2010-style squeeze

By ANTHONY HALL, United Press International   |   Oct. 19, 2010 at 8:56 AM   |   Comments

Bank of America pointed to financial reform bills as part of the reason it lost $7.3 billion in the third quarter, most of it due to a one-time write-off.

BofA said its credit card unit was $10.4 billion less valuable now that regulations limit fees it can charge to customers for debit card overdrafts.

Credit new laws for pushing BofA into a new environment, which Chief Executive Officer Brian Moynihan said will take an adjustment or two.

"We're are adapting to the regulatory environment, credit quality continues to improve, and we are managing risk and building capital," Moynihan said in a statement.

"We are realistic about the near-term challenges and optimistic about the long-term opportunity," he said.

It was known, of course, that credit card reform and the sweeping financial reform bill would do more than change the behavior of banks. It would also radically change some numbers, most directly the number referred to as revenue. Spinning off derivative businesses, reigning in proprietary trading, cutting back on credit card fees and tightening credit card policies for college students cuts into business at both investment-oriented banks and those that rely on consumers to reel in revenue.

Retailers across the country are in a similar bind. They don't have sweeping new regulations to blame, but the current economic environment has the potential to cut into revenues all the same.

Some of the obvious factors at play: Consumers are saving more than they did before the downturn began and there are 7.7 million more workers out of a job now than there were in 2007.

In a recent fundamental shift, however, the cost of raw materials is rising, but retailers are wary about passing on costs to customers.

Taking a broad view of the numbers, the consumer price index is not keeping up with the producer price index, which rose 4 percent in September compared to a CPI gain of 1.1 percent, The Wall Street Journal reported.

Looking at just one retail sector, prices consumers pay for tires have risen 11 percent in the past three years, but manufacturers are charging retailers 18 percent more than they did three years ago, as the price of raw materials has escalated, the Journal said.

Retailers in many sectors are facing the same squeeze. The cost of cotton jumped to its highest point in 140 years this summer, which Levi Strauss said will impact the price of its jeans. If consumers remain entrenched in the doldrums, however, retailers are apt to take some of the squeeze themselves, absorbing some of the loss as a better alternative than alienating customers.

Back at the nation's banks, two large lenders, Bank of America and GMAC Mortgage said they had reviewed their paperwork procedures related to foreclosures and were ready to resubmit affidavits to courts to restart the foreclosure processes.

Both banks had suspended foreclosures as a scandal over sloppy paperwork escalated, causing many lenders to put foreclosures on hold. Bank of America said it had cleared the way for 102,000 foreclosures to proceed in 23 states that require a judge's signature while GMAC did not give a specific number of foreclosures it had cleared for take off.

At Citigroup Inc., Chief Financial Officer John Gerspach said, "We have not identified any system issues," and at JPMorgan Chase, Chairman and CEO James Dimon has said he suspects no homeowners were "evicted out of a home who shouldn't have been."

In international markets Tuesday the Nikkei 225 index in Japan rose 0.43 percent while the Shanghai composite index in China added 1.58 percent. The Hang Seng index in Hong Kong added 1.25 percent while the Sensex in India lost 0.92 percent.

In Australia, the S&P/ASX 200 added 0.08 percent.

In midday trading in Europe, the FTSE 100 in Britain lost 0.4 percent while the DAX 30 in Germany lost 0.2 percent. The CAC 40 in France fell 0.27 percent while the Stoxx Europe 600 rose 0.3 percent.

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