FBI Director James Comey is testifying today on a variety of FBI affairs including Russia’s involvement in the presidential election, the relationship with Russia and the current administration, as well as Donald Trump’s wiretap claims. One of the most startling and attention grabbing statements coming from the current Director of the Federal Bureau of Investigation had absolutely nothing to do with the subjects outlined however.
The big news of the day came after almost 3 and ½ hours of Congressional theatre. After more than 3 hours of questions and answers from members of the House Intelligence Committee, Director Comey requested what appears to be a pee break.
In the words of the Director, “…I am not made of steel so I might need to take a quick break.” Shortly thereafter, a short recess was called and the FBI Director quickly walked out of the room.
U.S. Representative for California’s 28th congressional district, Adam Schiff, appeared somewhat stunned by the request. One can only assume that the Representative believes Mr. Comey does in fact have a steel bladder.
Stay tuned as the hearing is scheduled to resume as soon as the Director has finished with his far more important business than is currently being discussed by the members of Washington DC theatre, also known as the United States Congress. As long as we are discussing the theatrics being performed by the esteemed member of the House Intelligence Committee, does anyway think that title is some kind of awkward variation of an oxymoron?
The Federal Reserve lifted its benchmark overnight rate, the fed funds rates, today by ¼%. In addition to the immediate fed funds rate increase, the majority of the Federal Reserve’s Federal Open Market Committee (FOMC) members also expect three more ¼% rate increases through the remainder of the year.
The move was widely expected by investors and market participants but savers and bank rate watchers are taking a wait and see attitude as they sit patiently wondering when the Fed’s action will impact bank rates and specifically when will CD rates rise.
After years of paltry CD rate returns, bank rate shoppers are starting to yawn when the Fed speaks of higher interest rates. But, it is important to put the latest Fed rate change in prospective. While the subject of higher interest rates has been bandied about for several weeks, if not several months, this is only the third rate hike since the financial crisis hit almost a decade ago.
The problem for savers and bank rate shoppers is the general ineffectiveness that fed fund rate changes have had on driving bank savings and CD rates higher.
Unfortunately, a rise in the fed funds rates does not compel banks to raise their deposit interest rates or loan rates. Most banks will certainly take the opportunity to boost their Prime Rate within days if not hours of the Fed announcement but, across the board bank rate increases are far less certain. Changes in deposit rates are little less sensitive to short term Fed actions and are powered more by changes in the supply and demand of loanable funds.
Many banks across the nation have ample cash reserves and deposits. With lending activity far from stretching those cash piles, the vast majority of big banks are not willing to offer higher interest rates to attract more deposits, especially in the form of high yield CD rates.
A positive note for rate conscious savers can be found in the explanation the Fed has provided for increasing the fed funds rate. Improving labor market conditions and rising inflation have made the conditions right for a rate increase, according to the Fed. Rising inflation, a tighter labor market, and a strengthening domestic and global economy also leads to greater loan demand at the nation’s banks. As loan demand expands, banks will have to compete for depositor funds and eventually push those CD rates higher.
Not all banks will respond to the interest rate increases by the Federal Reserve the same, due to each bank’s unique funding needs. In addition to the general improvement in economic conditions that moves rates higher, some banks fuel a greater percentage of their operational activities through high yield deposits such as savings accounts, money market accounts, and certificates of deposit. These banks will often be the first to boost their CD rates higher in order to expand their business.
Savvy savers that are not complacent with the current state of affairs presented at their local bank CD rates or with the average bank rates can compare the top 10 best CD rates available nationally at SelectCDrates.com. A variety of account terms can be compared and reviewed from six month CD rates on up to five year CD rates with weekly updates.
The month of June, not unlike most months of the year, is filled with news events and economic data on the state of the U.S. economy that can move fixed income assets and the interest rate market. Of course, a flurry of economic announcements and news releases is nothing new to the financial markets but, the month of June has some especially significant and potential market moving events.
First up on the docket for June is the regularly scheduled two day Federal Reserve meeting held June 14–15. The meeting will end with an announcement from the Fed on the state of the economy and their position regarding monetary policy and more specifically, whether the Fed will choose this meeting to increase the fed funds rate. Economists and bond traders no longer expect the Fed to hike rates at this meeting especially after the monthly jobs report released on June 3rd showed very disappointing job growth.
Following right behind the Fed’s meeting, the Bank of Japan holds their monetary policy meeting on June 15–16. While the Federal Reserve Bank in the U.S. is looking for an opportunity to increase rates, the Bank of Japan (BOJ) is in the midst of a massive bond buying program to stimulate the economy and asset prices. Market participants are waiting to see if the BOJ expands their monetary easing with increased purchases or even lower interest rates.
A Fed meeting that takes place when the central bank is pondering a significant change in monetary policy, changing the fed funds rate target, would generally dominate the financial headlines but, a vote in the U.K. this month is pushing the Fed to the backburner. June 23 is the date set for the “Brexit” vote in the U.K. The Brexit vote is a referendum put to the voters to determine whether the U.K. will remain part of the European Union.
The long term impact as a result of an exit from the European Union (EU) could be substantial. Short term, an exit by the U.K. from the EU may cause some market instability but the action after the vote will not be immediate, it’s a referendum, and will take a long time to unfold. A Brexit will also bring into question the long term viability of the Union as other member nations will question its value and trade arrangement made through the EU will have to be clarified or renegotiated.
Along with these irregular and potentially market moving events, the usual batch of data points are set to be released. In the second half June, real disposable personal income numbers are released, quarterly real gross domestic product figures, the advance report on durable goods, the producer price index, the consumer price index, new residential home sales, construction numbers, and a variety of other economic data points that have the potential to turn the market.
Now that the Fed has made the big announcement and has taken action to increase interest rates for the first time on almost ten years, savers and investors want to know how this is going to impact their returns via higher bank rates and CD rates. The simple answer is, the recent Fed rate change is going to have very little impact on the yields offered to consumers. Savers and investors that are waiting for better fixed rates of return are in for a long winter.
The 0.25% fed funds rate increase that was announced by the Federal Reserve in mid-December was somewhat of a forgone conclusion for most market participants. The rate increase was well telegraphed by the Fed through a variety of Fed member speeches leading up to the two day meeting in December when the final rate decision and formal announcement was made. The fact that this particular rate increase was preannounced or highly anticipated led to market interest rates slowly increasing prior to the Fed meeting and changing very little on or after the meeting.
Market expectations this time around, took some of the pizazz out of any immediate and dramatic knee jerk reactions that are often the case with major Fed announcements. Market rates were amazingly stable following the rate news with most bond prices and interest rates hovering in a very tight range. High yield bonds are the exception but, these instruments were having trouble well before the Fed spoke.
Keeping interest rates in check this month is more than just the market expecting the rate increase, economic forces are fighting against the Fed as well. Increases in interest rates fostered by the Federal Reserve, as opposed to the market rates leading the Fed, generally reflects an improving economy. The main function of any rate changes made by the Fed are to maintain a sustainable level of economic growth, keep inflation under control, and to influence the money supply. But, economic growth is biting back at the Fed making the rate hike less a reflection on current conditions and more of a monetary tool held for future use.
2015 has certainly been a good year going into the fourth quarter on a variety of economic levels making the rate hike by the Fed a defensible act. Consumer and business balance sheets are much improved. Employment growth has been quite strong. Income is up, albeit at lower levels than the Fed wants or expected. And inflation is starting to pick up slightly taking the economy out of the deflation danger zone. However, there are now a number of economic measures going against these positive results.
Holiday sales are coming in weaker than expected, thus far. Consumer spending appears to be taking a breather as many retailers are warning of less than robust sales figures. Matching the slow sales figures, shipping of consumer goods is down across the board. Maritime shipping, rail shipping, and truck shipping has slowed in the fourth quarter. It is important to remember that consumers have received a market boost in disposable income due to the exceptionally low gas prices and heating costs but they don’t appear to be spending it.
World economies are also fighting the Fed with greater instability and less growth. Growth in China, the second largest economy, appears slower with every new statistic that is released. Of course these statistics are suspect or just plain nonsense but in light of the questionable data, there is no real consensus on the actual level of economic activity in China other than the growth has stalled. Emerging economies are taking it even harder on the chin as a result of depressed commodity prices. And depression is certainly the word to use when it comes to commodity prices.
The S&P GSCI Total Return Index is sitting at around 2150. This index is down almost 40% this year. This index was running around 4750 to 5250 for at least five years prior to the big plunge that started in mid-2014. The S&P GSCI Total Return Index is widely recognized as the leading measure of general commodity price movements and inflation in the world economy.
All these current economic forces and data points run contradictory to a strong and growing economic base which is the foundation for Fed rate hikes. If these conditions persist, it is highly unlikely interest rates will move higher anytime soon. Savers and investors will just have to continue to be patient before they can find higher rates of returns with bank CDs, savings accounts, money market accounts, and other risk free savings options.
Falling stock prices followed by poor returns in the stock market often sends investors running for cover, seeking safety in alternative investments and asset classes. One option for principal safety with the added bonus of guaranteed returns can be found with certificate of deposit accounts.
When the risks of the stock market start to hit home with quick and precipitous declines, investors are bound to get anxious and reevaluate their portfolios. Reevaluating a portfolio for many investors goes beyond managing current stock holdings. High volatility and market losses leads some stock holders to consider selling existing holdings at a loss, holding onto new current cash accounts for bargain hunting, or shifting money into other assets such as bank and credit union CD accounts.
Stocks, historically, have a higher rate of return than most other asset classed including CD accounts. The high rate of return also comes with higher risk. Higher risk inherent in stock investments can involve significant loss of principle.
Although rates on CDs may not be the highest in the fixed security market, CD rates are generally higher than comparable term Treasury securities and earn more in interest than most money market accounts and savings accounts. And though certificates are deemed low return investments, the return is guaranteed at the specific interest rate even if market rates go lower.
Bank CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000.00 for each depositor at each insured bank. Account holders are guaranteed to get their return of principal and interest earned at maturity.
The security and predictable annual percentage yields (APYs) provided by CD investments can to help investors and savers manage the cash part of their overall portfolio regardless of the stock market performance at any point in time.
As part of an overall savings or investment plan, CDs can be the basis for a strategy to reduce risk. The risk reduction attributes offered with these account can be applied to a long term financial plan or simple, short term goals. For savings goals that require ongoing evaluation and construction, account holders can employ specific investment strategies such as creating CD ladders and barbells which entails buying CDs with very specific maturities and managing the rolling funds as the accounts mature.
Even though the returns gained from bank and credit union CD accounts won’t usually be as high as those provided by stocks over the long run, these accounts can balance a portfolio when the market makes significant down turns.
Bond yields and mortgage rates slid lower once again as world economies are facing questionable growth outlooks pushing money into the safety of fixed income securities. Even the relatively strong jobs report in the U.S. for the month of July did little to stir the bond market and move mortgage rates higher.
Home buyers can now reap the benefits with very attractive mortgage rates available across a plethora of home loan products. The average 30-year fixed mortgage rate at the nations’ top five bank mortgage lenders is hovering at just over four percent. The average 30 year mortgage rate for a conforming loan is now at just 4.025%. FHA mortgage rates from the big five have fallen under four percent at an average cost of 3.865%.
The change in mortgage rates and bond rates didn’t come in one jolt but moved continuously lower over a few weeks. Mortgage rates started the move to the downside on mid July and haven’t looked back yet. With the strong cumulative move lower, more aggressive mortgage lenders are quoting even lower rates than what is found with the top five bank mortgage lenders. Some of the major lenders in the nation have 30 year mortgage rate quotes down at 3.875% with reasonable closing costs and limited points.
Along with the drop in interest rates on the popular home mortgage products, the ten year Treasury dropped to a point not seen since spring time as well. As of August 7th, the ten year was down to 2.18% after reaching 2.50% in early June.
The drop in bond yields and mortgage rates follows a decline in Chinese stock prices and poor economic numbers coming from that region of the world. On top of the Asian economic issues, commodity prices have dropping like a lead weight. Fear in the markets is almost sure to move the money to the sidelines and/or safe and secure assets. U.S. mortgage bonds are highly liquid and still offer and attractive yield to investors relative to other asset classes.
One factor working against new home buyers and mortgage borrowers is the Federal Reserve. The Fed is expected to raise interest rates from record lows before year’s end. The move has been telegraphed well by the Fed so the market reaction may be muted once the rate increase is announced. For now, mortgage costs are low.
Interest rates are rising as many world economies finally shift from economic crisis mode to recovery mode. The U.S economy is gaining enough steam to push the Fed toward a rate hike this year. The European economy is on solid footing albeit, not having nearly the growth rate of the U.S., with the notable exception of Greece. The result of improved economic performances and rosier outlooks is higher interest rates.
U.S. Treasury yields and the rates on U.S. mortgage securities have now moved up to the highest level in 2015 and back to the early 4th quarter of 2014. While some investors are noting that foreign investors are backing away from buying U.S. dollar dominated bonds, rates on many foreign bonds are also experiencing increased yields. European government bonds and German bunds saw significant selling pressure pushing their interest rates north bound.
The tem year U.S Treasury rate has climbed by just over 25 basis points since the start of the year. German long bond yields are up even more, rising by over 40 basis points this year. The yields on ten year bonds issued by Spain are up by almost the same amount as German bonds, approximately 40 basis points in 2015. UK ten year bonds have ratcheted higher the tune of almost 50 basis points. And even the heavily commodity based economy of Australia has seen rising rates with the Australian ten year bond yield climbing by just over 30 basis points for the year.
While the output of the two biggest economic regions, the U.S and European Union, do not represent the four corners of the globe, the economies of these nations account for significantly more output than China, Japan or South America and therefore have a great deal of influence on the financial market.
The U.S. economy remains the world’s largest producer at over $17 trillion in production and the European Union is at approximately $18 trillion. China’s production is approximately $10 trillion and the next largest producer after that is Japan at $4.5 trillion. From here it drops down to $2.3 trillion for Brazil, $2.0 trillion for India, and the production numbers continue to dip with several nations producing less than $2.0 trillion in output per year. This economic fact check may not have been necessary but it does put in context why the economic actions of the major European nations and the U.S. impact the markets based on their overwhelming size relative to the rest of the world.
Rising rates are sure to impact future investment decisions by consumers and businesses. If the long run of low rates is finally coming to an end, it’s time for savers and borrowers to position themselves for a likely increase in the fed funds rate later this year.
Fed officials have appeared both apprehensive and anxious regarding the process of raising rates this year. Many investors have been clamoring for higher rates and yields with the belief that higher rates are part of a more normal rate structure and will provide balance for all markets from bonds and real estate to equities and commodity prices. The recent actions in the bond market, lower bond prices and rising rates, may very well force the Fed’s hand regarding this matter and push a rate increase through sooner.
What a day for the markets on Monday. The stock market sinks, Treasury rates plummet and oil prices continue their downward slide. Not a good start to the first full week of the New Year.
While many economists see a strong economy and rising interest rates in 2015brought on by increased production and consumer spending due to the drop in oil prices, one investor is not so sure.
That one investor is no slouch, especially when it comes to forecasting the bond market and interest rates. The investor throwing a wet towel on the economy and any prospects for rising interest rates is the high priest of bonds, Jeffrey Gundlach. Gundlach runs the money management firm, DoubleLine, and he has an impressive track record regarding the direction of interest rates.
In an interview with the financial publication, Finanz und Wirtschaft, Gundlach pointed to the strong dollar and the troubles in Europe as one of the catalysts for falling interest rates in the US. Gundlach states in the interview, “Yields in the US are too high. I do not know why anybody in France owns French bonds. You can more than double your income by buying US bonds and the dollar is heading higher. Referring to the relative high interest rates in the US Gundlach adds, “Sadly, in today’s world of developed bonds 2.2% represents value.”
Gundlach followed the interview in Finanz und Wirtschaft with one in Barron’s January 3rd. In the Barron’s article, Gundlach believes that US ten Treasury bond could fall as low as 1.38%, the low yield reached in 2012. The drop in oil prices plays a key role in his interview as Gundlach states, “The boost to U.S. consumers from lower pump prices is the first shoe to drop, but the negative secondary effects from the crude-oil price collapse take longer to surface.”
Overall, the high priest of the interest rate sector is not forecasting an overly bright picture. He is, however not all doom and gloom. Though Gundlach believes interest rates are headed lower and the economy is going to be squeezed, he is not forecasting anything close to a recession.
As stated earlier, Gundlach has a good track record. Gundlach has correctly predicted that interest rates would fall in 2014 when most prognosticators were calling for interest rates to rise. We may be looking at déjà vu all over again as most forecaster are calling for rising rates again in 2015.
The abrupt decline in oil prices has many economists and consumers speculating over how lower oil costs will impact the future of interest rates. The answers coming from the professionals and amateur pundits cover a wide spectrum of assumptions and possibilities. The answer however, is much less complicated and involves little conjecture when viewed from a historical framework.
Energy consumption certainly makes up a tremendous part of US economic activity. Lower energy costs act like a tax cut on households, increasing consumer discretionary spending leading to increased demand and production. Lower energy costs also reduce costs for producers and manufacturers.
Energy costs are a major factor in the production of chemicals, plastics, pesticides, fertilizers and other products. These products become cheaper to end users and cheaper to make in the US. This often leads to more capital investments in plants and manufacturing facilities. That means jobs to build those plants, to operate them and to build pipelines.
Lower oil prices also have an immediate effect on inflation. Lower costs for producers and consumers puts the brakes on rising prices (inflation). When inflation dips, economic growth is given a shot in the arm. The price of goods decreases as inflation wanes and consumer demand or consumption starts to increase. Greater demand leads to more production, and eventually, employment rises.
Low inflation produces lower nominal interest rates. Increased economic activity spurs greater demand for loans as well as goods and services. The increased demand in turn pushes interest rates higher. All in all, large swings in oil prices should have a measurable impact on economic activity.
Interest rates generally reflect macroeconomic operations and economic activity. Therefore, big changes in oil lead to big changes in interest rates.
Well, this just isn’t the case.
The correlation between oil prices and interest rates is extremely weak. Don’t listen to the financial wizards, the pundits, or your neighbor on the other side of the fence. Oil price changes have virtually no affect on short or long term interest rates.
The following charts show the price of WTI crude oil and the ten year Treasury rate from January 1986 to the present. The charts show virtually no relationship between interest rates and the price of oil. The bottom line; don’t bank on the drop in oil prices reducing mortgage rates or credit card rates or even making CD rates or savings rates more attractive.
The National Republic Bank of Chicago was closed on Friday by the FDIC. The bank had almost 1.0 billion dollars in total assets and was the 42nd largest bank based in Illinois. State Bank of Texas will be taking over the operations of the bank. The two branches of The National Republic Bank of Chicago will reopen as branches of State Bank of Texas during their normal business hours. Customer of the bank will be able to continue to access their money by writing checks or using the bank’s ATM or debit cards. Checks drawn on the bank will continue to be processed as will loan payments.
The National Republic Bank of Chicago was a sickly institution that had a pile of non-performing loans. As of June 2014, the bank had a staggering number loans classified as non-performing. Almost 50 percent (49.56%) of the loans outstanding were noncurrent. The numbers are most interesting as the bad loans have grown substantially while the economy has gone through a slow recovery. The National Republic Bank of Chicago grew in size by focusing on lending to hotel and motel owners throughout Midwest and the U.S.
In the latest FDIC report on individual bank statistics and data released for June 2014, The National Republic Bank of Chicago had approximately 350 million dollars in noncurrent loans. The outstanding loans figure did not change substantially from the end of 2013 when it was just shy of 350 million dollars (346 million dollars). But, boy did the number rise from the end of 2012 when the noncurrent loan amount was 155 million dollars. And at the end of 2011, the noncurrent loan amount was only 48 million dollars or just over 4 percent of all loans. Less than 2.5 years to go from 4 percent to almost 50 percent. That is an impressive turnaround (?).
Poorly run, perhaps. Net loans and leases at the end of 2013 were approximately 735 million dollars. One account at the bank had 165 million dollars in loans outstanding or 22.5 percent of the total loan portfolio, an absolute banking no-no.
The OCC makes their position clear regarding the situation of oversized lending to one business entity in a consent decree sent to National Republic in mid-2013 that stipulates, the Board shall develop and adhere to a written concentration risk management program for identifying, monitoring, and controlling risks associated with concentrations of credit and ensure that it addresses all concentrations of credit-related corrective actions in the most recent ROE and is consistent with the guidance set forth in OCC Bulletin 2006-46 (December 6, 2006), Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices: Interagency Guidance on CRE Concentration Management, and the “Concentrations of Credit” booklet of the Comptrollers’ Handbook (December 13, 2011).
The National Republic Bank of Chicago was the largest Indian-American owned bank in the U.S. The bank taking over the operations through the FDIC is also an Indian-American owned bank. State Bank of Texas also happens to be a substantial lender in the hospitality industry. Unlike the now defunct, National Republic Bank of Chicago, State Bank of Texas has excellent performance numbers. The bank has less than one percent of its loans classified as nonperforming and has capital ratios that far exceed those required by banking regulators.
More information about the FDIC takeover of The National Republic Bank of Chicago can be found on the FDIC press release.
Market participants seem to be scratching their heads as a major sell off takes hold of Wall St. The Dow has dropped almost 10 percent from its high in September and is down between 200 and 400 points so far today. Oil continues to move lower and world markets seem to be either leading the charge lower or following the US market’s lead, depending on how you read the headlines.
While all this is happening, money is flowing into the safety of US Treasury securities. The end result, bond prices are popping and interest rates are plummeting. The ten year Treasury bond is hovering around 2.05 percent today after briefly dipping below 2.0 percent. That’s down from 2.21 percent on Tuesday and 2.42 percent just 15 days ago at the start of the month. These rates were last seen in early 2013 and the market has not touched these levels since that time.
Market pundits are firing out a variety of reasons for the selloff. Weak economic numbers, slow growth in Europe and China, Isis, and Ebola worries are all on the list of market fears. Topics that have been covered several times by SelectCDrates.com.
The good news for investors, this is likely to be short lived. Weaker numbers in the US are not terribly disturbing. Economic growth is still intact, just not at the crazy 3-5 percent levels many politicians and Fed watchers have been hoping for. Corporate profits also look to be doing just fine now and into the near future.
The European growth or lack of growth is an issue has been in the headlines for weeks, or months, even years. Growth questions in China have also been around, with the exception of those economists who appear to believe the statistics that the communist party in China produces. The drop in oil is a bit puzzling, is it a lack of demand or higher production? Neither scenario is clearly apparent in the market. Someone please count the number of tankers that come into the ports of China and we can tell once and for all if demand is up, down, or sideways.
As for Ebola, not likely to spread very far in US with the CDC marshalling their resources to fight its spread and several pharmaceutical companies working on a cure. Less developed nations are another story. South America could have trouble along with West Africa as these regions have far fewer resources for monitoring and tracking health issues.
Our bet is that the stock market will rebound. Oil prices hmmm, not in our comfort zone to guess which way they move. Interest rates are destined to go higher. The Fed is off the throttle, QE is dead. Inflation or lack thereof will keep rates low for a while as will the slow economies of Europe and Asia but, the long term forecast is for slowly rising interest rates.
Warren Buffet apparently likes banking. The most recent Securities and Exchange Commission filings made available to the public shows the Oracle of Omaha putting money in the banks, lots of money in the banks. Warren is the largest shareholder and CEO of Berkshire Hathaway and through Berkshire Hathaway, Buffet is betting big on banks. The Berkshire Hathaway mega corporation has over $100 billion in stock holdings and the largest positions by far, based on the most recent filings, are in banks and financials.
The banks Buffet backs the biggest are Wells Fargo, American Express, U.S. Bancorp, Bank of New York Mellon, and M&T Bank. Warren may not or may not personally have banking relationships with these institutions, but through Berkshire Hathaway, he has several billion dollars’ worth of their stock.
Berkshire Hathaway has investments in over 40 individual publicly traded stocks. Of the 40+ stocks, four are directly in banking with the fifth, American Express Corp, operating as a somewhat stealthy bank.
American Express Corp is a non-traditional bank holding company. The principal products and services of American Express are charge and credit card payment products and travel-related services. However, American Express is also the holding company for American Express Bank, FSB and American Express Centurion Bank. Both of these banks are among the top 50 banks in the US and have combined assets of almost $75 billion which places the company among the top 35 largest US based banks.
U.S. Bancorp or US Bank is an extra-large, regional bank. US Bank operates over 3,000 banking locations in 25 states. The bank provides a wide range of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions.
M&T Bank is a regional bank that ranks as the 26th largest US based bank based on assets. M&T Bank has over 700 bank branches in Delaware, Maryland, New York, Pennsylvania, Virginia, West Virginia, and Washington, D.C. M&T offers a comprehensive array of financial products and services for personal, business and commercial banking customers.
The Bank of New York Mellon is an investments company. The bank is the 6th largest US bank but does not provide traditional consumer and business banking products. BNY Mellon predominantly offers investment management, investment services and wealth management. The company operates internationally serving financial institutions, corporations, government agencies, foundations and high-net-worth individuals.
Wells Fargo Bank is the third largest bank in the U.S. Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance products and services. The bank operates more than 9,000 locations, 12,500 ATMs, and has offices in 36 countries.
Consensus forecasts say we are in a rising interest rate environment. With the Fed still engaged in directing monetary policy, short term rates are likely to remain relatively low and the yield curve will steepen. In general, these are good signs for future banking profits. Maybe Buffet simply sees the writing on the wall for fatter bank profits or is there something in the future that only the Oracle is seeing.
Sound Community Bank based in Seattle, Washington has completed the purchase of three bank branches that were previously owned and operated by Columbia Bank based in Tacoma, Washington. With the branch acquisitions, Sound Community Bank now has six retail banking offices in the Puget Sound region along with one stand alone, loan production office.
Based on the press release from Sound Community Bank, the bank gains approximately $22.2 million of deposits with the new branch locations as well as $1 million in loan accounts.
Sound Community Bank branches can be found in downtown Seattle, Mountlake Terrace, Port Angeles, Port Ludlow, Sequim, and Tacoma, WA. The bank’s loan production office is located in Madison Park neighborhood of Seattle. For more information on the bank branches, hours of operation, and customer contact numbers see, Sound Community Bank locations.
Sound Community Bank is a full service bank that provides personal and business banking services in the greater Puget Sound region. The bank ranks among the top 25 largest banks in Washington with approximately $450 million in assets, prior to this branch purchase transaction. The bank branch acquisition is sure to move the bank up the ranks of the largest banks in The Evergreen State. Sound Community Bank is a subsidiary of the publicly traded, Sound Financial Bancorp, Inc.
Columbia Bank is the second largest bank based in Washington and operates 79 branches in Washington in addition to 60 bank branches in Oregon. Columbia Banking System, Inc. is a publicly traded company that is the holding company for Columbia Bank.
The ten year Treasury bond has dipped below 2.50%, approaching 2.47% at 12:30 CT, on breaking news that a Malaysian jet has been shot down over Eastern Ukraine. Geopolitical uncertainty is almost always sure to drive investors out of riskier assets and into the safety and security of liquid, fixed income assets. Treasury bills and bonds are one of the biggest resources for safe and secure investment funds around the world. The inflow of funds bids up prices, pushing them higher and the interest rates paid on the bonds lower. As Treasury bill and bond rates fall, comparable interest rate sensitive or based products react with lower interest rates as well. The next largest and liquid market after the Treasury market that is frequently impacted is the mortgage bond market. As Treasury bonds move up in price and yield lower interest rates, so do mortgage bonds. The correlation between Treasury bonds and mortgage bonds is not 100 percent but they are highly correlated.
Events such as this can often be short lived and the market may swing back in the other direction within a matter of hours or days. If the geopolitical uncertainty resulting from the crashed airliner persists, interest rates will hold at lower levels and are sure to drop through a wide gamut of savings rates and lending rates including money market rates, CD rates, and personal loan rates.
Bank lending and savings rates have moved higher as 2013 came to a close and the prospects for this trend continuing are high. Most bank rates have in fact, moved only marginally higher as 2013 came to a close but the underlying trend of higher interest rates was certainly well developed by year’s end. Furthermore, the Feds latest press release in December indicates that the Fed sees the economy on sound enough footing to start tapering their big bond buying program that has been the greatest catalyst for lower bank rates and interest rates. For consumers, this means higher rates earned on savings and CD and increased borrowing costs on credit cards, auto loans and home mortgages.
On December 18, 2013, the Fed announced they will cut the amount of mortgage bond purchases to a pace of about $35 billion per month from $40 billion and cut the purchase of longer-term Treasury securities to a pace of about $40 billion per month from $45 billion starting January 2014. The Fed does intend to keep short term rates, the Fed Funds rate, at the current low levels and while the announcement is a clear reduction on the Fed’s bond buying stimulus program, the Fed is not putting an end to the program and they will keep reinvesting the current, massive amount of bonds already held on their account.
Interest rates were held low in 2013 by the Feds action and the sluggish economy. 2014 will see the combined effects of a reduction in Fed intervention and more robust economic output drive interest rates higher. The Fed reduction is the initial catalyst for higher interest rates, more of a psychological push to investors and traders. After all, the Fed is continuing buying bonds and already holds a large quantity that is rolled over into new bond purchases as they mature. The real driving force behind rising rates will be greater economic output.
Demand for lending has increased and economic activity is clearly expanding. The first major signal of greater economic activity was the surprise GDP results announced on December 20, 2013. Real gross domestic product which measures the output of goods and services produced by labor and property located in the United States increased at an annual rate of 4.1 percent in the third quarter of 2013. This increase measures the change in output from the second quarter to the third quarter. In the second quarter, real GDP increased by 2.5 percent.
In addition to the GDP numbers, there has been a steady increase in commercial and industrial loans (C and I loans) throughout the year by the big US banks. C and I loans are up by 2.9% in November 2013 as compared to the year earlier. Increased traction in consumer spending which includes expanded use of consumer loans and credit cards has taken place in the fourth quarter of 2013. Real PCE, the government’s term for personal spending, increased by 0.5 percent in November, compared with an increase of 0.4 percent in October. Supporting that number were a growing number of bank loans for purchasing automobiles and mobile homes, student loans, loans for medical expenses and vacations, and loans for other personal expenditures.
The wealth effect is also leading contributing to an increase in spending. Higher home values generally create a wealth effect with homeowners that lead to greater spending. While the data behind the wealth effect brought about by higher stock prices is less clear, the increase in the stock market throughout 2013 is sure to lead to some increases in spending as well as higher tax revenues from gains on securities which will help free up more government spending.
Labor market conditions have also shown further improvement. Weekly unemployment claims continue to drop and the unemployment rate has declined but remains elevated.
For those market watchers that like looking at some of the finer economic signals, rail traffic has shown a steady increase through 2013. Intermodal rail units have increased by 4.6% through December 28, 2013. Total rail traffic was up by only 1.8% during the same time but that number was heavily skewed by a large drop in coal shipments which is the single largest carload product shipped by rail.
The economic figures are not setting the world on fire but are certainly moving the US economy in the right direction. For consumers, the coming months should show measurable but contained increases in long term rates with short term rates moving only slightly higher. Savings rates and CD rates will move only modestly higher with the exception of three to five year term certificates which may show a more powerful push higher. Mortgage rates will continue to become more costly with the overall rise in long term rates. Car loans and credit card rates will also climb but with relatively short durations, these borrowing rates will not be nearly as elevated as some of the longer duration loans such as mortgages.
In more normal business cycles, increased loan demand and economic output will push savings rates higher but with the exceedingly large amounts of reserves held by the major banks, these institutions are no need of pushing their deposit rates higher to retain or attract new customers.
Over the past decade banks have made one fact regarding the banking industry crystal clear, they are in business to make money. Banks and bankers are not making money for you and me but, making money for themselves. Well, this year will be different. It’s time to fire your banker and improve your financial position by having as little interaction as possible with those fat cats.
The days of the local bank accepting deposits and lending money in the community to those in need are long gone. Risky investments, hoarding reserves and not providing new loans to businesses and individuals, shoddy service and fat profit margins have been the new themes for bankers as they continue to stick it to the community and their customers. Time to fire your banker.
Community lending by banks has been replaced with Prop trading. Prop trading? Outside of the banking industry who the heck knows what prop trading is, yet this term has been a hot subject for the banking industry in 2013.
New rules just proposed by the Federal Reserve ban certain aspects of proprietary trading or prop trading at large banks. The rules generally prohibit banking entities from engaging as principal in proprietary trading for the purpose of selling financial instruments in the near term or otherwise with the intent to resell in order to profit from short-term price movements. Wow, that doesn’t sound like community lending or checking and savings accounts to me.
FDIC insured deposits, little to no interest paid to the account holder, no neighborhood loans to speak of, but they are trading financial instruments to make profits on short term trades with your government insured deposits. Time to fire your banker.
For some consumers, their bank is providing the right products, resources, and services to suit their needs. But based on the latest data from the Consumer Financial Protection Bureau (CFPB), the big banks do not seem to be among those service providers. Complaints registered by the CFPB through December 26, 2013 show thousands of complaints filed against the biggest US based banks.
Chase Bank logged in 7,694 complaints from the start of 2013 through the third week of December. Bank of America had almost 16,000 complaints or 15,964 to be precise, during the same period. Wells Fargo recorded 10,603 consumer complaints and Citibank experienced 5,613 complaints.
While many middle class Americans are struggling to the pay their bills and find a better job or just find a job, the banking industry is racking up huge profits. Banks insured by the FDIC reported total net income for the third quarter of 2013 in the amount of $36.0 billion. That’s 36 billion dollars in profits for three months of the year.
To add salt to our collective wounds, it was the banking industry that made the risky bets with depositor’s funds that drove the economy over the edge just a short while ago which led to the current tepid economic climate and pathetic employment market.
No wonder most Americans believe that financial deck is stacked against them and that economic policy favors large banks and financial institutions.
New Year’s resolution for 2014, fire your banker.
The news was awash with stories this week about Amazon testing drones to deliver packages direct to consumers which has sparked questions and controversy about how drones may be employed in other business sectors across the nation. While the banking industry has not yet made any public comments, the buzz being heard in the back offices is that drones may be a tool well suited for banking and more specifically, the mortgage industry.
It’s not that bankers want to use drones to appraise properties faster and deliver closing packages and paperwork to their customers. No, the targeted segment for drones in banking and mortgages is collections. Banks can use drones to manage properties with better visual surveillance, check on borrowers to see if they are home to receive delinquency notices and foreclosure notices, and even follow the delinquent home loan borrowers to check up on their jobs and spending habits.
George Orwell new Big Brother was coming he just didn’t see the drone as being Big Brother’s eyes and ears.
In some financial circles there are even whispers of bankers finding a way to use drones to deliver punitive measures to those customers that are neglecting their financial obligations regarding timely mortgage payments. No one on record is talking about using drones with military hardware but some measures being bandied about include using drones to fly banners and electronically illuminated messages over delinquent homeowners identifying the property and the owner as being delinquent and not paying their account on time. In these cases, bankers would be using the drone as a social vehicle to shame the client into paying their loan on time.
No need for the bank to invest in large collection departments and make endless collection calls, let the unmanned drones serve as collection agents.
While the talk about the use of drones in other fields is garnering all the attention, you can only guess what the bankers in their ivory towers are pondering on how to use this technology to cut expenses and extract more money from their customers.
A properly guided drone operated by one of the big banks would have no problem soaring above multiple properties that have mortgages owned by that particular bank to monitor the property, maintain security, and communicate quickly and effectively with the borrower on a variety of topics.
Big Brother or big banks in this case, may just be watching you sooner than you think.
Fannie Mae released their latest monthly figures on mortgage loans that were purchased by the agency from mortgage lenders. Fannie Mae’s business acquisitions decreased to $49 billion in total new mortgages for the month of October. This is the lowest level of new loan acquisitions since August 2011 and the third straight month of declining purchase volume by the agency.
For October of last year, Fannie Mae had acquired $79 billion in new mortgages. The October loan volume of 2013 follows a weak number for the month of September when the government entity acquired just under $56 billion in new mortgages. Year to date, total new acquisitions stood at almost $715 billion. For the first ten months of 2012, the agency had acquired $747 billion in new mortgages or roughly 4.3% less for 2013 compared to 2012.
The best month of acquisitions in 2013 for Fannie was in January when the agency acquired over $88 billion in new mortgages. Average monthly volume for new acquisitions in 2013 is slightly over $71 billion.
Fannie Mae produces a monthly report on mortgage activity that can be found on their web site located at http://www.fanniemae.com/portal/about-us/investor-relations/monthly-summary.html. The monthly summary report contains information about Fannie Mae’s monthly and year-to-date activities for the gross mortgage portfolio, mortgage-backed securities and other guarantees, interest rate risk measures, serious delinquency rates, and loan modifications.
Choice Financial Group, the tenth largest bank headquartered in North Dakota, has made an offer to purchase the 27th largest bank based in the state, Great Plains National Bank. Choice Financial will be buying all of the assets, approximately $180 million, and the five bank branch locations of Great Plains National Bank. The purchase will expand Choice Financial’s asset base from approximately $660 million to almost $850 million and increase the number of bank branches operated by Choice from ten to 15.
Choice Financial is based in Grafton and currently operates nine locations in North Dakota that cover the center of the state from Goodrich on up to the northeast in Walhalla and down through to southeast in South Fargo. The bank also operates one branch in Comfrey, Minnesota. The five branches of Great Plains National Bank are predominantly located in the southwest region of North Dakota with two of the branches located in the southeast region. Great Plains National Bank is based in Belfield, North Dakota with additional branches in Dickinson, LaMoure, South Heart and Ellendale.
Choice intends to convert the five locations of Great Plains to Choice banks in the second quarter of next year. The terms of the deal have not been disclosed.
Horizon Bancorp, the parent of Horizon Bank, is acquiring Summit Community Bank, the subsidiary of SCB Bancorp Inc. Michigan City, Indiana based Horizon Bancorp announced the acquisition on November 13, 2013. Under the terms of the agreement, all Summit Community Bank facilities and assets will be merged into Horizon Bank.
Summit Community Bank manages two branch locations in the East Lansing area and operates with just over $160 million in total assets. Summit is dwarfed in size by Horizon Bank which has almost $1.8 billion in total assets and operates over 30 bank branches in Northern Indiana and Southwest Michigan.
By acquiring the Summit Bank branches in East Lansing and Okemos, the Summit merger expands Horizon Bank’s current market presence in southwestern Michigan to now include the capital region of the state.
Horizon Bancorp is a locally owned, publicly traded bank holding company. The common stock is traded on the NASDAQ Global Market under the symbol HBNC. While the company recently reported a small decline in third quarter 2013 net income from the same period last year, net income for the first nine months of 2013 rose by almost 10% compared from the same period in 2012. The nine months net income for 2013 totaled $15.8 million or $1.72 diluted earnings per share which was the highest first nine months of net income in the holding company’s history.
The Horizon Bank and Summit Community Bank transaction is expected to be completed in the second quarter of 2014. Under the terms of the merger agreement, shareholders of SCB will receive fixed consideration of 0.4904 shares of Horizon common stock and $5.15 in cash for each share of SCB common stock. Per the press releases, based upon the November 12, 2013, closing price of $21.43 per share of Horizon common stock, the transaction is valued at approximately $18.4 million.
The transaction is subject to approval by federal and state regulatory authorities and SCB shareholders as well as the satisfaction of other closing conditions provided in the merger agreement.