Archive for August, 2010
On Wall Street, it is called the “black car indicator” — a reference to the limousines lined up around investment banks to ferry home young analysts who have pulled near-all-nighters while working on deals.
Based on the surprising number of mergers and acquisitions this month, those black town cars must be double-parked.
I know we're still in pre-season for the NFL and it may be a bit early for football analogies, but I was thinking about the players in our industry while on a plane late last week and it seemed to make a lot of sense to me — at least from 30,000 feet. From a distance, a football team looks like any other group of guys (who are all above-average size and overly aggressive), but each team is really made up of several smaller teams that play different games within the same contest.
Football teams have offensive squads, defensive squads and special teams for things like kick-offs and field goal kicking. Unlike soccer or basketball, the same guys aren't generally asked to play on more than one team. In football, there are guys that specialize in offense (which, somewhat oddly, is all about providing defense for the ball carriers) and those that prefer to play defense (pummeling the other team's ball carriers).
I guess many businesses are the same way, with certain teams that go out into the field to capture business and others that either handle the work or play defense on the help desk or customer service line. But I don't see most financial services companies set up this way. Wall Street firms with their aggressive salespeople are the exception, but generally US banks are defensive players, almost exclusively.
Some executives in the bank are likely to argue with this assessment, especially loan officers and those on the front lines of the marketing efforts, such as they are. The truth is that bankers are risk averse and that makes them defensive players. While they may engage lobbyists or join a trade group to have some influence on the game field, they pretty much lawyer up, staff up for and also outsource to external teams for compliance and then cross their fingers that the loans they write today will still be compliant with everyone in the future.
In today's environment, many lenders aren't doing much more than this because they can't be sure what the future will bring. They're paralyzed, and with good reason. Just today, we learned that Thomas Considine, commissioner of New Jersey’s Department of Banking and Insurance, has decided that RESPA’s new disclosure requirements don't comply with NJ law. His solution to lenders there: comply with both!
Recently, I've been visiting with a number of mortgage bankers who are starting to get a bit fed up with this. While it's not clear what direction these players will go, I have a feeling that it's going to be offensive in nature, which means we're all about to be reading some very interesting stories. When successful businesspeople decide they would rather fight for their industry than let lawmakers legislate them out of business, the game gets a whole lot more interesting.
It's about time.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates reached the highest relative to 10-year Treasuries since May, as investors speculate that supply may grow as homeowner refinancing rises.
Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose 0.05 percentage point to 0.91 percentage point more than 10-year Treasuries as of 1:58 p.m. in New York, data compiled by Bloomberg show. The gap reached a record low of 0.54 percentage point on July 30.
Business investing is an isolated stimulation in a slow-to-recover economy. Capital Economics reported in its quarterly US Economic Outlook that business investment increased 17%, dwarfing the 1.6% gain in consumption.
Although most investments were in made in equipment and software — things Capital Economics considers temporary investment boosts — the research firm noted that commercial real estate rebounded modestly, ending a severe contraction in the market over the past couple of years.
The report said the recent rise in debt-to-worth ratio leaves firms looking leveraged and means that as internal funds rise, income gearing on that debt is falling. Firms are mostly investing in the bond market, but commercial paper issuance is also going up, the report said, and bank loans are close to leveling out.
Capital Economics said that fiscal stimulus should continue to to provide a boost to public construction spending through the end of 2010, thus growing the commercial sector (see chart).
Managing director at NewOak Capital, Mark Ruh, believes that business investing in times of sputtering economic recovery provides a positive additive. He's specifically enthralled by northeastern financial firm First Financial Niagara's (FNFG: 9.80 +1.24%) plan to purchase NewAlliance Bank's (NAL: 0.00 N/A) holding company NewAlliance Bancshares Inc., a deal that with cost the former $1.5bn and represent a tangible book of 163%.
“This is the first real open-bank acquisition in two years,and happened because acquirers can now trust the better balance sheets in the industry," Ruh said. "This transaction should mark the beginning of a robust bank M&A market over the next several years."
Aside from the uplifting side of the economic outlook, Capital Economics predicts GDP growth to slow to around 2% from 2.7% in both 2011 and 2012. The firm found that consumption has depleted to less than half the average annualized rate, down to 1.6% from 4% and unemployment is expected to stick above 9% until at least 2013.
Write to Christine Ricciardi.
Wells Fargo & Co. is plunging back into the commercial mortgage-backed securities market that helped fell Wachovia Corp., the bank it bought in 2008 for $12.7 billion.
Wells Fargo added more than 20 bankers and support personnel during the past three months to increase loan originations and bundle them into CMBS, said Ed Blakey, who’s leading the effort with John Shrewsberry. Wells Fargo anticipates selling bonds, though the executives declined in an Aug. 16 interview to give a date.
“We believe there is going to be a resurgence of CMBS, and we are investing in anticipation of it,” said Blakey, head of commercial-mortgage lending and servicing. “Our pipeline is growing and we intend to be a leader of this market.”
One in five parents readying themselves for retirement anticipate giving their adult children financial help, while 30% of their offspring are relying on it, according to Aviva.
Research by Aviva showed that helping with a deposit for a house is the top reason for giving or receiving financial support, with 62% of parents expecting to help out their kids to buy a home, while 44% of children are relying on it.
However, financial help does not come without its issues, with half of all parents who plan to support their children feeling worry, concern or anger at the thought of doing so into retirement.
