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by Rob Blackwell and Patrick RuckerThe Office of Federal Housing Enterprise Oversight asserted broad control, Tuesday over Fannie Mae's mortgage portfolio, capping it at $727 billion, requiring the company to win the agency's approval for any growth., The move -- included in a wide-ranging consent agreement between Fannie, and the agency -- sparked immediate debate over how long the restriction, would last and whether it would significantly impact Fannie's business or, give Freddie Mac a competitive advantage., It also prompted speculation over whether the cap would help propel, legislation to revamp the regulation of the government-sponsored, enterprises,, which has stalled over how much authority a new supervisor should have over, the portfolios., Some analysts argued that OFHEO is doing what Congress and the Treasury, Department have tried but failed to do. They said the cap could undermine, Bush administration's argument that legislation must force the GSE, supervisor, to reduce the portfolios., The people that don't want to do portfolio limits can say ... 'Where is, said Jim Vogel, the head of market research at First, Horizon, Now we have de, facto, This does provide something for Senate Banking Committee Chairman, Richard Shelby or the administration to lean on if they want to try and, cut a, deal with Sen. Paul Sarbanes [the panel's lead Democrat], said Jaret, Seiberg,, a policy analyst with the Stanford Washington Research Group., He said the administration could follow OFHEO's approach, agreeing to, limit the portfolios and tie them to the growth of the mortgage market or, other factors., But administration officials and some lawmakers countered that the, agency's action only made their argument stronger., The agreement caps the portfolio, said, Randal Quarles, the Treasury's undersecretary for domestic finance, at a, Important as well is that this is an agreement, All of this is why we need a legislative framework that instructs the, regulator to reduce the size of these portfolios. The cap alone is not the, Rep. Richard Baker, the chairman of the House Financial Services, subcommittee with oversight of the GSEs and the author of the House, legislation to create a new regulator, expressed frustration with the Bush, administration. Noting that the administration recently appointed James B., Lockhart to head OFHEO, he was puzzled about why the agency did not go, further in its agreement with Fannie and reduce the portfolio instead of, capping it., If it was a strongly held view that the portfolios must be reduced, Merely capping the, Rep. Baker's committee has scheduled a June 6 hearing to discuss OFHEO's, findings., Though several analysts said they believe OFHEO's cap on the portfolio, would only last a few months, Mr. Lockhart said he expected it to be in, place, for much longer., If you really look at the issues laid out in this report, we're talking, years before this company really meets the standard to be expected of an, institution -- particularly a financial institution -- of this size, Lockhart said at a press conference announcing Fannie's agreement., Under the agreement, OFHEO can maintain the portfolio cap -- the level of, the portfolio as of Dec. 31, 2005 -- for the foreseeable future, until, Fannie, has returned to timely filings with the Securities and Exchange Commission, and taken other steps to right itself. Even then, the agreement allows the, in maintaining such a, cap., The agreement does allow Fannie some leeway if it can prove to OFHEO that, it must increase its portfolio holdings. The agreement requires the agency, outline a plan within 60 days for managing its business, with specific, attention to risk management., Such a plan can include a moderate per annum increase in the 'mortgage, portfolio' for reasons including liquidity, housing goals, portfolio, the agreement says., But some analysts argued that the portfolio cap was an opportunity for, Freddie, which does not face such restrictions and has continued to grow, portfolio to nearly Fannie's size., Mr. Lockhart said the agency will review what parts of Fannie's agreement, should apply to Freddie as well., Certainly we will be looking, going forward, if any things in this, settlement would make sense to also impose on Freddie Mac, Mr. Lockhart also said OFHEO's current authority over the GSEs', portfolios was not sufficient, and said he hoped a bill granting a new, regulator more powers would pass soon., We need to get better control on the growth of these companies, Lockhart said., The consent agreement came as OFHEO released a report on Fannie's, accounting scandal and accused the company's executives of willfully, managing, earnings in order to boost compensation. The agency said the company's, board, and controlled by senior management., In its agreement, Fannie said it would pay $400 million in fines to OFHEO, and the SEC. The company also agreed to conduct a review of its current, management mentioned in OFHEO's report, provide succession plans of senior, management within 120 days, examine its controls over the company's, lobbying, shop, and allow the agency to oversee executive appointments for five, years., Paul Miller, an analyst with the Friedman, Billings, Ramsey Group Inc., This is a harsh piece of paper that is pretty much saying OFHEO is, This is much worse than Wall Street, the end of the day, Fannie's stock had risen 45 cents, just under 1%, to $50.72., Some analysts speculated that Fannie chief executive Dan Mudd could be in, trouble. He is mentioned 89 times in OFHEO's report and was Fannie's chief, operating officer during the period the accounting misdeeds took place. Mr., Mudd was elevated to chief executive in December *2004-, after Fannie's board, ousted Franklin Raines, the previous CEO., at this point, doing a good job trying to, Fannie. But he declined to comment on Mr. Mudd's past at the, company., In a conference call, Stephen B. Ashley, Fannie's chairman, said the, in his, leadership., Jody Shenn and Joe Adler contributed to this article.
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by Matt AckermannBoston Private Financial Holdings Inc.'s purchase Friday of 80% of a, Boston separately managed account provider puts the company for the first, time into manufacturing these products -- and into conflict with an, industry, trend toward separating investment product distribution from manufacturing., Walter Pressey, the private banking company's president and chief, financial officer, said the deal for Anchor Holdings LLC -- announced in, February at an estimated price of $68 million -- will generate business by, furthering the bank's diversification of business lines to include both, distribution and manufacturing despite the industry trend to the contrary., One of the fundamental precepts of our strategy is diversification, We want to diversify our services, diversify our products,, diversify our styles, diversify our geographies, and diversify our, Boston Private's structure as a holding company that assembles, permits, the individual subsidiaries to specialize in an area while the company, The separation of proprietary product manufacturing from distribution had, become confirmed as a trend in Citigroup Inc.'s big divestiture of its fund, business to Legg Mason last year and the BlackRock-Merrill Lynch deal this, year., High-net-worth clients want to work with an adviser that is free of, said Burton Greenwald, an analyst at BJ Greenwald Associates in, That has meant forgoing proprietary asset management in the, Rus Prince, the president of Prince & Associates, an investment, consulting firm in Shelton, Conn., said smaller, more nimble companies, continue to combine manufacturing and distribution while the overall trend, toward separating them., The trend is away from commingling proprietary products and, distribution, but that doesn't matter for companies that want to make, The logic is, companies want to make money, and that, means, offering proprietary products. Some clients will be turned off by this, W. Christopher Maxwell, a managing partner at Conestoga Capital Advisors, a Rock Hall, wealth management firm, said companies can do both so, long, as they practice proper due diligence in their distribution channels to, ensure there is no bias in favor of proprietary products., Boston Private has a very good business, and they seem to be focused in, They still have a relatively, small amount in terms of assets under management, and that enables them to, Mr. Pressey said the deal gives Boston Private access to the rapidly, growing separately managed account market and to wire house distribution., Anchor, which is a value-oriented investment adviser specializing in active, investment management, has distributed its products through wire houses, channel to which Boston Private previously had no access., This is a segment of the high-net-worth market that works with wire, houses that we couldn't reach if we didn't make this deal, Mr. Pressey, said., The account size that Anchor traditionally deals with is smaller, statistically, but it is a demographic that is certainly the high-net-worth, but we, want to be in a position where we can provide asset management services to, Anchor, which had $5.5 billion of assets under management on June 1, offers four core disciplines in its separately managed accounts --, balanced,, all-cap, mid-cap, and small-cap. Mr. Pressey said Boston Private would look, to add more separately managed account providers in other disciplines in, order to develop the platform., Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said there is a $5 billion- to $10 billion-asset threshold for, companies to succeed in distributing any product. Many companies have, decided, to get out of proprietary distribution because they couldn't reach that, In the past four years, Boston Private, which has $31 billion of assets, under management and advisement, has focused on deals to expand, distribution, developing clusters of wealth advisory and investment management firms, around hub private banks in Florida, New England, and Northern California., Mr. Pressey said the company has six regions -- New England, metropolitan, New York, South Florida, the Northwest, Northern California, and Southern, California -- and hopes to continue buying in order to generate assets and, client relationships.
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by Luke MullinsHamstrung by state limits on the amount of municipal deposits a, state-chartered thrift can accept, Bank of Greene County in Catskill plans, convert to a federal charter., A New York law actually prohibits state thrifts from taking in municipal, deposits at all, though some -- including the $296 million-asset Bank of, Greene County -- have gotten around it by establishing limited-purpose, commercial bank subsidiaries., But the amount of municipal deposits that such subsidiaries can accept is, limited, and the thrift's executives have concluded it would have more, freedom, to solicit funds from local governments if the Office of Thrift Supervision, regulated it., If I flip to the federal charter, we'll be able to accommodate all the, said J. Bruce Whittaker,, Bank of Green County's president and chief executive officer., New York is the only state that forbids its thrifts from taking in, government deposits. Since 1999 about 10 thrifts there have established, commercial banks solely for the purpose of soliciting municipal deposits., But when Bank of Greene County set up Greene County Commercial Bank in, May *2004-, it could invest only $2.7 million into the subsidiary, because, state regulations limit the capital contributions to such subsidiaries to, of the thrift's assets. Furthermore, since the Federal Deposit Insurance, Corp. requires such subsidiaries to maintain an 8% ratio of capital to, assets, the subsidiary's total assets cannot exceed $33 million., As of March 31, Greene County Commercial had $23.5 million of assets, it is on pace to top $33 million by this time next year., The bottom line is that there's more than $33 million of business out, there, and we would find ourselves in a position of having to turn away, municipal deposits if we did not switch to a federal charter, Whittaker, said., Roberta Kotkin, the general counsel and chief operating officer of the, New York Bankers Association, said she was not aware of any other New York, state-chartered thrift that was converting to a federal charter, specifically, Bank of Greene County's conversion to trigger a flood of similar ones., In a filing last week with the Securities and Exchange Commission, Bank, of Greene County said it filed its conversion application with the OTS on, 26 and expects to have it completed by the end of the third quarter., In an e-mail released last week by her press office, New York State, It is always a disappointment, to face the prospect of losing one of our state-chartered banks. However, choosing a charter is a business decision, and a bank can and should assess, the regulatory environment in terms of its business plan. This holds true, all depository institutions, whether they are commercial banks, savings, banks,
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by Matthias RiekerContinued pressure from a flat yield curve has prompted several banking, companies to slash operating costs in recent quarters. Bankers and analysts, agree that staying lean in a tough business environment is important, what to do with the savings remains a question., Investors might applaud banks that give themselves an instant profit, boost with the money their efficiency initiatives save, but Diane Merdian, Keefe, Bruyette & Woods Inc. says that strategy cannot be sustained over, long term., In a March 14 report, Ms. Merdian said banks should reinvest by passing, on the cost savings to customers in the form of better prices. That would, ultimately benefit both customers and shareholders, interview, revenue growth is really what drives sustained, She noted the ability to offer attractive loan and deposit prices as one, benefit of strong efficiency., But Robert B. Albertson, the chief strategist at Sandler O'Neill &, Partners LP, Bankers are a, little bit blind to the idea that you can invest and grow faster, Ms. Merdian said banking companies with the lowest expense base are not, A cost advantage is, only worth something if you can actually do something with it, Her report praised the way Wells Fargo & Co. tackled the issue - the San, Francisco company has posted above-average revenue growth while keeping, expenses under control. Unlike some of it peers, the $481.7 billion-asset, Wells does not have a stated efficiency program. But it cuts costs wherever, it can, unless it would mean hurting service, said Howard Atkins, Wells', chief financial officer., Our philosophy is, you really can't spend too much money on your, Mr. Atkins said in an, interview Friday., Wells is constantly opening branches and looking to provide a better deal, for customers, while carefully managing back-office, suppliers, and other, You have to be very efficient in areas ... which don't compromise your, ability to grow your customer base and produce more business with your, Mr. Atkins said. Over the last five years, Wells' expenses rose, at a compounded 8.1%, but revenue increased 9.7%. Its efficiency ratio is, 57.7%., In order to keep the company growing, you have to reinvest in your, And that means not necessarily letting cost, savings directly fall to the bottom line in any given quarter. Investors, want, PNC Financial Services Group Inc. is one of several companies that, started an efficiency initiative last year. PNC's three-year One PNC, program,, which got under way in January *2005-, aims to trim $300 million of expenses, 2007 -- including through the elimination of 3, 000 jobs -- and to increase, revenue by $100 million., The Pittsburgh company doesn't plan to pass along the savings to, customers right away by paying higher rates on deposits or charging lower, interest on loans. In fact it raised fees for certain retail transactions, late last year and introduced fees on others., Richard J. Johnson, PNC's chief financial officer, said in an interview, becoming mores efficient now it will allow itself to be may be more, We only increased our pricing where we were below the peer group, and we, Mr. Johnson said., Gauging efficiency is a matter of debate. Some argue that while the, efficiency ratio is popular with analysts, investors, and banks that have, good ratios, it is an incomplete measure and is too varied among lines of, business. Generally, though a lower ratio is seen as desirable. PNC's, efficiency ratio was 69% last year., Mr. Johnson said investors should look at positive operating leverage or, whether revenues grow faster than expenses instead of focusing entirely on, the efficiency ratio. But he also said that at the end of next year, when, PNC is completed, the company's efficiency ratio will have fallen by 400 to, 500 basis points., The merger of the asset manager BlackRock Inc., with Merrill Lynch, Investment Managers Inc. will lower PNC's efficiency ratio by an additional, 300 basis points. PNC owns a 70% stake in BlackRock, the deal with Merrill, Lynch is expected to be completed in September, and would lower PNC's stake, to 34%., the end of *2004-, PNC had invested heavily in its risk management, program and procedures and its overall interest risk profile, so it started, to look at its efficiency ratio, Mr. Johnson said. In comparing PNC's ratio, saw that we are an outlier, and, Mr. Johnson said Wall Street likes what his company is doing. Merrill, Lynch & Co. analyst Edward Najarian wrote in a recent report that, investors, should focus on companies with the best potential to improve efficiencies, this year., PNC is one of those companies, Mr. Najarian says., Fifth Third Bancorp, which has assets of $105.2 billion and a 53.2%, ratio, has long been thought of as one of the nation's most efficient, banking, companies. But is also known for its aggressive loan pricing and teaser, rates, on deposits., The Cincinnati company hit a wall in *2002-, however, when regulators found, deficiencies in its risk management procedures. A resulting regulatory, agreement in 2003 was lifted in *2004-, and since then Fifth Third has been, investing heavily -- fine-tuning service and opening new branches - in an, effort to achieve the growth rates it is accustomed to. Now it's looking, inward., George A. Schaefer Jr., Fifth Third's president and CEO, told investors, in an earnings conference call in January that though the company would, focus, on improving productivity from the significant investments made in, recent quarters and remaining diligent on the expense side given our, overall, Investing in and expanding our distribution network remains a priority, Such investments are sound, but investors will wait for results before, Long-term, they have the, potential, of turning things around, but the market is not paying for it before it has, said., Only an efficient company can invest in future revenue, Ms. Merdian said, but that doesn't make driving costs down to please shareholders and lift, earnings a good idea. A banking company with an efficiency ratio of 53% --, which according to Ms. Merdian's report is 5 percentage points better than, the median -- could generate 12.9% more in net income than one with the, median efficiency ratio., But the bank with the 53% ratio could lower interest rates on loans by 40, basis points, or raise the rates it pays customers for deposits by 50 basis, points. It would then make the same profit as the other bank, and would, have, a competitive advantage. And if that causes more customers to take out, loans, and make deposits, the more efficient bank is worth more, Ms. Merdian's, report said., Pricing is driven more by the market than, Ms. Merdian conceded that low overheads mean little to a company, operating in a difficult environment. For example, it may not make sense to, be aggressive in lending when credit quality is bad. In that event, though, bankers can always shift their focus to deposits
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by Matthew QuinnAn investor group led by Kohlberg Kravis Roberts & Co., Five Mile Capital, Partners LLC, and Goldman Sachs Capital Partners finally closed its deal, for a, majority stake in General Motors Corp.'s commercial real estate business., The group, which originally said it would buy 60% of the unit, said, Thursday that it had actually bought 78%, though the unit's management team, then bought a 4% stake from the group and the automaker's finance arm, General Motors Acceptance Corp. (The investor group was left with a 75%, stake, and GMAC with 21%.), GMAC said that it received $1.5 billion in cash for the stake in GMAC, Commercial Holding Corp. Also, the commercial unit repaid about $7.3, billion, of intercompany loans to GMAC., Michael Stoller, a GMAC spokesman, said that it will redirect the capital, to its other businesses. He would not say whether GMAC would boost its, dividend to its parent. GMAC paid $2.5 billion of dividends to GM last, year., The commercial lender changed its name to Capmark Financial Group Inc., name derived from a company it purchased in 2003., Standard & Poor's Corp. gave Capmark's debt its lowest investment-grade, rating, BBB-minus, and Moody's Investors Service Inc. gave it the, equivalent, rating of Baa3. Fitch Inc. rated the lender a notch higher, at BBB., GM is still seeking a buyer for a controlling interest in GMAC, to help, the finance arm get an investment grade rating., Capmark appointed Dennis Dammerman, a former vice chairman of General, Electric Co. and the former chairman and chief executive of GE Capital, Corp.,, as its chairman., Molly Morse, a spokeswoman for Kohlberg Kravis Roberts, said that her, company, Goldman Sachs, and Five Mile all had previous relationships with, Dammerman., The deal, announced in August, was originally slated to close by Dec. 31., Representatives for Capmark and GMAC chalked up the delay to routine, process, and due diligence issues., Joyce Patterson, a spokeswoman for Capmark, said that when the deal was, announced the investor group had an option to increase its stake., happy to invest more capital, Goldman Sachs had not said by press time why the group increased its, stake., Capmark said it originated $29.9 billion of loans last year and had a, servicing portfolio of about $276 billion at yearend. It also manages $10.8, billion of investments for third parties., In the first nine months of last year the lender's earnings rose nearly, 70% from a year earlier, to $229 million, according to GMAC's most recent, securities filing., Also Thursday, Capmark closed a deal for a $10.75 billion financing, package from a syndicate of banks., GMAC will also invest $250 million in Capmark's trust-preferred stock.
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by Marissa FajtAmong the sticking points in merger talks between the Independent Bankers, Association of Texas and the Texas Bankers Association is which national, trade group to affiliate with., The on-again, off-again merger talks between the rival groups appear to, be on again. Representatives say the talks, which broke off in March, likely to resume next month. High on the list of issues up for discussion, where the combined group would send its political action committee money., The Texas Bankers Association is affiliated with the American Bankers, Association, and to whose political action committee it sent more money, last, year ($120, 100) than any other state affiliate. The ABA distributed even, more, -- $160, 000 -- to federal candidates in Texas whom the Texas Bankers, Association supports., Also, a Texas Bankers' member recently served as the chairman of the, ABA's political action committee for four years, and another member, Scott, Dueser, sits on the committee this year., The great relationship with ABA and the good things that came out of, that relationship are something that we'd hate to have to give up, said, Rick, Smith, the president and chief executive officer of the Texas Bankers., The Independent Bankers Association of Texas is affiliated with the, Independent Community Bankers of America, and its president said that some, members might not want to send their money to an organization that includes, banking giants., said Chris Williston,, the president and CEO of the Independent Bankers Association of Texas. He, said, bankers have extreme, loyalties, Of course, state groups can be affiliated with more than one national, organization, and Texas trade group officials say they have not ruled out a, dual affiliation., The Florida Bankers Association and the Florida Savings and Loan, Association merged in *1995-, and in 1998 the combined group merged with the, Community Bankers Association of Florida., Alex Sanchez, the president and chief executive officer of the resulting, group, which kept the Florida Bankers Association name, said it resolved, issue of which national group to support by affiliating itself with the, ABA,, the ICBA, and America's Community Bankers, which represents primarily, thrifts., It has been the greatest thing our Florida bankers have ever done, When you go to Capitol Hill, you speak with one voice. When you have, multiple voices from one industry, politicians don't want to offend your, The Community Bankers Association of New York, which represented mostly, thrifts, was folded this year into the New York Bankers Association. That, group's president, Mike Smith, said that it is affiliated with the ABA and, ACB and that a committee decides where to send political action committee, money., said Mike Smith (no relation, The combined organization has more power than the two groups did apart, We have much more in common than we have differences on many of, issues we are confronting today. Our issues were so parallel that coming, In Texas, supporters of a merger note that many Texas banks already, belong to both groups and say that a combined group would have more, lobbying, clout in Austin and Washington. Sixty-seven percent of banks in Texas, belong, to both groups. Some Independent Bankers' members oppose a merger with the, Texas Bankers, which they say represents mainly the interests of large, banks., But Rick Smith, who supports a merger, said that 98% of his group's members, are community banks., I think the merger has overall benefits for banks in Texas, And I think if we can achieve the merger under the right terms and, conditions, the result will be beneficial and outstanding for the banking, Representatives from the state groups began discussions in August, and in, March they asked their respective boards to decide whether talks should, continue. The Texas Bankers' board voted unanimously to continue, discussions,, but the board of Texas' independent bankers group initially voted not to, do so, -- then reversed that decision at a March 30 meeting., Several people said that many of the political issues that split large, and small banks in the past -- and led to the formation of the independent, group in 1972 -- have largely disappeared, and that the two groups are more, closely aligned now., They were actually close to merging in *1998-, but Robert E. Harris, Texas Bankers' chief executive at the time, died during the negotiations, which broke off.
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by Matt AckermannSun Life Financial U.S. plans to introduce a living benefit rider in its, variable annuity lineup today as part of a strategy to gather assets by, selling to customers nearing retirement., The Wellesley Hills, Mass., unit of Toronto's Manulife Financial Corp., said the optional living benefit, Secured Returns for Life Plus, available in its Masters variable annuity product line. The benefit offers, an automatic step-up program and a program that awards annual bonuses to, customers for deferring income., The enhancements, in combination with Sun Life's guaranteed principal and, income benefit, are intended to let clients increase their guarantees in, any market condition and maximize their chances to expand retirement, income., Mary Fay, a vice president and general manager of Sun Life's annuities, division, said the company is focused on generating business by offering, products that promise customers an income stream in retirement., We are developing our foundation in order to grow our business, Ms. Fay, We have added wholesalers and continue to develop products to offer, through banks, independent financial planners, Sun Life, which had $332 billion of assets under management at Dec. 31., has increased its wholesaling force by 167.8%, to 75, since the end of, 2004. Ms. Fay said she expects to add more. The larger sales force has, helped spur growth, including the roughly 25 wholesalers devoted, to the bank channel., I think that we have a field force that is a respectable size, Sun Life Financial has strong products and the right people on the street, but having, wholesalers who can help expand distribution is essential, as is having, Analysts said innovative riders have stimulated a rebound in variable, annuity sales. Banks' variable annuity sales were nearly flat last year, according to Kenneth Kehrer, the president of Kenneth Kehrer Associates, Princeton, N.J., consulting firm that tracks bank annuity sales. His, firm's data showed that the top 22 providers in the bank channel had $17.6, billion of variable sales last year, up 1.1% from 2004., Mr. Kehrer said he expects many of the companies that distribute variable, annuities through banks to post first-quarter increases. Michael White, Associates, a bank insurance consultant firm in Radnor, said, everything indicates that variable annuities are ready to bounce back., There is still a lot of money to be accumulated and certainly will be a, lot more distributed through variable annuity products, Michael White, There is a retirement bulge coming, and most firms are looking to, Bank-channel sales rose in the first quarter, and overall variable annuity, sales, in all channels, are accelerating, according to David Jacobson, spokesman for Sun Life. Ms. Fay said sales have improved industrywide and, the outlook for this year favors more growth in variable annuities. Sun, Life's first-quarter sales, including through the bank channel, have, That is an, The Kehrer firm ranked Sun Life, 12th last year in bank-variable annuity sales, with $504 million, and 14th, overall, with $894 million of fixed and variable annuity sales through, banks., Ms. Fay said the decline in defined benefit pension availability has more, people looking for variable annuity products that will give them a, consistent income stream into retirement., The Secured Returns for Life Plus product offers two enhancements, including an automatic step-up option that lets customers lock in any, market gain every three years. The second enhancement, plus 5, lets customers boost their guaranteed withdrawal amount by 5% of, their principal, or the stepped-up amount, whichever is greater, for each, year withdrawals are deferred during the contract's first 10 years., With the step-up program to take advantage of rising markets and the, plus-5 feature to expand the withdrawal guarantee during down markets, Secured Returns for Life Plus is designed to assure retirement-focused, customers that they will not outlive their income., Secured Returns for Life Plus was to become available today on most Sun, Life variable annuities. The company has operations in Canada, the United, States, United Kingdom, Hong Kong, Philippines, Japan, Indonesia, India, China, and Bermuda.
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by Jody ShennFor more than a decade Clayton Holdings Inc. has been a major provider of, due diligence on home loans and other support services to the top mortgage, securitization conduits., Now the Shelton, Conn., other half, -- loan originators -- and the expanding European, operations of, those Wall Street and bank-owned securitizers, according to Frank P., Filipps,, its chairman, chief executive, and president., Clayton, which went public in March, also wants to do more work on other, loan types, such as auto loans and commercial mortgages, interview last month. It had all but stopped doing such work in recent, years,, as it devoted resources to keeping up with surging nonagency residential, mortgage bond issuance., Its main businesses are Clayton Services Inc., which does work for, conduits, and the smaller Clayton Fixed Income Services Inc. (the former, Murrayhill Co.), which provides credit risk management and surveillance, services, mostly to mortgage bondholders. It also offers consulting, staffing, underwriting, and compliance products and services, mainly to, conduits, as well as special servicing through its Quantum Servicing Corp., The $146 million initial public offering last month went well, pricing at, the top of the expected price range, with 20% more shares than planned, with underwriters quickly taking advantage of their ability to buy even, more., The capital will be used to pay down debt and to expand, possibly through, acquisitions, Mr. Filipps said. Since its March 27 debut the stock has, gained, about 27%., The Boston private equity firm TA Associates Inc. formed Clayton Holdings, a year ago by combining Clayton Services and Murrayhill, two firms in, which it, had acquired majority stakes in 2004. (In the past three years a few other, small firms were also rolled up into what became Clayton Holdings.), Also last April, TA Associates said it had hired Mr. Filipps, then Radian, Group Inc.'s chairman and CEO, to run Clayton. The previous November the, Philadelphia mortgage insurer, which he helped create by orchestrating the, late 1990s merger of Amerin Guaranty Corp. and Commonwealth Mortgage, Assurance Co., had said he would retire in June., In the interview, Mr. Filipps, said that by the time TA Associates, approached him, he expected to take time off and then find a new job, which was just tailor-made for my skill, Conduit services are Clayton's biggest business. In each of the last, three years it has worked for all of the top 10 nonagency underwriters as, ranked by the newsletter Inside B&C Lending, according to its IPO, prospectus., These securitizers accounted for at least 70% of all nonagency issuance in, each year, the newsletter says., All but three or four of the top 25 issuers are Clayton customers, Filipps said. Many also use other firms for the same work. Lydian Trust, Co.'s, Lydian Data Services is a major competitor., According to the prospectus, Clayton's major customers include Bank of, America Corp., Bear Stearns Cos. Inc., Citigroup Inc., Countrywide, Financial, Corp., Credit Suisse Group, the Department of Housing and Urban, Development,, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Lehman, Brothers, Merrill Lynch & Co., Morgan Stanley, UBS AG, and Winter Mortgage, Group., Clayton signaled its intention to get bigger in outsourcing in the, primary market in January by acquiring Mortgage Resource Network Inc., small Dallas provider of pre-closing and post-closing services to, originators., Mr. Filipps said Clayton's main offering for lenders is outsourced, underwriting -- which mortgage insurers, such as Radian, have long, provided., This was one of Mortgage Resource Network's offerings. Clayton also offers, quality control services to lenders., Lenders want to turn underwriting into a more of a variable cost, outsourcing does that, Mr. Filipps said. In addition, because of the work, Clayton does for conduits, natural, staff, and technology., He said a main selling point will be Clayton's familiarity with conduit, buying habits and underwriting rules -- along with reviewing loan files, If we are, able to combine our knowledge of the conduits, the way we think we can, with, Clayton does not expect to be able to do much underwriting for the, largest lenders, but it already has added a couple of lender customers to, In foreign countries, Mr. Filipps said, to follow our, It will likely start in London, but it also sees opportunities in, Germany, Italy, Spain, and Eastern Europe. It has not found any companies, that provide the types of services it offers to conduits internationally, said., Securitizers' interest in those countries is logical, because the fast, growth in securitization activity in recent years has only scratched the, surface of the markets' potential, Mr. Filipps said. Compared with the U.S., market -- where well over half, and maybe as much as three quarters, of the, way,, When asked whether the potential for Fannie Mae and Freddie Mac to regain, securitization market share could hurt his company, Mr. Filipps quickly, said, to sell more of the work it, does, on existing bonds to the government-sponsored enterprises., In the interview, he acknowledged that an expected drop-off in, originations and, hence, securitization activity should hurt Clayton in the, next few years, but he then pointed to the other opportunities it sees as, offset., Mr. Filipps also said that in the next few years a high level of, refinancings on adjustable-rate and interest-only mortgages will provide a, to the securitization market. In addition, generally higher, consumers using mortgage debt, should create a higher floor for the market, no, matter where rates go, he added., The explanation was in fact much longer, and he conceded that it was, He said it was a pitch he delivered often during
Published in American Banker (2006)
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by Steve BillsCitigroup Inc. is hoping to create a business out of offering corporate treasurers digital credentials, a technology that has been available for years but seen little use in the banking industry., The credentials, often called digital signatures, let people use encrypted data to verify their identities. That capability has become more important as online fraud has become more common., The New York company has already tested two credential-related services - one that would give treasurers permission to initiate high-value wire transfers, and one that would automate changes to multiple customer accounts -- and it is planning to develop other applications that could be offered as commercial services for a fee., Gary E. Greenwald, the global head of information products in Citi's corporate and investment banking global transaction services unit, said that the technology is well established, and that the hurdle for his unit has been to demonstrate the value of digital credentials for customers., If you can show an ROI on this thing in some way, all these things are poised to come together, Mr. Greenwald said in an interview last week., Companies are willing to pay for a digital signature service because it makes wire transfer payments more secure, and Citi is preparing to roll out the transfer service worldwide, Arlene S. Chapman, a senior consultant to the Association for Financial Professionals, a trade group for corporate treasurers, However, the market has shifted for several reasons, including the growth of electronic commerce, increased concern about identity theft, and an increase in international payments, All these factors have come together and are heightening the interest and awareness in these digital identity products and processes, that would be useful to corporate treasurers., The signatures are based on public-key infrastructure, which has been widely accepted as a complex but effective encryption format., However, electronic authentication also falls squarely into Citi's bailiwick as a provider of cash management services to corporate customers, Last month at the annual Sibos conference sponsored by the global financial cooperative Swift, and BNP Paribas SA had relied upon the credential to accept the payment., Mr. Greenwald said that Citi has developed another cash management application, which can automate changes to a company's accounts, such as when an employee, as a result of a promotion, is authorized to initiate payments., In the past such an employee would have had to sign signature cards for potentially hundreds of accounts, Three companies, which he would not name, are testing that service now., Banks are in a natural position to offer digital credentials, and corporate customers are more likely to trust a bank than a technology vendor, At the end of the day, Susan Feinberg, the research director in the wholesale banking group of TowerGroup, a Needham, Mass., market research unit of MasterCard Inc., said, Citi is creating a new business in identity management, being that trusted party and having very stringent practices how you authenticate an individual., People are now starting to focus on what are the business problems and the business applications, rather than the technology, Ms. Feinberg said., Authenticating corporate treasurers is becoming a more important task, rather than connecting only indirectly through their banks., in the past, because the bank took responsibility for confirming the identity and authority of the sender of a payment message, but now that users make those confirmations directly to SwiftNet, there is a bigger need to validate the customers, Karen J. Wendel, the chief executive officer of IdenTrust Inc. of San Francisco, which provides the technology underlying the credentials, acknowledged the difficulty of establishing the signatures not only as a reliable standard technology but also as a viable business., Citi is willing to go out, test it, see how it works, Right now 22 banks around the world use IdenTrust's credentials, mainly to authenticate their own corporate customers, Ms. Wendel said. The Citi wire transfer test was significant, because a second banking company was able to rely on the credential, The other guys are still trying to figure out where the market is going to go
Published in American Banker (2006)
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