Long-feared mortgage meltdown is here

Third-quarter bank earnings will feel an unwelcome jolt as mortgage volume has fallen off a cliff. Banks large and small have been preparing investors for difficult revenue comparisons by preannouncing the bad news. JPMorgan Chase CFO Marianne Lake at a conference on Sept. 9 said the bank expected its mortgage origination business to post a net operating loss for the second half of 2013.

Cardinal Financial of McLean, Va., late on Thursday announced that its third-quarter mortgage loan originations had declined by roughly 40 percent from the second quarter, and that "the marketing gain percentage for mortgages sold has decreased during the third quarter due to increasing competitive pressure related to the changing market conditions."

Cardinal also said "Expense reduction and revenue enhancement measures have been and will continue to be implemented to offset the decrease in mortgage production and the decline in the marketing gain percentage," but that the bulk of the benefit of the cost declines wouldn't be realized until the fourth quarter. The bank was downgraded by several sell-side analysts on Thursday and Friday, and its shares dropped 5 percent Friday to close at $16.76  Read more >>

Consumer Confidence Collapses - Biggest Miss On Record

This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), ths is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and saoring gas prices amid stagnant incomes.

As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January. Read more >>

Bank of America to lay off thousands in mortgage business

Layoffs at Bank of America Corp's mortgage business will amount to about 2,100 positions, a source told Reuters on Monday, in response to weak refinancing activity.

The downsizing reflects the second-largest US bank's "ongoing efforts to streamline our facilities and align our cost structure with market realities," Bank of America said in a statement in response to questions about the planned layoffs, the total number of which was first reported by Bloomberg on Monday.

Bank of America workers in states such as Ohio, Florida and Virginia received notice of planned layoffs in late August, the Cleveland Plain Dealer reported. About 1,000 of the workers to be laid off are based in the Cleveland, Ohio area, according to local filings. A person familiar with the matter told Reuters on Monday that about 2,100 jobs in total would be eliminated.

Large US banks including Bank of America, JPMorgan Chase & Co and Wells Fargo & Co have said they expect a decline in refinancing volume, driven by higher interest rates, to hit revenue in the near term. Applications to refinance mortgages have dropped 63 percent since a peak in early May, according to the Mortgage Bankers Association refinance index. Read more >>

Why Amazon Is on a Warehouse Building Spree

For a company whose showrooms are all online, Amazon.com (AMZN) spends a staggering amount on bricks and mortar. The e-commerce giant has invested roughly $13.9 billion since 2010 to build 50 new warehouses, more than it had cumulatively spent on storage facilities since its 1994 founding, bringing the total to 89 at the end of 2012.

(It’s announced five more in the U.S. this year.) Amazon aims to be able to deliver most items the day they’re ordered, so it can keep rivals such as EBay (EBAY) and Wal-Mart Stores (WMT) from peeling off customers. EBay offers same-day delivery in some cities, and Wal-Mart is moving more sales online.

“What Wal-Mart and EBay are working on is, can they be faster than Amazon?” says Wells Fargo (WFC) analyst Matt Nemer. “It might not be the highest-margin sale in the world, but they can potentially get something to you in an hour.”

Amazon introduced its expedited-shipping program, Prime, in 2005. Prime offers two-day service for $79 a year, plus $3.99 or more per order for same-day or one-day delivery; non-Prime Amazon customers pay $8.99 and up for same-day delivery. But Amazon can’t guarantee top speed for most items or locations. Read more >>

Fees for mobile banking to become standard

Slowly but surely, banks are experimenting with ways to build charges into the apps' features—some for simple check deposits, others for instantaneous bill pay. As apps get higher-tech, too, a simple convenience could become costly.

Birmingham, Ala.-based Regions Financial rolled out its mobile banking app this spring with a tiered fee structure, based on when the customer needed access to funds deposited digitally. For immediate availability, which is a risk to the bank because it then doesn't have time to verify the fees, customers must pay $5, or a percentage of the deposit—whichever is higher. For access two days later, once the funds are verified, the fee is 50 cents—the same fee Minneapolis-based US Bank introduced for all mobile deposits in 2010. It was the first bank to initiate such fees.

"This is just the beginning of the creative ways banks will try to compensate in a low-rate, low-growth environment," said Todd Hagerman, senior research analyst at Sterne Agee. "They have to look for alternative ways to improve their fee income stream." Read more >>

New reporter? Call him Al, for algorithm - the next generation of content creation

The new reporter on the US media scene takes no coffee breaks, churns out articles at lightning speed, and has no pension plan. That's because the reporter is not a person, but a computer algorithm, honed to translate raw data such as corporate earnings reports and previews or sports statistics into readable prose.

Algorithms are producing a growing number of articles for newspapers and websites, such as this one produced by Narrative Science: "Wall Street is high on Wells Fargo, expecting it to report earnings that are up 15.7 percent from a year ago when it reports its second quarter earnings on Friday, July 13, 2012," said the article on Forbes.com. While computers cannot parse the subtleties of each story, they can take vast amounts of raw data and turn it into what passes for news, analysts say.

"This can work for anything that is basic and formulaic," says Ken Doctor, an analyst with the media research firm Outsell. And with media companies under intense financial pressure, the move to automate some news production "does speak directly to the rebuilding of the cost economics of journalism," said Doctor. Stephen Doig, a journalism professor at Arizona State University who has used computer systems to sift through data which is then provided to reporters, said the new computer-generated writing is a logical next step. Read more >>

Consumer Spending Stalls, Morale at 6-Month Low

Reuters
Consumer spending growth ground to a halt in May as auto purchases flagged, while confidence ebbed to a six-month low in June, the latest signs of trouble for the economy. Although manufacturing activity in the Midwest picked up this month, it offered little cheer for an economic recovery that has been hit by turbulence from the debt crisis in Europe and a lack of clarity on the course of fiscal policy at home.

"We are at a stall speed expansion here," said Tim Quinlan, an economist at Wells Fargo in Charlotte, North Carolina. "We have a consumer who is sort of losing steam."

Wells Fargo To Send Jobs to India, Philippines

Wells Fargo, the lender looking to trim more than $1.7 billion in quarterly expenses between the first quarter and the end of this year, may move some jobs overseas.

Roles in technology, the retirement division and other business lines may go to India and the Philippines as part of a companywide review, Bridget Braxton, a bank spokeswoman, said today. News 14 Carolina reported a review for the retirement business earlier, citing an internal memo from a Wells Fargo executive it didn’t name. Braxton, who declined to make the memo available, said it alerted employees that the bank was undergoing “an assessment” of the idea. She wouldn’t say how many jobs may be moved.

Wells Fargo has had employees in India since 2006 when it opened a so-called technology resource center in Hyderabad. The bank cited a “growing need” for talent that couldn’t be met by U.S. workers, according to a statement in August, 2006. The move wasn’t made to cut costs, Wells Fargo said at the time. The lender started a Philippines-based unit in November, Braxton said. Many jobs in the Philippines are “customer- service” roles, while those in India involve technology functions as well as functions for many business lines across the bank, she said. Read more >>

Acceleration Of Financial Meltdown Can't Be Stopped

A picture of a bank run outside a branch of Northern Rock in Birmingham, United Kingdom in 2007, when there was speculation about problems with bank.

Steve Quayle
The Iron boot has been firmly planted to the pedal of this runaway tractor trailer that is heading off the cliff. All of the Euro banks including my former associates at the Royal Bank of Scotland (RBS)  are all prepped and ready for the Euro collapse.

What we in the inside are calling "Spanish Flue" is now running hot with temperatures that are setting ten year yields sky high. What many do not realize is that Bankia's demise has started a breach in all the firewalls and safety measures that are in place in the Eurozone. This had an immediate effect on the Italian markets as you can now see the pandemonium that is there.

Consumer Confidence Plunges Most in 8 Months

abcnews
Americans confidence in the economy suffered the biggest drop in eight months as worries about the weak jobs, housing and stock markets rattled them again. The decline comes after a few months of optimism amid some positive economic news.

The Conference Board, a private research group, said on Tuesday that its Consumer Confidence Index now stands at 64.9, down from a revised 68.7 in April. With gas prices falling, Americans were expected to push the measure to 70, according to analysts polled by FactSet.

99% Prepare to Occupy Bank of America's Corporate Headquarters

The 99% are preparing to occupy Charlotte, North Carolina, home of Bank of America's corporate headquarters, ahead of the bank's annual shareholder meeting Wednesday. Members of the 99% Power Coalition, which is organizing the events, said they expect nearly 1,000 individuals to arrive in Charlotte to protest Bank of America's foreclosure practices and its investment in coal mining, several members of the group said on a call with reporters Tuesday.

The organization has held similar protests outside the shareholder meetings of Wells Fargo and General Electric that have drawn hundreds of people. The organizers said they expect Bank of America's meeting to draw the largest crowds of all. "We see Bank of America as the worst of the worst," said Amanda Starbuck, a director at the environmental advocacy group, Rainforest Action Network, which is organizing the protests. "There's a lot of momentum around Bank of America."

In response, the city of Charlotte is beefing up police presence in a two-block radius surrounding the bank's headquarters, where the meeting will be held. Earlier in the year, the city deemed it an "extraordinary event," which allows the Charlotte police force to reallocate officers as it sees fit, according to a spokesperson for the mayor's office. More...

Home Owners Across the Nation Sue All Bank Servicers and Their Offshore Havens

San Francisco police officers monitor protestors that are staging a demonstration in front of the Wells Fargo Bank headquarters. 

Marketwatch
In a lawsuit alleged to involve the largest money laundering network in United States history, Spire Law Group, LLP -- on behalf of home owners across the Country -- has filed a mass tort action in the Supreme Court of New York, County of Kings.

Home owners across the country have sued every major bank servicer and their subsidiaries -- formed in countries known as havens for money laundering such as the Cayman Islands, the Isle of Man, Luxembourg and Malaysia -- alleging that while the Obama Administration was publicly encouraging loan modifications for home owners, it was privately ratifying the formation of these shell companies in violation of the United States Patriot Act, and State and Federal law.

The case further alleges that through these obscure foreign companies, Bank of America, J.P. Morgan, Wells Fargo Bank, Citibank, Citigroup, One West Bank, and numerous other federally chartered banks stole hundreds of millions of dollars of home owners' money during the last decade and then laundered it through offshore companies. The complaint, Index No. 500827, was filed by Spire Law Group, LLP, and several of the Firm's affiliates and partners across the United States.

Far from being ambiguous, this is a complaint that "names names." Indeed, the lawsuit identifies specific companies and the offshore countries used in this enormous money laundering scheme. Federally Chartered Banks' theft of money and their utilization of offshore tax haven subsidiaries represent potential FDIC violations, violations of New York law, and countless other legal wrongdoings under state and federal law.  More...

Banks Get White Powder Envelopes

Reverend Billy from The Church of Life After Shopping attempting to exorcise bad loans and toxic assets form the Bank of America ATM in Union Square, New York 

Envelopes containing suspicious powder were sent through the mail to at least seven locations in Manhattan, primarily Wells Fargo banks, police officials said.

"This is a reminder that you are not in control," said a message that arrived with the envelopes. "Just in case you needed some incentive to stop working we have a little surprise for you. Think fast you have seconds."

Several samples tested negative -- evidently containing corn starch, police said. Later, all the powder samples were determined to be non-toxic. The receipt of the white powder prompted evacuations at bank branches, police told the AP, but caused no injuries. More...

Banks Work With Police to Track Occupy Protesters

Because after all, isn't that who the police really work for...

The world's biggest banks are working with one another and police to gather intelligence as protesters try to rejuvenate the Occupy Wall Street movement with May demonstrations, industry security consultants said.

Among 99 protest targets in midtown Manhattan on Tuesday are JPMorgan Chase and Bank of America offices, said Marisa Holmes, a member of Occupy's May Day planning committee.

Events are scheduled in more than 115 cities, including an effort to shut down the Golden Gate Bridge in San Francisco, where Wells Fargo investors relied on police to get past protests at their annual meeting this week. More...

Chasing Fees, Banks Court Low-Income Customers

An increasing number of the nation’s large banks — U.S. Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers with alternative products that can carry high fees. They are rapidly expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees. More...

Bank Fees Push Consumers to Put Money Elsewhere

Occupy Santa Cruz - Bank of America refusing to close account

Alternative finance firms, from credit unions to online and pawn lenders, are gaining traction as banks turn off the tap for easy cash and start charging fees for services that customers have had for free.

Some 60 million Americans — close to a fifth of the adult population — were underbanked or unbanked in 2009, according to the Federal Deposit Insurance Corp. That number is likely to rise as banks choke off free checking, and adjust to new rules that cut into their revenue.

Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo, PNC Financial, Suntrust and others are beginning to charge for once-free services, making a bank account more of a luxury to those living on a tight budget.

"Credit unions are an alternative source for the kind of services a bank provides," said professor Lawrence White of New York's Stern School of Business. "I'm hoping they would see the unbanked as part of their mission. That would be the most socially worthwhile thing they could do." More...

Stingy megabanks swimming in cash

Image by Rainforest Action Network via FlickrIf the megabanks are so big on lending, why do their loan books keep shrinking?

The biggest U.S. banks tell us they have spent the past quarter writing loans, renewing credit lines and generally being upstanding economic citizens. Bank of America (BAC) says it provided consumers and businesses with $144 billion in credit in the first quarter, Wells Fargo (WFC) ponied up $151 billion and JPMorgan Chase (JPM), swinging for the PR fences, claims to have lent out an improbable-looking $450 billion.

Yet loan balances actually shrank from a year ago at all three banks in the first quarter, just as they did at their old pal Citi (C). This at a time when the too-big-to-fail four are being drenched with new deposits (see chart, right).

All told, average loans outstanding at the fearsome four dropped 7% from a year earlier – a decline of $210 billion -- even as deposits rose 5%.

If this is what the bailed-out captains of the financial sector call supporting the recovery, no wonder the economy is going nowhere fast. More...

Mexcian drug smugglers launder funds through Wachovia/Wells and Bank of America

Image by Lachlan via Flickr

Bloomberg -- Just before sunset on April 10, 2006, a DC-9 jet landed at the international airport in the port city of Ciudad del Carmen, 500 miles east of Mexico City. As soldiers on the ground approached the plane, the crew tried to shoo them away, saying there was a dangerous oil leak. So the troops grew suspicious and searched the jet.

They found 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was supposed to have been delivered from Caracas to drug traffickers in Toluca, near Mexico City, Mexican prosecutors later found. Law enforcement officials also discovered something else.

The smugglers had bought the DC-9 with laundered funds they transferred through two of the biggest banks in the U.S.: Wachovia Corp. and Bank of America Corp., Bloomberg Markets magazine reports in its August 2010 issue.

This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers -- including the cash used to buy four planes that shipped a total of 22 tons of cocaine.

The admission came in an agreement that Charlotte, North Carolina-based Wachovia struck with federal prosecutors in March, and it sheds light on the largely undocumented role of U.S. banks in contributing to the violent drug trade that has convulsed Mexico for the past four years.

‘Blatant Disregard’

Wachovia admitted it didn’t do enough to spot illicit funds in handling $378.4 billion for Mexican-currency-exchange houses from 2004 to 2007. That’s the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history -- a sum equal to one-third of Mexico’s current gross domestic product.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” says Jeffrey Sloman, the federal prosecutor who handled the case.

Since 2006, more than 22,000 people have been killed in drug-related battles that have raged mostly along the 2,000-mile (3,200-kilometer) border that Mexico shares with the U.S. In the Mexican city of Ciudad Juarez, just across the border from El Paso, Texas, 700 people had been murdered this year as of mid- June. Six Juarez police officers were slaughtered by automatic weapons fire in a midday ambush in April. More...

Wachovia laundered $420 billion in drug money

Image via Wikipedia

Wachovia to Pay $160 Million to End Money Laundering Probe

Bloomberg
Wells Fargo & Co.’s Wachovia Bank agreed to pay $160 million to resolve a criminal investigation of how drug cartels used the bank to launder money through Mexican exchange houses.

The government agreed to defer prosecution on a criminal charge that Wachovia, once the fourth-largest U.S. bank, failed to set up an effective anti-money laundering program from 2003 to 2008. Wachovia admitted failing to monitor $420 billion in transactions through exchange houses, known as casas de cambio.

Wachovia admitted “serious and systemic” violations of the Bank Secrecy Act that let drug cartels launder at least $110 million through exchange houses. Drug dealers used Wachovia accounts to buy airplanes, and U.S. authorities seized “at least four” of those aircraft with more than 20,000 kilograms in cocaine, Wachovia admitted in U.S. District Court in Miami.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations while laundering at least $110 million in drug proceeds,” Jeffrey Sloman, U.S. attorney for the Southern District of Florida, said yesterday at a Miami news conference.

The violations were the largest ever of the Bank Secrecy Act, which is designed to curb money laundering, authorities said. Wells Fargo, based in San Francisco, bought Charlotte, North Carolina-based Wachovia Corp. at the end of 2008.

“This was a systemic breakdown at Wachovia which allowed approximately $420 billion to go unmonitored,” Sloman said.

Remedial Measure

Wells Fargo has cooperated in the investigation and must take remedial measures before the government will dismiss the criminal charge. The bank will forfeit $110 million and pay a $50 million fine. Prosecutors have “no evidence that Wells Fargo Bank’s anti-money laundering program is deficient,” prosecutors said in court papers.

“Wells Fargo learned about these matters before acquiring Wachovia and established reserves in prior periods that will fully cover the settlement amounts,” the bank said in a news release. Wachovia “exited all relationships with foreign money exchange houses” by early 2008, it said.

The casas de cambio, which are not banks, allow people and businesses in Mexico to exchange or wire transfer the value of currency to bank accounts in the U.S. and other countries, according to Wachovia’s 12-page factual statement entered with the deferred-prosecution agreement.

Bank’s Admission

“The nature of the CDC business allows money launderers the opportunity to move drug dollars that are in Mexico into CDCs and ultimately into the U.S. banking system,” Wachovia admitted. “Once the drug dollars were placed into CDCs, they were readily wire transferred into bank accounts of CDCs at Wachovia.”

Wachovia admitted offering correspondent banking services to 22 CDCs through three methods: wire-transferring money on behalf of third-party customers; accepting bulk cash transfers made by armored cars and other methods; and accepting checks and traveler’s checks put in pouches or digitally scanned through “remote deposit capture.”

From May 2004 to May 2007, Wachovia processed at least $373 billion in wire transfers on behalf of CDCs, the bank admitted. It processed $4.7 billion in bulk cash and $47 billion in RDC deposits for all correspondent banking customers, including Mexican CDCs, Wachovia admitted.

Wachovia didn’t admit that it knew the $420 billion it failed to monitor were drug proceeds.

Open Door

“When the bank failed to have effective anti-money laundering procedures in place, it allowed these traffickers to use the bank to their will,” said Mark Trouville, special agent in charge of the Drug Enforcement Administration’s office in Miami.

Trouville said Mexican and Colombian drug dealers used the bank to buy planes that moved drugs from South America.

Asked if Wachovia knew it was drug money, Trouville said, “I don’t think I can comment on whether Wachovia knew it was drug money. There were no effective procedures in place to be able to tell them that.”

The investigation began in 2005 when a drug-sniffing dog detected narcotics on a plane at a municipal airport in the Miami area, Sloman said. Investigators then traced the money to buy the plane to a Mexican exchange house, the prosecutor said.

Parts of the drug and money-laundering probe have become public, and some are still going on, Trouville said.

The case is USA v. Wachovia Bank, 10-cr-20165, U.S. District Court, Southern District of Florida (Miami).

Major U.S. banks report gigantic profits for 2009

BRIAN WILLIAMS
Large U.S. banks reported huge profits for last year, the product of steps taken by Washington to bail them out of the worldwide financial crisis. Proposals by the Barack Obama administration for so-called bank reform and regulation don’t alter the capitalist government’s approach toward these giant financial institutions, which they consider “too big to fail.”

At the same time, millions of working people—considered by Washington not “too big to fail”—face rising long-term unemployment.

Goldman Sachs Group reported a record-high profit of $4.95 billion for the fourth quarter of 2009 and $13.4 billion for the entire year. JPMorgan Chase, the nation’s second-largest bank, said it more than quadrupled that quarter’s profit to $2.38 billion, making $11.7 billion in 2009. Wells Fargo made $2.8 billion in the fourth quarter, even while repaying $25 billion to the U.S. Treasury on its bailout loan.

The massive profits come as the Obama administration continues to serve these banks in numerous ways. Besides funds given to them through the Troubled Asset Relief Program beginning in late 2008, banks can borrow money at close to zero percent interest from the Federal Reserve. They then use these funds to buy Treasury securities yielding 3 percent interest instead of making what they consider uncertain loans to consumers and businesses.

To take advantage of these government policies, investment banks were allowed “to redefine themselves as ‘commercial banks,’ with special access” to Federal Reserve funds, noted the Weekly Standard.

Transferring ‘toxic assets’
“Toxic assets,” for the most part worthless mortgage-backed securities, are being transferred from the banks’ books to the government ledger. The Federal Reserve “holds more than $900 billion in mortgage-backed securities,” reported Crain’s New York Business, with plans to boost this to $1.25 trillion through the end of March.

With Paul Volcker, former chair of the Federal Reserve Board, at his side, Obama announced January 21 what he claimed would be “common-sense” reforms of the banking system. For months Volcker had been shuffled to the background by the White House in favor of Treasury Secretary Timothy Geithner and others more closely identified with big investment houses. Volcker calls for prohibiting commercial banks from owning or investing in hedge funds and limiting the use of federally insured deposit funds for “speculative” and “risky” investments, such as mortgage-backed securities.

Commercial banks, however, could continue to engage in such trading as long as “they could show regulators that they are doing it for their clients, not their own proprietary accounts,” reported MarketWatch Web site.

Volcker has been calling for reinstating the Glass-Steagall Act, in hopes that legally separating commercial and investment banks will halt the debt-driven frenzy inherent to the workings of capitalism. The U.S. rulers were forced to impose Glass-Steagall in 1933 in response to the wave of bank failures in the early years of the Great Depression. It was repealed under the William Clinton administration in 1999.

In a reflection of how little confidence the capitalists have that they have solved the financial crisis, doubts are being raised in Congress about ratifying a second term for Federal Reserve chairman Ben Bernanke, one of the leading proponents of the government’s use of hundreds of billions of dollars to bail out giant banks and the American International Group insurance company. His term expires January 31. Many in capitalist circles, however, are signaling that changing the head of the Federal Reserve could trigger greater financial calamity. “A prolonged delay would unsettle markets; a rejection could be even worse,” noted the Wall Street Journal.

Meanwhile, the number of workers facing long-term unemployment continues to rise. In December 6.1 million people had been without a job for more than six months, according to the Labor Department. The official unemployment rate in December was 10 percent, 15.3 million workers. But this does not count the 2.5 million persons the government claims are “marginally attached” to the labor force.