Posts Tagged ‘Bank of America’

Bank Wealth Plunge

With the European bank issues, Moody’s Investors Service (MCO) has cut the debt ratings on five large U.S. banks, along with those of 10 other global financial institutions.

  • Morgan Stanley (MS) received a two-notch cut
  • Bank of America (BAC), which got a one-level cut
  • Citigroup (C) received a two-notch cut
  • Goldman Sachs (GS) received a two-notch cut
  • JPMorgan Chase (JPM), received a two-notch drop.

Other non-U.S. banks that were downgraded include Barclays (BCS), BNP Paribas (BNP), Credit Agricole (ACA), Credit Suisse (CS), Deutsche Bank (DB), HSBC (HBC), Royal Bank of Canada (RY), Royal Bank of Scotland (RBS), Societe Generale (GLE), and UBS (UBS). With Credit Suisse receiving the biggest downgrade of 3 notches.

Moody’s cited the banks’ shrinking growth and dimming profit forecast in explaining the downgrade. The ratings agency also highlighted the firms’ exposure to the capital markets at a time of significant market volatility. “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” said Moody’s global banking managing director Greg Bauer in a statement.

It’s possible now that this could increase borrowing costs as more trading partners could require more skin in the game.

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Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.

Fees

Fees

Nationwide, credit unions are en vogue. And while some of these new credit union members will transfer their checking accounts, direct deposits, electronic bill pays, and even their credit cards and loans, many will not. The majority of the benefit goes to the bigger Credit Unions, those with assets over $100 Million seeing the biggest increase in new members from banks. Unfortunately for the small to medium size Credit Unions, it’s hard to compete for lack of products/services which cost money to roll out. A good example of this is mobile banking.

Credit Unions need to step up their Social Media Marketing efforts to compete and give consumers what they want. Failure to do so will only put more pressure on those to survive. Now is the perfect time to implement a Social Media Strategy.

Banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

It costs most banks between $200 and $300 a year to maintain a retail checking account, from staffing branches to covering federal deposit insurance premiums. In the past, the fees banks collected from merchants each time customers swiped their debit card or overdrew their account covered much of that expense. Banks offered “free checking” to the masses as a result.

Even as Bank of America and other major lenders back away from charging customers to use their debit cards, many banks have been quietly imposing other new fees.

  • Need to replace a lost debit card? Bank of America now charges $5 — or $20 for rush delivery.
  • Deposit money with a mobile phone? At U.S. Bancorp, it is now 50 cents a check.
  • Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank.

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

But the economics have drastically changed over the past two years. Income earned on deposits has fallen, while the revenue gained from fees has plunged by as much as half because of the new regulations. Today, according to Oliver Wyman, banks are expected to take in, on average, between $85 and $115 in fees a year per account — making it especially hard to turn a profit on customers with low balances.

“They have got to make up the income some place,” said Vernon Hill II, the founder of Commerce Bank whose retail-oriented approach transformed it into a large regional player before it was sold to TD Bank. He added: “I think we will see a lot more fees.”

Some policy makers are already fed up. This month, two Democratic senators, Richard J. Durbin of Illinois and Jack Reed of Rhode Island, urged the Consumer Financial Protection Bureau to adopt a more consumer-friendly disclosure form, akin to the nutrition label on food packaging, for all the fees attached to a checking account.

“Simply put, consumers have had enough of banks that try to sneak fees past them that are hidden in fine print or imposed with no notice at all,” they wrote. Last year, a Pew Charitable Trusts study found that bank customers could potentially incur 49 different fees on a typical checking account.

New fees, of course, will cover a small part of the gap in profits. Banks are also hoping that new products catch on. Some are steering lower-income customers to prepaid cards, which were not affected by the reduction in debit card swipe fees.

Banks are also lowering the rates they pay savers. The average interest rate for deposits has fallen to 0.74 percent from 0.8 percent during the first six months of this year, according to Market Rates Insight. Most consumers barely notice, but it translates into real money — about $1.5 billion a month in savings industrywide.

Banks may also be betting that consumers will not notice the quiet creep of existing fees. As Richard K. Davis, U.S. Bancorp’s chief executive, told investors on a recent conference call: “We’ll see if our customers complain and move, or just complain,” he said.

In the end whether it is a Bank or Credit Union, businesses need to make a profit. Without profit, there will be no jobs. The flexibility for the consumer is still an overwhelming amount of choices and options to choose. In the end each of us have the freedom to choose, consumers need to do their homework, and choose what best suites their needs.

What is your choice? Stay or Switch?

Debit Cards

Debit Cards

With the new Federal Legislation now in place, Banks and Credit Unions stand to lose Billion of dollars in reduced fees. On Saturday, the Federal Reserve instituted a 24 cent cap on swipe fees, estimating that running the card costs banks and credit unions between 7 and 10 cents per swipe. The cap is roughly 20 cents lower than the average swipe fee had been previously. Better known as the Durbin Fee, named after Democrat from Illinois.

What the Feds taketh away, financial institutions giveth back in new fees.

  • Bank of America is going to start charging $5 month for debit card usage. Wells Fargo and other plan to file the same path.
  • Most major banks now are starting to charge for checking accounts, that do not maintain a high balance. Some figures range as high as having an average balance of $1500/Month.
  • Citigroup recently implemented a mid-tier package, called the Citi Account., will carry a $20/monthly fee starting Nov 1 unless customer keeps a $15,000 combined balance in checking, savings, and loans, up from $6,000.

One day before the Senate was expected to vote on delaying swipe fee reform in June, Chase went one step further: Thanks to the Durbin amendment, thousands of Chase customers were warned, your kid can forget about that trip to Disney World. “Congress recently enacted a new law known as the Durbin Amendment that significantly impacts debit cards,” reads the letter. “As a result of this law, we will be changing our debit rewards program. After July 21, 2011 you will no longer earn Disney Dream Reward Dollars when you use your Disney Rewards Debit Card.”

Senate Majority Whip Dick Durbin and Rep. Brad Miller are going on the offensive against Bank of America after the financial behemoth cited Wall Street reform in announcing a new five dollar monthly debit charge last week. Miller, a Democrat from BofA’s home state of North Carolina, plans to introduce legislation that would make it easy for consumers to switch banks and simultaneously swap their direct deposit, electronic bill paying and other automatic features that make moving money from one bank to another more hassle than it’s often worth.

Could this be a boom for smaller banks and Credit Unions?

The savvy marketers for these institutions should jump all over this.

What’s interesting about all this is that the Top 5 banks now control 50% of the assets in financial institutions, while the remaining 7500 control the other 50%. Just 2 years ago, it took the Top 15 banks to control 50% of the assets in financial institutions. So, the facts are clear, the BIG, just keep getting BIGGER.

So the message is clear, take your business elsewhere to avoid these fees.

The number of Credit Union Membership is fairly well-distributed across the various Asset Group Sizes in terms of percentage. Credit Unions have reached $926 million in total assets as of 2010. Compared to their banking brethren, it pales in comparison.

Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup, and Goldman Sachs each are larger in asset size than ALL the Credit Unions combined. The top 5 banks now control 50% of the assets in these institutions, and just two years ago it took the top 15 banks to control 50%. Banks have slightly more institutions than credit unions, however the bigger credit unions are garnering a larger % of the asset pie just like the bigger banks.

What is abundantly clear…

  • 82% of the credit unions have an asset size <$100 million.
  • 53% have asset size <$20 million.
  • The big have become too Big to Fail.
  • Both FDIC and NCUSIF funds are basically insolvent, and will have to collect for years the premiums to pay for past failures.
  • These institutions will hasten mergers and failures if we have another financial meltdown.

Credit Union Asset Group Members

Hacker

This time it wasn’t an outsider hacker but an insider.

Posted from LA Times.

A Bank of America insider who stole customers’ personally identifiable information and gave it to identity thieves has cost the bank $10 million in losses, according to media reports.

The unnamed employee and some 95 others involved in the scam were arrested in February, IDG News reported [1], citing a special agent with the US Secret Service. The court cases have been sealed as the investigation continues.

The agent said the bank lost at least $10 million to the criminals.

Details of the case became public on Tuesday, when a The Los Angeles Times columnist relayed the story of one Bank of America customer who had about $20,000 siphoned out of various accounts by the scammers. The perpetrators contacted the man’s phone company and had calls to his home forwarded to a mobile phone under their control. That prevented the customer from receiving calls from bank employees asking about suspicious transactions.

The scammers also ordered new checks for some of his accounts and arranged to have them delivered to a United Parcels Service outlet to prevent the man from learning of the unfolding fraud.

The scammers obtained names, addresses, Social Security numbers, phone numbers, bank account numbers, driver license numbers, birth dates, email addresses, mother’s maiden names, PINs and account balances, the LA Times reported. It said about 300 customers were defrauded, although a bank spokeswoman refused to confirm that number to IDG News. ®

There has been a blitz by Banks and Credit Unions to OPT IN their customers by the Aug 15th deadline. Banks and Credit Unions have spent the summer deluging customers with e-mails, letters and phone calls informing them of the change. Why?

New federal regulations prohibit Banks and Credit Unions from charging an overdraft fee on ATM and debit card’s when you do not have enough money in your account. Unless…you OPT IN, which then allows Banks and Credit Unions to charge you the overdraft fee. Several banks have dropped their overdraft program, Bank of America being one.

Banks and Credit Unions stand to lose quite a significant amount of revenue, but will make it up in other areas. Remember the days when you were charged for checking? Had to have a minimum balance? Charged for checks? Those days will be coming back.

Your choices.

1. OPT IN – Your transaction for ATM and debit card’s will go through even if you do not have the money in your account. Saving you the embarrassment.  You will be charged an overdraft fee. Avg. Bank overdraft in the US is $35, Credit Unions is $25. Remember…this is per transaction. That $3 latte could be costing you $35.

2. OPT OUT – Your transaction for ATM and debit card’s will not go through if you do not have the money in your account! This could be embarrassing. However, it will save you an overdraft fee!

In the end it is your choice and your responsibility to manage your money effectively. The rich rule over the poor and the borrower is a servant to the lender.

Let me know your thoughts and comments.

The Obama administration saved all the big banks, without conditions back in March-April 2009. The too big to fail in the eyes of his administration and the credit markets seemed to be the plausible approach.

Fast forward to today, where the large institutions have gotten bigger, is there a way to significantly reduce the risks posed by these institutions without breaking them up?

  • Glass-Steagall was enacted in 1933 to control speculation and not allow banks to own other financial institutions. In 1999 under the Clinton administration this act was repealed, and today we are witnessing the lion share of the profits coming from the trading desks of these financial institutions.

The top 5 bank institutions control 30.7% of all deposits according to the latest FDIC summary dated June 2009.  Bank of America leads with over $900 Billion in deposits, making it larger than ALL the Credit Unions combined in the US.

Is breaking up hard to do?

Consider this statement.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)

3rd president of US (1743 – 1826)