Monthly Archives: April 2011

Bank of ND to offer mortgage program

Posted on by
Reply

The North Dakota legislature concluded its every-other-year session yesterday; among its accomplishments is legislation that will make is easier for community banks to offer mortgages.

A new law allows the Bank of North Dakota to purchase mortgages up to $200,000 from banks in North Dakota for owner-occupied properties. The Bank of North Dakota, the only state-owned bank in the country, will have $8 million to purchase mortgages. If the average mortgage is $100,000, that means the Bank of North Dakota will be able to purchase about 80 mortgage loans during the next two-year period.

According to Don Forsberg, President/CEO of the Independent Community Banks of North Dakota, community bankers were asking the Bank of North Dakota to offer the service since traditional secondary market players seemed uninterested in the mortgages, which often can be relatively small. Additional federal regulation often made it impractical to sell a $70,000 mortgage, for exemple, into the traditional secondary market.

Transparency and independence

Posted on by
Reply

Things have really changed over the years at the Fed, where secrecy used to be a way of life. Yesterday, Fed Chairman Bernanke gave a press conference after the close of a two-day FOMC meeting. You can watch the nearly one-hour press conference here.

Bernanke apparently pleased the markets yesterday, which closed higher. But you can argue that he really didn’t say very much during the give and take with reporters. Bernanke is much more transparent than Alan Greenspan ever was, but I am not sure we know any more about this Fed than we did about the one Greenspan headed.

We live in a culture where transparency is lauded, as it should be. Bernanke has opened up this Federal Reserve considerably, granting interviews on 60 Minutes and other news outlets. Even at the industry conventions where he has appeared, he usually takes a question (albeit staged) from the audience. But I wonder to what extent a movement toward more transparency makes the Fed more political. More information gives advocates more to talk about, creating pressure which could influence the Fed’s monetary policy decisions. In other countries, the central bank is entirely politicized. The United State’s has prided itself on the independence of its central bank.

I am a fan of both independence and transparency. This is the first instance I have come across where those ideals may be at cross purposes.

Bankers check out latest tech products at ICBM show

Posted on by
Reply

It was a busy day at the Earle Brown Heritage Center in Brooklyn Park, Minn., yesterday where the Independent Community Bankers of Minnesota hosted TechXpo, a one-day trade show featuring 63 vendors and six one-hour educational sessions.

I had an opportunity to visit with more than a dozen of the exhibitors. Most seemed upbeat about the prospects for bankers buying new equipment or making upgrades. Several said bankers have been holding off on new purchases for the last couple of years and now there is a certain amount of pend-up demand for next-generation hardware and software.

More than one vendor reminded me of an ADA mandate to make automated teller machines accessible to blind people by March of 2012. That means the machines will need to be able to host headphones so blind users can receive instructions by sound rather than by sight.

Other vendors told me examiners are turning their attention to technology again, demanding that systems be tested against intrusions and other potential problems.

ICBM has done a nice job with its TechXpos over the years. The every-other-year format seems to offer the right pacing for this show. And ironically, the low-tech feel of the Earl Brown Heritage Center seemed to be a good fit for this high-tech event.

The unpredictability of the housing markets, economy

Posted on by
Reply

I had an opportunity to address a group from the Twin West Chamber of Commerce last week about the economy and the banking industry. I was asked about the housing market: When did I think market conditions would return to “normal”?

My crystal ball is no better than anyone else’s, so I am afraid my answer wasn’t very satisfying. Although the economy is slowly improving, there is so much inventory in the housing market today, that it is going to take a long time for prices and demand to return to pre-2007 levels on a wide-spread basis. GSE reform and the prospect of higher interest rates don’t bode well for the housing market. And, I certainly don’t see any major improvements coming before the November 2012 elections.

We look back at the economy now and it is easy to see the bubble, but at the time, conditions fooled some of the brightest minds out there. Consider this from the Financial Crisis Inquiry Report:

…many financial industry executives and top public officials testified that they had been blindsided by the crisis…even among those who worried that the housing bubble might burst, few — if any — foresaw the magnitude of the crisis that would ensue.

Charles Prince, the former chairman and chief executive officer of Citigroup, Inc., called the collapse in housing prices “wholly unanticipated.” Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., which until 2009 was the largest single shareholder of Moody’s Corporation, told the Commission that “very, very few people could appreciate the bubble,” which he called a “mass delusion” shared by “300 million Americas.” Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs Group, Inc., likened the financial crisis to a hurricane.

Regulators echoed a similar refrain. Ben Bernanke, the chairman of the Federal Reserve Board since 2006, told the Commission a “perfect storm” had occurred that regulators could not have anticipated…Alan Greenspan, the Fed chairman during the two decades leading up to the crash, told the Commission that it was beyond the ability of regulators to ever foresee such a sharp decline. “History tells us regulators cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be.”

The report, of course, goes on to say that, in fact, there were signs of a bubble in housing prices, and that many people did see it coming, or at least, they said so after the fact.

My point is, some people might be able to predict the ups and downs of the economy, but not many. And at any point in any cycle, you will find people who say things will get better and other people who say things will get worse. Knowing how to discern which one is correct is a real trick.

Wells Fargo, U.S. Bank among first to release 1st qtr results

Posted on by
Reply

Earlier this week, U.S. Bank reported more than $1 billion in net income for the first quarter, and Wells Fargo reported record earnings of $3.8 billion. U.S. Bank noted 4.6 percent growth in total revenue compared to a year ago, while Wells Fargo actually experienced a reduction in revenue. Both, however, benefited from continued improvements in credit quality.

Wells Fargo said net loan charge-offs declined $3.2 billion, which is down $629 million from the previous quarter. Nonperforming assets declined $1.8 billion from the previous quarter. U.S. Bank said the first quarter was the sixth in a row where its provision for loan losses decreased. Net charge-offs declined 14.1 percent from the fourth quarter.

The lending picture at each organization also looked pretty good. U.S. Bank reported new lending activity of $47.4 billion during the first quarter, including $11.9 billion of new commercial and commercial real estate commitments. Wells Fargo said its loan portfolio declined by $6.5 billion during the first quarter, but this included what it called “non-strategic/liquidating” portfolios. “Excluding this planned reduction, total loans increased modestly from the prior quarter,” by $402 million.

For U.S. Bank, the combination of growth in revenue, loans, deposit and improvements in credit quality made if a great quarter in what Chairman Richard Davis called a “still uncertain economic environment.”

At Wells Fargo, Chairman and CEO John Stumpf said: “Our strong first quarter results reflected positive trends in our business fundamentals as credit quality improved, capital ratios increased and cross-selling reached new highs. As the economy continued an uneven recovery, our business customers increased borrowing and utilization of credit lines — a hopeful sign that businesses are once again investing for growth.”

Kmart beefs up bill pay service

Posted on by
Reply

Kmart has beefed up its relationship with Western Union to offer customers a new bill payment service. This isn’t quite as intimidating for the banking industry as a nationwide network of WalMart banks, but there are 1,200 Kmarts in the United States, so this is certainly worth noting.

When a customer enters a Kmart store, he establishes a “profile” by answering several questions about which bills he would like to pay. Western Union remembers the information so the customer never has to re-submit it. The service complements Western Union’s web-based and text payment options. Customer can also make walk-in payments whenever they like. This press release provides some of the details.

Kmart is a subsidiary of Sears, which has dabbled in financial services for years. It will be interesting to watch how much further Kmart attempts to enter into the personal finance arena.

Central Bank acquires closed Rosemount bank

Posted on by
Reply

The management team at Central Bancshares, headquartered in Golden Valley, Minn., picked up another bank from the FDIC, this time the $38 million Rosemount National Bank in Rosemount, Minn. The bank was one of six closed by state and federal regulators on Friday. It was the only Upper Midwest bank closed, the others were in Alabama, Mississippi and Georgia.

Rosemount National Bank had been struggling for more than two years. Last year, it reported negative net income of $1.8 million. In 2009, the bank lost $2.53 million. The OCC ordered the Rosemount National Bank of develop a plan for resolving troubled assets in early 2009. In April 2010, the regulator further ordered the bank to refrain from increasing its debt or paying dividends. Last month, the bank sold is branch in east St. Paul to University National Bank of St. Paul.  

Central Bancshares, which is owned by John Morrison and run by Kurt Weise and Larry Albert, has built an $800 million organization on acquisitions through the FDIC. In 2009, it acquired the $450 million Mainstreet Bank of Forest Lake, Minn., the $56 million Jennings State Bank of Spring Grove, Minn., the $108 million Riverview Community Bank of Otsego, Minn., and the $80 million Commerce Bank of Southwest Florida.  Loss-share agreements, which were prevalent in 2009, are becoming harder to come by and no such agreement is mentioned in the FDIC press release on the Rosemount National Bank deal. Click here to read the press release.

It was the first bank in Minnesota to close this year, the 33rd across the country. The FDIC says the resolution will cost of Deposit Insurance Fund $3.6 million.

Does Treasury really understand small business?

Posted on by
Reply

I have often felt that policy-makers inside the beltway just don’t understand small business. Even though they know that most of the job growth in this country comes from small businesses, they really don’t get how any operation with fewer than, say, 100 employees, can do anything worthwhile.

The Small Business Loan Fund is an eminent example. I wrote before that many of the banks that could really use money from the fund can’t apply for it. I was referring to banks with poor CAMELS ratings, but a reader pointed out to me that sub S banks can’t apply for the money either. Today’s American Banker newspaper carries an informative article on this topic.

Can you believe that Treasury comes up with a program designed to promote small business lending, and it doesn’t bother to include subchapter S or mutual banks? This is evidence to me that the folks at Treasury just don’t get small businesses. Sub S banks and small business lending go together like peanut butter and jelly. About a third of the nation’s banks have sub S status. How do you come up with a program and exclude the very portion of the industry that could benefit from the program the most?

The industry has been all over this. Here is a letter the ABA sent to Treasury last month. ICBA sent this letter earlier this week. It should not be difficult for Treasury to include sub S banks. All they have to do is follow the template the developed for TARP, another program that initially ignored sub S banks.

People wonder why bankers are skeptical of regulators and policy-makers. It’s because while they say they appreciate the role of community bankers and Main Street businesses, policy-makers and regulators often take actions which exclude, ignore or even deter them.