Almost 100 Banks are closed in the US

As of Oct 3, three more banks joine the failed league, bringing the total to 98 this year. Regulators continue to shutter financial institutions that are overwhelmed by bad loans and liquidity problems.

According to a just released Reuters report,the Federal Deposit Insurance Corp said that Warren Bank in Michigan was closed, with Huntington National Bank of Ohio taking over its deposits. It had US$538 million (RM1.9 billion) in assets and US$501 million in deposits.

Jennings State Bank in Minnesota was also shut down, with Central Bank in that state assuming its deposits. It had US$56.3 million in assets and US$52.4 million in deposits.

The third bank closed by bank regulators was Southern Colorado National Bank, with Legacy Bank in the state taking over its deposits. It had US$39.5 million in assets and US$31.9 million in deposits.

All the branches of the institutions will open today under their new owners and customers can continue to use cheques, automated tellers and debit cards to access their funds.

Combined, the three latest failures are expected to cost the FDIC's insurance fund a total of about US$293 million.

Earlier this week the FDIC took steps aimed at shoring up the depleted insurance fund by proposing that banks prepay three years of their regular assessments.

The insurance fund's balance dipped negative as of this week, as a spike in bank failures have been draining the FDIC's resources. The agency said it expects the total bill for bank failures to come to US$100 billion from 2009 through 2013.

The prepayment of assessments will give the FDIC an additional US$45 billion in liquidity, and was seen as an attractive alternative to charging banks a hefty special fee.

Banks will prepay the assessments at the end of this year, but not have to recognise the fees as an expense on their books until they are normally due.

The FDIC insures accounts up to US$250,000, and notes that those deposits are fully protected, despite a negative insurance fund balance.

The agency also has the option of tapping a US$500 billion line of credit with the US Treasury. It last borrowed from Treasury during the savings and loan crisis of the late 1980s and early 1990s.

The FDIC said it expects failures to peak in 2009 and 2010, and that industry earnings will recover in 2011. Chairman Sheila Bair has said failures are a lagging indicator, and that the banking industry will continue to suffer, even as the economy shows encouraging signs of healing.

Looks like the American financial system is further assailed by the hidden spiraling forces of the sub-prime after almost a year of the collapse of the Lehman Brothers.

Shocking US Unemployment Statistics

U.S. September unemployment rate hit the highest level since June 1983 and payrolls had now dropped for 21 consecutive months.

The U.S. Labor Department posted that U.S. employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8 percent. The report fueled fears the weak labor market could undermine economic recovery.

Meanwhile, U.S. factories orders fell 0.8 percent in August, worse than economists' expectation, reported the Commerce Department on Friday. The decline followed a 1.4-percent July increase. Economist had expected that the demand for manufactured goods might grow 0.7 percent in August.

Analysts said that factories will remain under pressure because of weak consumer spending as American households deal with the rising unemployment.

Poor Broadband Quality?

KUALA LUMPUR, Oct 2 – Malaysia was ranked a poor 48 out of 66 countries for Internet broadband quality in a study conducted by Oxford University and sponsored by Cisco.

The global study on broadband quality conducted by Oxford’s Said Business School listed Malaysia among countries which had Internet speeds which were “below today’s applications threshold.”

Malaysia is listed in the same category but above countries like the United Arab Emirates, Philippines, Pakistan, Morocco, Vietnam and Indonesia. China, Malta, Brazil and Thailand are among countries just ahead of Malaysia in broadband quality but still in the same low category.

Countries like Singapore, Britain, Australia, Spain, Turkey and the Ukraine were listed above Malaysia as having Internet speeds “meeting needs of today’s applications.”

Switzerland, the United States, Russia, Taiwan and Hong Kong “comfortably enjoy today’s applications. Crucially, Korea, Japan, Sweden, Lithuania, Bulgaria, Latvia, Netherlands, Denmark and Romania were identified as countries with broadband speeds that were “ready for tomorrow.”

The study was conducted between May and July this year and Broadband Quality Scores (BQS) were awarded based on 24 million records sourced from speed tests.

A similar study conducted last year established that download speeds of 3.75 Mbps and upload of 1 Mbps was the quality requirement needed for today’s applications such as social networking, video steaming, video chatting and file sharing.

For what was classified as “tomorrow’s requirements” speeds of 11.25 Mbps for downloads and 5 Mbps for uploads was needed for visual networking, HD video streaming, consumer telepresence, large file sharing and HD IPTV applications.

According to the study, the research team had found that broadband quality was linked to social and economic benefits and that countries with high broadband quality have broadband on their national agenda.

In a statement earlier today, the DAP’s Lim Kit Siang described the study as confirmation of Malaysia’s unchecked plunge in international IT competitiveness.

“Internationally, broadband quality has moved from one of penetration, i.e. who had broadband connection and who did not, to broadband speed but Malaysia is till bogged down in the initial stage.

“Some six months ago, when Datuk Dr Rais Yatim was also appointed Communications Minister apart from his other portfolios of Information, Culture and Arts, I had called on him to give top priority to turn Malaysia into a broadband power, both in broadband penetration rate as well as in broadband speed if Malaysia is to enhance its competitiveness to take its rightful place in the global arena.

“I had asked what Malaysia’s national average broadband speed was, because nobody was talking about 2Mbps – we are lucky if we get 512 or 256kbps without disruption!”

Malaysians in selected areas will get access to high-speed broadband only by the first quarter of next year.

Residents of Taman Tun Dr Ismail, Bangsar, both in Kuala Lumpur, Subang Jaya and Shah Alam have been promised broadband speeds of 10 Mbps and above under the High-Speed Broadband (HSBB) project.

Residents in high-worth economic zones such as the rest of the Klang Valley and Iskandar Malaysia are expected to get the service later with 1.3 million households expected to have access by 2012.

The HSBB project is a public-private partnership between Telekom Malaysia and the government. Telekom is expected to invest RM8.9 billion of its own funds while the government will put in RM2.4 billion.

Telekom has so far claimed RM290 million from the government for work done.

Malaysia currently lags behind advanced countries in terms of quality and affordability of its broadband offerings, which has been confirmed by the Oxford University study.

While some countries such as Japan, Hong Kong, South Korea, Sweden and Finland have been enjoying speeds up to 100 Mbps for several years now, most Malaysian still make do with speeds of 1 Mbps or less.

Recently, Singapore, China and Australia have also upped the stakes in this strategic sector and announced massive initiatives to wire up their countries with fibre optics.

My Maiden Song in Commercial Writing!

Yes, it is in print! It is so popular that I could not even get an additional copy for marketing purposes!

I started on the project sometime before Chinese New Year 2009. It was to stretch into the third week of April.

It was a great feeling to get the okay from the client before it went to the printers.

I have accomplished this in such a short time. The period was about 2 months. I had only two meetings with the clients. Much of the work was done using the email.

I thank Almighty God for this first entry into the publishing world!

US Economy's Latest GDP Data

WASHINGTON, Sept 30 — The US economy contracted at slower pace than previously thought in the second quarter, but a further decline in private payrolls in September was another indication that recovery from recession would be patchy.

The Commerce Department said today gross domestic product fell at a 0.7 per cent annual rate instead of the 1.0 per cent decline reported last month. This was better than market expectations for a 1.2 per cent drop.

GDP, which measures total goods and services output within US borders, fell at a 6.4 per cent rate in the January-March period.

A separate survey by the ADP Employer Services showed private employers 254,000 jobs in September more than the 210,000 layoffs the market had been expecting. However it was less than the 277,000 jobs lost in August.

“It’s (GDP) not an earth-shaking revision, but it does show a healthier picture than before because domestic spending is less weak. It’s unlikely to change perceptions about the third-quarter outlook,” said Pierre Ellis, a senior economist at Decision Economics in New York.

US stock futures rose after the GDP report, regaining losses suffered after data on private sector employment showed more job losses than expected in September. Bond prices fell on the news, while the dollar rose against the euro.

The decline in GDP will probably mark the last quarter of contracting output for the US economy, which slipped into recession in December 2007. The economy is believed to have rebounded in the July-September quarter.

With the second-quarter contraction, the country’s real GDP has shrunk for four straight quarters for the first time since government records started in 1947.

The shallow decline in activity in the second quarter reflected more moderate drops in consumer spending and business investment than previously thought, the report showed.

Consumer spending, which normally accounts for over two-thirds of US economic activity, fell at a 0.9 percent rate in the second quarter — smaller than the previously estimated 1.0 per cent decline. Spending rose at a 0.6 per cent rate in the previous quarter.

Business investment fell at a 9.6 per cent rate in the second quarter instead of 10.9 per cent, reflecting slightly better demand for software than previously thought. It tumbled 39.2 per cent in the first quarter.

Weak domestic demand meant businesses continued to reduce their stock of unsold goods. Business inventories plunged by a record US$160.2 billion (RM891 billion) in the second quarter rather than the US$159.2 billion drop estimated by the government last month. Stockpiles of unsold goods fell by US$113.9 billion in the first quarter.

The drop in inventories subtracted 1.42 percentage points from second-quarter GDP, the department said. Excluding inventories, GDP rose 0.7 per cent in the second quarter compared to a 4.1 per cent decline in the first quarter.

Rebuilding of inventories is expected to be one of the main drivers of the economy’s recovery. Economists agree that the recovery, which is also aided by government spending, is already under way.

However there are doubts over its strength and sustainability because of weak consumer spending as the economy continues to bleed jobs.

The department said corporate profits after taxes rose 0.9 per cent, much lower than the 2.9 per cent it estimated last month. It compared to analysts’ forecasts for 3.0 per cent growth.

After tax corporate profits increased 1.3 per cent in the first quarter.

Investment in nonresidential structures fell at a 17.3 per cent rate compared to a 43.6 per cent drop in the January-March quarter. Residential investment, at the heart of the worst US recession in seven decades, dropped at a 23.3 per cent rate in the second quarter. It fell 38.2 per cent in the first quarter.

There was encouraging news on the trade front. Exports fell at a smaller 4.1 per cent rate instead of the 5 per cent drop reported last month, the department said. Exports plunged 29.9 per cent in the first quarter.
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There were positive contributions from the federal, state and local government during the second quarter.

A National Association of Purchasing Management-New York survey showed business activity in New York City surged to a near three-year high in September, building on recent optimism about local economic conditions.

Separately, the Mortgage Bankers Association said mortgage applications fell last week despite the lowest loan rates in four months, an indication the housing market would likely recover slowly from its three-year plunge. — Reuters

The World is in Debt!

The International Monetary Fund today lowered its estimate for global writedowns for banks and other financial institutions to US$3.4 trillion (RM11.8 trillion) but warned that loan losses were set to rise as unemployment grew.

In April the IMF estimated in its Global Financial Stability Report that global bank losses could reach US$4 trillion but said it cut the figure by US$600 billion to reflect rising securities values and new methodology for calculating writedowns.

“Global financial stability has improved, but risks remain elevated and the risk of reversal remains significant,” the IMF said. It added that the economic downturn was troughing but the recovery in advanced economies would be extremely slow.

The report said that while banks have enough capital to survive, their earnings are not expected to fully offset writedowns expected over the next 18 months.

It said stronger action was needed to bolster bank capital and earnings capacity to ensure banks could support a recovery.

The Fund said while private-sector credit growth has contracted in big economies, overall borrowing needs have not slowed as quickly because of burgeoning government deficits.

“The likely result is constrained credit availability,” it said, adding that continued support by central banks may be required to alleviate this.

Using new methodology to calculate the writedowns, the IMF said bank losses on loans and securities holdings amounted to US$1.3 trillion through the first half of 2009, with new writedowns of about US$1.5 trillion still needed through the end of 2010.

The report said US institutions were about 60 per cent through their needed writedowns, while their euro area and British counterparts had recognized only 40 per cent of losses.

DEAL WITH IT

It said loan losses are expected to account for around two thirds of total writedowns between 2007 and 2010, with housing the hardest hit in the United States and foreign loans the big contributors to loan losses in Britain and the euro area.

The IMF urged authorities to deal with troubled assets still on banks’ books, adding that reassuring stress test results and signs of economic stabilisation have eased pressure to deal with the toxic debt.

“Authorities, banks and investors need to persevere with these programs,” the IMF said, adding that in countries where banks were undercapitalised, such toxic assets should be ringfenced to reassure markets about future losses.

“Only when this source of uncertainty has been substantially reduced can banks fully participate in providing credit for recovery,” the IMF said.
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The Fund said financial conditions in emerging markets have improved thanks to strong policies but estimated that companies faced foreign currency debt refinancing needs of US$400 billion over the next two years. — Reuters

US Economy and Home Prices

NEW YORK, Sept 30 — US house prices rose for a third month in July, but consumer confidence fell unexpectedly in September as the worst job market in 26 years fuelled worries about personal finances, private reports showed yesterday.

The data indicates the economic rebound is still in its early days following the worst recession in decades, and it could be a long time before consumers contribute to growth.

Despite improvements elsewhere in the economy and a roaring stock market rally since March, the weakness of the consumer sector bodes ill for the year-end, traditionally a period of heavy shopping and spending.

“Companies haven’t started to hire yet, which is going to weigh on confidence,” said Sean Simko, fixed income portfolio manager at SEI in Oaks, Pennsylvania.

“Offsetting that is the positive move in the equity market. But in the end, as individuals feel under pressure from the labour market, you will have confidence lower than where it needs to be to bolster the economy.”

Consumers’ job prospects might not improve anytime soon, judging by the plans of senior managers. US chief executives are not ready to step up hiring or capital spending, according to a Business Roundtable survey.

It said 40 per cent expect to cut US jobs over the next six months, compared with 13 per cent who expect to add them.

Stocks were lower after turning negative following the weaker-than-expected consumer confidence report. US government bonds, which are investors’ favorite safe haven during weak economic times, pared early losses.

CONFIDENCE GAME

The Conference Board, an industry group, said its index of consumer attitudes fell to 53.1 in September, versus a revised 54.5 in August and expectations of a rise to 57.0.

Reflecting Americans’ worries about employment prospects, the Conference Board’s index measuring jobs “hard to get” rose to 47.0 from 44.3.

At the other end of the scale, the gauge of “jobs plentiful” fell to 3.4 from 4.3. That was the lowest since February 1983 and ties in with Labor Department data showing the US unemployment rate was at a 26-year high of 9.7 per cent in August.

“While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes,” said Lynn Franco, director of the Conference Board Consumer Research Center.

“With the holiday season quickly approaching, this is not very encouraging news.”

The poor outlook overall led consumers to evaluate their present situation as the worst since March. The present situation gauge fell to 22.7 from 25.4.

In a bit of good news for the Federal Reserve, which has pumped easy money into the financial system in an effort to revive the economy, one-year inflation expectations fell to 5.2 per cent from 5.4 per cent in August.

September’s inflation expectations were the lowest since October 2007. Some investors have worried that the Fed’s recovery efforts will ultimately spark inflation.

IN THE HOUSE

The S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 per cent in July from June, more than triple the estimate of a 0.5 per cent rise found in a Reuters poll. This index rose 1.4 per cent the previous month.

The 10-city index gained 1.7 per cent in July after a 1.4 per cent rise in June.

Housing was at the epicenter of the financial crisis that pushed last year’s mild recession into deep a downturn, and massive foreclosures have heaped pressure on consumers.

“These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer’s Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures,” David Blitzer, chairman of the index committee at S&P, said in a statement.

A first-time buyer credit of US$8,000 (RM27,962), which ends November 30, has jump-started housing activity this year. But there are concerns about the impact when this incentive disappears.

The monthly price increases helped slow the annual rates of decline but home prices were still down 12.8 per cent in the 10-city index and 13.3 per cent lower in the 20-city index.

Meanwhile, Fannie Mae, the largest provider of funding for US home mortgages, said delinquencies on loans it guarantees accelerated. — Reuters