STRATEGY: Wells Fargo raises record
RESULTS: Italy’s Big 2 both report
54% drop in Q3 earnings…
introduces new complaints
PAYMENTS: US Bancorp tests
contactless Micro Tag…

Fannie Mae and Freddie Mac report record-breaking

Fannie Mae, which together with Freddie Mac owns or guarantees
about half of US mortgages, has posted a record $29 billion
third-quarter loss, and said it expects a significant loss for the
fourth quarter.

Fannie Mae’s losses increased due to the write-down of the value
of deferred tax breaks, amounting to an admission it will continue
to report losses. Credit expenses also soared, to $9.2 billion in
the quarter, due to deteriorating mortgage credit conditions.

At Freddie Mac, the news was even worse – it is broke, with its
liabilities exceeding its assets by $13.8 billion following a
third-quarter loss of $25.3 billion. As a result, it has asked the
government for the first $14 billion due under the bailout

Wells Fargo raises record $12.6bn

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Wells Fargo, now the largest US retail banking group, has
successfully raised $12.6 billion in the largest yet non-IPO stock
offering in the US, designed to help the bank offset the costs of
its acquisition of Wachovia (see RBI 600).

“The enthusiastic response to this offering in a very difficult
market demonstrates broad investor confidence in Wells Fargo’s
long-term growth potential and our time-tested vision and
diversified business model,” said Howard Atkins, the company’s
chief financial officer.

Wells Fargo also received $25 billion from the US Treasury as
part of the $700 billion capital injection programme for the
nation’s troubled financial sector. According to Atkins, the
Wachovia deal is on track to close during December. Wells Fargo
will start 2009 with the largest US branch network (6,782 versus
Bank of America’s 6,143), approximately 48 million customers and
around $1.42 trillion in assets.

Android platform first for Bank of America

Bank of America (BofA) has become the first bank to offer a
mobile phone application on Google’s recently-launched Android
software and operating platform for mobile phones.

BofA’s application is the first to appear in the finance section
of Android and offers access to online banking and includes
branch/ATM location capabilities.

In a separate announcement, card network Visa is developing
mobile payments software for Android handsets, with the first
application to be offered to Chase Visa cardholders. Customers will
receive information about transactions to their handsets as well as
promotional offers from merchants. In Asia, the joint venture set
up by Citi and South Korea’s SK Telecom, Mobile Money Ventures, has
also announced plans to develop Android-compatible banking

The first phone offering Android software, the G1 from network
operator T-Mobile, went on sale in the US in October; future
Android-enabled handsets will launch in 2009 from other companies
including Motorola, Kyocera, Samsung and LG.

Italy’s Big 2 both report 54% drop in Q3 earnings

Intesa Sanpaolo, Italy’s second-largest bank, has missed
third-quarter profit estimates, reporting net income of €673
million (€842.9 million), down 54 percent from €1.46 billion in the
same quarter last year, due to trading losses and write-downs.

In an effort to “avoid the perception that the Intesa Sanpaolo
Group could be inadequately capitalised,” the bank said it would
cancel its cash dividend for 2008. The €3.7 billion saved by
non-payment of the dividend will be used to lift its Tier 1 capital
ratio to 6.9 percent and its core Tier 1 ratio to 6.2 percent as of
the end of September.

Despite reporting a €300 million loss from the failure of
investment bank Lehman Brothers and Icelandic lenders, Intesa was
able to flag up a number of positive highlights: its
loans-to-deposits ratio remains healthy at 93 percent while its net
doubtful loans to net loans ratio remains stable at 0.9

By contrast UniCredit, Intesa’s main rival, reported
third-quarter results beating analysts’ expectations, posting net
profit of €551 million, down 54 percent compared with the same
period last year. Its pre-tax figures were, however, boosted by
€856 million due to UniCredit taking advantage of a controversial
accounting rule change.

Strong performance boosts Société Générale

Société Générale’s (SocGen) international retail division has
reported third quarter profits of €255 million, up an impressive 48
percent, out-performing the bank’s domestic consumer-banking unit
where profit declined by 5 percent to €345 million.

Group-wide, net income fell by 84 percent to €183 million
compared with €1.12 billion a year ago, with credit-related
write-downs at the bank’s investment-banking and asset-management
arms responsible for the profits collapse. In particular, the bank
suffered a €447 million hit related to the bankruptcy of Lehman
Brothers and €453 million tied to US bond insurers. According to
SocGen, its French retail division is on track to report an
increase in revenue for the full year of around 1 to 2 percent.

RBC introduces new complaints process

Royal Bank of Canada (RBC) has introduced a new independent
dispute resolution process, saying it expects the new appeal
process will result in a quicker response to RBC banking clients
and any unresolved issues after review by the RBC Ombudsman. RBC
has retained the services of ADR Chambers, an industry-leading
alternate dispute resolution firm. ADR Chambers will provide an
independent appeal process for RBC’s banking clients who do not
agree with the observations and recommendations made by the RBC

The bank says it already has one of the best records in the
Canadian banking industry for dealing with unresolved client
disputes: in recent years, less than 15 RBC client disputes
annually have resulted in case investigations by the former
provider of external dispute resolution services.

Citi rolls out raft of new US housing initiatives

Citigroup, which last month posted a $2.8 billion third-quarter
loss, has published plans to deal with the growing number of its US
mortgage customers facing foreclosure. The new initiatives build on
and accelerate Citi’s current loss mitigation efforts, which have
prevented, according to Citi, approximately 370,000 foreclosures
since early 2007.

The group has recently launched the Citi Homeowner Assistance
programme, for instance. Over the next six months, this will
preemptively ‘reach out’ to a select group of 500,000 homeowners
whose mortgages Citi holds; these homeowners are not currently
behind on their mortgage payments, but some may require help to
remain current on their mortgages. This effort is expected to
result in work-outs of $20 billion in underlying mortgage

Citi also said it will now implement its practice of not
initiating a foreclosure or completing a foreclosure sale on any
eligible borrower where Citi owns the mortgage; the borrower is
seeking to stay in the home which is his/her principal residence;
is working in good faith with Citi; and has sufficient income for
affordable mortgage payments. It also recently streamlined its
existing loan modification programme, which is similar to the
FDIC/IndyMac model, to aggressively rework delinquent loans.

HSBC profit cushion remains despite US hit

HSBC’s third quarter figures have confirmed the bank is
weathering the financial storm more adroitly than its rivals, but
also indicated its susceptibility to downturns in the US and in

Though the bank said pre-tax profits for the quarter were higher
on an annualised basis, its US arm, HSBC Finance, saw loan
impairment charges in the Personal Financial Services (PFS)
division rise by $700 million in the quarter to $4.3 billion due to
its deteriorating real estate and credit card portfolios. HSBC said
it avoided a $835 million hit to pre-tax profits by reclassifying
$13 billion worth of assets under new accounting rules.

Loan impairments in Hong Kong and China also rose “but remained
at a low level”. Slower economic growth in Latin American and the
rest of Asia-Pacific led to an impairment of consumer credit
balances, HSBC added.

Though it expects further deterioration in its US business, HSBC
said PFS “remained resilient in Europe” as a result of higher net
interest income. A continued flight to quality resulted in further
deposit inflows across the bank, helping push its loan-to-deposit
ratio down from 90 percent to 88 percent.

Bank of East Asia sets up online donation

Hong Kong’s Bank of East Asia (BEA) has launched an online
donation system aimed at encouraging consumers to give money to
charitable organisations using their credit cards.

The Online Donation Services scheme, developed for BEA by
charitable organisations in Hong Kong, will enable all BEA account
holders registered for its Cyberbanking electronic banking service
to set up a schedule of successive donations.

The initiative echoes a recent move by the UK’s Virgin Money
whose chief executive told RBI last month the firm was to
launch its own charitable donations website following a new £17
million ($26 million) deal to sponsor the London Marathon from 2010
to 2014.

Nationwide Building Society increases deposit share as lending

Nationwide Building Society, the UK’s largest mutual, has
announced net profit of £270 million ($411 million) for the six
months to 30 September, up 14 percent from £236 million a year
previous. The same period, however, saw its net residential lending
volumes slump from £3.6 billion to £1 billion.

Nationwide said the drop was a result of its “conservative and
sustainable” approach to lending. A desire for stability among
customers saw the building society garner £2.6 billion of net
retail deposits over the past six months, which Nationwide
estimates to constitute a market share of 34 percent.

Just 0.4 percent of mortgage accounts were in arrears by three
or more months, compared to an industry average of 1.33 percent.
Nationwide took a £74 million hit on impairments on loans and
advances over the period but stressed total group net lending of
£1.2 billion was entirely funded by retail deposits.

Capital One launches social network card image

Capital One has partnered with US magazine Newsweek and
photo-sharing website Flickr to launch ‘American Life’, an online
photo contest whose winners will be able to personalise their
credit card using their images.

The feature comes as part of Capital One’s Image Card tool,
launched in 2007, which allows its consumer credit card users to
upload their images to be printed on their cards. The ‘American
Life’ winner and two runners-up will have their photos displayed as
featured images on the Image Card site, as well as receiving
$7,000, $6,000 and $5,000, respectively.

The bank says entrants will be able to submit photos either via
a special Flickr group or on its own site, http://www.capitalonephoto/
An online voting process will select the winners once competition
entry is closed on 5 January 2009.

Sberbank sees sharp rise in 9M net profit

Net profit at Sberbank, Russia’s largest bank, rose by 27
percent to RUB102 billion ($3.7 billion) in the first nine months
of 2008, with corresponding increases in consumer lending and
deposits boosting performance, the bank has announced.

Deposits from individuals rose by RUB346.6 billion to stand in
excess of RUB3 trillion as of 1 October, though Sberbank
acknowledged it had seen a slowdown in inflows in September, a
month when confidence in the state of the Russian economy began to

Loans to individuals totalled RUB1.25 trillion, a 32 percent
rise on figures for the corresponding period in 2007. A Sberbank
spokesperson was not able to immediately confirm reports suggesting
the bank was tightening loan conditions and mortgage requirements
as part of a renewed focus on credit quality.

Amex restructures, seeks $3.5bn capital

American Express (Amex) has become licensed as a bank holding
company in order to take advantage of governmental liquidity
schemes as it bids to avoid becoming the latest victim of the
credit crisis.

The payments and travel business has also announced a
cost-savings programme designed to save $1.8 billion in the next
financial year.

The firm is now seeking $3.5 billion in capital from the US
government following its conversion, according to The Wall
Street Journal
. The Federal Reserve said the change of status
was fast-tracked because of “emergency conditions”, despite Amex
holding just $7.2 billion in retail deposits. Such applications
usually take 30 days to process.

Amex will cut 7,000 jobs, predominantly at management level, as
well as implementing a hiring freeze, in a move seen as saving $700
million in 2009. A reduction in technology, marketing and business
development spending will save around $1 billion, Amex said, with
other operating cost reductions contributing $125 million in

The firm’s need to rollover some $24 billion in funding over the
next 12 months is a likely catalyst for its conversion. In October,
Amex reported net income of $815 million for the third quarter, a
24 percent year-on-year decrease.

US bank fees start to rise

Bankrate’s 2008 US current account survey concludes the average
total cost of using another bank’s ATM in the US has risen by 13
percent over the last year to $3.43. This figure comprises a $1.97
ATM surcharge from the ATM operator and a fee of $1.46 from the
cardholder’s bank for using another bank’s ATM. The survey examined
current account fees at the largest banks and thrifts in 25 major
US markets.

Bankrate also said that the average balance required to open an
interest-bearing account and earn interest is $376.75. The average
interest paid on these accounts is 0.24 percent, down from 0.32
percent a year ago, said the research group. But to avoid monthly
fees, US customers need to maintain an average balance of
$3,461.84, a “stunning” amount and an increase of approximately 4
percent over last year. <

HSBC and Visa in A-P, Mid East cards push

HSBC has chosen Visa for new debit card programmes in key
emerging markets in the Middle East and throughout Asia-Pacific.
The bank is also launching the contactless Visa payWave card system
in the Middle East, a region it has signalled is crucial to its
business plans over the next few years.

The relationship is based on a five-year regional agreement in
which Visa will become HSBC’s exclusive partner for new consumer
debit products, with HSBC issuing more than 10 million Visa debit
cards in Australia, Brunei, India, Indonesia, Malaysia, Mauritius,
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
HSBC Middle East is also to launch new Visa-branded debit cards by
early 2009 in eight countries including the United Arab Emirates,
Qatar, Bahrain, Oman, Egypt, Jordan, Lebanon and Pakistan, with
approximately one million of these being Visa payWave-enabled.

“This deal expands the relationship between two global leaders –
HSBC and Visa – in some of the fastest-growing areas in the world,”
said Hans Morris, president of Visa.

Santander launches €7.2bn rights issue

Spanish banking giant Santander has announced it is to launch a
€7.2 billion ($9.24 billion) rights issue, just days after
reporting a rise in nine-month profits year-on-year to €6.9

The group, seen as one of the stronger banks in the current
crisis (see RBI 599), said it was to offer one new share
for every four existing shares, leading to the issue of €1.6
billion new shares.

The rights issue is aimed at reinforcing the bank’s core capital
and has been fully underwritten, it said – only last month,
chairman Emilio Botin said he was “comfortable” with a Tier 1 ratio
of 6 percent (see RBI 600). The shares themselves will be
offered at €4.50, almost a 50 percent discount on the previous
day’s closing price of €8.34.

The bank reported a profit of €6.94 billion for the first nine
months, up 16 percent year-on-year. The growth was driven in part
by increasing revenue in both Latin America and in the UK, as
subsidiary Abbey recorded a 20 percent increase in profits for the
same period.

In the course of the third quarter, Santander subsumed both
Alliance & Leicester and Bradford & Bingley, the UK’s
seventh- and eighth-largest banks, and the Spanish group now runs
the UK’s fifth-largest retail banking franchise.

The stake in ABN AMRO contributed €725 million to results in the
first nine months, nearly all generated by Banco Real in

FSA consults on retail banking regulation

The UK’s financial regulator, the Financial Services Authority
(FSA), has published a consultation paper proposing a new framework
to significantly increase the regulation of retail banking in the
UK. The draft proposals cover all areas of consumer banking, from
the transparency of banking practices to the way banks treat their

The paper suggests that the FSA should have wider reaching
powers than are planned under the Payment Services Directive (PSD),
not just taking responsibility for regulating banks and building
societies payment transactions, but all aspects of banks’
relationships with their retail customers. This excludes credit,
such as unsecured loans and credit cards, which is currently
regulated by the Office of Fair Trading.

Jon Pain, the FSA’s managing director of retail markets, said:
“Retail banking is going through a period of rapid change and
regulation needs to keep pace with this change. We believe that in
order to ensure that the regulatory model is fit to meet these
challenges, now and in the future, the FSA should regulate the
wider aspects of everyday banking for all consumers.”

The FSA is giving all stake holders until February 2009 to
comment on the scheme.

BBVA launches financial solutions

BBVA, Spain’s second-largest bank, is launching a broad range of
products aimed at “helping individuals and the self-employed in the
current market conditions”.

The products include a mortgage that comes with a €200 “gift”, a
competitive savings account and a special payroll account for the
self-employed. Juan Asúa, director of BBVA for Spain and Portugal,
described the raft of new products as “highly down to earth
solutions adapted to the current economic environment”.

Under the slogan “We adapt to our customers’ lives”, BBVA
expects to increase its base of retail and self-employed customers
in Spain. The targets of the campaign include picking up 12,000
mortgage switches, capturing €500 million in funds in deposits
within a month, adding 200,000 payrolls within a year and
increasing its customer base of self-employed professionals and
retailers by 75,000.

US Bancorp tests contactless Micro Tag

US Bank, the sixth-largest bank in the US, says it plans to
distribute more than 4,000 prepaid Visa Micro Tags to employees in
November 2008 to collect feedback on design, functionality and the
ease-of-use of the devices. Employees across the country will
receive the US Bank Visa Micro Tag which is connected to a prepaid
US Bank Visa gift account.

The Visa Micro Tag, the smallest Visa payWave-enabled device
currently available, attaches to a key ring and allows Micro Tag
holders to simply ‘wave and pay’.

US Bank Visa Micro Tags display the Visa and US Bank brands and
a contactless indicator. A Visa account number is not required on
the device.

GMAC reports grim third-quarter loss

GMAC Financial Services reported a 2008 third quarter net loss
of $2.5 billion, compared to a net loss of $1.6 billion in the
third quarter of 2007. Results were primarily attributable to a
significant loss at its mortgage subsidiary, Residential Capital
(ResCap), as adverse market conditions in the US and
internationally continued to affect the mortgage business. GMAC’s
automotive finance operation also experienced pressure from lower
used vehicle prices and weaker consumer and dealer credit

GMAC’s CEO, Alvaro de Molina, called the economic and market
conditions “unrelenting”. “We are pursuing strategies to increase
flexibility and access to funding such as participating in the
Federal Reserve’s commercial paper-purchase programme via our
asset-backed credit facility and engaging in discussions with
regulatory authorities regarding bank holding company status.”

GMAC Bank assets and deposits grew at a “measured rate”, with
total assets of $32.9 billion at quarter-end, which includes $8.5
billion of assets at the auto division and $24.4 billion of assets
at the mortgage division. Deposits also increased in the third
quarter to $17.7 billion, compared to $16.9 billion at the end of
the second quarter.

ResCap reported a net loss of $1.9 billion for the third quarter
of 2008, compared to a net loss of $2.3 billion in the year-ago
period. During the third quarter, ResCap closed all GMAC Mortgage
retail offices, ceased originations through the Homecomings
wholesale broker channel and further curtailed business lending and
international business activities.