Tuesday, September 19, 2000

Industry notes: Banking

U.S. thrift earnings take hit

By Jeff McKinney
The Cincinnati Enquirer

        U.S. thrifts posted a 5 percent decline in second-quarter earnings from a year ago, according to the federal Office of Thrift Supervision.

        Thrifts earned $2.02 billion, down from $2.12 billion in 1999's second quarter, the industry's second-best quarter ever.

        The decline primarily was attributed to higher operating costs and a slight decline in net interest margin. Moreover, some thrifts reported a rise in problem loans tied to sub-prime lending. Those are loans made to borrowers with tarnished credit histories.

        Despite the lower earnings, the agency said the industry's second-quarter performance was strong and stabilizing interest rates should help savings and loans go forward.

        The agency said more nonperforming business loans and a greater competition — causing thrifts to seek nondeposit money to fund loans — could affect future performance. But it said the likelihood of rising rates beginning to moderate should help thrifts.

Greenspan advises caution amid changes

               The banking industry is in a period of rapid technological change, and regulators must keep pace, Federal Reserve Chairman Alan Greenspan said Monday.

        Mr. Greenspan said bankers must be careful in such changing times because they are losing the advantage they have always had in information. His remarks were made at the annual convention of the American Bankers Association in Washington, D.C.

        Competitors, with the aid of high-speed computers, have access to the same information about borrowers and financial market operations that the biggest banks have, Mr. Greenspan said.

        Mr. Greenspan said financial markets will be able to spot banks that are releasing “questionable” information, and he cautioned that such banks would pay a high price in loss of confidence.

        In addition to rapid advances in information brought on by computers, the regulatory framework has changed with passage of last year's sweeping bank overhaul legislation, Mr. Greenspan said. The new law did away with Depression-era barriers that had separated banks, insurance companies and securities firms.

        He said regulators were striving to adjust their supervision to the new law as well as a rapidly changing financial marketplace, which is creating a flood of new investment products.

        Mr. Greenspan, speaking from prepared remarks, said nothing about the overall U.S. economy and what actions the Fed may take on interest rates. The central bank has pushed interest rates up six times since June 1999 to slow economic growth and keep inflation in check.

        Many economists think the Fed is through raising rates for this year.

Mortgage servicers enjoy big profits


        Last year was more profitable for mortgage servicers than two years ago despite a continuation of industry consolidation.

        The nation's largest firms that handle mortgages serviced more than 14 million loans worth $1.3 trillion last year. The size of those companies' portfolios ranged from more than $300 million to more than $225 billion, according to a new study.

        The results came from the “2000 Cost of Servicing Study” conducted by the Mortgage Bankers Association of America (MBAA).

        The trade group surveyed 37 mortgage banking companies to determine income and costs for servicing one-to-four-unit home loans. The companies made up five groups — based on number of loans serviced — with the number of loans serviced ranging from 5,000 to 2 million.

        The largest services — those handling 750,000 loans or more — had the most revenue per loan at $425. The other servicing groups collected income ranging from $349 per loan to $401 per loan.

        The higher profits also came as industry consolidation continued and some large banking companies decided to leave the business.

        One example: PNC Financial Services Group Inc., which operates Cincinnati's fourth-largest bank, is seeking a buyer for its mortgage business, saying it's not large enough to compete with rivals such as Chase Manhattan Corp. and Wells Fargo & Co.

        But there's no guarantee that strong profitability will continue. Forces like the Federal Reserve's recent efforts to boost interest rates are expected to decrease home-lending activity this year.

        Doug Duncan, the MBAA's chief economist, said the industry's results occurred in a strong economy but questioned whether those results can be sustained as the economy slows.


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