Entries in Lending (3)


Moody’s Bank Downgrade May Mean Higher Lending Rates

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- For the second time in a year, Moody’s downgraded 15 global banks. The credit ratings agency downgraded five of the biggest U.S. banks on Thursday, and that may lead to higher rates for consumer and even tighter lending policies.

All 15 banks were downgraded in response to lower bank profitability unlike the last downgrade in November, which was based on Moody’s change in methodology.  Moody’s and Standard & Poor’s ratings help set the rates at which banks can borrow and therefore the rates they can extend to businesses and consumers.

On Friday morning, stocks, led by banks, rallied after the second-worst sell-off of the year on Thursday. Analysts viewed the rally as a sign that Moody’s was off-base in lowering the credit ratings of the banks, which are much stronger financially than they were three years ago.

The Dow Jones Industrial average rose 0.49 percent to 12,635 at mid-morning while the S&P 500 advanced 0.41 percent to 1,331. The Nasdaq composite was up 0.52 percent to 2,874.

The stock prices of the five downgraded U.S. banks jumped on Friday morning.

Shares of Bank of America were up 0.64 percent to $7.87. JPMorgan Chase & Co. shares jumped 2.17 percent to $36.29. Shares of Goldman Sachs Group increased 0.64 percent to $94.50. Citigroup’s stock was up 1.15 percent to $28.15 a share. Morgan Stanley shares increased over 2 percent to $14.25.

On Thursday, Moody’s Global Banking Managing Director Greg Bauer said in a statement that the downgraded banks “have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

“Ultimately, the downgrades are likely to trigger some near-term volatility,” said Jody Lurie, corporate credit analyst at Janney Capital Markets.

In the long term, banks that were downgraded into the triple B range will have higher costs to finance their lending activities. If those banks were actually in need of financing, that may affect retail lending activities, such as mortgages and small business loans. Theoretically, banks that were not downgraded may be able to provide better rates, Lurie said.

“In some ways, Moody’s move is a self-fulfilling prophecy: higher financing costs equals less profitability,” she said.

Copyright 2012 ABC News Radio


Bank Lending Rises by Largest Amount in Four Years

Nick M Do/Getty Images(NEW YORK) -- In a sign that the U.S. economy is taking a turn for the better, banks are lending more.

According to a new Federal Deposit Insurance Corporation (FDIC) report, American bank lending during the last quarter of 2011 rose by the largest amount in four years.  The survey also confirms other reports of increased lending by banks.

The FDIC says the banking industry posted a $119 billion profit for 2011 -- up 40 percent from the previous year and the largest profit since 2006, when employment and the economy was stronger than it is now.

Much of the lending growth comes from regional banks.

Copyright 2012 ABC News Radio


International Micro-lender Grameen Bank Opens New York Branch

Grameen Bank founder, Nobel laureate Muhammad Yunus. ABC News(NEW YORK) -- Alma sits proudly behind a folding table showing off a line of Jafra Cosmetics.

“We sell perfumes, makeup, lipsticks,” she said. Alma and four other women started the door-to-door cosmetics sales company with a $1,500 loan from Grameen America, an offshoot of Grameen Bank, the nonprofit, low-income lender started by Nobel laureate Muhammad Yunus.

Before this, Alma worked odd jobs in stores and bakeries but never made enough to cross to the other side of the poverty line.

“This brings back the hope that I can take care of myself,” she said at the ribbon-cutting for a Grameen branch in the South Bronx.

Grameen America operates branches in New York, Nebraska and Indiana.  Most of the borrowers are single mothers looking to become entrepreneurs.  Micro-financing is frequent in the Third World, and Yunus told ABC News there was, especailly in these economic times, a need for it in the U.S.

“This works for people, particularly people who are unemployed,” Yunus said.  “It’s always needed but now it’s needed most.  Those who are losing jobs, this is what brings them in.”

Yunus is looking to expand to San Francisco and perhaps Detroit as more Americans slip into poverty.

To help navigate American banking regulations, Grameen America has partnered with CitiBank.

“Grameen clients proved to be very strong,” said Bob Annibale, head of micro-finance at Citi.  ”They’re not just good borrowers with enterprising businesses.  They’re good savers.”

Loans are offered with no collateral required to low-income borrowers who agree to deposit a minimum of $2 per week in savings.  Borrowers must partner with four others.  Each group must agree to meet weekly and start or expand a business or otherwise generate income.

“There’s a 99-percent repayment rate.  It’s amazing,” Yunus said.

Alma and her group are on their third loan through Grameen America.

“It’s scary at the beginning,” she said.  “But we’re growing. Hopefully, one day we’ll get our own place and be stable.”

Copyright 2011 ABC News Radio

ABC News Radio