Credit Crisis crush regional bank’s results

  • Credit crisis

Lower profit generations are resulting in continuous losses leading to massive credit crisis for six of the largest U.S. regional banks; as a result, a total of 14% of the employees are facing a threat for losing their jobs. Despite their efforts to double their reserves to compensate for the losses they faced on the loan grounds, the net charge-offs have soared to newer heights, quite a few times more than last year resulting in deteriorating credit. However, Mr. Henry Paulson’s (Secretary, U.S. Treasury) steps for infusing capital worth $250 billion (as a part of his $700 billion Troubled Asset Relief Program) into the nation’s banks stays the only hope.

Edward Hemmelgarn (President, Shaker Investments, Cleveland) commented – “This is what happens in a recession, especially one driven by financials and the consumer. Everything always looks gloomiest as banks try to stay ahead of the curve.” But he also added that capitals present with many banks are not as bad as being portrayed.

Those in distress are seeking aid worth anything between $1.1 billion to $3.5 billion, as reported by Andrew Cecere (Chief Financial Officer, U.S. Bancorp). According to him – “Changes with regard to capital availability and tax changes potentially makes a merger transaction financially more attractive.”

  • Effects of recession

The first is definitely a decline in the profit margins. U.S. Bancorp suffered a loss of 32 cents for every share, which is, 47 percent. However, this is on the greener side since investors and depositors are now avoiding the weaker rivals. For others, the profit margins nose-dived between 54% and 80%.

The next effect is definitely a build-up of personal debts due to decreased income that can bring forth other deteriorating effects such as break-ups in families, an increased number of school and college dropouts, an increased number of people going for substance abuse and ofcourse, an economic dependency. The debts surmount mostly through credit cards; with inflation being the other side of recession, expenses may run wild further pressurizing income. As a result, people start exhausting their savings driving them more into the realms of poverty.

  • Profit Fall Analysis

What was a $19 million loss in 2007 jumped to $729 million in 2008 for the Cleveland-based National City, but this excludes the dividend for this year April’s $7 billion rising of capitals. Overall, the shares suffered a loss of 85 cents on each. But the loss of deposits in September because of the market turmoil has been given a positive feedback from the Chief Executive Peter Raskind, who commented things to become the worst before getting better.

For others, net loss went as high as $81 million (i.e. loss of 14 cents from 61 cents for every share) from the $325 million profit last year. KeyCorp, Cleveland; however, reported of a loss of $36 million with probably the least of losses per share amounting to 10 cents from 57 cents. Definitely, it is the result of the most severe financial crisis according to even the most experienced banking veterans.

Can the federal Aid save the financial market?

  • Federal Aids Vs Recession fears & corporate profits

The Federal Reserve of the United States of America, together with the governments of the other countries has pumped in the required amounts of money to hoist the financial flags but the launching of bank rescues was not fully effective in eliminating the fears of recession that are still driving down the commodities and the stocks in the U.S. It’s the poor profits generated by the corporate world that is held responsible for not allowing the faith to get restored once again.

The latest program of Washington for helping the financial markets amounts to $540 billion that has been channelized to set up five special purpose vehicles. This shall enable buying certificates of deposits as well as commercial papers from the mutual funds suffering currently because of investors backing out lately.

Henry Paulson (Treasury Secretary) is supporting the idea of the fiscal stimulus program, which inevitably is a proof of the Bush administration accepting the government’s responsibility to bring the economy up. But shall it cover the trouble spots such as Pakistan, Ukraine and Iceland? Since Japan and France has extended the help to banks; now the intervention of IMF is required to set the balance.

Inter-bank costs for lending have dropped again; this is a tentative signal of a renewed confidence in the financial system. With the Treasury buying off all the mortgage loans, there are high chances of the credits crossing the freezing points. Question remains, in which direction and shall it be enough to buffer the difficult months before the conditions improve? Even a resilient economy is not enough to answer that.

  • Role of the federal reserve banks around the world

Speaking on a global basis, the promise is of $3.3 trillion. This shall guarantee the bank deposits and inter-bank lending to surface once more. Lawrence J. White (Professor, Economics, Stern School of Business, New York University) commented on the issue – “With honesty on bank balance sheets and enough government bucks, private investors will come back in. But Government investment should be structured to ensure the government earns a profit if and when the banks’ shares rise.”

Whether or not it shall transform into a reality is debatable, for U.S. stocks though experienced a brief rise, slid back with The Dow Jones Industrial Average closing down 2.5 percent while NASDAQ Composite Index went down by 4 percent more. And the stronger dollar resulted in sending the gold and oil prices about 4 percent lower than the previous counts, while Japanese stocks closed 3.3 percent higher and European shares at around 0.8 percent. Canadian banks have now lowered their rates on prime lending for lowering the funding costs, providing customers lowered rates on an array of loans.

Survive your endless Debt problems

Anyone with his common sense intact shall normally stay away from incurring a debt. But situations often drive the majority to fall for some loan program; worse, when you borrow little amounts and notice suddenly one day the accumulated volume. Still we forget one teaching of life: One must learn to live on what he earns.

  • How to manage your debts?

Firstly, you must get rid of the habit of making excuses. The credit card companies are not to blame but your own impulsiveness. Unless you get that straight, no debt management program is going to help. And of course, don’t lie to yourself regarding your spending habits if you want to set up a more realistic budget comprising:

  • Amounts payable to the credit card account exceeding the minimum. Over long run, this shall save you a great deal which would otherwise go for paying the interests.

  • An amount to push into an emergency fund weekly, which could be a savings account. It shall help you to deal with unexpected expenses; if you have to borrow money, borrow from yourself and pay back the withdrawn amount immediately after you receive some money.

  • List all of the debts you’ve incurred. The list should feature the debt with the highest interest rate at the top and the lowest at the bottom, with everything else in between. This shall help you to determine which ones are making you the pauper. Pay as much as you can the highest-rate balances while for the lower rates pay the minimum balances. It shall help you clear them off without making you feel the pressure. Also, use any extra cash to pay down existing debts.

While the above points can allay your agonies up to a great deal, to speed up the debt clearing process, you must also develop a habit to spend less. The best place to develop the habit is to avoid eating outside whenever possible, spend in cash and put a stop to premium cable-TV channels. If nothing becomes possible, then the only option remains is a debt consolidation program.

  • A complete debt management program

There are debt management programs but what we don’t understand is a home-equity loan is not to be used for paying off a credit card debt. Most of us create this mistake since the interest rates are lower than what the credit cards charge, but later on, bigger troubles may loom when legality comes into question. And of course, a complete debt management program won’t also ask you to cash your 401(k).

Instead, it shall ask you to consolidate your debts, make your credit cards retire but one (for dire emergencies) and hold on to your patience to earn big dividends in the near future.

  • Debt consolidation methods

There are lots of debt consolidation methods to suit your needs, but on a broader sense, you may divide them into secured (require a collateral against the money lent; hence attracts lower interests) and unsecured (doesn’t require the collateral; hence, interest rates are more). However, the methods, apart from the above points, are pretty similar.

It’s only a debt management company that shall provide you this service in exchange of a payment of a cumulative amount every month to the creditors. The debt management company shall then distribute this amount accordingly. However, for the commercial setups, the debt management company pays off various creditors first and then breaks up the total amount in equal parts over a certain tenure. The payment terms remain based on customized agreements. A relief from the burden of high interest rates, for sure.

Online accounting: The latest trend

  • Online Accounting Vs Desktop accounting software

Gone are the days when accounting software packages were desktop dependent; this is the age of online bookkeeping. Despite the slow pace compared to other software, online accounting software is making the hard-to-adjust trend catch up gradually.

The primary bar is due to the technical complications online accounting poses. Add to it the wide range (and sometimes unknown) of tax laws varying over the geographical boundaries; compatibility becomes a tricky issue, giving rise to awkward experiences. To have an account, it’s vital that we know a few of them used for online bookkeeping purposes.

Online Accounting

Online Accounting

  • Why choose online Accounting

But the sad news is all these golden offers are failing to get Intuit a clean chit in the field of online accounting; it seems the developers have to rethink its resources for a better market leverage to compete against the traditional accounting software like Freshbooks, Xero and Zoho. These packages are a direct competitor to Quicken; a glance on the features like invoicing, payroll processing or expense tracking and several others shall prove well that an impressive Web 2.0 design stands as their prime forte. What are the advantages? Providing inputs hasn’t been this much a cakewalk formerly.

  • Costs and Benefits

Whether it’s for personal use or for small to medium sized businesses, accounting software vendors like Intuit and MYOB are still ruling the roost; however, their initiatives towards making the web-based accounting software packages also deserve compliments. Out of these two, Intuit, added another name to its online versions of QuickBooks; small business owners may now benefit from the Quicken Online that comes at a competitive price and a 60-day free trial version. Satisfied users can pay as little as $2.99 a month and that too without any advertisements cluttering up the software.

  • Conclusion

Talking about Freshbooks, it is a conglomeration of online invoicing features, time- as well as expense tracking along with a subscription business model resembling that of Basecamp’s. Perhaps this is the reason why 0.4 million users worldwide find it a hot favorite; if the rest of the nifty features are considered (e.g. invoices at-a-glance, Basecamp integration or an application programming interface), it’s indeed a very helpful piece.

Single stock Investment – A blessing or a curse

Risks and stock investing are the two different sides of the same coin, but to those who are initiated, minimizing those risks is easier than doubling a 5-figure number. Even you can become one of them if you know the nitty-gritty of investment; if you are unsure about the returns, an aid from a professional accountant can set your deals right. So learn to navigate around the pitfalls and maximize the profits, but before you do so, collect all information that’s necessary for stock investing.

  • Is it wrong to hold a single stock for a long time?

First thing first, you must not stay 100 percent invested all the time. This is because stock investing requires understanding the stocks in your choice list and also the reasons that are forcing you (or not) to invest. But what if you want to shun the rest and only seem interested in a particular stock? It’s the same theory that applies; you need to understand the stock. This is more because while a diversified portfolio translates to a reduced risk (it spreads your money over a vast range), putting all the money on a single stock – how much ever hot it may seem – is putting all the odds tremendously against your strategies and expectations. Thus, for doing the same, you need to be a real expert on that particular company and the money you put there should be an amount you won’t regret losing.

  • Unwritten norms of stock investments

Thus, to make you play safe in the stock investing arena, we advise not putting your entire money in stocks from the same industry. If the particular industry goes down, so shall your entire portfolio, but if you are a veteran in investments and an expert, then do so after taking adequate precautions. A safe way to do the same is by keeping a maximum of 20 percent of your entire investment capital in a single stock. However, if the stock belongs to a company serving food, energy or any other consumer necessities, then the chances for running into a loss goes down by a great deal.

Bankruptcy protection for Lehman Brothers

Bankruptcy - Fall of lehman

Bankruptcy - Fall of lehman

  • What happened?

Bankruptcy showed its ugly face once more, announcing a major slump for the global markets.

  • Who triggered the incident?

Lehman Brothers, the banking titans; their declaration of going bankrupt last Monday made Merrill Lynch (the Wall Street rival) suffer a new financial tumult.

  • What are the reasons behind?

The fall of the Lehman Brothers occurred as a result of massive financing of bad loans. The decision of declaring a bankruptcy by the Lehman Brothers was taken after every form of negotiations failed for arranging a rescue.

  • The Stats

§ Lehman’s loss is estimated at 3.9 billion dollars. The fiscal third quarter went down because of fresh write-downs on mortgage assets.

§ Bank of America is planning to buy Merrill Lynch for 50 billion dollars. Bank of America’s new position as the largest brokerage involves 20,000 advisers and client assets amounting to 2.5 trillion dollars.

  • Counter measures taken

US Federal Reserve, Bank of England and European Central Bank have pushed colossal amounts (in dollars) into the financial markets.

  • The Aftermaths

§ The fallout made Bank of America take Merrill Lynch over; the deal being closed at 50 billion dollar.

§ AIG, the insurance giant’s own crisis made them head for a massive emergency loan.

§ A 70 billion dollars global emergency fund has been set up by a group of banks.

§ Reassurance from the central banks failed to console the European and Asian stock markets and a three to five percent plunge made the dollar fall drastically from its previous value.

· Who’s saying what

§ Marcus Droga (Associate Director, Macquarie Private Wealth) to Dow Jones Newswires: “You’ve probably seen more in one day of financial history than we’ve seen since the great crash of 1929. I’m not suggesting the US market will crash tonight, but in terms of landmark events, it’s a historic day.

§ Federal Reserve: “We are working to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution.”

§ Michael Panzer (author, Financial Armageddon): “It seems clear that a category five storm is making landfall in the US financial system and a lot of very messy stuff is hitting the fan”.

§ Henry Paulson (Treasury Secretary): “The actions taken will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets.”

§ Lehman: “The bankruptcy was authorized by its board of directors and will take place at the US Bankruptcy Court for the Southern District of New York Monday. The bank was acting in order to protect its assets and maximize value. But customers of Lehman Brothers, including customers of its wholly-owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts.

· Who’s doing what:

§ The European Central Bank pumped in 30 billion euros i.e. 43 billion dollars, in hope to keep the financial markets safe from the aftereffects of the Lehman collapse.

§ Bank of England has put in 6.3 billion euros i.e. 9.0 billion dollars to keep the short-term financial markets safe from potential credit crunch.

· Shockwaves in financial Markets due to Lehman Brothers bankruptcy

According to the analysts, Lehman’s bankruptcy shall make the global credit crunch worsen, since it shall impact directly a range of companies dealing with the Wall Street giant, though the Deutsche ministry of finance claimed the situation as a manageable one. However, if the shockwave was such a meager one, then why AIG is trying for 40 billion-dollars as a bridge loan? It can well spell its damnation!

Debt Management & Debt Consolidation

Debt management

At its most rudimentary form Debt Management is a step involving three actions:

Knowing the correct amount of debt you have currently.

Stop all the factors that are pushing you further into debt.

Calculate the repayment amounts in a way that it doesn’t affect your financial well-being.

But what’s possible in thoughts are often not in practical life; therefore, there are people who make available funds to clear off the debts a person is currently in. In return, they charge a certain amount of interest which is way down lower than what the individual debts charge. Debt consolidation – in other words – is thus a vital part of the debt management process.

What is Debt consolidation?

Debt consolidation processes multiple payments into one. Thus, it relieves a person from the hassles of remembering multiple repayment debts, but most of all; it eases the burden of paying more in terms of interest. Debt consolidation merges all unpaid debt amounts into a single, monthly payment that can be paid with ease.

Debt consolidation has a direct link with bad credit histories; in the sense, those who mostly apply for debt consolidation are bad scorers on their respective credit reports. This is because clearing off debts increases the credit scores. Therefore, those who are being subjected to:

  • Arrears
  • Zero or very slow payments
  • Bankruptcy
  • County Court judgments/CCJ-s
  • Multiple defaulted payments

May set right their financial health once more by opting for a Debt Consolidation Service. However, now it’s time to have a look at the situations that bring about the need for debt consolidation, with credit card debt being the factor mostly responsible.

What is Credit Card Debt?

Use credit cards thoughtlessly and impulsively; in a couple of months you shall come to know what a credit card debt is. However, if you are not willing to learn the hard way, then the words below shall suffice for your quest.

A person must use his/her credit card(s) according to the monthly income, so that no billings from the lender(s) remain unpaid. But this is often not the case; what most of us think is clearing off a huge amount part by part. What we fail to understand is we also need to pay the interests that grow every month on the unpaid amounts. These all add up to real huge amounts leading to defaulted payments on which late payment fees apply. The accumulated burden, within sometime, multiplies soon to greater magnitudes making it an impossible load to bear. Credit card debt, from this point onwards, starts becoming a much dreaded subject.

How to get out of Debt?

You may either file for a bankruptcy (the escapist’s way for debt management) or go for a debt management program (the sane people’s choice), but opting the first recommendation is also going to give your credit report(s) a 7-year long stigma. So it’s the sane people’s choice that’s left. Sane in the sense, the step shall not only clear the credit card debt peacefully but shall also implement certain habits in the debtor to prevent running him/her into similar debts in future.

So the first step is to get into some constructive shopping. That translates to finding out a financial planner or advisor who can restructure your way to financial freedom and well-being.

Role of a Bookkeeper for Debt Management

A debt manager or Bookkeeping service not only provides the necessary advice but also keeps a sharp watch on how well they are followed. The advices, if followed properly, set the best course for expenditure against a person’s monthly income. Therefore, to find out if an accountant certified for running Debt Management Services is good or not, you must:

· Hold open, face-to-face discussion(s) to see if he can reinforce your credibility to the creditors.

· Find out if he can devise any custom Payment Plans

And if you think you can read from a DIY guidebook and get into action, always remember that a debt management professional has learnt the ways of Credit Card Debt Consolidation through his experiences besides earning the certification from the state. He can devise ways and make sure you walk on them. Or just think it the other way, had a D.I.Y. book on debt management been that good, why would you fall into such a situation?

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