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May 24
Midlife fitness predicts long-term heart health, Bank of America settles overdraft fee case, Do@ tries to speed mobile searches and other consumer-focused news from The New York Times.
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Treasury prices and the dollar rose. Asian and European shares were lower after developments in Greece, Spain and Italy refocused attention on the euro zone’s fiscal uncertainty. Manufacturing statistics released by Germany and China were softer than forecast, raising the prospect of slower growth in Europe and in China, which has the world’s second-largest economy, and unsettling investors.
“It is a bit of a risk-off environment right now,” said Eric Viloria, senior technical strategist for Forex.com. “Markets are risk-averse, and the U.S. dollar is benefiting.”
The Dow Jones industrial average fell 130.78 points, or 1.05 percent, to 12,381.26, its lowest close since April 19. The Standard Poor’s 500-stock index was down 15.90 points, or 1.19 percent, at 1,317.37. The Nasdaq was down 44.42 points, or 1.58 percent, at 2,758.90
Materials, energy, industrials, utilities, financials and information technology tumbled by about 1 percent.
Caterpillar fell about 2.34 percent, to $101.89, and General Electric was 1.17 percent lower at $19.39. Energy stocks tumbled, with Halliburton falling 2.16 percent, to $46.16, Exxon Mobil down 1.1 percent at $80.67, and Schlumberger down 1.7 percent at $82.08.
Citigroup was more than 2 percent lower at $40.16, while Bank of America was lower by 1.38 percent at $11.42. JPMorgan Chase fell more than 1.3 percent to $42.55.
In Asia, the Nikkei index fell by more than 1.5 percent and the Hang Seng was down by just over 2 percent. The Shanghai index was lower by 2.9 percent.
In Europe, the CAC 40 closed down by 2.1 percent, the DAX in Germany was 2 percent lower, and the FTSE ended the day down by 1.9 percent.
Analysts said recent news from Europe had not instilled confidence in the Continent’s ability to handle its fiscal challenges. Last week, Fitch Ratings downgraded Greece’s credit ratings by three levels to B+, a rating that is below investment grade. Standard Poor’s lowered its outlook on Italy’s debt to negative from stable over the weekend, citing a weaker outlook for growth and lower prospects for the country’s ability to trim its debt.
And Spain made headlines after its Socialist Party lost on Sunday in regional and municipal elections as tens of thousands of Spanish protesters, their anger partly fueled by the debt crisis and joblessness, are trying to force an overhaul of the political system.
Declines in Asia’s markets followed the HSBC preliminary purchasing managers’ index reading, a gauge of the manufacturing sector activity, for China, which fell to a 10-month low of 51.1 in May, according to news agencies, signaling a slowdown in expansion. Still, the Chinese government is poised to continue fiscal tightening. A similar gauge for Germany dropped to 54.9 in May, below forecasts.
The financial services and valuations company, Markit, said on Monday that its manufacturing P.M.I. for the euro zone was at a seven-month low at 54.8 in May, the sharpest slowdown since just after the collapse of Lehman Brothers in 2008, according to Chris Williamson, the chief economist.
While the numbers could have been affected by seasonal factors like the timing of Easter this year or by supply chain disruptions from the disasters in Japan, they show a “more fundamental slowing in the pace of economic growth,” he said in a statement.
Bruce McCain, the chief investment strategist of Key Private Bank, said the signs of weaker economic activity in China were counterbalanced by high inflation, with the possibility that they would have to continue to raise rates.
In Europe, he added, “not only are they again grappling with the sovereign debt issue, but inflation remains uncomfortably high and they seem determined to raise rates again.”
Treasury prices rose on Monday. The Treasury’s benchmark 10-year note rose 5/32, to 99 31/32 , and the yield fell to 3.13 percent from 3.15 percent late Friday. The yield has fallen by more than 40 basis points in a little more than a month.
Concerns over Europe reawakened the potential for oil demand to decline, causing crude prices on Monday to slip.
The dollar was higher against a range of currencies, with the euro falling below $1.40.
“Certainly while there is concern about the dollar’s secular decline we have to be encouraged that it is still seen as a strong currency,” said Colleen Supran, a portfolio manager with Bingham, Osborn Scarborough, which is based in San Francisco.
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Officials in Eric T. Schneiderman’s, office have also requested meetings with representatives from Bank of America, Goldman Sachs and Morgan Stanley, according to people briefed on the matter who were not authorized to speak publicly. The inquiry appears to be quite broad, with the attorney general’s requests for information covering many aspects of the banks’ loan pooling operations. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.
It is unclear which parts of the byzantine securitization process Mr. Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.
Several civil suits have been filed by federal and state regulators since the financial crisis erupted in 2008, some of which have generated settlements and fines, most prominently a $550 million deal between Goldman Sachs and the Securities and Exchange Commission.
But even more questions have been raised in private lawsuits filed against the banks by investors and others who say they were victimized by questionable securitization practices. Some litigants have contended, for example, that the banks dumped loans they knew to be troubled into securities and then misled investors about the quality of those underlying mortgages when selling the investments.
The possibility has also been raised that the banks did not disclose to mortgage insurers the risks in the instruments they were agreeing to insure against default. Another potential area of inquiry — the billions of dollars in credit extended by Wall Street to aggressive mortgage lenders that allowed them to continue making questionable loans far longer than they otherwise could have done.
“Part of what prosecutors have the advantage of doing right now, here as elsewhere, is watching the civil suits play out as different parties fight over who bears the loss,” said Daniel C. Richman, a professor of law at Columbia. “That’s a very productive source of information.”
Officials at Bank of America and Goldman Sachs declined to comment about the investigation; Morgan Stanley did not respond to a request for comment.
During the mortgage boom, Wall Street firms bundled hundreds of billions of dollars in home loans into securities that they sold profitably to investors. After the real estate bubble burst, the perception took hold that the securitization process as performed by the major investment banks contributed to the losses generated in the crisis.
Critics contend that Wall Street’s securitization machine masked the existence of risky home loans and encouraged reckless lending because pooling the loans and selling them off allowed many participants to avoid responsibility for the losses that followed.
The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.
By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions — that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis. Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.
It is unclear whether Mr. Schneiderman’s investigation will be pursued as a criminal or civil matter. In the last few months, the office’s staff has been expanding. In March, Marc B. Minor, former head of the securities division for the New Jersey attorney general, was named bureau chief of the investor protection unit in the New York attorney general’s office.
Early in the financial crisis, Andrew M. Cuomo, the governor of New York who preceded Mr. Schneiderman as attorney general, began investigating Wall Street’s role in the debacle. But those inquiries did not result in any cases filed against the major banks. Nevertheless, some material turned over to Mr. Cuomo’s investigators may turn out to be helpful to Mr. Schneiderman’s inquiry.
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11:15 p.m. | Updated
The Warner Music Group is near a sale to an investment vehicle of Len Blavatnik, the Russian-born investor, people briefed on the matter said Wednesday, as the auction process for the music-label giant was drawing to a close.
The offer by Mr. Blavatnik’s Access Industries values Warner Music at more than $3 billion, these people said, cautioning that no deal has been finalized and other bidders may emerge on top.
Warner Music’s board is scheduled to meet on Thursday to select the winning bid, these people said.
Among the other suitors still in the race are a pair of brothers, Tom and Alec Gores, who run their own private equity firms, these people said. Also in the running is a group led by Sony/ATV Music Publishing and Ronald O. Perelman’s investment vehicle, MacAndrews Forbes.
Others that had participated in the bidding included the billionaire Ronald Burkle and BMG.
But Mr. Blavatnik, whose investments have ranged from oil and chemicals to media companies, had been seen by many as a leading candidate from the beginning. He previously served on Warner Music’s board; he is close to the company’s chairman, Edgar Bronfman Jr.; and he remains an investor in the company.
Some other would-be bidders dropped out in recent weeks, complaining that the auction seemed likely to lead to a win by Mr. Blavatnik regardless, according to people involved in the process.
Others have grown concerned about Warner Music’s financial health, given the uncertain prospects for the music industry and the company’s roughly $2 billion of long-term debt. Lenders to several suitors, including the Bank of America, had grown uneasy about providing financing for a deal.
Representatives for Warner Music and Mr. Blavatnik were not immediately available for comment.
Warner Music put itself up for sale early this year amid strong interest from potential bidders.
While some suitors proposed splitting the business into its two parts, the music label and its valuable publishing arm, Warner Music’s board expressed a preference for selling the company as a whole.
Shares in Warner Music closed on Wednesday up 0.7 percent, at $7.42.
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Scott Olson/Getty Images
JPMorgan Chase quietly ended a test in which it was charging a hefty $4 or $5 fee for non-Chase customers in two states for access to its A.T.M.’s.
The change was noted this week by The Consumerist and others, although the pilot ended more than a month ago. The test began Feb. 8 and ended at the end of March, said Tom Kelly, a Chase spokesman. Non-Chase customers in Illinois were charged $5, and those in Texas were charged $4. The bank has gone back to the $3 fee it charged earlier.
Mr. Kelly wouldn’t say why the pilot was halted or what the bank learned from it — or whether higher fees might be coming nationally. Other big banks, including Wells Fargo, Bank of America and Citibank, also charge $3 to noncustomers for using their A.T.M.s. But smaller banks charge less and the average is less than $2.50, according to credit.com.
Banks are looking for ways to increase fee income ahead of the federal limit on so-called swipe fees, which merchants pay banks to help process credit and debit card payments. Banks tend to see higher fees for noncustomers as one way to raise fee revenue while avoiding alienating their own customers.
But there may be a limit on how much people will pay for convenience. I may grimace at a $2 or $3 fee to use another bank’s A.T.M., but I’ll pay it if I’m in a hurry — say, when I’m running to catch a flight — and another bank’s machine is handy. But I might try harder to find one of my own bank’s A.T.M.’s if the fee starts inching above $3. Or I might hunt for a new bank that has more A.T.M.s in my area — which is probably part of the plan when banks raise their fees.
At what point would a fee make you walk a few extra blocks? Or switch banks?
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Chuck Burton/Associated PressBrian T. Moynihan, Bank of America’s chief executive, is struggling to rebuild the bank after the financial crisis.
As big banks slowly shake off losses from the financial crisis, Bank of America provided another reminder on Friday of how hard it is to shed the legacy of the past.
Bank of America, the nation’s largest bank, reported that first-quarter earnings dropped 37 percent to $2 billion, reflecting the persistent burden of Countrywide Financial, the subprime mortgage lender it bought in 2008.
Two days earlier, its rival JPMorgan Chase announced that profits rose 67 percent over the same period, despite continued problems in its mortgage-lending unit.
The different results between the two financial giants underscore the continued challenges that Bank of America’s chief executive, Brian T. Moynihan, faces as he tries to rebuild a company weighed down by a troubled mortgage business in an uncertain economy.
“Other than the mortgage issue, Bank of America is having the same kind of recovery everybody else is,” said Chris Kotowski, an analyst at Oppenheimer Company.
In many ways, Bank of America and JPMorgan followed similar paths in the first quarter. Credit quality markedly improved, allowing the banks to release billions of dollars of reserves previously set aside to cover losses. Commercial lending is on the mend, and investment banking fees are rising.
The two banks are even struggling in the same ways, with revenues declining in the first quarter. Both were hit by new government regulations that limited overdraft fees and other lucrative sources of income. And their home-lending businesses continued to lose money, although loans were souring at a slower rate. At Bank of America, net charge-offs for the quarter were $6 billion, compared with $10.8 billion a year ago.
“We’re cautiously optimistic,” the departing chief financial officer, Charles Noski, said. Except for “our legacy issues, you have a business that has articulated its strength and we’re executing on it.”
But Bank of America won’t be able to escape its mortgage woes anytime soon. Its problems are not unique. Like its peers, Bank of America is dealing with a wave of litigation and government investigations related to its mortgage business — albeit on a grander scale given its acquisition of Countrywide, once the nation’s largest mortgage lender. The bank put aside an additional $1 billion in the first quarter to cover claims linked to Countrywide.
Compared with competitors, the bank has more loans on its books that are past due and nonperforming, according to a recent report by Oppenheimer. And it is unclear just how much liability the bank ultimately will face, a situation that continues to plague the bottom line.
“With Bank of America, you’ve got this special asterisk: There’s no precedent to judge their exposure,” Mr. Kotowski said. “If not for that, I would be recommending the stock.”
In a nod to its legal issues, Bank of America on Friday announced the creation of a new position, the global chief of legal, compliance and regulatory relations. The bank named Gary Lynch, formerly of Morgan Stanley and the Securities and Exchange Commission, to fill the role. Mr. Lynch, the S.E.C.’s enforcement director in the 1980s, carries clout on Wall Street and in Washington.
Bank of America also said that Mr. Noski would leave his post after only a year to tend to “a serious illness of a close family member.” Mr. Noski — who will be replaced by Bruce Thompson, the bank’s current chief risk officer — will remain at the company as vice chairman.
Shares of Bank of America closed at $12.82 on Friday, down nearly 2.4 percent.
Bank of America acquired Countrywide during the depths of the financial crisis for $4 billion — a price that seemed fair at the time. But Countrywide soon proved to be at the epicenter of the mortgage mess, and the costs have been piling up ever since.
Now, institutional investors, government-sponsored enterprises and mortgage-bond insurers want Bank of America to repurchase billions of dollars in bad Countrywide mortgages, which they say failed to meet underwriting standards. On Friday, the bank announced a $1.6 billion agreement with Assured Guaranty, the insurer that guaranteed several mortgage-bond deals backed by Countrywide loans.
The legal problems don’t seem to be abating, either. Bank of America paid about $3 billion to Fannie Mae and Freddie Mac in the fourth quarter of 2010 to settle the housing finance giants’ repurchase claims. Now, they want more — with claims of $5.3 billion, up from $2.8 billion in the fourth quarter of 2010.
The bank is among several firms ensnared in state and federal investigations into fraudulent foreclosure practices. The bank and 13 other firms signed an agreement with banking regulators on Wednesday to overhaul their foreclosure operations and adopt new oversight procedures.
But the bank and its peers still face demands from state attorneys general to make additional concessions, including a multibillion-dollar settlement.
“Countrywide is a disaster,” said Paul Miller, an analyst at FBR Capital Markets, adding that the first quarter’s problems “will not be the end of it.”
In contrast, the bank’s merger with Merrill Lynch, another marriage forged during the crisis, has fared far better. The global wealth management group, which includes Merrill, reported revenue of $4.5 billion, versus $4 billion a year ago. Earnings rose more than 22 percent.
It is a crucial time for Bank of America, which is hoping regulators will approve a plan to increase the bank’s token 1 cent dividend. In March, the Federal Reserve rejected the bank’s proposal to raise its shareholder payouts in the second half of 2011. The bank said on Friday that it would try again, although analysts are skeptical of its chances.
“I think, eventually, the bank will have to back off” from raising its dividend, said Marty Mosby, an analyst at Guggenheim Securities.
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The Federal Reserve said Friday that factories increased production for the ninth consecutive month. Separately, the Labor Department said inflation rose just 0.1 percent last month excluding food and gas prices. That was far better than the 0.2 percent increase economists were expecting.
Bond prices rose as inflation concerns eased. The yield on the 10-year Treasury note fell to 3.43 percent from 3.51 percent late Thursday. Bond yields fall when their prices rise.
At noon, the Dow Jones industrial average was 72.50 points, or 0.6 percent higher, while the Standard Poor’s 500-stock index gained 6.84 points, or 0.52 percent. The technology heavy Nasdaq was up 1.37 points.
Google dragged down the Nasdaq index after the company that missed analysts’ estimates, in part because it is in the midst of a hiring spree. Its shares fell nearly 7 percent.
And the Bank of America Corporation announced Friday that its earnings and revenue fell in the first quarter compared with a year ago. The bank also announced a settlement that could reduce its liability for its part in issuing shoddy mortgages. Its shares were down 1.1 percent.
In Europe, the FTSE 100 in London was 0.54 percent higher, while the DAX in Germany rose 0.44 percent. The CAC-40 in Paris added 0.1 percent. Earlier in Asia, Hong Kong’s Hang Seng Index fell less than 0.1 percent to close at 24,008.07.
Despite the inflation figures, China’s Shanghai Composite Index staged a late rally to finish 0.3 percent higher at 3,050.53.
Japan’s Nikkei 225 stock average fell 0.7 percent to end at 9,591.52.
Benchmark oil for May delivery rose $1.83, to $109.94 a barrel in New York trading.
While inflation was relatively mild in the United States in March, other figures released Friday reinforced expectations that the European Central Bank and the People’s Bank of China will soon be raising interest rates to counter rising inflation.
In China, figures showed consumer prices rose 5.4 percent in the year to March, up from February’s 4.9 percent. The increase was largely driven by surging food costs and represents a setback for the government, which has lifted interest rates four times since October to cool prices.
Analysts expect the People’s Bank to enact further measures in the days to come in response to those figures.
They also think that the European bank will raise rates again in June after figures showed inflation in the 17-country euro zone revised up to 2.7 percent in the year to March from the preliminary estimate of 2.6 percent, largely because of rising fuel costs.
Investors also kept a watched on the sovereign debt situation in Europe.
Portugal avoided default on Friday as it scraped together 4.2 billion euros ($6.1 billion) for a bond redemption, but further depleted its meager cash reserves as it desperately awaits a bailout.
Lisbon is eight weeks away from possible bankruptcy. Officials admit they will not have enough money to settle a 7 billion euro debt falling due in mid-June and have asked for financial help amid a cash crunch that is threatening the provision of basic services.
The ailing country is weathering unsustainable costs on loans to finance its economy, with its 10-year bond yield reaching 8.9 percent Friday as markets shied away from investing their money in a country viewed as a risky bet.
Portugal’s European partners and the International Monetary Fund last week agreed to provide aid which could amount to 80 billion euros ($115 billion).
But negotiations on the terms of the loan, especially what interest rates Portugal will be obliged to pay on it, will probably take weeks.
There are also mounting concerns that Greece will be forced to restructure, though the prime minister, George Papandreou, insisted that Athens did not intend to do so. The country’s woes, he said, “will be addressed in depth. Not by restructuring the debt but when we restructure the country.”
Another credit rating downgrade of Ireland by Moody’s also stoked concerns that Europe’s debt crisis still has a way to play out.
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Stocks were steady after Tuesday’s session in which major indexes struggled to overcome weaker oil and other commodity prices as well as bleak news from Japan about the severity of its nuclear crisis. The Dow Jones industrial average close nearly 1 percent lower on Tuesday, its biggest decline in nearly a month.
By midday, the broader market was slightly lower, and the financial sector lagged after JPMorgan Chase reported that its quarterly profit surged 67 percent even as problems continued in its mortgage lending business.
Strong first-quarter results from its investment banking and trading businesses helped offset losses from the retail bank, which set aside an additional $650 million to cover potential legal claims and to deal with bad loans. Altogether, the bank’s profit of $1.28 a share beat analysts’ forecasts.
William Smith, the president of Smith Asset Management, said the results from JPMorgan were “relatively” supportive of the market.
“They had a good quarter,” Mr. Smith said. “It is positive sentiment someone can hang a hat on.”
Still JPMorgan’s shares were down 0.5 percent. Most other bank shares were also lower. Goldman Sachs added 0.3 percent, while Morgan Stanley lost 0.29 percent. Citigroup lost 1.1 percent, while Bank of America, which reports results on Friday, lost 1 percent.
Brian Foran, a bank research analyst for Nomura Securities, said JPMorgan’s results, which kicked off the bank earnings season, were usually considered a barometer from which other banks were judged.
“Over the past eight quarters, JPMorgan earnings have fairly consistently marked the near term peak for bank stocks, in part because their results tend to the best,” he said. “Whatever JP reports will be the best you are going to see.”
That means if JPMorgan reports mortgage servicing charges, Mr. Foran said, other banks will probably do the same.
“Now everyone is racing around trying to figure out whether other banks will have to take similar mortgage expensing,” he added.
Analysts also noted that banks still needed to demonstrate how they were going to operate in an environment in which the economy is struggling to recovery in a weak housing market.
“It gave a little bit of a boost to the market that things are at the point where they are stabilized,” said William J. Schultz, chief investment officer for McQueen, Ball Associates Inc., referring to the JPMorgan results.
But he added: “I think what you are seeing now is the banks are trying to operate in a low interest rate environment, and to see how they can generate returns here going forward.”
“It is going to be a little bit slow on the loan growth side until the economy picks up,” Mr. Schultz said. “We are also seeing write-downs lessen, so there is a bit of better news on the housing side but we are not out of the woods yet. We are going to need an increase in consumer confidence to boost their loan growth going forward.”
In early afternoon trading, the Dow Jones industrial average was slightly lower, while the broader Standard Poor’s 500-stock index was down 0.1 percent. The technology-heavy Nasdaq composite rose 0.41 percent.
While the financial sector was down, e technology shares climbed. The banking, consumer confidence and retail sectors touch some of the central themes of the economic recovery.
On Wednesday, the Commerce Department said that retail sales in March increased 0.4 percent, but most of the increase could be attributed to higher gasoline prices.
Still, economists inserted caution into their outlook based on the latest retail sales. When adjusted for inflation, the numbers were barely rising and could even be decelerating, said Steven Ricchiuto, the chief economist, Mizuho Securities USA, in a research note.
Analysts are also concerned that the recent spike in energy prices, which have translated into an average $3.80 for a gallon of regular gasoline, will mean that consumers have little left for other spending.
“Retail numbers are pretty telling right now,” Mr. Smith said. “I think it is something you have to watch carefully to see what is going to happen with the effect of energy prices on consumers. It leads to other questions: where are we in the recovery?”
The yield on the 10-year bond climbed to 3.52 percent from 3.50 percent on Tuesday.
Eric Dash contributed reporting.
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