Weekly Wrap- Weekly Finance News

Weekly Finance NewsBank of America to Pay $9.5 Billion Settlement Fee to Federal Housing Finance Agency Bank of America has come to a settlement with Federal Housing Finance Agency as the latter filed a lawsuit on behalf of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. Bank of America agreed to pay $9.5 billion fine to them. ACE Group Announces New Insurance Plan for Independent Drivers and Transportation Carriers It’s hard to miss Ireland if one makes a list of top five most sought after tourist destinations in the world. The picturesque scenery, coastal villages, grassy fields, calm beaches and plethora of wildlife have made Ireland a must go place for all tourists. US Durable Good Market Raises More than the Estimated Percentage US manufactured goods market seems to recover from the previous gloom. In February, orders received from consumers for durable manufactured goods have increased from last two months. The finding will no doubt impress the US commerce department. The Performance Of Individual Stocks And S&P 500 After 50 Trading Days Of 2014 Already we have passed 50 trading days in this year. The comparison between S&P 500 index and the Bull market shows S&P 500 index return is just about the average while the Bull market is not showing the trends that it showed in the previous years. Appeals Court Allows Federal Reserve to Set Higher Rate on Debit Card Swipe Fee A big victory for the Federal Reserve Bank as a federal appeals court reimposed a 2011 Fed rule which enables banks to set higher charges on debit cards. A group of retailers challenged the rule and as the verdict went against them, it’s a huge setback for them. Biotech Stocks Fall Result in Record Intraday High in S&P 500 Followed By Momentum Investing Biotech stocks fall on Friday causing initial gains on the part of investors. As a result, the S&P 500 has witnessed a record intraday high. Later, investors considered this a continuing trend and booked profit in momentum names. S&P is currently 1862.52 but it went high to 1883.97.]]>

Bank of America to Pay $9.5 Billion Settlement Fee to Federal Housing Finance Agency

Bank of America has come to a settlement with Federal Housing Finance Agency as the latter filed a lawsuit on behalf of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. Bank of America agreed to pay $9.5 billion fine to them.

Federal Housing Finance is a regulatory agency and it has the legal right to sue an individual/agency on behalf of government-sponsored mortgage finance firms. The claim against Bank of America was that it intentionally misrepresented the value of residential mortgage-backed securities which led to financing related crisis.

Bank of America to Pay $9.5 Billion Settlement Fee to Federal Housing Finance Agency

The actual worth of the mortgage securities was $57.5 billion. The settlement requires Bank of America to pay $6.3 billion in cash to Fannie Mae and Freddie Mac and purchase back $3.2 billion worth of mortgage securities. Bank of America held the settlement responsible for the reduction of its first-quarter income by $3.7 billion before paying taxes. On April 16, the bank will report its earning. The settlement is one of many other recent ones where the regulatory agency summoned banks which sold low-quality subprime mortgages during the recession. Total of $16 billion has been recaptured by the regulatory agency those banks and financial institutions. Fannie Mae and Freddie Mac were under conservatorship since 2008. Then they were seized by the regulatory authorities because they were undergoing heavy loss due to subprime loans. Before this settlement, there were nine other settlements where the Federal Housing Finance Agency filed a lawsuit against banks and financial firms. It started in 2011 when the total of 18 lawsuits was filed for more than $200 billion in mortgage securities. Mel Watt, the director of Federal Housing Finance Agency said, “FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement…” Albeit the amount of fine is huge, no executive at the Bank of America is facing any criminal charge. A mortgage originator called Countrywide Financial was purchased in 2008 by Bank of America for $4.1 billion. It was responsible for many of Bank of America’s problems. No criminal charges were, however, produced against it by FHFA. A representative of FHFA said the government wants to punish the big banks by imposing penalties, not by putting their executives behind the bar.]]>

ACE Group Announces New Insurance Plan for Independent Drivers and Transportation Carriers

It’s hard to miss Ireland if one makes a list of top five most sought after tourist destinations in the world. The picturesque scenery, coastal villages, grassy fields, calm beaches and plethora of wildlife have made Ireland a must go place for all tourists.

No wonder tourism is one of the main pillars of Ireland’s economy. In 2011 alone, more than 6.2 million people travelled to this beautiful country. A recent finding shows an increase in visitors by 11 per cent for the time period from December 2013 to February 2014.

Insurance Plan for Independent Drivers and Transportation Carriers

The report throws the spotlight on some key findings; over the said time period, more than 79400 people visited Ireland from the neighbouring Great Britain which is 14% more than the previous year. Visitors spent the total of 51 million nights in Ireland in 2013 which implies a 6.2% increase from the previous year.

The economy got a boost from rising number of visitors from abroad. In 2013, the amount of money from overseas visitors was €4.127 billion which was €0.356 billion more than the money generated in the previous year. Total earnings from foreign visitors had a year to year surge of 3.7% from previous year’s €806 million.

The CEO of Tourism Ireland Niall Gibbons said, “Today’s figures represent a very positive start to 2014, as we roll out our promotional programme around the world.

He didn’t forget to mention the role of Global Greening initiative in giving tourism in Ireland a push. He said, “This year, we will place a major focus on promoting the Wild Atlantic Way, the Causeway Coastal Route, as well as on major events like Limerick City of Culture, the Grande Partenza of the Giro d’Italia and the Croke Park Classic, when the University of Central Florida takes on Penn State in their college football season opener.

Tourism Ireland is not content with all these stats and figures. It is taking new initiatives to strengthen the country’s tourism further. One of such initiatives is the launch of the GB trade website to help travel agents to promote Ireland to potential visitors.

Visitors could make a checklist of what to see and where to go before coming to Ireland. The website would contain detailed information on Dublin, Belfast, Limerick and other cities. Initiatives like this could help Tourism in Ireland to grow even more in 2014.

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US Durable Good Market Raises More than the Estimated Percentage

US manufactured goods market seems to recover from the previous gloom. In February, orders received from consumers for durable manufactured goods have increased from last two months. The finding will no doubt impress the US commerce department.

During two consecutive months December and January, orders for durable good have declined. In February however, it rose 2.2%. It should be mentioned that increase in order percentage was well above what forecasters predicted.

US Durable Good Market Raises More than the Estimated Percentage

This year’s January, orders for durable goods dropped 1.3 percent. Analysts expected it to rise 1% next month. However, it was more than 1.2% of the estimated figure. US economists are looking at the report with related data such as production by industrial units, sales made by retail merchants and employment statistics.

These data suggest that the economy has just started to get up to the speed. An economist name Sam Bullard said, “We are still encouraged by the outlook on the factory sector once we get past this period.

However, the automobile industry may have to face a slowdown in future because of increase in order for cars. People who are purchasing cars now would use them for next couple of years. So, there may be less demand for cars in future.

Demand for refrigerators has also been high in February. Households that purchased refrigerators during the months of January and February may face technical issues and to sort them out, may call professional help. Thus, service sector might see growth in future.

Order for durable goods that are really bulky or used mostly for industrial or similar purposes such as aircraft, trains, bottling plant equipment, drilling machinery hasn’t seen an impressive growth last month.

There was a slight increase in the percentage of order for core durable goods. But it has failed to meet the estimated mark. The forecast was 0.3% gain, but the gain was 0.2% and that too was seasonally adjusted. One good thing that came out from those data is that factories worked during the chilling winter. This indicates higher demand for factory-made goods.

US economists are giving weight to this finding as they believe 2014 may draw more investment provided weather situation would be normal. An economist called Gus Faucher said, “We should still see some solid business investments in 2014. We have some weather impact on new orders in February. Orders should gradually improve this year. 

Hopefully, demand for durable consumer goods will increase in this year.

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The Performance Of Individual Stocks And S&P 500 After 50 Trading Days Of 2014

Already we have passed 50 trading days in this year. The comparison between S&P 500 index and the Bull market shows S&P 500 index return is just about the average while the Bull market is not showing the trends that it showed in the previous years.

In the previous years, we saw the Bull market index going high till the mid of March and from March onward it went down. This time, however, it started off a bit slowly. Some analysts held that the first 50 trading days could give a clear indication of the performance of individual stocks.

The Performance Of Individual Stocks And S&P 500 After 50 Trading Days Of 2014

It has been found in surveys that the best-performing stocks of 2013 within the first 50 days are gained more than 6% in next 50 trading days. Add to that, a majority of those stocks performed positively for the rest of the year. Using last year’s performance as a yardstick, some stocks have been selected which analysts expect to perform this year.

Top 5 of these stocks are Nabors Industries Limited New, Manitowoc Company Inc, NXP Semiconductor N.V, Exact Sciences Corporation and Apollo Education Group Inc (A). These stocks seem to be doing pretty well. Nabor Industries is up 1.91% from its previous closing of $24.04, The Manitowoc Company, Inc. Is up 0.62% from previous closing of $30.86, NXP is up 0.66% and EXAS is up 0.42%.

Only Apollo Group is down. However, that could be due to people becoming relatively less interested in education. The S&P is in a good position as it closed today at $1862.77, which is up 0.29% from yesterday’s closing of $1857.44.

It is pertinent to mention that US economists had changed their outlook on S&P 500 after Janet Yellen of Federal Reserve said interest rate won’t be increased till mid of next year. Fed expects S&P 500 to fulfil the year-end target of 1900, which is more than 2% of what of its current trading value.

A strategist called David Kostin said, “Investors are focused on the near-term implications of interest rate hikes, but they should also be mindful of the long-term implications of a pick-up in wage growth, which should negatively affect margins.

After Yellen’s announcement, S&P 500 fell 0.6% however it recently went up. So, we need to keep our eyes open at the performance of S&P 500 stocks.

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Appeals Court Allows Federal Reserve to Set Higher Rate on Debit Card Swipe Fee

Appeals Court Allows Federal Reserve to Set Higher Rate on Debit Card Swipe Fee

A big victory for the Federal Reserve Bank as a federal appeals court reimposed a 2011 Fed rule which enables banks to set higher charges on debit cards. A group of retailers challenged the rule and as the verdict went against them, it’s a huge setback for them.

Earlier, the lower court delivered the verdict in favor of the merchants. It was in July 2013 when the lower court favored the merchants by striking down the cap imposed by the Federal Reserve Bank on debit card swipe fees. The court questioned Fed’s authority to set cap limit and indicated that the cap is too high.

The current ruling, however, reinstated what the Fed proposed. The swipe fee rule by the Federal Reserve on Visa and MasterCard will increase debit swipe fees for small businesses and retailers said this part has been completely ignored by the court.

The swipe fee is what retailers would have to pay to the government when a customer uses his debit card. Federal Reserve initially wanted the fee to be 12 cents for every transaction but then proposed it to be 21 cents. The fee was 44 cents earlier, too high for some retail businesses, more than 8% of a $4 purchase.

A representative of a restaurant chain called Liz Garner said, “To have fees that continue to be so unreasonable in the debit card space is detrimental to the folks that we represent as well as ultimately their customers…” She hinted that the retailer groups might take this issue to the Supreme Court of United States.

They raised an issue that appears seemingly valid. The fees set by the Fed would cover more than the direct cost of transaction as additional costs such as fraud monitoring will also be included in the fee. That’s precisely why the merchants are fuming. They said, “Our industry is extremely supportive of debit, but we are very frustrated with how the Fed implemented it and how the networks responded.

The previous ruling was handed by Richard Leon, who is a US District Court Judge. He said the Fed’s policy to increase the debit swipe fee would finally affect consumer spending due to inappropriate inflation of debit card transaction fees.

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Biotech Stocks Fall Result in Record Intraday High in S&P 500 Followed By Momentum Investing

Biotech stocks fall on Friday causing initial gains on the part of investors. As a result, the S&P 500 has witnessed a record intraday high. Later, investors considered this a continuing trend and booked profit in momentum names. S&P is currently 1862.52 but it went high to 1883.97.

The decliners were Biogen Idec Inc (NYSE: BILB) which is 8.2% down from previous closing of 347 and Gilead Sciences Inc (NYSE: GILD), 4.6% down from 75.53. Biogen Idec Inc closed at 318.53 and Gilead stood at $72.07 at the day’s end.

Biotech Stocks Fall Result in Record Intraday High

Gilead recently introduced a drug called Solvadi which cost customers $1000 per pill. The drug is for the treatment of Hepatitis C. Lawmakers in the United States have asked the company to justify the high cost. Health insurers and medical programs in the state have been opposing the drug.

A New Jersey-based trader name Joe Saluzzi said, “They’ve been selling them – the techs in particular, as well as the biotechs, even more, particular there. Obviously, it’s a momentum sector, and all the momentum names are getting smacked around…

As protests against the drug are on and legal procedures seem underway, momentum investment appears to be a wise decision.

While S&P set a new high, Dow underperformed. It closed at 16,302.77, down 0.17% from previous closing of 16,331.05. Dow is currently nearly 1.6% down from its high at the end of 2013. Robert Maltbie of Millennium Asset said, “The Dow has a very low representation of things moving the market, like . . . Netflix, social media stocks, solar stocks and biotech…

Mr. Maltbie’s analysis is correct. The biotech industry has been seeing an outstanding growth but Dow doesn’t have significant exposure to this industry. Healthcare shares altogether are up 5.2% this year. The healthcare stocks make up 13.4% of S&P 500 index while it accounts for only 10.3% of Dow. S&P clearly has an edge over Dow on this.

Before Friday, S&P saw the high number of sell-off below 20 days SMA and the previous ATH on January 23, 24. S&P’s rising to a new ATH has been considered by many as a technical breakout. However, some analysts are doubtful that this trend will last long.

One of them said, “From a purely technical point of view, this morning’s intraday all-time high is bullish and suggests higher prices. However, there is at least one Elliott Wave count allowing for a fake-out breakout, followed by a drop lower

Still, S&P is up 1% this year and might continue to go up till the biotech boon is there.

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CPPIB Enters US Insurance Market with the acquisition of Wilton Re Holdings for US$1.8 Billion

CPPIB Enters US Insurance Market

There’s good news for US economy which is currently facing a slowdown. Canada Pension Plan Investment Board has shown interest in Wilton Re Holdings, a big player in the US insurance market. The CPPIB announced that it will invest US$1.8 billion for the acquisition of Wilton.

Insurance is not the core business of CPPIB. The company seems to be very much aware of this fact. Andre Bourbonnais, who is currently the senior VP of private investment said, “It’s really an acquisition vehicle for us. It’s not a traditional operating company.

However, CPPIB’s core operating area, which is pension plan has a close link with Wilton Re Holdings as the latter is specialized in buying a certain type of life insurance that is considered as the asset class. Life insurance is an asset, saved for financial hardships. CPPIB’s pretext becomes a little wider as they are already managing pension plan assets.

Bourbonnais hinted that more acquisitions and mergers could be in the pipeline. He revealed CPPIB’s strategy, which is investing in a business or conglomeration and then fund the business. If there’s lack of equity, his advice is to merge with other companies that represent the same line of business.

There’s a reason for adopting this strategy. In Bourbonnais’ own words, “We have a fair amount of capital to invest, and a relatively limited amount of human capital” In the past, CPPIB made an investment in the agriculture industry when it procured lease contract and associated discounted cash-flow of Saskatchewan farmland.

It seems CPPIB’s modus operandi is to look out for asset classes, cash flow and efficient management. Bourbonnais regarded life insurance as something that “generates cash flow over multiple decades and they’re very well suited for a long-term investor to us.

Insurance does ensure steady cash flow. It is also a sustainable mode of business. Mr. Bourbonnais agreed that when he said, “You can predict a life pattern much better than the market.

The acquisition brings diversity in the table for CPP fund as some of its many investments depend on fluctuations in the stock market. Mr. Bourbonnais wanted to reduce this volatility. He said the insurer was earlier held by private equity companies like Vestar Capital Partners, Kelso & Company and Stone Point Capital. These firms wanted a quick ROI.

As there are less volatility and long-term growth in the insurance market, Wilton Re Holdings is expected to do well in future. It’s management team and CCPIB’s capital could lead to success.

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US Fed Reserve cuts Stimulus by Another $10 bn

US Federal Reserve has announced that it would cut down the economic stimulus by $10 billion or 11 billion AUD. This is the third time when Federal Reserve reduced its bond-buying program for a month. Analysts are expecting the interest rate to go up as a result.

What followed the decision of US Federal Reserve was AUD falling 1 US cent against US dollar. The decision taken by US FR was a bit surprising as the country has been going through the economic slowdown. But policy officials briefed the slowdown is due to extreme winter.

US Fed Reserve cuts Stimulus by Another $10 bn

On Thursday, at 0630 Australian Eastern Daylight Time, the local unit was trading at 90.25 US cents which were down 0.93 US cents from Wednesday’s closing which was 91.18 US cents.

It should get a mention that AUD has displayed pliancy against the headwind in the global market. Due to the ongoing crisis in Crimea and the possibility of war was looming over, the market followed risk aversion strategy. The trading range for AUD has been 89 US Cent to 91 US Cent. On Wednesday, AUD was traded at 91.38 US Cents, which was its year-high.

The median forecasts for the Australian dollar in the second, third and fourth quarters of this year have increased by US1¢ to US88¢, US87¢ and US86¢ respectively since February, according to data from Bloomberg.

This year’s median forecasts for AUD have increased after its fair performance by 1 US Cent in the first quarter, 88 US Cents in the second, 87 US Cents in third and the US 86 cents in the final.

Janet Yellen, chairperson of US Federal Reserve will not rise until next year as the unemployment rate in the US is still high and inflation is not fully controlled. “We have expressed a number of opinions about the likely path of rates. In particular, the committee has endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends before it will be appropriate to begin to raise rates.” She said.

The US Fed’s target benchmark interest rate was earlier zero. However, Fed officials are now expecting it to be 1% at the end of the next year and 2.25% at the end of 2016.

If the benchmark interest inches to zero, it could give US real estate and construction market a boost. This way, the country could battle out unemployment and inflation.

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Cisco Stock Value Drops as the Company Fails to Handle Product Transition

Cisco Stock Value Drops as the Company Fails to Handle Product Transition

The networking giant Cisco has been facing product transition-related problems for last few months. With each passing day, the problem is becoming more apparent and causing Cisco stock to drop and its rivals to gain opportunity.

In June 2013, Cisco (NYSE: CSCO) introduced the CRS-X router which holds 10 times the capacity of the company’s original CRS router. But the company has failed to manage this product transition effectively and due to that, CRS-X router underperformed.

The same year, Cisco acquired Insieme Networks to compete VMware’s server virtualization solution which got a kickstart after VMware (NYSE: VMW) acquired Nicira. VMware’s entry into the software-defined networking has been smooth, courtesy to Nicira’s flagship technology. But for Cisco, the path wasn’t rosy.

In the first quarter of 2013, Cisco’s EPS was $0.02 short of what Wall Street expected. The first quarter of 2014 has also been seeing Cisco stock to perform poorly as year over year fall of total sales was 7.4% or $11.2 billion.

When it comes to annual growth, 2013 was perhaps the worst year. From Q1 2013 to Q4 2013, Cisco’s share saw a drop of 5% in the service provider router market while its rivals Alcatel and Juniper (NYSE: JNPR)held 18% and 17% respectively of the $12.7 billion market.

Cisco’s stock value in the market today dropped to $21.45 which is down almost 20% since last year’s August. It was 0.28% down from the previous day’s closing of $21.51. Observing this, analyst Ben Reitzes from Barclays reduced the price target from $25 to $23. Although the stock is currently 0.56% up, $23 seems a justified price margin.

Reitzes said, “Given that well over half of Cisco’s product revenue comes from routing and switching, we believe execution on large product transitions in both of these segments is critical to a revenue and margin recovery ”

The chief reasons shown by analysts to explain the bleeding of Cisco stock are uneven demand, secular headwind and absence of major catalysts.

Barclays concludes its analysis of Cisco with, “Material upside to estimates does not seem likely at this point and it is also unlikely for the shares to re-rate higher until it becomes clear that the company can successfully execute on its major product transitions and fully participate in the cloud and software-defined networking

The networking market is tough and there’s no indication it will help Cisco pave its way up unless the company comes up with a solution.

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