1 billion in new loans in 2010, according to a recent study by Online Banking Report, a research firm.” (WSJ)
• “Prosper now requires that borrowers have minimum credit scores of 520 (there was no minimum previously)” (WSJ)
• “Prosper promises to buy back any loans that are the result of identity theft” (WSJ)
• “lenders are assisted to make better investing decisions.” (WSJ)
• Prosper offers tools that can help users track the moves of other lenders (WSJ)

While in the cons we have:
• The market is small and increasingly completive: “Several firms recently bought a majority stake in CircleLending Inc., which coordinates loans and payment plans between friends and family members”. (WSJ)
• “Some investors are drawn to person-to-person lending because they expect that the loans' performance won't correlate to that of traditional investments” (WSJ) which is just a speculation.
• It is an impersonal business
• There is a high risk of default

The bottom line is that Prosper.com is introducing a new way to make business in the consumer banking industry. This means that the market may expand in the coming years and given that internet is so cheap great competition will emerge. This will probably translate into a better service and more options for the clients. However, not everyone has a computer en even fewer know how to property use this technology properly, so we must watch out for a possible bubble or overpricing of companies with similar business plans as Prosper.com.
Remember not all that glitters is gold.

Source: http://online.wsj.com/article/SB118472295685669845.html

J.P. Morgan chase's impact since the merger with Wasington Mutual

In 2008 a merger took place between J.P Morgan chase and washington mutual. Initially there was a loss in net income from J.P Morgan chase, going from $3.4 Billion in 2007 to $527 million in 2008 after the merger. At the same time though, they gained over 2,000 branches and were able to expand nation wide(washington D.C., Florida, California) reaching 42% of the nations population. Since aquiring washington mutual, J.P. Morgan chase has taken its spot as one of the top banks in the country. Even on september 9, 2010 the stock of the company grew 2.5%. The bank has also reached its full potential in its consumer finance division. On september 5th they announced that they have offered over 900,000 mortgage motifications, and has met with 140,000 people for face-to-face consulting sessions on forclosures.
the combined bank has been a big and strong in a panoply of businesses, and has helped to realign the competitive landscape for banks.







-http://www.emoneydaily.com/weekly-news-roundup-j-p-morgan-chase-co-nysejpm-4/6981988
-http://online.wsj.com/article/SB10001424052748703960004575482170153404954.html?KEYWORDS=jp+morgan+chase+
-http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?releaseid=340523

Bank of America's Move into the Consumer Banking Industry

Bank of America’s acquisition of Fleet Boston and card giant MBNA in 2005 signaled a significant emergence within the consumer banking industry. The New York Times reported in July of 2005 that the move not only won the company a combined 122 million in consumer cardholder accounts but, more importantly, launched Bank of America in front of competitors Citigroup and J.P. Morgan Chase to become the largest credit issuer within the US. With a twenty percent share of the market share, Bank of America replaced the company Audible on the S&P Top of Ten Portfolio, a move that BusinessWeek in a an August 2007 article attributes to Bank of America’s acquisitions and expanded presence within the consumer banking industry. 

This is a great example of how a bank was able to capitalize on an acquisition and expand its presence within a market. This is arguably one of the most significant emergences to happen within the consumer banking industry over the past decade. Bank of America's presence within the industry as made them one of the top banks in the country and has helped to make them one of the most profitable companies worldwide. Though they had a large foot in the door prior to the deal, the acquisitions prioritized the consumer banking industry and allowed them to expand into a broader market. 

New York Times articles:

http://www.nytimes.com/2007/02/20/business/20bank.htm

http://www.nytimes.com/2005/07/01/business/01bank.html?_r=1&pagewanted=print

BusinessWeek Article:

-       http://www.businessweek.com/investor/content/aug2005/pi20050823_5855_pi070.htm

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Consolidation of the Consumer Banking Industry: The Aftermath of the Wells Fargo and Wachovia Merger

The consumer banking industry has a very different look than it did just three years ago.  Since the global financial crisis, the banking industry has seen a reduction in the total number of active banks because of acquisitions, mergers, or failures.  One of the biggest changes occurred in October 2008, when consumer banking giant Wells Fargo announced that it had agreed on a deal to acquire Wachovia for $15.1 billion.  The deal between Wells Fargo and Wachovia is an example of a market-extension merger.  Wells Fargo used to primarily do business west of the Mississippi River.  However, the acquisition of Wachovia (which primarily did business in the East) has allowed Wells Fargo to become a national rather than a regional force in the consumer banking industry.

This acquisition has completely changed the landscape of the consumer banking industry.  The merge between these major banks exemplifies the overall consolidation of the consumer banking industry.  The global financial crisis has been devastating for many smaller banks.  Many banks that were struggling to find sources of revenue had to merge in order to stay alive.  Wachovia is an example of a bank that was having severe revenue issues, and as a result, it had no choice but to do the deal with Wells Fargo or fail.  This deal will continue to have repercussions in the foreseeable future.  The consumer banking industry used to consist of many banks that offered financial services to consumers.  The failure of many of the smaller banks has essentially left only a few major companies to compete for consumer demand.  Companies including Citigroup, Bank of America, Wells Fargo, and JP Morgan Chase dominate the industry because of the acquisition and failure of banks such as Wachovia.  The Wells Fargo deal with Wachovia is just one example a major change in the consumer banking industry in the last few years.

-Justin Schaffer

Source: New York Times: http://dealbook.blogs.nytimes.com/2008/10/03/wells-fargo-to-merge-with-wachovia/?scp=1&sq=wells%20fargo%20merger%20with%20wachovia&st=cse

Citigroup Hopes to Strengthen Presence Within Retail Banking Industry

Two of Morgan and Stanley's top banking executives, Cecilia Stewart and Will Howle, will join the ranks of Citigroup as the bank seeks to strengthen its retail banking system. Stewart, a veteran of a successful retail-branch development at Wachovia Corp. before serving at Morgan and Stanley, will take over as Citigroup's president of U.S. Consumer and Commercial Banking while Will Howle will serve as her chief operating officer.

This move comes in response to Citigroup's lost grip on the consumer banking industry. The Wall Street Journal writes, "Citibank's branch operations suffered for years, industry consultants say, as a stepchild within a far-flung financial supermarket." Expanding its presence within the retail banking industry is also part of a bigger goal to recover from the meltdown and obtain stability within the market. Citigroup suffered more than $50 billion in loses on risky mortgage assets and other debt.

This is a smart move by Citigroup, given that the retail banking industry generates a steady profit within a lower risk market. However, as Citigroup and other companies look to compensate for lost profits (i.e. increasing interest rates, annual fees, penalties, etc.), ethical questions follow. Is it really ethical for the industry to further tax cash-strapped consumers who have also been severely crippled in the wake of the financial meltdown? Where ought the industry’s priorities fall? With the consumer or indebted corporate bank accounts? This is an interesting and frequent ethical dilemma that goes far beyond issues addressed within mission statements, corporate values, or codes of conduct.

-Molly

WSJ article: http://online.wsj.com/article/SB10001424052748703466704575489760274594260.html

Wells Fargo to Cut 3,800 Jobs, Stop Subprime Loans

Wells Fargo & Co. will shut down a unit that makes what the San Francisco bank calls "non-prime" real estate, eliminating a total of 3,800 jobs and 638 Wells Fargo Financial stores. "Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years," said David Kvamme, president of Wells Fargo Financial, "but the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States."The company said less than 2% of its real-estate loans were originated in Wells Fargo Financial stores in the first quarter. About 2,800 jobs, 20% of the unit's work force, will be cut in the next 60 days, followed by an additional 1,000 in the next year. Remaining workers will be assigned to other Wells Fargo businesses, according to the company. The move is expected by Wells Fargo to result in restructuring charges of about $185 million on a pretax basis, including severance costs of $137 million, or two cents a share, in the second quarter. The remaining charges will occur in the second half of 2010, primarily in the third quarter. Wells Fargo said cost savings from the restructuring "are expected to offset these charges in the first year and a half."

One of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. But when the main goal of a company is to maintain employment make a profit and maximize returns to shareholders they can sometimes come into conflict. In this case with Wells Fargo, they are putting off nearly 4,000 employees, decreasing the value of shares, and wasting 100's of millions of dollars restructuring and severance costs. The believe that in the next year and a half that they will offset the balance but is it really worth it? In the economy we are in, ethical risks this huge cannot be taken.

Report Blames Big Banks for Payday Loan Growth

The community group National People’s Action and the watchdog group Public Accountability Initiative, released a report in which they show how big banks finance the payday loan industry. Some of the banks involved are Wells Fargo & Co. and Bank of America Corp. Although payday loans may be useful in the right circumstances, it sometimes worsens the situation of the person asking for the loan. This is because the person becomes unable to pay the loan and the interest accumulates exponentially.

The report includes:
• “Diagrams illustrating ties between Wall Street executives and payday lenders”
• “A table that lists recipients of Troubled Asset-Relief Program cash that have provided financing to payday lenders.”
• “Notes on how the payday loan companies depend heavily on credit agreements and other financing vehicles from banks”

The question then arises, is it ethical to empower the payday loan industry knowing that it potentially worsens people’s lives?

Wells Fargo spokesman Gabriel Boehmer responded to this ethical dilemma as follows:
“Every responsible business that complies with the law has equal access to consideration for credit”, “That said, we exercise strict due diligence with these customers to ensure they, like us, do business in a responsible way.”.

Steven Schlein, a spokesman for payday lenders group Community Financial Services Association responded as follows:
“Payday loans companies are in fact good creditors because their customers are good creditors”

He added that 95% of payday loans are repaid.

So which is the bottom line? One could argue that it is circumstantial. Giving a loan to a single mom is different from giving it a person with gambling problem. However, the question is out for debate and it is up for the people to decide for themselves.

Banking Ethics are Going Green

Amid the discussion on the prominence of global climate change, banks are taking a stand against companies that are damaging the environment.  Recently, Wells Fargo made an announcement explaining that it will severely limit the accessibility of funds for companies that are involved in harmful environmental practices.  Groups such as the National Mining Association, Massey Energy, and others have been involved with the destruction of mountaintops and beaches in the Appalachians and Canada in order to secure coal and oil reserves.  In order to continue these practices, energy companies seek banks that will agree to loan and finance their work.  Wells Fargo is one of many banks that have begun to limit the availability of funds to companies that damage the environment.

This is a prime example of business ethics.  While Wells Fargo could continue to lend to the destructive companies and make money, they are choosing to lose this source of revenue because it is ethically wrong.  By lending to these energy associations, banks would be promoting their business.  This has major consequences for the world because of the issue of global climate change.  This action also speaks very highly of Wells Fargo's character.  The issue gives Wells Fargo a good name with consumers that are seeking consumer banking services.  Consumers will note that Wells Fargo is taking a stance on an important issue that affects them.  This may lead to an increase in business for Wells Fargo and other banks that are showing their care for the environment.  This is case of business ethics could be a win-win situation for Wells Fargo.  Not only does the bank restrict the capabilities of damaging environmental companies, but they could gain consumer respect and business because of their actions.

Source: http://www.nytimes.com/2010/08/31/business/energy-environment/31coal.html?_r=2&emc=eta1

-Justin Schaffer

Metro Bank has promised to revolutionize the British banking experience.

Metro Bank is the first high street bank to launch in Britain for more than 100 years. It is offering retail opening hours, unparalleled service and a simple range of products that will be suitable for everyone. It also promises customers that it will take just 15 minutes to open an account in one of its branches, including obtaining a credit or debit card, which will be printed in store.

The founder Vernon Hill and co-founder Anthony Thomson, who is chairman of the Financial Services Forum, plan to open 10 branches in Greater London during the coming two years. Metro bank intends to personalized business banking services, with local managers making decisions on loans for local companies.

In the plus side:
• The branches will have lavatories
• It will allow dogs and will provide them with a bowl of water and a bone
• It will have free coin counting machines
• It will have safe deposit boxes that can be rented out for £100 a year.

In the negative side:
• It will have a three-year fixed rate bond paying only 3pc, significantly below the market leading rate of 4.3pc.
• It will give a two-year variable rate mortgage for someone with a 40pc deposit of 3.5pc, while a two-year fixed rate deal for the same borrower is 4pc, compared with best-buy rates of 2.29pc and 2.99pc respectively.
• It will raise its mortgage rates by 1pc for people looking to borrow up to 80pc of their home's value.
• The group's current account charges interest of 15pc on overdrafts, compared with an industry average of 14.1pc
• It will provide an instant-access savings account offering a return of just 0.5pc, compared with a best-buy rate of 2.8pc

The bottom line is Metro bank is betting on costumer service while sacrificing a competitive interest rate. As Michelle Slade, of Moneyfacts.co.uk, said: "Although they are offering all these other benefits, such as longer opening hours, one of the main things for people is a competitive interest rate. If they haven't got at least a reasonable rate of interest people will discount them. They are going to struggle to get market share."

Source: BBC News, http://www.bbc.co.uk/news/business-10790996

New "Short Refinance" Program to Help Cash Strapped Homeowners

On Tuesday, the Obama Administration launched a new "short refinance" program, one of many expected policies to help homeowners in the red. This particular program aims to rescue home owners who are current on their mortgage payments but remain at risk for default due to no equity in their homes. The program allows banks and other creditors to write down mortgages to less than the value of the property. The reduced loan is then handed off to the government where consumers are refinanced into loans backed by the Federal Housing Administration. 

This program is the result of failed government programs and underwater homeowners. Obama's Home Affordable Modification Program fell short of helping its originally projected three million homeowners, only managing to make permanent modifications to one-third of applicants. The bigger issue that the program attempts to address are vulnerable homeowners who could potentially default if their personal finances or home prices depress. CoreLogic Inc. estimates that 23% or households with a mortgage were underwater as of June 30th. 

I agree that it is important to help typical Americans who are bogged down in mortgages that threaten their personal finances. I also agree with the notion that the government should be doing all it can to promote consumer spending and increase household liquidity. But it will be interesting to see how families afford the loans backed by the Federal Housing Administration. Will these loans be more manageable? And if so, how? The article is unclear. Only time will tell if this program really lightens the load on homeowners and allows for increased consumer spending down the road.

Goldman Sachs Group Inc. Moves into the Consumer Investment Market

Goldman Sachs Group Inc. has made a move to test the waters of the consumer investment market.  Inside sources have suggested that the company plans to enter into a partnership with a Chicago based company, Incapital, in order to start selling municipal bonds to individual investors.  Goldman joins companies such as J.P. Morgan Chase and Citigroup in the retail-brokerage networks that distribute bonds directly to the public.

While Goldman Sachs Group Inc. is not generally considered a major player in the consumer banking industry, this deal with Incapital shows Goldman's increased desire for versatility in the recovering economy.  The bank will become more visible to consumers by sharing "billions of dollars of products that our [Incapital's] customers would never see otherwise" (see article).  This financial venture by Goldman Sachs effectively puts the company a step closer to the consumer banking market.  While the company is not as involved as other major U.S. banks such as Bank of America, and Wells Fargo, this move into a consumer market could be just the beginning of a more involved relationship with the consumer banking industry.

-Justin Schaffer

WSJ Article: Goldman in Bond Deal
http://online.wsj.com/article/SB10001424052748703720004575478151808425876.html

J.P. Morgan's Sweet WaMu Mortgage Deal

Back in the good old days when we weren't ina recession, banks had made loans and soon after sold them to bond investores. Now, the buyers are scouring mortgages, particularly defaulted ones, to see if the original lenders failed to meet the agreed standards. If a bank extended a martgaga to a borrower without required income documentation, the loan buyer can ask the bank to repurchase the loan or pay compensation. These "repurchase" claims are now forcing banks to build up reserves to absorb potential losses. In the second alone, 9 large banks were hit for a total of $2.85 billion. In contrast to last year as a whole where they were only hit for $5.53 billion. In 2008, J.P. Morgan bought certain assets and liabilities of failed washington Mutual Bank. In 2009 they cut a deal with government agencies that would resolve certain repurchase claims from WaMu mortgages. Just to give an idea of how much WaMu has in mortgages, between 2005 and 2008 WaMu wrote about $490 Billion worth in Mortgages. But Even with WaMu's mortgages, J.P. Morgan still appears to be in a much better position in terms of their mortgage repurchase reserve. As seen in the graph in the top right corner, Wells fargo and Bank of America both have given out mortgages that far exceed their mortgage repurchase reserve. J.P. morgan however only slightly exceed their reserve.

"Repurchasing" mortgages is a concept that is fairly new to me. But even so, it is easy enough to see that J.P. morgan is doing the right thing. By only giving out as much as they can afford to pay back, they are now in a much safer position then any other bank. If right now every person who has taken a loan out at Bank of America says that the bank must repurchase it, they wouldn't be able to. They wouldn't even be close, there would be a good $6-$7 billion difference between what their reserve covers and what they have given out in mortgages. Banks have been giving out loans to people who can't pay them back, which is a major reason why we are in this current economic situation. I personally believe banks should use J.P. Morgan as an example for how they give out loans. Once that is done we can take another step out of recession and into recovery.


Eavis, PE. (2010). J.p. morgan's sweet wamu mortgage deal. Retrieved from http://online.wsj.com/article/SB10001424052748703467004575463563588596660.html?KEYWORDS=WaMu

SEC gives shareholders more power to nominate board of directors

The SEC has made it easier for shareholders who collectively own 3 percent of a firm's shares for three years to hold boards accountable for overseeing executive pay and other decisions that companies make. This will allow large shareholders to have a greater oversight on how their money is been spend.

This also means that large shareholders, such as banks, will be able to use these new powers to press their agendas. Furthermore, a greater oversight on companies will probably mean that they will take less risky investments which in turn means lower but safer profits for the shareholders.

We need to follow the ramifications of this decision by placing more attention to any individual or company who owns 3 percent of a firm and have an agenda to push forward. We should keep an eye for how unions and pension funds react to this news. Moreover, it may also be good to see which banks purchase 3 percent of the shares of a company or ally themselves with other shareholders in order to win the advantage that this new opportunity has made available. However, there is always the danger of conflicting interests within shareholders and companies which may have divisive shareholders should carefully watch.

Marcelo Arteaga Mata

Recovering Lost Profits: A New Era for Credit Card Companies

Credit giants Bank of America, J.P. Morgan Chase & Co., and Citigroup Inc. are bracing themselves for tougher times ahead, as regulations get tighter and consumer spending dwindles. Recovering from last year's $1 billion in loses, credit card companies are holding out for a potential $4 billion in revenue this year according to the Auriemma Consulting Group. But such gains look grim. Though companies have seen the pace of delinquencies and defaults slow in July as well as a ten percent decrease in outstanding credit card loans last year, companies can expect new federal card policies to lead to $11 billion in lost profits per year. Further, consumer spending continues to decline as consumers face growing unemployment and mounting credit card debt. 

The status quo undoubtably leaves credit card issuers with few options. Although issuers will attempt to offset costs by increasing annual fees and interest rates, such measures will only make up for an estimated twenty-five percent in lost revenue. Issuers will have to except shrinking profits and a smaller American consumer base for the time being. However, all hope may not be lost. As Citigroup's recent expansion within China's proves, the international community maintains a potentially strong, untapped consumer base with few regulations. Credit card issuers should look to the nations that host a growing middle class (i.e. China, India, Brazil) in the years ahead. This may prove to be the best way to recover lost profits and stay afloat. 

WSJ article: Credit-Card Issuers Scramble for Profits

http://online.wsj.com/article/SB10001424052748704913704575453572340768654.html 

Citigroup's Expansion in China

Citigroup Inc. announced on Wednesday 9/1/10 that it plans to expand its workforce in China to 12000 employees over the next three years.  They claim that China is "one of their priority markets around the world and [Citigroup] intends to strongly grow [its] business" (see article).  http://online.wsj.com/article/SB10001424052748703882304575465233823561048.html?mod=WSJ_Banking_leftHeadlines

I see this announcement coming as a reaction to the enactment of the new credit card regulations which limit the ability of credit card companies to charge penalty fees and change interest rates.  It is becoming harder to be successful and make a profit in the changing landscape of the American credit market.  Citigroup realizes that in order to continue to be a successful corporation, it needs to find a way to bring its credit card profits back up.  Expanding its business in a country with fewer regulations will certainly boost Citigroup's profits.  Amidst the talk about increasing regulations on banks in the United States, I expect more companies to follow Citigroup's lead and expand their businesses overseas.  It will be much easier for companies to succeed in an environment with fewer regulations and restrictions on profitable aspects of their businesses.

-Justin Schaffer