SEATTLE - (05/18/05) -- The Federal Home Loan Bank ofSeattle, which has been working to resolve an insider tradingcontroversy, said yesterday that it is sitting on $261 million inunrealized losses in interest-rate swaps in its hedging portfolio,the result of continued low mortgage rates. The unrealized losseswere caused by massive prepayments in the FHLB's secondary mortgageprogram which caused rate compression between assets andliabilities, the regional FHLB said. Net income for the SeattleBank plunged to just $17.5 million for the fourth quarter and byalmost half for the year to $82.3 million, cutting the bank'scapital by 14% to $2.1 billion. Still, bank executives said theyexpect a supervisory agreement they struck with their regulator,the Federal Housing Finance Board, which will require them to exitthe secondary market program and cutback on, maybe even eliminate,dividends for the next three years, will put them on sound footing.The bank announced last week that two directors had resigned formthe board after an internal investigation discovered their bankshad sold $74 million in stock in the bank while news of thedeclining financials was pending but had yet to be disclosedpublicly. The bank is owned by 374 financial institutions,including 79 credit unions.
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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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