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by Bill StonemanThere is nothing unusual in having security procedures, as the $21, billion-asset Associated Banc-Corp does, to ensure that consumers are who, they claim to be., But what it does when customers sign up for online banking or forget their, passwords is another story., Associated, of Green Bay, Wis., is among a few dozen U.S. banks using, voice-recognition software to verify the identities of customers or, employees., Like fingerprints, an individual's voice is unique, and its unique, characteristics can be measured and plotted in mathematical terms, scientists say., Industry experts predict that the widest use for voice-recognition systems, will likely be to authenticate identities for telephone-based transactions, ranging from change-of-address requests to overseas wire transfers., Associated, however, is currently using its system to safeguard online, banking transactions. When customers forget their passwords, an automated, phone system calls and asks for a few pieces of information. The system, provided by Authentify Inc. of Chicago, compares the reply with a voice, sample recorded when the customer signed up., We wanted something beyond the traditional 'What's your account number?, What's your Social Security number? And there's your password, said, Leonard Rowe, a senior vice president at Associated and its director of, e-banking., He would not say what the system cost to buy but said ongoing costs come, to less than $1 a year per customer., Before Associated installed the voice-recognition system, it had mailed, new passwords as a safety measure, but Mr. Rowe said asking customers to, wait days to check their balances wasn't a good idea., There are other potential uses for voice-recognition technology in the, financial services industry, say experts., Mark Greene, a vice president for financial services at International, Business Machines Corp. in Armonk, N.Y., said merchant acquiring banks, card, transactions, such as online purchases. Such a purchase could, trigger a call to the cardholder's phone - or, as more computers come, equipped with microphones, the voice connection could be made online., The $885 million-asset International Bank of Miami is using a, voice-recognition system by Diaphonics Inc. of Halifax, Nova Scotia, verify the identity of employees who need new passwords to get into the, bank's computer network., Ricardo Perez-Reinaldo, a senior vice president for private banking, said, this frees information technology employees from spending time on the, phone to reset passwords., International Bank plans to start using the system in the next few months, to authenticate the identities of customers requesting international wire, transfers., A lot of banks here in the Miami market cater to nonresident alien, customers, primarily from Central and South America and the Caribbean, And there's a lot of fraud coming out of those, places. We get calls from people trying to pass themselves off as our, It is hard to break out what the bank paid for the system because it was, acquired with other telephone equipment, Mr. Perez-Reinaldo said. But Andy, Osburn, Diaphonics' president and chief executive, said installation of a, basic Diaphonics system starts at about $50,000., Annual maintenance fees range from 15% to 20% of the installation price, and pricing is based on the number of concurrent telephone calls the, system can support, Mr. Osburn said., First Horizon National Corp. of Memphis is also using voice recognition, for employee authentication, according to Mike Feehan, a senior vice, president for customer contact. For customer applications the $38, billion-asset company will probably use a system built by PassMark, Security Inc., but only after gaining confidence in how it works, Feehan said,, About two dozen companies sell voice-recognition systems, according to the, New York consulting firm International Biometric Group. Though the, mechanics vary from one vendor to another, most systems require an, individual to provide an initial voice sample as a point of comparison., The systems measure characteristics including pitch, resonance, and even, speech mannerisms., Voice recognition is not perfect. Estimated error rates range from about, 2% to 15%. Sometimes imposters get through, sometimes legitimate customers, do not. Vendors suggest using the technology in combination with or as a, backstop to such widely used techniques as asking customers for their, address, Social Security number, or mother's maiden name., Text-dependent voice recognition, which requires the speaker to repeat, some specific words when prompted, is better developed, according to Samir, Nanavanti, an International Biometric Group partner. But such systems may, for example, a thief might, record a customer's voice. Anyway, systems that simply analyze the voice, with no specific text, will get better, Mr. Nanavanti said., Mr. Osburn of Diaphonics said banks generally are not eager to talk about, security measures they use. But Agustin Abalo of Banco Santander, International in Miami said it will initially use its new Diaphonics, system for resetting employees' passwords. (The vendor announced the, arrangement with the bank, owned by Banco Santander Central Hispano SA of, Madrid, in January.), We estimated that the cost of implementation of the Diaphonics system in, our bank is roughly equivalent to the average cost of one fraudulent wire, said Mr. Abalo, Banco Santander International's, chief information officer and a senior vice president, in an e-mail., PassMark, of Menlo Park, Calif., acquired Vocent Solutions last year. Its, voice-recognition customers include Washington Mutual Inc., Deutsche Bank, AG, and U.S. Bancorp., Financial companies are not the only users of voice biometrics, of course., Some prisons are using it to make sure that inmates call only authorized, numbers, said Robert Kassel, a senior manager with Nuance Communications, Inc. of Burlington, Mass., which makes voice-recognition systems and other, tools to automate corporate telephone activity. He said railroad companies, are also using voice recognition to ensure that only authorized people, take possession of shipments at, for example, a factory loading dock., In October the Federal Financial Institutions Examination Council told, depository institutions that single-factor authentication is inadequate, for high-risk transactions, and that they must perform a risk assessment, the end of 2006. But the consortium of federal regulatory agencies gave, no deadline for implementing tougher measures and has taken no position on, what kind banks should use., Not surprisingly, vendors say that if federal regulators extend two-factor, authentication to phone-based banking, voice recognition could become very, popular. But observers note that phone-based fraud has not been a huge, problem - maybe because current authentication works reasonably well., Just the same, the technology soon will be within easy reach of the nearly, 000 and credit unions to which Intervoice Inc. of Dallas provides, automated telephone systems. The upgrade added optional speech recognition, and voice recognition to its main product, Obvious Speech Banking, which, replace operators in handling customer calls., None of Intervoice's customers are yet using the biometric features, said, Jonathan Eisenzapf, a product marketing manager. (In fact, for unrelated, reasons they have been slow to move to the upgrade, will be easy for those who decide that voice recognition is a good way to, Mr. Stoneman is a freelance writer in Albany, N.Y.
Published in American Banker (2006)
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by Jeremy QuittnerBy most standards, KeyCorp has a large commercial banking unit, with $4.5, billion in assets and relationships with 220, 000 U.S. companies in a wide, variety of industries., That means the Cleveland banking company's 300 relationship managers must, stay on top of multiple industries and understand the economics of, different business sectors, as well as how each business functions., To help its bankers maintain their clients - the majority of which are, small businesses with under $10 million in annual revenues - as well as, offer them the right products, Key uses a research tool called Industry, Profile from First Research Inc., The goal is to encourage commercial clients to rely more on their banks to, provide value-added information and help them make more informed choices., We were trying to take the relationship managers and the commercial bank, from being product providers to be more trusted advisors, said Jim, Geuther, a senior vice president of business banking for KeyBank. He added, the bank thought it could arrive at a competitive advantage by arming its, geared toward, specific companies and industries., That way we could go in [to a sales call or client meeting] with greater, Mr. Geuther said., Industry Profile allows Key's commercial bankers to quickly log onto, either the bank's intranet or First Research's Web site to gather, information on the latest developments in about 200 industries, ranging, from accounting to waste management., industry, tab includes a one-page overview of a given industry, a forecast, on that business, and a list of suggested questions to ask over the phone, in preparation for an in-person conversation with a customer., The information is updated every 90 days, and bankers can request, industry-specific e-mail alerts from First Research. Its information, sources include, Factiva, Dow Jones, Reuters, and trade association, reports., There's a lot of competition in the commercial banking industry, and any, way to set yourself apart will help you gain more clients and retain them, said Tyler Rullman, First Research's vice president of corporate, You gain credibility and trust for existing clients, helps develop dialogue with new client and it shows how you understand and, Before Key signed up with First Research, its commercial bankers relied on, Google and other Internet search engines to bone up for sales calls., Even the best, managers were not investing the time necessary as they began to take on, KeyBank relationship managers had 75 to 100, He would not name the other market-intelligence vendors KeyBank, considered. Two big concerns were cost and integrating the product with, the bank's intranet, Key wanted relationship managers to have easy access, to the software., The integration of Industry Profile took just a couple of days cost about, sum., Getting the bankers to use Industry Profile before making sales calls can, be hard work, but Mr. Geuther said about half of them are using it now., and to get most managers to use the, Jacob Jegher, a senior analyst for banking at Celent Communications, the biggest challenge of any type of, implementation of sales force automation is the adoption of it by, Susan Landry, a managing vice president for Gartner Inc., a research firm, in Stamford, Conn., said retail bankers typically close sales much faster, with commercial bankers it can take weeks or months., On the corporate side of the house, the sales cycle can be three months, for selling a major cash management bundle of services, Ms. Landry said., That makes it harder to tie performance metrics and incentives to the use, Mr. Geuther said KeyBank's commercial customer base has increased in each, of the past three years. He said retention rates are also up and that he, has no doubt First Research has had a role in both increases., Client satisfaction also seems to have gone up. Mr. Geuther said the, commercial bank's quarterly satisfaction survey indicates that customer, satisfaction improved from 7.4 to 9.2 on scale of 1 to 10, from the fourth, quarter of 2004 to the fourth quarter of 2005., We have demonstrated to our customers how we add value using this tool, We represent ourselves as much more knowledgeable in, He said that commercial bankers have found the one-page profiles and, e-mail alerts useful, and that they like being able to include First, Research's information in materials sent to their customers., First Research is based in Raleigh. It was founded in 1998 by Bobby, Martin, formerly a commercial banker with Bank of America. Experts say the, company appears to have little direct competition, though it competes, indirectly with Hoovers, Dun & Bradstreet, Ementor Asa, and others in the, commercial banking world., First Research said its customers include about 300 U.S. banks, among them, Bank of America Corp., Wachovia Corp., and Wells Fargo & Co. Pricing for, Industry Profile varies by the banking company's asset size and the number, of users. It costs about $1, 000 a year for small banks and in the low six, figures for the largest ones., Observers say it is hard to gauge the market penetration of products like, Industry Profile. Generally, they said spending on such products would be, categorized under sales force automation and customer relationship, management software., Celent's Mr. Jegher said U.S. banks spent $1.7 billion on customer, relationship management software last year. That figure is expected to, grow to about $1.9 billion by 2007., But 74% of bank spending on CRM software in 2005 was on the retail banking, side, against 26% on the commercial side. The latter figure is expected to, increase to about 29% in 2007, Mr. Jegher said., There is a huge need for automation in the commercial banking sector for, Mr. Jegher said, including the need, build a better profile of commercial clients so they can have the, Robert Neuhaus, a principal at Greenwich Associates, a financial services, research and consulting firm in Connecticut, said First Research is the, market leader in commercial banking research., Most of the top banking companies already use its reports, however, which, means that banks will have to push further to get unique information by, doing proprietary research, Mr. Neuhaus said., Demands are increasing for the quality of people that [commercial, clients] want to deal with and the advice they are looking for, And because the banks are responding to that, the bar is being raised in, Smaller community banks with commercial banking specialties also say they, find Industry Profile good for sales and retention., Cornerstone Bank of Atlanta, which has 600 business customers and eight, relationship managers, also uses Industry Profile., Madeline Belfoure, Cornerstone's managing director of marketing, said one, reason the $200 million-asset bank chose Industry Profile was that it felt, the product could help Cornerstone make the most of expensive sales calls, which she estimates at $200 each., want to go in there and be prepared and know the right questions to ask, Mr. Quittner, an American Banker reporter from 1995 to *1997-, is a, freelance writer in New York.
Published in American Banker (2006)
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by Ben JacksonFederal regulators are worried about banks like First National Bank of, Artesia in New Mexico., First National's loan portfolio is heavily weighted toward commercial, real estate and regulators, mindful of past real estate downturns, have, proposed guidelines that ask banks with high concentrations of commercial, real estate loans to hold more capital against them., But W. Everett Crawford, the $392 million-asset First National's chairman, and chief executive officer, said the guidelines unfairly target banks with, assets below $1 billion., Commercial real estate loans are these banks' bread and butter. Mr., Crawford said the capital requirements would eat into their profits and, make, it harder for them to compete against larger lenders -- most of which have, more diverse loan portfolios and would be exempt from the guidelines., The guidelines, proposed in January, would only add to small banks', regulatory burden and could be the last straw for some that might be, More and more, community, banks are being forced to be sold because of stricter regulations, said., Many others share his anxiety., As of March 2 about two dozen community bankers had submitted comment, letters protesting the guidelines, and America's Community Bankers has, requested that the comment deadline be extended for another 30 days to give, its members more time to respond., The comment period is set to end March 14, but regulators have hinted, that it could be extended., The four federal banking regulators drafted the guidelines in response to, steadily rising commercial real estate concentrations -- especially at, banks, in fast-growing markets in the West and the South East. In a speech at the, Financial Services Institute in Washington last month Susan Bies, a Federal, Reserve governor, said that concentrations are now at record levels and, that, regulators fear risk management at banks and thrifts is not keeping pace., Banks, in order to attract new business and sustain loan volume, may be, inclined to occasionally make some compromises and concessions to, Ms. Bies said., According to recent reports from Moody's Investors Service Inc. and, Standard & Poor's Corp., commercial loans outstanding now account for 15%, the U.S. gross domestic product. The amount has not been that high since, last peak of the last commercial real estate cycle, in 1988., It was around then that the commercial real estate market crashed, leading to the collapse of hundreds of banks and thrifts and a massive, government bailout. The concern is that there could be another large, downturn, or that a large number of commercial real estate borrowers could go bust, when, balloon payments on interest-only loans come due., The proposed guidelines would consider a bank or thrift at risk if: its, total loans in construction, land development or other land represent 100%, more its capital, or if total loans secured by multifamily and, nonresidential, properties and loans for construction, land development, and other land, exceed 300% of capital., Observers have said that as many as one-third of all banks and thrifts, would meet one of the two criteria and have to comply with new guidelines., But regulators have said the actual number would be much lower because the, guidelines would exclude loans on properties occupied by their owners., The vast majority of these at-risk banks have less than $1 billion of, assets and many are in vibrant areas of the Southeast and the West with, booming commercial real estate markets., First National's ratio of commercial real estate loans to capital was, 431% at the end of the fourth quarter, according to Federal Deposit, Insurance, Corp. statistics. Many banks in fast-growing states such as Arizona and, Nevada, have ratios well above 500%., If a bank or thrift exceeds one of these thresholds, then the regulators, would want it to have formal risk management plans and capital beyond, normal, regulatory requirements., Minimum levels of regulatory capital do not provide institutions with, sufficient buffer to absorb unexpected losses arising from loan, the proposed guidelines say. They do not specify how much, additional capital a bank would have to hold., Also, directors would need to explicitly approve the institution's, commercial real estate strategy, periodically review the portfolio and, justify high concentration levels, and management would need to establish, formal procedures to identify and control commercial real estate risks and, prove it has systems in place for risk management, market analysis, stress-testing the loan portfolio., John S. Poelker, the managing director of Poelker Consultancy Inc. in, Atlanta, said commercial real estate lending is especially important to, start-ups because it is hard for them to get loan business from companies, with established banking relationships. Larger banks have more branches and, technology, which means more convenience for commercial customers, On the other hand, commercial real estate developers in, fast-growing markets are always looking for financing on projects that are, In Denver, Tampa, Atlanta, there is so, much development going on you can make $2 million, $3 million, or $4, million, loans that are very safe in the sense that they are well collateralized, Poelker said., Many banks would probably fall below the 300% threshold if owner-occupied, real estate were excluded. But the guidelines do not say what percentage, of a, building would have to be owner-occupied in order for the loan to be, excluded., Moreover, current regulatory reporting does not require them to separate, out owner-occupied from other types of real estate. Under the new, guidelines, the onus would be on banks to show that the amount of owner-occupied real, estate in their portfolio brings their ratios below the regulatory, thresholds., Dennis P. Angner, the president and CEO of the $706 million-asset IBT, Bancorp Inc. in Mount Pleasant, Mich., said he is concerned the examiners, would expect all banks to adopt the same formal controls and policies, regardless of whether they exceed the 300% threshold., Mr. Angner said., (IBT's ratio of commercial real estate loans to capital is 225%.), Jim Randall, the chairman of the $526 million-asset Northside Community, Bank of Gurnee, Ill., said complying with the guidelines would disadvantage, Northside because commercial real estate loans would require more, documentation, which would lengthen loan approval times. The guidelines are, another example of regulation distracting bankers from their primary, business, Mr. Randall said., Some, however, say the guidelines would not force much of a change, because they already do most of the things that would be required., Robert Disotell, the chief credit officer at the $1.2 billion-asset, Cascade Bank in Everett, Wash., said that as long as long as examiners do, take the guidelines to extreme, most of the proposal is palatable., The things they are asking banks to do in terms of risk management, Mr. Disotell said. Cascade, had a 508% ratio of commercial real estate loans to capital on Dec. 31., Still, needing to hold more capital. There is no objective standard on how much, capital would be required, and the costs of raising additional capital, could, Those that don't have the ability to raise more capital would have to, stop lending and, in some cases, sell off portfolios to get back in line, regulators take a very firm stance on what would require more capital, Disotell said., Ray D. Tooker, the senior vice president for loan administration at the, $1.9 billion-asset Macatawa Bank Corp. in Holland, Mich., said the, additional, capital requirements seem to ignore that institutions also manage risk with, their loan-loss provisions., They talk about capital levels, but loan-loss reserve is the first line, of defense in protecting shareholders and depositors as well, Mr. Tooker, said. Macatawa's ratio of commercial real estate loan to capital was 450%, Dec. 31, its loan-loss reserves were 3% of its commercial real estate, loans., First National's Mr. Crawford said the regulators seem to be targeting, banks in high-growth areas. He would like banks and trade groups to send in, enough comment letters that the regulators abandon the industrywide, guidelines and focus on banks that may have flaws, If you have a, problem, instead of coming after the industry, why not go after the banks, Mr. Crawford said.
Published in American Banker (2006)
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by Joseph B. Rubin and Peter DavisBank executives across the country are devoting considerable resources, toward refining their credit risk infrastructures in preparation for the, impending introduction of the new risk-based regulatory capital standards, known as Basel II., In particular, credit departments are designing dual risk-rating systems, to drive regulatory capital. That is permitted as long as banks meet the, Basel II Advanced Internal Ratings Based standards -- A-IRB., In the United States, regulatory expectations for A-IRB systems are, outlined in supervisory guidance issued in August 2003. The, internal-ratings-based approach provides the opportunity to reduce, regulatory, capital requirements at institutions that have demonstrated their ability, consistently differentiate credit risk. For commercial lending, meeting the, A-IRB standards typically requires institutions to introduce further, granularity in risk ratings within specific asset classes and to create, systems to capture the data supporting the grades., Banks are developing different grading methodologies for the various, types of credits in their portfolios. One asset class that is particularly, challenging is commercial real estate, which encompasses construction, loans,, loans, and mezzanine, financing, on a variety of property types, including multifamily, retail, office, hospitality., CRE lenders also provide financing for land acquisition and development, single-family home construction, condominium construction, and many other, development activities. Most banks currently rate all these loans within a, very narrow band of grades. However, there are distinct differences in the, risks presented by various types of loans., Most institutions find that they need to enhance their current grading, systems to meet the Basel II standards. Implementing these new standards, provides an opportunity to create an objective methodology for measuring, differential risk of the various credits in the CRE portfolio., The Basel II guidance warns against concentrating credits in a limited, number of grades, requires separate ratings indicating the probability of, default and the severity of losses in the event of default (loss given, default), and calls for capturing data to continuously validate the, risk-rating methodology., An informal Ernst & Young survey showed that a large number of banks rely, solely on the judgment of loan underwriters and credit administrators to, grade, CRE loans. The grading usually is supported by guidelines suggesting the, risk, factors the grader should consider. Often, however, quantitative, definitions, to support the assigned grade and the relative importance of the risk, factors, are not provided. Reliance on an individual's judgment results in the, potential for inconsistent grades across a portfolio, particularly in, large,, geographically dispersed institutions., The challenge, then, is to shift toward a more quantifiable, objective, grading approach., Unlike many other types of commercial loans, for which the analysis of, risk is based primarily on the borrower's readily available financial, statements, real estate borrowers are often single-asset, single-purpose, entities. Depending on whether the loan has recourse provisions, the lender, is looking to a sponsor, the real estate collateral, or both, repayment., As a result, while real estate is underwritten using dozens of factors, many are qualitative and judgmental., Depending on the type of loan, metrics such as debt service coverage and, loan to value are usually considered the key indicators of a real estate, credit's risk. However, more judgmental qualitative factors are also, considered, such as the location of the collateral in its market, experience of the borrower in developing or managing properties, or the, likelihood of new competitive developments in the next few years. In, enhancing their grading systems, institutions are usually looking to, convert, these qualitative judgments into quantitative scores., Finally, because moving to a transparent and replicable dual-grading, methodology is a major departure from current practice, designing a new, methodology is itself a challenge. It isn't always easy for the various, constituencies within a bank to reach consensus on the factors that drive, real estate risk, corresponding scoring criteria, and the relative, importance, of each factor., For example, while some might argue that the grade should be based solely, on debt coverage and loan to value, most believe that many other, considerations must be part of the grading algorithm., To promote consistency and objectivity in the dual-grading system, banks, are moving toward either rating scorecards or statistical models. In the, scorecard approach, a user determines scores for a set of predetermined, risk, factors, each of which receives a specific weight based on the relative, importance the bank places on it., When banks develop statistical models, participation from credit officers, is not required. The models produce default probability and loss severity, metrics based solely on available quantitative measures. Usually, models, are then vetted with credit officers, but the grading methodology remains a, statistical approach., While recently released real estate industry simulation models are being, tested, most institutions are taking a scorecard approach when designing, enhanced dual risk-rating systems for their CRE portfolios., When working with clients we stress that the objective of the new, methodology is not to change the bank's credit culture or create more work, for credit administrators. Rather, the scorecard should reflect how the, bank, currently views real estate risk and should leverage existing tools and, policies., We also encourage lenders to develop scorecards that are simple, practical, and easy to use. Though underwriters consider many factors in, assessing risk, any factor included on the scorecard must be assigned a, weight. The more factors, the more diluted the importance of each factor., Despite the challenges, implementing a dual risk-rating scorecard, methodology for CRE allows banks to more accurately measure the risk of, each, lending program and each credit in these programs., Well-designed probability-of-default and loss-given-default scorecards, are easy to use, promote consistency in the way underwriters and credit, officers think about risk, and provide a bank with the data it needs to, support credit grades. The scorecards enable A-IRB compliance and enhanced, credit monitoring in a cyclical sector and have the potential to reduce, regulatory capital., The ability to understand the risk components of a CRE portfolio better, particularly in this cyclical industry, makes the effort worthwhile., Mr. Rubin is a principal in Ernst & Young's real estate transaction, advisory services practice. Mr. Davis is a director of credit risk, services, in the financial services advisory practice. Both are based in New York.
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by Isabelle Lindenmayermerican Express Co. said Monday that fourth-quarter earnings fell 17% from a year earlier, to $745 million, due largely to the spinoff of its advisory unit in September. Earnings per share fell 17%, to 59 cents, matching the average analyst estimate. Revenues jumped 9.1%, to $6.43 billion, $41 million short of the average estimate. Earnings from continuing operations rose 12%, to $751 million, however, and merchant discount revenue rose 13%, to $3.2 billion, as average cardholder spending rose 7%, to $2.8 billion. Cards-in-force rose 9%, higher spending by affluent consumers, small businesses, Net chargeoffs rose 50 basis points from a year earlier, to 4.6%. Loans 30 days past due were 2.4% of the portfolio, unchanged from a year earlier. The provision for losses for the U.S. card business rose 32%, to $509 million, because of the spike in bankruptcy filings, Ameriprise Financial Inc., or higher marketing spending. Marketing expenses rose 11%, to $1.6 billion, and Amex increased its investment in technology platforms during the quarter, Mr. Chenault said. The average discount rate Amex charges merchants continued to fall, it dropped 4 basis points, Citigroup Inc., Barclays PLC's Juniper Financial Corp., USAA Federal Savings Bank, and Bank of America. Barry Rodrigues, the executive vice president of Amex's global network services unit, said in an interview last week that the New York company has been working with B of A to develop new products for five specific customer segments. Though he would not specify the segments, in the quarter, the company said, and spending on bank-issued cards rose 30%. Net income for the proprietary U.S. card business grew 13%
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by Matthias RiekerFourth-quarter earnings at Independence Community Bank Corp. of Brooklyn, N.Y., came in short of expectations and gave observers a closer look at, just, what Sovereign Bancorp Inc. is buying., Some trends in the earnings report, released Monday, were encouraging, particularly rising deposits and continued demand for multifamily loans, analysts said. But the $19.1 billion-asset Independence Community's profits, dropped 14% from a year earlier, to $45.2 million, or 60 cents a share, which, missed the average estimate of analysts by a penny, according to Thomson, Financial., In October, Sovereign took the controversial step of saying it would sell, a 19.8% stake to Banco Santander Central Hispano SA and use the proceeds to, buy Independence Community for a 30% premium, or $42 a share., What Sovereign is getting is a good, solid deposit franchise in a dense, between Sovereign's Middle, Atlantic, and New England markets, said James M. Ackor, an analyst with Royal Bank of, But they are also buying a company that is, Independence Community took a $4.3 million deal-related charge in the, fourth quarter and said it began winding down advertising. It will hold a, special shareholders meeting Wednesday to vote on the sale, which Sovereign, plans to close next quarter., Sovereign's plans have sparked resistance from its largest institutional, shareholders, but selling itself to the Philadelphia company is generally, considered a good one for Independence Community. Alan H. Fishman, president and chief executive, told investors and analysts during a, conference call after the deal was announced that opportunities to grow, were, running out., Basically, in the, fiercely competitive New York deposit and lending market, among other, issues,, Independence Community did not hold a conference call to discuss, fourth-quarter earnings, and Mr. Fishman would not discuss them. But during, the third-quarter call in October -- just six days before the deal with, We'll continue to be challenged to, sustain revenue growth. ... In general, the business is very, very, Independence Community's multifamily lending business continued to grow, in the fourth quarter, but at a slower rate than it did in the third. The, portfolio rose 2.3% from the third quarter and 24.8% from a year earlier, $4.7 billion., Analysts disagree about why origination growth slowed down. Mr. Ackor, said maintaining the quarterly growth rate at around 10% could indicate, that, the company made concessions in lending terms. He also said that the, But Mark Fitzgibbon, the director of research at Sandler O'Neill &, Partners LP, a combination of, distractions related to the pending merger with Sovereign Bancorp and, intense, Independence Community's overall loan portfolio was virtually flat with, the third quarter but rose 9.4% from a year earlier, to $12.3 billion. Its, portfolio of loans held for sale shrank to $22 million, less than a third, its size a year earlier., Several analysts said that they were surprised by the drop, and that it, might also be related to the sale to Sovereign., Deposit growth was a bright spot. Deposits rose 4.2% from the third, quarter and 17.6% from a year earlier, to $10.9 billion. Independence, in a competitive market, Mr. Ackor said., Expenses related to deposits, however, more than doubled from a year, earlier and rose 21.1% from the third quarter, to $54.2 million, putting, pressure on the company's profit margin., The net interest margin contracted 30 basis points from the third, quarter, to 2.82%. The company attributed 26 basis points of the drop to, accounting issues., The fee revenue figures were mixed. Revenue from mortgage banking fell, 12.8% from a year earlier and 26.5% from the third quarter, to $4.8, million., including earnings from Independence, Community's, stake in the New York commercial mortgage broker Meridian Capital Group, LLC,, rose 77.4% from the third quarter but fell 7.6% from a year earlier, $6.5, million.
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by Joe AdlerThe Federal Deposit Insurance Corp. is poised to change the way it, calculates premiums charged to banks with more than $10 billion of assets., The agency's proposal, expected to be unveiled June 21, would assess a, large bank's risk to the deposit insurance fund by using publicly available, market data, such as subordinated debt and credit agency ratings, according, to industry observers familiar with the plan., Smaller institutions' risk would continue to be judged on traditional, criteria, including supervisory ratings and capital levels, observers said., The FDIC has been considering such a move for years, but its latest plan, would cover a far larger number of banks, today there are 119 banks and, thrifts over the $10 billion-asset threshold., While the FDIC board vote is still three weeks off, agency officials have, already begun briefing banks and industry trade groups., Though some bankers expressed skepticism about the particulars, many, representatives said the proposal makes sense., This is a recognition that not only are these institutions so, differentiated, but there's information uniquely available about them, that's, said Robert Davis, an executive vice, Smaller banks don't have, Congress told the FDIC more than a decade ago to create a risk-based, premium system where banks would pay more if they posed a larger risk to, fund, but in 1996 it severely limited the agency's ability to differentiate, among banks. Currently, more than 94% of the industry falls into the, least-risky category as defined by a bank's Camels supervisory rating and, capital level., The deposit insurance reform law enacted in February gives the FDIC a, freer hand to create a new system to better differentiate risk. But the, agency is also expressly forbidden from charging large banks higher, premiums, just because they are larger., If the FDIC's plan results in a system with all large banks paying more, relative to smaller institutions, it could open itself to lawsuits., Among other changes, the agency is expected to condense the current, nine-box matrix determining an institution's risk. Seven of those, categories, each account for less than 1% of the industry, and the least-risky box, contains the vast majority of banks. Observers said they expect the FDIC to, propose a system with only four categories., They will probably shrink their categories into a smaller number of, said Chris Cole, a regulatory counsel with the Independent, Community, Bankers of America., There would likely be additional subcategories within those groups based, on further criteria, observers said., It still remains unclear exactly how the agency would subdivide the, current least-risky category. But FDIC officials have long hinted that, their, new risk-based system would include a separate assessment method for large, banks., In the agency's initial recommendations for reform in *2001-, it said it, certain market signals as inputs to project failure rates, incorporate those signals in an institution's premium. Former FDIC Chairman, Don Powell said on several occasions that large banks presented a greater, threat to the fund and should be assessed differently., A one-size-fits-all approach limits our ability to strike the right, Mr. Powell specifically mentioned using specialized bonds, reinsurance, contracts, and other financial instruments to gauge the condition of large, use the power of the marketplace to help us, also, discussed using subordinated debt, credit agency ratings, and data from the, credit derivatives market., At the time, however, Mr. Powell said such a system would probably only, apply to a small number of banks, such as the 20 largest institutions that, would adopt proposed Basel II capital standards., But sources agree the FDIC has expanded its definition since then., Officials with the agency declined to comment for this article., The proposal could be the first test for FDIC Chairman-designate Sheila, Bair. She is expected to get a Senate Banking Committee hearing next week, and could be sworn in before the June 21 meeting. The agency has been, without, a permanent chairman since Mr. Powell left last fall., Some observers said the FDIC's approach appears to be a good one, that the abundance of information available about large institutions should, be put to use in assessing an institution's risk., Donald Mullineaux, a banking professor at the University of Kentucky, said the FDIC could glean a lot of information from examining the ratings, credit agencies give to larger banks, for example., If their risk of defaulting was increasing, a Moody's or a Fitch could, It's then sort of a public, revelation. The FDIC, as an interested party, can see the same, Others noted that the FDIC will be able to use more supervisory data to, evaluate banks., Very large banks have permanent examination teams, so it's logical to, think that supervisory input would have some value when evaluating the risk, Mr. Davis said., But many bankers appear doubtful of the FDIC's plan. One source at a, large bank, who spoke on the condition of ity, said there was a, about the proposals the FDIC has shown the industry., In many ways, the complex hedging activities that large banks conduct, However, not everyone has the, background knowledge to understand how. The Federal Reserve Board, obviously,, has significant expertise, but now the FDIC will need ... to get educated, Jim Chessen, the American Bankers Association's chief economist, said he, does not believe the FDIC is completely settled on its plan, and said he is, confident any new system would not result in a bias against large banks., The FDIC, has an obligation to assess risk fairly and consistently, whether the bank, large or small. They can do that even if they include additional, information, for larger banks., They're going to say, 'Here are several options that we think are, responsible approaches to differentiating risk.' I don't think they're just
Published in American Banker (2006)
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by Jim ColeAnalysts are describing Washington Mutual Inc.'s decision to cut an, additional 1, 400 jobs, or 2% of its work force, as further evidence of its, commitment to expense control and of how rough the mortgage business has, become., The $349 billion-asset thrift company on Tuesday told 850 workers in its, home state and 550 in Florida that they will lose their jobs by the end of, the third quarter with the closing of two call centers. Those cuts would, bring the total announced and completed since Jan. 1 to 4, 7% of the, work, force., Benson Porter, Wamu's chief administrative officer, said in a memo to, employees that the moves are part of the Seattle company's effort to, consolidate call center operations in low-cost locations., The work done in Bothell, Wash., and Jacksonville, Fla., namely handling, calls on home loans and retail banking, will be done by a vendor in the, Philippines and by Wamu facilities in Albion, N.Y., Milwaukee, and San, Antonio. The memo said Wamu will try to find positions for some of those, losing jobs and a spokeswoman said in an email that Wamu is still hiring at, its call center in San Antonio, which opened early this year. Whether the, closures will see jobs added in Albion or Milwaukee is still unclear, added., Frederick Cannon, an analyst in San Francisco for Keefe, Bruyette & Woods, a reflection of two things: The, mortgage volumes are down this year, on the one hand, and it is a company, where you can see the efficiency ratio is well above what they want it to, Mortgage applications last week were down 23% from a year earlier, according to the Mortgage Bankers Association's latest applications survey., The decline is sending tremors through the industry., Ameriquest Mortgage Co. in Orange, Calif., fired 3, 800 workers this month, when it closed a nationwide network of 229 branches and centralized, application processing through call centers., Aames Investment Corp., a subprime lender that converted to a real estate, investment trust in *2004-, said on May 10 that it expects by July 1 to, reach a, deal to sell itself. And Centex Corp., a home builder based in Dallas, selling its subprime lending unit, Centex Home Equity Co., to a private, equity fund., Some of Wamu's rivals, however, are capitalizing on the downturn., Countrywide Financial Corp. of Calabasas, Calif., is expanding its branch, network and hiring through the slowdown to meet its goal of having a 25% to, 30% share of the mortgage market by 2010., Wells Fargo & Co. chief operating officer John Stumpf said that in this, you have to be smart on the cost, Speaking May 17 at the Lehman Brothers financial service conference in, We've gone to contract help and part-time help, so forth, so we can adjust the cost side very quickly. And that is critical, Wamu has made clear since late 2005 that it would slash costs this year., Its chairman and CEO, Kerry Killinger, said on May 17 at the Lehman, On the cost front, we're working very hard through site, consolidation, system consolidation, and very aggressive work on, outsourcing, He said the recent move to bring management of Wamu's subprime operation, Long Beach Mortgage, very, This is a point in the cycle in which you control what you can, You get the ship in good shape, and then we will really, work, on growing the market share in the targeted product areas that we want to, Wamu has moved about 1, 600 full-time positions to offshore operations, Mr. Killinger said., Over the next two years that will expand to about 6, addition to the base that we have had for some time in India, this year we, have already expanded some operations in both Costa Rica and the, Wamu announced May 3 that it was eliminating 250 jobs in a South Carolina, fulfillment center in connection with its scaling back of purchases of, mortgages through its correspondent channel., In the first quarter Wamu closed 10 of its 26 home loan processing, offices, which cost 2, 500 people their jobs. Thomas Monaco, an analyst with, They've talked about downsizing the company,, the slowdown in the mortgage market certainly is causing them to expedite, Mr. Monaco said that though the latest job cuts are consistent with, what catches me by surprise is the magnitude, 400 people is a lot of people. I wasn't expecting that amount, certainly, Wamu's long-term goal is to get its efficiency ratio -- 57.54% in the, first quarter -- below 50%.
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by Erick BergquistNo longer able to make payday loans in Pennsylvania now that its former bank partner has quit the business under regulatory pressure, Advance America Cash Advance Centers Inc. is offering an open-ended credit line there., fee of $149.95, plus principal and interest payments. Expensive as that may sound, several analysts said it is no more so than a payday loan, which borrowers tend to roll over repeatedly, each time incurring fees., the new product. Jamie Fulmer, a spokesman for Advance America, said it believes the product is allowed by law., At least one competitor is studying the product and considering offering it in Pennsylvania too., Advance America rolled out the product in its 101 stores in the state on Monday. The Spartanburg, S.C., company operates about 2, 650 stores nationally., We believe that this product will meet the unique needs of people in Pennsylvania who fall out of the financial mainstream, Unlike a traditional payday loan, whose term is usually two weeks, the line of credit can be drawn for as long as the borrower wants. Besides the participation fee, the borrower also has to pay, on a monthly basis, either the principal owed or $20, whichever is lower, and interest with a 5.98% annual percentage rate, based on the duration of the loan. Borrowers get to pick which day of the month their payments will be due to coincide with their paychecks., Robert J. Dodd, an analyst with Morgan Keegan in Memphis, the cost for borrowing $500 for two weeks is $75, and for one month $150., Daniel T. Fannon, an analyst with Jefferies & Co. Inc., agreed, Advance America's credit line has piqued the interest of Dollar Financial Corp. of Berwyn, which also had to stop offering payday loans in its home state but offers other products there, including check cashing, bill payment, wire transfers, and debit cards., We had some people go out and shop their stores and see what they're doing, said Dollar's president, Don Gayhardt., Though only 17 of its 360 U.S. stores are in Pennsylvania, of the product is., Mr. Gayhardt cautioned, however, than a payday loan, because it requires more, and separate, fees., open-ended credit law in Pennsylvania, Mr. Gayhardt said. Specifically, fee to be separate from interest payments, keeping the product from hitting the state's usury cap., Since Monday, the day before Advance America announced the product, its stock price has jumped about 6%. John Hecht, an analyst with JMP Securities in San Francisco, should ramp up a lot faster than if you were launching a product in a state or place you had never been before, If you look at a store in Philly, the customers know it and the services they can get, with the brand or product., Pennsylvania is one of two states, the other being Arkansas, where Advance America marketed, processed, and still services payday and installment loans for BankWest Inc. of Pierre
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by Stuart Levey, Treasury under secretary for the office of terrorism and financial intelligence, As the 9, The Terrorist Finance Tracking Program was just such an invisible tool. Its exposure represents a grave loss to our overall efforts to combat al-Qaida and other terrorist groups., The Society for Worldwide Interbank Financial Telecommunication (Swift) is the premier messaging service used by banks around the world to issue international transfers, which makes its data exceptionally valuable. The Swift data consists of records of completed financial transactions, it does not provide access to individual bank account information., In response to a subpoena, which allows the government to compel the production of information pursuant to presidential declarations of national emergency., We issue such administrative subpoenas regularly, and our authority to do so is clear. In this case, Swift representatives are able to monitor these searches in real time and stop any one of them if they have any concerns about the link to terrorism. In addition, a record is kept of every search that is done. These records are reviewed both by Swift's representatives and an outside independent auditor., What we had not spoken about publicly, however, is this particular source. And, unfortunately, this revelation is very damaging., I can assure you, however, that our efforts will not wane. With our interagency colleagues and our partners abroad
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